SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
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: 01-13409
MIDAS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-4180556
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1300 Arlington Heights Road, 60143
Itasca, Illinois
(Address of Principal Executive Offices) (Zip Code)
(630) 438-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 of the Registrant's Common Stock, $.001 par value per
share, outstanding as of September 29, 2001 was 14,903,124.
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings and dividends per share)
For the quarter For the nine months
ended fiscal September ended fiscal September
---------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
(13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks)
Sales and revenues ................................ $85.2 $94.3 $250.0 $271.3
Cost of sales and revenues ........................ 46.0 51.9 134.6 148.2
Selling, general, and distribution expenses ....... 28.6 28.9 84.2 78.0
----- ----- ------ ------
Operating income ............................. 10.6 13.5 31.2 45.1
Interest expense .................................. (2.1) (2.1) (6.6) (6.1)
Other income, net ................................. - 0.2 0.4 4.1
----- ----- ------ ------
Income before taxes .......................... 8.5 11.6 25.0 43.1
Income taxes (benefit) ............................ 3.3 (0.4) 9.7 11.2
----- ----- ------ ------
Net income ........................................ $ 5.2 $12.0 $ 15.3 $ 31.9
===== ===== ====== ======
Earnings per share:
Basic ........................................... $ .35 $ .79 $ 1.02 $ 2.06
===== ===== ====== ======
Diluted ......................................... $ .35 $ .78 $ 1.02 $ 2.03
===== ===== ====== ======
Dividends per common share ........................ $ .00 $ .02 $ .08 $ .06
===== ===== ====== ======
Average number of shares
Common shares outstanding ....................... 14.9 15.3 14.9 15.5
Equivalent shares on outstanding stock options .. .0 .1 .0 .2
----- ----- ------ ------
Shares applicable to diluted earnings ........... 14.9 15.4 14.9 15.7
===== ===== ====== ======
See notes to condensed financial statements.
1
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
Fiscal Fiscal
September December
2001 2000
---- ----
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents ......................................................... $ 0.2 $ 1.8
Receivables, net .................................................................. 54.7 45.6
Inventories ....................................................................... 110.9 76.9
Other current assets .............................................................. 15.5 24.3
------ ------
Total current assets ............................................................ 181.3 148.6
Property and equipment, net .......................................................... 158.8 149.9
Other assets ......................................................................... 34.0 23.2
------ ------
Total assets .................................................................... $374.1 $321.7
====== ======
Liabilities and Equity:
Current liabilities:
Short-term debt ................................................................... $ 1.6 $ 3.2
Current portion of long-term obligations .......................................... 16.2 16.6
Accounts and dividends payable .................................................... 49.9 31.3
Accrued expenses .................................................................. 36.7 28.9
------ ------
Total current liabilities ....................................................... 104.4 80.0
Long-term debt ....................................................................... 97.0 84.1
Obligations under capital leases ..................................................... 8.4 9.1
Deferred income taxes and other liabilities .......................................... 21.7 20.1
------ ------
Total liabilities ............................................................... 231.5 193.3
------ ------
Shareholders' equity:
Common stock ($.001 par value, 100 million shares authorized, 17.3 million
shares issued) and paid-in capital ............................................... 23.4 24.6
Treasury stock, at cost (2.4 million shares and 2.3 million shares) .............. (54.9) (55.6)
Notes receivable from common stock sold to officers .............................. (4.5) (6.1)
Unamortized restricted stock awards .............................................. (1.8) (1.8)
Retained income .................................................................. 187.3 173.2
Cumulative other comprehensive income (loss) ..................................... (6.9) (5.9)
------ ------
Total shareholders' equity ...................................................... 142.6 128.4
------ ------
Total liabilities and equity .................................................. $374.1 $321.7
====== ======
See notes to condensed financial statements.
2
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
For the nine months
ended fiscal September
----------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income ................................................... $ 15.3 $ 31.9
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization ........................... 10.9 7.9
Cash outlays for business transformation costs .......... (2.6) (3.6)
Gains on the sales of assets ............................ - (4.2)
Changes in assets and liabilities, exclusive of effects
of acquisitions and dispositions ....................... (6.8) (6.5)
------ ------
Net cash provided by operating activities .................... 16.8 25.5
------ ------
Cash flows from investing activities:
Capital investments .......................................... (18.1) (12.2)
Cash paid for acquired businesses ............................ (8.3) (7.6)
Proceeds from sales of assets ................................ - 9.2
------ ------
Net cash used in investing activities ........................ (26.4) (10.6)
------ ------
Cash flows from financing activities:
Short-term borrowings (repayments), net ...................... (3.0) 2.8
Long-term debt borrowings (repayments) ....................... 14.1 (15.9)
Payment of obligations under capital leases .................. (0.6) (0.5)
Cash received for common stock ............................... 0.3 2.0
Cash paid for treasury shares ................................ (1.3) (15.5)
Dividends paid to shareholders ............................... (1.5) (0.9)
------ ------
Net cash provided by (used in) financing activities .......... 8.0 (28.0)
------ ------
Net change in cash and cash equivalents ...................... (1.6) (13.1)
Cash and cash equivalents at beginning of period ............. 1.8 13.1
------ ------
Cash and cash equivalents at end of period ................... $ 0.2 $ 2.6
====== ======
See notes to condensed financial statements.
3
MIDAS, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(In millions)
Common Stock
And Notes Receivable Comprehensive
Paid-in Capital Treasury Stock From Unamortized Income
---------------- --------------- Common Stock Restricted Retained -------------------
Shares Amount Shares Amount Sold to Officers Stock Awards Earnings Current Cumulative
------ ------ ------ ------ ---------------- ------------ -------- ------- ----------
Fiscal year end 2000 ............ 17.3 $24.6 (2.3) $(55.6) $(6.1) $(1.8) $173.2 $(5.9)
Restricted stock award .......... -- (0.8) -- 1.3 -- (0.5) -- --
Purchase of treasury shares ..... -- -- (0.1) (1.3) -- -- -- --
Stock option transactions ....... -- (0.4) -- 0.7 -- -- -- --
Retirement of notes receivable
from officers ................. -- -- -- -- 1.6 -- -- --
Amortization of restricted
stock awards ................. -- -- -- -- -- 0.5 -- --
Net income ...................... -- -- -- -- -- -- 15.3 $15.3 --
Other comprehensive income -
foreign currency translation
adjustments .................. -- -- -- -- -- -- -- (1.0) (1.0)
-----
Comprehensive income ............ -- -- -- -- -- -- -- $14.3 --
=====
Dividends to shareholders ....... -- -- -- -- -- -- (1.2) --
---- ----- ---- ------- ----- ----- ------ -----
Fiscal third quarter end 2001 17.3 $23.4 (2.4) $(54.9) $(4.5) $(1.8) $187.3 $(6.9)
==== ===== ==== ====== ===== ===== ====== =====
See notes to condensed financial statements.
4
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Financial Statement Presentation
The condensed interim period financial statements presented herein do not
include all of the information and disclosures customarily provided in annual
financial statements and they have not been audited, as permitted by the rules
and regulations of the Securities and Exchange Commission. The condensed interim
period financial statements should be read in conjunction with the annual
financial statements included in the annual report on Form 10-K. In the opinion
of management, these financial statements have been prepared in conformity with
accounting principles generally accepted in the United States and reflect all
adjustments necessary for a fair statement of the results of operations and cash
flows for the interim periods ended September 29, 2001 ("third quarter fiscal
2001") and September 30, 2000 ("third quarter fiscal 2000") and of its financial
position as of September 29, 2001. All such adjustments are of a normal
recurring nature. The results of operations for the interim fiscal 2001 and 2000
periods are not necessarily indicative of the results of operations for the full
year.
The unaudited condensed financial statements present the consolidated financial
information for Midas, Inc. and its wholly-owned subsidiaries ("Midas" or the
"Company"). The unaudited condensed financial statements for the quarters ended
September 29, 2001 and September 30, 2000 both cover a 13-week period, while the
unaudited condensed financial statements for the nine months ended September 29,
2001 and September 30, 2000 both cover a 39-week period.
2. Supplemental Cash Flow Activity
Net cash provided by operating activities reflect cash payments and receipts for
interest and taxes as follows (in millions):
For the nine months
ended fiscal September
----------------------
2001 2000
----- -----
Interest paid ................................... $ 5.5 $ 5.0
Income tax refunds .............................. (7.9) (0.7)
Income taxes paid ............................... 5.4 8.9
3. Inventories
Inventories, summarized by major classification, were as follows (in millions):
Fiscal Fiscal
September December
2001 2000
----------- --------
(Unaudited)
Raw materials and work in process ................ $ 3.6 $ 4.7
Finished goods ................................... 107.3 72.2
------ -----
$110.9 $76.9
====== =====
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Midas' cash and cash equivalents decreased $1.6 million during fiscal 2001.
The Company generated net cash flows from operating activities of $16.8
million for the first nine months of fiscal 2001 versus $25.5 million for the
first nine months of fiscal 2000. The year-over-year decrease of $8.7 million
was due entirely to the decline in net income. Partially offsetting this decline
was a $3.0 million increase in depreciation and amortization, a $1.0 million
decrease in business transformation payments, and a $4.2 million decrease in
gains on the sale of assets.
The net increase in working capital was consistent between 2000 and 2001,
however the 2001 amount includes the benefit of $7.9 million in prior year
income tax refunds. The Company's working capital needs will continue to expand
as it grows its base of Parts Warehouse, Inc. ("PWI") locations and
Company-operated shops.
Investing activities used $26.4 million in cash during the first nine
months of fiscal 2001 compared to $10.6 million during the first nine months of
fiscal 2000. Fiscal 2001 investing activities consist of capital investments of
$18.1 million and cash paid for acquired businesses totaling $8.3 million.
Capital investments relate to ongoing system projects, expansion of the PWI
network, and normal capital expenditures. Businesses acquired during the first
nine months of fiscal 2001 include 26 additional company-operated shops and the
purchase of Progressive Automotive Systems of Houston, Texas, a provider of
automotive industry point-of-sale software sold under the name R.O.Writer.
Fiscal 2000 investing activities consisted of capital investments of
$12.2 million and cash paid for acquired businesses totaling $7.6 million,
offset by proceeds of $9.2 million, which included $5.6 million from the sale of
a former manufacturing facility and $2.5 million related to the sale of the
Company's Australian operations. Fiscal 2000 capital expenditures were primarily
related to management information system projects, while businesses acquired
consisted of 27 climate control distribution locations purchased as part of the
PWI expansion strategy.
The Company continued its expansion strategy into the fourth quarter by
acquiring 72 additional Company-operated shops in early October 2001. This
brings the total number of Company-operated shops acquired in 2001 to 98, and
the total number in operation to 108. In addition, the Company expects to have
opened a total of 47 PWIs during 2001 with a total of 76 open as of fiscal
year-end. These fourth quarter acquisitions and openings will be funded through
additional borrowings under the Company's line of credit. The Company expects
that its growth plans for 2002 will be more moderate as it focuses on
integrating these recent acquisitions.
Net cash generated by financing activities was $8.0 million in the first
nine months of fiscal 2001 compared to $28.0 million of funds used in the first
nine months of fiscal 2000. This change was the result of lower treasury stock
purchases and higher borrowings in fiscal 2001 as compared to fiscal 2000.
During fiscal 2001, the Company borrowed $11.1 million to fund capital
investments and business acquisitions, paid $1.3 million for treasury shares,
and paid $1.5 million in dividends to shareholders. In fiscal 2000, the Company
had net repayments of debt of $13.1 million, paid $15.5 million for treasury
shares, and paid $0.9 million in dividends to shareholders.
The Company believes that current cash balances, cash generated from
operations, and availability under its line of credit will be adequate to fund
any required growth in working capital and capital expenditures for the
foreseeable future.
6
RESULTS OF OPERATIONS
Third Quarter Fiscal 2001 Compared with Third Quarter Fiscal 2000
The following is a summary of the Company's sales and revenues for the
third quarter of fiscal 2001 and 2000: ($ Millions)
Percent Percent
2001 to Total 2000 to Total
----- -------- ----- --------
Replacement parts sales ............. $54.0 63.4% $64.6 68.5%
Company-operated shop retail sales .. 3.8 4.5 1.9 2.0
Royalties and license fees .......... 17.4 20.4 17.8 18.9
Real estate rental revenues ......... 9.4 11.0 9.8 10.4
Other ............................... 0.6 0.7 0.2 0.2
----- ----- ----- -----
Sales and revenues .................. $85.2 100.0% $94.3 100.0%
===== ===== ===== =====
Sales and revenues for the third quarter of fiscal 2001 were $9.1 million
below last year's fiscal third quarter due entirely to a $10.6 million decline
in replacement parts sales. While Midas system comparable store sales are
virtually unchanged, the changing mix of retail sales out of the core exhaust
and brakes categories continues to negatively impact Midas replacement parts
sales. Midas dealers have traditionally purchased the majority of their exhaust
and brake part needs from Midas under a weekly delivery program. Therefore,
exhaust and brake parts have historically accounted for the majority of Midas'
replacement parts sales through the Midas distribution centers. As Midas dealers
have expanded into new service categories, their needs for replacement parts
have changed. The breadth of services and the complexity of today's vehicles
make it impractical for shops to carry a full assortment of inventory and to
rely on a weekly replenishment system. As a result, Midas dealers are purchasing
an ever-increasing portion of their needs from sources other than Midas.
The Company's Parts Warehouse, Inc. ("PWI") strategy is intended to counter
this trend by locating the parts closer to the Midas dealers, making it possible
for Midas dealers to buy from PWI on an "as needed" basis. As of September 29,
2001, the Company had 68 PWI locations open for business and plans to add 8 more
in the fourth quarter.
Cost of sales and revenues decreased $5.9 million or 11.4% compared to the
third quarter of fiscal 2000. Cost of sales and revenues as a percent of total
sales and revenues decreased from 55.0% in the third quarter of fiscal 2000 to
54.0% in the third quarter of fiscal 2001. This improvement in gross margin is
the result of a greater proportion of higher-margin retail sales from
Company-operated shops and royalties.
Selling, general and distribution expenses for the third quarter of fiscal
2001 decreased $0.3 million from $28.9 million in fiscal 2000 to $28.6 million
in fiscal 2001. The increase in operating expenses associated with the new PWI
distribution network and an increase in the number of Company-operated shops was
offset by lower operating expenses in the traditional Midas business. As a
percentage of total sales and revenues, selling, general and distribution
expenses represented 33.6% of sales during the third quarter of fiscal 2001
versus 30.6% in the third quarter of fiscal 2000.
As a result of the above changes, operating income decreased by $2.9
million from $13.5 million in fiscal 2000 to $10.6 million for the third quarter
of fiscal 2001.
7
The tax provision for the third quarter of fiscal 2000 included a favorable
tax benefit of $4.8 million on the sale of Midas' Australian operations. There
was no comparable activity in fiscal 2001.
As a result of the above items, net income decreased $6.8 million from
$12.0 million in the third quarter of fiscal 2000 to $5.2 million in the third
quarter of fiscal 2001.
Nine Months Ended Fiscal September 2001 Compared With Nine Months Ended Fiscal
September 2000
The following is a summary of the Company's sales and revenues for the nine
months ended fiscal September 2001 and 2000, respectively: ($ Millions)
Percent Percent
2001 To Total 2000 to Total
------ -------- ------ --------
Replacement parts sales ............ $161.5 64.6% $186.1 68.6%
Company-operated shop retail sales . 7.9 3.2 4.1 1.5
Royalties and license fees ......... 50.7 20.3 50.6 18.7
Real estate rental revenues ........ 28.6 11.4 29.5 10.9
Other .............................. 1.3 0.5 1.0 0.3
------ ----- ------ -----
Sales and revenues ................. $250.0 100.0% $271.3 100.0%
====== ===== ====== =====
Sales and revenues for the first nine months of fiscal 2001 were $21.3
million below the prior year due to a $24.6 million decline in replacement parts
sales. As previously mentioned, parts sales to Midas dealers and other customers
through the Company's traditional network of distribution centers continue to be
affected by the transformation of Midas shops to new services and declines in
the demand for exhaust products. Sales from Company-operated shops were up $3.8
million due to an increase in the average number of shops during the period as
well as increases in comparable shop retail sales.
Cost of sales and revenues declined $13.6 million or 9.2% compared to the
first nine months of fiscal 2000. Cost of sales and revenues as a percent of
total sales and revenues decreased slightly from 54.6% in the first nine months
of fiscal 2000 to 53.8% in the first nine months of fiscal 2001. This
improvement in gross margin is the result of a greater proportion of
higher-margin retail sales from Company-operated shops and royalties.
Selling, general and distribution expenses for the first nine months of
fiscal 2001 increased $6.2 million from $78.0 million in fiscal 2000 to $84.2
million in fiscal 2001. This increase in operating expenses was related to costs
associated with the new PWI distribution network and an increase in the number
of Company-operated shops. As a percentage of total sales and revenues, selling,
general and distribution expenses represented 33.7% of sales during the first
nine months of fiscal 2001 versus 28.8% in the prior fiscal period.
As a result of the above changes, operating income decreased by $13.9
million from $45.1 million in fiscal 2000 to $31.2 million for the first nine
months of fiscal 2001, and the operating income margin decreased from 16.6% in
fiscal 2000 to 12.5% in fiscal 2001.
Other income declined from $4.1 million in fiscal 2000 to $0.4 million in
the first nine months of fiscal 2001. Fiscal 2000 other income included
non-recurring gains of $1.2 million from the sale of one of the Company's former
manufacturing plants and $1.8 million from the sale of Midas' Australian
operations.
8
The tax provision for the nine months ended September 30, 2000 included a
favorable tax benefit of $5.5 million on the sale of Midas' Australian
operations. There was no comparable activity in fiscal 2001.
As a result of the above items, net income decreased $16.6 million from
$31.9 million in the first nine months of fiscal 2000 to $15.3 million in the
first nine months of fiscal 2001.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 did not have a
material effect on the Company's results of operations or financial position.
SFAS No. 142 requires that goodwill be tested for impairment under certain
circumstances, and written off when impaired, rather than being amortized as
previous standards required. The Company adopted the provisions of SFAS No. 142
in the third quarter of fiscal 2001 for new acquisitions, and is required to
comply with SFAS No. 142 in the first quarter of fiscal 2002 for previously
acquired intangibles. The Company anticipates completing its initial assessment
of impairment by fiscal year end and does not believe that there is an
indication that an impairment will result.
FORWARD LOOKING STATEMENTS
This report contains, and certain of the Company's other public documents
and statements and oral statements contain and will contain, forward-looking
statements that reflect management's current assumptions and estimates of future
performance and economic conditions using information currently available. Such
statements are made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company cautions investors that
any forward-looking statements are subject to risks and uncertainties that may
cause actual results and future trends to differ materially from those
projected, stated, or implied by the forward-looking statements.
The Company's results of operations and the forward-looking statements
could be affected by, among others things: general economic conditions in the
markets in which the Company operates; economic developments that have a
particularly adverse effect on one or more of the markets served by the Company;
the ability to execute management's internal operating plans; the timing and
magnitude of capital expenditures; economic and market conditions in the U.S.
and worldwide; currency exchange rates; changes in consumer spending levels and
demand for new products and services; cost and availability of raw materials;
and overall competitive activities. The Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.
9
PART II. OTHER INFORMATION
No additional information is enclosed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2001: /s/William M. Guzik
------------------------------
William M. Guzik
Senior Vice President and
Chief Financial Officer
10