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 June 30, 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1300 Arlington Heights Road, Itasca, Illinois 60143
(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 June 30, 2001 was 14,921,306.
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
---------------------- ----------------------
2001 2000 2001 2000
------ ------ ------ ------
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
Sales and revenues........................................... $ 87.3 $ 98.4 $164.8 $177.0
Cost of sales and revenues................................... 47.9 54.4 88.6 96.3
Selling, general, and distribution expenses.................. 26.1 24.9 55.6 49.1
------ ------ ------ ------
Operating income........................................ 13.3 19.1 20.6 31.6
Interest expense Other...................................... ( 2.2) ( 1.9) ( 4.5) ( 4.0)
Other income, net............................................ 0.2 2.0 0.4 3.9
------ ------ ------ ------
Income before taxes..................................... 11.3 19.2 16.5 31.5
Income taxes................................................. 4.4 6.8 6.4 11.6
------ ------ ------ ------
Net income.............................................. $ 6.9 $ 12.4 $ 10.1 $ 19.9
====== ====== ====== ======
Earnings per share:
Basic...................................................... $ .46 $ .79 $ .67 $ 1.27
====== ====== ====== ======
Diluted.................................................... $ .46 $ .78 $ .67 $ 1.25
====== ====== ====== ======
Dividends per common share................................... $ .00 $ .02 $ .08 $ .04
====== ====== ====== ======
Average number of shares
Common shares outstanding.................................. 14.9 15.6 14.9 15.6
Equivalent shares on outstanding stock options............. .0 .2 .0 .2
------ ------ ------ ------
Shares applicable to diluted earnings...................... 14.9 15.8 14.9 15.8
====== ====== ====== ======
See notes to condensed financial statements.
1
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
Fiscal Fiscal
June December
2001 2000
------- -------
(Unaudited)
Assets:
Current assets:
Cash and cash equivalent........... $ 0.8 $ 1.8
Receivables, net................... 58.3 45.6
Inventories........................ 100.8 76.9
Other current assets............... 16.0 24.3
------- -------
Total current assets............. 175.9 148.6
Property and equipment, net............... 154.3 149.9
Other assets.............................. 32.1 23.2
------- -------
Total assets........................ $ 362.3 $ 321.7
======= =======
Liabilities and Equity:
Current liabilities:
Short-term debt.................... $ 1.5 $ 3.2
Current portion of long-term
obligations..................... 17.3 16.6
Accounts and dividends payable..... 46.1 31.3
Accrued expenses................... 33.2 28.9
------- -------
Total current liabilities............ 98.1 80.0
Long-term debt............................ 96.0 84.1
Obligations under capital leases.......... 8.6 9.1
Deferred income taxes and other
liabilities............................ 22.0 20.1
------- -------
Total liabilities................ 224.7 193.3
------- -------
Shareholders' equity:
Common stock ($.001 par value, 100 million
shares authorized;17.3 million
shares issued) and paid-in capital... 23.2 24.6
Treasury stock, at cost (2.3 million
shares and 2.3 million shares)....... ( 54.6) ( 55.6)
Notes receivable from common stock
sold to officers..................... ( 4.9) ( 6.1)
Unamortized restricted stock awards..... ( 2.0) ( 1.8)
Retained income......................... 182.1 173.2
Cumulative other comprehensive
income (loss)........................ ( 6.2) ( 5.9)
------- -------
Total shareholders' equity............ 137.6 128.4
------- -------
Total liabilities and equity........ $ 362.3 $ 321.7
======= =======
See notes to condensed financial statements.
2
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
For the six months
ended fiscal June
2001 2000
------ ------
Cash flows from operating activities:
Net income.......................................... $ 10.1 $ 19.9
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization................... 7.1 5.5
Cash outlays for business transformation costs.. (2.4) (3.0)
Gains on the sales of assets.................... - (3.8)
Changes in assets and liabilities, net of
effects of acquisitions and dispositions..... (7.8) (12.1)
------ ------
Net cash provided by operating activities........... 7.0 6.5
------ ------
Cash flows from investing activities:
Cash paid for capital investments and acquired
businesses...................................... (16.0) (16.8)
Proceeds from sales of assets...................... - 8.7
------ ------
Net cash used in investing activities.............. (16.0) (8.1)
------ ------
Cash flows from financing activities:
Short-term borrowings (repayments), net............ (2.5) 7.9
Long-term debt borrowings (repayments)............. 13.3 (6.8)
Payment of obligations under capital leases........ (0.4) (0.4)
Cash received for common stock..................... 0.1 2.0
Cash paid for treasury shares...................... (1.0) (11.0)
Dividends paid to shareholders..................... (1.5) (0.6)
------ ------
Net cash provided by (used in) financing
activities...................................... 8.0 (8.9)
------ ------
Net change in cash and cash equivalents............ (1.0) (10.5)
Cash and cash equivalents at beginning of period... 1.8 13.1
------ ------
Cash and cash equivalents at end of period......... $ 0.8 $ 2.6
====== ======
See notes to condensed financial statements.
3
MIDAS, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(In millions)
Common Stock Notes Receivable
And From Unamortized Comprehensive
Paid-in Capital Treasury Stock Common Stock Restricted Retained Income
---------------- ---------------- --------------------
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.... -- -- -- (1.0) -- -- -- --
Stock option transactions...... -- (0.6) -- 0.7 -- -- -- --
Retirement of notes receivable
from officers................ -- -- -- -- 1.2 -- -- --
Amortization of restricted stock
awards....................... -- -- -- -- -- 0.3 -- --
Net income..................... -- -- -- -- -- -- 10.1 $10.1 --
Other comprehensive income -
foreign currency
translation adjustments...... -- -- -- -- -- -- -- (0.3) (0.03)
Comprehensive income............ -- -- -- -- -- -- -- $ 9.8 --
=======
Dividends to shareholders....... -- -- -- -- -- -- (1.2) --
------- ----- ------ ------ --------------- ----- ------ --------
Fiscal second quarter end 2001.. 17.3 $23.2 (2.3) $(54.6) $(4.9) $(2.0) $182.1 $(6.2)
======= ===== ====== ====== =============== ===== ====== ========
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 June 30, 2001 ("second
quarter fiscal 2001") and July 1, 2000 ("second quarter fiscal 2000") and of its
financial position as of June 30, 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
June 30, 2001 and July 1, 2000 both cover a 13-week period, while the unaudited
condensed financial statements for the six months ended June 30, 2001 and July
1, 2000 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
---------------------
2001 2000
----- -----
Interest paid....................................................... $ 4.5 $ 4.2
Income tax refunds.................................................. (7.8) (0.7)
Income taxes paid................................................... 4.2 8.5
3. Inventories
Inventories, summarized by major classification, were as follows (in millions):
Fiscal Fiscal
June December
2001 2000
------ -----
(Unaudited)
Raw materials and work
in process.......................... $ 4.1 $ 4.7
Finished goods....................... 96.7 72.2
------ -----
$100.8 $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 $1.0 million during fiscal 2001.
The Company generated net cash flows from operating activities of $7.0
million for the first six months of fiscal 2001 versus $6.5 million for the
first six months of fiscal 2000. The year-over-year decrease in net income of
$9.8 million was offset by a $1.6 million increase in depreciation and
amortization, a $0.6 million decrease in business transformation payments, a
$3.8 million decrease in gains on the sale of assets, and a $4.3 million
decrease in working capital changes.
The Company's working capital needs generally expand during the second
quarter (higher receivables and inventory) due to the normal seasonal upturn in
the business. In addition, the continued opening of new Parts Warehouse, Inc.
("PWI") locations and company-operated shops will continue to expand the working
capital needs of the Company. For 2001, these increases in working capital
requirements were mitigated by $7.8 million of income tax refunds.
Investing activities used $16.0 million in cash during the first half of
fiscal 2001 compared to $8.1 million during the first half of fiscal 2000.
Fiscal 2001 investing activities consist of capital investments and cash paid
for acquired businesses totaling $16.0 million. Capital investments relate to
ongoing system projects, expansion of the PWI network, and normal capital
expenditures. Businesses acquired during the first half of fiscal 2001 include
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
consist of capital investments and cash paid for acquired businesses totaling
$16.8 million, offset by proceeds of $8.7 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.
Net cash generated by financing activities was $8.0 million in the first
half of fiscal 2001 compared to $8.9 million of funds used in the first half 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 $10.4 million to fund capital investments and
business acquisitions, paid $1.0 million for treasury shares and paid $1.5
million in dividends to shareholders. In fiscal 2000, the Company had net
borrowings of $0.7 million, paid $11.0 million for treasury shares, and paid
$0.6 million in dividends to shareholders.
The Company believes that current cash balances, cash generated from
operations, and availability under its line of credit will be adequate to fund
the growth in working capital and capital expenditures necessary to support
future growth in sales for the foreseeable future, as well as the Company's
share repurchase plan.
6
RESULTS OF OPERATIONS
Second Quarter Fiscal 2001 Compared with Second Quarter Fiscal 2000
The following is a summary of the Company's sales and revenues for the
second quarter of fiscal 2001 and 2000: ($ Millions)
Percent Percent
2001 to Total 2000 To Total
------ -------- ------ --------
Replacement parts sales... $ 57.5 65.9% $ 69.0 70.1%
Company-operated shop
retail sales.............. 2.4 2.8 1.8 1.8
Royalties and license
fees...................... 17.5 20.0 17.3 17.6
Real estate rental
revenues.................. 9.6 11.0 9.8 10.0
Other..................... 0.3 0.3 0.5 0.5
------ ------ ------ ------
Sales and revenues........ $ 87.3 100.0% $ 98.4 100.0%
====== ====== ====== ======
Sales and revenues for the second quarter of fiscal 2001 were $11.1 million
below last year's fiscal second quarter due entirely to an $11.5 million decline
in replacement parts sales. While Midas system comparable store sales continue
to grow (comparable store sales were up 2 percent for the quarter), the changing
mix of retail sales out of the core categories of exhaust and brakes 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 June 30, 2001,
the Company had 57 PWI locations open for business and plans to add several
hundred in the next several years.
Cost of sales and revenues decreased $6.5 million or 11.9% compared to the
second quarter of fiscal 2000. Cost of sales and revenues as a percent of total
sales and revenues decreased from 55.3% in the second quarter of fiscal 2000 to
54.9% in the second 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 higher royalties.
Selling, general and distribution expenses for the second quarter of fiscal
2001 increased $1.2 million from $24.9 million in fiscal 2000 to $26.1 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 29.9% of sales during the second
quarter of fiscal 2001 versus 25.3% in the second quarter of fiscal 2000.
As a result of the above changes, operating income decreased by $5.8
million from $19.1 million in fiscal 2000 to $13.3 million for the second
quarter of fiscal 2001.
7
Other income declined from $2.0 million in fiscal 2000 to $0.2 million for
the second quarter of fiscal 2001. The fiscal 2000 amount included a non-
recurring gain of $1.8 million from the sale of Midas' Australian operations.
The tax provision for the second quarter of fiscal 2000 included a
favorable tax benefit of $0.7 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 $5.5 million from
$12.4 million in the second quarter of fiscal 2000 to $6.9 million in the second
quarter of fiscal 2001.
Six Months Ended Fiscal June 2001 Compared With Six Months Ended
Fiscal June 2000
The following is a summary of the Company's sales and revenues for the six
months ended fiscal June 2001 and 2000, respectively: ($ Millions)
Percent Percent
2001 To Total 2000 To Total
------ ----------- ------ ---------
Replacement parts sales ................ $107.5 65.2% $121.5 68.6%
Company-operated shop retail sales...... 4.1 2.5 2.2 1.2
Royalties and license fees.............. 33.3 20.2 32.8 18.5
Real estate rental revenue.............. 19.2 11.7 19.7 11.2
Other................................... 0.7 0.4 0.8 0.5
------ ----- ------ -----
Sales and revenues...................... $164.8 100.0% $177.0 100.0%
====== ===== ====== =====
Sales and revenues for the first six months of fiscal 2001 were $12.2
million below the prior year due to a $14.0 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 $1.9 million due to an increase in the average number of shops during
the period as well as increases in comparable shop retail sales. Royalties and
license fees were up slightly to $33.3 million from $32.8 million in 2000 due to
an increase in North American franchisee retail sales, including a 2 percent
increase in comparable shop retail sales.
Cost of sales and revenues declined $7.7 million or 8% compared to the
first six months of fiscal 2000. Cost of sales and revenues as a percent of
total sales and revenues decreased slightly from 54.4% in the first six months
of fiscal 1999 to 53.8% in the first six months of fiscal 2000. This
improvement in gross margin is the result of a greater proportion of higher-
margin retail sales from company-operated shops and higher royalties.
Selling, general and distribution expenses for the first six months of
fiscal 2001 increased $6.5 million from $49.1 million in fiscal 2000 to $55.6
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 six months of fiscal 2001 versus 27.7% in the prior fiscal period.
8
As a result of the above changes, operating income decreased by $11.0
million from $31.6 million in fiscal 2000 to $20.6 million for the first six
months of fiscal 2001 and the operating income margin decreased from 17.9% in
fiscal 2000 to 12.5% in fiscal 2001.
Other income declined from $3.9 million in fiscal 2000 to $0.4 million in
the first six 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.
As a result of the above items, net income decreased $9.8 million from
$19.9 million in the first six months of fiscal 2000 to $10.1 million in the
first six 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 addresses
financial accounting and reporting for business combinations. SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets. The Company is required to comply with SFAS No. 141 for all
new acquisitions that occur beginning in the third quarter of fiscal year 2001.
The Company is required to comply with SFAS No. 142 in the third quarter of
fiscal 2001 for new acquisitions and in the first quarter of fiscal 2002 for
previously acquired intangibles.
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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 10, 2001.
(b) Not Applicable.
(c) At the Annual Meeting of Shareholders, the shareholders voted on the
following matters: (1) the election of two directors to serve until the 2004
Annual Meeting of Shareholders, and (2) the approval of independent auditors.
The voting results were as follows:
(1) Each nominee for director was elected by a vote of the shareholders as
follows:
Director For Witheld
--------- ---------------- ---------------
Wendel H. Province 12,860,609 967,692
Archie R. Dykes 13,456,014 372,287
Additional Directors, whose terms of office as Directors continued
after the meeting, are as follows:
Term Expiring in 2002 Term Expiring in 2003
--------------------- ---------------------
Thomas L. Bindley Herbert M. Baum
Robert R. Schoeberl Jarobin Gilbert, Jr.
(2) The proposal to approve the appointment of KPMG LLP as independent
auditors was approved by the shareholders as follows:
For Against Abstain
--------------- ---------------- ----------------
13,649,958 148,656 29,687
(d) Not Applicable.
SIGNATURE
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.
Date: August 14, 2001 /s/ William M. Guzik
--------------------------
William M. Guzik
Senior Vice President and
Cheif Financial Officer
10