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 July 1, 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: 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 July 1, 2000 was 15,434,032.
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 six months
ended fiscal June ended fiscal June
---------------------- ----------------------
2000 1999 2000 1999
------ ------ ------ ------
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
Sales and revenues........................................... $ 98.4 $ 98.5 $177.0 $183.2
Cost of sales and revenues................................... 54.4 53.0 96.3 97.9
Selling, general, and administrative expenses................ 24.9 24.3 49.1 51.6
------ ------ ------ ------
Operating income........................................ 19.1 21.2 31.6 33.7
Interest expense............................................ ( 1.9) ( 2.1) ( 4.0) ( 4.3)
Other income, net............................................ 2.0 1.4 3.9 1.9
------ ------ ------ ------
Income before taxes..................................... 19.2 20.5 31.5 31.3
Income taxes................................................. 6.8 8.2 11.6 12.5
------ ------ ------ ------
Net income.............................................. $ 12.4 $ 12.3 $ 19.9 $ 18.8
====== ====== ====== ======
Earnings per share:
Basic...................................................... $ .79 $ .74 $ 1.27 $ 1.12
====== ====== ====== ======
Diluted.................................................... $ .78 $ .72 $ 1.25 $ 1.09
====== ====== ====== ======
Dividends per common share................................... $ .02 $ .02 $ .04 $ .04
====== ====== ====== ======
Average number of shares
Common shares outstanding.................................. 15.6 16.6 15.6 16.7
Equivalent shares on outstanding stock options............. .2 .5 .2 .6
------ ------ ------ ------
Shares applicable to diluted earnings...................... 15.8 17.1 15.8 17.3
====== ====== ====== ======
See notes to condensed financial statements.
1
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
Fiscal Fiscal
June December
2000 1999
---- ----
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents.................................................... $ 2.6 $ 13.1
Receivables, net............................................................. 61.1 43.5
Inventories.................................................................. 73.1 63.5
Other current assets......................................................... 19.1 20.7
-------- --------
Total current assets........................................................ 155.9 140.8
Property and equipment, net....................................................... 145.5 140.5
Other assets...................................................................... 25.1 24.6
-------- --------
Total assets................................................................ $ 326.5 $ 305.9
======== ========
Liabilities and Equity:
Current liabilities:
Short-term debt.............................................................. $ 9.5 $ 1.8
Accounts and dividends payable............................................... 35.8 26.4
Income taxes payable......................................................... 3.4 1.6
Accrued expenses............................................................. 22.9 26.4
-------- --------
Total current liabilities................................................... 71.6 56.2
Long-term debt.................................................................... 94.4 101.0
Obligations under capital leases.................................................. 9.3 9.3
Deferred income taxes and other liabilities....................................... 24.1 24.8
-------- --------
Total liabilities........................................................... 199.4 191.3
-------- --------
Shareholders' equity:
Common stock ($.001 par value, 100 million shares authorized;
17.3 million shares issued) and paid-in capital............................ 23.4 26.8
Treasury stock, at cost (1.9 million shares and 1.6 million shares)......... (47.9) (44.9)
Notes receivable from common stock sold to officers......................... (6.1) (6.1)
Retained income............................................................. 163.3 144.0
Cumulative other comprehensive income (loss)................................ (5.6) ( 5.2)
-------- --------
Total shareholders' equity................................................. 127.1 114.6
-------- --------
Total liabilities and equity........................................... $ 326.5 $ 305.9
======== ========
See notes to condensed financial statements.
2
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
For the six months
ended fiscal June
2000 1999
-------- --------
Cash flows from operating activities:
Net income.......................................................... $ 19.9 $ 18.8
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization................................... 5.5 5.7
Cash outlays for business transformation costs.................. (3.0) (7.2)
Gains on the sales of assets.................................... (3.8) -
Changes in assets and liabilities, net of effects of
acquisitions and dispositions.................................. (12.1) (2.2)
-------- --------
Net cash provided by operating activities........................... 6.5 15.1
-------- --------
Cash flows from investing activities:
Cash paid for acquired businesses................................... ( 7.4) -
Capital investments................................................. ( 9.4) (12.6)
Proceeds from sales of assets....................................... 8.7 5.4
-------- --------
Net cash used in investing activities............................... ( 8.1) (7.2)
-------- --------
Cash flows from financing activities:
Short-term borrowings, net.......................................... 7.9 -
Long-term debt repayments, net...................................... (6.8) (0.6)
Payment of obligations under capital leases......................... (0.4) (0.3)
Cash received for common stock...................................... 2.0 6.7
Cash paid for treasury shares....................................... (11.0) (40.1)
Dividends paid to shareholders...................................... (0.6) (0.7)
-------- --------
Net cash used in financing activities............................... (8.9) (35.0)
-------- --------
Net change in cash and cash equivalents............................. (10.5) (27.1)
Cash and cash equivalents at beginning of period.................... 13.1 36.9
-------- --------
Cash and cash equivalents at end of period.......................... $ 2.6 $ 9.8
======== ========
See notes to condensed financial statements.
3
MIDAS, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(In millions)
Notes
Receivable
Common Stock From
and Common Comprehensive
Paid-in Capital Treasury Stock Stock Sold Retained Income
Shares Amount Shares Amount to Officers Earnings Current Cumulative
------ ------ ------ ------ ----------- -------- ------- ---------
Fiscal year-end 1999................. 17.3 $ 26.8 (1.6) $ (44.9) $ (6.1) $ 144.0 $ (5.2)
Restricted stock award............... - (1.2) 0.1 3.5 - - -
Purchase of treasury shares.......... - - (0.5) (11.0) - - -
Stock option transactions............ - (2.2) 0.1 4.5 - - -
Net income........................... - - - - - 19.9 $ 19.9 -
Other comprehensive income - foreign
currency translation adjustments... - - - - - - (0.4) (0.4)
------
Comprehensive income................. - - - - - - $ 19.5 -
======
Dividends to shareholders............ - - - - - (0.6) -
------ ------ ---- ------- ------- ------- ---------
July 1, 2000......................... 17.3 $ 23.4 (1.9) $ (47.9) $ (6.1) $ 163.3 $ (5.6)
====== ====== ==== ======= ======= ======= =========
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
generally accepted accounting principles and reflect all adjustments necessary
for a fair statement of the results of operations and cash flows for the interim
periods ended July 1, 2000 ("second quarter fiscal 2000") and June 26, 1999
("second quarter fiscal 1999") and of its financial position as of July 1, 2000.
All such adjustments are of a normal recurring nature. The results of operations
for the interim fiscal 2000 and 1999 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
July 1, 2000 and June 26, 1999 both cover a 13-week period, while the unaudited
condensed financial statements for the six months ended July 1, 2000 and June
26, 1999 both cover a 26-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 six months
ended fiscal June
-----------------
2000 1999
---- ----
Interest paid............................ $ 4.2 $ 4.4
Income tax (refunds)..................... (0.7) (0.4)
Income taxes paid........................ 8.5 10.4
3. Inventories
Inventories, summarized by major classification, were as follows (in millions):
Fiscal Fiscal
June December
2000 1999
---- ----
(Unaudited)
Raw materials and work in progress......... $ 6.1 $ 4.5
Finished goods............................. 67.0 59.0
----- -----
$73.1 $63.5
===== =====
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Midas' cash and cash equivalents totaled $2.6 million at the end of
second quarter fiscal 2000 and $9.8 million at the end of second quarter fiscal
1999.
The Company generated net cash flows from operating activities of $6.5
million for the first six months of fiscal 2000 versus $15.1 million for the
first six months of fiscal 1999. The year-over-year decrease was due to
increased working capital. This increase in working capital in 2000 was due to a
combination of the normal seasonal upturn in the business (which results in
higher receivables and inventory), and slower collections of receivables. The
seasonal upturn in working capital in 1999 was mitigated by a significant
increase in accounts payable.
Investing activities used $8.1 million in cash during the first six
months of fiscal 2000 compared with $7.2 million during the same period of
fiscal 1999. During fiscal 2000 the company paid a total of $7.4 million to
acquire 27 small climate control distribution locations as part of its strategy
to expand the Company's distribution channels and to add new products and
services at the wholesale and retail levels. As part of its distribution and
product expansion strategy, the Company plans to add several hundred of these
small climate control distribution locations in North America over the next
three years at an average investment of approximately $300,000 per location. The
Company also invested $9.4 million in fiscal 2000 primarily related to the
Company's ongoing management information systems projects, compared with $12.6
million in fiscal 1999. These capital investments were partially offset by
proceeds from the sale of assets of $8.7 million in fiscal 2000 and $5.4 million
in fiscal 1999. The fiscal 2000 amount includes proceeds of $5.6 million from
the sale of a former manufacturing facility and $1.8 million related to the sale
of the Company's Australian operations, while the fiscal 1999 amount is related
to the sale, licensing and franchising of company-operated shops.
Net cash used in financing activities was $8.9 million in the first six
months of fiscal 2000 compared with $35.0 million in the first six months of
fiscal 1999. This $26.1 million reduction was primarily the result of a $29.1
million decrease in treasury stock repurchases from $40.1 million in fiscal 1999
to $11.0 million in fiscal 2000, partially offset by lower cash received for
common stock option transactions.
The Company believes that current cash balances, cash generated from
operations, and availability under its line of credit will be adequate to fund
the growth in working capital and capital expenditures necessary to support
future growth in sales for the foreseeable future, as well as the Company's
share repurchase plan.
6
RESULTS OF OPERATIONS
Second Quarter Fiscal 2000 Compared with Second Quarter Fiscal 1999
The following is a summary of the Company's sales and revenues for the
second quarter of fiscal 2000 and 1999: ($ Millions)
Percent Percent
2000 to Total 1999 to Total
---- -------- ---- --------
Replacement parts sales............................ $69.0 70.1% $66.5 67.5%
Company-operated shop retail sales................. 1.8 1.8 3.0 3.0
Royalties and license fees......................... 17.3 17.6 18.3 18.6
Real estate rental revenues........................ 9.8 10.0 10.0 10.2
Other.............................................. 0.5 0.5 0.7 0.7
----- ----- ----- -----
Sales and revenues................................. $98.4 100.0% $98.5 100.0%
===== ===== ===== =====
Sales and revenues for the second quarter of fiscal 2000 were $98.4 million
or $0.1 million below last year's fiscal second quarter, with increased
replacement parts sales offsetting declines in other revenue sources. The
increase in replacement parts sales of $2.5 million resulted entirely from the
expansion of the Company's distribution channels which more than offset lower
exhaust and brake product shipments. As part of its distribution and product
expansion strategy, the Company plans to add several hundred small climate
control distribution locations in North America over the next three years. These
distribution locations will serve both Midas Dealers and other customers and
will support the company's introduction of climate control repair services
through the Midas system. During 2000, the Company acquired 27 such locations at
a total cost of $7.4 million. Approximately $1.2 million of the $2.6 million
decline in the Company's other sales and revenues was due to a reduction in the
number of company-operated shops from 17 in 1999 to 10 in 2000.
Cost of sales and revenues increased $1.4 million or 2.6% compared to the
second quarter of fiscal 1999. Cost of sales and revenues as a percent of total
sales and revenues increased from 53.8% in the second quarter of fiscal 1999 to
55.3% in the second quarter of fiscal 2000. This increase as a percent of sales
was due to the reduction in high margin retail sales at company-operated shops
and relatively lower margins associated with the Company's new product lines.
Selling, general and administrative expenses for the second quarter of
fiscal 2000 increased $0.6 million or 2.5% compared to the fiscal second quarter
of 1999. This increase in operating expenses was due entirely to operating the
previously mentioned new distribution locations, with offsetting savings related
to the sale, licensing and franchising of the company-operated shops and the
consolidation of the Canadian administration functions into the U.S. As a
percentage of total sales and revenues, selling, general and administrative
expenses represented 25.3% of sales during the second quarter of fiscal 2000
versus 24.7% in the second quarter of fiscal 1999.
Operating income was $19.1 million for the second quarter of fiscal 2000 or
$2.1 million below the prior year as the operating income margin decreased to
19.4% in fiscal 2000 compared to 21.5% in fiscal 1999.
7
Other income of $2.0 million in the second quarter of fiscal 2000 included
a non-recurring gain of $1.8 million from the sale of Midas' Australian
operations, while the prior year included a $1.0 million gain on the
finalization of the sale of Midas' European operations.
As a result of the above items and a favorable tax benefit of $0.7 million
on the sale of Midas' Australian operations, net income increased $0.1 million
from $12.3 million in the second quarter of fiscal 1999 to $12.4 million in the
second quarter of fiscal 2000.
Six Months Ended Fiscal June 2000 Compared With Six Months Ended Fiscal June
1999
The following is a summary of the Company's sales and revenues for the six
months ended fiscal June 2000 and 1999: ($ Millions)
Percent Percent
2000 to Total 1999 to Total
---- -------- ---- --------
Replacement parts sales........................ $121.5 68.6% $120.1 65.6%
Company-operated shop retail sales............. 2.2 1.2 7.8 4.2
Royalties and license fees..................... 32.8 18.6 34.0 18.6
Real estate rental revenues.................... 19.7 11.1 19.9 10.9
Other.......................................... 0.8 0.5 1.4 0.7
------ ----- ------ -----
Sales and revenues............................. $177.0 100.0% $183.2 100.0%
====== ===== ====== =====
Approximately $5.6 million of the overall sales decline of $6.2 million was
due to a reduction in the number of company-operated shops, due to the sale,
licensing and franchising of these shops. Royalties and license fees, real
estate rental revenues and other revenues all showed slight declines, while the
Company showed a $1.4 million increase in its replacement parts business. The
increase in replacement parts sales resulted from the expansion of the Company's
distribution channels which more than offset lower exhaust and brake product
shipments. As part of its distribution and product expansion strategy, the
Company plans to add several hundred small climate control distribution
locations in North America over the next three years. These distribution
locations will serve both Midas Dealers and other customers and will support the
company's introduction of climate control repair services through the Midas
system. During 2000, the Company acquired 27 such locations at a total cost of
$7.4 million.
Cost of sales and revenues declined $1.6 million or 1.6% compared to the
first six months of fiscal 1999, primarily due to the decline in sales. Cost of
sales and revenues as a percent of total sales and revenues increased slightly
from 53.4% in the first six months of fiscal 1999 to 54.4% in the first six
months of fiscal 2000. This increase as a percent of sales was due to the
reduction in high margin retail sales at company-operated shops and relatively
lower margins associated with the Company's new product lines.
Selling, general and administrative expenses for the first six months of
fiscal 2000 declined $2.5 million or 4.8% compared to the first six months of
fiscal 1999. This decrease in operating expenses was primarily related to a
reduction in the number of company-operated shops and the consolidation of the
Canadian administration functions into the U.S., which were partially offset by
operating expenses related to the new distribution locations. As a percentage of
total sales and revenues, selling, general and administrative expenses
represented 27.7% of sales during the first six months of fiscal 2000 versus
28.2% in the prior fiscal period.
8
Operating income was $31.6 million for the first six months of fiscal 2000
or $2.1 million below the prior year as the operating income margin decreased to
17.9% in fiscal 2000 compared to 18.4% in fiscal 1999.
Other income of $3.9 million in the first six months of fiscal 2000
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. Other income of $1.9 million in the prior year included a
$1.0 million gain on the finalization of the sale of Midas' European operations.
As a result of the above items, net income increased $1.1 million or 5.9%
from $18.8 million in the first six months of fiscal 1999 to $19.9 million in
the first six months of fiscal 2000.
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
Item 5: Other Information
Midas, Inc. has established the date for its 2001 Annual Meeting of
Shareholders as May 10, 2001. This is a change from the 2000 Proxy Statement
which stated that "The 2001 annual meeting is expected to be held on May 3,
2001." A shareholder proposal or nomination intended to be brought before the
2001 annual meeting must be received by the Corporate Secretary after the close
of business on February 16, 2001 and prior to the close of business on March 8,
2001. All proposals and nominations should be addressed to Midas, Inc., 1300
Arlington Heights Road, Itasca, Illinois 60143, Attention: Corporate Secretary.
Beginning on January 1, 2001, Midas, Inc. will change from making quarterly
dividend payments to making a single annual dividend payment.
Exhibit 27, Financial Data Schedule, was filed only electronically with the
Securities Exchange Commission.
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: August 14, 2000: /s/ William M. Guzik
--------------------
William M. Guzik
Vice President and Controller
(As Chief Accounting Officer and Duly
Authorized Officer of Midas, Inc.)
10