Midas Reports 2002 Full-Year Earnings of $0.30 Per Share Before $62.3 Million of
Special Charges To Restructure Company
ITASCA, Ill.--(BUSINESS WIRE)--Midas, Inc. (NYSE: MDS) reported earnings of
$4.5 million--or $0.30 per diluted share--excluding special items, for the
fiscal year ended Dec. 28, 2002. The 2002 results compare with prior year
earnings of $15.5 million--or $1.05 per share, which excluded a special charge
of $0.20 per share.
For 2002, the company recorded pre-tax special charges totaling $62.3
million--or $2.54 per share after-tax. Midas recorded a pre-tax special charge
in the fourth quarter of 2002 of $58.0 million--or $2.38 per share
after-tax--for a wide-ranging program to transform the business. The remaining
$4.3 million was recorded in the third quarter of 2002 for expenses related to
the closing of a distribution center, 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.
Excluding the special charge, Midas reported a net loss of $5.0 million for
the fourth quarter--or $0.34 per share. Including the special charge, there was
a net loss of $40.4 million--or $2.71 per share--for the fourth quarter and a
net loss of $33.6 million--or $2.25 per share--for the full year.
"As Midas has said previously, we plan to focus our resources and efforts on
growing our profitable franchising and real estate businesses," said Alan D.
Feldman, who joined Midas in January as president and chief executive officer.
"As a result, we are moving swiftly to exit those portions of our wholesale
distribution business and company shop operations that have been unprofitable.
"The fourth quarter special charge includes a substantial portion of the
total costs that will be incurred to reposition Midas as a lean, profitable
enterprise." Feldman said.
Special Charges
Of the total $62.3 million of special charges in 2002, $26.3 million covers
the write-down of inventories associated with the sale and disposition of the
company's Parts Warehouse, Inc. (PWI) quick-delivery distribution operation and
$36.0 million is for other business transformation charges.
PWI was established in 2000 to serve the expanded product needs of Midas
shops and other professional installers on a just-in-time basis.
"To date, PWI has not provided the expected results to justify the
substantial investment that would be required to continue building out the PWI
network," Feldman said. "We believe the Midas system is better served by
providing a ready-made sourcing solution to Midas shops through a strategic
alliance with an established just-in-time automotive parts supplier."
The company made the decision in the fourth quarter to exit the PWI
business. In 2003, the company has closed the 17 most unprofitable PWI sites and
is in the process of selling an additional 19 locations. Following the sale, the
company will continue to operate 41 PWI sites, down from 77 at year-end.
The company expects to exit the quick-delivery business by the end of the
year.
In addition to the $26.3 million PWI inventory write-down, the special
charge includes $12.7 million associated with PWI costs for remaining lease
commitments, goodwill impairment and the write-down of fixed assets and accounts
receivable.
The company also plans to close three of its 12 remaining wholesale
distribution centers in 2003, accounting for $3.3 million of the special charge.
These warehouses primarily distribute Midas-brand parts on a weekly basis to
Midas shops and IPC-brand exhaust parts to customers outside the Midas system.
Additional closures are planned for 2004 and beyond as the company continues to
rationalize its traditional wholesale distribution network. The fourth quarter
charge is limited only to those distribution centers that will close in 2003.
An additional $12.5 million of the special charge is related to Midas'
company-owned shop operation.
"During the fourth quarter of 2002, Midas made the decision to stop the
aggressive growth of our company-shop operation and to bring focus to our
program by closing unprofitable stores and reducing the number of markets served
by company-operated shops," Feldman said. "Midas has closed 10 under-performing
company shops so far in 2003.
"The fourth quarter charge for company shops represents remaining lease
obligations for shops that are closing, as well as for impairment of
fixed-assets and goodwill," Feldman said.
The remainder of the special charge covers severance and separation costs
for headquarters and field employees and financing costs.
2002 Sales Up Slightly from Prior Year
Sales and revenues for the year were $333.0 million, up slightly from $331.5
million in 2001. Sales and revenues for the fourth quarter were $74.8 million,
down from $79.4 million in 2001, primarily as a result of lower wholesale
product sales.
For the quarter, wholesale product sales were $39.4 million, down from $43.0
million for the same period in 2001. Full-year wholesale product sales were
$180.5 million, down from $206.6 million in 2001.
Company-operated shops reported $12.2 million in sales in the fourth
quarter, compared to $12.0 million in the previous year. For the full year,
company shop sales were $53.2 million, up from $19.9 million in 2001. Midas
acquired 98 shops from franchisees in 2001.
Royalties accounted for $14.0 million of revenues in the fourth quarter of
2002, compared to $14.6 million the prior year. For all of 2002, royalties were
$60.9 million, down from $65.2 million in 2001. The decline in royalties is the
result of a 3 percent decline in comparable shop retail sales in 2002, as well
as including results from formerly franchised shops in company shop operations.
Real estate revenues for the fourth quarter were $8.6 million, compared to
$9.3 million the prior year. For 2002, real estate revenues were $36.6 million,
down from $37.9 million in 2001.
The company reported an operating loss of $4.9 million for the quarter,
compared to an operating profit of $2.7 million in 2001, excluding special
charges in both years. The fourth quarter 2002 operating loss was driven by
increased operating losses at the PWI and company-operated shop business units.
Year-over-year comparisons also are affected by the company's traditional
wholesale business, which swung from an operating profit in 2001 to an operating
loss in 2002.
For all of 2002, Midas had $18.1 million in operating income, down from
$33.9 million the prior year, excluding special items in both years. Selling,
general and distribution (SG & D) expenses were $43.1 million for the quarter
and $151.8 million for the full year, compared to $36.3 million for the quarter
and $120.8 million for all of 2001. Increases in SG & D are the result of the
additional PWI sites and company-operated shops in 2002.
Refinancing update
Midas and its current group of lenders are in the final stages of
negotiations on the terms of a comprehensive debt restructuring which will
refinance the company's $45 million unsecured notes and its $100 million
revolving credit facility originally scheduled to expire on Jan. 31, 2003, but
whose maturity date was extended to March 31, 2003. The $172.5 million
replacement facility is expected to consist of a $40 million revolving loan
facility and two term loans totaling $132.5 million.
In connection with the debt restructuring, the company will issue detachable
warrants for shares of Midas common stock to its existing lenders. The exercise
price of the warrants will be $0.01.
The new facility will be secured by substantially all of the Company's
assets and will have a term of 18 months. The company expects to close the new
facility by March 28.
Outlook for 2003
"This will be a transition year for Midas, as we refocus the company on our
franchising and real estate segments," Feldman said. "We have considerable work
ahead of us as we strengthen our retail presence, exit PWI, rationalize our
company shop operation and seek alternative approaches for our wholesale
distribution business."
Feldman is optimistic about growth opportunities in the franchise system.
"I was attracted to Midas by the strong equity of the Midas brand and the
network of nearly 700 dedicated franchisees," Feldman said. "We are working
together to develop enhanced marketing and operations programs that will result
in profitable growth for the Midas system."
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 twelve months
ended fiscal December ended fiscal December
--------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
(13 Weeks) (13 Weeks) (52 Weeks) (52 Weeks)
Sales and revenues $ 74.8 $ 79.4 $ 333.0 $ 331.5
Cost of sales and revenues 36.6 40.4 163.1 176.8
Business transformation charges
(inventory write-down) 26.3 0.0 26.3 0.0
------ ------ ------- -------
Gross profit 11.9 39.0 143.6 154.7
Selling, general, and distribution
expenses 43.1 36.3 151.8 120.8
Business transformation
charges 31.7 4.8 36.0 4.8
------ ------ ------- -------
Operating income (loss) ( 62.9) ( 2.1) ( 44.2) 29.1
Interest expense ( 3.4) ( 2.4) ( 11.8) ( 9.0)
Other income, net 0.1 0.1 1.0 0.5
------ ------ ------- -------
Income (loss) before
taxes ( 66.2) ( 4.4) ( 55.0) 20.6
Income taxes (benefit) ( 25.8) ( 1.7) ( 21.4) 8.0
------ ------ ------- -------
Net income (loss) $ ( 40.4) $ ( 2.7) $ ( 33.6) $ 12.6
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Earnings (loss) per share:
Basic $ ( 2.71) $ ( 0.18) $ ( 2.25) $ 0.85
====== ====== ======= =======
Diluted $ ( 2.71) $ ( 0.18) $ ( 2.25) $ 0.85
====== ====== ======= =======
Dividends per common share $ .00 $ .00 $ .00 $ .08
====== ====== ======= =======
Average number of shares
Common shares outstanding 14.9 14.9 15.0 14.9
Equivalent shares on
outstanding stock options .0 .0 .0 .0
------ ------ ------- -------
Shares applicable to diluted
earnings 14.9 14.9 15.0 14.9
====== ====== ======= =======
EBITDA
Operating income (loss)
excluding business
transformation charges ( 4.9) 2.7 18.1 33.9
Other income, net 0.1 0.1 1.0 0.5
Depreciation and
amortization 3.7 2.9 16.0 14.4
------ ------ ------- -------
$ ( 1.1) $ 5.7 $ 35.1 $ 48.8
====== ====== ======= =======
Capital expenditures and cash
paid for acquired businesses $ 2.5 $ 26.4 $ 11.6 $ 52.8
====== ====== ======= =======
MIDAS, INC.
RESULTS OF OPERATIONS
Fourth Quarter 2002 Compared with Fourth Quarter 2001 (Unaudited)
The following is a summary of the Company's sales and revenues for
the fourth quarter of fiscal 2002 and 2001, respectively: ($ Millions)
Percent Percent
2002 to Total 2001 to Total
---- -------- ---- --------
Replacement parts sales $ 39.4 52.7% $ 43.0 54.1%
Company-operated shop
retail sales 12.2 16.3 12.0 15.1
Royalties and license fees 14.0 18.7 14.6 18.4
Real estate rental revenues 8.6 11.5 9.3 11.8
Other 0.6 0.8 0.5 0.6
------ ------ ------ -----
Sales and revenues $ 74.8 100.0% $ 79.4 100.0%
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Twelve Months Ended Fiscal December 2002
Compared with the Twelve Months Ended Fiscal December 2001 (Unaudited)
The following is a summary of the Company's sales and revenues for the
twelve months ended fiscal December 2002 and 2001, respectively:
($ Millions)
Percent Percent
2002 to Total 2001 to Total
---- -------- ---- --------
Replacement parts sales $ 180.5 54.2% $ 206.6 62.3%
Company-operated shop retail
sales 53.2 16.0 19.9 6.0
Royalties and license fees 60.9 18.3 65.2 19.7
Real estate rental revenues 36.6 11.0 37.9 11.4
Other 1.8 0.5 1.9 0.6
----- ----- ----- -----
Sales and revenues $ 333.0 100.0% $ 331.5 100.0%
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CONTACT: Midas, Inc.
Bob Troyer, 630/438-3016
www.midasinc.com