ITASCA, IL — Midas has reported net income of $10.5 million—or 67 cents 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 13 cents 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.

“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 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 U.S. 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 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 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.”

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 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 million and $36 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 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 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 million for the year, compared to $2.6 million for the fourth quarter and $10 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 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.

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 U.S. 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. 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.

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 million shares outstanding at the end of 2006.

“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 and $84 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 million and capital spending of approximately $4 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.

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 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 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.