SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 27, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 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 38-4180556
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
225 North Michigan Avenue Chicago, Illinois 60601
(Address of principal executive offices) (Zip Code)
(312) 565-7500
(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 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 registrant had 16,896,109 shares of common stock outstanding as of June 27,
1998.
MIDAS, INC.
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Statements Of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements Of Cash Flows
Notes to Condensed Financial Statements
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Exhibit 4.1 $200,000,000 Credit Agreement
Among
Midas, Inc. and Midas International Corporation,
as Borrowers,
The Lenders Named Herein,
The First National Bank of Chicago,
as Administrative Agent,
and Credit Suisse First Boston, as Co-Agent
Exhibit 4.2 Amendment No.1 To Credit Agreement
Exhibit 4.3 Midas International Corporation
$75,000,000
6.89% Guaranteed Senior Notes Due 2005
Fully and Unconditionally Guaranteed by Midas, Inc.
Exhibit 27 Financial Data Schedule
SIGNATURE
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings per share)
For the Quarter For the Six Months
Ended June Ended June
------------------ --------------------
1998 1997 1998 1997
-------- -------- --------- ---------
Sales and revenues.................................................... $141.8 $160.3 $273.0 $302.3
Cost of goods sold.................................................... 67.9 74.0 130.1 140.6
Selling, general, and administrative expenses......................... 52.2 64.3 109.5 127.7
------ ------ ------ ------
Operating income.................................................... 21.7 22.0 33.4 34.0
------ ------ ------ ------
Whitman charges....................................................... - (4.5) (1.1) (9.0)
------ ------ ------ ------
Interest expense:
Whitman............................................................. - (1.8) (0.5) (3.9)
Other............................................................... (3.4) (0.6) (6.7) (1.1)
Total interest expense.............................................. (3.4) (2.4) (7.2) (5.0)
------ ------ ------ ------
Other income (expense), net........................................... 0.4 0.2 0.8 0.5
------ ------ ------ ------
Income before taxes................................................. 18.7 15.3 25.9 20.5
Income tax provisions................................................. 7.5 6.7 10.5 8.8
------ ------ ------ ------
Net income.......................................................... $ 11.2 $ 8.6 $ 15.4 $ 11.7
====== ====== ====== ======
EARNINGS PER SHARE:
Basic................................................................ $ .66 $ .91
====== ======
Diluted.............................................................. $ .65 $ .89
====== ======
Pro forma basic and diluted.......................................... $ .55 $ .78
====== ======
DIVIDENDS PER COMMON SHARE............................................ $ .02 $ .02
====== ======
AVERAGE NUMBER OF SHARES:
Common shares outstanding............................................ 16.9 16.9
Equivalent shares on outstanding stock options....................... .3 .3
Shares applicable to diluted earnings................................ 17.2 17.2
Pro forma common shares outstanding.................................. 17.0 17.0
See notes to condensed financial statements.
1
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
June December
1998 1997
----------- --------
ASSETS: (Unaudited)
Current assets:
Cash and cash equivalents......................................... $ 10.8 $ 12.5
Receivables, net.................................................. 73.2 65.7
Inventories....................................................... 73.8 79.8
Other current assets.............................................. 21.2 30.8
------- ------
Total current assets............................................ 179.0 188.8
Property and equipment, net......................................... 186.8 198.2
Intangible assets, net.............................................. 23.2 29.3
Other assets........................................................ 21.1 26.8
------- ------
Total assets.................................................... $ 410.1 $443.1
======= ======
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt................................................... $ 10.0 $ 1.0
Short-term obligations under capital leases....................... 0.7 0.8
Accounts and dividends payable.................................... 53.7 40.3
Other current liabilities......................................... 52.9 64.9
------- ------
Total current liabilities....................................... 117.3 107.0
Loans and advances from Whitman..................................... - 55.5
Long-term debt...................................................... 148.5 3.5
Obligations under capital leases.................................... 13.0 14.6
Deferred income taxes and other liabilities......................... 22.6 28.4
------- ------
Total liabilities............................................... 301.4 209.0
------- ------
Shareholder equity:
Common stock and capital in excess of par value
($.001 par value, 100 million shares authorized,
16.9 million shares outstanding June 1998)....................... 27.5 -
Treasury stock, at cost, .1 million shares........................ (1.6) -
Combined capital accounts......................................... - 26.6
Retained income................................................... 94.8 217.3
Accumulated other comprehensive income (loss)..................... (12.0) (9.8)
------- ------
108.7 234.1
------- ------
Total liabilities and equity.................................... $ 410.1 $443.1
======= ======
See notes to condensed financial statements.
2
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
For the Six
Months
Ended June
----------
1998 1997
---- ----
Cash flows from operating activities:
Net income...................................................................... $ 15.4 $ 11.7
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization................................................... 8.6 11.3
Cash expenditures for non-recurring charges..................................... (12.6) -
Changes in assets and liabilities............................................... 19.6 (21.2)
-------- -------
Net cash provided by (used in) operating activities............................... 31.0 1.8
-------- -------
Cash flows from investing activities:
Capital investments............................................................. (9.5) (14.5)
Receipts associated with disposition of former
U.S. Company-operated stores.................................................. 15.7 -
Proceeds from sales of property and equipment................................... 2.7 2.2
-------- -------
Net cash provided by (used in) investing activities............................... 8.9 (12.3)
-------- -------
Cash flows from financing activities:
Long-term debt incurred......................................................... 291.4 -
Short-term borrowings (repayments).............................................. 5.0 (1.8)
Long-term debt repayments....................................................... (142.8) -
Payment of obligations under capital leases..................................... (0.4) (0.6)
Purchase of Treasury Stock...................................................... (2.6) -
Stock issued under stock option plans........................................... 1.0 -
Net increase (decrease) in loans and advances from Whitman...................... (55.5) 8.2
Dividends to Whitman............................................................ (137.6) (2.4)
-------- -------
Net cash provided by (used in) financing activities............................... (41.5) 3.4
-------- -------
Effect of exchange rate changes on cash and cash equivalents...................... (0.1) (0.6)
-------- -------
Net change in cash and cash equivalents........................................... (1.7) (7.7)
-------- -------
Cash and cash equivalents at beginning of period.................................. 12.5 18.2
-------- -------
Cash and cash equivalents at end of period........................................ $ 10.8 $ 10.5
======== =======
See notes to condensed financial statements.
3
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 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. The
results of operations for interim periods are not necessarily indicative of the
results that may be achieved on an annual basis.
The unaudited condensed financial statements for the six months ended June 27,
1998 cover a 27-week period, while the statements for the quarter cover a 13-
week period and present the consolidated financial statements of Midas and its
wholly-owned consolidated subsidiaries.
The six months and quarter ended June 21, 1997 were also 27-week and 13-week
periods, respectively. The statement of operations and cash flow statement for
this period and the balance sheet as of December 20, 1997 present combined
financial information for Midas, which was then comprised of wholly-owned
subsidiaries of Whitman Corporation ("Whitman"), including Midas International
Corporation ("Midas International") and its wholly-owned subsidiaries and other
Midas companies owned by Whitman but directly managed by Midas International.
In January 1998, these companies became wholly-owned subsidiaries of Midas. (As
required by the context, the terms "Midas" or the "Company" refers to Midas,
Inc. or to the group of companies that became wholly-owned subsidiaries of
Midas, Inc. in January 1998.) On January 30, 1998, as a result of the spin-off
by Whitman, Midas became an independent, publicly held company.
Certain amounts for 1997 have been reclassified to conform with current period
classifications.
NOTE 2. Pro Forma Information
Pro forma basic and diluted earnings (loss) per share for the six months and
quarter ended June 21, 1997 have been calculated on the assumption that the 17.0
million shares of common stock that were distributed on January 30, 1998 had
been outstanding since the beginning of 1997. Pro forma adjustments have been
made to give effect to increases or decreases in costs that would have been
incurred by Midas as an independent, publicly held company, rather than a
subsidiary of Whitman. The pro forma adjustments for the second quarter and for
the six months of fiscal 1997 are summarized as follows (in millions):
For the For the
Quarter Six Months
Ended Ended
June June
-------------- --------------
Incremental administrative expenses
of an independent, publicly held company.................................... $ (0.7) $ (1.4)
Elimination of Whitman charges................................................. 4.5 9.0
Elimination of interest paid to Whitman........................................ 1.8 3.9
Incremental interest expense of an independently-capitalized
Company..................................................................... ( 4.4) ( 9.1)
Incremental income tax provision............................................... ( 0.4) ( 0.9)
------ ------
Increase in pro forma net income............................................... $ 0.8 $ 1.5
====== ======
4
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 3. 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
June
1998 1997
------------- ------------
Interest paid - Whitman............................................ $ 1.0 $ 3.9
Interest paid - other............................................... 4.4 1.2
Income tax (refunds)................................................ (3.7) -
Income taxes paid................................................... 4.6 11.7
NOTE 4. Comprehensive Income
In January 1998, Midas adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income." Midas comprehensive income consists of
(a) net income as reported in the statement of operations and (b) other
comprehensive income (loss), which is comprised solely of foreign currency
translation adjustments. Midas has not recorded income tax benefits on its
foreign currency translation adjustments. For the first six months of 1998,
comprehensive loss was $2.2 million, as compared to a comprehensive loss of
$5.5 million in the first six months of 1997. The accumulated amount of other
comprehensive income (loss) through the date of each balance sheet is presented
as a component of shareholder equity. Comprehensive income will be reported in
a separate financial statement in each of the Company's future annual reports.
NOTE 5. Inventories
Inventories, summarized by major classification, were as follows (in millions):
June December
1998 1997
-------------- -------------
(Unaudited)
Raw materials $ 3.6 $ 2.7
Work in process 1.1 1.1
Finished goods 69.1 76.0
----- -----
$73.8 $79.8
===== =====
5
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
In anticipation of the January 30, 1998 spin-off from Whitman, Midas
entities entered into three new debt agreements in January 1998. Midas and its
wholly-owned subsidiary, Midas International, entered into a five year,
unsecured revolving credit facility with a syndicate of commercial banks and
financial institutions that enables Midas and Midas International to borrow
funds at variable interest rates up to an aggregate principal amount of $200
million. Midas International also entered into a seven-year $50 million
unsecured term loan arrangement with an institutional investor. Midas France
S.A. entered into a loan agreement with a syndicate of financial institutions
providing for a 100 million French franc, five-year amortizing term loan.
In January 1998, in order to settle its Whitman obligations of $210 million
($137.6 million dividend and $72.4 million of intercompany loans and advances),
and to provide for working capital on and after the spin-off, Midas
International borrowed $150 million under the revolving credit facility and $50
million under the term loan, while Midas France S.A. borrowed 100 million French
francs ($16.4 million) under the French term loan.
On April 15, 1998, Midas arranged a private placement of $75 million in
unsecured debt at a fixed rate of 6.89% with an investment grade (BBB) rating
from Duff & Phelps Credit Co. The maturity date of the debt is April 15, 2005.
The proceeds were used to retire the $50 million term loan and $25 million in
bank debt.
As the result of favorable operating and investing activities, which are
discussed in the following paragraphs, Midas reduced its debt obligations by
$45.3 million during the second quarter.
At June 1998, Midas had cash and cash equivalents of $10.8 million,
compared to $12.5 million at December 1997. Cash inflow from operating
activities amounted to $31.0 million in the first six months of 1998, compared
to cash inflow of $1.8 million in the first six months of 1997. The year-to-year
change principally resulted from a decrease in working capital in the first six
months of 1998 compared to a working capital increase in the same period in
1997.
Cash inflow from investing activities during the first six months of 1998
amounted to $8.9 million compared to cash outflow of $12.3 million during the
first six months of 1997. The variance between the six month periods was
principally due to proceeds from asset sales associated with the franchising of
67 former U.S. Company-operated stores in connection with the plan for disposal
adopted by Midas in the third quarter of 1997.
6
RESULTS OF OPERATIONS
1998 Second Quarter Compared with 1997 Second Quarter.
At the end of the second quarter of 1998, there were 2,717 Midas stores in
operation system-wide versus 2,705 one year ago. Stores in operation by
business segment were as follows:
System-wide Stores in Operation
June 1998 June 1997 Change
--------- --------- ------
U.S. Operations:
Franchise activities.................................... 1,808 1,750 3 %
Company-operated stores................................. 69 148 (53)
----- -----
Total U.S............................................ 1,877 1,898 ( 1)
----- -----
Non-U.S. Operations
Europe.................................................. 424 396 7
Canada.................................................. 248 247 -
Other................................................... 168 164 2
----- -----
Total Non-U.S........................................ 840 807 4
----- -----
Total................................................ 2,717 2,705 - %
===== =====
The increase over the past year in the number of U.S. franchised stores in
operation, and the corresponding decrease in the number of U.S. Company-operated
stores was principally due to the franchising of Company-operated stores. This
is the result of a Company program adopted in the third quarter of 1997 to
franchise virtually all of its U.S. Company-operated stores in order to more
clearly focus on growing the franchised stores portion of the U.S. business.
The net decrease of 21 stores in operation at the end of the quarter was due to
the closing of stores deemed to have low retail sales potential.
The year-over-year growth in non-U.S. stores in operation was due to store
growth in Europe, or more specifically, store additions in France and Spain.
7
Midas System-wide Retail Sales. Midas system-wide retail sales in the
second quarter (including both franchised and Company-operated stores) decreased
$11.5 million, or 3% to $401.4 million. Retail sales as measured in U.S. dollars
would have been approximately $6.6 million higher if currency exchange rates had
remained the same in 1998 as in 1997. Following is a summary of Midas system-
wide retail sales for the quarters ended June 1998 and 1997, by business segment
(in millions):
System-Wide Retail Sales
For the Quarter
Ended June
----------
1998 1997 Change
---- ---- ------
U.S. Operations:
Franchise activities.............................. $285.7 $282.2 1 %
Company-operated stores........................... 12.3 24.2 (49)
------ ------
Total U.S..................................... 298.0 306.4 ( 3)
------ ------
Non-U.S. Operations
Europe............................................ 57.6 57.6 -
Canada............................................ 33.5 35.8 ( 6)
Other............................................. 12.3 13.1 ( 6)
------ ------
Total Non-U.S................................. 103.4 106.5 ( 3)
------ ------
Total......................................... $401.4 $412.9 ( 3) %
====== ======
Midas system-wide retail sales in the U.S. declined 3% in the second
quarter or $8.4 million to a total of $298.0 million. The decrease was the
result of lower retail customer traffic due in part to the closing of (net) 21
low retail potential stores in the first half of 1998, and lower customer
traffic at the remaining Company-operated stores. The decrease in retail sales
from Company-operated stores in the quarter was due to a net decrease of 79
stores in operation versus a year ago. Of the decrease of 79 stores, 12 stores
were closed and 67 were franchised under a divestiture program adopted in the
third quarter of 1997. The number of Company-operated stores in the U.S. is
expected to decline further in the second half of 1998 as additional stores are
franchised.
Midas system-wide retail sales in Europe were even with the year ago
quarter as reported in U.S. dollars. Had currency exchange rates remained the
same in 1998 as in 1997, retail sales in Europe would have been approximately
$60.7 million or 5% above last year's second quarter, primarily due to an
increase in the number of stores in operation. Midas system-wide retail sales in
Canada were $33.5 million for the quarter, which was down $2.3 million or 6%
below the 1997 second quarter. Approximately 60% of the decrease was the result
of fluctuations in currency exchange rates, with the balance due to lower retail
customer traffic.
Retail sales from other non-U.S. operations were down 6% or $0.8 million to
$12.3 million for the quarter. Had currency exchange rates remained at 1997
levels, retail sales from these operations would have been up $1.3 million over
the year ago quarter.
8
Midas Sales and Revenues. Sales and revenues decreased by $18.5 million or
12% to a total of $141.8 million. Sales and revenues as measured in U.S. dollars
would have been approximately $2.5 million higher if currency exchange rates had
remained the same in 1998 as in 1997. Following is a summary of sales and
revenues for the quarters ended June 1998 and 1997, by business segment (in
millions):
Sales and Revenues
For the Quarter
Ended June
----------
1998 1997 Change
---- ---- ------
U.S. Operations:
Franchise activities.............................. $ 85.7 $ 88.3 ( 3) %
Company-operated stores........................... 12.3 24.2 (49)
------ ------
Total U.S..................................... 98.0 112.5 (13)
------ ------
Non-U.S. Operations
Europe............................................ 27.7 29.0 ( 5)
Canada............................................ 14.3 16.3 (12)
Other............................................. 1.8 2.5 (28)
------ ------
Total Non-U.S................................. 43.8 47.8 ( 8)
------ ------
Total......................................... $141.8 $160.3 (12) %
====== ======
Sales and revenues from U.S. Operations decreased by $14.5 million or 13%
in the second quarter to a total of $98.0 million. Sales and revenues from U.S.
franchise activities declined $2.6 million or 3% to a total of $85.7 million.
This decline was due primarily to lower wholesale replacement part selling
prices to franchisees reflecting a pass through of cost reductions received by
the Company from outside vendors. There were 79 fewer Company-operated stores in
operation at the end of June versus one year ago, which was the primary factor
in lower second quarter sales and revenues at U.S. Company-operated stores.
European sales and revenues decreased $1.3 million or 5% to a total of
$27.7 million for the quarter. Had currency exchange rates remained at 1997
levels, sales and revenues from European operations would have been $29.2
million or approximately even with a year ago.
Canadian sales and revenues decreased $2.0 million or 12% to a total of
$14.3 million for the quarter. Had currency exchange rates remained at 1997
levels, second quarter sales and revenues from Canadian operations would have
been $14.9 million, or a decrease of $1.4 million, principally because of the
franchising of former Company-operated stores.
Sales and revenues from other non-U.S. Operations declined due to a
combination of currency exchange rate fluctuations and the franchising of former
Company-operated stores in Australia.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $12.1 million or 19% to a total of $52.2
million for the quarter. Approximately two-thirds of the decrease in operating
expenses was due to the decline in the number of U.S. Company-operated stores.
The remainder of the decrease was spread across all of the Company's business
segments. Operating expenses in relation to sales and revenues decreased 3
percentage points to 37%.
9
Operating Income. Operating income in the quarter decreased $0.3 million to a
total of $21.7 million. The following is a summary of operating income for the
quarters ended June 1998 and 1997, by business segment (in millions):
Operating Income
For the Quarter
Ended June
---------------
1998 1997 Change
---- ---- ------
U.S. Operations:
Franchise activities................................. $21.6 $19.9 9 %
Company-operated stores.............................. - 0.2 *
----- -----
Total U.S........................................ 21.6 20.1 8
----- -----
Non-U.S. Operations
Europe............................................... 0.8 1.9 *
Canada............................................... 1.1 1.5 *
Other................................................ (0.1) (0.1) -
----- -----
Total Non-U.S.................................... 1.8 3.3 *
----- -----
Total segment operating income................... 23.4 23.4 -
Corporate administrative expenses...................... (1.7) (1.4) (21)
----- -----
Total............................................ $21.7 $22.0 ( 1)%
===== =====
*Not meaningful.
Operating income from U.S. operations in the second quarter increased 8% to a
total of $21.6 million. This improvement was due to lower operating expenses.
Operating income from non-U.S. operations in the second quarter decreased $1.5
million to $1.8 million. This decrease was principally due to relatively weak
retail markets in both France and Canada.
Whitman Charges. There were no Whitman charges in the second quarter of 1998,
since the spin-off occurred in the first quarter on January 30, 1998, as
compared to $4.5 million of Whitman charges in the second quarter of 1997.
Interest Expense. Interest expense for the second quarter increased $1.0
million, or 41% to a total of $3.4 million. The increase in interest expense
was due to a substantial increase in the Company's long-term debt to enable the
Company to repay $72.4 million of loans and advances from Whitman Corporation
and a special dividend to Whitman of $137.6 million in connection with the spin-
off. Partially offsetting the effect of higher debt levels were lower interest
rates on the new debt.
10
First Six Months of 1998 Compared with the First Six Months of 1997
Midas System-wide Retail Sales. Midas system-wide retail sales for the first
six months of 1998 (including both franchised and Company-operated stores)
decreased $33.3 million, or 4% to $751.6 million. Retail sales as measured in
U.S. dollars would have been approximately $15.8 million higher if currency
exchange rates had remained the same in 1998 as in 1997. Following is a summary
of Midas system-wide retail sales for the six months ended June 1998 and 1997,
by business segment (in millions):
System-Wide Retail Sales
For the Six Months
Ended June
------------------
1998 1997 Change
---- ---- ------
U.S. Operations:
Franchise activities.............................. $527.6 $538.7 ( 2)%
Company-operated stores........................... 30.0 45.0 (33)
------ ------
Total U.S..................................... 557.6 583.7 ( 4)
------ ------
Non-U.S. Operations
Europe............................................ 109.7 109.6 -
Canada............................................ 59.3 64.1 ( 7)
Other............................................. 25.0 27.5 ( 9)
------ ------
Total Non-U.S................................. 194.0 201.2 ( 4)
------ ------
Total......................................... $751.6 $784.9 ( 4)%
====== ======
Midas system-wide retail sales in the U.S. declined 4% or $26.1 million in the
first half of the year to a total of $557.6 million. The decrease was the
result of lower retail customer traffic primarily due to: a major national
retail promotion during the first quarter of 1997 and the absence of a similar
promotion in 1998, the closing of (net) 21 stores deemed to have limited retail
sales potential and lower retail sales at remaining Company-operated stores.
The decrease in retail sales from Company-operated stores was also due to a
decrease of 79 stores in operation versus one year ago. Of the decrease of 79
stores, 12 stores were closed and 67 stores franchised in 1998 under a
divestiture program adopted in the third quarter of 1997. The number of
Company-operated stores in the U.S. is expected to decline further in the second
half of 1998 as additional stores are franchised.
Midas system-wide retail sales in Europe of $109.7 million were slightly above
the prior year as reported in U.S. dollars. Had currency exchange rates
remained the same in 1998 as in 1997, first half retail sales in Europe would
have been approximately $118.6 million or 8% above the prior year, primarily due
to an increase in the number of stores in operation.
Midas system-wide retail sales in Canada were $59.3 million for the six months
ended June 1998, which was down $4.8 million or 7% below 1997. Sixty percent of
the decrease was the result of fluctuations in currency exchange rates, with the
balance due to lower retail customer traffic.
Retail sales from other non-U.S. operations were down 9% or $2.5 million to
$25.0 million for the six months ended June 1998. Had currency exchange rates
remained at 1997 levels, retail sales from these operations would have been up
$1.5 million over one year ago.
11
Midas Sales and Revenues. Sales and revenues decreased by $29.3 million or
10% to a total of $273.0 million. Sales and revenues as measured in U.S.
dollars would have been approximately $6.2 million higher if currency exchange
rates had remained the same in 1998 as in 1997. Following is a summary of sales
and revenues for the six months ended June 1998 and 1997, by business segment
(in millions):
Sales and Revenues
For the Six Months
Ended June
----------
1998 1997 Change
----- ---- ------
U.S. Operations:
Franchise activities................................................ $160.3 $168.4 (5)%
Company-operated stores............................................. 30.0 45.0 (33)
------ ------
Total U.S........................................................ 190.3 213.4 (11)
------ ------
Non-U.S. Operations
Europe.............................................................. 52.9 54.8 (4)
Canada.............................................................. 26.1 28.8 (9)
Other............................................................... 3.7 5.3 (30)
------ ------
Total Non-U.S................................................... 82.7 88.9 (7)
------ ------
Total........................................................... $273.0 $302.3 (10)%
====== ======
Sales and revenues from U.S. Operations decreased $23.1 million in the
first half versus a year ago, or 11% to a total of $190.3 million. Approximately
65% of the decline was due to Company-operated stores and the closing or
franchising of a substantial number of these stores as noted in the management
discussion of retail sales trends. The balance of the decrease was due to a
combination of: lower shipments of wholesale replacement parts due in part to
the elimination of several inefficient distribution points and programs, lower
wholesale replacement selling prices and closed stores.
European sales and revenues decreased $1.9 million or 4% to a total of
$52.9 million for the six months ended June 1998. Had currency exchange rates
remained at 1997 levels, sales and revenues from European operations would have
been up approximately $2.4 million or 4% primarily due to an increase in the
number of stores in operation.
Canadian sales and revenues decreased $2.7 million or 9% to a total of
$26.1 million for the six months ended June 1998. Nearly one-half of the
decrease was the result of fluctuations in currency exchange rates, with the
balance due to lower retail customer traffic.
Sales and revenues from other non-U.S. Operations declined due to a
combination of currency exchange rate fluctuations and the franchising of former
Company-operated stores in Australia.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $18.2 million or 14% to a total of $109.5
million for the six months ended June 1998. Approximately 60% of the decrease
in operating expenses resulted from the decline in the number of U.S. Company-
operated stores. The remainder of the decrease was spread across all of the
Company's business segments. Operating expenses in relation to sales and
revenues decreased 2 percentage points to 40%.
12
Operating Income. Operating income for the six months ended June 1998
decreased $0.6 million or 2% to a total of $33.4 million. The following is a
summary of operating income for the six months ended June 1998 and 1997, by
business segment (in millions):
Operating Income
For the Six Months
Ended June
------------------
1998 1997 Change
---- ---- ------
U.S. Operations:
Franchise activities.............................. $36.7 $36.1 2 %
Company-operated stores........................... (0.9) (1.1) (18)
----- -----
Total U.S...................................... 35.8 35.0 2
----- -----
Non-U.S. Operations
Europe............................................ 0.2 1.0 *
Canada............................................ 1.0 1.2 *
Other............................................. (0.1) (0.4) *
----- -----
Total Non-U.S.................................. 1.1 1.8 *
----- -----
Total segment operating income................. 36.9 36.8 *
Corporate administrative expenses................... (3.5) (2.8) (25)
----- -----
Total......................................... $33.4 $34.0 ( 2)%
===== =====
*Not meaningful.
Operating income from U.S. operations increased 2% in the first half of the
year to $35.8 million. The improvement was due to lower operating expenses.
Operating income from non-U.S. operations for the six months ended June,
decreased $0.7 million to $1.1 million due to weak retail markets in France and
Canada which lowered results in the two operations.
Whitman Charges. Whitman charges for the six months were $1.1 million versus
$9.0 million one year ago or a decrease of $7.9 million. The reduction in
charges in the current year reflects one month of charges in 1998 (due to the
January 30, 1998 spin-off) compared to six months of charges in the first
quarter of 1997.
Interest Expense. Interest expense for the six months increased $2.2 million,
or 44% to a total of $7.2 million. The increase in interest expense was due to
a substantial increase in the Company's long-term debt to enable the Company to
repay $72.4 million of loans and advances from Whitman Corporation and a special
dividend to Whitman of $137.6 million in connection with the spin-off.
Partially offsetting the effect of higher debt levels were lower interest rates
on the new debt.
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MIDAS, INC.
PART 2. OTHER INFORMATION
Exhibit 4.1 $200,000,000 Credit Agreement
Among
Midas, Inc. and Midas International Corporation,
as Borrowers,
The Lenders Named Herein,
The First National Bank of Chicago,
as Administrative Agent,
and Credit Suisse First Boston, as Co-Agent
Exhibit 4.2 Amendment No.1 To Credit Agreement
Exhibit 4.3 Midas International Corporation
$75,000,000
6.89 % Guaranteed Senior Notes Due 2005
Fully and Unconditionally Guaranteed by Midas, Inc.
Exhibit 27 Financial Data Schedule
Exhibit 27, Financial Data Schedule, was filed only electronically with the
Securities and Exchange Commission.
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MIDAS, INC.
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.
MIDAS, INC.
Date: August 10, 1998 By: /s/EDWIN A. GRELL
-------------------------------------
Edwin A. Grell
Vice President and Controller
(As Chief Accounting Officer and Duly
Authorized Officer of Midas, Inc.)
15