Midas Reports Third Quarter Earnings of $0.07 Per Share, After Special Charge of $0.18 Per Share
ITASCA, Ill.--Nov. 1, 2002--Midas, Inc. today reported its results for the third quarter ended Sept. 28, 2002.Midas reported net income of $1.1 million for the quarter, compared to $5.2 million in 2001. The earnings per diluted share were $0.07 after a special charge of $0.18 per share after tax, compared to earnings of $.35 last year.
Sales and revenues for the quarter were $86.4 million, up slightly from $85.9 million last year.
"The continuing improvement in sales from company-operated shops and Parts Warehouse, Inc., (PWI) quick-delivery sites was offset by declines in our wholesale sales through regional distribution centers," said Gary B. Vonk, president and acting chief executive officer.
Operating income for the quarter was $4.2 million after the $4.3 million special charge, down from $10.6 million in 2001.
The company recorded a special charge of $4.3 million for one-time expenses related to the closing of a distribution center in Vancouver, B.C., executive separation costs and a reserve against loans which had been granted to certain current and former senior executives in 1999 to purchase Midas shares.
"In addition to the special charge, unusually high medical claims during the quarter and the lower operating performance of our traditional wholesale business contributed to the decline in operating income," Vonk said.
Sales of replacement parts were $47.8 million for the quarter, down from $54.8 million last year.
Royalties and license fees were $16.0 million, down from $17.3 million in 2001. The decline is the result of a decrease in retail sales, and also reflects the impact of including some formerly franchised shops in company shop results. In the third quarter, there were 110 company-operated shops, up from 36 in the third quarter in 2001.
Company-operated shop sales this quarter were $13.2 million, an increase from $3.8 million last year.
Comparable shop retail sales in the quarter were up by 0.4 percent in company-operated shops, compared to a decline of 3.1 percent for the overall Midas system in North America.
Vonk said that neither company-operated shops nor PWI produced an operating profit, as had been previously projected. Each produced a small loss.
"One of the primary challenges we face is our wholesale parts distribution business," Vonk said. "While we did achieve some operating cost reductions during the quarter in areas such as warranty expense, we are continuing efforts to reconfigure the basic infrastructure of our wholesale distribution business to improve efficiency and inventory management while maintaining a very high level of service to our franchisees and other customers."
Overall sales and revenue for the first three quarters this year increased to $258.2 million, from $252.1 million in 2001.
Net income for the first nine months of 2002 was $6.8 million, or $0.46 per diluted share. Last year, net income was $15.3 million--or $1.02 per share.
During the third quarter, selling, general and distribution expenses, excluding special charges, were $36.4 million, up from $28.8 million last year. SG & D expenses for the first three quarters were $108.7 million, compared with $84.5 million last year.
The increased SG & D expenses in the third quarter and first three quarters are the result of additional company shops and PWI sites in place this year compared to the same periods in 2001. SG & D expenses in the remainder of the business decreased during the third quarter and the first nine months.
In the third quarter, Midas generated $8.7 million in EBITDA and had $1.7 million in capital expenditures. In the first three quarters, EBITDA was $31.9 million and capital expenditures were $8.8 million.
Midas' net debt at the end of the third quarter, including finance lease obligations, was $161.4 million, compared to $160.1 million at the end of the second quarter resulting in a consistent 52 percent net debt to total capitalization ratio at the end of both quarters. The company has been exploring alternatives to replace its revolving line of credit that is scheduled to mature on Jan. 29, 2003. Plans for a high-yield debt offering have been put on hold due to current credit market conditions.
The company has signed a term sheet with an asset-based lender for a new credit facility. Due diligence is under way and the company hopes to close the new facility before year-end.
At the same time, the company is currently in discussions with its banks regarding an extension of its existing line of credit agreement in the event such an extension would become necessary.
At the end of the quarter, Midas had a technical violation of the leverage covenant in its line of credit. The bank group has waived the violation through Nov. 12. Midas is in discussions with its bank group to grant further waivers, as necessary, while the company pursues its alternative financing.
In late September, Midas announced the resignation of Wendel H. Province, then chief executive officer.
At that time, the company's board of directors elected board member Robert R. Schoeberl to serve as non-executive chairman and Vonk, then executive vice president and chief operating officer, as president and acting chief executive.
"At the time of those announcements, we said that refinancing our debt is our number one priority and we have continued to devote significant effort in that area," Vonk said.
Regarding the issues facing its wholesale distribution business, Vonk said the company is evaluating a number of approaches, including reducing the number of its distribution centers or out-sourcing some or all distribution to third parties. Midas has engaged KPMG LLP and certain logistics providers to assist in evaluating potential alternatives for its wholesale distribution business.
"There are many factors to be considered with each of these alternatives, requiring time for a comprehensive evaluation," he said. "We would not expect to finalize our distribution strategies before the first quarter of 2003."
Schoeberl reported progress on improving the company's relationship with its franchisees.
"Midas' senior management team has re-focused attention on communicating and working more closely with our franchisees," Schoeberl said. "We have had a number of formal and informal meetings, including participation at the annual convention of the International Midas Dealers Association in Florida in early October and a current round of dealer meetings under way in 26 markets throughout the United States and Canada."
"The success of Midas, Inc., and its franchisees is inseparable, and we both recognize that working together is essential to the success of our businesses," he said.
Midas is one of the world's largest providers of automotive service, offering exhaust, brake, steering and suspension services, as well as batteries, climate control and maintenance services at 2,700 franchised, licensed and company-owned Midas shops in 19 countries, including nearly 2,000 in the United States and Canada.
NOTE: This news release contains certain forward-looking statements that are based on management's beliefs as well as assumptions made by and information currently available to management. Such statements are subject to risks and uncertainties, both known and unknown, that could cause actual results, performance or achievement to vary materially from those expressed or implied in the forward-looking statements. The company may experience significant fluctuations in future results, performance or achievements due to a number of economic, competitive, governmental, technological or other factors. Additional information with respect to these and other factors, which could materially affect the company and its operations, is included in the company's filings with the Securities and Exchange Commission, including the company's 2001 annual report on Form 10-K and subsequent 10-Q filings.
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In millions, except for earnings and dividends per share)
(Unaudited)
For the quarter For the nine months
ended fiscal Ended fiscal
September September
--------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
(13 Weeks) (26 Weeks)
Sales and revenues $ 86.4 $ 85.9 $258.2 $252.1
Cost of sales and revenues 41.5 46.5 126.5 136.4
Selling, general, and
distribution expenses 36.4 28.8 108.7 84.5
Special charges 4.3 0.0 4.3 0.0
------ ------ ------ ------
Operating income 4.2 10.6 18.7 31.2
Interest expense (3.0) (2.1) (8.4) (6.6)
Other income, net 0.6 0.0 0.9 0.4
------ ------ ------ ------
Income before taxes 1.8 8.5 11.2 25.0
Income taxes 0.7 3.3 4.4 9.7
------ ------ ------ ------
Net income $ 1.1 $ 5.2 $ 6.8 $ 15.3
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Earnings per share:
Basic $ .07 $ .35 $ .46 $ 1.02
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Diluted $ .07 $ .35 $ .46 $ 1.02
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Dividends per common share $ .00 $ .00 $ .00 $ .08
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Average number of shares
Common shares outstanding 15.0 14.9 15.0 14.9
Equivalent shares on
outstanding stock options .0 .0 .0 .0
------ ------ ------ ------
Shares applicable to diluted
earnings 15.0 14.9 15.0 14.9
====== ====== ====== ======
EBITDA
Operating income 4.2 10.6 18.7 31.2
Other income, net 0.6 0.0 0.9 0.4
Depreciation and amortization 3.9 4.0 12.3 11.4
------ ------ ------ ------
$ 8.7 $ 14.6 $ 31.9 $ 43.0
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Capital expenditures $ 1.7 $ 10.8 $ 8.8 $ 28.1
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MIDAS, INC.
RESULTS OF OPERATIONS
Third Quarter 2002 Compared with Third Quarter 2001 (Unaudited)
The following is a summary of the Company's sales and revenues for
the third quarter of fiscal 2002 and 2001, respectively: ($ Millions)
Percent Percent
2002 to Total 2001 To Total
---- -------- ---- --------
Replacement parts
sales $ 47.8 55.3% $ 54.8 63.7%
Company-operated shop
retail sales 13.2 15.3 3.8 4.4
Royalties and license
fees 16.0 18.5 17.3 20.2
Real estate rental
revenues 9.1 10.5 9.5 11.0
Other 0.3 0.4 0.5 0.7
----- -------- ---- --------
Sales and revenues $ 86.4 100.0% $ 85.9 100.0%
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Nine Months Ended Fiscal September 2002
Compared with the Nine Months Ended Fiscal September 2001 (Unaudited)
The following is a summary of the Company's sales and revenues for
the nine months ended fiscal September 2002 and 2001, respectively: ($
Millions)
Percent Percent
2002 To Total 2001 To Total
---- -------- ---- --------
Replacement parts
sales $ 141.1 54.6% $ 163.7 64.9%
Company-operated shop
retail sales 41.0 15.9 7.9 3.1
Royalties and license
fees 46.9 18.2 50.6 20.1
Real estate rental
revenues 28.0 10.8 28.6 11.4
Other 1.2 0.5 1.3 0.5
---- -------- ---- --------
Sales and revenues $ 258.2 100.0% $ 252.1 100.0%
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