Midas Reports Third Quarter Income after Special Items Related to Exit from Exhaust Manufacturing and Distribution
ITASCA, Ill.--Oct. 2, 20057, 2005--Midas, Inc. reported net income of $1.5 million--or $0.09 per diluted share--for the third quarter ended Oct. 1, 2005, after special items related to the company's exit from exhaust manufacturing and distribution.During the third quarter, Midas recorded restructuring charges of $1.5 million--or $0.06 per diluted share--primarily to write down assets related to the exhaust manufacturing and distribution business.
Also included in the results are operating losses of approximately $0.9 million--or $0.03 per diluted share--related to the operation of the exhaust manufacturing and distribution business. Excluding the exhaust manufacturing and distribution items, the company earned $0.18 per diluted share, which represents a non-GAAP earnings per diluted share measure.
"The closing of the muffler plant in Hartford, Wisc., in late August moves us one step closer to our franchise focused business model," said Alan D. Feldman, Midas' president and chief executive officer.
"Closing our last warehouse in Chicago early next year once remaining exhaust inventories are liquidated will complete this phase of our transformation," he said.
So far in 2005, the company has recorded exhaust-related restructuring charges of $11.1 million. The company expects total restructuring charges related to the exit from exhaust manufacturing to be approximately $12 to $14 million. A portion of these charges will not be recorded until early 2006.
"Despite a tough retail environment, we still posted our 10th consecutive quarter of positive comparable shop retail sales in the U.S. with an increase of 1.4 percent for the third quarter," Feldman said. "Like others in the retail marketplace, Midas experienced softness in retail sales in September following the hurricanes and the sharp increase in gas prices. July and August were up about 2.6 percent in total, but September was down about 1.0 percent."
Feldman said that comparable shop retail sales so far in October have improved. Only four shops in the Gulf Coast area remain closed from Hurricanes Katrina and Rita, down from more than 20 initially. Nine company-owned shops and 22 franchised shops are currently closed in Florida as a result of Hurricane Wilma.
"Retail sales are gaining strength in October, as a result of the national promotion for maintenance services supported by our new 'Trust the Midas Touch' television campaign that features celebrity customers Fred Flintstone and Barney Rubble," Feldman said.
Exit from exhaust manufacturing
In May, Midas announced an agreement calling for AutoZone to be the exclusively endorsed supplier of Arvin brand exhaust products to more than 1,600 Midas shops in the United States.
The exhaust products are supplied by ArvinMeritor and replace Midas-brand products that had been manufactured by Midas at its Hartford plant and sold to Midas shops by AutoZone. Retail sales of exhaust parts and services will continue at Midas shops.
A region-by-region transition process began in late June for shipping of Arvin products to Midas shops. To date, more than 1,000 of the 1,600 U.S. Midas shops have been converted to Arvin exhaust products. The transition for the remaining shops will be completed by mid-December.
Sixteen employees remain at the Hartford plant to handle removal of production equipment and to physically shut down the facility. The Chicago warehouse, which distributes exhaust products that were manufactured at Hartford, is expected to close during the first quarter of 2006. In the meantime, the Chicago warehouse continues to supply exhaust to AutoZone during the transition and will continue to supply exhaust to Uni-Select until a new exhaust supply agreement is reached for Midas shops in Canada.
The closures will ultimately result in the termination of a total of 195 employees at the Hartford plant, in the Chicago warehouse and at Midas headquarters in Itasca. Of that total, only 55 remain.
2005 Third Quarter and Nine-Month Results
Sales and revenues for the third quarter were $48.7 million, down from $51.3 million in 2004. For the first nine months, sales and revenues were $148.5 million, down slightly from $150.2 million in the same period last year. The decline for both the quarter and nine months is entirely due to lower sales of replacement parts because of the exit from exhaust manufacturing.
Royalties and license fees were $16.8 million for the quarter and $49.6 million for the first nine months, compared to $16.6 million and $47.9 million for the same periods in 2004. Real estate revenues were $9.1 million for the third quarter and $27.0 for the first nine months compared to $9.2 million and $27.3 million, respectively, last year.
Retail sales at Midas' 69 company-owned shops in the United States were $9.6 million for the quarter and $28.3 million for the first nine months, up from $9.2 million for the quarter and $27.1 million for the first nine months last year. Comparable shop sales increased 8.2 percent in company shops in the third quarter. The company re-franchised one shop in Chicago during the quarter.
Replacement part sales and product royalties were $12.4 million in the third quarter and $41.2 million in the first nine months, down from $15.7 million and $46.0 million for the same periods last year. The decline is due to lower sales of exhaust products this year as the company has phased out its exhaust manufacturing business.
Selling, general and administrative expenses (SG & A) expenses were $22.9 million in the third quarter and $68.4 million for the first nine months, compared to $22.8 million and $68.2 million, respectively, last year.
Operating income was $4.7 million for the third quarter and $7.3 million for the first nine months, after the special items related to the exit from exhaust manufacturing and distribution. In 2004, operating income was $5.9 million in the third quarter and $17.7 million for the first nine months.
The 2005 operating results include exhaust-related special charges of $1.5 million in the third quarter and $11.1 million in the first nine months.
Interest expense for the third quarter was $2.4 million and was $7.4 million for the first nine months, compared to $2.6 million and $10.2 million, respectively, last year. The company's bank debt was $65.0 million at the end of the third quarter.
Midas recorded income tax expense of $0.9 million for the third quarter and the first nine months. The company does not expect to pay a significant amount of cash income taxes until the end of the decade because of net operating loss carry forwards of approximately $110 million generated in prior years.
Midas purchased 118,100 shares of its common stock during the third quarter, at an average price of $21.21 per share, primarily as part of a $25 million share repurchase plan announced in November 2004. The company has purchased 321,193 shares so far in 2005 at an average price of $22.36.
2005 Outlook
"The closure of the Hartford exhaust plant during the third quarter moves us closer to completing the exit from the parts distribution business which we began in 2003 and enables us to sharpen our focus on the profitable growth of retail sales," Feldman said.
"We are encouraged by the continuing strength in retail sales of tires and maintenance services at Midas shops in the U.S. and Canada," he said. "We also are preparing the organization to add new franchised shops in North America over the coming years."
Feldman reaffirmed the company's previous 2005 guidance of operating income of $24 to $26 million, excluding losses related to exhaust manufacturing and special charges. Midas said it will lose between $3.0 and $4.0 million from the exhaust manufacturing and distribution business in 2005.
Midas is one of the world's largest providers of automotive service, offering brake, exhaust, maintenance, tires, steering and suspension services at more than 2,600 franchised, licensed and company-owned Midas shops in 19 countries, including 1,800 in the United States and Canada.
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings per share)
For the quarter For the nine months
ended fiscal September ended fiscal September
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(13 weeks) (13 weeks) (39 weeks) (39 weeks)
Sales and revenues:
Franchise royalties
and license fees $16.8 $16.6 $49.6 $47.9
Real estate revenues 9.1 9.2 27.0 27.3
Company-operated shop
retail sales 9.6 9.2 28.3 27.1
Replacement part sales
and product royalties 12.4 15.7 41.2 46.0
Other 0.8 0.6 2.4 1.9
---------- ---------- ---------- ----------
Total sales and
revenues 48.7 51.3 148.5 150.2
---------- ---------- ---------- ----------
Cost of sales and
revenues:
Real estate cost of
revenues 5.4 5.5 16.6 16.5
Company-operated shop
cost of sales 2.2 2.0 6.6 5.3
Replacement part cost
of sales 10.3 12.5 33.1 35.4
Warranty expense 1.7 2.6 5.4 7.1
Business
transformation
charges (inventory
write-down) -- -- 4.1 --
---------- ---------- ---------- ----------
Total cost of
sales and
revenues 19.6 22.6 65.8 64.3
---------- ---------- ---------- ----------
Gross profit 29.1 28.7 82.7 85.9
Selling, general, and
administrative expenses 22.9 22.8 68.4 68.2
Business transformation
charges 1.5 -- 7.0 --
---------- ---------- ---------- ----------
Operating income 4.7 5.9 7.3 17.7
Interest expense ( 2.4) ( 2.6) ( 7.4) ( 10.2)
Loss on early
extinguishment of debt -- -- -- ( 4.7)
Gain on sale of assets 0.1 -- 2.0 --
Other income (expense),
net -- ( 0.1) 0.6 0.4
---------- ---------- ---------- ----------
Income before
income taxes 2.4 3.2 2.5 3.2
Income tax expense 0.9 1.1 0.9 1.1
---------- ---------- ---------- ----------
Net income $1.5 $2.1 $1.6 $2.1
========== ========== ========== ==========
Earnings per share:
Basic $0.09 $0.14 $0.10 $0.14
========== ========== ========== ==========
Diluted $0.09 $0.13 $0.09 $0.13
========== ========== ========== ==========
Average number of
shares:
Common shares
outstanding 15.8 15.5 15.8 15.3
Common stock warrants 0.1 0.2 0.1 0.3
---------- ---------- ---------- ----------
Shares applicable to
basic earnings 15.9 15.7 15.9 15.6
Equivalent shares on
outstanding stock
awards 0.7 0.5 0.7 0.5
---------- ---------- ---------- ----------
Shares applicable to
diluted earnings 16.6 16.2 16.6 16.1
========== ========== ========== ==========
Capital expenditures $0.9 $0.4 $1.9 $0.8
========== ========== ========== ==========
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
Fiscal Fiscal
September December
2005 2004
----------- ---------
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents $2.0 $0.9
Receivables, net 34.7 33.4
Inventories, net 7.5 12.2
Deferred income taxes 10.8 9.0
Other current assets 6.2 6.8
----------- ---------
Total current assets 61.2 62.3
Property and equipment, net 106.4 117.4
Deferred income taxes 61.7 62.2
Other assets 12.0 10.1
----------- ---------
Total assets $241.3 $252.0
=========== =========
Liabilities and equity:
Current liabilities:
Current portion of long-term obligations $1.9 $7.9
Accounts payable 11.3 16.1
Accrued expenses 32.9 32.5
----------- ---------
Total current liabilities 46.1 56.5
Long-term debt 65.0 63.0
Obligations under capital leases 4.3 5.1
Finance lease obligation 36.1 36.7
Accrued warranty 31.4 32.1
Other liabilities 7.1 9.7
----------- ---------
Total liabilities 190.0 203.1
----------- ---------
Shareholders' equity:
Common stock ($.001 par value, 100 million
shares authorized, 17.7 million shares
and 17.6 million shares issued) and paid-in
capital 19.8 21.4
Treasury stock, at cost (1.6 million shares
and 1.8 million shares) (37.0) (41.2)
Unamortized restricted stock awards (4.5) (2.2)
Retained income 80.5 78.9
Cumulative other comprehensive loss (7.5) (8.0)
----------- ---------
Total shareholders' equity 51.3 48.9
----------- ---------
Total liabilities and shareholders' equity $241.3 $252.0
=========== =========
