Profile: Midas Inc (MDS)

Midas, Inc. (MDS), incorporated on August 29, 1997, provides retail automotive services principally through franchised or licensed shops in the United States, Canada, Europe and other countries. Through March 2008, the Company’s sole franchise concept was Midas auto repair centers (Midas). In April 2008, MDS acquired the SpeeDee Oil Change and Tune-up franchise system and as of January 3, 2009, sold Midas and SpeeDee and Midas-SpeeDee co-branded franchises. The Midas network of franchised and Company-operated shops provides automotive repair and maintenance services in North America with 1,674 shops located in all 50 United States and nine Canadian provinces as of January 3, 2009. The SpeeDee network of franchised and Company-operated shops consists of 116 shops located in 13 United States. In addition, both Midas and SpeeDee license their brands outside of North America. There are 835 Midas shops licensed in 14 other countries, and 57 licensed SpeeDee shops in Mexico. On a worldwide basis, there were 2,682 Midas and SpeeDee shops as of January 3, 2009.

MDS operates in a single business segment with retail, real estate, supply chain and point-of-sale technology operations in support of the franchising of Midas and SpeeDee automotive service shops in North America. Retail operations consist of Company-operated Midas and SpeeDee shops. Real estate activities include the development, ownership and leasing of Midas and SpeeDee shops in the United States and Canada. Supply chain activities include providing value-added merchandising services to franchisees, in which the Company establishes relationships with vendors who distribute products and equipment directly to Midas and SpeeDee shops. Point-of-sale technology operations consist of the ownership, development, sale and leasing of automotive shop management software to Midas franchisees and other third-party automotive service providers. Outside of North America the Company operates on a master-franchise basis whereby the Midas and SpeeDee trademarks are licensed to master franchisees that sub-franchise Midas and SpeeDee shops in their respective territories.

Franchises and the North American Midas and SpeeDee Systems

The Company is the franchisor of the Midas franchise system throughout North America and the SpeeDee franchise system in the United States. Both Midas and SpeeDee have developed methodologies and systems for the establishment and operation of franchised auto service shops. These systems include site selection, shop construction and layout, equipment selection and installation, purchasing and inventory control methods, accounting methods, merchandising, advertising, sales and promotional techniques, installation techniques, personnel training and other matters relating to the operation of auto service shops and the maintenance. MDS also considers a franchisee’s ability to work within the franchise system. Midas shops provide an array of automotive repair and maintenance services and are located in all 50 states and nine Canadian provinces.

Franchised Midas Shops

As of January 3, 2009, there were 1,576 North American franchised shops, which were located in all 50 United States and nine Canadian provinces. Approximately 650 franchisees operate these shops, with only one franchisee having more than 32 shops. Over 63% of the franchised shops are owned and operated by franchisees with five or fewer shop locations. Approximately 27% of Midas franchise locations are owned by single shop operators. The Company makes Midas warranted products and other automotive parts available to its Midas franchisees through distribution agreements with certain automotive parts suppliers in the United States and Canada. The International Midas Dealers Association (the IMDA) is an independent association of Midas franchisees. Approximately 52% of the Midas franchised locations in North America have membership in the IMDA.

Company-Operated Midas Shops

During the fiscal year ended January 3, 2009 (fiscal 2008), the Company acquired or opened 16 Midas Company-operated shops, re-franchised seven shops and closed two shops. As of January 3, 2009, the Company owned and operated 98 Midas shops in nine states and Canada, with the largest concentrations in Florida (23 shops), Colorado (13 shops), California (12 shops) and Pennsylvania (11 shops).

Midas International Operations

As of January 3, 2009, there were approximately 835 Midas shops located in Europe, Australia, the Middle East, Latin America and the Caribbean. In each of these areas of the world, a master-franchisee licenses the Midas trademark and know-how from the Company (each a licensee), and sub-franchises the Midas brand to local franchisees. These licensees may also operate Midas shops on a Company-operated basis. In exchange for the use of the Midas trademarks, licensees are required to pay a license fee to the Company. This license fee varies by region, but is generally calculated as a percentage of Midas system-wide sales in the region. In February 2008, the Company added a Midas licensee in Costa Rica.

On March 30, 2008 Midas acquired the assets of G.C. & K.B. Investments, Inc. and its affiliated entities that franchise or sub-franchise SpeeDee quick-lube and automotive maintenance shops. As of January 3, 2009, SpeeDee had 116 shop locations in the United States in 13 states, and 57 shops in Mexico. Of the United States shop locations, two were Company-operated and 19 shops were sub-franchised to a licensee who controls the franchise rights to SpeeDee locations in the New England region. Most SpeeDee shops are owned by single location franchisees that both own and operate their shops.

The Company launched its first test of the SpeeDee-Midas Co-Brand concept with three shops during fiscal 2008. All three were existing SpeeDee locations in California that added the Midas brand to their shop. A fourth Co-Branded unit, also in California, opened on a de novo basis in October 2008. During December 2008, the Company began a test of the Co-Brand concept within existing Midas shops. Three Midas Company-operated shops in suburban Chicago were remodeled to accommodate the operating requirements of the SpeeDee concept.

Supply Chain

The Midas system in North America is supported by the Company’s supply chain activities. The Company provides merchandising services to franchisees by establishing relationships with vendors who distribute products and equipment directly to Midas and SpeeDee shops. Under the new supply chain business model, the Company establishes relationships with large vendors of automotive replacement parts and arranges for the distribution of these products directly to Midas shops. Most dealers’ parts sourcing needs are addressed through the Company’s relationships with major full-line automotive replacement parts suppliers, such as the National Automotive Parts Association (NAPA), Uni-Select Inc., and CarQuest Corporation. These vendors provide franchisees with weekly delivery of replacement parts to Midas retail shops, as well as access to just-in-time parts delivery through a network of quick-delivery parts distribution sites across North America. In addition to the full-line parts supply arrangements, the Company has established relationships with certain other suppliers to support the more specialized sourcing needs of franchisees. These include agreements with Bridgestone-Firestone, Interstate Battery and Shell Oil for the distribution of tires and batteries, respectively. The Company also maintains relationships with key equipment vendors to provide franchisees with access to shop equipment.

Real Estate

Midas Realty Corporation, a wholly owned subsidiary, leases real estate that is subleased to franchisees and owns real estate in the United States and Canada that is leased to franchisees. In circumstances where Midas does not own or lease real estate for Midas shops, Midas Realty enters into contingent operating lease agreements or other forms of real estate control in order to ensure its ability to take possession of the real estate used by Midas shops in the event of a franchisee termination. As of January 3, 2009, Midas Realty owned 220 retail Midas locations, leased 510 Midas locations and used other forms of real estate control over an additional 690 Midas locations. SpeeDee Realty Corporation (SpeeDee Realty), also a wholly owned subsidiary of MDS, leases real estate that is subleased to SpeeDee franchisees. SpeeDee Realty does not own any real estate. As of January 3, 2009, SpeeDee Realty leased three SpeeDee locations.

The Company competes with Jiffy Lube, MAACO, Meineke and AAMCO.