<PAGE>
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: March 26, 2000
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 April
15, 2000 was 10 shares.
<PAGE>
Domino's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands) March 26, 2000 January 2, 2000
Assets (Unaudited) (Note)
--------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 20,311 $ 30,278
Accounts receivable 41,479 40,902
Inventories 16,647 18,624
Deferred tax assets 10,498 10,498
Other 17,426 20,062
--------- ---------
Total current assets 106,361 120,364
--------- ---------
Property, plant and equipment:
Land and buildings 14,246 14,246
Leasehold and other improvements 54,974 54,538
Equipment 119,246 117,018
Construction in progress 3,124 3,548
--------- ---------
191,590 189,350
Accumulated depreciation and amortization 116,412 116,287
--------- ---------
Total property, plant and equipment 75,178 73,063
--------- ---------
Other assets:
Deferred tax assets 72,189 73,038
Deferred financing costs 35,820 37,208
Goodwill 19,274 16,034
Covenants not-to-compete 14,343 16,970
Capitalized software 26,353 26,113
Other 19,928 18,340
--------- ---------
Total other assets 187,907 187,703
--------- ---------
Total assets $ 369,446 $ 381,130
========= =========
Liabilities and stockholder's deficit
Current liabilities:
Current portion of long-term debt $ 11,970 $ 21,438
Accounts payable 30,388 35,108
Insurance reserves 6,684 7,152
Accrued restructuring 1,406 3,020
Accrued income taxes 313 804
Other accrued liabilities 59,367 58,586
--------- ---------
Total current liabilities 110,128 126,108
--------- ---------
Long-term liabilities:
Long-term debt, less current portion 696,115 696,132
Insurance reserves 14,758 15,485
Other accrued liabilities 22,814 22,371
--------- ---------
Total long-term liabilities 733,687 733,988
--------- ---------
Stockholder's deficit:
Common stock - -
Additional paid-in capital 120,202 120,202
Retained deficit (594,583) (599,292)
Accumulated other comprehensive income 12 124
--------- ---------
Total stockholder's deficit (474,369) (478,966)
--------- ---------
Total liabilities and stockholder's deficit $ 369,446 $ 381,130
========= =========
</TABLE>
Note: The balance sheet at January 2, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
2
<PAGE>
Domino's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Quarters Ended
March 26, March 28,
2000 1999
--------------------------
<S> <C> <C>
(In thousands)
Revenues:
Corporate stores $ 90,240 $ 86,560
Domestic franchise royalties 27,631 26,616
Domestic distribution 135,080 134,727
International 13,967 12,865
-------- --------
Total revenues 266,918 260,768
-------- --------
Operating expenses:
Cost of sales 195,055 192,820
General and administrative 46,121 50,429
-------- --------
Total operating expenses 241,176 243,249
-------- --------
Income from operations 25,742 17,519
Interest income 531 113
Interest expense 17,470 17,251
-------- --------
Income before provision
for income taxes 8,803 381
Provision for income taxes 3,756 152
-------- --------
Net income $ 5,047 $ 229
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
Domino's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
March 26, March 28,
2000 1999
---------- ---------
<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities $ 10,968 $21,690
-------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,178) (4,989)
Purchases of franchise stores and commissaries (4,794) -
Repayments of notes receivable 2,098 775
Other (2,202) (986)
-------- -------
Net cash used in investing activities (11,076) (5,200)
-------- -------
Cash flows from financing activities:
Repayments of long-term debt (9,475) (1,700)
Distributions to Parent (338) -
-------- -------
Net cash used in financing activities (9,813) (1,700)
-------- -------
Effect of exchange rate changes on cash (46) 68
-------- -------
Increase (decrease) in cash (9,967) 14,858
Cash, at beginning of period 30,278 115
-------- -------
Cash, at end of period $ 20,311 $14,973
======== =======
</TABLE>
See accompanying notes.
4
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 26, 2000
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the fiscal quarter ended March 26, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended January 2, 2000
included in the Domino's, Inc. Form 10-K, Commission File No. 333-74797.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Domino's, Inc., formerly known as Domino's Pizza International
Payroll Services, Inc., a Delaware corporation, and its wholly-owned
subsidiaries (collectively, "Domino's"). All significant intercompany accounts
and transactions have been eliminated. Domino's, Inc. is a wholly owned
subsidiary of TISM, Inc. ("TISM").
Fiscal Year and Fiscal Quarters
Domino's fiscal year ends on the Sunday closest to December 31 and generally
consists of fifty-two weeks. Domino's first three fiscal quarters of a fiscal
year each consist of twelve weeks and the fourth quarter of a fiscal year
consists of either sixteen or seventeen weeks depending upon whether the fiscal
year consists of fifty-two weeks or fifty-three weeks, respectively. The first
fiscal quarter of 2000 and 1999 consisted of the twelve week periods ended March
26, 2000 and March 28, 1999, respectively.
3. Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This Statement is effective
beginning the first quarter of fiscal 2001. Management has not yet quantified
the impact, if any, of adopting this Statement.
4. Comprehensive Income
Comprehensive income is defined as the total of net income and all other non-
owner changes in equity. Our comprehensive income was as follows (in
thousands):
Fiscal Quarter Ended
March 26, March 28,
2000 1999
--------- ---------
Net income $ 5,047 $ 229
Currency translation adjustment (89) 43
Unrealized gain (loss) on investments, net of tax (23) (5)
--------- ---------
Comprehensive income $ 4,935 $ 267
========= =========
5
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5. Restructuring
In fiscal 1999, the Company recognized approximately $7.6 million in
restructuring charges comprised of staff reduction costs of $6.3 million and
exit cost liabilities of $1.3 million, as defined below. The staff reduction
costs were incurred during the second, third and fourth quarters of 1999, in
connection with the reduction of 90 corporate and administrative employees. As
of March 26, 2000, the Company had paid $6.2 million of the staff reduction
costs and management expects the remaining amount to be paid during fiscal 2000.
The exit costs were recorded in the fourth quarter in connection with the
planned closure and relocation of 50 specifically identified corporate-owned
stores. The exit cost liability is comprised of the operating lease obligations
after the expected closure dates and related leased premises restoration costs.
As of March 26, 2000, nine corporate-owned stores have been relocated as a part
of the restructuring. Management expects that the remaining exit cost
liabilities will be paid during the second, third and fourth quarters of fiscal
2000.
6. Segment Data
The Company has three reportable segments as determined by management using the
"management approach" as defined in SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information": (1) Domestic Stores, (2) Domestic
Distribution and (3) International. The Company's operations are organized by
management on the combined bases of line of business and geography. The Domestic
Stores segment includes Company operations with respect to all franchised and
Company-owned stores throughout the contiguous United States. The Domestic
Distribution segment includes the distribution of food, equipment and supplies
to franchised and Company-owned stores throughout the contiguous United States.
The International segment includes Company operations related to its franchising
business in foreign and non-contiguous United States markets and its food
distribution business in Canada, Alaska and Hawaii. The Company evaluates the
performance of its segments and allocates resources to them based on earnings
before interest, taxes, depreciation and amortization ("EBITDA").
The tables below summarize the financial information concerning the Company's
reportable segments for fiscal quarters ended March 26, 2000 and March 28, 1999.
Intersegment Revenues are comprised of sales of food, equipment and supplies
from the Domestic Distribution segment to the Company-owned stores in the
Domestic Stores segment. Intersegment sales prices are market based. The "Other"
column primarily includes corporate headquarters costs that management does not
allocate to any of the reportable segments. All amounts presented below are in
thousands.
<TABLE>
<CAPTION>
Fiscal quarter ended March 26, 2000 and March 28, 1999
------------------------------------------------------------------------
Domestic Domestic Intersegment
Stores Distribution International Revenues Other Total
-------- ------------ ------------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues -
2000............ $117,871 $158,543 $13,967 $(23,463) $ - $266,918
1999............ 113,176 156,917 12,865 (22,190) - 260,768
EBITDA -
2000............ 32,491 7,605 2,930 - (9,771) 33,255
1999............ 30,930 5,389 2,101 - (8,193) 30,225
</TABLE>
6
<PAGE>
The following table reconciles total EBITDA above to consolidated income before
provision for income taxes:
Fiscal quarter ended
March 26, 2000 March 28, 1999
--------------------------------
Total EBITDA $ 33,255 $ 30,225
Depreciation and amortization (7,506) (12,810)
Interest expense (17,470) (17,251)
Interest income 531 113
Gain (loss) on sale of plant and equipment (7) 104
-------- --------
Income before provision
for income taxes $ 8,803 $ 381
======== ========
No customer accounted for more than 10% of total consolidated revenues in the
fiscal quarter March 26, 2000 and March 28, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The 2000 and 1999 first fiscal quarters referenced herein represent the twelve-
week periods ended March 26, 2000 and March 28, 1999, respectively.
Results of Operations
- ---------------------
Revenues
- --------
General. Revenues include sales by corporate-owned stores, royalty fees from
domestic and international franchises and sales by our distribution commissaries
to domestic and international franchises. Total revenues increased $6.1 million,
or 2.3%, to $266.9 million for the first quarter of 2000 from $260.8 million for
the first quarter of 1999. This increase in revenues resulted primarily from
increased domestic corporate stores revenues and domestic and international
franchise royalty revenues.
Domestic Stores
- ---------------
Corporate Stores. Revenues from Corporate Stores increased 4.2% to $90.2 million
for the first quarter of 2000 from $86.6 million for the same period in 1999.
This increase is due primarily to an increase in the number of corporate stores
and to a lesser extent, an increase in same store sales. Same store sales for
corporate stores increased 0.1% for the first quarter of 2000 as compared to the
same period in 1999. Ending corporate stores were 662 as of March 26, 2000, as
compared to 641 as of March 28, 1999.
Domestic Franchise. Revenues from Domestic Franchise operations are derived
primarily from royalty fees. Revenues from Domestic Franchise operations
increased 3.8% to $27.6 million for the first quarter of 2000 from $26.6 million
for the same period in 1999. This increase is attributable primarily to a 2.4%
increase in same store sales for the first quarter of 2000, as compared to the
same period in 1999, and an increase in the number of domestic franchise stores.
Ending domestic franchise stores were 4,015 as of March 26, 2000, as compared to
3,861 as of March 28, 1999.
Domestic Distribution. Revenues from Domestic Distribution operations are
- ---------------------
derived primarily from the sale of food, equipment and supplies to domestic
franchise stores and, to a lesser extent, the sale of equipment to international
stores, and exclude sales to corporate-owned stores. Revenues from Domestic
Distribution operations increased 0.3% to $135.1 million for the first quarter
of 2000 from $134.7 million for the same period in 1999. The increased volume of
food sales to franchisees, primarily related to the increases in Domestic
Franchise same store sales and store counts discussed above, were offset
primarily by a market decrease in cheese prices. Additionally, the dough mix
continues to shift from thin crust and deep dish to lower priced fresh dough.
International. International revenues, which are derived mainly from food sales
- -------------
to international franchisees, master franchise agreement royalty revenues and,
to a lesser extent, franchise and development fees and corporate owned
international stores, increased 8.5% to $14.0 million for the first quarter of
2000 from $12.9 million for the same period in 1999. The increase was partially
driven by a 18% increase in international franchise royalty revenues, due
primarily to an increase in same store sales, an increase in the average number
of international franchise stores and the addition of three international
corporate stores in
7
<PAGE>
France during the second quarter of 1999. On a constant dollar basis, same store
sales increased by 2.3% for the first quarter of 2000, compared to the same
period of 1999. Ending international stores were 1,975 as of March 26, 2000, as
compared to 1,766 as of March 28, 1999.
Gross Profit. Gross profit increased 5.9% to $71.9 million for the first quarter
- ------------
of 2000 from $67.9 million for the same period in 1999. As a percentage of
revenues, gross profit increased 0.8%, to 26.9% for the first quarter of 2000,
compared to the same period in 1999. These increases were driven primarily by
Domestic Distribution food cost as a percentage of sales decreasing slightly,
due mainly to a shift in product mix from par-baked deep dish and thin crust
shells to higher margin fresh dough. These increases were largely offset by
increased labor costs in the corporate stores, which was related to higher wages
and increases in staffing levels.
General and Administrative. General and administrative expenses decreased 8.5%
- ----------------------------
to $46.1 million for the first quarter of 2000 from $50.4 million for the same
period of 1999. As a percentage of revenues, general and administrative expenses
decreased 2.0% to 17.3% for the first quarter of 2000 compared to the same
period in 1999. These decreases are due primarily to decreased amortization
expense of $5.3 million for the first quarter of 2000, primarily attributable to
a covenant not-to-compete we entered into with TISM's former principal
stockholder at the time of TISM's recapitalization.
Liquidity and Capital Resources
- -------------------------------
We had negative working capital of $3.7 million at March 26, 2000. Historically,
we have operated with negative working capital 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.
Operating activities provided cash resources of $11.0 million and $21.7 million
in the first quarter of 2000 and 1999, respectively. The cash provided by
operating activities in the first quarter of 2000 consisted mainly of earnings
before interest, taxes, depreciation and amortization expenses ("EBITDA") of
$33.3 million, offset by interest payments of $14.5 million, income tax payments
of $1.0 million and other changes in operating assets of $6.8 million. The cash
provided by operating activities in the first quarter of 1999 consisted mainly
of EBITDA of $30.2 million, offset by interest payments of $0.1 million, income
tax payments of $0.8 million and other changes in operating assets of $7.6
million.
Net cash used in investing activities consisted primarily of capital
expenditures and investments in marketable securities, partially offset by
proceeds from asset sales and collections on notes receivable from franchisees.
Net cash used in investing activities was $11.1 million for the first quarter of
2000.
Capital expenditures were $11.0 million for the first quarter of 2000. We spent
$2.7 million on domestic corporate stores, of which $1.7 million was related to
the Domino's Image 2000 campaign, $4.8 million for acquiring fifteen franchise
stores, $1.8 million related to investments in technology and $1.5 million in
distribution, primarily for new equipment and equipment upgrades.
Net cash used in financing activities was $9.8 million for the first quarter of
2000. Net cash used in financing activities included repayments of long-term
debt of $9.5 million.
As of March 26, 2000, we had $708.1 million of long-term debt and stockholders'
deficit of $474.4 million. As of March 26, 2000, there were no borrowings under
our $100 million revolving credit facility and letters of credit issued under
that facility were $6.4 million. The borrowings under the revolving credit
facility are available to fund our working capital requirements, capital
expenditures and other general corporate purposes.
Our primary sources of liquidity continue to be cash flow from operations and
available borrowings under our revolving credit facility. We expect that ongoing
requirements for debt service and capital expenditures will be funded from these
sources.
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
8
<PAGE>
years. There can be no assurance, however, that our business will generate
sufficient cash flow 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 Cumulative Preferred Stock when required 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 10-K for
the year ended January 2, 2000 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The Company's use of derivative instruments is primarily limited to interest
rate swaps and foreign currency forward contracts. The Company does not enter
into financial derivatives for trading purposes.
Interest Rate Swaps
- -------------------
We enter into interest rate swaps with the objective of reducing our volatility
in borrowing costs. In 1999, we entered into two interest rate swap agreements
to effectively convert the Eurodollar rate component of the interest on a
portion of our variable rate bank debt to a fixed rate of 5.12% through December
2001. At March 26, 2000, the notional amount of these swap agreements was $178
million.
Foreign Currency Forward Contracts
- ----------------------------------
We use foreign currency forward contracts to minimize the effect of a
fluctuating Japanese yen on royalty revenues from franchised operations in
Japan. As currency rates change, the gains and losses with respect to these
contracts are recognized in income. For the fiscal quarter ended March 26, 2000,
no significant gains or losses were recognized under the foreign currency
forward contracts.
Interest Rate Risk
- ------------------
The Company's variable interest expense is sensitive to changes in the general
level of United States and European interest rates. A portion of the Company's
debt currently is borrowed at Eurodollar rates plus a blended rate of
approximately 3.3% and is sensitive to changes in interest rates. At March 26,
2000, the weighted average interest rate on our $429.9 million of variable
interest debt was approximately 9.5% and the fair value of the debt approximates
its carrying value.
The Company had interest expense of $17.5 million for the first quarter of 2000.
The potential increase in interest expense for the first quarter of 2000 from a
hypothetical 2% adverse change in the variable interest rates, would be
approximately $1.2 million.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use Of Proceeds
9
<PAGE>
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
Exhibit
Number Description
------ -----------
27 Financial Data Schedule which is submitted electronically to the
Securities and Exchange Commission for information only and not
deemed to be filed with the Commission.
b. Current Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended March 26,
2000.
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: May 9, 2000 /s/ Harry J. Silverman
-------------------------------------------
Harry J. Silverman, Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 JAN-02-2000
<PERIOD-START> JAN-03-2000 JAN-04-1999
<PERIOD-END> MAR-26-2000 MAR-28-1999
<CASH> 20,311 14,973
<SECURITIES> 0 0
<RECEIVABLES> 49,175 53,101
<ALLOWANCES> 2,730 3,180
<INVENTORY> 16,647 17,460
<CURRENT-ASSETS> 106,361 100,782
<PP&E> 191,590 181,209
<DEPRECIATION> 116,412 116,918
<TOTAL-ASSETS> 369,446 385,138
<CURRENT-LIABILITIES> 110,128 114,719
<BONDS> 275,000 275,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (474,369) (483,508)
<TOTAL-LIABILITY-AND-EQUITY> 369,446 385,138
<SALES> 233,155 228,891
<TOTAL-REVENUES> 266,918 260,768
<CGS> 128,441 131,192
<TOTAL-COSTS> 195,055 192,820
<OTHER-EXPENSES> 46,121 50,429
<LOSS-PROVISION> 200 447
<INTEREST-EXPENSE> 16,939 17,138
<INCOME-PRETAX> 8,803 381
<INCOME-TAX> 3,756 152
<INCOME-CONTINUING> 5,047 229
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,047 229
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
