ITASCA, IL — Midas reported a net loss of $76.2 million — or $4.93 per diluted share — for fiscal 2003, which ended Jan. 3. Midas said the loss is primarily the result $102.6 million in charges related to its restructuring, completed in April. As part of the restructuring, Midas exited its wholesale distribution business and refocused its resources on retail franchising and real estate businesses.
“The significant loss for fiscal 2003 was expected,” said Alan Feldman, Midas’ president and CEO. “The actions we took in 2003 significantly reduced the company’s debt level and position the Midas system for future growth in revenues and profitability.”
Sales and revenues for the fiscal year were $311 million, compared to $333 million in 2002. The decline is primarily the result of the shutdown of the Parts Warehouse, Inc. (PWI) quick-delivery business, said Midas. For the fourth quarter, sales and revenues were $81.6 million, up from $74.8 million in 2002. The final sale and liquidation of inventories at Midas distribution centers caused an increase in sales during the fourth quarter.
Company-operated shops generated $41.7 million of sales in 2003 and $9.2 million in the fourth quarter, compared to $53.2 million for fiscal 2002 and $12.2 million in the fourth quarter. Midas said the decline for the year and quarter was the result of the strategic decision to reduce the number of company-operated shops from 111 at the end of 2002 to 73 at the end of 2003. In addition, the 73 remaining company-operated shops experienced a decline in comparable shop sales of nearly seven percent compared to slightly positive comparable retail sales in all Midas shops in the U.S.
The net loss of $76.2 million for 2003 and $25.3 million for the fourth quarter compared to a net loss of $33.6 million for full-year 2002 and a net loss of $40.4 million in the fourth quarter last year. The 2003 results include income tax benefits of $48.5 million for the year and $16.1 million in the fourth quarter, compared to tax benefits of $21.4 million for the year and $25.8 million in the fourth quarter in 2002. As a result of the significant net operating losses generated in 2003, the company said it will not be required to pay federal income taxes for the foreseeable future.
Business transformation charges of $102.6 million for all of 2003 were primarily the result of closing down the Midas wholesale distribution business, said the company. Included in the $86.1 million of non-cash charges was $38.5 million to establish a reserve for future warranty reimbursements, $34.1 million for write-downs of inventories, fixed assets and accounts receivable, $11.4 million for goodwill impairment charges at company-operated shops, and $2.1 million for pension adjustments associated with closing distribution centers. Cash charges of $16.5 million included $5.4 million for severance payments to displaced employees, $4.3 million for remaining lease commitments on closed sites, $2.3 million for refinancing fees, and $2.9 million for physical closing costs of various facilities.
Business transformation charges of $62.3 million in 2002 were related to shuttering the PWI network, closing and refranchising certain company-operated shops, and severing certain employees.
Midas refinanced its debt facilities in late March 2003 and used funds generated by liquidating inventories to fund restructuring actions and to pay down term loan debt by $40.1 million from $132.5 million at the time of the refinancing to $92.4 million as of year-end. As a result of exceeding the $33 million term loan reduction target set by its lenders, the company was able to reclaim half of the one million common stock warrants issued as part of the refinancing.
The company said it expects to refinance its current debt facility at significantly lower interest rates during the first half of this year.
As a result of the shutdown of the PWI business and the outsourcing of the Midas wholesale distribution business, Midas anticipates 2004 sales and revenues of approximately $200 million, consistent with the company’s 2003 performance from continuing businesses.
“We are pleased with the progress we made during 2003 and are encouraged by the results we are beginning to see in enhancing our retail presence,” Feldman said. “We look forward to a return to profitability in 2004, and have set our long-term sights on achieving an operating income margin equal to 20 percent of sales.”
“With the distribution restructuring actions behind us, we now have a singular focus which is the profitable growth of the Midas retail network,” Feldman said. “We are working closely with our 700 dealers to expand the global Midas brand, to grow our leadership position in the brake and exhaust markets, to enhance our capabilities in providing routine maintenance services, and to add tires and an automotive fleet maintenance program to our service offerings. We are encouraged by the positive growth in our 2003 same store retail sales at franchised shops.”
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