Midas, Inc. (NYSE:MDS) reported net income of $2.2 million--or $0.13 per diluted share--for its fiscal year ended Dec. 31, 2005, after special items related to the company's exit from the exhaust manufacturing and distribution business.

Fiscal 2005 net income was negatively affected by $3.1 million of operating losses related to the wind-down of the exhaust manufacturing business. The company also recorded business transformation charges of $12.3 million for asset write-downs, severance and other items related to exiting exhaust manufacturing and distribution, and a gain of $2.8 million for the continuing amortization of the gain from the sale of the company's exhaust warehouse in Chicago.

Excluding the exhaust manufacturing and distribution items, the company earned $0.65 per diluted share, which represents a non-GAAP earnings per diluted share measure. This compares to $0.56 per diluted share in 2004 on the same non-GAAP basis, when exhaust operating losses were $3.7 million, business transformation charges were $1.2 million, and the gain from asset sales was $0.6 million.

For the fourth quarter, Midas reported net income of $0.6 million--or $0.04 per diluted share--after exhaust manufacturing and distribution related items of $1.6 million. This included $1.2 million of exhaust operating losses during the quarter, $1.2 million of business transformation charges, and a gain of $0.8 million from the sale of the Chicago exhaust warehouse. Midas also recorded a loss of $0.3 million during the quarter on the early extinguishment of debt as part of its refinancing in late October.

Excluding the exhaust manufacturing and distribution items and the loss on debt extinguishment, the company earned $0.11 per diluted share during the fourth quarter of 2005, which represents a non-GAAP earnings per diluted share measure.

Business transformation update:

"We successfully completed significant steps in our strategic transformation during 2005, by closing down our exhaust manufacturing plant in Hartford, Wisc. in the third quarter, and completing the conversion of the U.S. Midas system from Midas manufactured exhaust to ArvinMeritor (NYSE: ARM) manufactured exhaust," said Alan D. Feldman, Midas' president and chief executive officer.

"A similar transition to Walker manufactured exhaust will be completed in Canada by the end of the first quarter, and we will be able to finally close our exhaust warehouse and close the book on our legacy manufacturing and distribution business," Feldman said.

Midas expects to incur an operating loss in its exhaust business of approximately $1.0 million in the first quarter of 2006, after which the losses will end. No further exhaust-related restructuring charges are expected, although the company will realize gains in the first quarter of 2006 of approximately $1.7 million related to the disposal of exhaust related machinery and equipment, and $1.8 million related to the final recognition of the gain from the sale of the Chicago exhaust warehouse. The company also expects to realize a gain from the eventual sale of the real estate related to its former manufacturing facility in Hartford.

Midas previously announced that it had expected a special charge of up to $4.0 million in the fourth quarter of fiscal 2005 to cover Midas' contribution to a North American Midas shop appearance upgrade program. After careful consideration it was determined that this charge will be taken as shops complete the image upgrade, which will result in special charges over the course of 2006 and 2007.

Retail sales continue to grow:

"Midas recorded its 11th consecutive quarter of comparable shop retail sales increases in the U.S. and North American shops were up by 1.8 percent for the quarter," Feldman said. "Retail sales were up 2.5 percent during the first half of 2005, but slowed somewhat in the second half's challenging retail environment."

For the year, comparable shop retail sales at U.S. Midas shops were up 2.4 percent, compared to a full-year increase of 2.7 percent in 2004.

Midas shops in Canada recorded comparable shop increases of 2.1 percent for 2005, their first full-year increase since 2001. This included a comparable shops sales increase of 5.3 percent in the fourth quarter.


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