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 September 25, 1999
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 36-4180556
(State or Other Jurisdiction of (I.R.S. Employer
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 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 16,268,197 shares of common stock outstanding as of September
25, 1999.
MIDAS, INC.
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statement
Condensed Statements of Operations
Condensed Balance Sheets
Condensed Statements of Cash Flows
Condensed Statement of Changes in Shareholders' Equity
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
No additional information is enclosed.
SIGNATURE
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings and dividends per share)
For the quarter For the nine months
ended September ended September
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(13 Weeks) (13 Weeks) (39 Weeks) (40 Weeks)
Sales and revenues........................................... $ 92.4 $ 138.6 $ 275.6 $ 411.6
Cost of sales and revenues................................... 50.0 68.0 147.9 198.1
Selling, general, and administrative expenses................ 20.9 46.2 72.5 155.7
-------- -------- -------- --------
Operating income......................................... 21.5 24.4 55.2 57.8
-------- -------- -------- --------
Whitman charges.............................................. - - - ( 1.1)
-------- -------- -------- --------
Interest expense:
Whitman.................................................. - - - ( 0.5)
Other.................................................... ( 2.0) ( 3.0) ( 6.3) ( 9.7)
-------- -------- -------- --------
Total interest expense.................................. ( 2.0) ( 3.0) ( 6.3) ( 10.2)
-------- -------- -------- --------
Other income (expense), net.................................. 0.8 0.6 2.7 1.4
-------- -------- -------- --------
Income before taxes..................................... 20.3 22.0 51.6 47.9
Income taxes................................................. 8.1 8.9 20.6 19.4
-------- -------- -------- --------
Net income................................................... $ 12.2 $ 13.1 $ 31.0 $ 28.5
======== ======== ======== ========
Earnings per share:
Basic...................................................... $ .75 $ .77 $ 1.87 $ 1.68
======== ======== ======== ========
Diluted.................................................... $ .73 $ .76 $ 1.82 $ 1.65
======== ======== ======== ========
Dividends per common share................................... $ .02 $ .02 $ .06 $ .04
======== ======== ======== ========
Average number of shares
Common shares outstanding.................................. 16.3 16.9 16.6 16.9
Equivalent shares on outstanding stock options............. .3 .4 .4 .4
-------- -------- -------- --------
Shares applicable to diluted earnings...................... 16.6 17.3 17.0 17.3
======== ======== ======== ========
See notes to condensed financial statements.
1
MIDAS, INC.
CONDENSED BALANCE SHEETS (Unaudited)
(In millions)
September December
1999 1998
--------- --------
Assets:
Current assets:
Cash and cash equivalents..................................................... $ 28.8 $ 36.9
Receivables, net.............................................................. 53.7 39.4
Inventories................................................................... 61.2 63.2
Other current assets.......................................................... 23.0 24.8
--------- --------
Total current assets......................................................... 166.7 164.3
Property and equipment, net...................................................... 142.9 142.8
Other assets..................................................................... 17.0 18.2
--------- --------
Total assets................................................................. $ 326.6 $ 325.3
========= ========
Liabilities and Equity:
Current liabilities:
Short-term debt............................................................... $ 1.8 $ 1.6
Accounts and dividends payable............................................... 31.2 19.5
Accrued expenses.............................................................. 37.1 42.2
--------- --------
Total current liabilities.................................................... 70.1 63.3
Long-term debt................................................................... 101.2 102.2
Obligations under capital leases................................................. 9.4 10.8
Deferred income taxes and other liabilities...................................... 25.7 25.6
--------- --------
Total liabilities............................................................ 206.4 201.9
--------- --------
Shareholders' equity:
Common stock ($.001 par value, 100 million shares
authorized, 17.3 million shares issued - September 1999 and
17.0 million shares issued - December 1998) and paid-in capital.............. 26.8 27.1
Treasury stock (1.0 million shares - September 1999 and
.2 million shares - December 1998, at cost).................................. (31.8) (4.2)
Notes receivable from common stock sold to officers........................... (6.1) -
Retained income............................................................... 136.9 106.9
Accumulated other comprehensive income (loss)................................. (5.6) ( 6.4)
--------- --------
Total shareholders' equity................................................... 120.2 123.4
--------- --------
Total liabilities and equity............................................ $ 326.6 $ 325.3
========= ========
See notes to condensed financial statements.
2
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
For the nine months
ended September
---------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income....................................................... $ 31.0 $ 28.5
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization.................................. 8.3 12.6
Cash outlays for business transformation costs................. (9.6) (16.3)
Changes in assets and liabilities................................ 8.1 25.2
--------- ---------
Net cash provided (used) by operating activities................... 37.8 50.0
--------- ---------
Cash flows from investing activities:
Capital investments.............................................. (15.6) (10.0)
Proceeds from sales of property and equipment.................... 8.2 23.7
--------- ---------
Net cash provided (used) in investing activities................... (7.4) 13.7
--------- ---------
Cash flows from financing activities:
Long-term debt incurred.......................................... - 291.4
Short-term borrowings............................................ - 0.3
Long-term debt repayments........................................ (0.8) (154.4)
Payment of obligations under capital leases...................... (0.5) (0.5)
Cash received for common stock................................... 7.1 2.6
Cash paid for treasury shares.................................... (43.3) (4.6)
Net increase (decrease) in loans and
advances from Whitman........................................... - (55.5)
Dividends paid to Whitman........................................ - (137.6)
Dividends paid to shareholders................................... (1.0) (0.3)
--------- ---------
Net cash provided (used) by financing activities................... (38.5) (58.6)
--------- ---------
Effect of exchange rate changes on
Cash and cash equivalents......................................... - (0.3)
--------- ---------
Net change in cash and cash equivalents............................ (8.1) 4.8
Cash and cash equivalents at beginning of period................... 36.9 12.5
--------- ---------
Cash and cash equivalents at end of period......................... $ 28.8 $ 17.3
========= =========
See notes to condensed financial statements.
3
MIDAS, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(In millions)
Notes
receivable
Common from
stock and common Accumulated
paid-in Treasury stock sold Comprehensive Retained comprehensive
capital stock to officers income earnings income
--------- -------- ----------- ------------- -------- -------------
December 1998...................... $ 27.1 $ (4.2) $ - $ 106.9 $ (6.4)
Common shares issued under
management stock incentive plan... 6.1 - (6.1) - -
Purchase of treasury shares........ - (43.3) - - -
Stock option transactions.......... (6.4) 15.7 - - -
Net income......................... - - - $ 31.0 31.0 -
Other comprehensive income -
foreign currency translation
adjustments....................... - - - 0.8 - 0.8
-------------
Comprehensive income............... - - - $ 31.8 - -
=============
Dividends to shareholders.......... - - - (1.0) -
--------- -------- ----------- -------- -------------
September 1999..................... $ 26.8 $ (31.8) $ (6.1) $ 136.9 $ (5.6)
========= ======== =========== ======== =============
Number of Shares
----------------------------
Common Treasury
stock issued stock
-------------- -----------
December 1998.................................. 17.0 (0.2)
Common shares issued under
management stock incentive plan............... 0.3 -
Purchase of treasury shares.................... - (1.3)
Stock option transactions...................... - 0.5
-------------- -----------
September 1999................................. 17.3 (1.0)
============== ===========
See notes to condensed financial statements.
4
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. In the opinion
of management, these financial statements have been prepared in conformity with
generally accepted accounting principles and reflect all adjustments necessary
for a fair statement of the results of operations and cash flows for the interim
periods ended September 25, 1999 and September 26, 1998 and of its financial
position as of September 25, 1999. All such adjustments are of a normal
recurring nature. The results of operations for the three-month and nine-month
periods ended September 25, 1999 and September 26, 1998 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"). Midas became an independent, publicly held company on January 30,
1998 as the result of a spin-off by Whitman Corporation ("Whitman"). The
unaudited condensed financial statements for the quarters ended September 25,
1999 and September 26, 1998 both cover a 13-week period, while the nine months
ended September 25, 1999 cover a 39-week period compared to a 40-week period for
the nine months ended September 26, 1998.
NOTE 2. Supplemental Cash Flow Activity
Net cash provided by operating activities reflect cash payments and receipts for
interest and taxes as follows (in millions):
For the nine months
Ended September
--------------------------
1999 1998
---------- ----------
Interest paid - Whitman...................................... $ - $ 1.0
Interest paid - other........................................ 4.2 6.6
Income tax (refunds)......................................... (0.4) (4.5)
Income taxes paid............................................ 17.3 13.2
NOTE 3. Inventories
Inventories, summarized by major classification, were as follows (in millions):
September December
1999 1998
----------- ----------
(Unaudited)
Raw materials $ 3.1 $ 2.5
Work in process 0.9 1.2
Finished goods 57.2 59.5
----------- ----------
$ 61.2 $ 63.2
=========== ==========
NOTE 4. Segment Reporting
As noted in the Company's 1998 annual report, Midas operates in a single
business segment, that is an operator of a North American (United States and
Canada) franchise and wholesale parts distribution network and a licensor of
Midas trademarks and know-how outside of North America. Sales by major product
categories are presented in Management's Discussion and Analysis of Results of
Operations.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Introduction:
In anticipation of the January 30, 1998 spin-off from Whitman, Midas
entities entered into three debt agreements in January 1998. Midas, Inc. and its
wholly-owned subsidiary, Midas International Corporation, entered into a five-
year, unsecured revolving credit facility with a syndicate of commercial banks
and financial institutions that enable the Company to borrow funds at variable
interest rates on a revolving credit basis up to an aggregate principal amount
of $200 million. Midas International Corporation also entered into a seven-year
$50 million unsecured term loan arrangement with an institutional investor. Also
in January 1998, Midas France S.A. entered into 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 after the spin-off, Midas International
Corporation 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.
As a result of the spin-off related transactions noted above, the Company's
total debt to capitalization increased from 24.4% at December 1997 to 68.5% at
March 1998.
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.
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.
In October 1998, Midas, Inc. and Magneti Marelli, S.p.A., a member of the
Fiat Group, formed a strategic alliance to develop the Midas program in the
business of fast auto service repair in Europe and South America. As part of the
alliance, Midas sold its interests in Europe and South America to Magneti
Marelli for $100 million in October 1998, and entered into a long-term license
agreement. Midas will also receive on-going royalties throughout the term of the
license agreement, as the shops in Europe will continue to operate using the
Midas name.
During 1998, the Company used a portion of the proceeds realized from the
sale of Midas Europe and the franchising of North America company-operated shops
to retire $99.0 million of short and long-term debt. This reduction in debt
lowered the Company's debt to 48.2% at December 1998. At the end of September
1999, the debt to capitalization ratio increased to 48.4% as shareholders'
equity decreased as the result of treasury stock purchases under a common stock
repurchase plan approved by the Company's Board of Directors in the first
quarter of 1999.
6
1999 Activity:
The Company generated net cash flows from operating activities of $37.8
million and $50.0 million for the nine months ended September 1999 and 1998,
respectively. The year-over-year decline was due to a normal seasonal increase
in working capital in 1999; in 1998 working capital requirements had declined as
a result of the franchising of company-operated shops and closing of low return
wholesale product distribution points.
Investing activities used $7.4 million in cash in the first nine months of
1999 and provided $13.7 million during nine months of 1998. During the nine
months of 1998 the Company franchised a number of company-operated shops in
conjunction with the strategic initiative to focus on franchising activities.
This activity provided $16.9 million in proceeds from asset sales in 1998 and
$4.1 million in 1999. In addition, 1999 results include $3.0 million in proceeds
from the sale of exhaust manufacturing machinery and equipment.
Net cash used by financing activities was $38.5 million and $58.6 million
for the nine months ended September 1999 and 1998, respectively. The primary
factor in the 1999 activity was $43.3 million used to repurchase common stock.
Midas' cash and cash equivalents totaled $28.8 million at September 1999
compared to $17.3 million at September 1998.
Midas management believes that cash flows from operations and unused
amounts available under the revolving credit facility will be sufficient to
satisfy Midas' future working capital, capital investment, share repurchase and
other financing requirements for the foreseeable future.
7
RESULTS OF OPERATIONS
1999 Third Quarter Compared with 1998 Third Quarter.
In order to execute the Company's business strategy, which is to become a
focused and efficient operator of a North American franchisee and wholesale
parts distribution network and a licensor of Midas trademarks and know-how
outside North America, the Company undertook a number of initiatives in 1997 and
1998 that significantly affected the Company's financial statements. The most
significant of these actions were the sale of the Company's European operations
and the franchising of virtually all of the company-operated shops in North
America. These two initiatives accounted for nearly 90 percent or $41.0 million
of the third quarter decrease in sales and revenues. Although these actions in
the aggregate have improved earnings in 1999, they have made quarterly
comparisons of results difficult as historically European and North American
company-operated shops realized a substantial portion of their annual sales and
earnings in the second and third quarters of the year.
The following is a summary of the Company's sales and revenues for the
quarter ended September 1999 and September 1998, respectively: ($ Millions)
Percent Percent
1999 to total 1998 to total
-------- ---------- -------- ----------
Replacement parts sales................. $ 61.9 67.0% $ 67.8 48.9%
Company-operated shop retail sales...... 1.5 1.6 39.1 28.2
Royalties and license fees.............. 18.6 20.1 19.8 14.3
Real estate rental revenues............. 10.2 11.0 9.5 6.9
Other................................... 0.2 0.3 2.4 1.7
-------- ---------- -------- ----------
Sales and revenues...................... $ 92.4 100.0% $ 138.6 100.0%
======== ========== ======== ==========
Replacement parts sales decreased $5.9 million or 8.7% during the third
quarter versus one year ago. The primary factors in this decline were: a
decrease in demand for exhaust products and a reduction in selling prices to
customers representing a pass-through of vendor price reductions granted to the
Company.
Retail sales from company-operated shops decreased $37.6 million or 96% in
the quarter due to a combination of: the sale of Midas Europe which operated 190
company-owned shops and the franchising of 160 company-operated shops in North
America since December 1997.
Royalties and license fees decreased $1.2 million or 6.1% in the quarter
principally due to the sale of Midas Europe. In 1998 the Company realized a 5%
royalty on all franchisee sales. Under the license agreement entered into with
the purchaser of Midas Europe, the Company earns a 2.5% royalty on all retail
sales in Europe.
Real estate rental revenues increased $0.7 million or 7.4% in the quarter
versus one year ago due to the leasing of former company-operated shop real
estate to franchisees.
Other sales and revenues declined principally due to the sale of Midas
Europe.
In the aggregate, third quarter sales and revenues declined $46.2 million
or 33.3% to $92.4 million versus $138.6 million in the year ago quarter.
8
Cost of sales and revenues for the quarter declined $18.0 million or 26.5%
from 1998 to $50.0 million. $12.7 million of the decrease was due to the sale of
Midas Europe in 1998 and the franchising of company-operated shops. The
remainder of the decrease was due to lower replacement parts sales. Cost of
sales and revenues as a percent to sales and revenues, increased from 49.1% in
the quarter ended September 1998 to 54.1% in the current quarter. The increase
in cost of sales and revenues as a percent to sales and revenues was due to the
sharp decline in the number of company-operated shops, which carried a
substantially higher gross margin designed to recover the relatively higher
labor and other operating expenses of a retail operation, the sale of the
European operations, and unfavorable exhaust manufacturing variances.
Selling, general and administrative expenses for the quarter declined $25.3
million or 54.8% from 1998 to $20.9 million. The sale of Midas Europe and the
franchising of company-operated shops in North America reduced selling, general
and administrative expenses by $26.5 million for the quarter. Selling, general
and administrative expenses in the quarter represented 22.6% of sales and
revenues versus 33.3% in the year ago quarter. This decline was due to the sale
of Midas Europe and to a sharp decline in the number of company-operated shops,
which carried a substantially higher operating expense component than the
ongoing business.
Operating income for the quarter decreased $2.9 million or 11.9% from 1998
to $21.5 million. The operating income margin for the quarter was 23.3% as
compared to 17.6% in the third quarter one year ago. The decrease in operating
income was due to a combination of: the sale of European operations and
franchising of company-operated shops in North America, lower shipments of
exhaust replacement products, and unfavorable exhaust manufacturing variances.
The improvement in operating income margin was due to a combination of the sale
of Midas Europe and the franchising of company-operated shops in North America.
Interest expense for the quarter declined $1.0 million or 33.3% from 1998
to $2.0 million. The decline in interest expense was due to a reduction in long-
term debt over the past 12 months.
Other income for the quarter of $0.8 million was $0.2 million above last
year.
9
Nine months ended September 1999 Compared with the Nine months ended September
1998
The following is a summary of the Company's sales and revenues for the nine
months ended September 1999 and September 1998, respectively: ($ Millions)
Percent Percent
1999 To total 1998 to total
-------- ---------- -------- -----------
Replacement parts sales............... $ 182.0 66.0% $ 198.4 48.2%
Company-operated shop retail sales.... 9.3 3.4 122.8 29.8
Royalties and license fees............ 52.6 19.1 56.0 13.6
Real estate rental revenues........... 30.1 10.9 27.8 6.8
Other................................. 1.6 0.6 6.6 1.6
-------- ---------- -------- -----------
Sales and revenues.................... $ 275.6 100.0% $ 411.6 100.0%
======== ========== ======== ===========
Replacement parts sales decreased $16.4 million or 8.3% during the nine
months of 1999 versus one year ago. The primary factors in this decline were: a
decrease in demand for exhaust products, 39 weeks of operations in 1999 versus
40 weeks in 1998, a reduction in selling prices to customers representing a
pass-through of vendor price reductions granted to the Company, and the closing
of several low return distribution points.
Retail sales from company-operated shops decreased $113.5 million or 92%
during the nine months of 1999 versus a year ago. The decrease was due to a
combination of the sale of Midas Europe, which owned and operated 190 company
shops, and the franchising of 160 company-operated shops in North America since
December 1997.
Royalties and license fees decreased $3.4 million or 6.1% during the nine
months of 1999 compared to 1998 due to the sale of Midas Europe. In 1998 the
Company realized a 5% royalty on all franchisee sales. Under the license
agreement entered into with the purchaser of Midas Europe, the Company earns a
2.5% royalty on all retail sales in Europe.
Real estate rental revenues increased $2.3 million or 8.3% during the nine
months of 1999 versus one year ago due to the leasing of former company-operated
shop real estate to franchisees.
Other sales and revenues declined principally due to the sale of Midas
Europe and the absence of the 1998 fees associated with the franchising of the
company-operated shops in North America.
In the aggregate, sales and revenues for the nine months of 1999 declined
$136.0 million or 33.0% to $275.6 million versus $411.6 million a year ago.
Cost of sales and revenues for the nine months of 1999 declined $50.2
million or 25.3% from 1998 to $147.9 million. $37.3 million or 74% of the
decrease was due to the sale of Midas Europe in 1998 and the franchising of
company-operated shops in North America. The remainder of the decrease was due
to lower replacement parts sales. Cost of sales and revenues as a percent to
sales and revenues, increased from 48.1% in the nine months ended September 1998
to 53.7% in the current nine-month period. This percentage increase was due
primarily to the sharp decline in the number of company-operated shops, which
carried a substantially lower cost of sales component than the remaining
business, the sale of Midas Europe, and unfavorable exhaust manufacturing
variances.
10
Selling, general and administrative expenses for the nine months ended
September 1999 declined $83.2 million or 53.4% from 1998 to $72.5 million. The
entire decrease in operating expenses year over year was due to the sale of
Midas Europe and the franchising of virtually all company-operated shops in
North America. Selling, general and administrative expenses for the nine months
ended September 1999 represented 26.3% of sales and revenues versus 37.8% a year
ago. This decline was due to the sale of Midas Europe and to a sharp decline in
the number of company-operated shops, which carried a substantially higher
operating expense component than the ongoing business.
Operating income for the nine months ended September 1999 decreased $2.6
million or 4.5% from 1998 to $55.2 million. The operating income margin for the
nine months of 1999 was 20.0% compared to 14.0% a year ago. The decrease in
operating income was due to a combination of lower shipments of exhaust
replacement products and unfavorable exhaust manufacturing variances. The
improvement in operating income margin was due to a combination of the sale of
Midas Europe and the franchising of company-operated shops in North America.
Interest expense for the nine months declined $3.9 million or 38.2% from
1998 to $6.3 million. The decline in interest expense was the result of a
reduction in long-term debt.
Other income for the nine months of $2.7 million was $1.3 million above
last year. This increase was the result of an additional $1.0 million gain from
the finalization of the sale of Midas Europe to Magneti Marelli, S.p.A. and a
$0.5 million gain on the sale of an idle Canadian manufacturing plant.
11
Year 2000 Update
In 1997, the Company instituted a Year 2000 project to evaluate and
remediate Year 2000 issues. The project was divided into three sections:
. The Company's computer hardware, hardware operating systems and
application software.
. Franchisee computer hardware and application software, including point of
sale hardware and software.
. Supplier computer systems.
The Company's State of Readiness. With respect to the Company's application
hardware, hardware operating systems and application software, substantially all
2000 complaint issues have been remediated and/or the systems replaced. In the
fourth quarter, extensive testing will occur to assure all systems are 2000
complaint.
With respect to franchisee systems, the Company has conducted surveys and
engaged in discussions with current franchisee systems vendors and it has been
determined that a number of the franchisee systems are not Year 2000 compliant.
The Company is working with the franchisees' system vendors to assure
compliance. Management believes that in the fourth quarter of 1999 substantially
all of the franchisee systems will be Year 2000 compliant.
With respect to the Company's suppliers, the Company initiated discussions
with major suppliers in the fourth quarter of 1998 to determine their state of
readiness and/or plans to become Year 2000 compliant and believes that all major
suppliers will be 2000 compliant by year end.
The Cost to Address the Company's Year 2000 Issues. Through September 1999,
the Company has spent approximately $4.5 million in connection with the Year
2000 project. Management estimates that an additional $0.5 million will be
required to be spent to assure all of the Company's systems are Year 2000
compliant. Management is unable to project at this time the cost to the Company,
if any, of ensuring that substantially all franchisee systems are Year 2000
compliant.
The Risks Associated with the Company's Year 2000 Issues. The failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, normal business activities and operations. Such interruptions or
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of franchisees and third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem. The Company
believes that the Year 2000 project should reduce the possibility of significant
interruptions of normal operations.
Contingency Plans. The Company has not developed contingency plans as of
this date. The Company has engaged a third party to assess the Company's
readiness for the Year 2000 issue. Should progress in completing the Year 2000
project fall behind schedule, a contingency plan will be developed.
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; 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
No additional information is enclosed.
Exhibit 27, Financial Data Schedule, was filed only electronically with the
Securities Exchange Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 4, 1999 By: /s/ EDWIN A. GRELL
-------------------------
Edwin A. Grell
Vice President and Controller
(As Chief Accounting Officer and Duly
Authorized Officer of Midas, Inc.)
14