Exhibit 99.1
Midas Reports Second Quarter Loss of $2.10 Per Share
after Special Charges for Exiting Distribution Business
ITASCA, Ill.--(BUSINESS WIRE)--Aug. 11, 2003--Midas, Inc.
(NYSE:MDS) reported a loss of $32.7 million--or $2.10 per diluted
share--for its second quarter ended June 28, 2003. For the quarter,
the company recorded pre-tax business transformation charges of $50.8
million--or $1.99 per share after-tax--to establish an accrual for
future warranty obligations in the U. S. and for asset write-downs and
severance costs associated with the company's exiting of the wholesale
distribution business in the U. S.
Midas reported net income of $4.1 million--or $0.27 per share--in
2002.
"Midas is making significant progress on the major restructuring
which will enable the company to focus on the profitable franchise
retail business," said Alan D. Feldman, Midas' president and chief
executive officer. "While we are beginning to see positive signs in
our business, 2003 will continue to be a transition year."
Midas announced in April that it is exiting the wholesale
distribution business by entering supply agreements with AutoZone in
the United States and Uni-Select in Canada to distribute parts to
nearly 1,900 Midas shops throughout North America for both weekly
replenishment orders and just-in-time parts deliveries.
"The second quarter results are in line with our expectations, and
include a $33.3 million charge for the U. S. warranty accrual and a
$17.5 million charge for closing of U.S. distribution centers,
re-franchising of company-owned shops and resulting employment
reductions," Feldman said. "We announced at the end of the first
quarter that Midas would record a significant charge in the second
quarter."
Feldman explained that the company is establishing an accrual for
future U. S. warranty obligations on exhaust and brake parts that
carry Midas lifetime warranties because the company has outsourced the
parts distribution function in the U. S. to AutoZone. Historically,
Midas has not maintained a reserve for warranty expense on exhaust and
brake parts because the company made a profit fulfilling the warranty
obligation on the sale of related replacement parts sold to the Midas
shop to complete a warranty job. That profit more than offset the cost
of the warranted product.
Midas will record special charges in the two remaining quarters of
2003 primarily related to the closing of distribution centers in
Canada in connection with the outsourcing of Canadian distribution to
Uni-Select. Those special charges will not be as significant as the
second quarter charges, according to Feldman.
The transition to AutoZone began in June and 263 Midas shops in
the southeast are now receiving their weekly shipments from AutoZone
distribution centers in Lavonia, Ga., and Lexington, Tenn. The
transition from Midas to AutoZone distribution centers is expected to
continue at three- to four-week intervals through year-end. The
Canadian transition to Uni-Select will occur in the fourth quarter.
Midas will close 11 of its 12 distribution centers by the end of
2003. The company will retain one warehouse in Chicago to distribute
products from the exhaust manufacturing plant in Hartford, Wisc.
"We are pleased with the progress to date on the AutoZone
transition and we commend the tireless dedication of Midas dealers who
are working with Midas and AutoZone on details such as product
availability, logistics, systems and communications to make the
process successful," Feldman said. "Canadian dealers are beginning
similar efforts to prepare for their transition in the fall."
Midas also had announced in January that it would close or sell
its network of 77 Parts Warehouse, Inc. (PWI) quick-delivery sites and
that it would reduce the number of company-operated shops from 111 to
a core group of shops in several key markets. Both PWI and certain
company-operated shops have been unprofitable.
"We have virtually closed down the PWI business, with only three
sites remaining that are located in soon-to-be-closed regional
distribution centers," Feldman said. "Also, we have succeeded in
closing or re-franchising 34 company shops so far in 2003. Additional
company-shop reductions this year will be minimal."
2003 Second Quarter, First Half Results
Sales and revenues for the second quarter were $77.9 million,
compared to $90.4 million last year. Sales and revenues for the first
half were $152.4 million, down from $171.8 million in 2002. The
decline is the result of lower wholesale sales primarily because of
the phase-out of PWI, as well as fewer company-operated shops.
Royalties and license fees were $16.1 million for the second
quarter and $29.7 million for the first half, compared to $16.5
million and $30.9 million for the second quarter and first half,
respectively, of 2002.
Real estate revenues were $8.9 million for the second quarter and
$17.9 million for the first half, compared to $9.5 million and $18.9
million, respectively, last year. The declines are the result of fewer
operating Midas shops and a system-wide comparable store sales decline
of 1.0 percent in the first half. System-wide comparable store sales
were up less than one percent in the second quarter.
Wholesale part sales and product royalties were $40.8 million for
the second quarter of 2003 and $80.4 million for the first half,
compared to $49.9 million and $93.3 million in the second quarter and
first half, respectively, of 2002. The decline is because of the
reduced number of PWI outlets operating during 2003 compared to the
previous year. Excluding PWI, wholesale parts sales were up $0.5
million for the second quarter and down $0.6 million for the first
half.
Retail sales at company-operated shops were $11.2 million in the
second quarter and $22.9 million for the first half, down from $14.0
million in the second quarter and $27.8 million in the first half of
2002. The declines are primarily the result of fewer company shops in
operation.
Selling, general and distribution (SG&D) expenses for the quarter
were $36.5 million compared with $37.2 million last year. Lower
operating expenses resulted from fewer PWI stores and company-operated
shops and a decline in payroll expenses due to administrative
headcount reductions. However, these savings were partially offset by
expenses incurred during the sale and closure of PWI stores and
company-operated shops and higher distribution costs related to
inventory disposition efforts.
SG&D expense reductions will accelerate in the third quarter of
2003 as a result of the closing of PWI units and distribution centers
and the closing and re-franchising of company-operated shops. First
half SG&D was $73.8 million, compared to $72.3 million in 2002.
The company reported an operating loss of $46.7 million for the
quarter, after the $50.8 million in special charges. The company's
first half operating loss was $53.3 million, after $55.9 million in
special charges, including a first quarter special charge of $5.1
million for separation expenses for field and headquarters employees,
as well as fees and expenses related to refinancing the company's
debt. Last year, Midas reported operating income of $9.1 million in
the second quarter and $14.5 million in the first half.
The loss for the quarter before taxes was $53.5 million, compared
to income of $6.7 million last year. Net results in the second quarter
of 2003 included a deferred tax benefit of $20.8 million, which
reduced the net loss to $32.7 million.
The net loss for the first half was $39.1 million--or $2.55 per
share--compared to net income of $5.8 million--or $.38 per share--last
year.
Interest expense for the quarter was $7.3 million, up from $2.7
million in 2002, as a result of the company's higher debt level and an
increase in interest rates after the debt restructuring announced in
March. Included in 2003 interest expense is $1.3 million of non-cash
amortization for capitalized financing fees, $800,000 of non-cash
amortization for debt discount and $600,000 for non-cash interest that
is paid-in-kind. The company expects that the results of its
restructuring actions and related liquidation of inventories and other
assets will enable substantial reductions in debt levels by the end of
the year.
"2003 will continue to be a transition year for Midas, as we
execute our restructuring plan enabling us to focus our efforts on our
franchise system," Feldman said. "We are encouraged by the improving
trends in retail sales during the quarter as our franchisees focus on
taking care of our customers."
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 1,900 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 2002 annual report on Form 10-K.
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In millions, except for earnings per share)
(Unaudited)
For the quarter For the six months
ended fiscal June ended fiscal June
--------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- -----------
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
Sales and revenues:
Replacement part sales
and product royalties $40.8 $49.9 $80.4 $93.3
Franchise royalties and
license fees 16.1 16.5 29.7 30.9
Company-operated shop
retail sales 11.2 14.0 22.9 27.8
Real estate revenues 8.9 9.5 17.9 18.9
Other 0.9 0.5 1.5 0.9
---------- ---------- ---------- -----------
Total sales and
revenues 77.9 90.4 152.4 171.8
---------- ---------- ---------- -----------
Cost of sales and
revenues:
Replacement parts cost of
sales 26.4 32.6 54.5 61.9
Company-operated shop
cost of sales 2.4 3.0 5.0 6.1
Real estate cost of
revenues 5.2 4.6 10.3 9.4
Warranty expense 3.3 3.9 6.2 7.6
Business transformation
charges (warranty
reserve) 33.3 -- 33.3 --
Business transformation
charges (inventory
write-down) 8.6 -- 8.6 --
---------- ---------- ---------- -----------
Total cost of sales
and revenues 79.2 44.1 117.9 85.0
---------- ---------- ---------- -----------
Gross profit ( 1.3) 46.3 34.5 86.8
Selling, general, and
distribution expenses 36.5 37.2 73.8 72.3
Business transformation
charges 8.9 -- 14.0 --
---------- ---------- ---------- -----------
Operating income
(loss) ( 46.7) 9.1 ( 53.3) 14.5
Interest expense ( 7.3) ( 2.7) ( 11.6) ( 5.3)
Other income, net 0.5 0.3 0.9 0.3
---------- ---------- ---------- -----------
Income (loss) before
income taxes
(benefit) ( 53.5) 6.7 ( 64.0) 9.5
Income taxes (benefit) ( 20.8) 2.6 ( 24.9) 3.7
---------- ---------- ---------- -----------
Net income (loss) $( 32.7) $4.1 $( 39.1) $5.8
========== ========== ========== ===========
Earnings (loss) per share:
Basic $( 2.10) $.27 $( 2.55) $.39
========== ========== ========== ===========
Diluted $( 2.10) $.27 $( 2.55) $.38
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Average number of shares
Common shares
outstanding 15.1 15.0 15.0 15.0
Common stock warrants
not subject to
restriction 0.5 -- 0.3 --
---------- ---------- ---------- -----------
Shares applicable to
basic earnings 15.6 15.0 15.3 15.0
Equivalent shares on
outstanding stock
options .0 .1 .0 .0
---------- ---------- ---------- -----------
Shares applicable to
diluted earnings 15.6 15.1 15.3 15.0
========== ========== ========== ===========
Capital expenditures $0.4 $2.7 $1.8 $7.5
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CONTACT: Midas, Inc.
Bob Troyer, 630-438-3016
www.midasinc.com