SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 8, 2002 ----------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: ___________ to ___________ Commission file number: 333-74797 Domino's, Inc. (Exact name of registrant as specified in its charter) Delaware 38-3025165 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 30 Frank Lloyd Wright Drive Ann Arbor, Michigan 48106 (Address of principal executive offices) (734) 930-3030 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares outstanding of the registrant's common stock as of October 14, 2002 was 10 shares. Domino's, Inc. INDEX 2
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 8, 2002 and December 30, 2001 3 Condensed Consolidated Statements of Income - Fiscal quarter and three fiscal quarters ended September 8, 2002 and September 9, 2001 4 Condensed Consolidated Statements of Cash Flows - Three fiscal quarters ended September 8, 2002 and September 9, 2001 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION 13 SIGNATURES 14 CERTIFICATIONS 15 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Domino's, Inc. and Subsidiaries Condensed Consolidated Balance Sheets __________ Note: The balance sheet at December 30, 2001 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See accompanying notes. 3
(In thousands) September 8, 2002 December 30, 2001 Assets (Unaudited) (Note) ----------------- ----------------- Current assets: Cash and cash equivalents $ 5,020 $ 34,842 Accounts receivable 53,689 54,225 Notes receivable 4,572 4,024 Inventories 23,874 22,088 Prepaid expenses and other 6,196 4,892 Deferred income taxes 11,302 11,302 ----------------- ----------------- Total current assets 104,653 131,373 ----------------- ----------------- Property, plant and equipment: Land and buildings 15,813 15,983 Leasehold and other improvements 55,837 50,684 Equipment 138,740 114,904 Construction in progress 6,391 5,837 ----------------- ----------------- 216,781 187,408 Accumulated depreciation and amortization 102,874 99,763 ----------------- ----------------- Property, plant and equipment, net 113,907 87,645 ----------------- ----------------- Other assets: Deferred financing costs 19,289 24,594 Goodwill 27,315 12,673 Capitalized software 28,029 34,408 Deferred income taxes 61,318 66,270 Other 21,713 25,330 ----------------- ----------------- Total other assets 157,664 163,275 ----------------- ----------------- Total assets $ 376,224 $ 382,293 ================= ================= Liabilities and stockholder's deficit Current liabilities: Current portion of long-term debt $ 4,034 $ 43,157 Accounts payable 49,277 30,125 Insurance reserves 8,098 7,365 Other accrued liabilities 65,431 73,487 ----------------- ----------------- Total current liabilities 126,840 154,134 ----------------- ----------------- Long-term liabilities: Long-term debt, less current portion 606,790 611,532 Insurance reserves 11,926 6,334 Other accrued liabilities 29,479 35,167 ----------------- ----------------- Total long-term liabilities 648,195 653,033 ----------------- ----------------- Stockholder's deficit: Common stock - - Additional paid-in capital 120,723 120,202 Retained deficit (515,216) (542,540) Accumulated other comprehensive loss (4,318) (2,536) ----------------- ----------------- Total stockholder's deficit (398,811) (424,874) ----------------- ----------------- Total liabilities and stockholder's deficit $ 376,224 $ 382,293 ================= ================= Domino's, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) ________ See accompanying notes. 4
Fiscal Quarter Ended Three Fiscal Quarters Ended September 8, September 9, September 8, September 9, (In thousands) 2002 2001 2002 2001 ----------------------------- ---------------------------- Revenues: Domestic corporate stores $ 84,436 $ 80,555 $ 262,824 $ 253,324 Domestic franchise 30,623 30,373 97,219 91,042 Domestic distribution 143,614 163,223 464,080 470,055 International 18,387 15,305 55,055 46,418 ------------ ------------ ------------ ------------ Total revenues 277,060 289,456 879,178 860,839 ------------ ------------ ------------ ------------ Operating expenses: Cost of sales 203,450 218,823 644,578 643,034 General and administrative 39,412 42,100 131,056 130,621 ------------ ------------ ------------ ------------ Total operating expenses 242,862 260,923 775,634 773,655 ------------ ------------ ------------ ------------ Income from operations 34,198 28,533 103,544 87,184 Interest income 47 418 315 1,433 Interest expense 17,099 15,947 44,312 48,227 ------------ ------------ ------------ ------------ Income before provision for income taxes 17,146 13,004 59,547 40,390 Provision for income taxes 6,345 5,072 22,032 15,773 ------------ ------------ ------------ ------------ Net income $ 10,801 $ 7,932 $ 37,515 $ 24,617 ============ ============ ============ ============ Domino's, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ________ See accompanying notes. 5
Three Fiscal Quarters Ended September 8, September 9, 2002 2001 ------------ ------------ (In thousands) Cash flows from operating activities: Net cash provided by operating activities $ 86,337 $ 54,465 ------------ ------------ Cash flows from investing activities: Capital expenditures (38,361) (26,863) Acquisitions of franchise operations (21,850) (263) Other 1,123 5,978 ------------ ------------ Net cash used in investing activities (59,088) (21,148) ------------- ------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 365,000 - Repayments of long-term debt (408,911) (21,617) Cash paid for financing costs (3,609) - Capital contribution 521 - Distributions to Parent (10,191) - ------------- ------------ Net cash used in financing activities (57,190) (21,617) ------------- ------------- Effect of exchange rate changes on cash and cash equivalents 119 (47) ------------ ------------- Increase (decrease) in cash and cash equivalents (29,822) 11,653 Cash and cash equivalents, at beginning of period 34,842 25,136 ------------ ------------ Cash and cash equivalents, at end of period $ 5,020 $ 36,789 ============ ============ Domino's, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited; tabular amounts in thousands) September 8, 2002 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation have been included. Operating results for the fiscal quarter and three fiscal quarters ended September 8, 2002 are not necessarily indicative of the results that may be expected for the year ending December 29, 2002. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 30, 2001 included in our Form 10-K. 2. Comprehensive Income 3. Segment Information The following table summarizes revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) for each of the Company's reportable segments. During the first quarter of 2002, the Company purchased 83 stores from a former franchisee in Arizona. This acquisition resulted in an approximately $22.4 million increase in Domestic Store assets.
Fiscal Quarter Ended Three Fiscal Quarters Ended -------------------- --------------------------- September 8, September 9, September 8, September 9, 2002 2001 2002 2001 -------------- ------------- ------------- -------------- Net income $ 10,801 $ 7,932 $ 37,515 $ 24,617 Cumulative effect of change in accounting principle, net of tax - - - 1,692 Unrealized loss on derivative instruments, net of tax (1,821) (2,494) (4,719) (4,584) Reclassification adjustment for losses included in net income, net of tax 779 435 2,244 132 Currency translation adjustment 213 78 693 (151) -------------- -------------- -------------- --------------- Comprehensive income $ 9,972 $ 5,951 $ 35,733 $ 21,706 ============== ============== ============== =============== 6
Fiscal Quarter Ended September 8, 2002 and September 9, 2001 ------------------------------------------------------------ Domestic Domestic Intersegment Stores Distribution International Revenues Other Total ------ ------------ ------------- -------- ----- ----- Revenues - 2002 $ 115,059 $ 166,924 $ 18,387 $(23,310) $ - $ 277,060 2001 110,928 187,978 15,305 (24,755) - 289,456 EBITDA - 2002 $ 33,482 $ 10,631 $ 5,068 $ - $ (9,385) $ 39,796 2001 30,489 9,816 4,272 - (8,539) 36,038 Three Fiscal Quarters Ended September 8, 2002 and September 9, 2001 ------------------------------------------------------------------- Domestic Domestic Intersegment Stores Distribution International Revenues Other Total ------ ------------ ------------- -------- ----- ----- Revenues - 2002 $ 360,043 $ 535,989 $ 55,055 $(71,909) $ - $ 879,178 2001 344,366 543,128 46,418 (73,073) - 860,839 EBITDA - 2002 $ 108,166 $ 33,860 $ 15,054 $ - $ (29,896) $ 127,184 2001 94,425 29,390 12,176 - (26,623) 109,368 The following table reconciles total EBITDA to consolidated income before provision for income taxes. 4. Financing Arrangements The Company retired approximately $3.3 million and $13.6 million of outstanding senior subordinated notes during the third quarter and first three quarters of 2002, respectively. The Company recognized losses of approximately $301,000 and $1.2 million for the third quarter and first three quarters of 2002, respectively, reflecting the differences between the carrying value of the notes and the open market purchase price. In connection with the consummation of the 2002 Senior Credit Facility in the third quarter of 2002, the Company expensed financing costs of approximately $4.5 million. 5. Advertising The Company's advertising fund subsidiary received national advertising contributions from franchisees of approximately $53 million and $50 million during the first three quarters of 2002 and 2001, respectively. These contributions and offsetting expenses are presented net in the statements of income. 7
Fiscal Quarter Ended Three Fiscal Quarters Ended -------------------- --------------------------- September 8, September 9, September 8, September 9, 2002 2001 2002 2001 --------------- --------------- --------------- -------------- Total EBITDA $ 39,796 $ 36,038 $ 127,184 $ 109,368 Depreciation and amortization (5,737) (7,166) (19,560) (21,160) Interest expense (17,099) (15,947) (44,312) (48,227) Interest income 47 418 315 1,433 Loss on debt extinguishment (301) (146) (1,217) (146) Gain (loss) on sale/disposal of assets 440 (193) (2,863) (878) --------------- --------------- --------------- ------------- Income before provision for income taxes $ 17,146 $ 13,004 $ 59,547 $ 40,390 =============== =============== =============== ============= Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The 2002 and 2001 third quarters referenced herein represent the twelve-week periods ended September 8, 2002 and September 9, 2001, respectively. The 2002 and 2001 first three quarters referenced herein represent the thirty-six week periods ended September 8, 2002 and September 9, 2001, respectively. Store Growth Activity The following is a summary of the Company's store growth activity for the third quarter and first three quarters of 2002. Revenues General. Revenues include retail sales by Company-owned stores, royalties and fees from domestic and international franchise stores, and sales of food, equipment and supplies by our distribution centers to domestic and international franchise stores. Total revenues decreased 4.3% to $277.1 million in the third quarter of 2002, from $289.5 million for the comparable period in 2001, and increased 2.1% to $879.2 million for the first three quarters of 2002, from $860.8 million for the comparable period in 2001. These changes in total revenues were primarily driven by increases in domestic store and international revenues, offset in part by decreases in domestic distribution revenues. These results are more fully described below. Domestic Stores Domestic Corporate Stores. Revenues from domestic corporate store operations increased 4.8% to $84.4 million in the third quarter of 2002, from $80.6 million for the comparable period in 2001, and increased 3.8% to $262.8 million for the first three quarters of 2002, from $253.3 million for the comparable period in 2001. This increase in revenues in the third quarter of 2002 is due primarily to an increase in the average number of domestic Company-owned stores open during 2002, due in part to the Arizona acquisition completed during the first quarter of 2002, offset in part by a decrease in same store sales. Same store sales for domestic Company-owned stores decreased 1.4% in the third quarter of 2002, compared to the same period in 2001. This increase in revenues for the first three quarters of 2002 is due primarily to an increase in same store sales. Same store sales for domestic Company-owned stores increased 1.8% for the first three quarters of 2002, compared to the same period in 2001. Domestic Franchise. Revenues from domestic franchise operations increased 0.8% to $30.6 million in the third quarter of 2002, from $30.4 million for the comparable period in 2001, and increased 6.8% to $97.2 million for the first three quarters of 2002, from $91.0 million for the comparable period in 2001. 8
Third Quarter of 2002 -------------------------------------------------------- Beginning End of Of Period Opened Closed Transfers Period --------- ------ ------ --------- ------ Domestic Corporate Stores 583 1 - - 584 Domestic Franchise 4,223 25 (21) - 4,227 ----- ------ ------- -------- ----- Domestic Stores 4,806 26 (21) - 4,811 International 2,290 50 (13) - 2,327 ----- ------ ------- -------- ----- Total 7,096 76 (34) - 7,138 ===== ====== ======= ======== ===== First Three Quarters of 2002 -------------------------------------------------------- Beginning End of Of Period Opened Closed Transfers Period --------- ------ ------ --------- ------ Domestic Corporate Stores 519 3 (8) 70 584 Domestic Franchise 4,294 63 (60) (70) 4,227 ----- ------ ------- ------- ------- Domestic Stores 4,813 66 (68) - 4,811 International 2,259 126 (58) - 2,327 ----- ------ ------- ------- ------- Total 7,072 192 (126) - 7,138 ===== ====== ======= ======= ======= This increase in revenues for the first three quarters of 2002 is due primarily to an increase in same store sales offset in part by a decrease in the average number of domestic franchise stores open during 2002, due in part to the Arizona acquisition. Same store sales for domestic franchise stores increased 4.1% for the first three quarters of 2002, compared to the same period in 2001. Same store sales for domestic franchise stores decreased 0.4% in the third quarter of 2002, compared to the same period in 2001. Domestic Distribution Revenues from domestic distribution operations decreased 12.0% to $143.6 million in the third quarter of 2002, from $163.2 million for the comparable period in 2001, and decreased 1.3% to $464.1 million for the first three quarters of 2002, from $470.1 million for the comparable period in 2001. These decreases in revenues are due primarily to a market decrease in overall food basket prices, including lower cheese prices, in the third quarter and first three quarters of 2002. The decrease in revenues for the first three quarters of 2002 was offset in part by an increase in volumes resulting from increases in domestic franchise same store sales. The average cheese block price decreased to approximately $1.12 per pound and $1.20 per pound in the third quarter and first three quarters of 2002, respectively, from approximately $1.67 per pound and $1.42 per pound for the comparable periods in 2001. International Revenues from international operations increased 20.1% to $18.4 million in the third quarter of 2002, from $15.3 million for the comparable period in 2001, and increased 18.6% to $55.1 million in the first three quarters of 2002, from $46.4 million for the comparable period in 2001. These increases in revenues are due primarily to increases resulting from the acquisition of the Netherlands franchise operations in the fourth quarter of 2001, as well as increases in same store sales and in the average number of international stores open during 2002. On a constant dollar basis, same store sales increased 4.0% and 4.1% for the third quarter and first three quarters of 2002, respectively, compared to the same periods in 2001. On a historical dollar basis, same store sales increased 4.3% and 2.8% for the third quarter and first three quarters of 2002, respectively, compared to the same periods in 2001. The third quarter figures indicate that the U.S. Dollar was generally weaker against the currencies of those countries in which we compete. Operating Expenses Cost of sales decreased 7.0% to $203.5 million in the third quarter of 2002, from $218.8 million for the comparable period in 2001, and increased 0.2% to $644.6 million for the first three quarters of 2002, from $643.0 million for the comparable period in 2001. Gross profit increased 4.2% to $73.6 million in the third quarter of 2002, from $70.6 million for the comparable period in 2001, and increased 7.7% to $234.6 million for the first three quarters of 2002, from $217.8 million for the comparable period in 2001. As a percentage of total revenues, gross profit increased 2.2% to 26.6% in the third quarter of 2002, from 24.4% for the comparable period in 2001, and increased 1.4% to 26.7% for the first three quarters of 2002, from 25.3% for the comparable period in 2001. The increase in gross profit for the third quarter of 2002 is due primarily to a decrease in food basket costs, including lower cheese costs, at our Company-owned stores. The increase in gross profit was offset in part by a Company-wide increase in insurance costs and same store sales declines at our domestic stores. The increase in gross profit for the first three quarters of 2002 is due primarily to increases in domestic store revenues, primarily due to increases in domestic Company-owned and franchise same store sales, and related increases in distribution volumes. Additionally, the gross profit improvement was positively impacted by a decrease in food basket costs, including lower cheese costs. The increase in gross profit was offset in part by a Company-wide increase in insurance and labor costs. General and administrative expenses decreased 6.4% to $39.4 million in the third quarter of 2002, from $42.1 million for the comparable period in 2001, and increased 0.3% to $131.1 million for the first three quarters of 2002, from $130.6 million for the comparable period in 2001. As a percentage of total revenues, general and administrative expenses decreased 0.3% to 14.2% in the third quarter of 2002, from 14.5% for the comparable period in 2001, and decreased 0.3% to 14.9% for the first three quarters of 2002, from 15.2% for the comparable period in 2001. 9 The decrease in total general and administrative expenses in the third quarter of 2002 is due in part to the favorable impact of no longer amortizing goodwill and the absence of certain covenant not-to-compete amortization expenses related to an asset that was fully amortized by the end of 2001. Goodwill amortization expense in the third quarter of 2001 was approximately $464,000 and the aforementioned covenant not-to-compete amortization expense was approximately $1.3 million in the third quarter of 2001. The increase in total general and administrative expenses for the first three quarters of 2002 is due primarily to the write-off of approximately $5.3 million of certain capitalized software costs during the second quarter of 2002 offset in part by the favorable impacts related to the aforementioned goodwill and covenant not-to-compete amortization expenses. Goodwill amortization expense for the first three quarters of 2001 was approximately $1.4 million and the aforementioned covenant not-to-compete amortization expense was approximately $3.8 million for the first three quarters of 2001. Total revenues continued to outpace the growth of total general and administrative expenses for the first three quarters of 2002, reflecting management's commitment to continuous process improvements throughout the Company. Interest Expense Interest expense increased 7.2% to $17.1 million in the third quarter of 2002, from $15.9 million for the comparable period in 2001, and decreased 8.1% to $44.3 million for the first three quarters of 2002, from $48.2 million for the comparable period in 2001. The increase in interest expense in the third quarter of 2002 is due primarily to a $4.5 million write-off of financing fees through interest expense related to the Company's refinancing of its senior credit facility. The decrease in interest expense in the first three quarters of 2002 is due primarily to decreases in related variable interest rates on our senior credit facility and reduced debt levels, offset in part by the aforementioned financing fee write-off. Provision for Income Taxes Provision for income taxes increased $1.2 to $6.3 million in the third quarter of 2002, from $5.1 million for the comparable period in 2001, and increased $6.2 million to $22.0 million for the first three quarters of 2002, from $15.8 million for the comparable period in 2001. These increases are due primarily to increases in pre-tax income. Liquidity and Capital Resources We had negative working capital of $22.2 million and cash and cash equivalents of $5.0 million at September 8, 2002. Working capital was positively impacted during the third quarter of 2002 as a result of a change in the Company's senior credit facility amortization payment schedule. Historically, we have operated with minimal positive working capital or negative working capital primarily because our receivable collection periods and inventory turn rates are faster than the normal payment terms on our current liabilities. In addition, our sales are not typically seasonal, which further limits our working capital requirements. Our primary sources of liquidity are cash flows from operations and availability of borrowings under our revolving credit facility. We expect to fund planned capital expenditures and debt repayments from these sources. As of September 8, 2002, we had $610.8 million of long-term debt, of which $4.0 million was classified as a current liability. There were no borrowings under our $100 million revolving credit facility. Letters of credit issued under the revolving credit facility were $15.9 million. Borrowings under the revolving credit facility are available to fund our working capital requirements, capital expenditures and other general corporate purposes. Cash provided by operating activities was $86.3 million and $54.5 million in the first three quarters of 2002 and 2001, respectively. The $31.8 million increase is due primarily to a $12.9 million increase in net income, a $4.7 million increase in amortization of deferred financing costs, due primarily to a $4.5 million write-off of financing fees related to the Company's refinancing of its senior credit facility, and a $12.2 million net change in operating assets and liabilities. Cash used in investing activities was $59.1 million and $21.1 million in the first three quarters of 2002 and 2001, respectively. The $38.0 million increase is due primarily to a $21.6 million increase in acquisitions of franchise operations and an $11.5 million increase in capital expenditures. The increase in acquisitions of franchise operations is due primarily to the Company's purchase of 83 domestic franchise stores in Arizona during the first quarter of 2002. 10 Cash used in financing activities was $57.2 million and $21.6 million in the first three quarters of 2002 and 2001, respectively. The $35.6 million increase is due primarily to a $387.3 million increase in repayments of long-term debt, including repayment of $364.3 million in connection with the Company's refinancing of its senior credit facility, a $10.2 million increase in distributions to parent, and a $3.6 million increase in cash paid for financing fees. These increases were offset in part by a $365.0 million increase in proceeds from issuance of long-term debt in connection with the Company's refinancing of its senior credit facility. Based upon the current level of operations and anticipated growth, we believe that the cash generated from operations and amounts available under the revolving credit facility will be adequate to meet our anticipated debt service requirements, capital expenditures and working capital needs for the next several years. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under the senior credit facilities or otherwise to enable us to service our indebtedness, including the senior credit facilities and the Senior Subordinated Notes, to redeem or refinance TISM's, our Parent company, Cumulative Preferred Stock or to make anticipated capital expenditures. Our future operating performance and our ability to service or refinance the Senior Subordinated Notes and to service, extend or refinance the senior credit facilities will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. Forward-Looking Statements Certain statements contained in this filing relating to capital spending levels and the adequacy of our capital resources are forward-looking. Also, statements that contain words such as "believes," "expects," "anticipates," "intends," "estimates" or similar expressions are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Among these risks and uncertainties are competitive factors, increases in our operating costs, ability to retain our key personnel, our substantial leverage, ability to implement our growth and cost-saving strategies, industry trends and general economic conditions, adequacy of insurance coverage and other factors, all of which are described in the Form 10-K for the year ended December 30, 2001 and our other filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk The Company is exposed to market risks primarily from interest rate changes on our variable rate debt. Management actively monitors this exposure. The Company does not engage in speculative transactions nor does it hold or issue financial instruments for trading purposes. Interest Rate Derivatives The Company may enter into interest rate swaps, collars or similar instruments with the objective of reducing volatility relating to our borrowing costs. During 2001, we entered into an interest rate collar and three interest rate swap agreements to effectively convert the variable Eurodollar component of the effective interest rate on a portion of the Company's debt to various fixed rates over various terms. These agreements are summarized below. During the third quarter of 2002, we entered into an interest rate swap agreement to effectively convert the variable Eurodollar component of the effective interest rate on a portion of the Company's debt to a fixed rate over specified terms. This agreement is summarized below. Interest Rate Risk The Company's variable interest expense is sensitive to changes in the general level of interest rates. As of September 8, 2002, a portion of the Company's debt is borrowed at Eurodollar rates plus a blended margin rate of 2.5%. At September 8, 2002, the weighted average interest rate on our $75.0 million of variable interest debt was approximately 4.4%. The Company had total interest expense of approximately $44.3 million in the first three quarters of 2002. The estimated increase in interest expense from a hypothetical 200 basis point adverse change in applicable variable interest rates would be approximately $1.8 million. 12
Total Notional Derivative Amount Term Rate ---------- ------ ---- ---- Interest Rate Collar $70.0 million June 2001 - June 2003 3.86% - Floor 6.00% - Ceiling Interest Rate Swap $70.0 million June 2001 - June 2004 4.90% Interest Rate Swap $37.5 million September 2001 - September 2003 3.645% Interest Rate Swap $37.5 million September 2001 - September 2004 3.69% Interest Rate Swap $75.0 million August 2002 - June 2005 3.25% PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Under Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information Thomas S. Monaghan voluntarily submitted his resignation from the board of directors on July 29, 2002. Mr. Monaghan's resignation was not due to a disagreement with the Company. The Chief Executive Officer and Chief Financial Officer reviewed the Company's system of internal controls and concluded that they are effective. There have been no significant changes in internal controls. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit Number Description ------ ----------- 99.1 Certification by David A. Brandon pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification by Harry J. Silverman pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b. Current Reports on Form 8-K The Company filed a Current Report on Form 8-K on August 2, 2002 which included the Company's new senior credit agreement, dated as of July 29, 2002. The Company filed a Current Report on Form 8-K on October 22, 2002 which included sworn statements from the Company's Chief Executive Officer and Chief Financial Officer as required by the Securities and Exchange Commission (Order No. 4-460, dated June 27, 2002). 13 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOMINO'S, INC. (Registrant) Date: October 23, 2002 /s/ Harry J. Silverman ----------------------------------- Chief Financial Officer 14 CERTIFICATION OF CHIEF EXECUTIVE OFFICER, DOMINO'S, INC. I, David A. Brandon, Chief Executive Officer, Domino's, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Domino's, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. October 23, 2002 /s/ David A. Brandon - ------------------ ------------------------- Date David A. Brandon Chief Executive Officer 15 CERTIFICATION OF CHIEF FINANCIAL OFFICER, DOMINO'S, INC. I, Harry J. Silverman, Chief Financial Officer, Domino's, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Domino's, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. October 23, 2002 /s/ Harry J. Silverman - ------------------ ------------------------- Date Harry J. Silverman Chief Financial Officer 16
Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of Domino's, Inc. (the "Company"), does hereby certify that to the undersigned's knowledge: 1) the Company's Quarterly Report on Form 10-Q for the quarter ending September 8, 2002 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Company's Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ David A. Brandon ----------------------------- David A. Brandon Chief Executive Officer Dated: October 23, 2002
Exhibit 99.2 CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer of Domino's, Inc. (the "Company"), does hereby certify that to the undersigned's knowledge: 1) the Company's Quarterly Report on Form 10-Q for the quarter ending September 8, 2002 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Company's Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Harry J. Silverman -------------------------------------------- Harry J. Silverman Chief Financial Officer Dated: October 23, 2002