<PAGE>
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 September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 01-13409
MIDAS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-4180556
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Arlington Heights Road Itasca, Illinois 60143
-------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(630) 438-3000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- --
The number of shares of the Registrant's Common Stock, $.001 par value per
share, outstanding as of October 28, 2000 was 15,157,062.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings and dividends per share)
<TABLE>
<CAPTION>
For the quarter For the nine months
ended fiscal September ended fiscal September
------------------------ ------------------------
2000 1999 2000 1999
------ ------ ------ ------
(13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks)
<S> <C> <C> <C> <C>
Sales and revenues......................................... $ 94.3 $ 92.4 $271.3 $275.6
Cost of sales and revenues................................. 51.9 50.0 148.2 147.9
Selling, general, and administrative expenses.............. 28.9 20.9 78.0 72.5
------ ------ ------ ------
Operating income....................................... 13.5 21.5 45.1 55.2
Interest expense........................................... (2.1) (2.0) (6.1) (6.3)
Other income, net.......................................... 0.2 0.8 4.1 2.7
------ ------ ------ ------
Income before taxes.................................... 11.6 20.3 43.1 51.6
Income taxes (benefit)..................................... (0.4) 8.1 11.2 20.6
------ ------ ------ ------
Net income............................................. $ 12.0 $ 12.2 $ 31.9 $ 31.0
====== ====== ====== ======
Earnings per share:
Basic.................................................... $ .79 $ .75 $ 2.06 $ 1.87
====== ====== ====== ======
Diluted.................................................. $ .78 $ .73 $ 2.03 $ 1.82
====== ====== ====== ======
Dividends per common share................................. $ .02 $ .02 $ .06 $ .06
====== ====== ====== ======
Average number of shares
Common shares outstanding................................ 15.3 16.3 15.5 16.6
Equivalent shares on outstanding stock options........... .1 .3 .2 .4
------ ------ ------ ------
Shares applicable to diluted earnings.................... 15.4 16.6 15.7 17.0
====== ====== ====== ======
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
Fiscal Fiscal
September December
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents............................. $ - $ 13.1
Receivables, net...................................... 58.2 43.5
Inventories........................................... 71.7 63.5
Other current assets.................................. 18.6 20.7
------ ------
Total current assets................................ 148.5 140.8
Property and equipment, net............................. 145.7 140.5
Other assets............................................ 27.8 24.6
------ ------
Total assets........................................ $322.0 $305.9
====== ======
Liabilities and Equity:
Current liabilities:
Short-term debt....................................... $ 4.4 $ 1.8
Accounts and dividends payable........................ 31.5 26.4
Income taxes payable.................................. 3.5 1.6
Accrued expenses...................................... 31.2 26.4
------ ------
Total current liabilities........................... 70.6 56.2
Long-term debt.......................................... 85.3 101.0
Obligations under capital leases........................ 9.3 9.3
Deferred income taxes and other liabilities............. 22.8 24.8
------ ------
Total liabilities................................... 188.0 191.3
------ ------
Shareholders' equity:
Common stock ($.001 par value, 100 million shares
authorized; 17.3 million shares issued) and paid-in
capital.............................................. 23.5 26.8
Treasury stock, at cost (2.1 million shares and 1.6
million shares)...................................... (52.4) (44.9)
Notes receivable from common stock sold to officers... (6.1) (6.1)
Retained income....................................... 175.0 144.0
Cumulative other comprehensive income (loss).......... (6.0) (5.2)
------ ------
Total shareholders' equity.......................... 134.0 114.6
------ ------
Total liabilities and equity........................ $322.0 $305.9
====== ======
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
<TABLE>
<CAPTION>
For the nine months
ended fiscal September
----------------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 31.9 $ 31.0
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization................................... 7.9 8.3
Cash outlays for business transformation costs.................. (3.6) (9.6)
Gains on the sales of assets.................................... (4.2) -
Changes in assets and liabilities, net of effects of
acquisitions and dispositions................................. (6.5) 8.1
------- -------
Net cash provided by operating activities........................... 25.5 37.8
------- -------
Cash flows from investing activities:
Cash paid for acquired businesses................................... (7.6) -
Capital investments................................................. (12.2) (15.6)
Proceeds from sales of assets....................................... 9.2 8.2
------- -------
Net cash used in investing activities............................... (10.6) (7.4)
------- -------
Cash flows from financing activities:
Short-term borrowings, net.......................................... 2.8 -
Long-term debt repayments, net...................................... (15.9) (0.8)
Payment of obligations under capital leases......................... (0.5) (0.5)
Cash received for common stock...................................... 2.0 7.1
Cash paid for treasury shares....................................... (15.5) (43.3)
Dividends paid to shareholders...................................... (0.9) (1.0)
------- -------
Net cash used in financing activities............................... (28.0) (38.5)
------- -------
Net change in cash and cash equivalents............................. (13.1) (8.1)
Cash and cash equivalents at beginning of period.................... 13.1 36.9
------- -------
Cash and cash equivalents at end of period.......................... $ - $ 28.8
======= =======
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
MIDAS, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Notes
Receivable
Common Stock and From Common
Paid-in Capital Treasury Stock Stock Sold to Retained Comprehensive Income
Shares Amount Shares Amount Officers Earnings Current Cumulative
------ ------ ------ ------- -------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal year-end 1999............. 17.3 $ 26.8 (1.6) $(44.9) $(6.1) $144.0 $(5.2)
Restricted stock award........... - (1.2) 0.1 3.5 - - -
Purchase of treasury shares...... - - (0.7) (15.5) - - -
Stock option transactions........ - (2.1) 0.1 4.5 - - -
Net income....................... - - - - - 31.9 $ 31.9 -
Other comprehensive income -
foreign currency translation
adjustments..................... - - - - - - (0.8) (0.8)
------
Comprehensive income............. - - - - - - $ 31.1 -
======
Dividends to shareholders........ - - - - - (0.9) -
----- ------ ---- ------ ----- ------ -----
September 30, 2000............... 17.3 $ 23.5 (2.1) $(52.4) $(6.1) $175.0 $(6.0)
===== ====== ==== ====== ===== ====== =====
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Financial Statement Presentation
The condensed interim period financial statements presented herein do not
include all of the information and disclosures customarily provided in annual
financial statements and they have not been audited, as permitted by the rules
and regulations of the Securities and Exchange Commission. The condensed
interim period financial statements should be read in conjunction with the
annual financial statements included in the annual report on Form 10-K. In the
opinion of management, these financial statements have been prepared in
conformity with generally accepted accounting principles and reflect all
adjustments necessary for a fair statement of the results of operations and cash
flows for the interim periods ended September 30, 2000 ("third quarter fiscal
2000") and September 25, 1999 ("third quarter fiscal 1999") and of its financial
position as of September 30, 2000. All such adjustments are of a normal
recurring nature. The results of operations for the interim fiscal 2000 and
1999 periods are not necessarily indicative of the results of operations for the
full year.
The unaudited condensed financial statements present the consolidated financial
information for Midas, Inc. and its wholly-owned subsidiaries ("Midas" or the
"Company"). The unaudited condensed financial statements for the quarters ended
September 30, 2000 and September 25, 1999 both cover a 13-week period, while the
unaudited condensed financial statements for the nine months ended September 30,
2000 and September 25, 1999 both cover a 39-week period.
2. Supplemental Cash Flow Activity
Net cash provided by operating activities reflect cash payments and receipts for
interest and taxes as follows (in millions):
<TABLE>
<CAPTION>
For the nine months
ended fiscal September
-----------------------
2000 1999
-------- ---------
<S> <C> <C>
Interest paid....................................................... $ 5.0 $ 4.2
Income tax (refunds)................................................ (0.7) (0.4)
Income taxes paid................................................... 8.9 17.3
</TABLE>
5
<PAGE>
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
3. Inventories
Inventories, summarized by major classification, were as follows (in millions):
<TABLE>
<CAPTION>
Fiscal Fiscal
September December
2000 1999
----- -----
(Unaudited)
<S> <C> <C>
Raw materials and work $ 6.7 $ 4.5
in process.......................
Finished goods.................... 65.0 59.0
----- -----
$71.7 $63.5
===== =====
</TABLE>
4. Income Taxes
During the third quarter of fiscal 2000, the Company recorded a non-recurring
tax benefit of $4.8 million related to the disposition of its Australian
operations.
5. Loss Contingency
On October 13, 2000, a franchisee that operates 63 Midas shops in the Florida
market filed a voluntary petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code. As of September 30, 2000, the Company had a receivable
of $5.2 million from this franchisee for product purchases and royalties. The
Company cannot currently estimate the portion of this receivable, if any, that
it ultimately may not recover. As a result, no specific provision for losses on
this receivable has been made in the Company's fiscal 2000 financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Midas' cash and cash equivalents decreased $13.1 million in the first nine
months of fiscal 2000.
The Company generated net cash flows from operating activities of $25.5
million for the first nine months of fiscal 2000 versus $37.8 million for the
first nine months of fiscal 1999. The year-over-year decrease was due to
increased working capital. This increase in working capital in 2000 was due to
a combination of the normal seasonal upturn in the business (which results in
higher receivables), higher inventory levels needed to support the Company's
expanded product offering and warehouse expansion strategy, and slower
collections of receivables. The seasonal upturn in working capital in 1999 was
mitigated by a significant increase in accounts payable.
Investing activities used $10.6 million in cash during the first nine
months of fiscal 2000 compared with $7.4 million during the same period of
fiscal 1999. During fiscal 2000 the Company paid a total of $7.6 million to
acquire 27 climate control distribution locations. These 27 locations are being
converted to commercial parts distribution centers, which will serve both Midas
dealers and other customers, and will support the expanded service offerings at
Midas branded shops. The Company plans to add several hundred of these
commercial parts distribution locations in North America over the next three
years at an average investment of approximately $300,000 per location. The
Company also invested $12.2 million in fiscal 2000 primarily related to the
Company's ongoing management information systems projects, compared with $15.6
million in fiscal 1999. These capital investments were partially offset by
proceeds from the sale of assets of $9.2 million in fiscal 2000 and $8.2 million
in fiscal 1999. The fiscal 2000 amount includes proceeds of $5.6 million from
the sale of a former manufacturing facility and $1.8 million related to the sale
of the Company's Australian operations. The fiscal 1999 amount includes
approximately $3.0 million from the sale of exhaust manufacturing machinery and
equipment while the balance is related to the sale, licensing and franchising of
company-operated shops.
Net cash used in financing activities was $28.0 million in the first nine
months of fiscal 2000 compared with $38.5 million in the first nine months of
fiscal 1999. This $10.5 million reduction was the result of a decrease in
treasury stock repurchases, partially offset by higher debt repayments and lower
cash received for common stock option transactions. During fiscal 2000, the
Company paid $15.5 million for treasury shares, repaid $13.6 million of debt
(net), and received $2.0 million on stock option transactions. In fiscal 1999,
the Company paid $43.3 million for treasury shares, repaid $1.3 million of debt,
and received $7.1 million on stock option transactions.
The Company believes that cash generated from operations and availability
under its line of credit will be adequate to fund the growth in working capital
and capital expenditures necessary to support future growth in sales for the
foreseeable future, as well as the Company's share repurchase plan.
7
<PAGE>
RESULTS OF OPERATIONS
Third Quarter Fiscal 2000 Compared with Third Quarter Fiscal 1999
The following is a summary of the Company's sales and revenues for the
third quarter of fiscal 2000 and 1999: ($ Millions)
<TABLE>
<CAPTION>
Percent Percent
2000 to Total 1999 to Total
---- -------- ---- --------
<S> <C> <C> <C> <C>
Replacement parts sales................ $64.6 68.5% $61.9 67.0%
Company-operated shop retail sales..... 1.9 2.0 1.5 1.6
Royalties and license fees............. 17.8 18.9 18.6 20.1
Real estate rental revenues............ 9.8 10.4 10.2 11.0
Other.................................. 0.2 0.2 0.2 0.3
----- ----- ----- -----
Sales and revenues..................... $94.3 100.0% $92.4 100.0%
===== ===== ===== =====
</TABLE>
Sales and revenues for the third quarter of fiscal 2000 were $94.3 million
or $1.9 million above last year's fiscal third quarter. Increases in replacement
parts sales and company-operated shop retail sales more than offset declines in
other revenue sources. The increase in replacement parts sales of $2.7 million
resulted entirely from the expansion of the Company's distribution channels and
offset lower exhaust and brake product shipments. As part of its distribution
and product expansion strategy, the Company plans to add several hundred
commercial parts distribution locations in North America over the next three
years. These distribution locations will serve both Midas Dealers and other
customers and will support the Company's introduction of climate control repair
services through the Midas system. During 2000, the Company acquired 27 such
locations at a total cost of $7.6 million.
Cost of sales and revenues increased $1.9 million or 3.8% compared to the
third quarter of fiscal 1999. Cost of sales and revenues as a percent of total
sales and revenues increased from 54.1% in the third quarter of fiscal 1999 to
55.0% in the third quarter of fiscal 2000. This increase as a percent of sales
was due to the relatively lower margins associated with the Company's new
product lines.
Selling, general and administrative expenses for the third quarter of
fiscal 2000 increased $8.0 million or 38% compared to the fiscal third quarter
of 1999. The Company increased its advertising spending in fiscal 2000 to help
educate consumers about expanded service offerings and to stimulate retail
sales. The balance of the increase in operating expenses was due entirely to
operating the previously mentioned new distribution locations and an increase in
the average number of company-operated shops. As a percentage of total sales and
revenues, selling, general and administrative expenses represented 30.6% of
sales during the third quarter of fiscal 2000 versus 22.6% in the third quarter
of fiscal 1999.
Operating income was $13.5 million for the third quarter of fiscal 2000 or
$8.0 million below the prior year as the operating income margin decreased to
14.3% in fiscal 2000 compared to 23.3% in fiscal 1999.
8
<PAGE>
Other income was $0.2 million for the third quarter of fiscal 2000 or $0.6
million below the prior year while interest expense remained relatively
unchanged between fiscal 1999 and 2000.
Income taxes were a benefit of ($0.4) million in the third quarter of
fiscal 2000 compared with an expense of $8.1 million in 1999. During the third
quarter of fiscal 2000, the Company recorded a non-recurring tax benefit of $4.8
million related to the disposition of its Australian operations. Excluding this
benefit, the effective income tax rate was 37.9% in fiscal 2000 versus 39.9% in
fiscal 1999.
As a result of the above items, net income decreased $0.2 million from
$12.2 million for the third quarter of fiscal 1999 to $12.0 million in the third
quarter of fiscal 2000.
Nine Months Ended Fiscal September 2000
Compared With the Nine Months Ended Fiscal September 1999
The following is a summary of the Company's sales and revenues for the nine
months ended fiscal September 2000 and 1999: ($ Millions)
<TABLE>
<CAPTION>
Percent Percent
2000 to Total 1999 to Total
---- -------- ---- --------
<S> <C> <C> <C> <C>
Replacement parts sales............................ $186.1 68.6% $182.0 66.0%
Company-operated shop retail sales................. 4.1 1.5 9.3 3.4
Royalties and license fees......................... 50.6 18.7 52.6 19.1
Real estate rental revenues........................ 29.5 10.9 30.1 10.9
Other.............................................. 1.0 0.3 1.6 0.6
------ ----- ------ -----
Sales and revenues................................. $271.3 100.0% $275.6 100.0%
====== ===== ====== =====
</TABLE>
Sales were down $4.3 million overall, while retail sales from company-
operated shops were down $5.2 million. The decline in retail sales is due to a
decrease in the average number of shops operated by the Company from 1999 to
2000. Royalties and license fees, real estate rental revenues and other revenues
also showed slight declines, however replacement parts sales increased $4.1
million. The increase in replacement parts sales resulted from the expansion of
the Company's distribution channels, and more than offset lower exhaust and
brake product shipments. As part of its distribution and product expansion
strategy, the Company plans to add several hundred commercial parts distribution
locations in North America over the next three years. These distribution
locations will serve both Midas Dealers and other customers and will support the
Company's introduction of climate control repair services through the Midas
system. During 2000, the Company acquired 27 such locations at a total cost of
$7.6 million.
Cost of sales and revenues increased by $0.3 million or 0.2% compared to
the first nine months of fiscal 1999. Cost of sales and revenues as a percent of
total sales and revenues increased slightly from 53.7% in the first nine months
of fiscal 1999 to 54.6% in the first nine months of fiscal 2000. This increase
as a percent of sales was due to the reduction in high margin retail sales at
company-operated shops and relatively lower margins associated with the
Company's new product lines.
9
<PAGE>
Selling, general and administrative expenses for the first nine months of
fiscal 2000 increased $5.5 million or 7.6% compared to the first nine months of
fiscal 1999. The Company increased its advertising spending in fiscal 2000 to
help educate consumers about expanded service offerings and to stimulate retail
sales. In addition, the Company incurred additional costs to operate the new
distribution locations. These increases in operating expenses were partially
offset by a reduction in the average number of company-operated shops and the
consolidation of the Canadian administration functions into the U.S. As a
percentage of total sales and revenues, selling, general and administrative
expenses represented 28.8% of sales during the first nine months of fiscal 2000
versus 26.3% in the prior fiscal period.
Operating income was $45.1 million for the first nine months of fiscal 2000
or $10.1 million below the prior year as the operating income margin decreased
to 16.6% in fiscal 2000 compared to 20.0% in fiscal 1999.
Other income of $4.1 million in the first nine months of fiscal 2000
included non-recurring gains of $1.2 million from the sale of one of the
Company's former manufacturing plants and $1.8 million from the sale of Midas'
Australian operations. Other income of $2.7 million in the prior year included a
$1.0 million gain on the finalization of the sale of Midas' European operations
and a $0.5 million gain on the sale of an idle Canadian manufacturing plant.
Income tax expense for the first nine months of fiscal 2000 includes a non-
recurring benefit of $5.5 million related to the disposition of the Company's
Australian operations. As a result, the Company's effective tax rate decreased
from 39.9% in fiscal 1999 to 26.0% in fiscal 2000.
As a result of the above items, net income increased $0.9 million or 2.9%
from $31.0 million in the first nine months of fiscal 1999 to $31.9 million in
the first nine months of fiscal 2000.
FORWARD LOOKING STATEMENTS
This report contains, and certain of the Company's other public documents
and statements and oral statements contain and will contain, forward-looking
statements that reflect management's current assumptions and estimates of future
performance and economic conditions using information currently available. Such
statements are made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company cautions investors that
any forward-looking statements are subject to risks and uncertainties that may
cause actual results and future trends to differ materially from those
projected, stated, or implied by the forward-looking statements.
The Company's results of operations and the forward-looking statements
could be affected by, among others things: general economic conditions in the
markets in which the Company operates; economic developments that have a
particularly adverse effect on one or more of the markets served by the Company;
the ability to execute management's internal operating plans; the timing and
magnitude of capital expenditures; economic and market conditions in the U.S.
and worldwide; currency exchange rates; changes in consumer spending levels and
demand for new products and services; cost and availability of raw materials;
and overall competitive activities. The Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.
10
<PAGE>
PART II. OTHER INFORMATION
Item 5. 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 14, 2000 /s/ William M. Guzik
--------------------
William M. Guzik
Vice President and Controller
(As Chief Accounting Officer and Duly
Authorized Officer of Midas, Inc.)
11
