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 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 01-13409
MIDAS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-4180556
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
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 29, 2002 was 14,976,099.
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
-------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
Sales and revenues..................................... $90.4 $88.0 $171.8 $166.2
Cost of sales and revenues............................. 44.1 48.6 85.0 89.9
Selling, general, and distribution expenses............ 37.2 26.1 72.3 55.7
----- ----- ------ ------
Operating income.................................. 9.1 13.3 14.5 20.6
Interest expense....................................... (2.7) (2.2) (5.3) (4.5)
Other income, net...................................... 0.3 0.2 0.3 0.4
----- ----- ------ ------
Income before taxes............................... 6.7 11.3 9.5 16.5
Income taxes........................................... 2.6 4.4 3.7 6.4
----- ----- ------ ------
Net income........................................ $ 4.1 $ 6.9 $ 5.8 $ 10.1
===== ===== ====== ======
Earnings per share:
Basic................................................ $ .27 $ .46 $ .39 $ .67
===== ===== ====== ======
Diluted.............................................. $ .27 $ .46 $ .38 $ .67
===== ===== ====== ======
Dividends per common share............................. $ .00 $ .00 $ .00 $ .08
===== ===== ====== ======
Average number of shares
Common shares outstanding............................ 15.0 14.9 15.0 14.9
Equivalent shares on outstanding stock options....... .1 .0 .0 .0
----- ----- ------ ------
Shares applicable to diluted earnings................ 15.1 14.9 15.0 14.9
===== ===== ====== ======
See notes to condensed financial statements.
1
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
Fiscal Fiscal
June December
2002 2001
---- ----
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents ........................................ $ 2.1 $ 1.5
Receivables, net ................................................. 61.3 44.9
Inventories ...................................................... 121.9 119.3
Other current assets ............................................. 28.3 26.8
------ ------
Total current assets ........................................... 213.6 192.5
Property and equipment, net ......................................... 169.9 171.7
Goodwill ............................................................ 20.1 19.8
Other assets ........................................................ 16.8 19.1
------ ------
Total assets .................................................. $420.4 $403.1
====== ======
Liabilities and Equity:
Current liabilities:
Short-term debt .................................................. $ -- $ 0.1
Current portion of long-term obligations ......................... 85.4 16.0
Accounts payable ................................................. 54.3 56.7
Accrued expenses ................................................. 24.7 33.3
------ ------
Total current liabilities ...................................... 164.4 106.1
Long-term debt ...................................................... 30.0 118.0
Obligations under capital leases .................................... 7.9 8.2
Finance lease obligation ............................................ 38.9 --
Deferred income taxes and other liabilities ......................... 31.4 30.7
------ ------
Total liabilities .............................................. 272.6 263.0
------ ------
Shareholders' equity:
Common stock ($.001 par value, 100 million shares authorized;
17.3 million shares issued) and paid-in capital ................. 22.2 22.3
Treasury stock, at cost (2.3 million shares and 2.3 million shares) (52.9) (53.0)
Notes receivable from common stock sold to officers ............... (3.7) (4.1)
Unamortized restricted stock awards ............................... (2.0) (2.5)
Retained income ................................................... 190.4 184.6
Cumulative other comprehensive income (loss) ...................... (6.2) (7.2)
------ ------
Total shareholders' equity ...................................... 147.8 140.1
------ ------
Total liabilities and equity .................................. $420.4 $403.1
====== ======
See notes to condensed financial statements.
2
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
For the six months
ended fiscal June
------------------
2002 2001
------- --------
Cash flows from operating activities:
Net income ................................................. $ 5.8 $ 10.1
Adjustments reconciling net income to
net cash provided by (used in) operating activities:
Depreciation and amortization .......................... 8.4 7.4
Changes in assets and liabilities, exclusive of effects
of acquisitions and dispositions ..................... (25.9) (10.5)
------- -------
Net cash provided by (used in) operating activities ........ (11.7) 7.0
------- -------
Cash flows from investing activities:
Capital investments ........................................ (7.1) (10.1)
Cash paid for acquired businesses .......................... (0.4) (5.9)
------- -------
Net cash used in investing activities ...................... (7.5) (16.0)
------- -------
Cash flows from financing activities:
Short-term borrowing repayments, net ....................... (0.1) (2.5)
Long-term debt borrowings (repayments) ..................... (19.3) 13.3
Finance lease obligation borrowings ........................ 39.6 --
Payment of obligations under capital leases ................ (0.4) (0.4)
Cash received for common stock ............................. 0.2 0.1
Cash paid for treasury shares .............................. (0.2) (1.0)
Dividends paid to shareholders ............................. -- (1.5)
------- -------
Net cash provided by financing activities .................. 19.8 8.0
------- -------
Net change in cash and cash equivalents .................... 0.6 (1.0)
Cash and cash equivalents at beginning of period ........... 1.5 1.8
------- -------
Cash and cash equivalents at end of period ................. $ 2.1 $ 0.8
======= =======
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 2001 ............. 17.3 $22.3 (2.3) $(53.0) $(4.1) $(2.5) $184.6 $(7.2)
Purchase of treasury shares ...... -- -- -- (0.2) -- -- -- --
Stock option transactions ........ -- (0.1) -- 0.3 -- -- -- --
Retirement of notes receivable
from officers .................. -- -- -- -- 0.4 -- -- --
Amortization of restricted stock
awards ......................... -- -- -- -- -- 0.5 -- --
Net income ....................... -- -- -- -- -- -- 5.8 $5.8 --
Other comprehensive income
--foreign currency translation
adjustments .................. -- -- -- -- -- -- -- 1.0 1.0
----
Comprehensive income ............. -- -- -- -- -- -- -- $6.8 --
---- ----- ---- ------ ----- ----- ------ ==== -----
Fiscal second quarter end 2002 ... 17.3 $22.2 (2.3) $(52.9) $(3.7) $(2.0) $190.4 $(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 29, 2002 ("second quarter fiscal 2002")
and June 30, 2001 ("second quarter fiscal 2001") and of its financial position
as of June 29, 2002. All such adjustments are of a normal recurring nature. The
results of operations for the interim fiscal 2002 and 2001 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 29, 2002 and June 30, 2001 both cover a 13-week period, while the unaudited
condensed financial statements for the six months ended June 29, 2002 and June
30, 2001 both cover a 26-week period.
Certain reclassifications have been made to the previously reported fiscal 2001
financial statements in order to provide consistency with the fiscal 2002
results. These reclassifications did not affect previously reported operating
income, net income or earnings per share.
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
------------------
2002 2001
------ -----
Interest paid .............................. $ 4.0 $ 4.6
Income tax refunds ......................... (3.0) (7.8)
Income taxes paid .......................... 0.3 4.2
3. Inventories
Inventories, summarized by major classification, were as follows (in millions):
Fiscal Fiscal
June December
2002 2001
----------- --------
(Unaudited)
Raw materials and work in process ...... $ 2.7 $ 3.1
Finished goods ......................... 119.2 116.2
------- --------
$ 121.9 $ 119.3
======= ========
5
4. Real Estate Sale and Leaseback Transaction
Midas owns retail properties throughout the United States that are leased to
franchisees and operated as Midas shops. During the second quarter of fiscal
2002 the Company sold 77 of these properties to Realty Income Corporation, a
publicly traded real estate investment trust (REIT), and realized approximately
$39.6 million in net proceeds. Simultaneous to that sale, Midas leased these
properties from Realty Income and the sites continue to be leased to Midas
franchisees under currently existing leases. Because these properties will
continue to generate rents to Midas, there will be no effect on revenues.
In accordance with the provisions of Statement of Financial Accounting Standards
No. 98, "Accounting for Leases," the Company recorded a finance lease obligation
on the balance sheet of $39.6 million, equal to the net sale price of the
properties, and no gain on the sale was recognized. The properties remain on the
balance sheet at their historic cost and will continue to be depreciated over
the remainder of their useful lives. Annual lease payments of approximately $4.4
million will be made through the expiration of the lease in 2022.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Midas' cash and cash equivalents increased $0.6 million in the first six
months of fiscal 2002.
The Company's operating activities used net cash flow of $11.7 million
during the first six months of fiscal 2002 compared to $7.0 million of cash flow
generated in the first six months of fiscal 2001. The year-over-year change of
$18.7 million was due to the $4.3 million decline in net income, partially
offset by a $1.0 million increase in depreciation and amortization, and changes
in working capital requiring $25.9 million in cash as compared to only $10.5
million required in 2001. The $15.4 million increase in working capital
requirements relative to the same period in fiscal 2001 was primarily due to a
$2.4 million reduction in accounts payable in the current year as compared to a
$14.8 million increase in accounts payable during the comparable period in
fiscal 2001, when growth in inventory to support new PWI locations was initially
funded through vendor terms. Inventory was up slightly from December 2001, and
accounts receivable experienced its normal seasonal increase.
Investing activities used $7.5 million in cash during the first six months
of fiscal 2002 compared to using $16.0 million during the comparable six month
period one year ago. Fiscal 2002 investing activities consist primarily of
ongoing systems development and capital expenditures to upgrade 72
company-operated shops acquired during the fourth quarter of fiscal 2001. In the
first six months of fiscal 2001 investing activities consisted of $10.1 million
in capital investments and $5.9 million in cash paid for acquired businesses.
Capital investments of $10.1 million related to ongoing system projects, upgrade
of acquired company-operated shops, expansion of the PWI wholesale network, and
normal maintenance capital expenditures. The $5.9 million in cash paid to
acquire businesses during the first six months of fiscal 2001 reflected the
Company's purchase of the assets of Progressive Automotive Systems of Houston,
Texas, a provider of automotive industry point-of-sale software sold under the
name R.O.Writer, as well as the acquisition of seven company-operated shops.
Net cash generated by financing activities was $19.8 million in the first
six months of fiscal 2002 compared to net cash generated of $8.0 million in the
first six months of fiscal 2001. In the first six months of fiscal 2002, the
cash was generated primarily through the sale of 77 owned properties during the
fiscal second quarter. The Company sold these properties to Realty Income
Corporation, a publicly traded real estate investment trust (REIT). Simultaneous
to the sale, Midas leased these properties from Realty Income and the sites
continue to be leased to Midas franchisees under currently existing leases.
Midas received approximately $39.6 million in net proceeds from the transaction.
Because these properties will continue to generate rents to Midas, there will be
no effect on revenues. As a result of this transaction, the Company recorded a
finance lease obligation on the balance sheet equal to the sale price and no
gain on the sale of the properties was recognized. The properties remain on the
balance sheet at their historic cost. Proceeds from this transaction were used
to reduce borrowings under the Company's unsecured line of credit and to fund
the working capital requirements of the business. In the first six months of
fiscal 2001, $8.0 million in cash was generated primarily through an increase in
borrowing on the Company's unsecured revolving line of credit, partially offset
by the repayment of short-term borrowings and the payment of dividends to
shareholders.
The Company's existing unsecured line of credit facility expires in January
2003. All borrowings under the revolving line of credit have been reclassified
from Long-Term Debt, as shown on the fiscal December 2001 balance sheet, to
Current Portion of Long-Term Obligations for the fiscal June 2002 balance sheet.
The Company suspended the payment of dividends to shareholders in 2002 and does
not expect that it will resume dividend payments in the foreseeable future.
7
The Company's strategic growth initiatives encompass the acquisition of
additional company-operated shops from franchisees and the opening of additional
PWI wholesale distribution sites. The Company has slowed the rollout of these
initiatives in order to focus on enhancing internal operations and securing
funds to support the working capital and capital expenditure requirements for
this planned expansion. The future rollout of these initiatives is dependent
upon refinancing existing borrowing facilities and securing additional sources
of funds.
The Company is in the process of structuring its balance sheet in order to
support its strategic growth initiatives. This process includes the reduction of
bank debt through the recently completed sale and leaseback of certain of the
Company's owned properties, raising additional long-term funds and/or creating
additional debt capacity, and the refinancing of the Company's existing
unsecured revolving line of credit. Each of these financing activities is
discussed in greater detail below:
Sale and Leaseback of Owned Properties: Midas, Inc. owns retail properties
throughout the United States that are leased to franchisees and operated as
Midas shops. As mentioned above, during the second quarter of fiscal 2002 the
Company sold 77 of these properties to Realty Income Corporation, a publicly
traded real estate investment trust (REIT), and realized approximately $39.6
million in net proceeds. Simultaneous to that sale, Midas leased these
properties from Realty Income and the sites continue to be leased to Midas
franchisees under currently existing leases. Subsequent to the sale, Midas
continues to own approximately 250 retail properties. As part of the Company's
effort to finance its strategic growth initiatives, additional properties may be
sold and leased-back.
Other Long-Term Funding Alternatives: In order to fund the Company's
strategic growth initiatives, the Company will likely require additional funds
beyond levels that will be obtained through a new revolving line of credit. The
Company is exploring a number of possibilities with regard to raising these
incremental funds. Potential funding sources include, but are not limited to,
raising additional secured or unsecured debt through a fixed principal long-term
debt structure, the outright sale of real estate owned by Midas, additional sale
and leaseback transactions, the mortgaging of certain of the Company's owned
property portfolio, and the issuance of additional equity. These additional
funding sources may incorporate higher interest rates and may include more
restrictive covenants than existing funding sources.
Revolving Line of Credit: The Company's existing $135 million unsecured
revolving line of credit facility expires in January 2003. This facility enables
the Company to borrow at variable interest rates with covenant restrictions
principally based on Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") and net worth. The Company's access to additional funds
on this facility has decreased in the past year as a reduction in the Company's
EBITDA on a rolling four quarters basis has led to reduced borrowing capacity
under the terms of the facility. The Company is currently negotiating to secure
a new revolving line of credit to replace the existing facility. The ultimate
terms and size of the new facility will be dependent upon the outcome of the
other activities discussed above.
The future rollout of the Company's strategic growth initiatives is
dependent upon the successful completion of the above-described financing
activities. While the Company is in the process of revising its existing capital
structure, there can be no assurances that the Company's future capital
structure will satisfy all of the funding needs contemplated by the Company's
planned growth initiatives. Further, there can be no assurances that any of the
above-described funding sources will materialize in the foreseeable future. At
present and in the foreseeable future a substantial portion of the Company's
operating cash flow is expected to support the Company's growth initiatives and
any debt service resulting from borrowings assumed to support such growth. Any
material decline in the Company's EBITDA or operating cash flows from present
levels could seriously impair the Company's ability to continue to execute on
its growth plans.
8
The Company believes that cash flow generated from operations and
availability under its existing line of credit will be adequate to fund the
growth in working capital and capital expenditures necessary to support ongoing
operations until the recapitalization is complete. The Company's access to
borrowings under its existing line of credit is dependent upon the Company's
EBITDA and operating cash flow performance. A material decrease in EBITDA or
operating cash flow from fiscal 2001 levels could result in increased borrowing
costs, a decrease in the level of funds available under existing lines of
credit, or an acceleration of debt repayment.
9
RESULTS OF OPERATIONS
Second Quarter Fiscal 2002 Compared with Second Quarter Fiscal 2001
The following is a summary of the Company's sales and revenues for the
second quarter of fiscal 2002 and 2001: ($ Millions)
Percent Percent
2002 to Total 2001 to Total
----- ------- ----- --------
Replacement parts sales .................. $49.9 55.3% $58.2 66.1%
Company-operated shop retail sales ....... 14.0 15.5 2.4 2.7
Royalties and license fees ............... 16.5 18.2 17.5 19.9
Real estate rental revenues .............. 9.5 10.5 9.6 10.9
Other .................................... 0.5 0.5 0.3 0.4
----- ----- ----- -----
Sales and revenues ....................... $90.4 100.0% $88.0 100.0%
===== ===== ===== =====
Sales and revenues for the second quarter of fiscal 2002 increased $2.4
million or 2.7% from the second quarter of fiscal 2001 to $90.4 million, as a
decline in replacement part sales was offset by increased sales from
company-operated shops.
Replacement parts sales decreased $8.3 million to $49.9 million from $58.2
million in the second quarter of fiscal 2001. Replacement parts sales through
the Company's traditional wholesale distribution channel declined 26%, driven
mostly by continued erosion in demand for replacement exhaust systems and
increased just-in-time parts sourcing by traditional wholesale customers. At the
same time, replacement parts sales through the Company's PWI wholesale
distribution channel, which serves the just-in-time replacement parts needs of
Midas dealers and customers outside the Midas system, increased by 31%. Sales
growth in the PWI channel reflects an expanded network of 75 PWI sites, compared
with 56 sites in the same period a year earlier. The lines between the
traditional wholesale business and PWI continue to blur as Midas dealers learn
the benefits of just-in-time purchasing, resulting in lower in-shop inventory
levels and lower purchases through the traditional wholesale channel.
Within the retail auto service business, revenues from company-operated
shops rose $11.6 million from the same period in fiscal 2001. The sales increase
reflects an increase in the average number of shops in operation during the
quarter. The number of company-operated shops was 110 at the end of the second
quarter of 2002 versus 17 at the end of second quarter in fiscal 2001. Royalty
revenues and license fees were down 5.7% from the second quarter of 2001 due to
an increase in the number of company-operated shops, whose sales no longer
generate royalty revenue, as well as modest declines in system-wide Midas retail
sales. Revenues from real estate rentals declined slightly.
Cost of sales and revenues for the second quarter of 2002 declined $4.5
million or 9.3% versus the second quarter of 2001. Cost of sales and revenues as
a percent of total sales and revenues decreased to 48.8% in fiscal 2002 from
55.2% in fiscal 2001. This improvement was due to the increase in higher-margin
retail sales from company-operated shops, as well as continuing improvement in
PWI wholesale margins resulting from a more favorable product mix.
Selling, general and distribution expenses for the first quarter of 2002
increased $11.1 million, or 42.5% from 2001 to $37.2 million. This increase
consists of incremental operating expenses associated with 93 additional
company-operated shops and 19 additional PWI sites, partially offset by lower
operating expenses associated with sales declines in the traditional wholesale
parts distribution business and lower corporate administrative expense as a
result of actions taken to reduce corporate staff in January 2002. As a result
of these factors, selling,
10
general and distribution expenses as a percentage of total sales and revenues
increased from 29.7% in the second quarter of fiscal 2001 to 41.1% in the second
quarter of fiscal 2002.
As a result of the above changes, operating income declined $4.2 million
from $13.3 million in the second quarter of 2001 to $9.1 million in the second
quarter of 2002. These changes caused a decrease in operating income margin from
15.1% in the second quarter of 2001 to 10.1% in the second quarter of 2002.
Interest expense increased from $2.2 million in the second quarter of 2001
to $2.7 million in the second quarter of 2002 as a result of higher debt levels
associated with funding the Company's expansion of its company-operated shop and
PWI businesses over the past year.
The Company's effective tax rate for the second quarter of both fiscal 2001
and fiscal 2002 was 38.9%.
As a result of the above items, net income decreased $2.8 million from $6.9
million in the second quarter of 2001 to $4.1 million in the second quarter of
2002.
Six Months Ended Fiscal June 2002 Compared With
Six Months Ended Fiscal June 2001
The following is a summary of the Company's sales and revenues for the six
months ended fiscal June 2002 and 2001, respectively: ($ Millions)
Percent Percent
2002 to Total 2001 to Total
------ -------- ------ --------
Replacement parts sales ................ $93.3 54.3% $108.9 65.5%
Company-operated shop retail sales ..... 27.8 16.2 4.1 2.5
Royalties and license fees ............. 30.9 18.0 33.3 20.1
Real estate rental revenues ............ 18.9 11.0 19.2 11.5
Other .................................. 0.9 0.5 0.7 0.4
------ ----- ------ -----
Sales and revenues ..................... $171.8 100.0% $166.2 100.0%
====== ===== ====== =====
Sales and revenues for the first six months of fiscal 2002 increased $5.6
million or 3.4% from the first six months of fiscal 2001 to $171.8 million, as a
decline in replacement part sales was offset by increased sales from
company-operated shops.
Replacement parts sales decreased $15.6 million to $93.3 million from
$108.9 million in the first six months of fiscal 2001. Replacement parts sales
through the Company's traditional wholesale distribution channel declined 28%.
This performance, as mentioned above, was driven mostly by continued erosion in
demand for replacement exhaust systems and increased just-in-time parts sourcing
by traditional wholesale customers. At the same time, replacement parts sales
through the Company's PWI wholesale distribution channel, which serves the
just-in-time replacement parts needs of Midas dealers and customers outside the
Midas system, increased by 48%. Sales growth in the PWI channel reflects an
expanded network of PWI sites compared with the same period a year earlier.
Within the retail auto service business, revenues from company-operated
shops rose $23.7 million from the same period in fiscal 2001. The sales increase
reflects an increase in the average number of shops in operation during the six
month period. Royalty revenues and license fees were down 7.2% from the first
half of 2001 due to an increase in the number of company-operated shops, as well
as a modest decline in system-wide Midas retail sales. Revenues from real estate
rentals declined slightly.
Cost of sales and revenues for the first six months of 2002 declined $4.9
million or 5.4% versus the first six months of 2001. Cost of sales and revenues
as a percent of total sales and revenues decreased to 49.5% in fiscal 2002 from
11
54.1% in fiscal 2001. This improvement was due to the increase in higher-margin
retail sales from company-operated shops, as well as continuing improvement in
PWI wholesale margins resulting from a more favorable product mix.
Selling, general and distribution expenses for the first six months of
2002 increased $16.6 million, or 29.8% from 2001 to $72.3 million. This increase
consists of incremental operating expenses associated with additional
company-operated shops and additional PWI sites, partially offset by lower
operating expenses associated with sales declines in the traditional wholesale
parts distribution business and lower corporate administrative expense as a
result of actions taken to reduce corporate staff in January 2002. As a result
of these factors, selling, general and distribution expenses as a percentage of
total sales and revenues increased from 33.5% in the first six months of fiscal
2001 to 42.1% in the first six months of fiscal 2002.
As a result of the above changes, operating income declined $6.1
million from $20.6 million in the first six months of 2001 to $14.5 million in
the first six months of 2002. These changes caused a decrease in operating
income margin from 12.4% in the first six months of 2001 to 8.4% in the first
six months of 2002.
Interest expense increased from $4.5 million in the first six months of
2001 to $5.3 million in the first six months of 2002 as result of higher debt
levels associated with funding the Company's expansion of its company-operated
shop and PWI businesses over the past year.
The Company's effective tax rate for the first six months of both
fiscal 2001 and fiscal 2002 was 38.9%.
As a result of the above items, net income decreased $4.3 million from
$10.1 million in the first six months of 2001 to $5.8 million in the first six
months of 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". 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. The
Company adopted the provisions of SFAS No. 142 for previously acquired
intangibles in the first quarter of fiscal 2002. The adoption of SFAS No. 142
did not have a material effect on the Company's results of operations or
financial position. The amortization of goodwill in the first six months of
fiscal 2001 was approximately $177 thousand.
On January 1, 2002 the Company adopted SFAS No. 144, "Accounting for
the Impairment and Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment and disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it retains many
of the fundamental provisions of that Statement. SFAS No. 144 also supersedes
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations, Reporting the Effects of the Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business. However, it retains
the requirement in APB No. 30 to report separately discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment or in a distribution to owners) or is classified as
held for sale. The adoption of SFAS No. 144 did not have any impact on the
Company's financial statements.
12
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; the Company's ability to access debt and
equity markets; 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.
13
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 9, 2002.
(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
2005 Annual Meeting of Shareholders, (2) the consideration of a proposal
to approve the Midas, Inc. Directors' Deferred Compensation Plan, and (3)
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 Withheld
-------- ---------- ----------
Thomas L. Bindley 13,352,437 394,901
Robert R. Schoeberl 13,353,228 394,110
Additional Directors, whose terms of office as Directors continued
after the meeting, are as follows:
Term Expiring in 2003 Term Expiring in 2004
--------------------- ---------------------
Herbert M. Baum Wendel H. Province
Jarobin Gilbert, Jr. Archie R. Dykes
(2) The proposal to approve the Midas, Inc. Directors' Deferred
Compensation Plan was approved by shareholders as follows:
For Against Abstain
------------ ------------ ------------
13,159,481 523,831 64,026
(3) The proposal to approve the appointment of KPMG LLP as independent
auditors was approved by shareholders as follows:
For Against Abstain
------------ ------------ ------------
13,501,203 222,761 23,374
(d) Not Applicable.
14
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 12, 2002: /s/ William M. Guzik
-----------------------------
William M. Guzik
Senior Vice President and
Chief Financial Officer
/s/ James M. Haeger, Jr.
-----------------------------
James M. Haeger, Jr.
Vice President and Controller
15