Exhibit 99.1
Midas Reports 2006 Earnings Per Share of $0.67 after
Special Charges for Shop Upgrades, Closings
ITASCA, Ill.--(BUSINESS WIRE)--March 1, 2007--Midas, Inc.
(NYSE:MDS) reported net income of $10.5 million--or $0.67 per diluted
share--for the fiscal year ended Dec. 30, 2006, after pre-tax business
transformation charges of $3.3 million, operating losses related to
the company's former exhaust manufacturing business of $1.2 million
and stock option expense of $2.2 million. Midas also realized pre-tax
gains on asset sales of $3.4 million during the year.
The 2006 net earnings increased from $2.2 million--or $0.13 per
diluted share--in 2005, when the company was winding down its exhaust
manufacturing and distribution business. Midas recorded pre-tax
business transformation costs of $12.3 million and gains on asset
sales of $2.8 million in 2005.
Adjusted full-year results for 2006 and 2005 were as follows:
FY 2006 FY 2005
--------------------- ---------------------
Oper. Net Per Oper. Net Per
($ in millions, except EPS) Income Income Share Income Income Share
GAAP Earnings Measures $27.1 $10.5 $0.67 $12.6 $2.2 $0.13
Adjustments (reflects non-
GAAP measures):
Business transformation
charges 3.3 1.8 0.11 12.3 8.3 0.50
Loss on early
extinguishment of debt - - - - 0.2 0.01
Gains on asset sales (3.4) (1.9) (0.12) (2.8) (1.9) (0.11)
Losses from Exhaust
business 1.2 0.7 0.04 3.1 2.1 0.13
Incremental SFAS 123R 2.2 1.1 0.08 - - -
--------------------- ---------------------
Non-GAAP Earnings Measures $30.4 $12.2 $0.78 $25.2 $10.9 $0.66
--------------------- ---------------------
"Fiscal 2006 was significant for Midas because we were able to
finally complete the exit from parts distribution when we closed our
Chicago exhaust warehouse in the first quarter," said Alan D. Feldman,
Midas chairman and chief executive officer. "The year also brought
challenges as consumers slowed their spending on automotive services
when gas prices approached and passed $3 per gallon."
Midas' comparable shop retail sales in the United States declined
1.6 percent in the fourth quarter and 1.4 percent for all of 2006.
Comparable shops sales in Canada were up 2.5 percent for the quarter
and 2.6 percent for the year, resulting in a total North American
comparable shop sales decline of 1.1 percent in the fourth quarter and
1.0 percent for the year.
Comparable shop brake sales declined 2.9 percent in U.S. shops in
the fourth quarter and 3.3 percent for the year, while comparable shop
brake sales in Canada increased by 4.0 percent in the fourth quarter
and 6.8 percent for the year.
"While we were disappointed in the decline in U.S. brake sales
during the year, we were encouraged by the U.S. increases in tires of
13.1 percent, oil changes of 5.2 percent and fleet of 48 percent for
the year," Feldman said.
"To build retail sales in 2007, the Midas system has launched an
aggressive marketing plan that promotes brakes at $89.95," Feldman
said. "Network and cable television advertising began in late February
and will run through the summer into fall supporting brakes, which
make up more than 40 percent of the retail mix in U.S. shops."
Adjusted fourth quarter 2006 and 2005 results were as follows:
Q4 2006 Q4 2005
--------------------- ---------------------
Oper. Net Per Oper. Net Per
($ in millions, except EPS) Income Income Share Income Income Share
GAAP Earnings Measures $5.1 $1.7 $0.11 $3.3 $0.6 $0.04
Adjustments (reflects non-
GAAP measures):
Business transformation
charges 2.4 1.3 0.08 1.2 0.8 0.05
Loss on early
extinguishment of debt - - - - 0.2 0.01
Gains on asset sales - - - (0.8) (0.5) (0.03)
Losses from Exhaust
business - - - 1.2 0.8 0.05
Incremental SFAS 123R 0.6 0.3 0.02 - - -
--------------------- ---------------------
Non-GAAP Earnings Measures $8.1 $3.3 $0.21 $4.9 $1.9 $0.12
--------------------- ---------------------
Fourth quarter and full-year 2006 results
Feldman said that despite the disappointing retail sales in the
fourth quarter, the company was able to meet its income targets for
2006 primarily because of tight expense control and lower warranty
costs.
Operating income for 2006 was $27.1 million, including
exhaust-related operating losses, restructuring charges, incremental
SFAS 123R stock option expenses and gains on asset sales. Operating
income without the effects of these items was $30.4 million, above the
company's previous guidance of $29 to $30 million.
Operating margin was 11.7 percent for the quarter and 15.3 percent
for the year, up from 7.5 percent and 6.5 percent, respectively, for
the same periods last year. Excluding the above-mentioned items and
corresponding revenues in both years, operating margin was 17.3
percent in 2006 versus 14.8 percent in 2005.
Total sales and revenues for the fourth quarter were $43.7 million
and $176.7 million for the full year, compared to $44.0 million and
$192.5 million in 2005, when Midas was still in the exhaust
manufacturing and distribution business.
Franchising revenues were $14.9 million for the fourth quarter of
2006, and $63.6 million for the year, compared to $14.9 million and
$64.5 million, respectively, in 2005. Real estate revenues were $8.9
million for the fourth quarter and $36.2 million for all of 2006,
compared to $9.0 million and $36.0 million, respectively, in 2005.
Revenues from parts sales and product royalties were $9.1 million
for the fourth quarter and $32.4 million for the year. These revenues
were $51.7 million for all of 2005, when Midas was shutting down its
exhaust business.
Revenues from retail sales at company-owned shops were $9.7
million in the fourth quarter of 2006 and $40.5 for the year, up from
$8.7 million and $37.0 million, respectively, in 2005. This
improvement was due to a 2.2 percent comparable shop sales increase
for 2006, along with a higher average number of shops in operation in
2006 versus the prior year.
"Company shops improved their operations considerably in 2006,
reducing their operating loss to $500,000 from $2.8 million in the
prior year," Feldman said. "The six Florida shops we closed in
December accounted for the entire operating loss. We are projecting
that company shops will produce a positive operating contribution in
2007."
Selling, general and administrative (SG&A) expenses were $21.6
million for the quarter and $87.4 million for the year, compared to
$22.6 million and $91.0 million for the same periods in 2005. This
year's SG&A for the fourth quarter and year includes $0.6 million and
$2.2 million, respectively, for the expensing of stock options under
SFAS 123R.
"We committed a year ago to a total SG&A target of $84 to $86
million for 2006, excluding the cost of SFAS 123R. We came in at $85.2
million," Feldman said. "Excluding the impact of SFAS 123R, our SG&A
was down $5.8 million from 2005, and we are committed to additional
reductions of $3 million in 2007 and another $3 million in 2008."
The company recorded $3.3 million in business transformation costs
in 2006, consisting of $1.9 million of costs to close six unprofitable
company-owned shops in Florida in December and $1.4 million of shop
image upgrades. The shop image upgrade program will continue in 2007.
Interest expense for the fourth quarter was $2.2 million and $9.0
million for the year, compared to $2.6 million for the fourth quarter
and $10.0 million for the year in 2005. The company's bank debt was
$61.1 million at the end of the fourth quarter of 2006, down from
$65.0 million at the end of 2005.
Midas recorded income tax expense of $1.6 million for the quarter
and $8.8 million for the year. The company does not expect to pay a
significant amount of income tax until the end of the decade because
of net operating loss carry forwards of approximately $100 million
generated in prior years.
Supply chain update
Midas announced to its dealers at their convention in late
February that the company is entering into an agreement with Genuine
Parts Company's NAPA operation to become the primary provider of
replacement parts for both stocking shipments and local just-in-time
deliveries to Midas shops in the United States. The transition of that
business from AutoZone, which had been the primary supplier since
2003, will begin in March and will be completed by June.
"Our expanded agreement with NAPA will reduce the cost of parts to
dealers and improve the frequency and efficiency of shipments to their
shops," Feldman said.
Midas expects to record a $1.0 million charge in the first quarter
of 2007, representing the amount to be paid to AutoZone in connection
with the early exit from the contract.
Cash flow continues strong
Selected Cash Flow Information ($ in millions except YTD YTD
per share) 2006 2005
Cash provided by operating activities before cash
outlays for business transformation costs and total
changes in assets and liabilities $31.5 $26.9
Cash outlays for business transformation costs (5.8) (5.8)
Total changes in assets and liabilities 2.6 (7.3)
------------------
Net cash provided by operating activities $28.3 $13.8
------------------
Net cash provided by operating activities per
diluted share $1.81 $0.84
Capital investments $(3.9) $(3.4)
Net retirements of long-term debt and leases (5.9) (5.8)
Cash paid for treasury shares (21.6) (15.4)
Net cash flow from operating activities was $28.3 million for the
year, consistent with the company's year-long guidance. The company
spent $5.8 million of cash for business transformation costs, and
changes in assets and liabilities created $2.6 million of cash,
primarily as a result of the liquidation of inventories and a lowering
of receivables.
Share repurchase
During the fourth quarter, Midas repurchased 363,800 shares of its
common stock at an average price of $22.02. The company spent $21.6
million in 2006, to purchase 1,037,000 shares. From February 2005 when
the repurchase program began through the end of 2006, Midas purchased
a total of 1.7 million shares at a cost of $36.4 million, leaving
$13.6 million remaining in the $50 million authorization. There were
15.0 million shares outstanding at the end of 2006.
2007 outlook
"Despite a slow start in 2007 comparable shop sales, we are
confident that our strong promotion of brakes continuing throughout
most of 2007 will reverse the decline we experienced last year,"
Feldman said. "And, we are encouraged by the progress in our fleet,
maintenance and tire businesses. The combined effects should produce
positive comparable shop retail sales across North America for the
full year 2007."
Midas expects 2007 full-year revenues of approximately $180
million and operating income of between $29.5 and $31.5 million,
excluding the effects of continuing shop upgrade payments and the
AutoZone contract amendment payment. This projected operating income
compares to actual 2006 results of $28.2 million after excluding final
exhaust-related losses, business transformation charges and gains on
asset sales. Both actual operating income for 2006 and projected 2007
operating income include $2.2 million in SFAS 123R expenses.
Full-year gross margin is expected to be approximately 63 percent,
while total SG&A, including $2.2 million of SFAS 123R expenses, is
expected to be between $82.0 and $84.0 million. This range represents
a reduction of between $3.4 and $5.4 million from 2006 actual SG&A
expense of $87.4 million.
The company expects full-year interest expense of nearly $9.0
million and capital spending of approximately $4.0 million.
Midas expects cash flow from operating activities of between $30
and $32 million in 2007--between $2.07 and $2.21 on a per share
basis--after providing for changes in working capital and outlays for
business transformation costs.
Midas intends to use this cash flow to continue to repurchase
shares and to fund opportunistic acquisitions and shop growth.
Recently adopted accounting pronouncements
In the fourth quarter of 2006, Midas adopted the provisions of SAB
108. As a result, Midas recorded a cumulative effect adjustment to its
opening fiscal 2006 balance sheet consisting of a $4.0 million
increase in other liabilities, a $1.5 million increase in deferred
income tax assets and a $2.5 million reduction in shareholders'
equity. These amounts represent the cumulative difference between the
recording of rent expense on a straight-line basis versus the previous
Midas policy of recording rent expense in accordance with underlying
lease terms. The adoption of SAB 108 also resulted in the lowering of
2006 real estate cost of revenues by $0.6 million and SG&A by $0.2
million, all of which was recorded in the fourth quarter.
Midas also adopted SFAS 158 relating to pension accounting in the
fourth quarter of 2006, which resulted in a $7.0 million reduction in
other assets, a $2.8 million increase in deferred income tax assets, a
$0.2 million increase in other liabilities and a $4.4 million
reduction in shareholders' equity. The adoption of SFAS 158 had no
impact on income or cash flow.
Midas is one of the world's largest providers of automotive
service, offering brake, exhaust, maintenance, tires, steering and
suspension services at nearly 2,600 franchised, licensed and
company-owned Midas shops in 18 countries, including more than 1,700
in the United States and Canada.
RECONCILIATION OF GAAP TO NON-GAAP EARNINGS MEASURES
The company presents the foregoing reconciliations of GAAP to
non-GAAP earnings measures primarily to reflect the results for the
full year and fourth quarters of fiscal 2006 and 2005 in a manner that
may provide for more meaningful year-on-year comparisons of the
company's core operating performance, including the financial impact
of decisions made for the long-term benefit of the company.
Adjustments similar to the ones reflected above have been recorded in
earlier periods, and similar types of adjustments can reasonably be
expected to be recorded in future periods.
The company has been undergoing a multi-year business
transformation process which has led to the closing or divestiture of
unprofitable businesses. This included the 2002 decision to dispose of
Parts Warehouse, Inc. ("PWI") locations, the 2003 decision to
outsource the distribution of Midas-brand products and close all but
one of the company's regional distribution centers, and the 2004
decision to exit exhaust manufacturing and distribution. The company
has also agreed to contribute to a system-wide image upgrade program
that will change the interior and exterior of Midas shops in North
America. Each of these actions was a distinct and separate
non-recurring transaction, and their magnitude required that they be
done sequentially rather than simultaneously. In addition, the
relevant accounting literature during this period, including EITF 94-3
and SFAS No. 146, required that certain of the costs be accrued over
time rather than taken up-front. This led to restructuring charges in
fiscal 2002 through fiscal 2006.
Because the amount of these restructuring charges has varied
significantly from quarter to quarter, the company believes it is
important for the financial statement reader to understand the
operating performance of the company without these items. This allows
for more meaningful year-on-year comparisons of the core business that
remains at the conclusion of these restructuring activities.
The company has also elected to reflect the impact of the adoption
of SFAS No. 123R (Share-Based Payment) as this cost was new for fiscal
2006 and affects comparability.
The company believes investors may find the non-GAAP information
helpful in understanding the ongoing performance of operations
separate from items that may have a disproportionate positive or
negative impact on the company's financial results in any particular
period. This is further supported by the following facts:
-- Published third party analyst estimates of earnings exclude
certain of these items;
-- Financial covenants under the company's bank agreements have
been and continue to be measured based upon operating
performance without certain of these items; and
-- Awards under the company's incentive compensation plans are
calculated based on targets and actual earnings that exclude
certain of these items.
The company's reference to these non-GAAP results should be
considered in addition to results that are prepared under current
accounting standards but should not be considered a substitute for
results that are presented as consistent with GAAP.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
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
2005 annual report on Form 10-K and subsequent filings.
3/01/07
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings per share)
For the quarter For the twelve months
ended fiscal December ended fiscal December
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
(13 weeks) (13 weeks) (52 weeks) (52 weeks)
Sales and revenues:
Franchise royalties and
license fees $14.9 $14.9 $63.6 $64.5
Real estate revenues 8.9 9.0 36.2 36.0
Company-operated shop
retail sales 9.7 8.7 40.5 37.0
Replacement part sales
and product royalties 9.1 10.5 32.4 51.7
Other 1.1 0.9 4.0 3.3
---------- ---------- ---------- ----------
Total sales and
revenues 43.7 44.0 176.7 192.5
---------- ---------- ---------- ----------
Cost of sales and revenues:
Real estate cost of
revenues 4.8 5.8 21.5 22.4
Company-operated shop
cost of sales 2.3 2.1 9.7 8.7
Replacement part cost of
sales 7.4 9.1 26.7 42.2
Warranty expense 0.1 0.7 4.4 6.1
Business transformation
charges (inventory
write-down) 0.2 1.1 0.2 5.2
---------- ---------- ---------- ----------
Total cost of sales
and revenues 14.8 18.8 62.5 84.6
---------- ---------- ---------- ----------
Gross profit 28.9 25.2 114.2 107.9
Selling, general, and
administrative expenses 21.6 22.6 87.4 91.0
Gain on sale of assets -- ( 0.8) ( 3.4) ( 2.8)
Business transformation
charges 2.2 0.1 3.1 7.1
---------- ---------- ---------- ----------
Operating income 5.1 3.3 27.1 12.6
Interest expense ( 2.2) ( 2.6) ( 9.0) ( 10.0)
Loss on early
extinguishment of debt -- ( 0.3) -- ( 0.3)
Other income, net 0.4 0.3 1.2 0.9
---------- ---------- ---------- ----------
Income before income
taxes 3.3 0.7 19.3 3.2
Income tax expense 1.6 0.1 8.8 1.0
---------- ---------- ---------- ----------
Net income $1.7 $0.6 $10.5 $2.2
========== ========== ========== ==========
Earnings per share:
Basic $0.11 $0.04 $0.69 $0.14
========== ========== ========== ==========
Diluted $0.11 $0.04 $0.67 $0.13
========== ========== ========== ==========
Average number of shares:
Common shares outstanding 14.7 15.5 15.1 15.7
Common stock warrants 0.1 0.1 0.1 0.1
---------- ---------- ---------- ----------
Shares applicable to
basic earnings 14.8 15.6 15.2 15.8
Equivalent shares on
outstanding stock awards 0.5 0.6 0.4 0.7
---------- ---------- ---------- ----------
Shares applicable to
diluted earnings 15.3 16.2 15.6 16.5
========== ========== ========== ==========
Capital expenditures $1.0 $1.5 $3.9 $3.4
========== ========== ========== ==========
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
Fiscal Fiscal
December December
2006 2005
----------- -----------
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents $2.4 $1.4
Receivables, net 28.7 33.5
Inventories, net 3.1 6.8
Deferred income taxes 7.6 9.1
Prepaid assets 3.3 3.3
Other current assets 4.3 3.2
----------- -----------
Total current assets 49.4 57.3
Property and equipment, net 99.4 104.6
Goodwill and other intangible assets, net 1.5 --
Deferred income taxes 57.2 59.5
Other assets 8.9 17.8
----------- -----------
Total assets $216.4 $239.2
=========== ===========
Liabilities and equity:
Current liabilities:
Current portion of long-term obligations $2.0 $1.9
Accounts payable 15.9 13.6
Accrued expenses 26.1 31.7
----------- -----------
Total current liabilities 44.0 47.2
Long-term debt 61.1 65.0
Obligations under capital leases 3.0 4.1
Finance lease obligation 33.9 35.9
Accrued warranty 28.8 30.7
Other liabilities 8.3 6.8
----------- -----------
Total liabilities 179.1 189.7
----------- -----------
Temporary equity:
Non-vested restricted stock subject to
redemption 2.3 --
Shareholders' equity:
Common stock ($.001 par value, 100 million
shares authorized, 17.7 million and 17.7
million shares issued) and paid-in capital 10.3 15.6
Treasury stock, at cost (2.7 million shares
and 2.0 million shares) (57.8) (45.0)
Retained income 89.1 81.1
Accumulated other comprehensive loss (6.6) (2.2)
----------- -----------
Total shareholders' equity 35.0 49.5
----------- -----------
Total liabilities and shareholders'
equity $216.4 $239.2
=========== ===========
CONTACT: Midas, Inc.
Bob Troyer, 630-438-3016