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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 June 16, 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 July 22,
2002 was 10 shares.
Domino's, Inc.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 16, 2002 and December 30, 2001 3
Condensed Consolidated Statements of Income -
Fiscal quarter and two fiscal quarters ended
June 16, 2002 and June 17, 2001 4
Condensed Consolidated Statements of Cash Flows -
Two fiscal quarters ended June 16, 2002 and June 17, 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION 13
SIGNATURES 13
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Domino's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands) June 16, 2002 December 30, 2001
Assets (Unaudited) (Note)
------------------- -----------------
Current assets:
Cash and cash equivalents $ 8,127 $ 34,842
Accounts receivable 53,396 54,225
Notes receivable 4,394 4,024
Inventories 19,341 22,088
Prepaid expenses and other 9,425 4,892
Deferred income taxes 11,302 11,302
---------------- -----------------
Total current assets 105,985 131,373
---------------- -----------------
Property, plant and equipment:
Land and buildings 16,055 15,983
Leasehold and other improvements 55,272 50,684
Equipment 133,063 114,904
Construction in progress 4,719 5,837
---------------- -----------------
209,109 187,408
Accumulated depreciation and amortization 102,180 99,763
---------------- -----------------
Property, plant and equipment, net 106,929 87,645
---------------- -----------------
Other assets:
Deferred financing costs 21,644 24,594
Goodwill 27,267 12,673
Capitalized software 27,089 34,408
Deferred income taxes 63,915 66,270
Other 22,604 25,330
---------------- -----------------
Total other assets 162,519 163,275
---------------- -----------------
Total assets $ 375,433 $ 382,293
================ =================
Liabilities and stockholder's deficit
Current liabilities:
Current portion of long-term debt $ 40,694 $ 43,157
Accounts payable 35,286 30,125
Insurance reserves 8,222 7,365
Other accrued liabilities 76,950 73,487
---------------- -----------------
Total current liabilities 161,152 154,134
---------------- -----------------
Long-term liabilities:
Long-term debt, less current portion 581,940 611,532
Insurance reserves 9,999 6,334
Other accrued liabilities 30,997 35,167
---------------- -----------------
Total long-term liabilities 622,936 653,033
---------------- -----------------
Stockholder's deficit:
Common stock - -
Additional paid-in capital 120,723 120,202
Retained deficit (525,889) (542,540)
Accumulated other comprehensive loss (3,489) (2,536)
---------------- -----------------
Total stockholder's deficit (408,655) (424,874)
---------------- -----------------
Total liabilities and stockholder's deficit $ 375,433 $ 382,293
================ =================
___________
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
Domino's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Fiscal Quarter Ended Two Fiscal Quarters Ended
June 16, June 17, June 16, June 17,
(In thousands) 2002 2001 2002 2001
---------------------------- ------------------------------
Revenues:
Domestic corporate stores $ 88,482 $ 81,926 $ 178,388 $ 172,769
Domestic franchise 32,037 30,044 66,596 60,669
Domestic distribution 154,721 156,229 320,466 306,832
International 18,822 15,553 36,668 31,113
------------ ------------ ------------ --------------
Total revenues 294,062 283,752 602,118 571,383
------------ ------------ ------------ --------------
Operating expenses:
Cost of sales 215,790 211,965 441,128 424,211
General and administrative 47,473 41,978 91,644 88,521
------------ ------------ ------------ --------------
Total operating expenses 263,263 253,943 532,772 512,732
------------ ------------ ------------ --------------
Income from operations 30,799 29,809 69,346 58,651
Interest income 50 420 268 1,015
Interest expense (13,694) (15,689) (27,213) (32,280)
------------ ------------ ------------ --------------
Income before provision for
income taxes 17,155 14,540 42,401 27,386
Provision for income taxes 6,346 5,664 15,687 10,701
------------ ------------ ------------ --------------
Net income $ 10,809 $ 8,876 $ 26,714 $ 16,685
============ ============ ============ ==============
_________
See accompanying notes.
4
Domino's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Two Fiscal Quarters Ended
June 16, June 17,
2002 2001
---------------- --------------
(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities $ 61,961 $ 42,767
---------------- --------------
Cash flows from investing activities:
Capital expenditures (24,696) (17,438)
Acquisitions of franchise operations (21,850) (145)
Other (618) 4,476
----------------- --------------
Net cash used in investing activities (47,164) (13,107)
----------------- ---------------
Cash flows from financing activities:
Capital contribution 521 -
Repayments of debt (32,087) (11,760)
Distributions to Parent (10,063) -
----------------- --------------
Net cash used in financing activities (41,629) (11,760)
----------------- --------------
Effect of exchange rate changes on cash
and cash equivalents 117 (39)
---------------- ---------------
Increase (decrease) in cash and cash equivalents (26,715) 17,861
Cash and cash equivalents, at beginning of period 34,842 25,136
---------------- --------------
Cash and cash equivalents, at end of period $ 8,127 $ 42,997
================ ==============
_________
See accompanying notes.
5
Domino's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited; tabular amounts in thousands)
June 16, 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 two fiscal quarters ended June 16, 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. Accounting Pronouncement
On December 31, 2001, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets". During the second
quarter of 2002, the Company performed the required impairment test on its
existing goodwill and determined there was no impairment. Amortization of
goodwill was approximately $474,000 and $956,000 for the second quarter and
first two quarters of 2001, respectively.
3. Comprehensive Income
Fiscal Quarter Ended Two Fiscal Quarters Ended
---------------------- -------------------------
June 16, June 17, June 16, June 17,
2002 2001 2002 2001
--------- -------- ---------- ---------
Net income $ 10,809 $ 8,876 $ 26,714 $ 16,685
Cumulative effect of change in
accounting principle, net of tax - - - 1,692
Unrealized loss on derivative instruments,
net of tax (2,543) (414) (2,898) (2,090)
Reclassification adjustment for (gains) losses
included in net income, net of tax 726 32 1,465 (303)
Currency translation adjustment 522 (42) 480 (229)
--------- -------- ---------- ----------
Comprehensive income $ 9,514 $ 8,452 $ 25,761 $ 15,755
========= ======== ========== ==========
4. 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
our franchisee in Arizona. This acquisition resulted in an approximately $22.4
million increase in Domestic Store assets.
Fiscal Quarter Ended June 16, 2002 and June 17, 2001
----------------------------------------------------
Domestic Domestic Intersegment
Stores Distribution International Revenues Other Total
------ ------------ ------------- -------- ----- -----
Revenues -
2002 $120,519 $179,391 $18,822 $(24,670) $ - $294,062
2001 111,970 179,667 15,553 (23,438) - 283,752
EBITDA -
2002 $ 34,598 $ 11,392 $ 5,200 $ - $ (9,543) $ 41,647
2001 31,252 10,086 4,011 - (8,769) 36,580
6
Two Fiscal Quarters Ended June 16, 2002 and June 17, 2001
---------------------------------------------------------
Domestic Domestic Intersegment
Stores Distribution International Revenues Other Total
------ ------------ ------------- -------- ----- -----
Revenues -
2002 $244,984 $369,065 $ 36,668 $(48,599) $ - $602,118
2001 233,438 355,151 31,113 (48,319) - 571,383
EBITDA -
2002 $ 74,684 $ 23,229 $ 9,986 $ - $(20,511) $ 87,388
2001 63,936 19,574 7,904 - (18,083) 73,331
The following table reconciles total EBITDA to consolidated income before
provision for income taxes.
Fiscal Quarter Ended Two Fiscal Quarters Ended
-------------------- -------------------------
June 16, June 17, June 16, June 17,
2002 2001 2002 2001
---------- --------- ---------- ---------
Total EBITDA $ 41,647 $ 36,580 $ 87,388 $ 73,331
Depreciation and amortization (6,671) (7,029) (13,823) (13,995)
Interest expense (13,694) (15,689) (27,213) (32,280)
Interest income 50 420 268 1,015
Loss on debt extinguishment (704) - (916) -
Gain (loss) on sale/disposal of assets (3,473) 258 (3,303) (685)
---------- --------- ---------- ---------
Income before provision for income taxes $ 17,155 $ 14,540 $ 42,401 $ 27,386
========== ========= ========== =========
5. Debt Retirements
The Company retired approximately $7.8 million and $10.3 million of outstanding
senior subordinated notes during the second quarter and first two quarters of
2002, respectively. The Company recognized losses of approximately $704,000 and
$916,000 for the second quarter and first two quarters of 2002, respectively,
reflecting the differences between the carrying value of the notes and the open
market purchase price.
6. Senior Credit Facility
On July 29, 2002, the Company entered into a senior credit facility with a
consortium of banks (the "2002 Senior Credit Facility"). The 2002 Senior Credit
Facility consists of a $365 million term loan expiring in June 2008 and a $100
million revolving credit facility expiring in June 2007. The Company's
previously existing senior credit facility was paid in full and cancelled upon
consummation of the 2002 Senior Credit Facility. The new agreement requires
amortization of the term loans of $3.65 million per year during the first five
years of the agreement with equal quarterly payments totaling $346.75 million in
the final year of the agreement. The 2002 Senior Credit Facility contains
customary financial and non-financial covenants and is guaranteed by TISM, Inc.,
our parent company, and each of our domestic subsidiaries. The 2002 Senior
Credit Facility is secured by a first priority lien on substantially all of the
assets of the Company. Borrowings under the 2002 Senior Credit Facility bear
interest at LIBOR plus an applicable margin not to exceed 250 basis points.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The 2002 and 2001 second quarters referenced herein represent the twelve-week
periods ended June 16, 2002 and June 17, 2001, respectively. The 2002 and 2001
first two quarters referenced herein represent the twenty-four week periods
ended June 16, 2002 and June 17, 2001, respectively.
Store Growth Activity
The following is a summary of the Company's store growth activity for the second
quarter and first two quarters of 2002.
Second Quarter of 2002
------------------------------------------------------
Beginning End of
of Period Opened Closed Transfers Period
--------- ------ ------ --------- ------
Domestic Corporate Stores 598 1 (3) (13) 583
Domestic Franchise 4,212 19 (21) 13 4,223
------- ----- ----- ------ -------
Domestic Stores 4,810 20 (24) - 4,806
International 2,266 49 (25) - 2,290
------- ----- ----- ------ -------
Total 7,076 69 (49) - 7,096
======= ===== ===== ====== =======
First Two Quarters of 2002
------------------------------------------------------
Beginning End of
of Period Opened Closed Transfers Period
--------- ------ ------ --------- ------
Domestic Corporate Stores 519 2 (8) 70 583
Domestic Franchise 4,294 38 (39) (70) 4,223
------- ----- ----- ------- -------
Domestic Stores 4,813 40 (47) - 4,806
International 2,259 76 (45) - 2,290
------- ----- ----- ------- -------
Total 7,072 116 (92) - 7,096
======= ===== ===== ======= =======
Revenues
General. Revenues include retail sales of food 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 increased 3.6% to $294.1 million in the second quarter of 2002,
from $283.8 million for the comparable period in 2001, and increased 5.4% to
$602.1 million for the first two quarters of 2002, from $571.4 million for the
comparable period in 2001.
This increase in total revenues in the second quarter of 2002 is due primarily
to an increase in domestic franchise revenues, resulting from an increase in
same store sales, an increase in domestic corporate store revenues, resulting
from an increase in same store sales and the acquisition of 83 stores from our
Arizona franchisee during the first quarter of 2002, and, to a lesser extent, an
increase in international revenues. This increase was offset in part by a
decrease in domestic distribution revenues due primarily to a market decrease in
overall food basket prices, including lower cheese prices. This decrease in
domestic distribution revenues was offset in part by an increase in distribution
volumes primarily resulting from increases in domestic franchise same store
sales.
This increase in total revenues for the first two quarters of 2002 is due
primarily to an increase in domestic distribution volumes, resulting from an
increase in domestic franchise same store sales, an increase in domestic
corporate store revenues, resulting from an increase in same store sales, and,
to a lesser extent, an increase in international revenues.
Domestic Stores
Domestic Corporate Stores. Revenues from domestic corporate store operations
increased 8.0% to $88.5 million in the second quarter of 2002, from $81.9
million for the comparable period in 2001, and increased 3.3% to $178.4 million
for the first two quarters of 2002, from $172.8 million for the comparable
period in 2001.
8
This increase in revenues in the second quarter of 2002 is due primarily to an
increase in same store sales and an increase in the average number of domestic
Company-owned stores open during 2002 due in part to the Arizona acquisition
completed in February of 2002, offset in part by store divestitures in 2001.
Same store sales for domestic Company-owned stores increased 1.5% for the second
quarter of 2002, compared to the same period in 2001.
This increase in revenues for the first two 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 Company-owned stores open during 2002. Same store sales for
domestic Company-owned stores increased 3.3% for the first two quarters of 2002,
compared to the same period in 2001.
Domestic Franchise. Revenues from domestic franchise operations increased 6.6%
to $32.0 million in the second quarter of 2002, from $30.0 million for the
comparable period in 2001, and increased 9.8% to $66.6 million for the first two
quarters of 2002, from $60.7 million for the comparable period in 2001.
This increase in revenues for the second quarter 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 4.7% in
the second quarter of 2002, compared to the same period in 2001.
This increase in revenues for the first two quarters of 2002 is due primarily to
an increase in same store sales and an increase in the average number of
domestic franchise stores open during 2002. Same store sales for domestic
franchise stores increased 6.4% for the first two quarters of 2002, compared to
the same period in 2001.
Domestic Distribution
Revenues from domestic distribution operations decreased 1.0% to $154.7 million
in the second quarter of 2002, from $156.2 million for the comparable period in
2001, and increased 4.4% to $320.5 million for the first two quarters of 2002,
from $306.8 million for the comparable period in 2001.
This decrease in revenues in the second quarter of 2002 is due primarily to a
market decrease in overall food basket prices, including lower cheese prices.
This decrease in revenues was offset in part by an increase in distribution
volumes primarily resulting from increases in domestic franchise same store
sales in 2002. The average cheese block price decreased to approximately $1.22
per pound in the second quarter of 2002, from approximately $1.44 per pound for
the comparable period in 2001.
This increase in revenues for the first two quarters of 2002 is due primarily to
an increase in volumes resulting from increases in domestic franchise same store
sales and store counts in 2002. This increase in revenues was offset in part by
a market decrease in overall food basket prices, including lower cheese prices.
The average cheese block price decreased to approximately $1.24 per pound for
the first two quarters of 2002, from approximately $1.30 per pound for the
comparable period in 2001.
International
Revenues from international operations increased 21.0% to $18.8 million in the
second quarter of 2002, from $15.6 million for the comparable period in 2001,
and increased 17.9% to $36.7 million in the first two quarters of 2002, from
$31.1 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 4.7% and 4.1% for the second quarter and first two quarters of
2002, respectively, compared to the same periods in 2001. On a historical dollar
basis, same store sales increased 3.9% and 2.2% for the second quarter and first
two quarters of 2002, respectively, compared to the same periods in 2001,
reflecting a relatively strong U.S. Dollar.
9
Operating Expenses
Cost of sales increased 1.8% to $215.8 million in the second quarter of 2002,
from $212.0 million for the comparable period in 2001, and increased 4.0% to
$441.1 million for the first two quarters of 2002, from $424.2 million for the
comparable period in 2001. Gross profit increased 9.0% to $78.3 million in the
second quarter of 2002, from $71.8 million for the comparable period in 2001,
and increased 9.4% to $161.0 million for the first two quarters of 2002, from
$147.2 million for the comparable period in 2001. As a percentage of total
revenues, gross profit increased 1.3% to 26.6% in the second quarter of 2002,
from 25.3% for the comparable period in 2001, and increased 0.9% to 26.7% for
the first two quarters of 2002, from 25.8% for the comparable period in 2001.
These increases in gross profit are due primarily to increases in domestic store
revenues, primarily due to increases in domestic Company-owned and franchise
same store sales and increases in distribution volumes. Additionally, these
gross profit improvements were positively impacted by a decrease in food basket
costs, including lower cheese costs. These increases in gross profit were offset
in part by Company-wide increases in insurance costs.
General and administrative expenses increased 13.1% to $47.5 million in the
second quarter of 2002, from $42.0 million for the comparable period in 2001,
and increased 3.5% to $91.6 million for the first two quarters of 2002, from
$88.5 million for the comparable period in 2001. As a percentage of total
revenues, general and administrative expenses increased 1.3% to 16.1% in the
second quarter of 2002, from 14.8% for the comparable period in 2001, and
decreased 0.3% to 15.2% for the first two quarters of 2002, from 15.5% for the
comparable period in 2001.
These increases in total general and administrative expenses are 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 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 for the first two
quarters of 2001 was approximately $1.0 million and covenant not-to-compete
amortization expense related to this asset was approximately $2.6 million. Total
revenues continued to outpace the growth of total general and administrative
expenses for the first two quarters of 2002, reflecting management's commitment
to continuous process improvements throughout the Company.
Interest Expense
Interest expense decreased 12.7% to $13.7 million in the second quarter of 2002,
from $15.7 million for the comparable period in 2001, and decreased 15.7% to
$27.2 million for the first two quarters of 2002, from $32.3 million for the
comparable period in 2001. These decreases are due primarily to decreases in
related variable interest rates on our senior credit facility and reduced debt
levels.
Provision for Income Taxes
Provision for income taxes increased $682,000 to $6.3 million in the second
quarter of 2002, from $5.7 million for the comparable period in 2001, and
increased $5.0 million to $15.7 million for the first two quarters of 2002, from
$10.7 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 $55.2 million and cash and cash equivalents
of $8.1 million at June 16, 2002. The increase in negative working capital at
June 16, 2002 compared to December 30, 2001 is due in part to the approximately
$21.9 million purchase of 83 domestic franchise stores in Arizona during the
first quarter of 2002 in addition to a related distribution to parent of
approximately $9.1 million. 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.
10
As of June 16, 2002, we had $622.6 million of long-term debt, of which $40.7
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 $17.4 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 $62.0 million and $42.8 million in the
first two quarters of 2002 and 2001, respectively. The $19.2 million increase is
due primarily to a $10.0 million increase in net income and a $6.4 million net
change in operating assets and liabilities.
Cash used in investing activities was $47.2 million and $13.1 million in the
first two quarters of 2002 and 2001, respectively. The $34.1 million increase is
due primarily to a $21.7 million increase in acquisitions of franchise
operations and a $7.3 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.
Cash used in financing activities was $41.6 million and $11.8 million in the
first two quarters of 2002 and 2001, respectively. The $29.8 million increase is
due primarily to a $10.1 million increase in distributions to parent and a $20.3
million increase in repayments of long-term debt. This increase in repayments of
long-term debt is due primarily to the retirement of $10.3 million of
outstanding senior subordinated notes and an increase in periodic amortization
and cash sweep payments made under our senior credit facility in 2002, compared
to 2001.
On July 29, 2002, the Company entered into a senior credit facility with a
consortium of banks (the "2002 Senior Credit Facility"). The 2002 Senior Credit
Facility consists of a $365 million term loan expiring in June 2008 and a $100
million revolving credit facility expiring in June 2007. The Company's
previously existing senior credit facility was paid in full and cancelled upon
consummation of the 2002 Senior Credit Facility. The new agreement requires
amortization of the term loans of $3.65 million per year during the first five
years of the agreement with equal quarterly payments totaling $346.75 million in
the final year of the agreement.
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 as follows:
Total
Notional
Derivative Amount Term Rate
---------- ------ ---- ----
Interest Rate Collar $75.0 million June 2001 - June 2003 3.86% - Floor
6.00% - Ceiling
Interest Rate Swap $75.0 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 Risk
The Company's variable interest expense is sensitive to changes in the general
level of interest rates. As of June 16, 2002, a portion of the Company's debt is
borrowed at Eurodollar rates plus a blended margin rate of approximately 3.1%.
At June 16, 2002, the weighted average interest rate on our $148.6 million of
variable interest debt was approximately 5.1%.
The Company had total interest expense of approximately $27.2 million in the
first two 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 $1.5 million.
12
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
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None.
b. Current Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended June 16,
2002.
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: July 30, 2002 /s/ Harry J. Silverman
----------------------------
` Chief Financial Officer
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