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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K



|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                        
|           | 
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934    
|           | 
|           |  | For the fiscal year ended January 1, 2005                                              
|           | 
|           |  | OR                                                                                     
|           | 
| ̈          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|           | 
|           |  | For the transition period from  to                                                     



Commission File
Number: 01-13409



Midas, Inc.

(Exact Name of Registrant as Specified in its Charter)



|                                                              |  |                              
|------------------------------------------------------------- |  | -----------------------------
|Delaware                                                      |  | 36-4180556                   
|(State or Other Jurisdictionof Incorporation or Organization) |  | (Employer Identification No.)
|                                                              | 
|1300 Arlington Heights Road,Itasca, Illinois                  |  | 60143                        
|(Address of Principal Executive Offices)                      |  | (Zip Code)                   



(630) 438-3000

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:



|                                |  |                                          
|------------------------------- |  | -----------------------------------------
|Title of Each Class             |  | Name of Each Exchange on Which Registered
|Common Stock, par value $.001   |  | New York Stock Exchange                  
|Preferred Stock Purchase Rights |  | New York Stock Exchange                  



Securities registered
pursuant to Section 12(g) of the Act: None



Indicate by check
mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by check mark
whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES  x    NO ̈



The aggregate market value of
the outstanding common stock, other than shares held by persons who may be deemed affiliates of the Registrant, as of the last business day of the Registrants most recently completed second fiscal quarter was approximately $282.3 million.



The number of shares of the Registrants Common Stock,
$.001 par value per share, outstanding as of February 28, 2005 was 16,003,470.



Documents incorporated by reference: Portions of the definitive Proxy Statement for the 2005 Annual Meeting of Shareholders of the Registrant (the 2005 Proxy Statement) are incorporated by reference into
Part III.



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##### Table of Contents

TABLE OF CONTENTS



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I     |  |                                                                                                              |  | Page
|           |  |                                                                                                             
|1.         |  | Business                                                                                                     |  | 1   
|2.         |  | Properties                                                                                                   |  | 19  
|3.         |  | Legal Proceedings                                                                                            |  | 20  
|4.         |  | Submission of Matters to a Vote of Security Holders                                                          |  | 20  
|           | 
|PART II    |  |                                                                                                             
|           |  |                                                                                                             
|5.         |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 21  
|6.         |  | Selected Financial Data                                                                                      |  | 22  
|7.         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 23  
|7A.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 39  
|8.         |  | Financial Statements and Supplementary Data                                                                  |  | 39  
|9.         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 39  
|9A.        |  | Controls and Procedures                                                                                      |  | 39  
|9B.        |  | Other Information                                                                                            |  | 42  
|           | 
|PART III   |  |                                                                                                             
|           |  |                                                                                                             
|10.        |  | Directors and Executive Officers of the Registrant                                                           |  | 42  
|11.        |  | Executive Compensation                                                                                       |  | 42  
|12.        |  | Security Ownership of Certain Beneficial Owners and Management                                               |  | 42  
|13.        |  | Certain Relationships and Related Transactions                                                               |  | 43  
|14.        |  | Principal Accounting Fees and Services                                                                       |  | 43  
|           | 
|PART IV    |  |                                                                                                             
|           |  |                                                                                                             
|15.        |  | Exhibits and Financial Statement Schedules                                                                   |  | 44  
|Signatures |  | 48                                                                                                          



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PART I



|Item 1. | Business
|------- | --------



As used herein, and except where the context otherwise requires, the terms Midas and the Company include Midas, Inc. and its consolidated subsidiaries. References to fiscal years are to years ended January 1, 2005
(fiscal 2004), January 3, 2004 (fiscal 2003) and December 28, 2002 (fiscal 2002).



Background



Midas is among the worlds largest and most recognized providers of automotive aftermarket services with over 2,600 shops globally, leading market
positions in core retail service offerings and strong brand equity. Midas retail shops, which are operated by the Company, its franchisees and licensees, offer a comprehensive array of automotive repair and maintenance services. As of January 1,
2005, there were 1,834 North American shops located in all 50 U.S. states and all 10 Canadian provinces. The Company believes it is among the leaders in terms of market share in the U.S. automotive service industry (excluding tires, collision parts
and parts for heavy duty trucks). Midas enjoys strong brand recognition, demonstrated by a consumer awareness rate of over 90%, and high levels of consumer loyalty through its lifetime warranty program on genuine Midas parts. The Company also
believes that its real estate operations provide a unique advantage by allowing control over a majority of the retail sites operating under the Midas brand.



Midas has been engaged in the retail automotive repair business since 1954, and has granted franchises for and operated Midas shops since 1956. From 1972
to 1998, the Midas business was operated through a series of companies that were controlled by Whitman Corporation (Whitman). Midas was incorporated under the laws of the State of Delaware on August 29, 1997 as a wholly-owned subsidiary
of Whitman, and the assets of the Midas business were transferred to Midas, Inc. On January 30, 1998, Whitman distributed all issued and outstanding shares of Midas to shareholders of record of Whitman stock (the Spin-Off), and Midas
became an independent public company.



Midas principal
executive offices are located at 1300 Arlington Heights Road, Itasca, Illinois 60143, and its telephone number is (630) 438-3000. The Companys Internet address is www.Midas.com. Midas makes available, free of charge on or through its website,
its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.



Industry Overview



Midas competes in the approximately $115 billion U.S. automotive aftermarket industry, which includes replacement parts (excluding tires, collision parts
and parts for heavy trucks), accessories, maintenance items, batteries and automotive fluids for cars and light trucks. Approximately 54% of this amount is from the sale of installed parts, while 28% is from labor and 18% is from the Do-It-Yourself
(DIY) market. Midas participates in the installed parts and labor segments of the market. Midas does not generally participate in the DIY market.



Increased technological complexity and durability of vehicles have been the dominant forces in the evolution of the automotive repair industry since the
1970s. As a result, the types of service providers, as well as the type and frequency of repairs being performed, have changed over time. The total number of service outlets in the U.S. has been declining over the past 10 years. The largest
decrease is attributable to a reduction in the number of local service stations offering automotive repair. As the number of service stations offering automotive repair has decreased, more sophisticated service providers have emerged. The number of
independent maintenance and repair shops and large automotive repair chains has increased slightly. In addition, automobile



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companies and dealers are more aggressively pursuing repair business by separating repair shops from showrooms and offering more convenient service.



The increased technological sophistication of modern
automobiles has also affected the type and frequency of service needed over the lifetime of a vehicle. Vehicles are now assembled with more durable parts, such as stainless steel exhaust systems. At the same time, suspension parts such as shock
absorbers and struts are now more technologically advanced. As a result, the services performed over the lifetime of todays vehicles are more likely to be scheduled maintenance services and light repair work. Most automotive service providers
have adapted to this change by broadening their menu of services in order to offset the decline in revenue resulting from the improved durability of automotive parts.



Despite the improved durability of todays vehicles, the Company believes that the U.S. automotive aftermarket is
characterized by stable demand and is growing because of increases in the size and age of the countrys automotive fleet, as well as increases in the number of miles driven annually. Additionally, recent industry statistics indicate that there
is more than $43 billion in neglected vehicle maintenance every year.



According to published industry information, the number of vehicles in use in the U.S. has grown every year since 1992, primarily as a result of steady annual increases in new light truck sales. In addition, the median age of vehicles in
use continues to increase. From 1990 to 2004, the median age of cars in use grew from 6.5 years to 8.9 years. As the warranties for aging vehicles expire, automotive aftermarket service providers should be well positioned to benefit from the needs
of owners to have their vehicles serviced. The aging of the vehicle population benefits the automotive aftermarket industry because older vehicles tend to require more maintenance and repair services.



Additionally, the increase in the aggregate number of miles driven annually
has increased the maintenance requirements of cars and light trucks. According to the U.S. Department of Transportation, between 1990 and 2003, aggregate annual miles driven by cars and light trucks increased 34% from 1.99 billion to 2.67 billion.
The Company expects this upward trend to continue.



Company Overview



Midas operates in a single vertically integrated business
segment with retail, supply chain and real estate operations in support of automotive service shops. Retail operations consist of franchised and company-operated Midas shops in North America and licensed Midas shops in 17 other countries. Supply
chain activities include the manufacture and distribution of exhaust products and value-added merchandising services under which the Company establishes relationships with vendors who distribute products directly to Midas shops. Real estate
activities include the development, ownership and leasing of Midas shops in North America. Prior to 2004, Midas operated a warehouse network that distributed automotive parts and accessories to Midas and non-Midas automotive repair shops. This
network was shut down in 2003 and certain activities were outsourced on behalf of Midas dealers.



Midas has historically operated as an under car specialist focused on the replacement of exhaust, brakes, and shocks and struts. As recently as 1997,
exhaust and brake repair services constituted 82% of Midas retail shop revenues in the U.S. market. As automobile manufacturers began to employ non-corrosive stainless steel exhaust systems in the mid 1980s, the average life of an
original equipment exhaust system began to increase from three years to over 10 years. As a result, beginning in the mid 1990s, Midas core exhaust replacement business began to experience sustained revenue declines. This trend, combined
with the increased technological complexity and durability of newer vehicles, has changed the nature of automotive repairs. Today, the services performed over the lifetime of a vehicle are more likely to be maintenance services and light repair
work.



In response to the above-described trends, and in order
to offset declining sales of exhaust products in the Companys retail and wholesale distribution operations, the Company has been transforming itself from an under



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car repair specialist to a full-service automotive repair and maintenance provider, leveraging Midas strong brand and nationwide presence. A further
discussion of Midas business activities and the transformation process follows.



Retail Auto Service Shops



The Midas
system consists of more than 2,600 shops operated by the Company, its franchisees and its licensees under the Midas brand, providing automotive repair and maintenance services in the U.S., Canada, Europe, Australia, the Middle East, Latin America
and the Caribbean. Midas believes it is the largest automotive aftermarket service retail franchise in the world, with 2,635 locations, of which 1,834 are located in the U.S. and Canada (hereinafter referred to as North America). Midas
has locations in all 50 states and all 10 Canadian provinces. This results in substantial market coverage throughout North America and strong credibility for Midas North American lifetime warranty program.



The following table sets forth the number of North American franchised Midas
shops, company-operated shops, and shops outside of North America, as of the end of each of the fiscal periods indicated:



|                                      |  |       |  |       |  |       |  |       |  |      
|------------------------------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | -----
|Fiscal Year End                       |  | 2004  |  | 2003  |  | 2002  |  | 2001  |  | 2000 
|North American franchised             |  | 1,761 |  | 1,811 |  | 1,848 |  | 1,896 |  | 2,027
|North American company-operated       |  | 73    |  | 73    |  | 111   |  | 108   |  | 10   
|International franchised and licensed |  | 801   |  | 789   |  | 755   |  | 731   |  | 698  
|                                      |  |       |  |       |  |       |  |       |  |      
|Total                                 |  | 2,635 |  | 2,673 |  | 2,714 |  | 2,735 |  | 2,735
|                                      |  |       |  |       |  |       |  |       |  |      



Midas shops are
generally located in free-standing buildings in high traffic areas with good visibility and easy access to major roadways. The Company believes that its portfolio of real estate locations built over the past 40 years could not be easily replicated.
Given the limited number of desirable repair shop locations and impediments to opening repair shops resulting from zoning and building code restrictions, as well as landlord and developer requirements, entry into the automobile repair market on a
large-scale basis is difficult.



In support of the Midas retail
network, the Company has an annual advertising budget that is one of the largest in the automotive aftermarket repair business. North American franchisees pay Midas monthly royalties of approximately 10% of retail sales. Midas is obligated to spend
an amount equal to one-half of the royalty payments received from franchisees for advertising placed during the calendar year in which the royalties are received or during the following calendar year. In addition, Midas incurs supplemental
advertising costs that are included in selling, general and distribution expenses. In 2004, total advertising spending was approximately $55 million.



In the U.S., Midas has strong brand equity in the automotive repair category. In 2004, approximately 69% of U.S. retail system sales were in categories
where the Company believes it has the number one or number two market position as shown by its internal estimates of market share. According to Midas tracking studies, over 90% of consumers are familiar with the Midas brand name and over 40%
of all automobile repair customers have been to a Midas shop in their lifetime. Midas is among the leading brands mentioned of automotive repair providers in the U.S. and Canada in Midas tracking surveys.



An important feature of the Midas system is the requirement that the retail
customer be provided a written lifetime warranty from Midas on genuine Midas products that will be honored at any Midas shop throughout North America. Each Midas shop is required to honor such warranties in accordance with their terms and with
policies as issued from time to time by the Company. This ensures consistency throughout the Midas system.



The Company believes that its lifetime warranty program provides a competitive advantage over other automotive repair companies and independent service
shops, and the breadth of Midas geographic coverage makes it difficult to duplicate the Midas program. This program generates recurring business from existing



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customers and promotes customer loyalty. The Company believes that many of its first time customers choose Midas based upon the lifetime warranty program. In
addition, significant portions of exhaust, brake, shock and strut jobs performed at retail involve customers returning for warranty service. Importantly, warranty replacement work is profitable at the shop level as, in accordance with the terms of
the warranty, customers are charged for labor plus other non-warranted parts necessary for the warranty replacement. Additionally, many of Midas customers returning for warranty service choose to spend substantial incremental dollars on
additional services. The Company believes that its presence in all 50 states and all 10 Canadian provinces, coupled with its North American lifetime warranty program, can be leveraged to capture a larger percentage of automotive repair and
maintenance services in segments other than exhaust, brakes and suspension/steering.



From its inception in 1956 through 1959, Midas focused exclusively on replacement of exhaust systems. On a national basis, Midas added shock replacement in 1960, brake repair in 1979 and alignment in 1988. No
additional products or services were added on a national basis until the introduction of batteries in 1998. Historical core business offerings included only exhaust systems, brakes, shocks and struts, steering and suspension. Midas estimates that
the potential market for these core offerings is only 13% of the approximately $115 billion U.S. automotive aftermarket parts and services industry.



Beginning in 2000, Midas implemented a New Midas strategy, which provided for a significant upgrade in the appearance of its retail shops, the roll out of
new service categories and a renewed focus on customer service. Under the New Midas program, Midas expanded its retail offerings to include general repair, heat exchange products and climate control services. These New Midas categories more than
doubled the size of Midas addressable market. Today, most Midas shops offer exhaust, brake, suspension, air conditioning, batteries and a wide variety of other routine maintenance services. Since 1997, Midas U.S. exhaust sales at retail
have declined at an annual rate of 10.1% on a same store basis, but this deterioration has been substantially offset by the expansion of Midas service offerings into the New Midas categories. Today, New Midas categories account for over 30% of
system-wide retail sales. Midas business strategy is to continue to expand these service offerings in the future and to further reposition the Midas brand as a source for total car care.



The following table compares the current Midas U.S. retail service mix with
last year, five years ago and 20 years ago.



Changes in U.S.
Retail Service Mix



|                              |  |      |   |  |      |   |  |      |   |  |      |  
|----------------------------- |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                              |  | 2004 |   |  | 2003 |   |  | 1999 |   |  | 1984 |  
|Exhaust                       |  | 17   | % |  | 19   | % |  | 30   | % |  | 61   | %
|Brakes                        |  | 44   | % |  | 42   | % |  | 47   | % |  | 22   | %
|Suspension, shocks and struts |  | 8    | % |  | 8    | % |  | 10   | % |  | 16   | %
|New Midas categories          |  | 31   | % |  | 31   | % |  | 13   | % |  | 1    | %



The broadening of
retail service offerings has substantially offset the continuing deterioration in the exhaust replacement market. As a result, the average sales of a Midas shop have been fairly stable over the past five years. The average U.S shop sales were
approximately $590,000 in 1999 and $620,000 in 2004.



The
Company believes that the Midas system has the potential for substantial growth in retail sales. In fiscal 2003, the Company set forth its strategic objectives for 2010, defined as Vision 4-3-2-1:



| | (4) | 40% increase in Midas shop sales on a same-store basis.
| | --- | -------------------------------------------------------



| | (3) | Three core services: brakes, exhaust and maintenance.
| | --- | -----------------------------------------------------



| | (2) | Doubling of Midas dealer profits.
| | --- | ---------------------------------



| | (1) | One Midas: the Company and Midas dealers working together as one in support of the retail system.
| | --- | -------------------------------------------------------------------------------------------------



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Management believes that the key to achieving Vision 4-3-2-1 is transforming Midas from a
repair company that performs maintenance services, to a maintenance company that performs repair services. The Company also believes that forming long-term relationships with customers through routine maintenance services will lead to an increase in
repair revenues as Midas becomes the most trusted professional and first choice for customers auto service needs.



Midas is working in concert with franchisees to implement several key retail initiatives in support of growing the maintenance services category and
building long-term customer relationships.



Tires: In
fiscal 2004, Midas successfully launched a major retail initiative to significantly expand Midas shop sales of tires and related tire services. In support of this objective, the Company formed an alliance with Bridgestone/Firestone to distribute
tires directly to Midas shops throughout North America. As a result, U.S. comparable store sales of tires and related tire services increased more than 25% in 2004. Currently, nearly 1,100 shops in North America are consistently participating in the
Companys program with Bridgestone/Firestone and the participation level is continuing to expand. The Company believes that growth in sales of tires and related tire services will be a key component of future revenue growth for the Midas
system.



Fleet: Midas is in the process of launching a
comprehensive program targeting fleet vehicle maintenance services. After extensive market testing in 2004, the Company recently began to roll out its fleet program, which includes alliances with certain fuel card vendors, marketing programs and an
outsourced billing and collection solution. Midas believes this market segment includes over 12 million vehicles in the U.S. and represents an addressable market of more than $6 billion based on the specific services which the Midas system currently
offers. The Company believes that its national scope, high level of brand awareness, and broad-based competency in automotive repair and maintenance services will enable the Company to successfully compete for fleet vehicle maintenance service
business.



Maintenance: The Company recently began the
roll out of a series of initiatives designed to build sales in maintenance services. Aspects of this program include the standardization of the Midas oil change service and the vehicle inspection process. Additional elements include providing all
customers with suggested factory maintenance schedules and increasing the Midas shops focus and capabilities in fluid exchange services, which are an increasingly important component of factory scheduled maintenance. The Company is also in the
process of implementing a customer relationship marketing (CRM) program that utilizes direct marketing to promote more frequent shop visits. In the past, such direct marketing efforts were inconsistent and not well targeted. With the
recent rollout of the Midas CRM program, promotional offers are now directly marketed to existing customers based on specific customer needs and historical service activity. In addition, mailings to prospective new customers are targeted based on
key learnings from marketing efforts to reach existing Midas customers. The Company believes this program will drive customer retention and shop visit frequency, which is essential to building the Midas systems maintenance business.



Franchised Shops



As of January 1, 2005, there were 1,761 North American franchised shops,
which were located in all 50 U.S. states and all 10 Canadian provinces. Approximately 690 franchise dealers operate these shops, with only one dealer having more than 32 shops. Over 60% of the franchised shops are owned and operated by dealers with
five or fewer shop locations.



Midas franchisees are all
subject to the Midas Franchise and Trademark Agreement and are obligated to operate their shops in accordance with Midas standards and policies. In North America, franchisees are required to maintain a sufficient quantity of Midas branded and
Midas warranted productsprincipally mufflers, shock absorbers, struts and brake pads and shoesadequate to meet the public demand for genuine Midas products and to promptly fill customers requests for replacement under the terms of
various Midas warranties. The Company makes genuine Midas branded products and other automotive parts available to its franchisees through distribution agreements with certain automotive parts suppliers in the U.S. and Canada.



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Midas supports the franchise dealer network with 34 district managers and five regional managers. Each
district manager covers approximately 52 shops and assists franchisees with operations execution, coordinates implementation of key retail initiatives, monitors compliance with franchise agreement parameters, and manages Midas training
efforts.



A typical franchised Midas shop is approximately
4,000 square feet, has six service bays and generated annual revenues of approximately $625,000 in 2004.



Company-Operated Shops



In the late 1990s, Midas divested its U.S. company-operated shop business and its international businesses so that it could focus its management and
financial resources on the Midas franchise system in North America. In 1998, the Company re-franchised most of its 150 U.S. company-operated shops. Demand for Midas shops was high at the time, and the Company determined that the capital could be
employed more effectively.



During 2001, Midas re-established
its network of company-operated shops by selectively acquiring underperforming franchised locations. The Company believes that owning and operating some Midas shops is a required element of a successful franchise system. Such ownership allows for
the orderly transition of franchises, provides a valuable test-marketing platform for the rollout of new products and services, enables the Company to upgrade underperforming locations, and helps to accelerate the successful transition of the entire
Midas system to the Vision 4-3-2-1 business model. Upon acquisition of a shop, Midas typically upgrades shop equipment, expands the services offered, installs new point-of-sale software, upgrades the quality of technicians, and enhances
local marketing efforts.



During fiscal 2001 and 2002, Midas
acquired 98 shops, including 52 underperforming shops in Florida that had been in bankruptcy. In fiscal 2003, the Company closed 14 company-operated shops and re-franchised an additional 24 shops. As of January 1, 2005, the Company owned and
operated 73 Midas shops in five states, with the largest concentrations in Florida (45 shops) and Colorado (17 shops). In February 2005, the Company re-franchised four shops in Florida and two shops in Denver, and acquired an additional three shops
in Chicago, thus reducing the overall company-operated shop count to 70 shops. Going forward, the Company intends to maintain a core group of company-operated Midas shop locations. From time-to-time, on an opportunistic basis, Midas may acquire or
re-franchise additional North American Midas shops.



The
typical company-operated shop is staffed with a manager, an assistant manager or shop foreman, and three to four automotive service technicians. The company-operated shop business is managed by two regional managers and 10 district managers.



The typical company-operated shop is approximately 4,000
square feet, has six service bays and generated annual revenues of approximately $495,000 in fiscal 2004. The revenues at the average company-operated shop are lower than the average franchised shop primarily due to the purchase of underperforming
shops in Florida during the fourth quarter of 2001. These shops had emerged from Chapter 11 bankruptcy at the time of acquisition and generated annual revenues substantially below the chain average.



International Operations



In October 1998, Midas sold its franchising and company-operated shop
businesses in Europe and South America to Magneti Marelli, S.p.A., a member of the Fiat Group, for $100 million, and entered into a licensing agreement for the ongoing use of the Midas trademarks and know-how. As part of the licensing agreement,
Magneti Marelli agreed to pay Midas a fixed, U.S. dollar denominated license fee through 2007, after which the fee will be variable based upon a percentage of retail sales. In fiscal 2000, Midas completed the sale of its Australian operations, which
consisted of both franchised and company-operated shops. In September 2004, Fiat Group sold the Midas franchising and company-operated shop businesses in Europe and South America to



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Norauto Group S.A. of France, a major European automotive service provider. As part of this transaction, Norauto assumed the existing Magneti Marelli
licensing arrangement with Midas.



As of January 1, 2005, there
were approximately 801 Midas shops located in Europe, Australia, the Middle East, Latin America and the Caribbean. During 2004, the Company worked to establish closer relationships with its international licensees and is actively seeking ways to
leverage the value of the global Midas brand.



For financial
information about the principal geographic areas in which the Company operates, see Note 13 of Notes to Financial Statements included elsewhere in this Annual Report.



R.O. Writer Software System



In January 2001, the Company acquired the assets of Progressive Automotive Systems of Houston, Texas, a provider of automotive industry shop management
software sold under the name R.O. Writer. The software is specifically designed to meet the needs of the auto repair industry, and Midas continues to develop and enhance the system. The Company believes this software will help to promote operational
consistency and excellence throughout the Midas system. As of January 1, 2005, the R.O. Writer system was installed in approximately 919 Midas shops, comprising approximately 50% of Midas system locations throughout North America. Additionally, the
system has been installed in more than 2,600 non-Midas auto service shops in the United States.



Supply Chain



The Midas system in North America is supported by the Companys supply chain activities, which are comprised of the manufacture and distribution of exhaust parts and value-added merchandising services under which the Company
establishes relationships with vendors who distribute products directly to Midas shops. The Company believes that these value-added merchandising services offer Midas franchisees favorable pricing and enable Midas to control the quality of products
sold through the Midas system.



Until late 2003, the Company
was also involved in wholesale auto parts distribution in North America through its network of regional distribution centers and Parts Warehouse, Inc. (PWI) sites. During 2003, Midas exited the parts distribution business and outsourced
these activities to AutoZone, Inc. in the U.S. and Uni-Select Inc. in Canada.



A further discussion of the Companys supply chain activities follows:



Manufacturing Operations



The Company manufactures Midas branded exhaust products for resale at Midas shops. The products are distributed to Midas dealers in North America through
the Companys distribution arrangements with AutoZone and Uni-Select. Additionally, Midas manufactures certain exhaust products under the IPC and Ravin brand names for sale to distributors. These products include mufflers and specialty
exhaust pipes manufactured by Midas at its Hartford, Wisconsin facility. The Company also manufactures and sells shop equipment under the Huth trademark. The Companys Hartford facility produces approximately 1,750 different types of mufflers
and approximately 275 specialty exhaust pipes to service over 1,000 makes and models of automobiles. Midas manufacturing facilities have limited backlogs of unprocessed orders. Midas purchases the raw materials for the products it
manufactures, primarily steel and packaging, from various suppliers through both long-term and short-term contracts, depending upon anticipated market conditions. These raw materials and products are available from multiple suppliers, and Midas has
not experienced any significant shortages. Midas believes it enjoys good relationships with its suppliers.



To support its manufacturing business, the Company continues to operate one distribution center in Chicago, Illinois. This facility serves as a central
distribution point for exhaust products manufactured by the



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Company, as well as certain other exhaust products purchased from other manufacturers. Midas distributes exhaust products to IPC distributors and to AutoZone
and Uni-Select for subsequent distribution and sale by those companies to Midas dealers.



In October 2004, the Company announced its intention to sell its IPC exhaust distribution business and exit exhaust manufacturing. Midas believes that exhaust manufacturing no longer represents a strategic fit for the
Companys evolving retail-focused business model. Midas believes that exiting exhaust manufacturing will best enable the Company to ensure that Midas franchisees have access to competitively priced, high-quality exhaust products going forward
and allow the Company to continue providing the long-standing Midas lifetime warranty on mufflers. The Company also intends to sell its related Huth manufacturing business during 2005.



Wholesale Auto Parts Distribution



Since its inception through fiscal 2003, the Company operated a wholesale auto parts distribution network comprised of
regional distribution centers located throughout North America. At the beginning of 2003, Midas operated a network of 12 distribution centers throughout the U.S. and Canada which provided Midas shops and PWI locations with Midas and non-Midas
branded products, and wholesale distributors with IPC and Evergard branded products. Midas distribution centers focused on serving the weekly replenishment requirements of Midas shops, delivering high volume auto parts at significant savings
to wholesale and just-in-time alternatives. A typical distribution center was approximately 100,000 square feet in size and stocked over 23,000 unique SKUs. Parts distributed through these distribution centers were shipped on a weekly basis to Midas
shops and other customers.



The increased durability of exhaust
systems and the resulting decline in the retail sale of exhaust products caused a dramatic decline in Midas traditional wholesale sales through its distribution centers. This decline was further accelerated by a trend toward just-in-time
purchasing by Midas shops and other automotive repair facilities. As a result, from 1997 to 2002, total revenues in the traditional wholesale distribution operation decreased more than 50%.



In recognition of this shift in the way customers were purchasing replacement
parts, in fiscal 2000, the Company launched PWI, a network of small, quick-delivery warehouses to serve the growing just-in-time parts requirements of Midas and non-Midas professional installers. The Company believed that the PWI network, with parts
sourced from the traditional wholesale distribution centers, would create value for the Midas franchise system by reducing its franchisees inventory investment, offering franchisees a discount on just-in-time parts (versus other competing
just-in-time suppliers), and enhancing the integrity of the Midas lifetime warranty by ensuring franchisees access to high quality genuine Midas parts. The typical PWI site was approximately 5,000 square feet, carried 13,000 unique SKUs and was
located in low-cost, non-retail areas. At the beginning of 2003, the Company operated 77 PWI locations.



By the close of 2002, both the traditional wholesale parts distribution business and the PWI quick delivery parts distribution operations were losing
money, driven by declining sales through the traditional Midas wholesale distribution channel and the high operating costs associated with the newer PWI locations. Furthermore, the expansion of product offerings through the traditional Midas
wholesale channel, combined with the rollout of the PWI locations, caused a dramatic increase in the working capital requirements of the Company, as inventory and accounts receivable increased as more stores opened. By fiscal 2002, the high working
capital requirements and continued operating losses in the wholesale distribution operation had severely impacted the Companys overall cash flow and caused the Companys indebtedness to substantially increase.



Ultimately, Midas management determined that continuing to support the
traditional Midas wholesale distribution operation and the growth of the PWI network was no longer financially viable, and that the parts sourcing needs of Midas system dealers could be better served by outsourcing the distribution of genuine Midas
parts in the U.S. and Canada. Thus, during fiscal 2003, Midas closed its traditional Midas wholesale parts



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distribution and PWI quick-delivery operations and appointed AutoZone, Inc. and Uni-Select Inc. as the exclusive distributors of genuine Midas products in
the U.S. and Canada, respectively. The Companys agreements with AutoZone and Uni-Select provide for the weekly distribution of replacement parts to Midas retail shops, consistent with the service previously provided by the Companys
traditional wholesale operation. The Company believes these agreements enable Midas dealers to purchase both genuine Midas product and other replacement auto parts at favorable pricing, and provide dealers with access to just-in-time parts delivery
through a broad network of quick-delivery parts distribution sites across North America.



Under its agreements with AutoZone and Uni-Select, the Company receives royalties on the sale of all products sold by AutoZone and Uni-Select to Midas dealers throughout North America. These royalties are primarily
used to offset costs associated with the lifetime warranty on genuine Midas products.



In late 2004, the Company expanded its relationships with parts providers in the U.S. to include the National Automotive Parts Association (NAPA) and CarQuest Corporation. These additional automotive parts
supply relationships were established primarily to expand the geographic scope of just-in-time parts delivery options available to Midas dealers throughout the U.S. Similar to the AutoZone relationship, the Company receives royalties on the sale of
all products sold by NAPA and CarQuest to Midas dealers in the U.S., and these royalties are used to offset costs associated with the Midas lifetime warranty program. Midas believes that AutoZones weekly distribution of parts to Midas dealers,
combined with the broad geographic coverage of the AutoZone, NAPA and CarQuest store networks providing just-in-time parts delivery service, offer Midas dealers in the U.S. extensive access to replacement automotive parts at favorable pricing.



Value-Added Merchandising Services



On behalf of its franchised and company-operated Midas shops, Midas
establishes relationships with large vendors of certain products and arranges for distribution of these products directly to Midas shops. Currently, these purchasing relationships exist for products such as batteries, tires and bulk oil. Under such
arrangements, Midas bills the franchise dealers for the product purchased from the vendor, and then the Company, in turn, pays the vendor for the product. Midas records the sale of the product and holds the related accounts receivable. The
Companys gross margins on these purchasing arrangements are very low, and the gross margin is primarily intended to cover administrative costs and potential bad debts that might arise from the sale of these products. In the past, the sales of
products under these purchasing arrangements represented a small percentage of the overall Midas wholesale product sales. However, with the Companys closure of the traditional wholesale distribution and PWI operations in fiscal 2003, the
percentage of wholesale revenues attributable to these purchasing arrangements increased significantly in 2004 and the overall gross margin percent achieved by the Company on wholesale product transactions declined as a result. While the Company
receives a small gross margin related to these purchasing arrangements, Midas also receives royalties on the sale of these products at retail in the Midas system.



Real Estate



Midas Realty Corporation, a wholly-owned subsidiary (Midas Realty), selects, leases and acquires sites, and constructs sites for Midas shops
throughout North America. Midas Realty leases real estate that is subleased to franchisees and owns real estate in the U.S. 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. This allows the
Company to maintain control of a shop location in the event of a franchisee termination and prevents re-branding of a location to a competitive branded repair facility or an independent repair facility. As of January 1, 2005, Midas owned, leased or
used other forms of real estate control over 1,516 of the 1,834 Midas shops in North America, or approximately 83%. During fiscal 2002, Midas sold 77 of its owned properties to Realty Income Corporation, a publicly-traded real estate investment
trust, and realized approximately $39.6 million in net proceeds. Simultaneous to that sale,



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Midas leased these properties from Realty Income, and the sites continue to be leased to Midas franchisees under currently existing leases. This represented
approximately 25% of Midas owned real estate portfolio at the time of the transaction. Midas continues to own 228 retail locations.



The Company believes that its portfolio of real estate locations built over the past 40 years could not be easily replicated. Given the limited number of
desirable repair shop locations and impediments to opening repair shops resulting from zoning and building code restrictions, as well as landlord and developer requirements, entry into the automobile repair market on a large-scale basis is
difficult.



Franchises and the Midas System



Midas has developed a system for the establishment and operation of Midas
shops that is used in franchised and licensed shops worldwide. This system includes 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 efficient and successful operation of Midas shops and the maintenance of high standards of quality.



Midas, or its licensees, identify and qualify franchisees through a
well-organized recruitment program in each region of the world in which the Midas system operates. Franchisees are qualified based primarily upon a candidates financial suitability and operational experience, among other criteria. Midas also
considers a franchisees ability to work within the Midas franchise system. Each franchisee enters into a standard franchise and trademark agreement with Midas. The franchise and trademark agreement varies by country, but these variances do not
substantially alter the franchise arrangement. The following summarizes portions of the franchise and trademark agreement used in the U.S. (the Franchise Agreement).



Term and Fees; Estimated Costs; Royalty Payments. The initial term of the Franchise Agreement, as well as most Midas
franchise and trademark agreements throughout the world, is 20 years. The Franchise Agreement may be terminated by the franchisee upon thirty days written notice. In most instances, Midas retains, through real estate agreements between
franchisees and Midas Realty (described below), the ability to occupy a site in the event of a termination of the applicable Franchise Agreement in order to ensure that the site may continue to be operated as a Midas shop.



An initial franchise fee is charged upon execution of a Franchise Agreement.
In opening a Midas shop, a franchisee makes additional expenditures relating to fixtures, machinery and equipment and initial product inventory. None of the fees and expenses is financed by Midas and, with the exception of a portion of the initial
franchise fee, none is refundable.



Franchisees pay Midas
monthly royalties based on a percentage of sales. As described more fully below, Midas is obligated to spend an amount equal to one-half of the royalty payments it receives for advertising.



Realty Agreements. Since the mid-1970s, Midas has required each U.S.
franchisee to enter into an agreement with Midas Realty giving Midas Realty the ability to occupy a site in the event of a termination of the related Franchise Agreement. This ensures that the site may continue to be operated as a Midas shop if
Midas chooses. The agreement with Midas Realty remains in effect throughout the term of the related Franchise Agreement. In the instance when Midas Realty owns the real estate or has the primary lease on a Midas shop, the franchisee is required to
lease or sublease the Midas shop from Midas Realty. If the franchisee owns the real estate, the franchisee is required to provide Midas with real estate control through one of two alternative means. The first alternative provides for the lease of
the premises from the franchisee to Midas Realty, and Midas Realty in turn leases the premises back to the franchisee. So long as the franchisee continues to be both the landowner and the franchisee of that shop, no rent is exchanged between the
franchisee and Midas Realty. If the real estate is sold to a third party or if the franchised Midas shop is sold to a new franchisee to whom the sublease is



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assigned, Midas Realty will then collect rent from the franchisee and pay rent to the landowner. Under the second alternative, the franchisee enters into a
conditional option to lease with Midas Realty that grants Midas Realty the option to lease the premises in the event that the related Franchise Agreement is terminated. If the franchisee leases the real estate upon which the Midas shop is located
from a third party, Midas requires that the franchisee grant to Midas Realty a conditional assignment of the lease to take effect upon the termination of the related Franchise Agreement. Approximately 83% of existing North American franchised Midas
shops are subject to various forms of real estate agreements with Midas. See Note 8 of Notes to Financial Statements.



Sites and Site Selection. Midas assists U.S. franchisee candidates in identifying and developing a site on which a Midas shop will be constructed.
Midas may also approve or disapprove of a site identified by the candidate. Midas approves a particular site based upon a review of the demographic characteristics of the site, traffic counts and patterns, population patterns, income statistics,
parking, competition, proximity of other businesses and other commercial criteria.



Training. Franchisees are required to complete the Midas initial training program. The first part of the program includes approximately two weeks observing a franchised Midas shop in operation as well as
development of a business plan and a competitive assessment. The second part of the initial training program is held at a Midas training center and lasts three weeks. Supplemental training sessions are also offered by Midas at certain regional
facilities and online. Midas also makes training materials available and conducts training seminars in the field.



Machinery, Fixtures, Inventory and Other Goods. Midas recommends shop equipment such as lifts, tire and alignment equipment, lathes, racking and
tools necessary to outfit a Midas shop for operation, which can be purchased from Midas or from other sources. In North America, franchisees are required to maintain a sufficient quantity of Midas branded and Midas warranted
productsprincipally mufflers, shock absorbers, struts and brake pads and shoesadequate to meet the public demand for genuine Midas products and to promptly fill customers requests for replacement under the terms of various Midas
warranties. Midas makes these genuine Midas products available to franchisees through its distribution agreements with AutoZone in the U.S. and Uni-Select in Canada.



Warranty Program. An important feature of the Midas system is the requirement that the retail customer be provided a
written warranty from Midas on certain Midas products that will be honored at all Midas shops. Each Midas shop is required to honor such warranties in accordance with their terms and with policies issued from time to time by Midas.



Advertising. Midas is obligated to spend an amount equal to one-half
of the royalty payments it receives from franchisees for advertising placed during the calendar year the royalties are received or during the following calendar year. Midas directs all use of advertising funds, and all decisions regarding the
creative concepts and materials used, whether national, regional or local advertising will be used, the particular media and advertising content, and the advertising agencies to be used. Midas also administers cooperative advertising programs for
its franchisees. In addition, Midas incurs advertising costs that are included in its selling, general and administrative expenses.



Shop Management Software.With its January 2001 acquisition of R.O. Writer, the Company began to offer shop management software to its U.S.
dealers. The software is specifically designed to meet the needs of the auto repair industry, and Midas continues to develop and enhance the software. Midas offers the software and associated ongoing support to its dealers in exchange for a monthly
fee. As of January 1, 2005, the software had been installed in approximately 919 Midas shops in the U.S.



International Midas Dealers Association. The International Midas Dealers Association (the IMDA) is an independent association of Midas
franchisees. Approximately 59% of the Midas franchised locations in North America have membership in the IMDA. Midas management communicates on a regular basis with IMDA representatives and various IMDA committees to solicit franchisee input
on various matters affecting the Midas system.



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Proprietary Information



Midas holds various patents, trademarks, trade names and copyrights, none of which, other than the Midas name, is considered by Midas to be material to
its financial condition and results of operations. Midas vigorously defends the Midas name throughout the world, and the name is registered as a trademark in approximately 94 countries in addition to the U.S. Midas also owns certain trade secrets
including product catalogs, price lists, training manuals and inventory systems.



Competition



The automotive repair industry is
highly competitive and fragmented, and the number, size and strength of competitors vary from region to region. Midas primary competitors include national, regional and local specialty chains, both franchised and company-operated, car
dealerships, independent repair shops and service bays operated by mass merchandisers. Certain of these competitors are well-capitalized, and a number of them have instituted expansion plans. Midas believes that competition in the industry is
primarily based on customer service and reputation, shop location, name awareness and price. Midas believes that it generally has a favorable competitive position with respect to each of these variables.



Customers



Historically, the Midas business has not been dependent upon a single customer or small group of customers. However, as a
result of the Companys decision to outsource the distribution of genuine Midas products and other replacement parts, a significant portion of the Companys wholesale part sales and product royalties are now derived from two customers:
AutoZone, Inc. in the U.S. and Uni-Select Inc. in Canada. As distributors of genuine Midas exhaust products in the U.S. and Canada, they purchase exhaust products from Midas for resale to Midas dealers. In fiscal 2004, AutoZone accounted for
approximately 11% of total Midas sales and revenues and Uni-Select accounted for approximately 4% of total sales and revenues.



Seasonality



Midas has historically experienced the greatest demand for its services in the second and third quarters of the fiscal year. In fiscal 2004, the second
and third quarters accounted for approximately 52% of annual sales and revenues. In fiscal 2002, approximately 53% of annual sales and revenues occurred during the second and third quarters. However, in fiscal 2003, the closure of PWI stores and the
liquidation and sale of wholesale inventory related to the outsourcing of parts distribution resulted in only 50% of sales being generated in the second and third quarters.



Excluding the effects of unusual items such as gains on asset sales and business transformation charges, the second and
third quarters represented 75% of the Companys fiscal 2004 annual net income. In fiscal 2003, the combined net loss of the second and third quarters, excluding unusual items, represented 28% of the annual net loss, while in fiscal 2002, those
quarters represented 175% of annual net income. The Company expects the seasonality of its quarterly earnings will continue.



Regulatory Compliance



Franchising Matters. Midas is subject to a variety of federal and state laws governing franchise sales and marketing and franchise trade practices.
Applicable laws and regulations generally require disclosure of business information in connection with the sale of franchises. Certain state regulations also affect the ability of the franchisor to revoke or refuse to renew a franchise. Midas deals
with franchisees in good faith and strives to comply with regulatory requirements. From time to time Midas and one or more franchisees may become involved in a dispute regarding certain aspects of the franchise relationship, including, among other
things, payment of royalties, location of shops, advertising, purchase of Midas products by franchisees, compliance with Midas system standards and franchise renewal criteria. There can be no assurance that compliance problems will not be
encountered from time to time, or that material disputes with one or more franchisees will not arise.



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Consumer Protection Matters. National automotive repair chains have been the subject of
investigations and reports by consumer protection agencies and the Attorneys General of various states. Publicity in connection with such investigations can have an adverse effect on the financial condition and results of operations of a company. In
addition to such investigations, state and local governments have enacted numerous consumer protection laws. Midas has instituted procedures, including uniform standards of service to be followed by all Midas shops, to improve customer satisfaction,
which also aids in regulatory compliance.



Environmental and
Occupational Safety Matters. Midas shops handle used automotive oils and certain solvents that are disposed of by licensed third-party contractors. As a result, Midas is subject to a number of federal, state and local laws designed to protect
the environment. Midas, through its company-operated shops, is also subject to regulation regarding the installation of catalytic converters. In addition to environmental laws, Midas is subject to the Federal Occupational Safety and Health Act and
other laws regulating safety and health. Midas maintains programs to facilitate compliance with these laws, the costs of which are not material to its financial condition and results of operations.



Employees



As of January 1, 2005, Midas had approximately 800 employees, including approximately 150 employees who were covered by
collective bargaining agreements. Labor contracts covering approximately 36 employees expire in fiscal 2005. Midas considers its relationships with employees to be generally satisfactory. Midas franchisees hire and are responsible for their own
employees.



Executive Officers of the Registrant



Information with respect to those individuals who serve as executive
officers of the Company is set forth below.



|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Age and Position                                                       |  | Background and Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Alan D. Feldman (53) President and Chief Executive Officer                   |  | Mr. Feldman joined Midas as President and Chief Executive Officer in January 2003. From 1994 through 2002, Mr. Feldman held senior management posts at McDonalds Corporation. His most
recent positions were President and Chief Operating Officer of McDonalds Americas and President of McDonalds USA. From 1983 to 1994, Mr. Feldman held financial and operational posts with the Pizza Hut and Frito-Lay units of Pepsico. In
1993 he was named Senior Vice President, Business Strategy, and Chief Financial Officer of Pizza Hut, and he served as Senior Vice President of Operations for Pizza Hut from 1990 to 1993.
|                                                                             | 
|Frederick W. Dow, Jr. (54) Senior Vice President and Chief Marketing Officer |  | Mr. Dow joined Midas in June 2003. From October 2001 to March 2003, Mr. Dow was Senior Vice President, Marketing Programs and Sales, for Burger King Corporation. From December 2000 to October
2001, Mr. Dow served as Senior Vice President, Brand Management and Marketing Programs, for West Group, a provider of e-information solutions to the legal market. From September 1995 to December 2000, Mr. Dow served as Vice President, Marketing
Programs and Worldwide Advertising, for Northwest Airlines.                                                                                                                 
|                                                                             | 
|William M. Guzik (45) Senior Vice President and Chief Financial Officer      |  | Mr. Guzik joined Midas in December 1999. From 1995 to 1999, Mr. Guzik served as Chief Financial Officer of Delray Farms, LLC, a start-up grocery retailer located in Chicago, Illinois. From
1993 to 1995, Mr. Guzik served as Vice President and Chief Financial Officer of JG Industries, Inc., a publicly-traded, diversified retailer. Prior to that, Mr. Guzik spent 11 years with Coopers & Lybrand, LLP.                                                                                                                                                                                                                  



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|                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Age and Position                                                         |  | Background and Experience                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                               | 
|Alvin K. Marr (39) Senior Vice President, General Counsel & Secretary          |  | Mr. Marr has served as Vice President, General Counsel and Secretary of Midas since June 2001. Mr. Marr joined Midas in 1997 as Assistant General Counsel and Assistant Secretary. From 1990 to
1997, Mr. Marr practiced law with the firm of Holleb & Coff in Chicago, IL.                                                                                                                                                    
|                                                                               | 
|John A. Warzecha (56) Senior Vice PresidentFranchise Operations and Sales     |  | Mr. Warzecha served as Vice President and General Manager of Midas company-operated shops from 1989 to 1993 and as Senior Vice PresidentU.S. Franchise Operations from 1993 to
1997. He joined Midas in 1973.                                                                                                                                                                                                                
|                                                                               | 
|Richard W. Ahern (48) Vice PresidentGeneral Manager of North American Exhaust |  | Mr. Ahern was named Vice PresidentGeneral Manager of North American Exhaust in March 2003. From 1999 to 2003, he was Vice PresidentManufacturing. From 1988 to 1999, he held
various management positions within Midas manufacturing operations. Mr. Ahern joined Midas in 1982.                                                                                                                                            
|                                                                               | 
|John D. Angster (53) Vice President Human Resources                           |  | Mr. Angster joined Midas in November 2001. From 1997 to 2001, Mr. Angster was Executive Director of Human Resources for Tenneco Automotive, a manufacturer of automotive emissions and ride
control products. From 1994 to 1997, Mr. Angster was Vice President of Human Resources with Raytheon Appliances. Prior to 1994, Mr. Angster held various human resource leadership positions with Allied Signal and General Signal.
|                                                                               | 
|James M. Haeger, Jr. (40) Vice PresidentController                            |  | Mr. Haeger joined Midas in April 2001. He was named Vice PresidentController in February 2002. From 2000 to 2001, Mr. Haeger served in various financial positions for Valent
Biosciences, a biotechnology subsidiary of Sumitomo Chemical. From 1991 to 2000, Mr. Haeger held various financial, operating and accounting positions with Abbott Laboratories. Prior to that, Mr. Haeger spent five years with KPMG
LLP.      
|                                                                               | 
|Phil N. Lambert (55) Vice PresidentSupply Chain Management                    |  | Mr. Lambert joined Midas in May 2000. He was named Vice President in January 2003. From 1996 to 2000, Mr. Lambert served as Vice President and General Manager of Chesapeake Distribution
Services, a third party logistics company. From 1994 to 1996, Mr. Lambert was Vice President of Linehaul Services for Preston Trucking Co. Prior to 1994, Mr. Lambert held various management positions with UPS and RPS.            
|                                                                               | 
|David W. Matre (39) Vice PresidentTreasurer                                   |  | Mr. Matre joined Midas in June 2001 as Vice PresidentTreasurer. From 1999 to 2001, Mr. Matre was Vice President of Finance for Closerlook, a professional services firm. From 1997 to
1999, Mr. Matre was Treasury Director with Platinum Technology, a global enterprise software company. Prior to 1997, Mr. Matre held various financial positions with CCC Information Services and Abbott Laboratories.                  
|                                                                               | 
|David C. Perrin (63) Vice PresidentManagement Information Systems             |  | Mr. Perrin joined Midas in October 1998 as Vice PresidentManagement Information Systems. Between 1994 and 1998, Mr. Perrin served as Assistant Vice President, Management Information
Systems, for The Pep Boys. Prior to 1994, Mr. Perrin was responsible for Information Technology with Whitlock Corporation and WSR.                                                                                                      



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Cautionary Statements under the Private Securities Litigation Reform Act of 1995



Forward-Looking Statements



This report contains (and oral communications made by Midas may contain)
forward-looking statements that may be identified by their use of words like plans, expects, anticipates, intends, estimates, forecasts, will, outlook or
other words of similar meaning. All statements that address Midas expectations or projections about the future, including statements about Midas strategy for growth, cost reduction goals, expenditures and financial results, are
forward-looking statements. Forward-looking statements are based on Midas estimates, assumptions and expectations of future events and are subject to a number of risks and uncertainties. Midas cannot guarantee that these estimates, assumptions
and expectations are accurate or will be realized. Midas disclaims any intention or obligation (other than as required by law) to update or revise any forward-looking statements.



Risk Factors



In addition to the factors discussed elsewhere in this annual report, the following are some of the important factors that could cause Midas actual
results to differ materially from those projected in any forward-looking statements:



The Company relies on franchising for a substantial portion of its operating revenues



Midas relies on franchising for a substantial portion of its operating revenues. Therefore, Midas business is dependent on the ability of its
franchisees to deliver high quality services. Midas franchisees are independent contractors and are not Midas employees. The Company provides training and support to its franchisees, but the quality of franchised store operations may be diminished
by any number of factors beyond Midas control. Midas has been introducing a new business model, which requires Midas franchisees to perform more technologically complex repairs and maintenance than historically has been the case, and which
requires greater investment in personnel and equipment. Consequently, not all Midas franchisees may successfully operate stores in a manner consistent with Midas standards and requirements or hire and train qualified managers, technicians and
other store personnel. If they do not, Midas image and reputation may suffer, and system-wide sales and profitability could decline.



Midas is subject to franchising regulations



Midas is subject to federal and state laws and regulations, including the regulations of the Federal Trade Commission as well as similar authorities in
individual states, in connection with the offer, sale and termination of franchises and the regulation of the franchisorfranchisee relationship. The Companys failure to comply with these laws could subject it to liability to franchisees
and to fines or other penalties imposed by governmental authorities. In addition, Midas may become subject to litigation with, or other claims filed with state or federal authorities by, franchisees based on alleged unfair trade practices, implied
covenants of good faith and fair dealing, payment of royalties, location of shops, advertising expenditures, franchise renewal criteria or express violations of agreements. There can be no assurance that compliance problems will not be encountered
from time to time, or that material disputes will not arise with one or more franchisees. Accordingly, the Companys failure to comply with applicable franchise laws and regulations could have a material adverse effect on its financial
condition and results of operations.



Virtually all of
Midas revenues outside of North America are derived from one customer



Virtually all of Midas revenues outside of North America are derived from Midas master licensee in Europe and South America (previously Fiat Group S.p.A. and now Norauto Group S.A. of France). Licensing
fees from this master licensee accounted for approximately 4.5% of consolidated net revenue during the fiscal year ended January 1, 2005. The loss of these licensing fees due to an adverse change in Midas relationship with Norauto or in
Norautos business would have a material adverse effect on Midas business.



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Midas is in the process of changing its business model



Midas is in the process of repositioning from a business model focused on
the servicing and replacement of mufflers, brakes, shock absorbers and struts to a model that encompasses a complete line of services, including climate control, electrical, chassis and maintenance services. As a result of the change in business
model, company-operated and franchised shops have had to make, and will have to continue to make, investments in training, new personnel and equipment. As a result of the inability of certain franchisees to adapt to the changing environment and
successfully adopt the new business model, the Company has in some cases reacquired franchises to prevent the closing of these shops. While the Company believes that the selective acquisition of certain franchises is consistent with the
implementation of its business model, the long term success of the Company depends upon the ability of the Companys franchisees to profitably implement the new business model. While same-store sales have been maintained or improved at shops
that have made the transition to the new business model, there can be no assurance that the change in the long run will be successfully marketed, that consumers will accept the new model or that the remaining shops will be willing to or can
successfully make the transition to the new format.



Midas
depends on supply chain alliances to distribute products to its franchisees and on the royalty payments from these suppliers



During fiscal 2003, Midas entered into long-term supply arrangements with AutoZone and Uni-Select to distribute genuine Midas products and other
replacement auto parts to its franchisees throughout North America. In addition, the Company expanded its supply chain alliances in the United States in fiscal 2004 to include NAPA and CarQuest. Midas depends on these companies to reliably
distribute automotive parts to Midas shops on a timely basis. Failure on the part of these companies, particularly AutoZone, to execute their distribution obligations to the satisfaction of Midas dealers could lead to a disruption in Midas
franchisees operations, which would have a material adverse effect on the Companys franchise revenues. A reduction in purchases by Midas dealers of the products distributed by these companies would also result in lower product royalty
revenue for the Company, which the Company depends on to offset the costs of its Midas lifetime guarantee.



Midas may not successfully dispose of its exhaust manufacturing and distribution operations



In October 2004, the Company announced its intention to sell its exhaust
manufacturing and distribution operations because it believes that exhaust manufacturing no longer represents a strategic fit for its evolving retail-focused business model. There can be no assurances that Midas will be able to successfully complete
the sale of its exhaust manufacturing and distribution operations on terms favorable to the Company or its dealers. Nor can there be any assurance that a sale could be completed in a timely manner. The Company lost money in its exhaust manufacturing
and distribution operations in fiscal 2004 and failure to complete the sale of these operations on a timely basis will have an adverse impact on the operating income of the Company in fiscal 2005. If Midas is unable to dispose of this business on
terms that include a favorable long-term supply arrangement to ensure that Midas shops have access to competitively priced, high-quality exhaust products and provide for the long-standing Midas lifetime warranty on mufflers, Midas franchise
revenue could be materially adversely impacted. In addition, even if the sale is completed, the transition process upon the sale of these operations could materially affect the operating earnings of the Company and could result in the disruption of
exhaust supplies to Midas dealers, thereby adversely impacting their financial and operating performance.



Midas operates in highly competitive markets



The automotive services industry is highly fragmented and highly competitive. Direct competitors exist for Midas retail auto service shops and the
Companys exhaust manufacturing and distribution business.



Midas shops compete with national, regional and local specialty chains, both franchised and company-owned, car dealerships, independent repair shops and service bays of mass merchandisers. The Company believes the principal competitive
factors in the markets served by Midas shops are, in no particular order,



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customer service and reputation, shop location, name awareness, and price. Midas also competes with businesses of the types noted above and with other
parties in the sale of franchises. Competitive factors include startup costs, royalty rates, franchisee support and the financial performance of existing franchises.



Midas exhaust manufacturing and distribution business competes with a number of manufacturers and distributors of
automotive parts and equipment, including ArvinMeritor, Tenneco Automotive, Goerlich and IMCO.



Many of the Companys competitors are large and have a substantially longer operating history than Midas. Many competitors have greater financial resources than the Company. There can be no assurance that Midas
or individual Midas shops will be able to compete effectively.



Advances in automotive technology could adversely affect the business



The demand for the services offered by Midas shops could be adversely affected by continuing developments in automotive technology. Automotive manufacturers are producing cars that last longer and require service and
maintenance at less frequent intervals. For example, some manufacturers now recommend that consumers change oil at 10,000 mile intervals and replace spark plugs and other engine components at 100,000 miles, a significant increase from the mileage
intervals recommended for earlier models and those currently recommended by most manufacturers. In addition, the improvement in original equipment manufacturers parts quality has in the past reduced, and may in the future reduce, demand for
Midas products, adversely affecting Midas sales. Improvement in the quality of parts manufactured may extend the useful lives and warranties of those parts and may reduce demand for Midas products and services by decreasing the frequency of
replacement or refurbishment of those parts. In turn, longer and more comprehensive warranty programs offered by automobile manufacturers and other third parties also could adversely affect the demand for Midas services. The Company believes that a
majority of new automobile owners have their cars serviced by a dealer during the period the car is under warranty. In addition, advances in automotive technology continue to require Midas to incur additional costs to update its technical training
program and upgrade the diagnostic capabilities of Midas shops.



Midas is subject to cycles in the general economy



A downturn in the economy may delay or reduce consumer purchases of Midas products and services, which could adversely affect the Companys revenues. Many factors affect the level of consumer spending on automotive services, including,
among others, general business conditions, interest rates, gasoline prices, the availability of consumer credit and consumer confidence in future economic conditions. Consumer purchases of regular service interval maintenance generally are reduced
during recessionary periods when disposable income is lower.



Midas is subject to a decline in the usage of automobiles



While the number of automobiles registered in the U.S. has steadily increased, a reduction in the number of miles driven by automobile owners could adversely affect the demand for Midas products and services. For
example, when the retail cost of gasoline increases, the number of miles driven by automobile owners typically decreases, which historically has resulted in less frequent service intervals and fewer repairs.



The automotive repair industry is subject to consumer protection
regulation



National automotive repair chains have been
the subject of investigations and reports by consumer protection agencies and the Attorneys General of various states. Publicity in connection with such investigations can have an adverse effect on the financial condition and results of operations
of a company. In addition to such investigations, state and local governments have enacted numerous consumer protection laws.



17



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Midas is subject to seasonality in its results of operations



Midas business is seasonal in nature. The Company has historically
experienced lower revenues during the first and fourth quarters. In particular, severe weather in winter months may make it difficult for consumers in affected parts of the country to travel to Midas shops to obtain services.



Midas depends on its suppliers



Midas depends upon close relationships with suppliers of certain automotive
parts, equipment and raw materials and its ability to purchase products at prices and on terms comparable to similarly situated companies. Midas ability to purchase at comparable prices and terms is the result of its volume of purchases from
these suppliers. Although Midas maintains supply contracts with its suppliers, the Company believes alternative sources exist for most of the products that it distributes. The loss of any one supplier is not expected to have a material adverse
effect. However, if a new supplier is not obtained in a timely manner and upon acceptable terms, the Companys operations may be adversely affected.



Midas must commit resources to maintain and develop its brand



If Midas fails to continue maintaining and developing the Midas brand name, future revenues could be adversely affected. The
Company believes that maintaining and developing the Midas brand name is critical to its success and that the importance of brand recognition may increase as competitors offer products and services similar to Midas products and services. Midas
incurs substantial marketing expenditures to create and maintain brand loyalty as well as increase awareness of its brand. If Midas brand-building strategy is unsuccessful, these expenses may never be recovered, and Midas may be unable to
increase its future revenues or implement its business strategy.



Failure to protect Midas intellectual property could reduce its competitiveness



Midas relies on trademark, trade secret, patent and copyright law to protect its intellectual property, including the Midas brand name. Midas cannot be
sure that these intellectual property rights can be successfully asserted or will not be invalidated, circumvented or challenged in the future. In addition, the laws of some of the foreign countries in which Midas products and services are or
may be sold do not protect the Companys intellectual property rights to the same extent as the laws of the United States. Midas failure to protect its proprietary information, and any successful intellectual property challenges or
infringement proceedings against Midas, could make Midas less competitive and could have a material adverse effect on its business, operating results and financial condition.



Inability to respond to consumer demands could adversely affect Company performance



An inability to respond to changes in consumer demands in a timely manner
could adversely affect the Companys revenues, and a failure to make continuous and successful new product and service introductions could result in declines in financial performance. Midas success in general, and at Midas shops in
particular, depends on its ability to identify, originate and define automotive product and service trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. Midas automotive products and services must
appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. Midas cannot assure that it will be able to continue to develop appealing automotive products and services or meet changing
consumer demands in the future. If Midas misjudges the market for its products and services, the Company may be faced with significant excess inventories and sunk training and equipment costs for certain automotive products and services and missed
opportunities for other products and services.



Midas is
subject to extensive environmental regulation



Environmental compliance costs and liabilities could have a material adverse effect on the Companys financial condition. Midas operations and properties are subject to increasingly stringent laws and regulations



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relating to environmental protection, including laws and regulations governing air emissions, water discharges and waste management. Such laws and
regulations can impose fines and criminal sanctions for violations and require the installation of costly pollution control equipment or operational changes to limit pollution emissions and decrease the likelihood of accidental hazardous substance
releases. Some of the Companys current and former properties have been used as gas stations and dry cleaners. Accordingly, Midas could become subject to potentially material liabilities relating to the investigation and cleanup of contaminated
properties, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter interpretation of existing laws and regulations, new laws and regulations, the discovery
of previously unknown contamination or the imposition of new or increased requirements could require Midas to incur costs or become the basis of new or increased liabilities that could reduce earnings and cash available for operations.



Midas relies on an adequate supply of skilled labor



The provision of high quality services by Midas shops requires an adequate
supply of skilled labor. In addition, the operating costs and operating revenues of such shops may be adversely affected by high turnover in skilled technicians. Trained and experienced automotive technicians are in high demand. In addition, the
expansion of the Midas business model from muffler and brake service to more complicated automotive repairs has required many franchised and company-operated shops to hire highly skilled full service automobile technicians. Accordingly, a
shops ability to increase productivity and revenues could be affected by its inability to attract and maintain the employment of skilled technicians necessary to provide the shops services. There can be no assurance that Midas or its
franchisees will be able to attract and maintain an adequate skilled labor force necessary to operate these shops efficiently, or that labor expenses will not increase as a result of a shortage in the supply of skilled technicians, thereby adversely
impacting the Companys financial performance.



Midas
is a leveraged company that utilizes debt to fund its business



The Company currently has substantial debt on its balance sheet. The financing provided to the Company is subject to covenants that require Midas to maintain a certain net worth and maintain compliance with certain leverage ratios. If Midas
does not perform in accordance with these covenants, the institutions providing the funds have the option to withdraw their funding support. There can be no assurances that Midas will remain in compliance with its debt covenants in the future. In
addition, Midas current financing agreement expires on March 16, 2007. There can be no assurances that the Company will be able to refinance its existing credit facilities when they expire in fiscal 2007.



Midas performance may be affected by acts of war or terrorism



War or terrorist activities or the threat of them may
increase the cost of doing business or otherwise impact Midas financial performance.



|Item 2. | Properties
|------- | ----------



Midas owns one 185,000 square foot manufacturing facility and leases an additional 58,000 square feet of space in Hartford, Wisconsin. As of January 1, 2005, the Company owned and operated one distribution center in Chicago, Illinois. This
facility serves as the central distribution warehouse for Midas and IPC exhaust products. As part of its business transformation process, the Company closed 11 wholesale parts distribution centers during fiscal 2003. As of March 1, 2005, Midas
continues to pay rent at two previously closed warehouse facilities. Operating leases for all other closed warehouse facilities expired or were disposed of prior to March 1, 2005. In connection with the Companys decision to exit the exhaust
manufacturing and distribution business, Midas intends to sell the Hartford plant and Chicago warehouse which support these operations.



At the beginning of fiscal 2003, Midas leased 70 sites in connection with the Companys PWI parts distribution operation. These locations were
stand-alone facilities averaging 5,000 square feet and with lease



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terms ranging from one to five years plus option periods. During fiscal 2003, the Company disposed of the PWI operation through the sale or closure of all
locations. The Company has disposed of 65 of the 70 leased PWI locations through lease expiration, assignment or buyout. Of the remaining five PWI locations, four are currently subleased.



Midas leases office space in Itasca, Illinois, where its corporate headquarters are located. Midas relocated its corporate
headquarters in fiscal 1999 and subleased its former headquarters in Chicago, Illinois.



Midas owns and leases real estate in various communities throughout North America that it uses for company-operated shops or leases and sub-leases to franchisees. As of January 1, 2005, the Company owned or leased a
total of 656 sites in the United States and 93 in Canada.



Substantially all of the Companys owned real estate is pledged as collateral under the Companys various debt agreements.



|Item 3. | Legal Proceedings
|------- | -----------------



Neither Midas nor any of its subsidiaries are currently involved in any material legal proceedings. Midas has certain contingent liabilities arising from various pending claims and litigation related to a number of matters. While the amount
of liability that may result from these matters cannot be determined, the Company believes the ultimate liability will not materially affect the financial position or results of operations of Midas.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None.



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PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------



The Midas Common Stock is listed on the New York Stock Exchange under the
symbol MDS. As of February 28, 2005, there were 6,007 holders of record of the Common Stock. Information about the high and low prices of Midas Common Stock is shown below.



|            |  |      |       |     |   |      
|----------- |  | ---- | ----- | --- | - | -----
|            |  | High |       | Low
|Fiscal 2004 |  |      |       |     |   |      
|1st Quarter |  | $    | 20.00 |     | $ | 13.92
|2nd Quarter |  |      | 20.07 |     |   | 17.25
|3rd Quarter |  |      | 18.25 |     |   | 14.59
|4th Quarter |  |      | 20.60 |     |   | 16.10
|Fiscal 2003 |  |      |       |     |   |      
|1st Quarter |  | $    | 9.20  |     | $ | 5.65 
|2nd Quarter |  |      | 12.95 |     |   | 7.10 
|3rd Quarter |  |      | 14.19 |     |   | 11.41
|4th Quarter |  |      | 15.36 |     |   | 12.34



Midas has not paid a
dividend during the last two years, and the Companys current debt agreements prohibit the payment of dividends. If business circumstances should change, the Company may seek an amendment to its debt agreement to allow for the payment of
dividends and the Board of Directors may declare and instruct the Company to pay dividends.



The following table includes all issuer repurchases, including those made pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs.



|                                                            |  |                               |     |  |                            |       |                                                                             |     |                                                                                     |   |            |    
|----------------------------------------------------------- |  | ----------------------------- | --- |  | -------------------------- | ----- | --------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------- | - | ---------- | ---
|Period                                                      |  | TotalNumber ofSharesPurchased |     |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs |     | Approximate DollarValue of Shares ThatMay Yet BePurchased Underthe Plans orPrograms |  
|October 2004: (October 3, 2004 through October 30, 2004)    |  |                              |     |  |                            |      |                                                                             | N/A |                                                                                     |   | N/A        |    
|November 2004: (October 31, 2004 through November 27, 2004) |  |                              |     |  |                            |      |                                                                             | N/A |                                                                                     | $ | 25,000,000 | (1)
|December 2004: (November 28, 2004 through January 1, 2005)  |  | 1,093                         | (2) |  | $                          | 19.23 |                                                                             | N/A |                                                                                     | $ | 25,000,000 |    
|                                                            |  |                               |     |  |                            |       |                                                                             |     |                                                                                     |   |            |    
|Total                                                       |  | 1,093                         |     |  | $                          | 19.23 |                                                                             | N/A |                                                                                     | $ | 25,000,000 |    
|                                                            |  |                               |     |  |                            |       |                                                                             |     |                                                                                     |   |            |    

---

|(1) | On November 9, 2004, the Company publicly announced that the Board of Directors had authorized a share repurchase of up to $25 million in Midas stock. As of January 1, 2005, no
shares had been repurchased under this plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Total shares purchased represent restricted shares withheld to cover the withholding taxes upon the vesting of restricted stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------



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|Item 6. | Selected Financial Data
|------- | -----------------------



SUMMARY OF OPERATIONS



The following table presents selected historical financial information of Midas. The information set forth below should be read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations and the financial statements of Midas and the notes thereto. The operating results data set forth below for fiscal years 2004, 2003 and 2002 and the balance sheet data as of the end of fiscal 2004 and 2003 are derived from, and
are qualified by reference to, the audited financial statements of Midas included herein, and should be read in conjunction with those financial statements and the notes thereto. The operating results data for fiscal years 2001 and 2000 and the
balance sheet data as of the end of fiscal 2002, 2001 and 2000 are derived from audited financial statements of Midas not included herein.



|                                                        |  |                                  |       |   |      |   |        |      |  |   |       |    |  |      |       |   |  |   |       |  
|------------------------------------------------------- |  | -------------------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -- |  | ---- | ----- | - |  | - | ----- | -
|Fiscal Year                                             |  | 2004                             |       |   | 2003 |   |        | 2002 |  |   | 2001  |    |  | 2000 |      
|                                                        |  | (In millions, except share data) |      
|Operating results data:                                 |  |                                  |       |   |      |   |        |      |  |   |       |    |  |      |       |   |  |   |       |  
|Sales and revenues                                      |  | $                                | 197.5 |   |      | $ | 311.0  |      |  | $ | 333.0 |    |  | $    | 331.5 |   |  | $ | 350.7 |  
|Operating income (loss)                                 |  |                                  | 20.0  |   |      |   | (100.2 | )    |  |   | (44.2 | )  |  |      | 29.1  |   |  |   | 45.1  |  
|Income (loss) before income taxes                       |  |                                  | 3.6   |   |      |   | (124.7 | )    |  |   | (55.0 | )  |  |      | 20.6  |   |  |   | 41.1  |  
|Net income (loss)                                       |  |                                  | 4.1   |   |      |   | (76.2  | )    |  |   | (33.6 | )  |  |      | 12.6  |   |  |   | 30.5  |  
|Earnings (loss) per sharediluted                       |  | $                                | 0.26  |   |      | $ | (4.93  | )    |  | $ | (2.25 | )  |  | $    | 0.85  |   |  | $ | 1.96  |  
|Dividends declared per share                            |  | $                                |      |   |      | $ |       |      |  | $ |      |    |  | $    | 0.08  |   |  | $ | 0.08  |  
|Balance sheet data:                                     |  |                                  |       |   |      |   |        |      |  |   |       |    |  |      |       |   |  |   |       |  
|Total assets                                            |  | $                                | 250.1 |   |      | $ | 283.4  |      |  | $ | 370.7 |    |  | $    | 403.1 |   |  | $ | 321.7 |  
|Obligations under capital leases and long-term debt     |  |                                  | 75.1  |   |      |   | 98.9   |      |  |   | 141.0 |    |  |      | 142.2 |   |  |   | 113.0 |  
|Finance lease obligations                               |  |                                  | 37.6  |   |      |   | 38.3   |      |  |   | 39.1  |    |  |      |      |   |  |   |      |  
|Total shareholders equity                              |  |                                  | 48.9  |   |      |   | 36.1   |      |  |   | 104.6 |    |  |      | 140.1 |   |  |   | 128.4 |  
|Return on average shareholders equity                  |  |                                  | 10.3  | % |      |   | (94.7  | )%   |  |   | (23.7 | )% |  |      | 9.3   | % |  |   | 24.3  | %
|Other data (a):                                         |  |                                  |       |   |      |   |        |      |  |   |       |    |  |      |       |   |  |   |       |  
|Operating income (loss)                                 |  | $                                | 20.0  |   |      | $ | (100.2 | )    |  | $ | (44.2 | )  |  | $    | 29.1  |   |  | $ | 45.1  |  
|Plus business transformation charges (b)                |  |                                  | 1.2   |   |      |   | 101.2  |      |  |   | 62.3  |    |  |      | 4.8   |   |  |   | 7.8   |  
|                                                        |  |                                  |       |   |      |   |        |      |  |   |       |    |  |      |       |   |  |   |       |  
|Operating income before business transformation charges |  |                                  | 21.2  |   |      |   | 1.0    |      |  |   | 18.1  |    |  |      | 33.9  |   |  |   | 52.9  |  
|Operating margin before business transformation charges |  |                                  | 10.7  | % |      |   | 0.3    | %    |  |   | 5.4   | %  |  |      | 10.2  | % |  |   | 15.1  | %

---

|(a) | The Company believes such additional information is useful to investors because it is used by management to measure financial performance on an operating basis. Such measures are
not in accordance with generally accepted accounting principles.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Beginning in the late 1990s, the Company began a process to transform itself from a worldwide operator of both franchised and company-operated shops into a focused operator of
the North American franchise system. This transformation included the sale of Midas franchised and company-operated shop businesses in Europe and Australia, and a shift in focus to the licensing of Midas trademarks and know-how outside of
North America. Within North America, the transformation included changing consumer perceptions about Midas and the products and services offered, improving relationships with franchisees and redeploying assets to improve returns. Business
transformation costs for fiscal years 2002 through 2004 are described in Note 2 of Notes to Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



The following table presents, for the fiscal periods indicated, selected financial information as a percentage of total sales and revenues.



|                                                       |  |                                  |   |  |       |    |  |       |   
|------------------------------------------------------ |  | -------------------------------- | - |  | ----- | -- |  | ----- | --
|                                                       |  | Percentage of Sales and Revenues |  
|Fiscal Year                                            |  | 2004                             |   |  | 2003  |    |  | 2002  |   
|Franchise royalties and license fees                   |  | 31.6                             | % |  | 19.6  | %  |  | 18.4  | % 
|Real estate revenues                                   |  | 18.5                             |   |  | 11.7  |    |  | 11.0  |   
|Company-operated shop retail sales                     |  | 18.3                             |   |  | 13.4  |    |  | 16.0  |   
|Replacement part sales and product royalties           |  | 30.2                             |   |  | 54.8  |    |  | 54.2  |   
|Other                                                  |  | 1.4                              |   |  | 0.5   |    |  | 0.4   |   
|                                                       |  |                                  |   |  |       |    |  |       |   
|Sales and revenues                                     |  | 100.0                            |   |  | 100.0 |    |  | 100.0 |   
|Cost of sales and revenues                             |  | 42.3                             |   |  | 55.6  |    |  | 49.0  |   
|Business transformation charges (warranty reserve)     |  |                                 |   |  | 12.4  |    |  |      |   
|Business transformation charges (inventory write-down) |  | 0.2                              |   |  | 6.0   |    |  | 7.9   |   
|                                                       |  |                                  |   |  |       |    |  |       |   
|Gross profit                                           |  | 57.5                             |   |  | 26.0  |    |  | 43.1  |   
|Selling, general and administrative expenses           |  | 47.0                             |   |  | 44.1  |    |  | 45.6  |   
|Business transformation charges                        |  | 0.4                              |   |  | 14.1  |    |  | 10.8  |   
|                                                       |  |                                  |   |  |       |    |  |       |   
|Operating income (loss)                                |  | 10.1                             |   |  | (32.2 | )  |  | (13.3 | ) 
|Other income, net                                      |  | 0.5                              |   |  | 0.8   |    |  | 0.3   |   
|Loss on early extinguishment of debt                   |  | (2.4                             | ) |  | (0.5  | )  |  |      |   
|Interest expense                                       |  | (6.4                             | ) |  | (8.2  | )  |  | (3.5  | ) 
|                                                       |  |                                  |   |  |       |    |  |       |   
|Income (loss) before income taxes                      |  | 1.8                              |   |  | (40.1 | )  |  | (16.5 | ) 
|Income taxes (benefit)                                 |  | (0.3                             | ) |  | (15.6 | )  |  | (6.4  | ) 
|                                                       |  |                                  |   |  |       |    |  |       |   
|Net income (loss)                                      |  | 2.1                              | % |  | (24.5 | )% |  | (10.1 | )%
|                                                       |  |                                  |   |  |       |    |  |       |   



Company Overview



Midas operates in a single vertically integrated business segment with
retail, supply chain and real estate operations in support of automotive service shops. Retail operations consist of franchised and company-operated Midas shops in North America and licensed Midas shops in 17 other countries. Supply chain activities
include the manufacture and distribution of exhaust products and value-added merchandising services under which the Company establishes relationships with vendors who distribute products directly to Midas shops. Real estate activities include the
development, ownership and leasing of Midas shops in North America. Prior to 2004, Midas operated a warehouse network that distributed automotive parts and accessories to Midas and non-Midas automotive repair shops. This network was shut down in
2003 and certain activities were outsourced on behalf of Midas dealers.



Midas has historically operated as an under car specialist focused on the replacement of exhaust, brakes, and shocks and struts. As recently as 1997, exhaust and brake repair services constituted 82% of Midas
retail shop revenues in the U.S. market. As automobile manufacturers began to employ non-corrosive stainless steel exhaust systems in the mid 1980s, the average life of an original equipment exhaust system began to increase from three years to
over 10 years. As a result, beginning in the mid 1990s, Midas core exhaust replacement business began to experience sustained revenue declines. This trend, combined with the increased technological complexity and durability of newer
vehicles, has changed the nature of automotive repairs. Today, the services performed over the lifetime of a vehicle are more likely to be maintenance services and light repair work.



In response to the above-described trends, and in order to offset declining
sales of exhaust products in the Companys retail and wholesale distribution operations, the Company began to expand its retail service offerings



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across the Midas system. In fiscal 2000, the Company launched an initiative to expand into categories such as general repair, heat exchange products and
climate control services. This expansion of Midas retail service offerings has substantially offset the continuing deterioration in the exhaust replacement market, in which exhaust sales have declined at an average rate of 10.1% per year at
U.S. Midas shops since 1997. As a result, the average sales of a U.S. Midas system shop has been fairly stable over the past five years. However, the financial and operating impact on the Companys wholesale operations was much more severe.
From 1997 to 2002, total revenues in the traditional wholesale distribution operation decreased more than 50%, driven by the steep erosion in the market for exhaust product replacement. The Companys wholesale operation expanded its product
offerings in fiscal 2000 and 2001 in order to support the retail systems drive into new services. However, the parts required in the new services tended to be of higher cost, such that Midas dealers preferred just-in-time sourcing of many of
these parts. Consequently, the expansion of products in the wholesale operation did not significantly slow the decline in sales through the traditional wholesale distribution channel. Additionally, in fiscal 2000 the Company launched Parts
Warehouse, Inc. (PWI), a network of small, quick-delivery warehouses to serve the growing just-in-time parts requirements of Midas and non-Midas professional installers. While this operation better matched the evolving wholesale
distribution needs of Midas dealers, its growth from start-up in fiscal 2000 to 77 stores by fiscal 2002 required substantial working capital, and profitability suffered due to start-up costs and low sales at newer locations.



By the close of fiscal 2002, both the traditional wholesale parts
distribution and the PWI quick-delivery parts distribution operations were losing money. Furthermore, the Company had over $90 million in inventory committed to wholesale parts distribution, and held substantial accounts receivable related to these
operations. In growing these businesses during fiscal 2001 and 2002, Midas had incurred significant debt, which had risen to more than $132 million. During late fiscal 2002 and early fiscal 2003, Midas management determined that the wholesale
operation was no longer a strategic asset and began the process of outsourcing the distribution of parts in North America and disposing of most of its wholesale distribution and PWI assets. While the erosion in the profitability of the wholesale
operation precipitated the need for change, the Companys decision to outsource the wholesale parts distribution needs of the Midas system became the catalyst for a much more far-reaching and dramatic restructuring of the Company that is
currently underway.



The Midas Business Transformation



During fiscal 2003, Midas developed and began to
implement a plan to dramatically restructure the Companys operations and re-direct the Companys strategic focus towards the Midas retail system. This plan is intended to transform the Company by improving profitability, enhancing the
competitive position of the Midas retail system, strengthening the Companys balance sheet and reducing future capital requirements. This transformation encompasses sweeping changes in the way Midas dealers are supplied with genuine Midas
products and other replacement auto parts, a re-definition of the service relationship between Midas dealers and their customers, and a shift in the way the Company approaches its relationship with Midas franchisees.



Certain aspects of the transformation were completed in fiscal 2003 while
others continued into fiscal 2004 and beyond. During 2003, the Company outsourced the wholesale distribution of genuine Midas products and other replacement parts, closed all but one of the Companys regional distribution centers, disposed of
its PWI quick-delivery distribution locations through sale or closure, closed or re-franchised 34 company-operated shops, and significantly reduced corporate administrative overhead. In October 2004, the Company announced its intention to sell its
IPC exhaust distribution business and exit exhaust manufacturing. Midas believes that exhaust manufacturing no longer represents a strategic fit for the Companys evolving retail-focused business model. When completed, the Company expects that
Midas exit from exhaust manufacturing will have the effect of further reducing overall Company revenues and expenses compared to current and historical levels, and will increase the Companys operating margin.



As a result its decision to exit the exhaust manufacturing and distribution
business, the Company will eventually close its factory in Hartford, Wisconsin and its distribution center in Chicago, Illinois. The closure of



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these facilities likely will result in additional business transformation charges for employee severance, facility shut down costs, and the write-down of the
carrying value of certain fixed assets, inventory and certain other assets to their net realizable value. The nature, amount and timing of these charges will depend on the finalization of a sale transaction. Both the Hartford and Chicago facilities
are owned by the Company and ultimately will be sold as a result of Midas exit from the manufacturing business. The proceeds from the sale of these facilities and other asset liquidation activity are expected to more than offset the cash costs
associated with employee severance and facility shut down.



The
Midas business transformation, and the resulting changes to the way the Company does business, will continue to evolve through fiscal 2005 and beyond. The ultimate objective of the Midas business transformation was established in 2003 and is
reflected in Midas 2010 vision of 4-3-2-1. Midas management is working towards achieving:



| | (4) | 40% increase in Midas shop sales on a same-store basis.
| | --- | -------------------------------------------------------



| | (3) | Three core services: brakes, exhaust and maintenance.
| | --- | -----------------------------------------------------



| | (2) | Doubling of Midas dealer profits.
| | --- | ---------------------------------



| | (1) | One Midas: the Company and Midas dealers working together as one in support of the retail system.
| | --- | -------------------------------------------------------------------------------------------------



With these goals in mind, Midas management is committed to the Companys mission of becoming the most trusted
professional and first choice for customers auto service needs. The specific components of the Midas business transformation and how the Company intends to move forward are discussed in greater detail below.



Supply Chain Transformation



Historically, the Company supported the Midas franchise network with
manufacturing of certain exhaust products and distribution of genuine Midas products and other replacement auto parts on a weekly basis to its retail shops in North America. The Company distributed these products through a network of regional
wholesale parts distribution centers. Additionally, as dealers began to source more product on a just-in-time basis, the Company supported numerous Midas dealers through its network of 77 PWI quick-delivery locations. Together, these two wholesale
operations provided a significant portion of the typical Midas dealers ongoing parts sourcing needs. However, the combined wholesale operation generated operating losses, driven by eroding sales of traditional wholesale products, especially
exhaust, and start-up losses associated with newer PWI locations. Furthermore, as of the end of fiscal 2001, the Company still needed to build an additional 150 to 200 PWI locations to adequately cover Midas dealers across North America.



In response to the operating losses and significant current and future
capital requirements of these wholesale operations, Midas determined that continuing to support the traditional Midas wholesale distribution operation and the growth of the PWI network was no longer financially viable, and that the parts sourcing
needs of Midas shops could be better served by outsourcing the distribution of genuine Midas parts in the U.S. and Canada. Thus, during fiscal 2003, Midas closed its traditional Midas wholesale parts distribution and PWI quick-delivery operations
and appointed AutoZone, Inc. and Uni-Select Inc. as the exclusive distributors of genuine Midas products in the U.S. and Canada, respectively. The Companys agreements with AutoZone and Uni-Select provide for the weekly distribution of
replacement parts to Midas retail shops, consistent with the service previously provided by the Companys traditional wholesale operation. The Company believes these agreements enable Midas dealers to purchase both genuine Midas product and
other replacement auto parts at favorable pricing, and provide dealers with access to just-in-time parts delivery through a broad network of quick-delivery parts distribution sites across North America.



Under its agreements with AutoZone and Uni-Select, the Company receives
royalties on the sale of all products sold by AutoZone and Uni-Select to Midas dealers throughout North America. These royalties are intended to offset the cash expenses associated with the lifetime warranty issued on all genuine Midas products.



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In late 2004, the Company expanded its relationships with parts providers in the U.S. to include the
National Automotive Parts Association (NAPA) and CarQuest Corporation. These additional automotive parts supply relationships were established primarily to expand the geographic scope of just-in-time parts delivery options available to
Midas dealers throughout the U.S. Similar to the AutoZone relationship, the Company receives royalties on the sale of all products sold by NAPA and CarQuest to Midas dealers in the U.S., and these royalties are used to offset costs associated with
the Midas lifetime warranty program. Midas believes that AutoZones weekly distribution of parts to Midas dealers, combined with the broad geographic coverage of the AutoZone, NAPA and CarQuest store networks providing just-in-time parts
delivery service, offer Midas dealers in the U.S. extensive access to replacement parts at favorable pricing.



Finally, in October 2004, the Company announced its intention to sell its IPC exhaust distribution business and exit exhaust manufacturing. Midas believes
that exhaust manufacturing no longer represents a strategic fit for the Companys evolving retail-focused business model. Midas believes that exiting exhaust manufacturing will best enable the Company to ensure that Midas franchisees have
access to competitively priced, high-quality exhaust products going forward and allow the Company to continue providing the long-standing Midas lifetime warranty on mufflers.



Through this transformation of the Midas supply chain, the Company has eliminated operating losses and working capital
requirements associated with its traditional Midas wholesale distribution and PWI networks. Additional losses and working capital requirements will be eliminated upon the successful completion of Midas exit from exhaust manufacturing. In the
new business model, the Company is focused on working cooperatively with franchisees to ensure access to high quality parts at favorable prices, while generating product royalties that require little working capital investment and support the
financial health of the Midas lifetime warranty program.



Retail Transformation



The Midas system of
retail service shops has historically operated as an under car specialist focused primarily on the replacement of exhaust, brakes, and shocks and struts. Consequently, much of the work performed by Midas shops represented one-time repair
transactions. However, improvements in the quality of original equipment parts and the technological complexity of automobiles over the past decade have changed the nature of automotive repair. The services performed over the lifetime of
todays vehicles are more likely to be scheduled maintenance services and light repair work. The Companys initial response to these trends was to promote the expansion of services offered by Midas dealers. This program was known as the
New Midas and was launched in fiscal 2000. While the Midas retail system made progress in broadening its services, it has not yet been widely successful in developing ongoing service relationships with its customers.



Going forward, Midas is focused on becoming less dependent upon one-time
transactions and more focused on building long-term customer relationships. The Company intends to transform itself from a repair business that offers maintenance service, into a maintenance business that performs repairs. To this end, the Company
has re-defined the core services of the Midas system to now encompass exhaust, brakes and maintenance. In fiscal 2004, Midas successfully launched a major retail initiative to significantly expand Midas shop sales of tires and related tire services.
The Company is also currently rolling out a comprehensive program targeting the fleet vehicle maintenance market segment. This program is designed to leverage the national scope of the Midas system and equip dealers with the necessary tools to build
sustainable fleet service revenues. Finally, the Company is implementing a series of initiatives designed to enhance the Midas systems ability to build revenue from retail maintenance services. These initiatives include the standardization of
key maintenance services across the Midas system, increased focus on customers factory scheduled maintenance requirements and the rollout of a national customer relationship marketing (CRM) program in which dealers utilize targeted
promotional mailings to increase shop visit frequency among existing customers and more efficiently establish relationships with new customers.



The initial results from this retail transformation have been encouraging. The Company has achieved positive comparable shop sales in the U.S. for seven
consecutive quarters and total overall Midas system



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revenues in the U.S. grew in 2004 compared to 2003, the first such increase since 1996. The Company believes that, with its sharpened focus on retail
execution within the Midas system, it can continue these positive sales trends going forward and begin to grow the overall Midas system shop count.



Corporate Transformation



With the outsourcing of the Companys wholesale distribution and PWI operations during fiscal 2003, and with the announcement in 2004 of the
Companys intention to exit the exhaust manufacturing and distribution business, Midas corporate direction is focused on the Midas retail system. Now and in the future, all of the Companys operations and activities are assessed
based on their contribution to the overall corporate goal of building a successful retail system in North America and the world. As part of the Companys restructuring in 2003, all corporate positions were evaluated. Consistent with the
Companys strategic focus, there has been a significant reduction in the total number of employees across all operations, from approximately 1,900 employees at the close of fiscal 2002 to approximately 800 employees at the end of fiscal 2004.



In addition to the decrease in the total number of employees,
the nature of the work performed has changed, as existing roles have been re-defined. For example, whereas before this transformation process began, the Companys franchise system district managers were engaged in monitoring compliance with
various wholesale initiatives, today their roles are squarely focused on assisting Midas franchisees and coordinating the rollout of key retail initiatives that enhance the profitable growth of the Midas system. In addition, the Midas franchise
development function has been re-constituted with additional staff and resources. Since the mid-1990s, this function had not been a focus of the Company. Going forward, Midas management is focused on re-establishing the Companys capacity
to organically grow the Midas franchise system throughout North America and the world.



This corporate transformation continues to evolve based on the needs of the retail system. Midas believes it has taken the necessary steps to eliminate excess administrative expense and focus all management efforts on
the new corporate direction.



Financial Transformation



As of the end of fiscal 2002, Midas was a highly
leveraged company with substantial investments in fixed assets and working capital. Midas wholesale distribution operations, including the traditional Midas wholesale operation and the PWI network, were both generating operating losses. The
combined wholesale distribution operation had over $90 million in merchandise inventory, and the Company held more than $20 million in accounts receivable generated by wholesale activity. Furthermore, the Company maintained its investment in 12
regional distribution centers and 77 PWI locations with ongoing capital expenditures. Facing continuing losses in the wholesale operations, Midas determined that continuing to support the traditional Midas wholesale distribution operation and PWI
network was no longer financially viable, and that the parts sourcing needs of Midas system dealers could be better served by outsourcing the distribution of genuine Midas products and other replacement parts in the U.S. and Canada. As a result,
during fiscal 2003 Midas closed all but one of its regional distribution centers and disposed of all of its PWI locations through sale or closure. In a further extension of the Companys strategy of redefining its supply chain role, the Company
announced in late 2004 its intention to sell its IPC exhaust distribution business and exit exhaust manufacturing. During fiscal 2005, the Company expects to liquidate the fixed assets, inventory and receivables associated with that operation.



The liquidation of inventory and accounts receivable from its
various wholesale operations enabled Midas to pay down more than $40 million in debt by the end of fiscal 2003. In fiscal 2004, Midas was able to further

reduce debt by its improving cash flow from operations as well as through the ongoing liquidation of excess fixed assets and working capital that is no longer required under the Companys new business model. As a result, total debt in
2004 declined an additional $24.5 million and the Company was able to refinance its debt facilities in March 2004 at much more favorable terms. This substantially reduced cash interest expense and further enhanced free cash flow while providing for
greater flexibility in how the Company can deploy its free cash flow in the future.



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Going forward, total sales will decline as a result of the eventual exit from exhaust manufacturing and
distribution. However, Midas management believes the exit from exhaust manufacturing and distribution will be accretive to earnings and free cash flow while further reducing the Companys investment in fixed assets and working capital. Midas
management believes the Company can achieve, in the long run, 20% operating margins through the successful execution of the Companys Vision 4-3-2-1. This new business model is capable of generating substantial free cash flow from
operations with relatively low working capital and capital expenditure requirements. The Company intends to utilize some of this free cash flow to grow the Midas retail system. However, Midas management also believes that a portion of this free cash
flow can be used to repurchase shares of the Companys stock. Consequently, in November 2004, the Company announced that the Board of Directors had authorized a share repurchase plan for the repurchase of up to $25 million in Midas stock. No
repurchases were made under this plan in 2004.



Business Transformation
Charges



The charges recorded in association with the
Companys business transformation process in fiscal years 2004, 2003 and 2002 are summarized in the following tables:



Business transformation charges by strategic initiative



|                                               |  |      |     |      |   |       |  |   |     
|---------------------------------------------- |  | ---- | --- | ---- | - | ----- |  | - | ----
|Fiscal Year                                    |  | 2004 |     | 2003 |   | 2002 
|Disposition of Parts Warehouse, Inc.           |  | $    |    |      | $ | 0.9   |  | $ | 39.0
|Rationalization of company-operated shops      |  |      | 0.1 |      |   | 20.6  |  |   | 12.5
|Redesign of the wholesale distribution network |  |      | 1.1 |      |   | 69.7  |  |   | 3.3 
|Severance and administrative costs             |  |      |    |      |   | 10.0  |  |   | 7.5 
|                                               |  |      |     |      |   |       |  |   |     
|Total business transformation charges          |  | $    | 1.2 |      | $ | 101.2 |  | $ | 62.3
|                                               |  |      |     |      |   |       |  |   |     



Business
transformation charges by activity



|                                      |  |      |      |   |      |   |       |  |   |     
|------------------------------------- |  | ---- | ---- | - | ---- | - | ----- |  | - | ----
|Fiscal Year                           |  | 2004 |      |   | 2003 |   | 2002 
|Warranty reserve establishment        |  | $    |     |   |      | $ | 38.5  |  | $ |    
|Inventory write-down                  |  |      | 0.4  |   |      |   | 18.7  |  |   | 26.3
|Goodwill write-off and impairment     |  |      |     |   |      |   | 11.4  |  |   | 8.8 
|Accounts receivable write-down        |  |      |     |   |      |   | 9.3   |  |   | 3.0 
|Fixed asset write-off and impairment  |  |      |     |   |      |   | 6.1   |  |   | 8.6 
|Severance and other separation costs  |  |      | (0.1 | ) |      |   | 5.4   |  |   | 6.0 
|Non-recoverable lease costs           |  |      |     |   |      |   | 4.3   |  |   | 6.5 
|Warehouse and other closure costs     |  |      |     |   |      |   | 2.9   |  |   |    
|Financing costs                       |  |      |     |   |      |   | 0.9   |  |   | 1.6 
|Pension asset write-down              |  |      | 0.8  |   |      |   | 2.0   |  |   |    
|Other costs                           |  |      | 0.1  |   |      |   | 1.7   |  |   | 1.5 
|                                      |  |      |      |   |      |   |       |  |   |     
|Total business transformation charges |  | $    | 1.2  |   |      | $ | 101.2 |  | $ | 62.3
|                                      |  |      |      |   |      |   |       |  |   |     



Additional information
regarding each of the business transformation costs listed in the above summary is presented in Note 2 of Notes to Financial Statements.



Fiscal Reporting Periods



Fiscal 2004 was comprised of 52 weeks, fiscal 2003 was comprised of 53 weeks, and fiscal 2002 was comprised of 52 weeks.



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Results of OperationsFiscal 2004 Compared to Fiscal 2003



Sales and revenues for fiscal 2004 decreased $113.5 million, or 36.5%, from
fiscal 2003 to $197.5 million, reflecting the impact of the Companys business transformation activities that were initiated during fiscal 2003.



Within the retail auto service business, royalty revenues and license fees increased 2.6% from 2003 due to an increase in royalties from international
licensees, a 2.2% comparable shop increase in system-wide Midas retail sales in North America and the positive sales impact of the Companys re-franchising of 24 company-operated shops during fiscal 2003, whose royalties were previously not
included in franchising revenues. These increases were partially offset by a reduction in North American shop count and lower franchise fee revenue compared to the prior year, when re-franchising of 24 company-operated shops increased franchise fee
revenue. Sales from company-operated shops declined $5.6 million, or a decrease of 13.4% from fiscal 2003. The entire sales decrease reflects a reduction in the average number of company-operated shops in operation during 2004 compared to the prior
year as comparable shop sales increased 3.0% in 2004. Revenues from real estate rentals increased slightly to $36.5 million. The increase primarily reflects scheduled rent increases and the re-franchising of 24 previously company-operated shops
during fiscal 2003, which offset a decrease in the number of shops in operation.



Replacement part sales and product royalties decreased $110.8 million to $59.7 million from $170.5 million in fiscal 2003. The decrease reflects the Companys exit from the traditional wholesale and PWI parts
distribution businesses during fiscal 2003. Fiscal 2004 revenues are comprised primarily of the sale of exhaust products, sales of tires, oil and batteries that are shipped directly to shops by the manufacturers but billed through Midas, and product
royalties. During fiscal 2004, product royalties earned on the sale of parts to Midas dealers by AutoZone and Uni-Select increased more than three fold over the prior year when the transition to the AutoZone and Uni-Select outsourced distribution
arrangements had only just begun. Sales of tires, oil and batteries increased 44.4% in 2004, consistent with the Companys expansion into maintenance services at the retail shop level. Exhaust sales declined 41.4% in fiscal 2004, consistent
with the long-term trend. However, comparison of exhaust sales between 2004 and 2003 are not meaningful due to the 2003 distribution outsourcing.



Gross profit margin was 57.5% in fiscal 2004 compared to a gross profit margin of 26.0% in fiscal 2003. During fiscal 2003, the Company recorded charges
to gross profit of $57.2 million to establish a reserve for estimated future claims related to its lifetime warranty of exhaust and brake products in the U.S. and Canada, and to write-down the value of inventory associated with the Companys
exit from the traditional wholesale parts distribution business. In fiscal 2004, the Company recorded an additional $0.4 million inventory write-down in association with the Companys exit from the traditional wholesale parts distribution
operation. Excluding these charges to gross profit, the Companys gross profit margin was 57.7% in fiscal 2004 compared to 44.4% in fiscal 2003. This increase was primarily due to a shift in the mix of the Companys revenues towards a
greater share of sales derived from higher margin franchising and company-operated shop operations. The favorable shift in sales mix helped to offset significantly lower gross margins generated on the sale of exhaust parts in connection with the
Companys outsourcing of exhaust distribution to AutoZone and Uni-Select, compared to the gross margins the Company realized in fiscal 2003 when selling exhaust and other auto parts directly to Midas franchisees.



Selling, general and administrative expenses for 2004 decreased $44.4
million, or 32.4%, from $137.2 million in 2003 to $92.8 million. The large decrease in expenses reflects the closure of PWI and all but one of the Companys regional distribution centers during fiscal 2003, as well as lower operating expenses
associated with a reduced number of company-operated shops compared to fiscal 2003. During fiscal 2004, the Company incurred approximately $1.4 million in expenses related to compliance with the various provisions of the Sarbanes-Oxley Act.



In fiscal 2004, the Company recorded charges to selling,
general and administrative expense of $0.8 million related to business transformation activities. The charges in 2004 primarily represent the reconciliation of actual business transformation costs incurred compared to expected business
transformation expense recorded in 2003. During fiscal 2003, the Company recorded charges of $44.0 million related to business transformation activities.



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The charges primarily reflected costs incurred as a result of the Companys decision to exit the traditional wholesale parts distribution business in
the U.S. and Canada, as well as costs related to PWI closures and the closure and re-franchising of certain company-operated shops. These charges are described in greater detail in Note 2 of Notes to Financial Statements.



As a result of the above changes, operating income increased $120.2 million
from an operating loss of $100.2 million in 2003 to operating income of $20.0 million in 2004. These changes caused an increase in operating income margin to 10.1% in fiscal 2004 from a negative 32.2% in 2003. Excluding the impact of the above
described business transformation charges of $1.2 million in fiscal 2004 and $101.2 million in fiscal 2003 (representing charges to gross profit and selling, general and administrative expense), operating income in fiscal 2004 was $21.2 million
compared to $1.0 million in fiscal 2003.



Interest expense
decreased from $25.5 million in 2003 to $12.7 million in 2004 as result of lower interest rates on borrowings and a substantial reduction in the Companys average total debt level compared to the prior year. In addition, the Company recorded a
loss on early extinguishment of debt of $4.7 million in fiscal 2004 to reflect a write-off of the unamortized debt discount and financing fees related to the Companys prior debt agreement. In fiscal 2003, the Company recorded $1.4 million in
charges related to the early extinguishment of a prior debt agreement.



The Companys effective tax rate was a negative 13.5% in fiscal 2004 compared to 38.9% in fiscal 2003 primarily due to state tax refunds and the reversal of a reserve for certain European withholding taxes due to the favorable
resolution of the matter.



As a result of the above items, net
income improved $80.3 million from a loss of $76.2 million in fiscal 2003 to income of $4.1 million in fiscal 2004.



Results of OperationsFiscal 2003 Compared to Fiscal 2002



Sales and revenues for fiscal 2003 decreased $22.0 million or 6.6% from fiscal 2002 to $311.0 million.



Replacement part sales and product royalties decreased $10.0 million to
$170.5 million in fiscal 2003 from $180.5 million in fiscal 2002. Replacement part sales through the Companys traditional wholesale distribution channel increased 20.8% driven primarily by the sale and liquidation of wholesale inventory in
connection with the Companys agreements to outsource wholesale parts distribution to AutoZone, Inc. in the U.S. and Uni-Select Inc. in Canada. Excluding the sale and liquidation of inventory related to the Companys decision to outsource
wholesale distribution, replacement part sales through the traditional channel would have decreased during fiscal 2003, consistent with long-term negative sales trends in the traditional wholesale channel, as well as reflecting the closure of all
but one of the Companys traditional wholesale warehouses by the end of fiscal 2003. Replacement part sales through the Companys PWI wholesale distribution channel, which served the just-in-time replacement parts needs of Midas dealers
and customers outside the Midas system, decreased 68.1%, reflecting the closure of all 77 PWI stores during fiscal 2003.



Within the retail auto service business, franchise royalties and license fees decreased $0.6 million or 1.0% from fiscal 2002. The decrease was primarily
due to a decline in international royalties and license fees due to a restructuring of the Companys licensing agreement with Magneti Marelli S.p.A. Comparable shop sales at retail in North America were approximately flat compared to the prior
year. A reduction in the Midas system total shop count from the prior fiscal year was offset by favorable Canadian currency exchange rates and an increase in franchise fees as a result of the re-franchising of 24 company-operated shops during fiscal
2003. Revenues from company-operated shops declined $11.5 million, or a decrease of 21.6% from fiscal 2002. The sales decrease primarily reflects a decline in comparable shop sales of 8%, the closure of 14 under-performing shops and the
re-franchising of 24 shops during fiscal 2003. The number of company-operated shops in operation at January 3, 2004 declined to 73, compared to 111 shops at the end of fiscal 2002. Revenue from real estate rentals in fiscal



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2003 was down $0.4 million from fiscal 2002 driven by the reduction in the Midas system shop count, partially offset by favorable Canadian currency exchange
rates and rental revenue from re-franchised company-operated shops.



The Companys gross profit margin, including business transformation charges of $57.2 million in fiscal 2003 and $26.3 million in fiscal 2002, decreased from 43.1% in fiscal 2002 to 26.0% in fiscal 2003. The Companys gross profit
margin excluding business transformation charges decreased from 51.0% in fiscal 2002 to 44.4% in fiscal 2003. This decline was primarily due to the Companys sale of certain wholesale inventory at cost in connection with the outsourcing of
traditional Midas wholesale distribution to AutoZone and Uni-Select, and the liquidation of inventory in the PWI distribution channel. The increased proportion of total sales related to franchise royalties, and royalties received on the sale of
replacement parts by AutoZone and Uni-Select to Midas dealers in the U.S. and Canada, helped to somewhat offset the negative margin impact of sales related to the wholesale inventory reduction process. Lower margins in real estate primarily reflect
reduced rental income on certain sales-based rental agreements, the full-year impact of depreciation associated with the sale and leaseback of certain previously owned retail properties in fiscal 2002, as well as reduced rental revenue from Midas
dealers due to shop closures.



During fiscal 2003, the Company
entered into supply agreements with AutoZone, Inc. in the U.S. and Uni-Select Inc. in Canada to provide weekly distribution of genuine Midas products and other automotive parts to Midas dealers throughout North America. As a result of these
outsourcing arrangements, the Company no longer operates the traditional Midas wholesale distribution business in the U.S. or Canada, and the Company has ceased operations in all but one of the Companys wholesale distribution centers. During
fiscal 2003, the Company recorded an inventory write-down of $18.7 million to reduce its wholesale distribution inventory to its expected net realizable value. This write-down was recorded as a component of cost of sales. In fiscal 2002, the Company
recorded a charge of $26.3 million in cost of sales to reduce the value of PWI inventory to its expected net realizable value, as the Company had committed to the liquidation of PWI prior to the close of fiscal 2002.



The Company recorded an additional business transformation charge in cost of
sales during fiscal 2003 to establish a $38.5 million accrual for estimated future warranty claims. This accrual relates to warranties issued to customers in the U.S and Canada for certain exhaust and brake parts that carry a lifetime warranty. The
Company had not historically maintained an accrual for estimated future warranty claims related to its lifetime guarantee of exhaust and brake products. Instead, the Company had historically recorded expenses related to these product warranties as
warranty claims were incurred. This was due to the fact that the average warranty claim generated gross profit to the Company, as the revenues and gross profit to Midas from a warranty claim exceeded the cost of reimbursement to the franchisee. As a
result of the outsourcing of the wholesale distribution function to AutoZone in the U.S. and Uni-Select in Canada, Midas will no longer generate sufficient gross profit on a warranty claim to offset the average warranty claim reimbursement.
Consequently, the Company recorded $38.5 million in charges to reflect its estimated liability associated with then outstanding warranties in the U.S. and Canada. On a going forward basis, Midas will accrue for the expected future cost of warranty
redemptions at the time of the original installation of the warranted part. This treatment will not affect cash flow associated with warranty redemptions.



Selling, general and distribution expenses for fiscal 2003 decreased $14.6 million, or 9.6% from 2002 to $137.2 million. Lower operating expenses resulted
from fewer PWI stores and company-operated shops in operation, the closure of all but one of the Companys wholesale distribution centers and a reduction in payroll expense due to administrative headcount reductions made in association with the
Companys business transformation process. However, these savings were partially offset by incremental expenses incurred during the sale and closure of PWI stores and company-operated shop locations, and higher distribution costs related to the
liquidation of inventory.



During fiscal 2003, the Company
recorded charges of $44.0 million as part of selling, general and distribution expenses related to the Companys business transformation process. These charges are described in greater detail in Note 2 of Notes to Financial Statements.



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As a result of the above, the Companys operating loss increased $56.0 million from a loss of $44.2
million in fiscal 2002 to a loss of $100.2 million in fiscal 2003. Excluding the impact of the above described business transformation charges of $101.2 million, operating income in fiscal 2003 would have been $1.0 million compared to $18.1 million
in fiscal 2002 after excluding $62.3 million in business transformation charges.



Interest expense increased from $11.8 million in fiscal 2002 to $25.5 million in fiscal 2003 as a result of higher interest rates compared to the prior year, higher average debt levels, and the amortization of fees
associated with the Companys financing agreement completed on March 27, 2003. In addition, the Company recorded a charge of $1.4 million related to the early extinguishment of a prior debt agreement.



The Companys effective tax rate was 38.9% in both fiscal 2002 and
fiscal 2003.



As a result of the above items, the
Companys net loss increased $42.6 million from a net loss of $33.6 million in fiscal 2002 to a net loss of $76.2 million in fiscal 2003.



Liquidity, Financial Condition and Capital Resources



Following is a summary of the Companys cash flows from operating, investing and financing activities for fiscal 2004 and 2003, respectively (in
millions):



|                                                    |  |      |       |   |      |   |       |  
|--------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|Fiscal Year                                         |  | 2004 |       |   | 2003 |  
|Net cash provided by operating activities           |  | $    | 20.7  |   |      | $ | 47.1  |  
|Net cash provided by (used in) investing activities |  |      | (1.4  | ) |      |   | 4.9   |  
|Net cash used in financing activities               |  |      | (25.8 | ) |      |   | (45.1 | )
|                                                    |  |      |       |   |      |   |       |  
|Net change in cash and cash equivalents             |  | $    | (6.5  | ) |      | $ | 6.9   |  
|                                                    |  |      |       |   |      |   |       |  



The Companys
cash management system permits the Company to make daily borrowings and repayments on its line of credit. This allows Midas to minimize interest expense and to maintain a cash balance close to zero. Midas cash and cash equivalents decreased
$6.5 million in fiscal 2004.



The Companys operating
activities generated net cash of $20.7 million during fiscal 2004 compared to $47.1 million of cash generated in fiscal 2003. Factors that contributed to the year-over-year decrease of $26.4 million included a $93.9 million reduction in business
transformation costs, net of cash payments, a $2.0 million reduction in depreciation and amortization due to 2003 asset disposals, a $4.5 million reduction in the amortization of debt discount and financing fees due to a March 2004 refinancing, a
$0.9 million gain on sale of assets and $59.3 million less cash generated by changes in assets and liabilities. These decreases to cash flow from operating activities were partially offset by an $80.3 million increase in net income, a $50.6 million
decrease in the deferred tax benefit, and a $3.3 million increase in loss on early extinguishment of debt. The $59.3 million decrease in cash generated by changes in assets and liabilities was primarily due to a much smaller reduction in inventory
in fiscal 2004 compared to 2003, when the Company was selling inventory as part of its exit from the wholesale distribution business, and a $10.7 million reduction in accrued expenses compared to an $18.5 million increase in 2003, primarily
reflecting the prepayment of an international royalty in December 2003, which was deferred in 2003 and recognized in 2004. Partially offsetting the reduction in cash generated from inventory liquidation and the cash usage related to settlement of
business transformation obligations, the Company had an increase in accounts payable in 2004 compared to a $12.8 million reduction in accounts payable in 2003, when the Company dramatically reduced inventory purchases as it exited the Companys
former wholesale parts distribution operation.



Investing
activities used $1.4 million in cash during fiscal 2004 compared to generating $4.9 million in cash during fiscal 2003. Fiscal 2004 investing activities consisted primarily of capital expenditures to maintain facilities and investments in
information systems, partially offset by cash generated from the sale of a closed warehouse for $1.1 million. Fiscal 2003 investing activities primarily consisted of $1.9 million in systems



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development and other maintenance capital expenditures, offset by $7.2 million in cash generated as the result of asset sales, including a sale and leaseback
of the one of the Companys distribution facilities, and the sale of certain PWI and company-operated shop locations.



Net cash used in financing activities was $25.8 million in fiscal 2004, compared to net cash used of $45.1 million in fiscal 2003. In fiscal 2004, the
Company paid $26.9 million to reduce debt and lease obligations and paid $2.1 million in fees in connection with the Companys debt refinancing in March 2004. In addition, the Company received $3.6 million in cash from the exercise of
outstanding stock options. In fiscal 2003, the Company paid $4.8 million in financing fees and paid $45.3 million to reduce debt and lease obligations. Additionally, the Company issued 1.0 million warrants valued at $5.0 million in connection with
its 2003 debt restructuring. On January 5, 2004, 500,000 of these warrants were automatically cancelled because the company met certain financial objectives contained in the warrant agreements. As of January 1, 2005, a total of 131,838 warrants
remained outstanding.



At the beginning of 2004, the Company
had credit facilities consisting of a $25 million revolving loan facility, a $64.7 million Term Loan A, and a $29.4 million Term Loan B. These facilities were secured by substantially all of the assets of the Company and were scheduled to expire on
October 3, 2004. Interest on the revolving loan was payable monthly at the prime rate plus 2.75% or LIBOR plus 3.75%. Interest on a portion of the Term Loan A was fixed at 7.67%, while interest on the balance of the Term Loan A was payable monthly
at the prime rate plus 5.0% or LIBOR plus 6.0%. The interest rate on the Term Loan B was fixed at 12% cash interest paid monthly plus 6% paid-in-kind (PIK), which was added to principal and due at maturity. Availability under the
revolving credit facility was based on a borrowing base, which took into consideration the Companys inventory and accounts receivable levels. The revolving credit facility was senior to both the Term Loan A and Term Loan B.



On March 16, 2004, the Company entered into a new three-year, $115 million
credit facility to refinance its existing debt facility. The new debt facility was initially comprised of a $55 million revolving credit facility and a $60 million term loan. The new facility is secured by substantially all of the assets of the
Company and expires on March 16, 2007. Under the terms of the debt refinancing, the Company retired its former $25 million revolving credit facility as well as its Term A and Term B loans. The refinancing resulted in a loss on early extinguishment
of debt of $4.7 million due to the write-off of unamortized debt discount and financing fees.



Interest on the $55 million revolving loan was initially payable monthly at LIBOR plus 3.25%. Interest on the $60 million term loan was initially payable monthly at LIBOR plus 3.5%. The interest rates float based on
the underlying rate of LIBOR and the Companys leverage. Availability under the revolving credit facility is not predicated on a borrowing base. The new facility requires maintenance of certain financial covenants including maximum allowable
leverage and minimum tangible net worth.



On November 5, 2004,
the Company amended its new debt facility to reduce required principal amortization under the term loan, remove certain restrictive covenants, and reduce interest rates. As amended, the term loan now requires quarterly principal payments of $1.5
million, and must be prepaid by an amount equal to: (i) 100% of equity issued, or (ii) $2.5 million of the first $7.5 million of proceeds from the sale of the Companys exhaust manufacturing business plus 50% of any proceeds between $7.5
million and $15.5 million, or (iii) 75% of any other material asset proceeds in excess of $1 million (other than the sale of inventory in the normal course of business). A total of $6 million of the term loan is reported as current in the January 1,
2005 balance sheet as a result of this amendment.



The
amendment also eliminated the Companys restrictions on capital expenditures and treasury stock repurchases, and reduced the interest rate on both the term loan and revolving loan by 50 basis points. Based on the new rates and the
Companys year end debt levels, interest on the revolving loan is currently payable at LIBOR plus 2.25% and interest on the term loan is currently payable at LIBOR plus 2.5%.



In April 2004, the Company entered into an interest rate swap arrangement to convert $40 million of the $60 million term
loan from a floating rate to a fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the



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loan. The swap amount is reduced quarterly based on scheduled term loan principal amortization payments. As of January 1, 2005, approximately $33.8 million
of the $52.2 million term loan balance was subject to this interest rate swap arrangement.



On November 9, 2004, the Midas Board of Directors authorized a share repurchase program to begin in fiscal 2005 for up to $25 million. The Company intends to use internally generated funds over the next several years
to repurchase shares from time to time in the open market and in privately negotiated transactions, depending upon market and business conditions.



The Company believes that cash flow from operations and availability under the current debt agreement will provide sufficient liquidity to finance
operations, execute strategic initiatives, and repurchase shares.



Contractual Obligations



The following table
reflects the Companys contractual obligations under long-term debt and lease agreements as of January 1, 2005:



|                              |  |                                      |       |                |   |          |  |          |       |              |   |      |  |   |     
|----------------------------- |  | ------------------------------------ | ----- | -------------- | - | -------- |  | -------- | ----- | ------------ | - | ---- |  | - | ----
|                              |  | Payments Due by Period (In millions)
|                              |  | Total                                |       | LessThan1 Year |   | 1-3Years |  | 4-5Years |       | After5 Years
|Short and long-term debt      |  | $                                    | 69.0  |                | $ | 6.0      |  | $        | 63.0  |              | $ |     |  | $ |    
|Capital lease obligations     |  |                                      | 6.1   |                |   | 1.0      |  |          | 2.1   |              |   | 1.2  |  |   | 1.8 
|Finance lease obligations     |  |                                      | 37.6  |                |   | 0.9      |  |          | 1.9   |              |   | 2.4  |  |   | 32.4
|Operating leases              |  |                                      | 158.7 |                |   | 31.6     |  |          | 51.4  |              |   | 28.4 |  |   | 47.3
|Other long-term obligations   |  |                                      |      |                |   |         |  |          |      |              |   |     |  |   |    
|                              |  |                                      |       |                |   |          |  |          |       |              |   |      |  |   |     
|Total contractual obligations |  | $                                    | 271.4 |                | $ | 39.5     |  | $        | 118.4 |              | $ | 32.0 |  | $ | 81.5
|                              |  |                                      |       |                |   |          |  |          |       |              |   |      |  |   |     



In addition to the
amounts shown above, the Company currently has $4.1 million outstanding on standby letters of credit that expire in 2006. Additionally, the Company is contingently liable for a portion of loans made to certain franchisees by a third party lender. As
of January 1, 2005, the total outstanding loans under this program were approximately $6.5 million. Midas total annual exposure under this program is limited to $2.0 million. In fiscal 2004 and 2003, the Company was required to pay $0.8
million and $0.1 million, respectively, to the lender under this program. No payments were made in fiscal 2002.



Additionally, Midas is due rental revenue in the amounts shown below under sublease agreements on leased properties and rental agreements on owned
properties:



|                                                |  |                                                     |       |                |   |          |  |          |      |              |   |      |  |   |      
|----------------------------------------------- |  | --------------------------------------------------- | ----- | -------------- | - | -------- |  | -------- | ---- | ------------ | - | ---- |  | - | -----
|                                                |  | Rental Revenue Due to Midas by Period (In millions)
|                                                |  | Total                                               |       | LessThan1 Year |   | 1-3Years |  | 4-5Years |      | After 5Years
|Rental revenue commitments on leased properties |  | $                                                   | 150.8 |                | $ | 26.6     |  | $        | 45.9 |              | $ | 26.7 |  | $ | 51.6 
|Rental revenue commitments on owned properties  |  |                                                     | 125.8 |                |   | 9.1      |  |          | 17.7 |              |   | 17.0 |  |   | 82.0 
|                                                |  |                                                     |       |                |   |          |  |          |      |              |   |      |  |   |      
|Total rental revenue commitments                |  | $                                                   | 276.6 |                | $ | 35.7     |  | $        | 63.6 |              | $ | 43.7 |  | $ | 133.6
|                                                |  |                                                     |       |                |   |          |  |          |      |              |   |      |  |   |      



Critical Accounting Policies and
Estimates



In preparing the consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America, management must make a variety of decisions which impact the reported amounts and related disclosures. Such decisions include the selection of
the appropriate accounting principles to be applied, the assumptions on which to base accounting estimates, and the consistent application of



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those accounting principles. Due to the type of industry in which the Company operates and the nature of its business, and the Companys existing
business transformation process, the following accounting policies are those that management believes are most important to the portrayal of the Companys financial condition and results and that require managements most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.



Valuation of Warranty Liabilities



Customers are provided a written warranty from Midas on genuine Midas products purchased from Midas shops in North America. The warranty will be honored
at any Midas shop in North America and is valid for the lifetime of the vehicle, but is voided if the vehicle is sold. The Company maintains a warranty accrual to cover the estimated future liability associated with outstanding warranties. The
Company determines the estimated value of outstanding warranty claims based on: 1) an estimate of the percentage of all warranted products sold and registered in prior periods at retail that are likely to be redeemed; and 2) an estimate of the cost
of redemption of each future warranty claim on a current cost basis. These estimates are computed using actual historical registration and redemption data as well as actual cost information on current redemptions. An increase of one percentage point
in the estimated percentage of warranted products likely to be redeemed in the U.S. would have the effect of increasing Midas January 1, 2005 outstanding U.S. warranty liability by $4.5 million, while a decrease of one percentage point in the
estimated U.S. redemption rate would decrease Midas outstanding U.S. warranty liability by $2.6 million. A change in the estimated current cost of warranty redemptions of one dollar would have the effect of changing Midas outstanding
U.S. warranty liability by $1.8 million.



Prior to fiscal 2003,
the Company had not maintained an accrual for estimated future warranty claims related to its lifetime guarantee of exhaust and brake products. Instead, the Company recorded expenses related to these product warranties as warranty claims were
incurred. This was due to the fact that the average warranty claim generated gross profit to the Company, as the revenues and gross profit to Midas from a warranty claim exceeded the cost of reimbursement to the franchisee. As a result of the fiscal
2003 outsourcing of the Midas distribution function to AutoZone, Inc. in the U.S., and Uni-Select Inc. in Canada, Midas no longer generates sufficient gross profit on a warranty claim to offset the average warranty claim reimbursement. Consequently,
the Company recorded charges during fiscal 2003 to reflect its estimated liability associated with outstanding warranties in the U.S. and Canada. Since the warranty accrual was established in fiscal 2003, Midas has accrued for the expected future
cost of warranty redemptions at the time of the original installation of the warranted part based on the method described above. This treatment did not affect cash flow associated with warranty redemptions in either the U.S or Canada.



Inventory Valuation



As a manufacturer and distributor of certain automotive aftermarket parts,
inventory has historically represented a substantial portion of the total assets of the Company. Inventories are valued at the lower of cost or net realizable value. Inventory cost is determined using the weighted-average cost method, which
approximates the first-in, first-out method. Additionally, the Company periodically evaluates the carrying value of its inventory to assess the proper valuation. This includes having adequate allowances to cover losses in the normal course of
operations, provide for excess and obsolete inventory, and ensure that inventory is valued at the lower of cost or market. In performing this evaluation the Company considers historical data such as actual loss experience, past and projected usage,
and actual margins generated from sales of its products.



During fiscal 2003 and 2004, the Company sold and liquidated inventory in connection with the implementation of its ongoing business transformation. The Company recorded charges in fiscal 2002, 2003 and fiscal 2004 to write-down certain
inventories to their net realizable value as a result of the disposition of PWI and the outsourcing of the Companys wholesale parts distribution operation. In assessing the net realizable value of the inventory that was to be sold and
liquidated, the Company considered original cost, past and projected usage, independent third party appraisals and offers made by potential buyers.



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Valuation of Receivables



The Company records receivables due from its franchisees and other customers at the time the sale is recorded in accordance
with its revenue recognition policies. These receivables consist of amounts due from the sale of products, royalties due from franchisees and suppliers, rents and other amounts. The future collectibility of these amounts can be impacted by the
Companys collection efforts, the financial stability of its customers, and the general economic climate in which it operates. The Company applies a consistent practice of establishing an allowance for accounts that it feels may become
uncollectible through reviewing the historical aging of its receivables and by monitoring the financial strength of its franchisees and other customers. Where the Company becomes aware of a customers inability to meet its financial obligations
(e.g. where it is in financial distress or has filed for bankruptcy), the Company specifically reserves for the potential bad debt to reduce the net recognized receivable to the amount it reasonably believes will be collected. The valuation of
receivables is performed on a quarterly basis.



In connection
with the disposal of the PWI business and the exit of the Midas wholesale distribution business, in valuing outstanding receivable balances the Company also considered the reduced collection efforts that result from the closings as well as the
increased likelihood that customers will not pay amounts due.



Pensions



The Company has
non-contributory defined benefit pension plans covering certain of its employees. The Companys funding policy for the U.S. plan is to contribute amounts sufficient to meet the minimum funding requirement of the Employee Retirement Income Act
of 1974, plus any additional amounts the Company may deem to be appropriate. The Company accounts for its defined benefit pension plans in accordance with Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting
for Pensions, which requires that amounts recognized in the financial statements be determined on an actuarial basis. A minimum liability is required to be established on the balance sheet representing the amount of unfunded accrued pension
cost. This represents the difference between the accumulated benefit obligation and the fair value of plan assets. When it is necessary to establish an additional minimum pension liability, an amount is recorded as an intangible asset limited to
unrecognized prior service cost. Any amount in excess of unrecognized prior service cost is recorded as a reduction to shareholders equity through cumulative other comprehensive income, net of tax, in the balance sheet. As of January 1, 2005,
the $11.1 million prepaid pension cost, net of valuation reserves of approximately $3.9 million pertaining to the partial wind-up of the Canadian Salaried Pension Plan and the full wind-up of the Canadian Hourly Pension Plan, was recorded in the
Companys balance sheet as a $2.6 million accrued pension liability, an intangible pension asset of $0.3 million and an accumulated reduction to shareholders equity of $9.5 million ($5.7 million, net of taxes).



To account for its defined benefit pension plans in accordance with SFAS No.
87, the Company must make three main determinations at the end of each fiscal year: First, it must determine the actuarial assumption for the discount rate used to reflect the time value of money in the calculation of the projected benefit
obligation for the end of the current fiscal year and to determine the net periodic pension cost for the subsequent year. For guidance in determining this rate, the Company looks at rates of return on high-quality fixed-income investments and
periodic published rate ranges. See Note 9 of Notes to Financial Statements for a listing of the discount rates used by year.



Second, the Company must determine the actuarial assumption for rates of increase in compensation levels used in the calculation of the accumulated and
projected benefit obligations for the end of the current fiscal year and to determine the net periodic pension cost for the subsequent year. In determining this rate the Company looks at its historical and expected rates of annual salary increases.
See Note 9 of Notes to Financial Statements for a listing of the rates of increase in compensation levels used by year.



Third, the Company must determine the expected long-term rate of return on assets assumption that is used to determine the expected return on plan assets
component of the net periodic pension cost for the subsequent year. The difference between the actual return on plan assets and the expected return is deferred under SFAS



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No. 87 and is recognized to net periodic pension cost over a five-year period. See Note 9 of Notes to Financial Statements for a listing of the expected
long-term rates used by year. The Company assumed a long-term rate of return on pension assets of 8.5% in both fiscal 2004 and 2003, and experienced gains on plan assets of $7.2 million in fiscal 2004 and $8.7 million in fiscal 2003.



Carrying Values of Goodwill and Long-Lived Assets



In accordance with SFAS No. 142, the Company conducts tests for
impairment of goodwill annually or more frequently if circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that an assets carrying amount exceeds its fair value.



Midas evaluates the carrying values of its long-lived assets to be held and
used in the business by reviewing undiscounted cash flows by asset group. Such evaluations are performed whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the projected undiscounted
cash flows over the remaining lives of the related assets does not exceed the carrying values of the assets, the carrying values are adjusted for the differences between the fair values and the carrying values. Additionally, in the case of fixed
assets related to locations that will be closed or sold, the Company writes down fixed assets to their estimated recovery value.



The Companys evaluation of the carrying value of goodwill and other long-lived assets as of the end of fiscal 2004 indicated that an impairment
existed with respect to long-lived assets used in company-operated shops. As a result, the Company recorded an impairment charge to operating expense of $0.2 million and reduced long-lived assets in fiscal 2004. In fiscal 2003, the Company recorded
an impairment charge of $9.4 million to goodwill and $2.0 million to long-lived assets related to the company-operated shops.



Deferred Income Taxes



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at January 1, 2005. In the event that management determines the Company would not be able
to realize all or part of the net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. As of January 1, 2005, the Company had recorded a valuation allowance
of $2.3 million against certain state income tax net operating loss carryovers because the Company has determined that it is more likely than not that this portion of these deferred tax assets will not be realized.



Self-Insurance Reserves



Historically, the Company has been largely self-insured with respect to
workers compensation, general liability, and employee medical claims. In order to reduce its risk and better manage its overall loss exposure, the Company purchases stop-loss insurance that covers individual claims in excess of the deductible
amounts. The Company maintains an accrual for the estimated cost to settle open claims as well as an estimate of the cost of claims that have been incurred but not reported. These estimates take into consideration the historical average monthly
claim volume, the average cost for settled claims, current trends in claim costs, changes in the Companys business and workforce, and general economic factors. These accruals are reviewed on a quarterly basis, or more frequently if factors
dictate a more frequent review. As of January 1, 2004, the Company is no longer self-insured with respect to employee medical claims and has converted to a fully-insured medical program.



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Impact of New Accounting Standards



In December 2003, the Financial Accounting Standards Board (FASB) issued Statement No. 132 (revised),
Employers Disclosures about Pensions and Other Postretirement Benefits. Statement No. 132 (revised) prescribes employers disclosures about pension plans and other postretirement benefit plans; it does not change the
measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement No. 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. The Companys disclosure in Note 9 of Notes to Financial Statements
incorporates the requirements of Statement No. 132 (revised).



In November 2004, the FASB issued Statement No. 151, Inventory Costs  an amendment of ARB No. 43 (FAS 151), which is the result of its effort to converge U.S. accounting standards for inventories with
International Accounting Standards. Statement No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized as current-period charges. It also requires that allocation of fixed production
overheads to the cost of conversion be based on normal capacity of the production facilities. Statement No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is in the process of
evaluating the impact of this standard on its financial statements.



In December 2004, the FASB issued Statement No. 123 (revised), Share-Based Payment, (FAS 123R). This statement is a revision to Statement No. 123, Accounting for Stock-Based Compensation, (FAS
123) and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. FAS 123R requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render
service. The Company will adopt FAS 123R on July 1, 2005, requiring compensation cost to be recorded as an expense for the portion of outstanding unvested awards, based on the grant-date fair value of those awards. The Company expects to use the
Black-Scholes option pricing model and the Modified Prospective Application method of adoption as allowed under FAS 123R. The Company is in the process of evaluating the impact of this standard on its financial statements.



Forward Looking Statements



This report contains (and oral communications made by Midas may contain)
forward-looking statements that may be identified by their use of words like plans, expects, anticipates, intends, estimates, forecasts, will, outlook or
other words of similar meaning. All statements that address Midas expectations or projections about the future, including statements about Midas strategy for growth, cost reduction goals, expenditures and financial results, are
forward-looking statements. Forward-looking statements are based on Midas estimates, assumptions and expectations of future events and are subject to a number of risks and uncertainties. All such statements are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Midas cannot guarantee that these estimates, assumptions and expectations are accurate or will be realized. Midas disclaims any intention or obligation (other than as
required by law) to update or revise any forward-looking statements.



The Companys results of operations and the forward-looking statements could be affected by, among others things: general economic conditions in the markets in which the Company operates; economic developments that have a particularly
adverse effect on one or more of the markets served by the Company; the ability to execute managements internal operating plans; the timing and magnitude of capital expenditures; the Companys ability to access debt and equity markets;
economic and market conditions in the U.S. and worldwide; currency exchange rates; changes in consumer spending levels and demand for new products and services; cost and availability of raw materials; and overall competitive activities. Certain of
these risks are more fully described in Item 1 of Part I of this annual report. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or
otherwise.



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|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------



The Company is subject to certain market risks, including foreign currency and interest rates. The Company uses a variety of practices to manage these
market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. The Company is exposed to
potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Companys primary exposure is to changes in exchange rates for the U.S. dollar versus the Canadian
dollar.



Interest rate risk is managed through a combination of
fixed rate debt and variable rate borrowings with varying maturities. The Company is exposed to credit risk on certain assets, primarily accounts receivable. The Company provides credit to customers in the ordinary course of business and performs
ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Companys customer base. The Company believes its allowance for doubtful accounts is
sufficient to cover customer credit risk.



The table below
provides information about the Companys financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted-average interest rates by the expected maturity dates. The actual cash
flows for each instrument are denominated and presented in U.S. dollar equivalents (in millions), which is the Companys reporting currency.



|                                          |  |      |     |   |      |   |     |      |  |   |       |   |  |            |      |   |  |   |     
|----------------------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | ----- | - |  | ---------- | ---- | - |  | - | ----
|Expected Maturity Date                    |  | 2005 |     |   | 2006 |   |     | 2007 |  |   | Total |   |  | Fair Value
|Long-term debt:                           |  |      |     |   |      |   |     |      |  |   |       |   |  |            |      |   |  |   |     
|Revolving credit facility (variable rate) |  | $    |    |   |      | $ |    |      |  | $ | 16.8  |   |  | $          | 16.8 |   |  | $ | 16.8
|Average interest rate                     |  |      |     |   |      |   |     |      |  |   | 5.0   | % |  |            | 5.0  | % |  |   |     
|Term debt (variable rate)                 |  | $    | 6.0 |   |      | $ | 6.0 |      |  | $ | 40.2  |   |  | $          | 52.2 |   |  | $ | 52.2
|Average interest rate                     |  |      | 5.2 | % |      |   | 5.2 | %    |  |   | 5.2   | % |  |            | 5.2  | % |  |   |     



In April 2004, the
Company entered into an interest rate swap arrangement to convert $40 million of the Companys $60 million term loan from a floating rate to a fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan. As of January 1, 2005,
approximately $33.8 million of the $52.2 million term loan balance was subject to this interest rate swap arrangement. As of January 1, 2005, the fair value of the swap instrument was approximately $0.2 million net of taxes.



The Companys long-term debt facilities are secured by substantially all
of the assets of the Company. Currently, the Company has no firmly committed sales transactions denominated in foreign currencies.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



See Index to Financial Statements on page F-1



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



Not applicable.



|Item 9A. | Controls and Procedures
|-------- | -----------------------



(a) Evaluation of disclosure controls and procedures.



Our Chief Executive Officer and Chief Financial Officer have concluded, based upon their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in
Securities Exchange Act Rule 13a  15(e) and 15d  15(e)) are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



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(b) Changes in internal controls over financial reporting.



There have been no changes in internal control over financial reporting that
occurred during the fourth quarter of 2004, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



Managements Report on Internal Control Over Financial Reporting



Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Midas internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.



Our internal control over financial reporting includes those policies and procedures that:



 Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
Midas;



 Provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Midas
management and directors; and



 Provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.



Management assessed the effectiveness of Midas internal
control over financial reporting as of January 1, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on our assessment and those criteria, management believes that Midas maintained effective internal control over financial reporting as of January 1, 2005.



Midas independent registered public accounting firm, KPMG LLP, has audited and issued their report on managements assessment of Midas
internal control over financial reporting, which appears below.



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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting



The Board of Directors and Shareholders

Midas, Inc.:



We have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that
Midas, Inc. maintained effective internal control over financial reporting as of January 1, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Midas, Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on managements assessment and an opinion on the effectiveness of Midas, Inc.s internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In our opinion, managements assessment that Midas, Inc. maintained
effective internal control over financial reporting as of January 1, 2005, is fairly stated, in all material respects, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Also, in our opinion, Midas, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 1, 2005, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Midas, Inc.
as of fiscal year end 2004 and 2003, and the related statements of operations, cash flows, and changes in shareholders equity for each of the fiscal years 2004, 2003 and 2002, and our report dated March 17, 2005 expressed an unqualified
opinion on those financial statements.



KPMG
LLP



Chicago, Illinois

March 17, 2005



41



---

##### Table of Contents

|Item 9B. | Other Information
|-------- | -----------------



None.



PART III



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



Information required by this item, which is set forth under the headings Proposal 1: Election Of Directors, Meetings and Committees of
the Board and Beneficial Ownership of Common StockSection 16 (a) Beneficial Ownership Reporting Compliance in the Companys proxy statement (the 2005 Proxy Statement) for the Annual Meeting of Shareholders to
be held on May 10, 2005, is incorporated herein by reference.



The Company has adopted a code of ethics that applies to all of its employees, officers, and directors, including its principal executive officer, principal financial officer, and principal accounting officer (controller). The text of the
Companys code of ethics is posted on its website at www.midas.com. The Company intends to disclose future amendments to, or waivers from, certain provisions of the code of ethics for executive officers and directors on the Companys
website within five business days following the date of such amendment or waiver. Stockholders may request a free copy of the code of ethics from:



Alvin K. Marr

Corporate Secretary

Midas, Inc.

1300 Arlington Heights Road

Itasca, IL 60143

Telephone: (630) 438-3000



Midas has also adopted written charters for its Audit and Finance,
Compensation, Nominating and Corporate Governance Committees, and Corporate Governance Guidelines, all of which are posted on the Companys website at www.midas.com. Stockholders may request a free copy of the charters and guidelines from the
address or telephone number set forth above.



On June 9, 2004,
Midas submitted its Section 303A Annual Written Affirmation to the New York Stock Exchange (NYSE) in accordance with the NYSE rules.



|Item 11. | Executive Compensation
|-------- | ----------------------



Information required by this item, which is set forth under the headings Election of DirectorsCompensation of Directors and Executive Compensation and Other Information in the 2005 Proxy
Statement, is incorporated herein by reference.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management
|-------- | --------------------------------------------------------------



The following table gives information about Midas common stock that may be issued under the Companys equity compensation plans as of January
1, 2005.



|                                                                   |  |                                                                                          |  |                                                                         |       |                                                                                                                                         |        
|------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                                      |  | Number of securities to beissued upon exercise ofoutstanding options,warrants and rights |  | Weighted-averageexercise priceof outstandingoptions, warrantsand rights |       | Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securitiesreflected in column
(a))
|                                                                   |  | (a)                                                                                      |  | (b)                                                                     |       | (c)                                                                                                                                    
|Equity compensation plans approved by security holders1,
2         |  | 1,369,037                                                                                |  | $                                                                       | 14.98 |                                                                                                                                         | 122,549
|Equity compensation plans not approved by security holders3 , 4,
5 |  | 677,000                                                                                  |  |                                                                         | 8.25  |                                                                                                                                         | 547,054
|                                                                   |  |                                                                                          |  |                                                                         |       |                                                                                                                                         |        
|Total                                                              |  | 2,046,037                                                                                |  | $                                                                       | 12.76 |                                                                                                                                         | 669,603
|                                                                   |  |                                                                                          |  |                                                                         |       |                                                                                                                                         |        



42



---

##### Table of Contents

---

|1 | Includes the Midas Stock Incentive Plan and the
Midas Directors Deferred Compensation Plan.
|- | --------------------------------------------------------------------------------------------

|2 | The Midas Directors Deferred Compensation Plan was adopted in 2002. This plan provides non-officer directors the option of using their Board and Board Committee annual
retainer and meeting attendance fees from the Company to purchase shares of the Companys Common Stock, or of deferring receipt of such fees in the form of cash units and units representing shares of the Companys Common Stock. The Plan
provides for a 100,000 maximum aggregate number of shares. The Companys intention is to use treasury shares for such purposes. No shares have been issued under this plan. All current fees and other compensation for directors are outlined in
the 2005 Proxy Statement.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3 | Includes the Midas Treasury Stock Plan and non-qualified stock options issued to employees as
an inducement to their initial employment.
|- | ----------------------------------------------------------------------------------------------------------------------------------------

|4 | The Midas Treasury Stock Plan, adopted in 2002,
authorizes the issuance of up to 400,000 shares of Midas common stock held in Treasury pursuant to the exercise of incentive stock options, non-qualified stock options and stock appreciation rights and the grant of restricted stock and performance
awards. No grants have been made under this plan.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5 | The Company issues non-qualified stock options to certain individuals in order to induce them to accept employment with the Company. Pursuant to the rules of the New York Stock
Exchange, options issued under this program are not considered part of the Midas Stock Incentive Plan and are not deducted from the number of securities remaining available for future issuance. As of January 1, 2005, inducement options for a total
of 677,000 shares were outstanding. These options have a ten-year term and vest over a period of five years commencing from the date of grant.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Information required by Item 403 of Regulation S-K, which is set forth under the heading Beneficial Ownership of Common Stock in the 2005
Proxy Statement, is incorporated herein by reference.



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



None.



|Item 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------



Information required by this item, which is set forth under the heading Principal Accounting Firm Fees in the 2005 Proxy Statement, is incorporated herein by reference.



Pursuant to its written charter, the Audit Committee, or a subcommittee
thereof comprised of one or more independent directors, is responsible for pre-approving all audit and permitted non-audit services to be performed for Midas by its independent auditors. In recognition of this responsibility, the Audit Committee has
established a policy to pre-approve all audit and permissible non-audit services provided by Midass independent auditor. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional
services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its
members. The member or members to whom such authority is delegated must report, for information purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.



43



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##### Table of Contents

PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



| | (a) 1. | Financial Statements
| | ------ | --------------------



| |  | See Index to Financial Statements on Page F-1.
| |  | ----------------------------------------------



| | 2. Financial | Statement Schedules
| | ------------ | -------------------



| |  | See Index to Financial Statements on Page F-1.
| |  | ----------------------------------------------



(b) Exhibits



|            |  |                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|3(i).1      |  | Certificate of Incorporation (incorporated by reference to Exhibit 3(i).1 to Midas, Inc. Registration Statement on Form 10/A No. 3 (Post-Effective Amendment No. 1) (Commission File No.
1-13409) (the Form 10)).                                                                                                                                                                           
|            | 
|3(i).2      |  | Certificate of Amendment of the Certificate of Incorporation, dated December 30, 1997 (incorporated by reference to Exhibit 3(i).2 to the Form 10).                                                                                                                                                                                                                                           
|            | 
|3(ii)       |  | By-Laws (as amended December 31, 1997) (incorporated by reference to Exhibit 4.4 to Midas, Inc. Registration Statement on Form S-8 relating to its Retirement Savings Plans (Registration No.
333-44625) (the RSP Form S-8)).                                                                                                                                                               
|            | 
|4.1         |  | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.3 to the RSP Form S-8).                                                                                                                                                                                                                                                   
|            | 
|4.2         |  | Rights Agreement, dated as of December 31, 1997, between Midas, Inc. and First Chicago Trust Company of New York (incorporated by reference to Exhibit 4.5 to the RSP Form
S-8).                                                                                                                                                                                                              
|            | 
|4.7         |  | First Amendment to Rights Agreement, dated as of May 12, 1999, between Midas, Inc. and First Chicago Trust Company of New York (incorporated by reference to Exhibit to the Midas, Inc.
Registration Statement on Form 10/A No. 4).                                                                                                                                                           
|            | 
|4.18        |  | Loan and Security Agreement, dated as of March 27, 2003, by and among Midas, Inc. and its subsidiaries, Bank One, NA, as Administrative Agent, and the other Lenders named therein
(incorporated by reference to Exhibit 4.18 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended December 28, 2002).                                                                   
|            | 
|4.19        |  | Note, Guaranty and Security Agreement, dated as of March 27, 2003, by and among Midas, Inc. and its subsidiaries, U.S. Bank, National Association, as Collateral Agent, and the Noteholders
named therein (incorporated by reference to Exhibit 4.19 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended December 28, 2002).                                            
|            | 
|4.20        |  | Intercreditor Agreement by and among the Lenders named in the Loan and Security Agreement and the Noteholders named in the Note, Guaranty and Security Agreement, as acknowledged by Midas,
Inc. and its subsidiaries, all dated as of March 27, 2003 (incorporated by reference to Exhibit 4.20 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended December 28, 2002).
|            | 
|4.21        |  | Warrant Agreement, dated as of March 27, 2003, by and among Midas, Inc. and the Warrant Holders named therein (incorporated by reference to Exhibit 4.21 to the Midas, Inc. Annual Report on
Form 10-K for the annual period ended December 28, 2002).                                                                                                                                        
|            | 
|4.22        |  | Second Amendment to Rights Agreement, dated as of November 11, 2003, between Midas, Inc. and EquiServe Trust Company, N.A. (incorporated by reference to Exhibit to 4.22 to the Midas, Inc.
Quarterly Report on Form 10-Q for the quarterly period ended September 27, 2003).                                                                                                                 



44



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|4.23        |  | Amended and Restated Credit Agreement, dated as of March 16, 2004, among Midas International Corporation and the other Borrowers named therein, the Lenders named therein, Bank One, NA, as
Agent, National City Bank of Michigan/Illinois, as Syndication Agent and LaSalle Bank National Association, as Documentation Agent (incorporated by reference to Exhibit 4.23 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended
January 3, 2004).                     
|            | 
|4.24        |  | Amended and Restated Pledge and Security Agreement, dated as of March 16, 2004, among Midas, Inc. and each of the Subsidiaries named therein, and Bank One, NA, as Agent for the Lenders
(incorporated by reference to Exhibit 4.24 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended January 3, 2004).                                                                                                                                                           
|            | 
|4.25        |  | Amended and Restated Guaranty Agreement, dated as of March 16, 2004, among Midas, Inc. and each of the Subsidiaries named therein, and Bank One, NA, as Agent, for the benefit of the Lenders
(incorporated by reference to Exhibit 4.25 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended January 3, 2004).                                                                                                                                                      
|            | 
|4.26        |  | Amended and Restated Security Agreement, dated March 16, 2004, among Midas, Inc. and the Subsidiaries named therein, and Bank One, NA, as Agent for the Lenders (incorporated by reference to
Exhibit 4.26 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended January 3, 2004).                                                                                                                                                                                    
|            | 
|4.27        |  | First Amendment to Amended and Restated Credit Agreement, dated as of November 5, 2004, among Midas International and the other Borrowers named therein, the lenders named therein, Bank One,
N.A., as Agent, National City Bank of Michigan/Illinois, as Syndication Agent, and LaSalle Bank National Association, as Documentation Agent (incorporated by reference to Exhibit to 4.27 to the Midas, Inc. Quarterly Report on Form 10-Q for the
quarterly period ended October 2, 2004).
|            | 
|4.28        |  | Third Amendment to Rights Agreement, dated as of November 9, 2004, between Midas, Inc. and EquiServe Trust Company, N.A. (incorporated by reference to Exhibit to 4.28 to the Midas, Inc.
Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2004).                                                                                                                                                                                                                  
|            | 
|10.1        |  | Distribution and Indemnity Agreement dated as of December 31, 1997 among Midas, Inc., Midas International Corporation and Whitman Corporation (incorporated by reference to Exhibit 2.1 to
Midas, Inc. Current Report on Form 8-K dated January 30, 1998 (the Form 8-K)).                                                                                                                                                                                                               
|            | 
|10.2        |  | Tax Sharing Agreement dated as of December 31, 1997 among Midas, Inc., Midas International Corporation and Whitman Corporation (incorporated by reference to Exhibit 2.2 to the Form
8-K).                                                                                                                                                                                                                                                                                                
|            | 
|10.3*       |  | Stock Incentive Plan (incorporated by reference to Exhibit 4.6 to Midas, Inc. Registration Statement on Form S-8 relating to its Stock Incentive Plan (Registration No.
333-44797)).                                                                                                                                                                                                                                                                                                      
|            | 
|10.4*       |  | Form of Option Agreement (incorporated by reference to Exhibit 10.4 to the Midas, Inc. Annual Report on Form 10-K for the year ended December 26, 1998).                                                                                                                                                                                                                                                                                                                                  
|            | 
|10.5*       |  | Form of Restricted Stock Award (incorporated by reference to Exhibit 10.5 to the Midas, Inc. Annual Report on Form 10-K for the year ended December 20, 1997 (File No.
01-13409)).                                                                                                                                                                                                                                                                                                        
|            | 
|10.6*       |  | Form of Change in Control Agreement (incorporated by reference to Exhibit 10.5 to the Midas, Inc.s Registration Statement on Form 10/A No.1 (Commission File No.
01-13409)).                                                                                                                                                                                                                                                                                                             
|            | 
|10.8*       |  | Form of Restricted Stock Agreement and promissory note (incorporated by reference to Exhibit 10.8 to the Midas, Inc. Annual Report on Form 10-K for the year ended December 26,
1998).                                                                                                                                                                                                                                                                                                    
|            | 
|10.10*      |  | Form of Option Grant Agreement for options issued outside of the Stock Incentive Plan (incorporated by reference to Exhibit 4.6 to Midas, Inc. Registration Statement on Form S-8 (Registration
No. 333-74094)).                                                                                                                                                                                                                                                                          



45



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.11*      |  | Form of Change in Control Agreement for executive officers participating in Midas, Inc Executive Stock Ownership Program (Mr. Warzecha) (incorporated by reference to Exhibit 10.11 to the
Midas, Inc. Annual Report on Form 10-K for the year ended December 29, 2001).                                                                                                                                                                                                                                    
|            | 
|10.14*      |  | Compensation and Reimbursement Agreement with Non-Executive Chairman of the Board of Directors (incorporated by reference to Exhibit 10.14 to the Midas, Inc. Quarterly Report on Form 10-Q for
the quarterly period ended September 28, 2002).                                                                                                                                                                                                                                                             
|            | 
|10.16*      |  | Form of Retention Agreement with certain executive officers (Messrs. Guzik, Shaneyfelt, Warzecha and Marr) (incorporated by reference to Exhibit 10.16 to the Midas, Inc. Quarterly Report on
Form 10-Q for the quarterly period ended September 28, 2002).                                                                                                                                                                                                                                                 
|            | 
|10.17*      |  | Option Agreement with Non-Executive Chairman of the Board of Directors (incorporated by reference to Exhibit 10.17 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended
December 28, 2002).                                                                                                                                                                                                                                                                                            
|            | 
|10.18*      |  | Restricted Stock Award Agreement with Non-Executive Chairman of the Board of Directors (incorporated by reference to Exhibit 10.18 to the Midas, Inc. Annual Report on Form 10-K for the annual
period ended December 28, 2002).                                                                                                                                                                                                                                                                            
|            | 
|10.19*      |  | Employment Confirmation Letter with President and Chief Executive Officer (incorporated by reference to Exhibit 10.19 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended
December 28, 2002).                                                                                                                                                                                                                                                                                         
|            | 
|10.20*      |  | Option Agreement with President and Chief Executive Officer (incorporated by reference to Exhibit 10.20 to the Midas, Inc. Annual Report on Form 10-K for the annual period ended December 28,
2002).                                                                                                                                                                                                                                                                                                       
|            | 
|10.21*      |  | Restricted Stock Award Agreement with President and Chief Executive Officer (incorporated by reference to Exhibit 10.21 to the Midas, Inc. Annual Report on Form 10-K for the annual period
ended December 28, 2002).                                                                                                                                                                                                                                                                                       
|            | 
|10.22*      |  | Treasury Stock Plan (incorporated by reference to Exhibit 4.6 to Midas, Inc. Registration Statement on Form S-8 relating to its Treasury Stock Plan (Registration No.
333-89226).                                                                                                                                                                                                                                                                                                                           
|            | 
|10.23*      |  | Directors Deferred Compensation Plan (incorporated by reference to Exhibit 4.6 to Midas, Inc. Registration Statement on Form S-8 relating to its Directors Deferred Compensation
Plan (Registration No. 333-101559)).                                                                                                                                                                                                                                                                                     
|            | 
|10.24       |  | Supply Agreement dated as of April 2, 2003, by and among Midas International Corporation, Parts Warehouse, Inc. and AutoZone, Inc. (incorporated by reference to Exhibit to 10.24 to the Midas,
Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2003).                                                                                                                                                                                                                          
|            | 
|10.25       |  | Amendment to Agreement for Strategic Alliance and License Agreement dated as of March 14, 2003, by and between Midas International Corporation and Magneti Marelli Services S.p.A., which
amends the Agreement for Strategic Alliance and License Agreement dated as of October 1, 1998, between Midas International Corporation and Magneti Marelli S.p.A. (incorporated by reference to Exhibit 10.25 to the Midas, Inc. Quarterly Report on Form
10-Q for the quarterly period ended September 27, 2003).
|            | 
|10.26       |  | Second Amendment to Agreement for Strategic Alliance and License Agreement, dated as of July 28, 2004, by and between Midas International Corporation and Magneti Marelli Services S.p.A.
(incorporated by reference to Exhibit to 10.26 to the Midas, Inc. Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2004).                                                                                                                                                                  



46



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.27       |  | Third Amendment to Agreement for Strategic Alliance and License Agreement, dated as of September 29, 2004, by and between Midas International Corporation and Magneti Marelli Services S.p.A.
(incorporated by reference to Exhibit to 10.27 to the Midas, Inc. Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2004).                                                  
|            | 
|10.28       |  | Agreement, dated as of September 29, 2004, by and between Midas International Corporation and Norauto S.A. relating to Agreement for Strategic Alliance between Midas International Corporation
and Magneti Marelli Services S.p.A., as amended (incorporated by reference to Exhibit to 10.28 to the Midas, Inc. Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2004).
|            | 
|10.29*      |  | Form of Restricted Stock Award Agreement for Restricted Stock Awards granted under the Stock Incentive Plan commencing in 2004.                                                                                                                                                                                                                                                                 
|            | 
|10.30*      |  | Form of Option Agreement for Supplemental Stock Options granted to certain executive officers (Mr. Feldman) under the Stock Incentive Plan commencing in 2004.                                                                                                                                                                                                                                  
|            | 
|10.31*      |  | Form of Restricted Stock Award Agreement for Supplemental Restricted Stock Awards granted to certain executive officers (Messrs. Dow, Guzik and Warzecha) under the Stock Incentive Plan
commencing in 2004.                                                                                                                                                                                    
|            | 
|10.32*      |  | Employment Confirmation Letter with Senior Vice President and Chief Marketing Officer.                                                                                                                                                                                                                                                                                                          
|            | 
|10.33*      |  | Description of 2005 Incentive Compensation Plan (Incorporated by reference to Midas, Inc. Current Report on Form 8-K dated February 23, 2005).                                                                                                                                                                                                                                                  
|            | 
|10.34*      |  | Summary of Employment Arrangements with Named Executive Officers (Messrs. Feldman, Guzik, Warzecha, Dow, and Perrin).                                                                                                                                                                                                                                                                           
|            | 
|10.35*      |  | Summary of Directors Compensation.                                                                                                                                                                                                                                                                                                                                                              
|            | 
|21          |  | Subsidiaries of Midas, Inc.                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|23          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                       
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 13a  14(a) / 15d  14(a).                                                                                                                                                                                                                                                                                                            
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Rule 13a  14(a) / 15d  14(a).                                                                                                                                                                                                                                                                                                            
|            | 
|32.1        |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                                                    

---

|* | Management Compensatory Plan or Contract
|- | ----------------------------------------



47



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 17th day of March 2005.



MIDAS, INC.By:

/S/    WILLIAM M.
GUZIKWilliam M. Guzik Senior Vice President andChief Financial Officer




Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on behalf of the Registrant, this 17th day of March 2005.



|                                                |  |                                                                                
|----------------------------------------------- |  | -------------------------------------------------------------------------------
|Signature                                       |  | Title                                                                          
|                                                | 
|/s/    ROBERT R.
SCHOEBERLRobert R.
Schoeberl   |  | Chairman of the Board of Directors                                             
|                                                | 
|/s/    ALAN D. FELDMANAlan D. Feldman           |  | President, Chief Executive Officer and Director (principal executive officer)  
|                                                | 
|/s/    WILLIAM M.
GUZIKWilliam M. Guzik         |  | Senior Vice President and Chief Financial Officer (principal financial officer)
|                                                | 
|/s/    JAMES M. HAEGER,
JR.James M. Haeger, Jr. |  | Vice President and Controller(principal accounting officer)                    
|                                                | 
|/s/    THOMAS L.
BINDLEYThomas L. Bindley       |  | Director                                                                       
|                                                | 
|/s/    ARCHIE R. DYKESArchie R. Dykes           |  | Director                                                                       
|                                                | 
|/s/    JAROBIN GILBERT,
JR.Jarobin Gilbert, Jr. |  | Director                                                                       
|                                                | 
|/s/    DIANE L.
ROUTSONDiane L. Routson         |  | Director                                                                       



48



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##### Table of Contents

MIDAS

INDEX TO FINANCIAL STATEMENTS



|                                                                                   |  |    
|---------------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                            |  | F-2
|Statements of Operations for fiscal years 2004, 2003 and 2002                      |  | F-3
|Balance Sheets as of fiscal year end 2004 and 2003                                 |  | F-4
|Statements of Cash Flows for fiscal years 2004, 2003 and 2002                      |  | F-5
|Statements of Changes in Shareholders Equity for fiscal years 2004, 2003 and 2002 |  | F-6
|Notes to Financial Statements                                                      |  | F-7



Financial statement
schedules are omitted because they are not applicable or the required information is presented in the financial statements or related notes.



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders

Midas, Inc.:



We have audited the accompanying balance sheets of Midas, Inc. as of fiscal year end 2004 and 2003 and the related
statements of operations, cash flows, and changes in shareholders equity for each of the fiscal years 2004, 2003, and 2002. These financial statements are the responsibility of Midas, Inc.s management. Our responsibility is to express an
opinion on these financial statements based on our audits.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Midas as of fiscal year
end 2004 and 2003, and the results of operations and cash flows for fiscal years 2004, 2003, and 2002 in conformity with U.S. generally accepted accounting principles.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of Midas, Inc.s internal control over financial reporting as of January 1, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 17, 2005 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial reporting.



KPMG LLP



Chicago, Illinois

March 17, 2005



F-2



---

##### Table of Contents

MIDAS

STATEMENTS OF OPERATIONS

(In millions, except for earnings per share)



|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -
|Fiscal Year                                            |  | 2004 |       |   | 2003 |   |        | 2002 | 
|Sales and revenues:                                    |  |      |       |   |      |   |        |      |  |   |       |  
|Franchise royalties and license fees                   |  | $    | 62.5  |   |      | $ | 60.9   |      |  | $ | 61.5  |  
|Real estate revenues                                   |  |      | 36.5  |   |      |   | 36.2   |      |  |   | 36.6  |  
|Company-operated shop retail sales                     |  |      | 36.1  |   |      |   | 41.7   |      |  |   | 53.2  |  
|Replacement part sales and product royalties           |  |      | 59.7  |   |      |   | 170.5  |      |  |   | 180.5 |  
|Other                                                  |  |      | 2.7   |   |      |   | 1.7    |      |  |   | 1.2   |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Total sales and revenues                               |  |      | 197.5 |   |      |   | 311.0  |      |  |   | 333.0 |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Cost of sales and revenues:                            |  |      |       |   |      |   |        |      |  |   |       |  
|Real estate cost of revenues                           |  |      | 22.4  |   |      |   | 21.2   |      |  |   | 19.2  |  
|Company-operated shop cost of sales                    |  |      | 7.6   |   |      |   | 9.6    |      |  |   | 11.8  |  
|Replacement part cost of sales                         |  |      | 46.5  |   |      |   | 130.9  |      |  |   | 117.6 |  
|Warranty expense                                       |  |      | 7.0   |   |      |   | 11.1   |      |  |   | 14.5  |  
|Business transformation charges (warranty reserve)     |  |      |      |   |      |   | 38.5   |      |  |   |      |  
|Business transformation charges (inventory write-down) |  |      | 0.4   |   |      |   | 18.7   |      |  |   | 26.3  |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Total cost of sales and revenues                       |  |      | 83.9  |   |      |   | 230.0  |      |  |   | 189.4 |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Gross profit                                           |  |      | 113.6 |   |      |   | 81.0   |      |  |   | 143.6 |  
|Selling, general, and administrative expenses          |  |      | 92.8  |   |      |   | 137.2  |      |  |   | 151.8 |  
|Business transformation charges                        |  |      | 0.8   |   |      |   | 44.0   |      |  |   | 36.0  |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Operating income (loss)                                |  |      | 20.0  |   |      |   | (100.2 | )    |  |   | (44.2 | )
|Interest expense                                       |  |      | (12.7 | ) |      |   | (25.5  | )    |  |   | (11.8 | )
|Loss on early extinguishment of debt                   |  |      | (4.7  | ) |      |   | (1.4   | )    |  |   |      |  
|Other income, net                                      |  |      | 1.0   |   |      |   | 2.4    |      |  |   | 1.0   |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Income (loss) before income taxes                      |  |      | 3.6   |   |      |   | (124.7 | )    |  |   | (55.0 | )
|Income tax benefit                                     |  |      | (0.5  | ) |      |   | (48.5  | )    |  |   | (21.4 | )
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Net income (loss)                                      |  | $    | 4.1   |   |      | $ | (76.2  | )    |  | $ | (33.6 | )
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Earnings (loss) per share:                             |  |      |       |   |      |   |        |      |  |   |       |  
|Basic                                                  |  | $    | 0.26  |   |      | $ | (4.93  | )    |  | $ | (2.25 | )
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Diluted                                                |  | $    | 0.26  |   |      | $ | (4.93  | )    |  | $ | (2.25 | )
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Average number of shares:                              |  |      |       |   |      |   |        |      |  |   |       |  
|Common shares outstanding                              |  |      | 15.4  |   |      |   | 15.1   |      |  |   | 15.0  |  
|Common stock warrants                                  |  |      | 0.2   |   |      |   | 0.4    |      |  |   |      |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Shares applicable to basic earnings                    |  |      | 15.6  |   |      |   | 15.5   |      |  |   | 15.0  |  
|Equivalent shares on outstanding stock awards          |  |      | 0.6   |   |      |   |       |      |  |   |      |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  
|Shares applicable to diluted earnings                  |  |      | 16.2  |   |      |   | 15.5   |      |  |   | 15.0  |  
|                                                       |  |      |       |   |      |   |        |      |  |   |       |  



See accompanying notes
to financial statements.



F-3



---

##### Table of Contents

MIDAS

BALANCE SHEETS

(In millions, except for per share data)



|                                                                                                                                      |  |      |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|Fiscal Year End                                                                                                                       |  | 2004 |       |   | 2003 |  
|Assets:                                                                                                                               |  |      |       |   |      |   |       |  
|Current assets:                                                                                                                       |  |      |       |   |      |   |       |  
|Cash and cash equivalents                                                                                                             |  | $    | 0.9   |   |      | $ | 7.4   |  
|Receivables, net                                                                                                                      |  |      | 33.4  |   |      |   | 38.0  |  
|Inventories, net                                                                                                                      |  |      | 12.2  |   |      |   | 15.1  |  
|Deferred income taxes                                                                                                                 |  |      | 9.0   |   |      |   | 13.9  |  
|Other current assets                                                                                                                  |  |      | 6.8   |   |      |   | 9.3   |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Total current assets                                                                                                                  |  |      | 62.3  |   |      |   | 83.7  |  
|Property and equipment, net                                                                                                           |  |      | 117.4 |   |      |   | 131.7 |  
|Deferred income taxes                                                                                                                 |  |      | 60.3  |   |      |   | 56.1  |  
|Other assets                                                                                                                          |  |      | 10.1  |   |      |   | 11.9  |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Total assets                                                                                                                          |  | $    | 250.1 |   |      | $ | 283.4 |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Liabilities and equity:                                                                                                               |  |      |       |   |      |   |       |  
|Current liabilities:                                                                                                                  |  |      |       |   |      |   |       |  
|Current portion of long-term obligations                                                                                              |  | $    | 7.9   |   |      | $ | 8.0   |  
|Accounts payable                                                                                                                      |  |      | 16.1  |   |      |   | 13.7  |  
|Accrued expenses                                                                                                                      |  |      | 32.5  |   |      |   | 51.4  |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Total current liabilities                                                                                                             |  |      | 56.5  |   |      |   | 73.1  |  
|Long-term debt                                                                                                                        |  |      | 63.0  |   |      |   | 85.2  |  
|Obligations under capital leases                                                                                                      |  |      | 5.1   |   |      |   | 6.5   |  
|Finance lease obligation                                                                                                              |  |      | 36.7  |   |      |   | 37.5  |  
|Accrued warranty                                                                                                                      |  |      | 32.1  |   |      |   | 33.8  |  
|Other liabilities                                                                                                                     |  |      | 7.8   |   |      |   | 11.2  |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Total liabilities                                                                                                                     |  |      | 201.2 |   |      |   | 247.3 |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Shareholders equity:                                                                                                                 |  |      |       |   |      |   |       |  
|Common stock ($.001 par value, 100 million shares authorized, 17.6 million shares and 17.5 million shares issued) and paid-in
capital |  |      | 21.4  |   |      |   | 23.8  |  
|Treasury stock, at cost (1.8 million shares and 2.2 million shares)                                                                   |  |      | (41.2 | ) |      |   | (49.6 | )
|Unamortized restricted stock awards                                                                                                   |  |      | (2.2  | ) |      |   | (1.3  | )
|Retained income                                                                                                                       |  |      | 78.9  |   |      |   | 74.8  |  
|Cumulative other comprehensive loss                                                                                                   |  |      | (8.0  | ) |      |   | (11.6 | )
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Total shareholders equity                                                                                                            |  |      | 48.9  |   |      |   | 36.1  |  
|                                                                                                                                      |  |      |       |   |      |   |       |  
|Total liabilities and shareholders equity                                                                                            |  | $    | 250.1 |   |      | $ | 283.4 |  
|                                                                                                                                      |  |      |       |   |      |   |       |  



See accompanying notes
to financial statements.



F-4



---

##### Table of Contents

MIDAS

STATEMENTS OF CASH FLOWS

(In millions)



|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Fiscal Year                                                                                                                |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Cash flows from operating activities:                                                                                      |  |      |       |   |      |   |       |      |  |   |       |  
|Net income (loss)                                                                                                          |  | $    | 4.1   |   |      | $ | (76.2 | )    |  | $ | (33.6 | )
|Adjustments reconciling net income (loss) to net cash provided by (used in) operating activities:                          |  |      |       |   |      |   |       |      |  |   |       |  
|Depreciation and amortization                                                                                              |  |      | 13.1  |   |      |   | 15.1  |      |  |   | 16.0  |  
|Amortization of debt discount and financing fees                                                                           |  |      | 2.5   |   |      |   | 7.0   |      |  |   | 0.5   |  
|Business transformation charges (warranty reserve)                                                                         |  |      |      |   |      |   | 38.5  |      |  |   |      |  
|Business transformation charges (inventory write-down)                                                                     |  |      | 0.4   |   |      |   | 18.7  |      |  |   | 26.3  |  
|Business transformation charges                                                                                            |  |      | 0.8   |   |      |   | 44.0  |      |  |   | 36.0  |  
|Loss on early extinguishment of debt                                                                                       |  |      | 4.7   |   |      |   | 1.4   |      |  |   |      |  
|Cash outlays for business transformation costs                                                                             |  |      | (8.2  | ) |      |   | (14.3 | )    |  |   | (4.2  | )
|Deferred income taxes                                                                                                      |  |      | 0.7   |   |      |   | (49.9 | )    |  |   | (18.5 | )
|Gain on sale of fixed assets                                                                                               |  |      | (0.9  | ) |      |   |      |      |  |   |      |  
|Changes in assets and liabilities, exclusive of effects of business transformation charges, acquisitions and dispositions: |  |      |       |   |      |   |       |      |  |   |       |  
|Receivables                                                                                                                |  |      | 4.2   |   |      |   | 2.6   |      |  |   | (8.6  | )
|Inventories                                                                                                                |  |      | 2.9   |   |      |   | 58.0  |      |  |   | (1.8  | )
|Accounts payable                                                                                                           |  |      | 2.8   |   |      |   | (12.8 | )    |  |   | (30.2 | )
|Accrued expenses                                                                                                           |  |      | (10.7 | ) |      |   | 18.5  |      |  |   | (8.8  | )
|Other                                                                                                                      |  |      | 4.3   |   |      |   | (3.5  | )    |  |   | (0.4  | )
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Net cash provided by (used in) operating activities                                                                        |  |      | 20.7  |   |      |   | 47.1  |      |  |   | (27.3 | )
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Cash flows from investing activities:                                                                                      |  |      |       |   |      |   |       |      |  |   |       |  
|Capital investments                                                                                                        |  |      | (2.1  | ) |      |   | (1.9  | )    |  |   | (11.2 | )
|Cash paid for acquired business                                                                                            |  |      | (0.4  | ) |      |   | (0.4  | )    |  |   | (0.4  | )
|Proceeds from sales of assets                                                                                              |  |      | 1.1   |   |      |   | 7.2   |      |  |   |      |  
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Net cash provided by (used in) investing activities                                                                        |  |      | (1.4  | ) |      |   | 4.9   |      |  |   | (11.6 | )
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Cash flows from financing activities:                                                                                      |  |      |       |   |      |   |       |      |  |   |       |  
|Net decrease in short-term debt                                                                                            |  |      |      |   |      |   |      |      |  |   | (0.1  | )
|Net borrowings (repayments) under revolving lines of credit                                                                |  |      | 16.8  |   |      |   | (87.8 | )    |  |   | 14.8  |  
|Retirement of long-term debt                                                                                               |  |      | (94.1 | ) |      |   | (45.0 | )    |  |   |      |  
|Borrowing under new debt agreements                                                                                        |  |      | 60.0  |   |      |   | 127.5 |      |  |   |      |  
|Principal payments on long-term debt                                                                                       |  |      | (7.8  | ) |      |   | (38.4 | )    |  |   | (15.2 | )
|Issuance of stock warrants in connection with refinancing                                                                  |  |      |      |   |      |   | 5.0   |      |  |   |      |  
|Payments for debt financing fees                                                                                           |  |      | (2.1  | ) |      |   | (4.8  | )    |  |   |      |  
|Payment of obligations under capital leases                                                                                |  |      | (1.1  | ) |      |   | (0.8  | )    |  |   | (0.9  | )
|Finance lease obligation borrowings                                                                                        |  |      |      |   |      |   |      |      |  |   | 39.6  |  
|Payment of obligations under finance lease                                                                                 |  |      | (0.7  | ) |      |   | (0.8  | )    |  |   | (0.5  | )
|Cash received for common stock                                                                                             |  |      | 3.6   |   |      |   | 0.2   |      |  |   | 0.4   |  
|Cash paid for treasury shares                                                                                              |  |      | (0.4  | ) |      |   | (0.2  | )    |  |   | (0.2  | )
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Net cash provided by (used in) financing activities                                                                        |  |      | (25.8 | ) |      |   | (45.1 | )    |  |   | 37.9  |  
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Net change in cash and cash equivalents                                                                                    |  |      | (6.5  | ) |      |   | 6.9   |      |  |   | (1.0  | )
|Cash and cash equivalents at beginning of period                                                                           |  |      | 7.4   |   |      |   | 0.5   |      |  |   | 1.5   |  
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  
|Cash and cash equivalents at end of period                                                                                 |  | $    | 0.9   |   |      | $ | 7.4   |      |  | $ | 0.5   |  
|                                                                                                                           |  |      |       |   |      |   |       |      |  |   |       |  



See accompanying notes
to financial statements.



F-5



---

##### Table of Contents

MIDAS

STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(In millions)



|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|----------------------------------------------------------------------------- |  | ------------------------------ |  | ------ | -------------- | - | ------ | ---------------------------------------------- | - | ------ | -------------------------------- | ----- | - | -------------- | - | ------- | -------------------------- |  | ---------- | ---- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                                                              |  | Common StockAnd Paid-inCapital |  |        | Treasury Stock |   |        | NotesReceivableFromCommonStock Soldto Officers |   |        | UnamortizedRestrictedStockAwards |       |   | RetainedIncome |   |         | ComprehensiveIncome (Loss) | 
|                                                                              |  | Shares                         |  | Amount |                |   | Shares |                                                |   | Amount |                                  |       |   |                |   | Current |                            |  | Cumulative |     
|Fiscal year end 2001                                                          |  | 17.3                           |  | $      | 22.3           |   |        | (2.3                                           | ) |        | $                                | (53.0 | ) |                | $ | (4.1    | )                          |  | $          | (2.5 | ) |  | $ | 184.6 |   |  |   |       |   |  | $ | (7.2  | )
|Restricted stock awards                                                       |  |                               |  |        | (0.9           | ) |        | 0.1                                            |   |        |                                  | 1.3   |   |                |   |        |                            |  |            | (0.4 | ) |  |   |      |   |  | $ |      |   |  |   |      |  
|Purchase of treasury shares                                                   |  |                               |  |        |               |   |        |                                               |   |        |                                  | (0.2  | ) |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Stock option transactions                                                     |  |                               |  |        | (0.1           | ) |        |                                               |   |        |                                  | 0.3   |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Forfeiture of restricted stock awards                                         |  |                               |  |        | 0.6            |   |        | (0.1                                           | ) |        |                                  | (2.1  | ) |                |   |        |                            |  |            | 1.5  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Retirement of notes receivable from officers                                  |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   | 1.2     |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Reclassification of notes receivable from officers due to officer resignation |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   | 2.5     |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Reserve for collectibility of officer notes                                   |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   | 0.4     |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Amortization of restricted stock awards                                       |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            | 0.4  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Net loss                                                                      |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   | (33.6 | ) |  |   | (33.6 | ) |  |   |      |  
|Other comprehensive income                                                    |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|foreign currency translation                                                 |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | 0.3   |   |  |   | 0.3   |  
|minimum pension liability                                                    |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | (6.7  | ) |  |   | (6.7  | )
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Comprehensive loss                                                            |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  | $ | (40.0 | ) |  |   |      |  
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Fiscal year end 2002                                                          |  | 17.3                           |  |        | 21.9           |   |        | (2.3                                           | ) |        |                                  | (53.7 | ) |                |   |        |                            |  |            | (1.0 | ) |  |   | 151.0 |   |  |   |       |   |  |   | (13.6 | )
|Restricted stock awards                                                       |  |                               |  |        | (3.0           | ) |        | 0.1                                            |   |        |                                  | 4.4   |   |                |   |        |                            |  |            | (1.4 | ) |  |   |      |   |  | $ |      |   |  |   |      |  
|Purchase of treasury shares                                                   |  |                               |  |        |               |   |        |                                               |   |        |                                  | (0.2  | ) |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Stock option transactions                                                     |  |                               |  |        | (0.1           | ) |        |                                               |   |        |                                  | 0.3   |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Vesting of restricted stock awards                                            |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            | 0.3  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Forfeiture of restricted stock awards                                         |  |                               |  |        |               |   |        |                                               |   |        |                                  | (0.4  | ) |                |   |        |                            |  |            | 0.4  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Issuance of stock warrants                                                    |  |                               |  |        | 5.0            |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Exercise of stock warrants                                                    |  | 0.2                            |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Amortization of restricted stock awards                                       |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            | 0.4  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Net loss                                                                      |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   | (76.2 | ) |  |   | (76.2 | ) |  |   |      |  
|Other comprehensive income                                                    |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|foreign currency translation                                                 |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | 3.4   |   |  |   | 3.4   |  
|minimum pension liability                                                    |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | (1.4  | ) |  |   | (1.4  | )
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Comprehensive loss                                                            |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  | $ | (74.2 | ) |  |   |      |  
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Fiscal year end 2003                                                          |  | 17.5                           |  |        | 23.8           |   |        | (2.2                                           | ) |        |                                  | (49.6 | ) |                |   |        |                            |  |            | (1.3 | ) |  |   | 74.8  |   |  |   |       |   |  |   | (11.6 | )
|Restricted stock awards                                                       |  |                               |  |        | 0.2            |   |        | 0.1                                            |   |        |                                  | 2.1   |   |                |   |        |                            |  |            | (2.3 | ) |  |   |      |   |  | $ |      |   |  |   |      |  
|Purchase of treasury shares                                                   |  |                               |  |        |               |   |        |                                               |   |        |                                  | (0.4  | ) |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Stock option transactions (a)                                                 |  |                               |  |        | (2.6           | ) |        | 0.3                                            |   |        |                                  | 6.8   |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Forfeiture of restricted stock awards                                         |  |                               |  |        |               |   |        |                                               |   |        |                                  | (0.1  | ) |                |   |        |                            |  |            | 0.1  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Exercise of stock warrants                                                    |  | 0.1                            |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   |      |   |  |   |      |  
|Amortization of restricted stock awards                                       |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            | 1.3  |   |  |   |      |   |  |   |      |   |  |   |      |  
|Net income                                                                    |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   | 4.1   |   |  |   | 4.1   |   |  |   |      |  
|Other comprehensive income                                                    |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|foreign currency translation                                                 |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | 1.0   |   |  |   | 1.0   |  
|minimum pension liability                                                    |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | 2.4   |   |  |   | 2.4   |  
|Gain on derivative financial instruments, net of tax                         |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  |   | 0.2   |   |  |   | 0.2   |  
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Comprehensive income                                                          |  |                               |  |        |               |   |        |                                               |   |        |                                  |      |   |                |   |        |                            |  |            |     |   |  |   |      |   |  | $ | 7.7   |   |  |   |      |  
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  
|Fiscal year end 2004                                                          |  | 17.6                           |  | $      | 21.4           |   |        | (1.8                                           | ) |        | $                                | (41.2 | ) |                | $ |        |                            |  | $          | (2.2 | ) |  | $ | 78.9  |   |  |   |       |   |  | $ | (8.0  | )
|                                                                              |  |                                |  |        |                |   |        |                                                |   |        |                                  |       |   |                |   |         |                            |  |            |      |   |  |   |       |   |  |   |       |   |  |   |       |  

---

|(a) | Common stock includes $0.6 million tax benefit from stock option exercises.
|--- | ---------------------------------------------------------------------------



See accompanying notes to financial statements.



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL
STATEMENTS



(1) Summary of Significant Accounting Policies



Nature of Business and Basis of Presentation



Midas, Inc. (Midas or the
Company) provides retail automotive services principally through franchised or licensed shops in the U.S., Canada, Europe and other countries. Midas also manufactures exhaust system components for distribution to U.S. and Canadian
(hereinafter referred to as North American) franchisees and other automotive aftermarket customers. The consolidated financial statements presented herein include Midas, Inc. and all of its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.



Certain reclassifications have been made to the previously reported fiscal 2003 and fiscal 2002 financial statements in order to provide consistency with the fiscal 2004 results. These reclassifications did not affect
previously reported income (loss) before income taxes, net income (loss) or earnings (loss) per share.



Fiscal Periods



Fiscal year 2004 ended on January 1, 2005 and consisted of 52 weeks. Fiscal year 2003 ended on January 3, 2004 and consisted of 53 weeks. Fiscal year 2002
ended on December 28, 2002 and consisted of 52 weeks.



Foreign Currency Translation and Transactions



All assets and liabilities of non-U.S. operations are translated into U.S. dollars using exchange rates as of the end of each fiscal period. Income and expense items are translated at average exchange rates prevailing during each fiscal
period. The resulting translation adjustments are recorded as a component of shareholders equity. Gains and losses from foreign currency transactions are included in net earnings.



Cash and Cash Equivalents



Cash and cash equivalents consist of deposits with banks and financial institutions which are unrestricted as to withdrawal or use, and which have an
original maturity of three months or less.



Fair Value of
Financial Instruments



Midas financial instruments
include cash and cash equivalents, receivables, accounts payable, and long-term debt. In fiscal 2004 and 2003, there was no public market for Midas long-term debt. The carrying amounts of the other financial assets and liabilities approximate
their fair values because of the short maturities of those instruments.



Derivative Financial Instruments



The Company
has market risk exposure to changes in interest rates, principally in the United States. Midas attempts to minimize this risk and lower its overall borrowing costs through the utilization of interest rate swaps. These swaps are entered into with
financial institutions and have reset dates and critical terms that match those of the underlying debt.



In April 2004, the Company entered into an interest rate swap arrangement to convert $40 million of the Companys $60 million term loan from a
floating rate to a fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan. As of January 1, 2005, the fair value of this instrument was approximately $0.2 million, net of taxes. This swap transaction has been designated as a
cash flow hedge and was evaluated to be highly effective. As such, the change in the fair value is recorded in other comprehensive income as a gain on derivative financial instruments.



Valuation of Receivables



The Company records receivables due from its franchisees and other customers at the time the sale is recorded in accordance with its revenue recognition
policies. These receivables consist of amounts due from the sale of products, royalties due from franchisees and suppliers, rents and other amounts. The future collectibility of these amounts can be impacted by the Companys collection efforts,
the financial stability of its customers, and the general economic climate in which it operates. The Company applies a consistent practice of establishing



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



an allowance for accounts that it feels may become uncollectible through reviewing the historical aging of its receivables and by monitoring the financial
strength of its franchisees and other customers. Where the Company becomes aware of a customers inability to meet its financial obligations (e.g. where it is in financial distress or has filed for bankruptcy), the Company specifically reserves
for the potential bad debt to reduce the net recognized receivable to the amount it reasonably believes will be collected. The valuation of receivables is performed on a quarterly basis. Interest on past due accounts receivable is recognized when
collected.



In connection with the disposal of the Parts
Warehouse, Inc. (PWI) business and the exit of the Midas wholesale distribution business, in valuing outstanding receivable balances the Company also considered the reduced collection efforts that result from the closings as well as the
increased likelihood that customers will not pay amounts due.



Notes Receivable



Notes receivable relate to
franchisee financing arrangements for certain previously past due balances and other long-term receivables that exceed one year. They bear interest at a market rate based on the customers credit quality and are recorded at face value. Interest
is recognized over the life of the note. The notes are typically collateralized by inventory, equipment or similar assets of the franchisee. The Company has not and does not intend to sell these receivables. Past due notes receivable are considered
during the Companys valuation of receivables.



Inventory Valuation



Inventories are valued at
the lower of cost or net realizable value. Inventory cost is determined using the weighted-average cost method, which approximates the first-in, first-out method. Additionally, the Company periodically evaluates the carrying value of its inventory
to assess the proper valuation. This includes having adequate allowances to cover losses in the normal course of operations, provide for excess and obsolete inventory, and ensure that inventory is valued at the lower of cost or market. In performing
this evaluation the Company considers historical data such as actual loss experience, past and projected usage, and actual margins generated from sales of its products.



During fiscal 2003 and 2004, the Company sold and liquidated inventory in connection with the implementation of its ongoing
business transformation. The Company recorded charges in fiscal 2002, 2003 and 2004 to write-down certain inventories to their net realizable value as a result of the disposition of PWI and the outsourcing of the Companys wholesale parts
distribution operation. In assessing the net realizable value of the inventory that was to be sold and liquidated, the Company considered original cost, past and projected usage, independent third party appraisals and offers made by potential
buyers.



Property and Equipment



Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method and includes amortization of assets held under capital and finance leases. When property is sold or retired, the cost and accumulated depreciation are eliminated from the accounts and gains or losses are recorded in the
statement of operations. Expenditures for maintenance and repairs are expensed as incurred.



Buildings and improvements are depreciated over useful lives ranging from 10 to 40 years. Machinery and equipment is depreciated over useful lives ranging from three to 12 years, and computer hardware is depreciated
over useful lives of three to five years. Major enterprise-level computer software is depreciated over 10 years while all other software is depreciated over five years.



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Income Taxes



Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes
it is more likely than not that the Company will realize the benefits of these deductible differences at January 1, 2005. In the event that management determines the Company would not be able to realize all or part of the net deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.



Self-Insurance Reserves



Historically, the Company has been largely self-insured with respect to workers compensation, general liability, and employee medical claims. In order to
reduce its risk and better manage its overall loss exposure, the Company purchases stop-loss insurance that covers individual claims in excess of the deductible amounts. The Company maintains an accrual for the estimated cost to settle open claims
as well as an estimate of the cost of claims that have been incurred but not reported. These estimates take into consideration the historical average monthly claim volume, the average cost for settled claims, current trends in claim costs, changes
in the Companys business and workforce, and general economic factors. These accruals are reviewed on a quarterly basis, or more frequently if factors dictate a more frequent review. As of January 1, 2004, the Company is no longer self-insured
with respect to employee medical claims and has converted to a fully-insured medical program.



Carrying Value of Goodwill and Long-Lived Assets



In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company conducts tests for impairment of goodwill annually or more frequently if circumstances indicate that an asset might be
impaired. An impairment loss is recognized to the extent that an assets carrying amount exceeds its fair value.



In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and
equipment, are reviewed for impairment whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by reviewing the undiscounted cash flows
expected to be generated by the asset. If the sum of the projected undiscounted cash flows over the remaining lives of the related assets does not exceed the carrying values of the assets, the carrying values are adjusted for differences between the
asset fair values and the carrying values. Fixed assets held for sale are separately disclosed and reported at the lower of the carrying amount or fair value, less costs to sell. Assets held for sale are no longer depreciated.



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



The Companys evaluation of the carrying value of goodwill and other long-lived assets as of the
end of fiscal 2004 indicated that an impairment existed with respect to long-lived assets used in company-operated shops. As a result, the Company recorded an impairment charge to operating expense of $0.2 million and reduced long-lived assets in
fiscal 2004. In fiscal 2003, the Company recorded an impairment of $11.4 million in business transformation charges related to company-operated shops. This charge reduced goodwill $9.4 million and long-lived assets $2.0 million.



Revenue Recognition



Franchise royalties are recognized in the periods that correspond to the
periods when retail sales and revenues are recognized by franchisees. Product royalties are recognized as earned based on the volume of franchisee purchases of products from certain vendors. Replacement part sales are recognized at the time products
are shipped, at which time provision is made for estimated product returns. Sales and revenues of company-operated shops are recognized when customer vehicles are repaired or serviced.



Revenues derived from franchise fees, which represented approximately 0.5%, 2.2% and 0.6% of franchising revenues in fiscal
2004, 2003 and 2002, respectively, are recognized when the franchised shop opens. Costs related to securing initial franchise agreements and performing the required services under such agreements are charged to expense as incurred. Franchise renewal
fees are recognized when the renewal period commences.



Real
estate revenues are recognized as earned on a monthly basis in accordance with underlying property lease terms. The majority of real estate revenues are derived from Midas shop locations. All of these locations are subject to an annual percentage
rent based upon the locations retail sales volume for the calendar year.



Advertising



Advertising costs are expensed as incurred.



Recognition of Warranty Costs



Customers are
provided a written warranty from Midas on genuine Midas products purchased from Midas shops in North America. The warranty will be honored at any Midas shop in North America and is valid for the lifetime of the vehicle, but is voided if the vehicle
is sold. The Company maintains a warranty accrual to cover the estimated future liability associated with outstanding warranties. The Company determines the estimated value of outstanding warranty claims based on: 1) an estimate of the percentage of
all warranted products sold and registered in prior periods at retail that are likely to be redeemed; and 2) an estimate of the cost of redemption of each future warranty claim on a current cost basis. These estimates are computed using actual
historical registration and redemption data as well as actual cost information on current redemptions.



Prior to fiscal 2003, the Company had not maintained an accrual for estimated future warranty claims related to its lifetime guarantee of exhaust and
brake products. Instead, the Company recorded expenses related to these product warranties as warranty claims were incurred. This was due to the fact that the average warranty claim generated gross profit to the Company, as the revenues and gross
profit to Midas from a warranty claim exceeded the cost of reimbursement to the franchisee. As a result of the fiscal 2003 outsourcing of the Midas distribution function to AutoZone, Inc. in the U.S. and Uni-Select Inc. in Canada, Midas no longer
generates sufficient gross profit on a warranty claim to offset the average warranty claim reimbursement. Consequently, the Company recorded charges during fiscal 2003 to reflect its estimated liability associated with outstanding warranties in the
U.S. and Canada. Since the warranty accrual was established in fiscal 2003, Midas has accrued



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



for the expected future cost of warranty redemptions at the time of the original installation of the warranted part based on the method described above. This
treatment did not affect cash flow associated with warranty redemptions in either the U.S or Canada.



Annual warranty activity is summarized as follows (in millions):



|                                                             |  |      |      |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------ |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Fiscal Year                                                  |  | 2004 |      |   | 2003 |   |       | 2002 | 
|Accrued warranty expense at beginning of period              |  | $    | 39.0 |   |      | $ | 0.5   |      |  | $ | 0.5   |  
|Warranty expense                                             |  |      | 7.0  |   |      |   | 11.1  |      |  |   | 14.5  |  
|Business transformation charge                               |  |      |     |   |      |   | 38.5  |      |  |   |      |  
|Changes in foreign currency exchange rate                    |  |      | 0.5  |   |      |   | 0.3   |      |  |   |      |  
|Warranty credit issued to franchisees (warranty claims paid) |  |      | (9.5 | ) |      |   | (11.4 | )    |  |   | (14.5 | )
|                                                             |  |      |      |   |      |   |       |      |  |   |       |  
|Accrued warranty expense at end of period                    |  |      | 37.0 |   |      |   | 39.0  |      |  |   | 0.5   |  
|Less current portion (included in accrued expenses)          |  |      | 4.9  |   |      |   | 5.2   |      |  |   |      |  
|                                                             |  |      |      |   |      |   |       |      |  |   |       |  
|Accrued warrantynon-current                                 |  | $    | 32.1 |   |      | $ | 33.8  |      |  | $ | 0.5   |  
|                                                             |  |      |      |   |      |   |       |      |  |   |       |  



Warranty expense is
included in cost of sales and revenues in the statements of operations. A portion of warranty expense incurred is also paid as claims within the same fiscal year.



Stock-Based Compensation



The Company applies the intrinsic-value-based method of accounting proscribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25, issued in March 2000, to
account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation,established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding
and unvested awards in each period (in millions). When compared with previously reported pro forma results, the 2003 and 2002 pro forma results include adjustments to the expense of certain stock options.



|                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Fiscal Year                                                                                 |  | 2004 |      |   | 2003 |   |       | 2002 | 
|Net income (loss)                                                                           |  |      |      |   |      |   |       |      |  |   |       |  
|As reported                                                                                 |  | $    | 4.1  |   |      | $ | (76.2 | )    |  | $ | (33.6 | )
|Plus: stock-based compensation expense included in reported net income (loss), net of taxes |  |      | 1.6  |   |      |   | 0.2   |      |  |   | 0.2   |  
|Less: fair value impact of employee stock compensation, net of taxes                        |  |      | (2.8 | ) |      |   | (1.5  | )    |  |   | (1.6  | )
|                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|Pro forma                                                                                   |  | $    | 2.9  |   |      | $ | (77.5 | )    |  | $ | (35.0 | )
|                                                                                            |  |      |      |   |      |   |       |      |  |   |       |  
|Basic earnings (loss) per share                                                             |  |      |      |   |      |   |       |      |  |   |       |  
|As reported                                                                                 |  | $    | 0.26 |   |      | $ | (4.93 | )    |  | $ | (2.25 | )
|Pro forma                                                                                   |  |      | 0.18 |   |      |   | (5.02 | )    |  |   | (2.34 | )
|Diluted earnings (loss) per share                                                           |  |      |      |   |      |   |       |      |  |   |       |  
|As reported                                                                                 |  | $    | 0.26 |   |      | $ | (4.93 | )    |  | $ | (2.25 | )
|Pro forma                                                                                   |  |      | 0.18 |   |      |   | (5.02 | )    |  |   | (2.34 | )



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Earnings (Loss) Per Share



Basic and diluted earnings per share were calculated based on the following share counts (in millions):



|                                           |  |      |  |      |  |     
|------------------------------------------ |  | ---- |  | ---- |  | ----
|Fiscal Year                                |  | 2004 |  | 2003 |  | 2002
|Weighted-average common shares outstanding |  | 15.4 |  | 15.1 |  | 15.0
|Common stock warrants                      |  | 0.2  |  | 0.4  |  |    
|                                           |  |      |  |      |  |     
|Shares applicable to basic earnings        |  | 15.6 |  | 15.5 |  | 15.0
|Effect of dilutive stock awards            |  | 0.6  |  |     |  |    
|                                           |  |      |  |      |  |     
|Shares applicable to diluted earnings      |  | 16.2 |  | 15.5 |  | 15.0
|                                           |  |      |  |      |  |     
|Potential common share equivalents:        |  |      |  |      |  |     
|Stock options                              |  | 1.6  |  | 2.1  |  | 1.5 



Common share
equivalents were excluded from fiscal 2003 and 2002 diluted earnings per share as they would have had an anti-dilutive effect.



Use of Estimates



In order to prepare the financial statements in conformity with accounting principles generally accepted in the United States of America, management has
made a number of estimates and assumptions relating to the reporting of assets and liabilities, the reported amounts of reserves and expenses during the period and disclosures of contingencies. Significant items subject to such estimates and
assumptions include inventory valuation, valuation of receivables, business transformation charges, carrying values of long-lived assets and net deferred tax assets, self-insurance reserves and warranty reserves. Actual results could differ from
these estimates.



Impact of New Accounting Standards



In December 2003, the Financial Accounting Standards
Board (FASB) issued Statement No. 132 (revised), Employers Disclosures about Pensions and Other Postretirement Benefits. Statement No. 132 (revised) prescribes employers disclosures about pension plans and other
postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement No. 132. It also requires additional disclosures about
the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. The Companys
disclosure in Note 9 of Notes to Financial Statements incorporates the requirements of Statement No. 132 (revised).



In November 2004, the FASB issued FASB Statement No. 151, Inventory Costs  an amendment of ARB No. 43 (FAS 151), which is
the result of its effort to converge U.S. accounting standards for inventories with International Accounting Standards. Statement No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized
as current-period charges. It also requires that allocation of fixed production overheads to the cost of conversion be based on normal capacity of the production facilities. Statement No. 151 will be effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The Company is in the process of evaluating the impact of this standard on its financial statements.



In December 2004, the FASB issued Statement No. 123 (revised), Share-Based Payment, (FAS 123R). This statement is a revision to
Statement No. 123, Accounting for Stock-Based Compensation, (FAS 123) and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. FAS 123R requires the measurement of the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation
cost is recognized for equity instruments for which employees do not render service. The Company will adopt FAS 123R on July 1, 2005, requiring



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MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



compensation cost to be recorded as an expense for the portion of outstanding unvested awards, based on the grant-date fair value of those awards. The
Company expects to use the Black-Scholes option pricing model and the Modified Prospective Application method of adoption as allowed under FAS 123R. The Company is in the process of evaluating the impact of this standard on its financial statements.



(2) Business Transformation Charges



The Company is in the process of transforming its business. As part of the
Companys business transformation, the Company has developed and implemented strategic initiatives that it believes will enhance its long-term competitive position. The Company believes these initiatives will enable it to reduce costs and
enhance sustainable profitability while delivering critical products and services to its customers. These initiatives included the disposition of PWI, the closure and re-franchising of certain company-operated shops, the redesign of the
Companys wholesale parts distribution network, and the reduction of administrative expenses related to former operating activities. The implementation of these initiatives has had the effect of substantially lowering overall Company revenues
and expenses. Furthermore, the implementation of the Companys strategic initiatives has resulted in the Company recording substantial business transformation charges to reflect the write-down of assets, the disposition of lease agreements,
severance costs, and other related expenses. The charges recorded in connection with the Companys business transformation process in fiscal 2004, 2003 and 2002 are summarized in the following tables (in millions):



Business transformation charges by strategic initiative



|                                               |  |      |     |      |   |       |  |   |     
|---------------------------------------------- |  | ---- | --- | ---- | - | ----- |  | - | ----
|Fiscal Year                                    |  | 2004 |     | 2003 |   | 2002 
|Disposition of Parts Warehouse, Inc.           |  | $    |    |      | $ | 0.9   |  | $ | 39.0
|Rationalization of company-operated shops      |  |      | 0.1 |      |   | 20.6  |  |   | 12.5
|Redesign of the wholesale distribution network |  |      | 1.1 |      |   | 69.7  |  |   | 3.3 
|Severance and administrative costs             |  |      |    |      |   | 10.0  |  |   | 7.5 
|                                               |  |      |     |      |   |       |  |   |     
|Total business transformation charges          |  | $    | 1.2 |      | $ | 101.2 |  | $ | 62.3
|                                               |  |      |     |      |   |       |  |   |     



Business
transformation charges by activity



|                                      |  |      |      |   |      |   |       |  |   |     
|------------------------------------- |  | ---- | ---- | - | ---- | - | ----- |  | - | ----
|Fiscal Year                           |  | 2004 |      |   | 2003 |   | 2002 
|Warranty reserve establishment        |  | $    |     |   |      | $ | 38.5  |  | $ |    
|Inventory write-down                  |  |      | 0.4  |   |      |   | 18.7  |  |   | 26.3
|Goodwill write-off and impairment     |  |      |     |   |      |   | 11.4  |  |   | 8.8 
|Accounts receivable write-down        |  |      |     |   |      |   | 9.3   |  |   | 3.0 
|Fixed asset write-off and impairment  |  |      |     |   |      |   | 6.1   |  |   | 8.6 
|Severance and other separation costs  |  |      | (0.1 | ) |      |   | 5.4   |  |   | 6.0 
|Non-recoverable lease costs           |  |      |     |   |      |   | 4.3   |  |   | 6.5 
|Warehouse and location closure costs  |  |      |     |   |      |   | 2.9   |  |   |    
|Financing costs                       |  |      |     |   |      |   | 0.9   |  |   | 1.6 
|Pension asset write-down              |  |      | 0.8  |   |      |   | 2.0   |  |   |    
|Other costs                           |  |      | 0.1  |   |      |   | 1.7   |  |   | 1.5 
|                                      |  |      |      |   |      |   |       |  |   |     
|Total business transformation charges |  | $    | 1.2  |   |      | $ | 101.2 |  | $ | 62.3
|                                      |  |      |      |   |      |   |       |  |   |     



Inventory write-downs
and the charges taken to establish the warranty reserve are reflected in the statements of operations as a component of cost of sales and revenues. All other costs are shown as expenses under the heading Business transformation charges.
Non-recoverable lease costs are estimated based on gross lease expense and amounts management believes will be recovered from sublease income or the disposition of leases.



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MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



In fiscal 2004, the Company recorded total pre-tax charges of $1.2 million related to business
transformation activities. The charges in 2004 primarily represent the reconciliation of actual business transformation costs incurred in 2004 to expected business transformation expense recorded in 2003. The total pre-tax cost of $1.2 million
represents non-cash charges as approximately $0.1 million of incremental cash obligations were offset by reductions in estimated future cash outlays related to previously recognized amounts.



Of the total pre-tax cost of $101.2 million charged in fiscal 2003,
approximately $84.7 million represents non-cash charges, while $16.5 million represents past or future cash outlays. As of January 1, 2005, approximately $11.5 million of the $16.5 million had been paid. The fiscal 2003 severance and other
separation costs reflect the separation of 323 employees, none of which were actively employed by the Company as of January 1, 2005. The fiscal 2002 severance and other separation costs reflect the separation of 134 employees, none of which were
employed by the Company as of January 1, 2005.



The activity
affecting the accrual for business transformation charges during fiscal 2004 and 2003 is as follows (shown in millions):



|                                         |  |                   |      |   |                                          |   |       |                                         |  |   |                                              |   |  |       |      |   |  |   |       |  
|---------------------------------------- |  | ----------------- | ---- | - | ---------------------------------------- | - | ----- | --------------------------------------- |  | - | -------------------------------------------- | - |  | ----- | ---- | - |  | - | ----- | -
|                                         |  | Dispositionof PWI |      |   | Rationalizationof Company-Operated Shops |   |       | Redesign ofWholesaleDistributionNetwork |  |   | AdministrativeCosts,Severance andOther Costs |   |  | Total |     
|Fiscal year end 2002                     |  | $                 | 5.2  |   |                                          | $ | 1.4   |                                         |  | $ | 1.8                                          |   |  | $     | 3.4  |   |  | $ | 11.8  |  
|Business transformation charges          |  |                   | 0.9  |   |                                          |   | 20.6  |                                         |  |   | 69.7                                         |   |  |       | 10.0 |   |  |   | 101.2 |  
|Cash payments                            |  |                   | (4.2 | ) |                                          |   | (2.1  | )                                       |  |   | (3.5                                         | ) |  |       | (4.5 | ) |  |   | (14.3 | )
|Non-cash utilization                     |  |                   | (0.9 | ) |                                          |   |      |                                         |  |   | 0.2                                          |   |  |       | (0.2 | ) |  |   | (0.9  | )
|Non-cash business transformation charges |  |                   | (0.2 | ) |                                          |   | (16.9 | )                                       |  |   | (62.9                                        | ) |  |       | (4.7 | ) |  |   | (84.7 | )
|                                         |  |                   |      |   |                                          |   |       |                                         |  |   |                                              |   |  |       |      |   |  |   |       |  
|Fiscal year end 2003                     |  |                   | 0.8  |   |                                          |   | 3.0   |                                         |  |   | 5.3                                          |   |  |       | 4.0  |   |  |   | 13.1  |  
|Business transformation charges          |  |                   |     |   |                                          |   | 0.1   |                                         |  |   | 1.1                                          |   |  |       |     |   |  |   | 1.2   |  
|Cash payments                            |  |                   | (0.7 | ) |                                          |   | (1.2  | )                                       |  |   | (4.8                                         | ) |  |       | (1.5 | ) |  |   | (8.2  | )
|Non-cash utilization                     |  |                   |     |   |                                          |   |      |                                         |  |   | 0.5                                          |   |  |       | (0.4 | ) |  |   | 0.1   |  
|Non-cash business transformation charges |  |                   |     |   |                                          |   |      |                                         |  |   | (1.2                                         | ) |  |       |     |   |  |   | (1.2  | )
|                                         |  |                   |      |   |                                          |   |       |                                         |  |   |                                              |   |  |       |      |   |  |   |       |  
|Fiscal year end 2004                     |  | $                 | 0.1  |   |                                          | $ | 1.9   |                                         |  | $ | 0.9                                          |   |  | $     | 2.1  |   |  | $ | 5.0   |  
|                                         |  |                   |      |   |                                          |   |       |                                         |  |   |                                              |   |  |       |      |   |  |   |       |  



Each business
transformation initiative and its related costs are described in more detail below (in millions):



Disposition of Parts Warehouse, Inc.



|                                     |  |      |   |      |   |      |      |  |   |     
|------------------------------------ |  | ---- | - | ---- | - | ---- | ---- |  | - | ----
|Fiscal Year                          |  | 2004 |   | 2003 |   |      | 2002
|Inventory write-down                 |  | $    |  |      | $ |     |      |  | $ | 26.3
|Severance and other separation costs |  |      |  |      |   | 0.8  |      |  |   |    
|Fixed asset write-off and impairment |  |      |  |      |   | 0.2  |      |  |   | 4.5 
|Non-recoverable lease costs          |  |      |  |      |   | (0.2 | )    |  |   | 3.6 
|Accounts receivable write-down       |  |      |  |      |   | 0.1  |      |  |   | 3.0 
|Goodwill write-off and impairment    |  |      |  |      |   |     |      |  |   | 0.9 
|Other costs                          |  |      |  |      |   |     |      |  |   | 0.7 
|                                     |  |      |   |      |   |      |      |  |   |     
|                                     |  | $    |  |      | $ | 0.9  |      |  | $ | 39.0
|                                     |  |      |   |      |   |      |      |  |   |     



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MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



During 2000, in direct response to the changing needs of the aftermarket auto repair industry, Midas
established Parts Warehouse, Inc., a network of small quick delivery sites that distributed parts on a just-in-time basis to Midas dealers and to customers outside the Midas system. The Companys previous strategic plan called for a rapid
expansion of the PWI business in order to leverage the then existing distribution network and migrate the traditional wholesale business from a stocking-dealer platform based on weekly deliveries to a just-in-time delivery model, while providing a
supply-chain solution for the new services being added by Midas dealers at retail. By fiscal 2002, the strategy had not provided the expected results, and the investment required to complete the build-out of the PWI network was substantial. Even
when completely built-out, the PWI network of 250 stores would have been small relative to established just-in-time automotive suppliers such as AutoZone, NAPA and CarQuest. Therefore, the Company believed that the Midas system would be better
served by providing a ready-made sourcing solution to Midas shops through a strategic alliance with one or more of these types of distributors. In fiscal 2003, Midas established outsourced parts supply arrangements with AutoZone, Inc. in the U.S.
and Uni-Select Inc. in Canada. Management believes these supply arrangements offer Midas dealers broader access to replacement parts across North America and more effectively provide Midas dealers with a solution to their just-in-time parts sourcing
needs.



In the fourth quarter of 2002, the Company determined
that it would dispose of its PWI business through the sale of locations and liquidation of associated inventory. As a result, the Company recorded charges of $39.0 million in fiscal 2002. These charges were comprised of a $26.3 million inventory
write-down to reduce PWI-related inventory to its expected net realizable value, a $4.5 million charge to reflect the impairment of store fixed assets, $3.6 million in non-recoverable future lease costs associated with stores and delivery vehicles,
$3.0 million to reflect the lower expected collection rate on receivables due to store closures, and $0.9 million in goodwill impairment to write-off goodwill associated with the Companys fiscal 2000 acquisition of 27 climate control
warehouses which became the PWI business.



During fiscal 2003,
the Company recorded additional charges of $0.9 million in order to complete the disposition of PWI. These charges included $0.8 million of severance and separation costs, $0.2 million to reflect the impairment of fixed assets, $0.1 million to
reflect the lower expected collection rate on receivables due to store closures, and a $0.2 million recovery of future lease costs associated with stores and delivery vehicles due to favorable lease buy-outs.



Rationalization of Company-Operated Shops



|                                     |  |      |     |      |   |      |  |   |     
|------------------------------------ |  | ---- | --- | ---- | - | ---- |  | - | ----
|Fiscal Year                          |  | 2004 |     | 2003 |   | 2002
|Goodwill write-off and impairment    |  | $    |    |      | $ | 11.4 |  | $ | 7.9 
|Fixed asset write-off and impairment |  |      |    |      |   | 4.0  |  |   | 3.2 
|Non-recoverable lease costs          |  |      |    |      |   | 2.8  |  |   | 1.3 
|Inventory write-down                 |  |      |    |      |   | 1.5  |  |   |    
|Severance and separation costs       |  |      |    |      |   | 0.3  |  |   |    
|Other costs                          |  |      | 0.1 |      |   | 0.6  |  |   | 0.1 
|                                     |  |      |     |      |   |      |  |   |     
|                                     |  | $    | 0.1 |      | $ | 20.6 |  | $ | 12.5
|                                     |  |      |     |      |   |      |  |   |     



After disposing of its
company-operated shop operation in the late 1990s, the Company determined in 2001 that it needed to re-establish a company-operated shop network. During 2001, the Company acquired 98 shops from various franchisees, including the purchase of 52
locations in 2001 from one franchisee that was in Chapter 11 bankruptcy proceedings. As of December 28, 2002, the total number of company-operated shops was 111.



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MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



In the fourth quarter of 2002, the Company made the decision to stop the aggressive growth of the
company shop operation and to bring focus to the program by closing unprofitable shops and re-franchising shops in markets where the Company did not have critical mass. As part of this program, 12 shops were targeted for closure during fiscal 2003
and additional shops were to be re-franchised. As a result, the Company recorded charges of $12.5 million during the fourth quarter of fiscal 2002. These charges were comprised of $7.9 million to reflect the impairment of goodwill associated with
the company-operated shops, $3.2 million to reflect the impairment of fixed assets at company-operated shops that were to be closed or re-franchised, and $1.3 million in projected non-recoverable lease costs associated with closed shops.



During fiscal 2003, the Company closed a total of 14 shops, re-franchised
24 shops and performed an evaluation of the carrying values of the goodwill and other long-lived assets related to the remaining company-operated shops. As a result, the Company recorded additional charges of $20.6 million during fiscal 2003. These
charges were comprised of $9.4 million to reflect the impairment of goodwill associated with the remaining company-operated shops, $2.0 million to reflect the write-off of goodwill at locations that were re-franchised, $2.0 million to reflect
impairment of long-lived assets, $2.0 million to reflect the write-off of fixed assets at company-operated shops that were closed or re-franchised, $2.8 million in projected non-recoverable lease costs associated with closed shops, a $1.5 million
inventory write-down to reduce shop inventory to its expected net realizable value, and $0.3 million of severance and separation costs.



In fiscal 2004, the Company incurred charges of $0.1 million as a result of additional obligations associated with shops closed or re-franchised in 2003.



The Company will continue to evaluate all company-operated
shop locations and may re-franchise additional owned locations where it is determined that the Companys return on investment objectives are best achieved through re-franchising instead of ownership.



Redesign of the Wholesale Distribution Network



|                                     |  |      |      |   |      |   |      |  |   |    
|------------------------------------ |  | ---- | ---- | - | ---- | - | ---- |  | - | ---
|Fiscal Year                          |  | 2004 |      |   | 2003 |   | 2002
|Warranty reserve establishment       |  | $    |     |   |      | $ | 38.5 |  | $ |   
|Inventory write-down                 |  |      | 0.4  |   |      |   | 17.2 |  |   |   
|Accounts receivable write-down       |  |      |     |   |      |   | 3.2  |  |   |   
|Severance and other separation costs |  |      | (0.1 | ) |      |   | 2.9  |  |   | 0.5
|Warehouse and other closure costs    |  |      |     |   |      |   | 2.4  |  |   |   
|Pension asset write-down             |  |      | 0.8  |   |      |   | 2.0  |  |   |   
|Fixed asset write-off and impairment |  |      |     |   |      |   | 1.8  |  |   | 0.9
|Non-recoverable lease costs          |  |      |     |   |      |   | 1.7  |  |   | 1.6
|Other costs                          |  |      |     |   |      |   |     |  |   | 0.3
|                                     |  |      |      |   |      |   |      |  |   |    
|                                     |  | $    | 1.1  |   |      | $ | 69.7 |  | $ | 3.3
|                                     |  |      |      |   |      |   |      |  |   |    



In response to the
declining sales of traditional Midas wholesale products, the Company has moved aggressively to reduce costs and improve operating efficiency throughout its traditional wholesale distribution network. During fiscal 2002, the Company committed to a
plan to close three distribution centers in 2003. The Company recorded a charge of $3.3 million in fiscal 2002 that primarily reflects $1.6 million in expected non-recoverable future lease costs related to 2003 closures and a previously closed
distribution center, $0.9 million to reflect the impairment of fixed assets and $0.5 million in severance costs to be incurred at distribution centers as they closed.



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



In fiscal 2003, management determined that continuing to support the traditional Midas wholesale
distribution operation was no longer financially viable, and that the parts sourcing needs of Midas system dealers could be better served by outsourcing the weekly distribution of genuine Midas parts in the U.S. and Canada. Thus, during fiscal 2003
Midas closed its traditional Midas wholesale parts distribution operation, and appointed AutoZone, Inc. and Uni-Select Inc. as the exclusive distributors of genuine Midas products in the U.S. and Canada, respectively. The Companys agreements
with AutoZone and Uni-Select provide for the weekly distribution of replacement parts to Midas retail shops, consistent with the service previously provided by the Companys traditional wholesale operation. The Company believes these agreements
enable Midas dealers to purchase both genuine Midas product and other replacement auto parts at favorable pricing, and provide dealers with access to just-in-time parts delivery through a broad network of quick-delivery parts distribution sites
across North America. As a result, the Company recorded charges of $69.7 million in fiscal 2003. These charges were comprised of $38.5 million to establish warranty accruals in the U.S. and Canada (as described in Note 1 of Notes to Financial
Statements), a $17.2 million inventory write-down to reduce Midas wholesale inventory to its expected net realizable value, a $3.2 million write-down of certain vendor receivables deemed to be un-collectable, $2.9 million of severance and separation
costs, $2.0 million to adjust the value of certain pension assets in Canada as a result of the Companys decision to exit the wholesale distribution business in Canada, $2.4 million of warehouse and other closure costs, $1.8 million to reflect
the write-off and impairment of fixed assets and $1.7 million in expected non-recoverable future lease costs related to 2003 warehouse closures.



In fiscal 2004, the Company incurred charges of $1.1 million in conjunction with the final reconciliation of the parts distribution transition in the U.S.
and Canada. These charges were comprised of $0.8 million to adjust the value of certain pension assets in Canada as a result of the Companys decision to exit the wholesale distribution business in Canada, a $0.4 million inventory write-down to
reflect final settlement with buyers and a reduction of $0.1 million in severance and separation costs based on actual costs incurred.



Severance and Administrative Costs



|                                     |  |      |   |      |   |      |  |   |    
|------------------------------------ |  | ---- | - | ---- | - | ---- |  | - | ---
|Fiscal Year                          |  | 2004 |   | 2003 |   | 2002
|Accounts receivable write-down       |  | $    |  |      | $ | 6.0  |  | $ |   
|Financing costs                      |  |      |  |      |   | 0.9  |  |   | 1.6
|Severance and other separation costs |  |      |  |      |   | 1.4  |  |   | 5.5
|Location closure costs               |  |      |  |      |   | 0.5  |  |   |   
|Fixed asset write-off                |  |      |  |      |   | 0.1  |  |   |   
|Other costs                          |  |      |  |      |   | 1.1  |  |   | 0.4
|                                     |  |      |   |      |   |      |  |   |    
|                                     |  | $    |  |      | $ | 10.0 |  | $ | 7.5
|                                     |  |      |   |      |   |      |  |   |    



As part of the
business transformation process, the Company made the decision to reduce its workforce in fiscal 2002. As a result, the Company recorded severance and administrative charges of $7.5 million in fiscal 2002. These charges included $5.5 million in
severance and other separation costs for certain executives and other employees who are no longer with the Company. Additionally, the Company recorded $1.6 million in charges for financing costs incurred during the fourth quarter of fiscal 2002 that
did not result in a successful refinancing for the Company.



During fiscal 2003, Midas business transformation continued as the Company outsourced the weekly distribution of genuine Midas products and other replacement parts to AutoZone and Uni-Select. As part of the Companys
restructuring, all corporate positions were evaluated and many positions were eliminated or re-defined. As a result, the Company recorded charges of $10.0 million in fiscal 2003. These charges included $6.0



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



million to reflect the lower expected collection rate on accounts receivable, $0.9 million for costs associated with terminated re-financing efforts, $1.4
million in severance and other separation costs, $0.6 million in costs related to the closure of a remote office and $1.1 million of other administrative costs.



(3) Debt Agreements



Long-term debt consisted of the following (in millions):



|                                 |  |      |      |      |   |      |  
|-------------------------------- |  | ---- | ---- | ---- | - | ---- | -
|Fiscal Year End                  |  | 2004 |      | 2003 |  
|Revolving credit facility        |  | $    | 16.8 |      | $ |     |  
|Term loan                        |  |      | 52.2 |      |   |     |  
|Term loan A                      |  |      |     |      |   | 64.7 |  
|Term loan B                      |  |      |     |      |   | 29.4 |  
|Un-amortized debt discount       |  |      |     |      |   | (2.6 | )
|                                 |  |      |      |      |   |      |  
|Total debt                       |  |      | 69.0 |      |   | 91.5 |  
|Less amounts due within one year |  |      | 6.0  |      |   | 6.3  |  
|                                 |  |      |      |      |   |      |  
|Long-term debt                   |  | $    | 63.0 |      | $ | 85.2 |  
|                                 |  |      |      |      |   |      |  



At the beginning of
fiscal 2004, the Company had credit facilities consisting of a $25 million revolving loan facility, a $64.7 million Term Loan A, and a $29.4 million Term Loan B. These facilities were secured by substantially all of the assets of the Company and
were scheduled to expire on October 3, 2004. Interest on the revolving loan was payable monthly at the prime rate plus 2.75% or LIBOR plus 3.75%. Interest on a portion of the Term Loan A was fixed at 7.67%, while interest on the balance of the Term
Loan A was payable monthly at the prime rate plus 5.0% or LIBOR plus 6.0%. The interest rate on the Term Loan B was fixed at 12% cash interest paid monthly plus 6% paid-in-kind (PIK), which was added to principal and due at maturity.
Availability under the revolving credit facility was based on a borrowing base, which took into consideration the Companys inventory and accounts receivable levels. The revolving credit facility was senior to both the Term Loan A and Term Loan
B.



On March 16, 2004, the Company entered into a new
three-year, $115 million credit facility to refinance its existing debt facility. The new debt facility was initially comprised of a $55 million revolving credit facility and a $60 million term loan. The new facility is secured by substantially all
of the assets of the Company and expires on March 16, 2007. Under the terms of the debt refinancing, the Company retired its former $25 million revolving credit facility as well as its Term A and Term B loans. The refinancing resulted in a loss on
early extinguishment of debt of $4.7 million due to the write-off of unamortized debt discount and financing fees.



Interest on the $55 million revolving loan was initially payable monthly at LIBOR plus 3.25%. Interest on the $60 million term loan was initially payable
monthly at LIBOR plus 3.5%. The interest rates float based on the underlying rate of LIBOR and the Companys leverage. Availability under the revolving credit facility is not predicated on a borrowing base. The new facility requires maintenance
of certain financial covenants including maximum allowable leverage and minimum tangible net worth.



On November 5, 2004, the Company amended its new debt facility to reduce required principal amortization under the term loan, remove certain restrictive
covenants, and reduce interest rates. As amended, the term loan now requires quarterly principal payments of $1.5 million, and must be prepaid by an amount equal to: (i) 100% of equity issued, or (ii) $2.5 million of the first $7.5 million of
proceeds from the sale of the Companys exhaust manufacturing business plus 50% of any proceeds between $7.5 million and $15.5 million, or (iii) 75% of any other material asset proceeds in excess of $1 million (other than the sale of inventory
in the normal course of



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



business). A total of $6 million of the term loan is reported as current in the January 1, 2005 balance sheet as a result of this amendment.



The amendment also eliminated the Companys restrictions on capital
expenditures and treasury stock repurchases, and reduced the interest rate on both the term loan and revolving loan by 50 basis points. Based on the new rates and the Companys year end debt levels, interest on the revolving loan is currently
payable at LIBOR plus 2.25% and interest on the term loan is currently payable at LIBOR plus 2.5%.



In April 2004, the Company entered into an interest rate swap arrangement to convert $40 million of the $60 million term loan from a floating rate to a
fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan. The swap amount is reduced quarterly based on scheduled term loan principal amortization payments. As of January 1, 2005, approximately $33.8 million of the $52.2 million
term loan balance was subject to this interest rate swap arrangement. As of January 1, 2005, the fair value of this instrument was approximately $0.2 million, net of taxes. The swap transaction has been designated as a cash flow hedge and was
evaluated to be highly effective. As such, the change in fair value is recorded in other comprehensive income as a gain on derivative financial instruments.



(4) Supplemental Balance Sheet, Cash Flow and Shareholders Equity Information



Receivables



Receivables are stated net of allowance for doubtful accounts.



Allowance for doubtful accounts consisted of (in millions):



|                                                     |  |      |       |   |      |   |      |  
|---------------------------------------------------- |  | ---- | ----- | - | ---- | - | ---- | -
|Fiscal Year End                                      |  | 2004 |       |   | 2003 |  
|Allowance for doubtful accounts at beginning of year |  | $    | 13.1  |   |      | $ | 10.8 |  
|Additions charged to bad debts                       |  |      | 1.7   |   |      |   | 0.7  |  
|Additions charged to business transformation charges |  |      | 0.4   |   |      |   | 6.1  |  
|Write-downs charged against allowance                |  |      | (10.8 | ) |      |   | (4.5 | )
|                                                     |  |      |       |   |      |   |      |  
|Allowance for doubtful accounts at end of year       |  | $    | 4.4   |   |      | $ | 13.1 |  
|                                                     |  |      |       |   |      |   |      |  



The current portion of
notes receivable is included in net receivables and the long term portion is included in other assets. Notes receivable consisted of (in millions):



|                  |  |      |     |      |   |    
|----------------- |  | ---- | --- | ---- | - | ---
|Fiscal Year End   |  | 2004 |     | 2003
|Current portion   |  | $    | 1.9 |      | $ | 1.8
|Long term portion |  |      | 7.2 |      |   | 7.1
|                  |  |      |     |      |   |    
|Notes receivable  |  | $    | 9.1 |      | $ | 8.9
|                  |  |      |     |      |   |    



Inventories



Inventories consisted of the following (in millions):



|                                  |  |      |      |      |   |     
|--------------------------------- |  | ---- | ---- | ---- | - | ----
|Fiscal Year End                   |  | 2004 |      | 2003
|Raw materials and work in process |  | $    | 2.7  |      | $ | 2.9 
|Finished goods, net of reserves   |  |      | 9.5  |      |   | 12.2
|                                  |  |      |      |      |   |     
|                                  |  | $    | 12.2 |      | $ | 15.1
|                                  |  |      |      |      |   |     



F-19



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Property and Equipment



Property and equipment consisted of the following (in millions):



|                                          |  |      |        |   |      |   |        |  
|----------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|Fiscal Year End                           |  | 2004 |        |   | 2003 |  
|Land                                      |  | $    | 43.0   |   |      | $ | 44.9   |  
|Buildings and improvements                |  |      | 108.2  |   |      |   | 112.1  |  
|Machinery and equipment                   |  |      | 45.5   |   |      |   | 48.2   |  
|Computer hardware                         |  |      | 25.7   |   |      |   | 25.0   |  
|Computer software                         |  |      | 31.8   |   |      |   | 32.2   |  
|                                          |  |      |        |   |      |   |        |  
|Total property and equipment              |  |      | 254.2  |   |      |   | 262.4  |  
|Accumulated depreciation and amortization |  |      | (134.6 | ) |      |   | (128.7 | )
|Impairment reserve                        |  |      | (2.2   | ) |      |   | (2.0   | )
|                                          |  |      |        |   |      |   |        |  
|Property and equipment, net               |  | $    | 117.4  |   |      | $ | 131.7  |  
|                                          |  |      |        |   |      |   |        |  



During fiscal 2004 and
2003, the Company recorded charges of $0.2 million and $2.0 million, respectively, to reflect the impairment of certain long-lived assets related to company-operated shops.



Intangible Assets



Intangible assets are included in other long-term assets in the accompanying balance sheets and consisted of the following (in millions):



|                         |  |      |      |   |      |   |      |  
|------------------------ |  | ---- | ---- | - | ---- | - | ---- | -
|Fiscal Year End          |  | 2004 |      |   | 2003 |  
|Goodwill                 |  | $    | 0.5  |   |      | $ | 0.8  |  
|Other                    |  |      | 0.4  |   |      |   | 0.3  |  
|                         |  |      |      |   |      |   |      |  
|Total intangible assets  |  |      | 0.9  |   |      |   | 1.1  |  
|Accumulated amortization |  |      | (0.6 | ) |      |   | (0.8 | )
|                         |  |      |      |   |      |   |      |  
|Intangible assets, net   |  | $    | 0.3  |   |      | $ | 0.3  |  
|                         |  |      |      |   |      |   |      |  



During fiscal 2003,
the Company recorded a $9.4 million charge to reflect the impairment of goodwill related to company-operated shops.



Accrued Expenses



Accrued expenses consisted of the following (in millions):



|                                                  |  |      |      |      |   |     
|------------------------------------------------- |  | ---- | ---- | ---- | - | ----
|Fiscal Year End                                   |  | 2004 |      | 2003
|Advertising                                       |  | $    | 8.9  |      | $ | 4.8 
|Warranty (current portion)                        |  |      | 4.9  |      |   | 5.2 
|Salaries and wages                                |  |      | 3.3  |      |   | 2.3 
|Taxes other than income taxes                     |  |      | 2.4  |      |   | 2.6 
|Business transformation charges (current portion) |  |      | 2.4  |      |   | 11.6
|Insurance reserves (current portion)              |  |      | 2.0  |      |   | 2.5 
|Property reserves (current portion)               |  |      | 1.6  |      |   | 1.4 
|Sales return allowance                            |  |      | 1.5  |      |   | 0.5 
|Pension                                           |  |      | 1.0  |      |   | 3.7 
|Deferred revenue                                  |  |      | 0.1  |      |   | 8.8 
|Other                                             |  |      | 4.4  |      |   | 8.0 
|                                                  |  |      |      |      |   |     
|Accrued expenses                                  |  | $    | 32.5 |      | $ | 51.4
|                                                  |  |      |      |      |   |     



F-20



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Supplemental Cash Flow Information



Net cash flow from operating activities includes cash payments for interest
and income taxes as follows (in millions):



|                                      |  |      |      |   |      |   |      |      |  |   |     
|------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ----
|Fiscal Year                           |  | 2004 |      |   | 2003 |   |      | 2002
|Interest paid                         |  | $    | 9.7  |   |      | $ | 16.7 |      |  | $ | 12.0
|Income taxes paid, net of tax refunds |  |      | (0.4 | ) |      |   | (5.2 | )    |  |   | 0.9 



Supplemental
Shareholders Equity Information



Comprehensive loss
consisted of the following (in millions):



|                                                     |  |      |      |   |      |   |       |      |  |   |       |  
|---------------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Fiscal Year                                          |  | 2004 |      |   | 2003 |   |       | 2002 | 
|Foreign currency translation                         |  | $    | (2.5 | ) |      | $ | (3.5  | )    |  | $ | (6.9  | )
|Minimum pension liability, net of tax                |  |      | (5.7 | ) |      |   | (8.1  | )    |  |   | (6.7  | )
|Gain on derivative financial instruments, net of tax |  |      | 0.2  |   |      |   |      |      |  |   |      |  
|                                                     |  |      |      |   |      |   |       |      |  |   |       |  
|Comprehensive loss                                   |  |      | (8.0 | ) |      |   | (11.6 | )    |  |   | (13.6 | )
|                                                     |  |      |      |   |      |   |       |      |  |   |       |  



(5) Advertising



Under the terms of its franchise agreements, Midas is obligated to spend an
amount equal to one-half of the royalty payments received from franchisees for advertising expenditures. Amounts received from franchisees for advertising are recorded as liabilities until disbursed. Midas also administers cooperative advertising
programs under which amounts received from franchisees are recorded as liabilities until they are disbursed. Aggregate expenditures under these programs by Midas North American operations amounted to $52.0 million, $56.5 million, and $63.7
million in fiscal 2004, 2003, and 2002, respectively.



Midas
also incurs certain advertising costs that are included in selling, general and distribution expenses, which amounted to $3.3 million, $2.8 million, and $4.8 million in fiscal 2004, 2003, and 2002, respectively.



(6) Income Taxes



Income tax expense (benefit) consisted of the following (in millions):



|                     |  |      |      |   |      |   |       |      |  |   |       |  
|-------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|Fiscal Year          |  | 2004 |      |   | 2003 |   |       | 2002 | 
|Current:             |  |      |      |   |      |   |       |      |  |   |       |  
|U.S. Federal         |  | $    | 0.1  |   |      | $ |      |      |  | $ | (3.0  | )
|Non-U.S.             |  |      | (0.8 | ) |      |   | 1.0   |      |  |   | 0.1   |  
|U.S. state and local |  |      | (0.5 | ) |      |   | 0.4   |      |  |   |      |  
|                     |  |      |      |   |      |   |       |      |  |   |       |  
|Total current        |  |      | (1.2 | ) |      |   | 1.4   |      |  |   | (2.9  | )
|                     |  |      |      |   |      |   |       |      |  |   |       |  
|Deferred:            |  |      |      |   |      |   |       |      |  |   |       |  
|U.S. Federal         |  |      | (1.0 | ) |      |   | (36.7 | )    |  |   | (16.1 | )
|Non-U.S.             |  |      | 0.8  |   |      |   | (6.0  | )    |  |   | 0.5   |  
|U.S. state and local |  |      | 0.9  |   |      |   | (7.2  | )    |  |   | (2.9  | )
|                     |  |      |      |   |      |   |       |      |  |   |       |  
|Total deferred       |  |      | 0.7  |   |      |   | (49.9 | )    |  |   | (18.5 | )
|                     |  |      |      |   |      |   |       |      |  |   |       |  
|Income tax benefit   |  | $    | (0.5 | ) |      | $ | (48.5 | )    |  | $ | (21.4 | )
|                     |  |      |      |   |      |   |       |      |  |   |       |  



F-21



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



The items which gave rise to differences between the income taxes in the statements of operations and
the income taxes computed at the U.S. statutory rate are summarized as follows:



|                                                                   |  |       |    |  |       |    |  |       |   
|------------------------------------------------------------------ |  | ----- | -- |  | ----- | -- |  | ----- | --
|Fiscal Year                                                        |  | 2004  |    |  | 2003  |    |  | 2002  |   
|Income tax expense (benefit) computed at U.S. statutory rate       |  | 35.0  | %  |  | (35.0 | )% |  | (35.0 | )%
|U.S. state and local taxes, net of U.S. Federal income tax effects |  | 4.3   |    |  | (3.6  | )  |  | (3.8  | ) 
|Non-U.S. effective tax rate differential                           |  | (0.3  | )  |  | (1.1  | )  |  | (0.1  | ) 
|Foreign withholding taxes                                          |  | 15.7  |    |  | (0.4  | )  |  |      |   
|State tax refunds                                                  |  | (8.3  | )  |  |      |    |  |      |   
|Settlement of taxes on European sale                               |  | (58.5 | )  |  |      |    |  |      |   
|Non-deductible expenses                                            |  | 3.1   |    |  | (0.1  | )  |  | (0.2  | ) 
|Increase in valuation allowance                                    |  | 8.8   |    |  | 0.8   |    |  |      |   
|Other items                                                        |  | (13.3 | )  |  | 0.5   |    |  | 0.2   |   
|                                                                   |  |       |    |  |       |    |  |       |   
|Effective income tax rate                                          |  | (13.5 | )% |  | (38.9 | )% |  | (38.9 | )%
|                                                                   |  |       |    |  |       |    |  |       |   



Pretax income from
non-U.S. operations amounted to a $0.9 million loss in fiscal 2004, a $13.3 million loss in fiscal 2003, and a $0.9 million loss in fiscal 2002. Historically, Midas practice has been to reinvest its earnings in its non-U.S. subsidiaries.
However, as of January 1, 2005, the non-U.S. operations had no current or accumulated earnings and profits. As such, the Company has not recognized U.S. taxes on the unremitted earnings of its non-U.S. operations.



Deferred income taxes are created by temporary differences
between amounts of assets and liabilities for financial reporting purposes and such amounts as reported under income tax regulations. Deferred tax assets and liabilities consisted of (in millions):



|                                          |  |      |      |   |      |   |      |  
|----------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|Fiscal Year End                           |  | 2004 |      |   | 2003 |  
|Deferred tax assets attributable to:      |  |      |      |   |      |   |      |  
|Business transformation accruals          |  | $    | 3.3  |   |      | $ | 4.7  |  
|Employee benefits and vacation accruals   |  |      | 1.8  |   |      |   | 0.8  |  
|Long term property reserves               |  |      | 1.5  |   |      |   | 2.5  |  
|Goodwill                                  |  |      | 5.3  |   |      |   | 5.6  |  
|Net operating loss                        |  |      | 47.2 |   |      |   | 39.8 |  
|Warranty reserve                          |  |      | 14.1 |   |      |   | 15.5 |  
|Pension plan expense                      |  |      | 0.3  |   |      |   | 1.4  |  
|Other items                               |  |      | 5.1  |   |      |   | 10.9 |  
|                                          |  |      |      |   |      |   |      |  
|Total deferred tax assets                 |  |      | 78.6 |   |      |   | 81.2 |  
|Valuation allowance                       |  |      | (2.3 | ) |      |   | (2.2 | )
|                                          |  |      |      |   |      |   |      |  
|Net deferred tax asset                    |  |      | 76.3 |   |      |   | 79.0 |  
|                                          |  |      |      |   |      |   |      |  
|Deferred tax liabilities attributable to: |  |      |      |   |      |   |      |  
|Depreciation and amortization             |  |      | (5.1 | ) |      |   | (4.5 | )
|Other items                               |  |      | (1.9 | ) |      |   | (4.5 | )
|                                          |  |      |      |   |      |   |      |  
|Total deferred tax liabilities            |  |      | (7.0 | ) |      |   | (9.0 | )
|                                          |  |      |      |   |      |   |      |  
|Net deferred tax assets                   |  | $    | 69.3 |   |      | $ | 70.0 |  
|                                          |  |      |      |   |      |   |      |  
|Net deferred tax assets included in:      |  |      |      |   |      |   |      |  
|Current assets                            |  | $    | 9.0  |   |      | $ | 13.9 |  
|Non-current assets                        |  |      | 60.3 |   |      |   | 56.1 |  
|                                          |  |      |      |   |      |   |      |  
|Net deferred tax assets                   |  | $    | 69.3 |   |      | $ | 70.0 |  
|                                          |  |      |      |   |      |   |      |  



F-22



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



As of January 1, 2005, and January 3, 2004, the Company had recorded valuation allowances of $2.3
million and $2.2 million, respectively, against certain state income tax net operating loss carryovers because the Company has determined that it is more likely than not that this portion of these deferred tax assets will not be realized.



(7) Franchise Agreements



Midas franchise agreements generally cover a 20-year period and
provide for renewals. A franchise agreement can be canceled by Midas only in the event a franchisee fails to comply with the provisions of the agreement. Franchise agreements provide for initial and renewal fees and continuing royalty payments based
on a percentage of sales. Franchisees pay the Company monthly royalties based on a percentage of sales. In North America, Midas is obligated to spend an amount equal to one-half of the royalty payments it receives for advertising.



Worldwide shops in operation as of fiscal year end consisted of (unaudited):



|                        |  |       |  |       |  |      
|----------------------- |  | ----- |  | ----- |  | -----
|Fiscal Year End         |  | 2004  |  | 2003  |  | 2002 
|Franchised and licensed |  | 2,562 |  | 2,600 |  | 2,603
|Company-operated        |  | 73    |  | 73    |  | 111  
|                        |  |       |  |       |  |      
|Total                   |  | 2,635 |  | 2,673 |  | 2,714
|                        |  |       |  |       |  |      



(8) Leases



Control of the real estate used by Midas shops is a fundamental strength of
the Midas program. Midas employs a number of methods to ensure continued dedication of the real estate to the Midas program. Midas leases real estate that is subleased to franchisees and owns real estate in the U.S. that is leased to franchisees.
Midas has also entered into contingent operating lease agreements that are described below. At fiscal year end 2004, approximately 83% of real estate associated with North American shops was controlled by Midas, using one of these methods.



Leased Real Estate and Equipment



Gross rent expense applicable to operating leases relates to rentals of
shops, distribution facilities, corporate administration facilities and other miscellaneous items. Gross rent expense, the sublease rental income from franchisees and other third parties that reduced gross rent expense, and the resulting net rent
expense for fiscal 2004, 2003 and 2002 are presented below (in millions):



|                       |  |      |      |      |   |      |  |   |     
|---------------------- |  | ---- | ---- | ---- | - | ---- |  | - | ----
|Fiscal Year            |  | 2004 |      | 2003 |   | 2002
|Gross rent expense     |  | $    | 29.5 |      | $ | 35.0 |  | $ | 34.9
|Sublease rental income |  |      | 28.3 |      |   | 27.6 |  |   | 25.9
|                       |  |      |      |      |   |      |  |   |     
|Net rent expense       |  | $    | 1.2  |      | $ | 7.4  |  | $ | 9.0 
|                       |  |      |      |      |   |      |  |   |     



Substantially all of
Midas operating leases provide that Midas pay taxes, maintenance, insurance, and certain other operating expenses. The subleases with franchisees contain provisions for Midas to recover such costs. Real estate rental expenses are recognized as
incurred on a monthly basis in accordance with underlying property lease terms, which approximates the straight-line method.



F-23



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Real Estate Sale and Leaseback Transaction



Midas owns retail properties throughout the United States that are leased to
franchisees and operated as Midas shops. During fiscal 2002, the Company sold 77 of these properties to Realty Income Corporation, a publicly traded real estate investment trust (REIT), and realized approximately $39.6 million in net proceeds.
Simultaneous to that sale, Midas leased these properties from Realty Income Corporation and the sites continue to be leased to Midas franchisees under existing leases. Because these properties will continue to generate rents to Midas, there was no
effect on revenues.



In accordance with the provisions of
Statement of Financial Accounting Standards No. 98, Accounting for Leases, the Company recorded a finance lease obligation on the balance sheet of $39.6 million, equal to the net sale price of the properties, and no gain on the sale was
recognized. The properties remain on the balance sheet at their historic cost and continue to be depreciated over their remaining useful lives. Annual lease payments (shown below) will be made through the expiration of the lease in 2022.



Minimum Annual Rental Payments



At fiscal year end 2004, annual minimum rental payments due under capital,
finance and operating leases that have initial or remaining non-cancelable terms in excess of one year, along with sublease rental income on real estate due under non-cancelable subleases were as follows (in millions):



|                                                                   |  |               |     |               |   |                 |  |                 |       |  |       |        |   |  |   |     
|------------------------------------------------------------------ |  | ------------- | --- | ------------- | - | --------------- |  | --------------- | ----- |  | ----- | ------ | - |  | - | ----
|                                                                   |  | CapitalLeases |     | FinanceLeases |   | OperatingLeases |  | SubleaseRentals |       |  | Total
|2005                                                               |  | $             | 1.5 |               | $ | 4.6             |  | $               | 31.6  |  | $     | (26.6  | ) |  | $ | 11.1
|2006                                                               |  |               | 1.5 |               |   | 4.6             |  |                 | 28.0  |  |       | (24.6  | ) |  |   | 9.5 
|2007                                                               |  |               | 1.4 |               |   | 4.6             |  |                 | 23.4  |  |       | (21.3  | ) |  |   | 8.1 
|2008                                                               |  |               | 1.0 |               |   | 4.6             |  |                 | 17.7  |  |       | (15.8  | ) |  |   | 7.5 
|2009                                                               |  |               | 0.6 |               |   | 4.6             |  |                 | 10.7  |  |       | (10.9  | ) |  |   | 5.0 
|Thereafter                                                         |  |               | 2.5 |               |   | 56.2            |  |                 | 47.3  |  |       | (51.6  | ) |  |   | 54.4
|                                                                   |  |               |     |               |   |                 |  |                 |       |  |       |        |   |  |   |     
|Total minimum lease payments                                       |  |               | 8.5 |               |   | 79.2            |  | $               | 158.7 |  | $     | (150.8 | ) |  | $ | 95.6
|                                                                   |  |               |     |               |   |                 |  |                 |       |  |       |        |   |  |   |     
|Less imputed interest                                              |  |               | 2.4 |               |   | 41.6            |  |                 |       |  |       |        |   |  |   |     
|                                                                   |  |               |     |               |   |                 |  |                 |       |  |       |        |   |  |   |     
|Present value of minimum lease payments                            |  |               | 6.1 |               |   | 37.6            |  |                 |       |  |       |        |   |  |   |     
|Less current portion                                               |  |               | 1.0 |               |   | 0.9             |  |                 |       |  |       |        |   |  |   |     
|                                                                   |  |               |     |               |   |                 |  |                 |       |  |       |        |   |  |   |     
|Obligations under capital and finance lease obligationsnoncurrent |  | $             | 5.1 |               | $ | 36.7            |  |                 |       |  |       |        |   |  |   |     
|                                                                   |  |               |     |               |   |                 |  |                 |       |  |       |        |   |  |   |     



At fiscal year end
2004 and 2003, the net book value of property under capital leases included in the balance sheets amounted to $3.7 million and $4.5 million, respectively. At fiscal year end 2004 and 2003, the net book value of property under finance leases included
in the balance sheets amounted to $28.0 million and $28.6 million, respectively.



Real Estate Owned by Midas and Leased to Franchisees



Midas owns real estate located in various communities throughout the U.S. that is leased to franchisees under operating lease agreements. Substantially all leases are for initial terms of 20 years and provide for
minimum and contingent rentals.



F-24



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Real estate leased to franchisees in the U.S. and included in the balance sheets consisted of (in
millions):



|                             |  |      |       |   |      |   |       |  
|---------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|Fiscal Year End              |  | 2004 |       |   | 2003 |  
|Land                         |  | $    | 25.7  |   |      | $ | 26.8  |  
|Buildings and improvements   |  |      | 52.4  |   |      |   | 53.5  |  
|                             |  |      |       |   |      |   |       |  
|Total property and equipment |  |      | 78.1  |   |      |   | 80.3  |  
|Accumulated depreciation     |  |      | (30.5 | ) |      |   | (28.2 | )
|                             |  |      |       |   |      |   |       |  
|Property and equipment, net  |  | $    | 47.6  |   |      | $ | 52.1  |  
|                             |  |      |       |   |      |   |       |  



Rental revenue on
owned real estate for fiscal 2004 was $10.2 million, compared to $10.6 million in fiscal 2003 and $12.8 million in fiscal 2002. Minimum future lease payments to be received are as follows (in millions):



|           |  |   |      
|---------- |  | - | -----
|2005       |  | $ | 9.1  
|2006       |  |   | 9.0  
|2007       |  |   | 8.7  
|2008       |  |   | 8.6  
|2009       |  |   | 8.4  
|Thereafter |  |   | 82.0 
|           |  |   |      
|Total      |  | $ | 125.8
|           |  |   |      



Contingent
Operating Lease Agreements



Midas has entered into
contingent operating lease agreements covering real estate that is leased by U.S. and Canadian franchisees from parties that are directly or indirectly related to the franchisees. At January 1, 2005, 85 shops were covered by these contingent
operating lease agreements, under which Midas could be required, under certain limited circumstances, to begin making rental payments with respect to individual shop locations. The average annual shop rental is $54 thousand with an average remaining
term of approximately 8 years.



In addition, as part of the
disposition of leased PWI locations in fiscal 2003, Midas assigned 11 operating leases to third parties but remained contingently liable for the rent for those locations. The total remaining rent obligation on these PWI leases at January 1, 2005,
was approximately $0.5 million with an average lease life of less than two years.



Management believes that, individually and in the aggregate, any potential difference that might arise under these contingent lease agreements between the rental expense and the rental income from future subleases
would not materially affect the financial position or results of operations of Midas.



(9) Pension Plans



Defined Benefit Pension
Plans and Other Postretirement Plans



Certain Midas
employees in the U.S. and Canada are covered under various defined benefit pension plans sponsored and funded by Midas. Plans covering salaried employees provide pension benefits based on years of service, and generally are limited to a maximum of
20% of the employees average annual compensation during the five years preceding retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Plan assets are invested primarily in common
stocks, corporate bonds, and government securities. The cost of these plans is being funded currently.



F-25



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Net periodic pension cost for fiscal 2004, 2003 and 2002 are presented in the following table (in
millions):



|                                              |  |      |      |   |      |   |      |      |  |   |      |  
|--------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|Fiscal Year                                   |  | 2004 |      |   | 2003 |   |      | 2002 | 
|Service cost-benefits                         |  | $    | 1.2  |   |      | $ | 1.3  |      |  | $ | 1.2  |  
|Interest cost on projected benefit obligation |  |      | 3.3  |   |      |   | 3.3  |      |  |   | 3.1  |  
|Expected return on assets                     |  |      | (4.8 | ) |      |   | (4.8 | )    |  |   | (5.6 | )
|Net amortization and deferral                 |  |      | 0.8  |   |      |   | 1.0  |      |  |   | 0.3  |  
|                                              |  |      |      |   |      |   |      |      |  |   |      |  
|Total net periodic cost (credit)              |  | $    | 0.5  |   |      | $ | 0.8  |      |  | $ | (1.0 | )
|                                              |  |      |      |   |      |   |      |      |  |   |      |  



The principal economic
assumptions used in the determination of net periodic pension cost included the following:



|                                                 |  |      |   |  |      |   |  |      |  
|------------------------------------------------ |  | ---- | - |  | ---- | - |  | ---- | -
|Fiscal Year                                      |  | 2004 |   |  | 2003 |   |  | 2002 |  
|Discount rate                                    |  | 6.00 | % |  | 6.75 | % |  | 7.5  | %
|Expected long-term rate of return on plan assets |  | 8.5  | % |  | 8.5  | % |  | 9.5  | %
|Rate of increase in compensation levels          |  | 4.0  | % |  | 4.0  | % |  | 4.0  | %



The Company believes
the assumed long-term rate of return on pension plan assets is appropriate given the Companys target long-term asset allocation. The Companys target asset allocation and actual asset allocation for fiscal 2004 and fiscal 2003 were as
follows:



|                                     |  |        |   |  |      |   |  |      |  
|------------------------------------ |  | ------ | - |  | ---- | - |  | ---- | -
|Fiscal Year                          |  | Target |   |  | 2004 |   |  | 2003 |  
|Large cap domestic equity securities |  | 35     | % |  | 34   | % |  | 34   | %
|Small cap domestic equity securities |  | 15     |   |  | 16   |   |  | 16   |  
|International equity securities      |  | 20     |   |  | 21   |   |  | 20   |  
|Domestic fixed income                |  | 30     |   |  | 29   |   |  | 30   |  
|Cash equivalents                     |  |       |   |  |     |   |  |     |  
|                                     |  |        |   |  |      |   |  |      |  
|Total                                |  | 100    | % |  | 100  | % |  | 100  | %
|                                     |  |        |   |  |      |   |  |      |  



The following table
presents estimated future benefits payments over the next 10 years, including expected future service, as appropriate:



|            |  |   |     
|----------- |  | - | ----
|Fiscal Year |  |  
|2005        |  | $ | 3.2 
|2006        |  |   | 6.0 
|2007        |  |   | 3.0 
|2008        |  |   | 5.3 
|2009        |  |   | 3.0 
|2010  2014 |  |   | 17.0



Estimated payments in
fiscal 2006 and 2008 include special payouts associated with the 2001 and 2003 partial wind-ups of the Companys Canadian pension plans.



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



The changes in the projected benefit obligations for fiscal 2004 and fiscal 2003 were as follows:



|                                                    |  |      |      |   |      |   |      |  
|--------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|Fiscal Year                                         |  | 2004 |      |   | 2003 |  
|Benefit obligations as of the beginning of the year |  | $    | 57.0 |   |      | $ | 48.7 |  
|Change in foreign currency exchange rates           |  |      | 0.4  |   |      |   | 0.8  |  
|Service cost                                        |  |      | 1.2  |   |      |   | 1.3  |  
|Interest cost                                       |  |      | 3.3  |   |      |   | 3.3  |  
|Actuarial (gain) loss                               |  |      | (1.2 | ) |      |   | 6.5  |  
|Early retirement window benefit                     |  |      |     |   |      |   | 0.1  |  
|Benefits paid and plan expenses                     |  |      | (4.3 | ) |      |   | (3.7 | )
|                                                    |  |      |      |   |      |   |      |  
|Benefit obligations as of the end of the year       |  | $    | 56.4 |   |      | $ | 57.0 |  
|                                                    |  |      |      |   |      |   |      |  



The changes in the
fair market value of the plan assets for fiscal 2004 and fiscal 2003 were as follows:



|                                                     |  |      |      |   |      |   |      |  
|---------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|Fiscal Year                                          |  | 2004 |      |   | 2003 |  
|Fair value of assets as of the beginning of the year |  | $    | 52.7 |   |      | $ | 46.1 |  
|Change in foreign currency exchange rates            |  |      | 0.6  |   |      |   | 1.3  |  
|Actual return on plan assets                         |  |      | 7.2  |   |      |   | 8.7  |  
|Employer contributions                               |  |      | 0.2  |   |      |   | 0.3  |  
|Benefits paid and plan expenses                      |  |      | (4.3 | ) |      |   | (3.7 | )
|                                                     |  |      |      |   |      |   |      |  
|Fair value of assets as of the end of the year       |  | $    | 56.4 |   |      | $ | 52.7 |  
|                                                     |  |      |      |   |      |   |      |  



Pension costs are
funded in amounts not less than minimum levels required by regulation. The following table reconciles the pension plans funded status to the amounts recognized in Midas balance sheets as of fiscal year end 2004 and 2003 (in millions):



|                                                                             |  |      |       |   |      |   |       |  
|---------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|Fiscal Year                                                                  |  | 2004 |       |   | 2003 |  
|Actuarial present value of benefit obligation (measured as of September 30): |  |      |       |   |      |   |       |  
|Projected benefit obligation                                                 |  | $    | (56.4 | ) |      | $ | (57.0 | )
|Plan assets at fair market value (measured as of September 30)               |  |      | 56.4  |   |      |   | 52.7  |  
|                                                                             |  |      |       |   |      |   |       |  
|Projected benefit obligation in excess of plan assets                        |  |      |      |   |      |   | (4.3  | )
|Unrecognized net asset at transition                                         |  |      | (0.2  | ) |      |   | (0.3  | )
|Unrecognized prior service costs                                             |  |      | 0.3   |   |      |   | 0.3   |  
|Unrecognized net loss                                                        |  |      | 11.0  |   |      |   | 15.5  |  
|                                                                             |  |      |       |   |      |   |       |  
|Prepaid pension cost recognized on balance sheets                            |  | $    | 11.1  |   |      | $ | 11.2  |  
|                                                                             |  |      |       |   |      |   |       |  



The principal economic
assumptions used in determining the above benefit obligations were discount rates of 6.0% in fiscal 2004 and 2003, and rates of increase in future compensation levels of 4.0% in fiscal 2004 and 2003.



As of January 1, 2005, the accumulated benefit obligation for the U.S. plan
continues to exceed the fair value of plan assets. In accordance with SFAS No. 87, the Company records an additional minimum pension liability by recording an intangible asset equal to unrecognized prior service cost. The balance, net of tax, is
recorded as a reduction to shareholders equity through cumulative other comprehensive income. As of January 1, 2005, the $11.1 million prepaid pension cost, net of valuation reserves of approximately $3.9 million



F-27



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



pertaining to the partial wind-up of the Canadian Salaried Pension Plan and the full wind-up of the Canadian Hourly Pension Plan, was recorded in the
Companys balance sheet as a $2.6 million accrued pension liability, an intangible pension asset of $0.3 million and an accumulated reduction to shareholders equity of $9.5 million ($5.7 million, net of taxes).



Defined Contribution Plans



Substantially all U.S. salaried employees, certain U.S. hourly employees,
and certain Canadian employees participate in voluntary, contributory defined contribution plans to which Midas makes full or partial matching contributions. Midas matching contributions to these plans amounted to $0.8 million, $1.0 million,
and $0.7 million in fiscal 2004, 2003 and 2002, respectively. Midas incurred costs to maintain the non-qualified plan of approximately $30 thousand in fiscal 2004, $30 thousand fiscal 2003 and $0.1 million in fiscal 2002.



Multi-employer Pension Plan



Midas participates in a multi-employer pension plan, which provides benefits
to certain unionized employees. Amounts contributed to this plan totaled $0.1 million in fiscal 2004, $0.1 million in fiscal 2003, and $0.2 million in fiscal 2002.



(10) Stock-Based Compensation and Other Equity Instruments



Stock Options



The Midas Stock Incentive Plan, the Midas Treasury Stock Plan and the Midas Directors Deferred Compensation Plan (the Plans) authorize
the issuance of up to 3,606,886 shares of Midas common stock pursuant to the exercise of incentive stock options, non-qualified stock options and stock appreciation rights and the grant of restricted stock and performance awards. In addition, Midas
reserved 10,000 shares for issuance upon the grant of stock awards. Options granted pursuant to the Plans generally vest over a period of three to five years commencing one year after the date of grant. The following table summarizes information
regarding the outstanding stock options as of January 1, 2005.



|                        |  |                     |  |                                |       |                                          |      |                   |         |                                |   |      
|----------------------- |  | ------------------- |  | ------------------------------ | ----- | ---------------------------------------- | ---- | ----------------- | ------- | ------------------------------ | - | -----
|                        |  | Options Outstanding |  | Options Exercisable           
|Range ofExercise Prices |  | Shares              |  | Weighted-AverageExercise Price |       | Weighted-AverageRemaining Life(in years) |      | ExercisableShares |         | Weighted-AverageExercise Price
|$  6.77$  7.31         |  | 520,867             |  | $                              | 6.79  |                                          | 8.02 |                   | 103,200 |                                | $ | 6.78 
|8.04  13.30            |  | 491,943             |  |                                | 9.69  |                                          | 7.75 |                   | 111,363 |                                |   | 10.34
|13.40  15.83           |  | 546,077             |  |                                | 14.80 |                                          | 3.96 |                   | 428,277 |                                |   | 15.06
|17.50  34.66           |  | 487,150             |  |                                | 19.94 |                                          | 7.56 |                   | 159,000 |                                |   | 22.57
|                        |  |                     |  |                                |       |                                          |      |                   |         |                                |   |      
|                        |  | 2,046,037           |  |                                |       |                                          |      |                   | 801,840 |                                |   |      
|                        |  |                     |  |                                |       |                                          |      |                   |         |                                |   |      



F-28



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



The stock option activity for the prior three years is summarized as follows:



|                                    |  |                 |   |  |                    |                |                                |   |                    |  |        
|----------------------------------- |  | --------------- | - |  | ------------------ | -------------- | ------------------------------ | - | ------------------ |  | -------
|                                    |  | Number ofShares |   |  | Option PriceRanges |                | Weighted-AverageExercise Price |   | OptionsExercisable
|Outstanding at fiscal year end 2001 |  | 2,016,220       |   |  | $                  | 9.81 $34.66   |                                | $ | 15.29              |  | 994,820
|Granted                             |  | 227,300         |   |  |                    | 7.20   13.40  |                                |   | 11.94              |  |        
|Exercised                           |  | (12,049         | ) |  |                    | 14.42   14.42 |                                |   | 14.42              |  |        
|Cancelled and forfeited             |  | (737,500        | ) |  |                    | 10.01   25.95 |                                |   | 16.13              |  |        
|                                    |  |                 |   |  |                    |                |                                |   |                    |  |        
|Outstanding at fiscal year end 2002 |  | 1,493,971       |   |  |                    | 7.20   34.66  |                                |   | 14.38              |  | 778,471
|Granted                             |  | 968,500         |   |  |                    | 6.77   14.96  |                                |   | 8.15               |  |        
|Exercised                           |  | (12,000         | ) |  |                    | 10.01   13.22 |                                |   | 11.08              |  |        
|Cancelled and forfeited             |  | (392,300        | ) |  |                    | 6.77   21.88  |                                |   | 12.78              |  |        
|                                    |  |                 |   |  |                    |                |                                |   |                    |  |        
|Outstanding at fiscal year end 2003 |  | 2,058,171       |   |  |                    | 6.77   34.66  |                                |   | 11.77              |  | 848,797
|Granted                             |  | 327,650         |   |  |                    | 18.65   19.01 |                                |   | 18.66              |  |        
|Exercised                           |  | (298,884        | ) |  |                    | 7.20   17.50  |                                |   | 12.04              |  |        
|Cancelled and forfeited             |  | (40,900         | ) |  |                    | 8.09   21.88  |                                |   | 15.82              |  |        
|                                    |  |                 |   |  |                    |                |                                |   |                    |  |        
|Outstanding at fiscal year end 2004 |  | 2,046,037       |   |  |                    | 6.77   34.66  |                                |   | 12.76              |  | 801,840
|                                    |  |                 |   |  |                    |                |                                |   |                    |  |        



The weighted average
estimated fair value of the options granted in fiscal 2004, 2003 and 2002 was $10.28,$4.35 and $6.14, respectively, based on the Black-Scholes valuation model using the following assumptions:



|                        |  |       |   |  |       |   |  |       |  
|----------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|Fiscal Year             |  | 2004  |   |  | 2003  |   |  | 2002  |  
|Risk-free interest rate |  | 4.14  | % |  | 3.59  | % |  | 3.75  | %
|Dividend yield          |  | 0.0   | % |  | 0.0   | % |  | 0.0   | %
|Expected volatility     |  | 44.82 | % |  | 42.32 | % |  | 40.00 | %
|Expected life in years  |  | 7.48  |   |  | 8.00  |   |  | 8.00  |  



Restricted Stock



From time to time the Company grants shares of restricted
stock to certain of its officers and directors. During fiscal 2004, 2003 and 2002, the Company granted 91,500, 190,000 and 55,000 shares, respectively. The fair value of these grants was equal to the stock price on the date of the grant. The
weighted-average fair value of the restricted shares granted in fiscal 2004, 2003 and 2002, was $18.66, $7.20 and $7.31, respectively. As of January 1, 2005, a total of 110,000 shares had vested and 226,500 shares remained outstanding but unvested
of the aforementioned restricted stock grants.



Common Stock
Warrants



On March 27, 2003, the Company issued 1.0
million warrants valued at $5.0 million in connection with its 2003 debt restructuring. On January 5, 2004, 500,000 of these warrants were automatically cancelled because the Company met certain financial objectives contained in the warrant
agreements. As of January 1, 2005, a total of 131,838 warrants remained outstanding.



(11) Shareholder Rights Agreement and Series A Junior Participating Preferred Stock



In fiscal 1997, Midas adopted a Rights Agreement providing for the issuance of one Preferred Stock Purchase Right (a Right) with each share of
Midas common stock. Each Right entitles the registered holder to purchase from Midas one one-hundredth of a share of Series A Junior Participating Preferred Stock (a Preferred



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



Share) at a price of $150 per one one-hundredth of a Preferred Share (the Purchase Price), subject to adjustment. The Rights will become
exercisable on the Rights Distribution Date, which is the earlier of the tenth day following a public announcement that a person(s) has acquired beneficial ownership of 20% or more of the Midas common stock (an Acquiring Person), or ten
business days after the commencement of a tender offer or exchange offer that would result in a person(s) acquiring beneficial ownership of 20% or more of the outstanding shares of Midas common stock.



If a person becomes an Acquiring Person, each Right holder (other than the
Acquiring Person) will be entitled to receive, upon exercise of the Right, a number of shares of Midas common stock having a market value of two times the exercise price of the Right. If Midas is acquired in a merger or other business combination,
each Right holder (other than the Acquiring Person) will be entitled to receive, upon exercise of a Right, a number of the acquiring Companys common shares having a market value at that time of two times the exercise price of the Right.



In general, Midas can redeem all the Rights for one cent per
Right at any time until 10 days following the first public announcement that a person has become an Acquiring Person. The Midas Board of Directors, without the consent of the holders of the Rights, is also authorized to reduce the stock ownership
thresholds to 10 percent or increase them to not more than 20 percent. The Rights will expire on December 31, 2007. Until a Right is exercised, the holder of a Right (merely by being a Right holder) will have no rights as a shareholder of Midas,
including voting or dividend rights.



Each Preferred Share will
be entitled to a minimum preferential quarterly dividend payment of $0.01 per share, but will be entitled to an aggregate dividend of 100 times the dividend declared per share of Midas common stock. Each Preferred Share will have 100 votes, voting
together with the Midas common stock. In the event of a merger or other transaction in which shares of common stock of the Company are exchanged, each Preferred Share will be entitled to receive 100 times the amount received per share of Midas
common stock.



The Company has 20 million authorized shares of
Series A Junior Participating Preferred Stock. There are no Series A Junior Participating Preferred Stock issued or outstanding.



(12) Contingencies



In connection with the 1998 disposition of certain U.S. company-operated shops, franchisees entered into a series of financing agreements with a third
party lender. If the franchisees fail to make required payments, Midas is contingently liable for a portion of the losses that would be incurred by the lender. As of January 1, 2005, the total outstanding loans under this program were approximately
$6.5 million. Midas total annual exposure under this program is limited to $2.0 million. In fiscal 2004 and 2003, the Company was required to pay $0.8 million and $0.1 million, respectively, to the lender under this program. No payments were
made in fiscal 2002.



Midas has certain contingent liabilities
arising from various pending claims and litigation related to a number of matters. While the amount of liability that may result from these matters cannot be determined, in the opinion of Midas counsel, the ultimate liability will not
materially affect the financial position or results of operations of Midas.



(13) Business Segment Information



Midas
operates in a single business segment and provides retail automotive services principally through franchised and company-operated shops located in North America (United States and Canada) and through



F-30



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



franchised and licensed shops in international markets. Midas U.S. operations export products to and receive royalties from franchisees located in
Central America. Such sales and revenues amounted to less than one percent of U.S. sales and revenues in each of the fiscal years presented.



Historically, the Midas business had not been dependent upon a single customer or small group of customers. However, as a result of the Companys
decision to outsource the distribution of genuine Midas products and other replacement parts, the majority of the Companys wholesale part sales and product royalties are now derived from two customers: AutoZone, Inc. in the U.S. and Uni-Select
Inc. in Canada. As exclusive distributors of genuine Midas exhaust products in the U.S. and Canada, they purchase exhaust products from Midas to then sell them to Midas dealers. In fiscal 2004, AutoZone accounted for approximately 11% of total Midas
sales and revenues and Uni-Select accounted for approximately 4% of total sales and revenues.



The following tables present financial information for each of the principal geographic areas in which the Company operates. Sales and revenues are attributed to geographic areas based on the location of customers.



|                           |  |                     |       |      |   |       |  |   |      
|-------------------------- |  | ------------------- | ----- | ---- | - | ----- |  | - | -----
|                           |  | Sales and Revenues 
|Fiscal Year                |  | 2004                |       | 2003 |   | 2002 
|                           |  | (in millions)      
|North American Operations: |  |                     |       |      |   |       |  |   |      
|U.S.                       |  | $                   | 167.8 |      | $ | 267.9 |  | $ | 295.6
|Canada                     |  |                     | 20.7  |      |   | 34.7  |  |   | 28.1 
|                           |  |                     |       |      |   |       |  |   |      
|Total North America        |  |                     | 188.5 |      |   | 302.6 |  |   | 323.7
|International Operations   |  |                     | 9.0   |      |   | 8.4   |  |   | 9.3  
|                           |  |                     |       |      |   |       |  |   |      
|Total                      |  | $                   | 197.5 |      | $ | 311.0 |  | $ | 333.0
|                           |  |                     |       |      |   |       |  |   |      
|                           | 
|                           |  | Identifiable Assets
|Fiscal Year End            |  | 2004                |       | 2003 |   | 2002 
|                           |  | (in millions)      
|North American Operations: |  |                     |       |      |   |       |  |   |      
|U.S.                       |  | $                   | 239.4 |      | $ | 264.9 |  | $ | 350.1
|Canada                     |  |                     | 10.5  |      |   | 17.0  |  |   | 19.1 
|                           |  |                     |       |      |   |       |  |   |      
|Total North America        |  |                     | 249.9 |      |   | 281.9 |  |   | 369.2
|International Operations   |  |                     | 0.2   |      |   | 1.5   |  |   | 1.5  
|                           |  |                     |       |      |   |       |  |   |      
|Total                      |  | $                   | 250.1 |      | $ | 283.4 |  | $ | 370.7
|                           |  |                     |       |      |   |       |  |   |      



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##### Table of Contents

MIDAS



NOTES TO FINANCIAL STATEMENTS(Continued)



(14) Selected Quarterly Financial Data (Unaudited)



|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|------------------------------------------------------ |  | ------------------------------------ | ----- | - | ------------- | - | ----- | ------------ |  | - | ------------- | - |  | -------- | ----- | - |  | - | ------ | -
|                                                       |  | FirstQuarter                         |       |   | SecondQuarter |   |       | ThirdQuarter |  |   | FourthQuarter |   |  | FullYear |      
|                                                       |  | (in millions, except per share data) |      
|Fiscal 2004                                            |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Sales and revenues                                     |  | $                                    | 46.9  |   |               | $ | 52.0  |              |  | $ | 51.3          |   |  | $        | 47.3  |   |  | $ | 197.5  |  
|Cost of sales and revenues                             |  |                                      | 19.6  |   |               |   | 22.1  |              |  |   | 22.6          |   |  |          | 19.2  |   |  |   | 83.5   |  
|Business transformation charges (inventory write-down) |  |                                      |      |   |               |   |      |              |  |   |              |   |  |          | 0.4   |   |  |   | 0.4    |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Gross profit                                           |  |                                      | 27.3  |   |               |   | 29.9  |              |  |   | 28.7          |   |  |          | 27.7  |   |  |   | 113.6  |  
|Selling, general and administrative expenses           |  |                                      | 22.0  |   |               |   | 23.4  |              |  |   | 22.8          |   |  |          | 24.6  |   |  |   | 92.8   |  
|Business transformation charges                        |  |                                      |      |   |               |   |      |              |  |   |              |   |  |          | 0.8   |   |  |   | 0.8    |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Operating income                                       |  |                                      | 5.3   |   |               |   | 6.5   |              |  |   | 5.9           |   |  |          | 2.3   |   |  |   | 20.0   |  
|Interest expense                                       |  |                                      | (5.1  | ) |               |   | (2.5  | )            |  |   | (2.6          | ) |  |          | (2.5  | ) |  |   | (12.7  | )
|Loss on early extinguishment of debt                   |  |                                      | (4.7  | ) |               |   |      |              |  |   |              |   |  |          |      |   |  |   | (4.7   | )
|Other income, net                                      |  |                                      | 0.3   |   |               |   | 0.2   |              |  |   | (0.1          | ) |  |          | 0.6   |   |  |   | 1.0    |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Income (loss) before taxes                             |  |                                      | (4.2  | ) |               |   | 4.2   |              |  |   | 3.2           |   |  |          | 0.4   |   |  |   | 3.6    |  
|Income tax expense (benefit)                           |  |                                      | (1.6  | ) |               |   | 1.6   |              |  |   | 1.1           |   |  |          | (1.6  | ) |  |   | (0.5   | )
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Net income (loss)                                      |  | $                                    | (2.6  | ) |               | $ | 2.6   |              |  | $ | 2.1           |   |  | $        | 2.0   |   |  | $ | 4.1    |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Earnings (loss) per sharediluted                      |  | $                                    | (0.16 | ) |               | $ | 0.16  |              |  | $ | 0.13          |   |  | $        | 0.12  |   |  | $ | 0.26   |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Fiscal 2003                                            |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Sales and revenues                                     |  | $                                    | 74.5  |   |               | $ | 77.9  |              |  | $ | 77.0          |   |  | $        | 81.6  |   |  | $ | 311.0  |  
|Cost of sales and revenues                             |  |                                      | 38.7  |   |               |   | 37.3  |              |  |   | 42.6          |   |  |          | 54.2  |   |  |   | 172.8  |  
|Business transformation charges (warranty reserve)     |  |                                      |      |   |               |   | 33.3  |              |  |   | 5.2           |   |  |          |      |   |  |   | 38.5   |  
|Business transformation charges (inventory write-down) |  |                                      |      |   |               |   | 8.6   |              |  |   | 3.9           |   |  |          | 6.2   |   |  |   | 18.7   |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Gross profit                                           |  |                                      | 35.8  |   |               |   | (1.3  | )            |  |   | 25.3          |   |  |          | 21.2  |   |  |   | 81.0   |  
|Selling, general and administrative expenses           |  |                                      | 37.3  |   |               |   | 36.5  |              |  |   | 31.7          |   |  |          | 31.7  |   |  |   | 137.2  |  
|Business transformation charges                        |  |                                      | 3.7   |   |               |   | 8.9   |              |  |   | 6.8           |   |  |          | 24.6  |   |  |   | 44.0   |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Operating loss                                         |  |                                      | (5.2  | ) |               |   | (46.7 | )            |  |   | (13.2         | ) |  |          | (35.1 | ) |  |   | (100.2 | )
|Interest expense                                       |  |                                      | (4.3  | ) |               |   | (7.3  | )            |  |   | (6.8          | ) |  |          | (7.1  | ) |  |   | (25.5  | )
|Loss on early extinguishment of debt                   |  |                                      | (1.4  | ) |               |   |      |              |  |   |              |   |  |          |      |   |  |   | (1.4   | )
|Other income, net                                      |  |                                      | 0.4   |   |               |   | 0.5   |              |  |   | 0.7           |   |  |          | 0.8   |   |  |   | 2.4    |  
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Loss before taxes                                      |  |                                      | (10.5 | ) |               |   | (53.5 | )            |  |   | (19.3         | ) |  |          | (41.4 | ) |  |   | (124.7 | )
|Income tax benefit                                     |  |                                      | (4.1  | ) |               |   | (20.8 | )            |  |   | (7.5          | ) |  |          | (16.1 | ) |  |   | (48.5  | )
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Net loss                                               |  | $                                    | (6.4  | ) |               | $ | (32.7 | )            |  | $ | (11.8         | ) |  | $        | (25.3 | ) |  | $ | (76.2  | )
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  
|Loss per sharediluted                                 |  | $                                    | (0.43 | ) |               | $ | (2.10 | )            |  | $ | (0.76         | ) |  | $        | (1.62 | ) |  | $ | (4.93  | )
|                                                       |  |                                      |       |   |               |   |       |              |  |   |               |   |  |          |       |   |  |   |        |  



The sum of earnings
per share for the quarters may not equal the full year amount in each year due to the impact of changes in the average shares outstanding.



F-32