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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the quarterly period ended October 2, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number: 01-13409



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MIDAS, INC.

(Exact Name of Registrant as Specified in its Charter)



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|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                        |  | 36-4180556                          
|(State or Other Jurisdiction of Incorporation or Organization ) |  | (I.R.S. 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)



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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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2).    Yes  x    No ̈



The number of shares of the Registrants Common Stock, $.001 par value per share, outstanding as of November 1, 2004
was 15,769,766.



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PART I. FINANCIAL INFORMATION

Item 1: Condensed Financial Statements

MIDAS, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(In millions, except for earnings per share)

|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|------------------------------------------------------ |  | -------------------------------------- | ---- | - | ------------------------------------------ | - | ----- | ---------- |  | - | ---------- | - |  | - | ----- | -
|                                                       |  | For the quarter ended fiscal September |      |   | For the nine months ended fiscal September |  
|                                                       |  | 2004                                   |      |   | 2003                                       |   |       | 2004       |  |   | 2003       |  
|                                                       |  | (13 weeks)                             |      |   | (13 weeks)                                 |   |       | (39 Weeks) |  |   | (39 Weeks) |  
|Sales and revenues:                                    |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Franchise royalties and license fees                   |  | $                                      | 16.6 |   |                                            | $ | 16.3  |            |  | $ | 47.9       |   |  | $ | 46.6  |  
|Real estate revenues                                   |  |                                        | 9.2  |   |                                            |   | 9.1   |            |  |   | 27.3       |   |  |   | 27.0  |  
|Company-operated shop retail sales                     |  |                                        | 9.2  |   |                                            |   | 9.6   |            |  |   | 27.1       |   |  |   | 32.5  |  
|Replacement part sales and product royalties           |  |                                        | 15.7 |   |                                            |   | 41.6  |            |  |   | 46.0       |   |  |   | 122.0 |  
|Other                                                  |  |                                        | 0.6  |   |                                            |   | 0.4   |            |  |   | 1.9        |   |  |   | 1.3   |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Total sales and revenues                               |  |                                        | 51.3 |   |                                            |   | 77.0  |            |  |   | 150.2      |   |  |   | 229.4 |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Cost of sales and revenues:                            |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Real estate cost of revenues                           |  |                                        | 5.5  |   |                                            |   | 5.5   |            |  |   | 16.5       |   |  |   | 15.8  |  
|Company-operated shop cost of sales                    |  |                                        | 2.0  |   |                                            |   | 2.2   |            |  |   | 5.3        |   |  |   | 7.2   |  
|Replacement part cost of sales                         |  |                                        | 12.5 |   |                                            |   | 32.2  |            |  |   | 35.4       |   |  |   | 86.7  |  
|Warranty expense                                       |  |                                        | 2.6  |   |                                            |   | 2.7   |            |  |   | 7.1        |   |  |   | 8.9   |  
|Business transformation charges (warranty reserve)     |  |                                        |     |   |                                            |   | 5.2   |            |  |   |           |   |  |   | 38.5  |  
|Business transformation charges (inventory write-down) |  |                                        |     |   |                                            |   | 3.9   |            |  |   |           |   |  |   | 12.5  |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Total cost of sales and revenues                       |  |                                        | 22.6 |   |                                            |   | 51.7  |            |  |   | 64.3       |   |  |   | 169.6 |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Gross profit                                           |  |                                        | 28.7 |   |                                            |   | 25.3  |            |  |   | 85.9       |   |  |   | 59.8  |  
|Selling, general, and administrative expenses          |  |                                        | 22.8 |   |                                            |   | 31.7  |            |  |   | 68.2       |   |  |   | 105.5 |  
|Business transformation charges                        |  |                                        |     |   |                                            |   | 6.8   |            |  |   |           |   |  |   | 19.4  |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Operating income (loss)                                |  |                                        | 5.9  |   |                                            |   | (13.2 | )          |  |   | 17.7       |   |  |   | (65.1 | )
|Interest expense                                       |  |                                        | (2.6 | ) |                                            |   | (6.8  | )          |  |   | (10.2      | ) |  |   | (18.4 | )
|Loss on early extinguishment of debt                   |  |                                        |     |   |                                            |   |      |            |  |   | (4.7       | ) |  |   | (1.4  | )
|Other income (expense), net                            |  |                                        | (0.1 | ) |                                            |   | 0.7   |            |  |   | 0.4        |   |  |   | 1.6   |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Income (loss) before income tax expense (benefit)      |  |                                        | 3.2  |   |                                            |   | (19.3 | )          |  |   | 3.2        |   |  |   | (83.3 | )
|Income tax expense (benefit)                           |  |                                        | 1.1  |   |                                            |   | (7.5  | )          |  |   | 1.1        |   |  |   | (32.4 | )
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Net income (loss)                                      |  | $                                      | 2.1  |   |                                            | $ | (11.8 | )          |  | $ | 2.1        |   |  | $ | (50.9 | )
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Earnings (loss) per share:                             |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Basic                                                  |  | $                                      | 0.14 |   |                                            | $ | (0.76 | )          |  | $ | 0.14       |   |  | $ | (3.31 | )
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Diluted                                                |  | $                                      | 0.13 |   |                                            | $ | (0.76 | )          |  | $ | 0.13       |   |  | $ | (3.31 | )
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Average number of shares:                              |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Common shares outstanding                              |  |                                        | 15.5 |   |                                            |   | 15.1  |            |  |   | 15.3       |   |  |   | 15.1  |  
|Common stock warrants                                  |  |                                        | 0.2  |   |                                            |   | 0.5   |            |  |   | 0.3        |   |  |   | 0.3   |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Shares applicable to basic earnings                    |  |                                        | 15.7 |   |                                            |   | 15.6  |            |  |   | 15.6       |   |  |   | 15.4  |  
|Equivalent shares on outstanding stock awards          |  |                                        | 0.5  |   |                                            |   |      |            |  |   | 0.5        |   |  |   |      |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  
|Shares applicable to diluted earnings                  |  |                                        | 16.2 |   |                                            |   | 15.6  |            |  |   | 16.1       |   |  |   | 15.4  |  
|                                                       |  |                                        |      |   |                                            |   |       |            |  |   |            |   |  |   |       |  

See notes to condensed financial statements.



1



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MIDAS, INC.

CONDENSED BALANCE SHEETS

(In millions)



|                                                                                                                               |  |                     |       |   |                    |   |       |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | ----- | - | ------------------ | - | ----- | -
|                                                                                                                               |  | FiscalSeptember2004 |       |   | FiscalDecember2003 |  
|                                                                                                                               |  | (Unaudited)         |       |   |                    |  
|Assets:                                                                                                                        |  |                     |       |   |                    |   |       |  
|Current assets:                                                                                                                |  |                     |       |   |                    |   |       |  
|Cash and cash equivalents                                                                                                      |  | $                   | 0.6   |   |                    | $ | 7.4   |  
|Receivables, net                                                                                                               |  |                     | 37.2  |   |                    |   | 38.0  |  
|Inventories, net                                                                                                               |  |                     | 13.3  |   |                    |   | 15.1  |  
|Deferred income taxes                                                                                                          |  |                     | 9.3   |   |                    |   | 13.9  |  
|Other current assets                                                                                                           |  |                     | 6.1   |   |                    |   | 9.3   |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Total current assets                                                                                                           |  |                     | 66.5  |   |                    |   | 83.7  |  
|Property and equipment, net                                                                                                    |  |                     | 122.3 |   |                    |   | 131.7 |  
|Intangible assets                                                                                                              |  |                     | 0.3   |   |                    |   | 0.3   |  
|Deferred income taxes                                                                                                          |  |                     | 60.9  |   |                    |   | 56.1  |  
|Other assets                                                                                                                   |  |                     | 9.8   |   |                    |   | 11.6  |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Total assets                                                                                                                   |  | $                   | 259.8 |   |                    | $ | 283.4 |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Liabilities and equity:                                                                                                        |  |                     |       |   |                    |   |       |  
|Current liabilities:                                                                                                           |  |                     |       |   |                    |   |       |  
|Current portion of long-term obligations                                                                                       |  | $                   | 7.8   |   |                    | $ | 8.0   |  
|Accounts payable                                                                                                               |  |                     | 15.3  |   |                    |   | 13.7  |  
|Accrued expenses                                                                                                               |  |                     | 35.0  |   |                    |   | 47.5  |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Total current liabilities                                                                                                      |  |                     | 58.1  |   |                    |   | 69.2  |  
|Long-term debt                                                                                                                 |  |                     | 70.3  |   |                    |   | 85.2  |  
|Obligations under capital leases                                                                                               |  |                     | 5.4   |   |                    |   | 6.5   |  
|Finance lease obligation                                                                                                       |  |                     | 37.0  |   |                    |   | 37.5  |  
|Accrued warranty                                                                                                               |  |                     | 33.8  |   |                    |   | 33.8  |  
|Other liabilities                                                                                                              |  |                     | 12.2  |   |                    |   | 15.1  |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Total liabilities                                                                                                              |  |                     | 216.8 |   |                    |   | 247.3 |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Shareholders equity:                                                                                                          |  |                     |       |   |                    |   |       |  
|Common stock ($.001 par value, 100 million shares authorized, 17.6 million and 17.5 million shares issued) and paid-in capital |  |                     | 21.7  |   |                    |   | 23.8  |  
|Treasury stock, at cost (1.8 million shares and 2.2 million shares)                                                            |  |                     | (42.1 | ) |                    |   | (49.6 | )
|Unamortized restricted stock awards                                                                                            |  |                     | (2.3  | ) |                    |   | (1.3  | )
|Retained income                                                                                                                |  |                     | 76.9  |   |                    |   | 74.8  |  
|Cumulative other comprehensive loss                                                                                            |  |                     | (11.2 | ) |                    |   | (11.6 | )
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Total shareholders equity                                                                                                     |  |                     | 43.0  |   |                    |   | 36.1  |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  
|Total liabilities and equity                                                                                                   |  | $                   | 259.8 |   |                    | $ | 283.4 |  
|                                                                                                                               |  |                     |       |   |                    |   |       |  



See notes to condensed
financial statements.



2



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MIDAS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)



|                                                                                                                          |  |                                            |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ----- | - | ---- | - | ----- | -
|                                                                                                                          |  | For the nine months ended fiscal September |      
|                                                                                                                          |  | 2004                                       |       |   | 2003 |  
|Cash flows from operating activities:                                                                                     |  |                                            |       |   |      |   |       |  
|Net income (loss)                                                                                                         |  | $                                          | 2.1   |   |      | $ | (50.9 | )
|Adjustments reconciling net income (loss) to net cash provided by operating activities:                                   |  |                                            |       |   |      |   |       |  
|Depreciation and amortization                                                                                             |  |                                            | 10.0  |   |      |   | 12.0  |  
|Amortization of debt discount and financing fees                                                                          |  |                                            | 2.3   |   |      |   | 4.9   |  
|Business transformation charges (warranty reserve)                                                                        |  |                                            |      |   |      |   | 38.5  |  
|Business transformation charges (inventory write-down)                                                                    |  |                                            |      |   |      |   | 12.5  |  
|Business transformation charges                                                                                           |  |                                            |      |   |      |   | 19.4  |  
|Loss on early extinguishment of debt                                                                                      |  |                                            | 4.7   |   |      |   | 1.4   |  
|Cash outlays for business transformation costs                                                                            |  |                                            | (7.3  | ) |      |   | (9.7  | )
|Deferred income taxes                                                                                                     |  |                                            | (0.2  | ) |      |   | (34.4 | )
|Changes in assets and liabilities, exclusive of effects of business transformation charges, acquisitions and dispositions |  |                                            | 1.3   |   |      |   | 21.4  |  
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Net cash provided by operating activities                                                                                 |  |                                            | 12.9  |   |      |   | 15.1  |  
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Cash flows from investing activities:                                                                                     |  |                                            |       |   |      |   |       |  
|Capital investments                                                                                                       |  |                                            | (0.8  | ) |      |   | (1.6  | )
|Cash paid for acquired businesses                                                                                         |  |                                            | (0.4  | ) |      |   | (0.4  | )
|Proceeds from sales of assets                                                                                             |  |                                            |      |   |      |   | 9.4   |  
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Net cash provided by (used in) investing activities                                                                       |  |                                            | (1.2  | ) |      |   | 7.4   |  
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Cash flows from financing activities:                                                                                     |  |                                            |       |   |      |   |       |  
|Net decrease in bank debt                                                                                                 |  |                                            | (17.8 | ) |      |   | (19.3 | )
|Issuance of stock warrants in connection with refinancing                                                                 |  |                                            |      |   |      |   | 5.0   |  
|Cash payments for debt financing fees                                                                                     |  |                                            | (2.1  | ) |      |   | (4.8  | )
|Payment of obligations under capital leases                                                                               |  |                                            | (0.8  | ) |      |   | (0.6  | )
|Payment of obligations under finance lease                                                                                |  |                                            | (0.5  | ) |      |   | (0.5  | )
|Cash received for common stock                                                                                            |  |                                            | 3.1   |   |      |   | 0.1   |  
|Cash paid for treasury shares                                                                                             |  |                                            | (0.4  | ) |      |   | (0.1  | )
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Net cash used in financing activities                                                                                     |  |                                            | (18.5 | ) |      |   | (20.2 | )
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Net change in cash and cash equivalents                                                                                   |  |                                            | (6.8  | ) |      |   | 2.3   |  
|Cash and cash equivalents at beginning of period                                                                          |  |                                            | 7.4   |   |      |   | 0.5   |  
|                                                                                                                          |  |                                            |       |   |      |   |       |  
|Cash and cash equivalents at end of period                                                                                |  | $                                          | 0.6   |   |      | $ | 2.8   |  
|                                                                                                                          |  |                                            |       |   |      |   |       |  



See notes to condensed
financial statements.



3



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MIDAS, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)

(In millions)



|                                            |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |       |  
|------------------------------------------- |  | -------------------------------- |  | ------ | -------------- | - | ------ | ----------------------------------- | - | ------ | ----------------- | ----- | --------------------------- |  | ------- | ---- | ---------- |  | - | ---- |  | - | --- |  | - | ----- | -
|                                            |  | Common Stock and Paid-in Capital |  |        | Treasury Stock |   |        | Unamortized Restricted Stock Awards |   |        | Retained Earnings |       | Comprehensive Income (Loss) | 
|                                            |  | Shares                           |  | Amount |                |   | Shares |                                     |   | Amount |                   |       |                             |  | Current |      | Cumulative | 
|Fiscal year end 2003                        |  | 17.5                             |  | $      | 23.8           |   |        | (2.2                                | ) |        | $                 | (49.6 | )                           |  | $       | (1.3 | )          |  | $ | 74.8 |  |   |     |  | $ | (11.6 | )
|Purchase of treasury shares                 |  |                                 |  |        |               |   |        |                                    |   |        |                   | (0.4  | )                           |  |         |     |            |  |   |     |  |   |     |  |   |      |  
|Forfeiture of restricted stock awards       |  |                                 |  |        |               |   |        |                                    |   |        |                   | (0.1  | )                           |  |         | 0.1  |            |  |   |     |  |   |     |  |   |      |  
|Restricted stock awards                     |  |                                 |  |        | 0.2            |   |        | 0.1                                 |   |        |                   | 2.1   |                             |  |         | (2.3 | )          |  |   |     |  |   |     |  |   |      |  
|Exercise of stock warrants                  |  | 0.1                              |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |            |  |   |     |  |   |     |  |   |      |  
|Amortization of restricted stock awards     |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         | 1.2  |            |  |   |     |  |   |     |  |   |      |  
|Stock option transactions(a)                |  |                                 |  |        | (2.3           | ) |        | 0.3                                 |   |        |                   | 5.9   |                             |  |         |     |            |  |   |     |  |   |     |  |   |      |  
|Net income                                  |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |            |  |   | 2.1  |  | $ | 2.1 |  |   |      |  
|Other comprehensive income (loss)           |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |       |  
|Gain on derivative instruments, net of tax |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |            |  |   |     |  |   | 0.1 |  |   | 0.1   |  
|foreign currency translation adjustments   |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |            |  |   |     |  |   | 0.3 |  |   | 0.3   |  
|                                            |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |       |  
|Comprehensive income (loss)                 |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |            |  |   |     |  | $ | 2.5 |  |   |      |  
|                                            |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |       |  
|Fiscal third quarter end 2004               |  | 17.6                             |  | $      | 21.7           |   |        | (1.8                                | ) |        | $                 | (42.1 | )                           |  | $       | (2.3 | )          |  | $ | 76.9 |  |   |     |  | $ | (11.2 | )
|                                            |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |       |  



|(a) | Common stock and paid in capital includes tax benefits of $0.5 million for stock options exercised.
|--- | ---------------------------------------------------------------------------------------------------



See notes to condensed financial statements.



4



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MIDAS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS



1. Financial Statement Presentation



The condensed interim period financial statements presented herein do not include all of the information and disclosures customarily provided in annual
financial statements and they have not been audited, as permitted by the rules and regulations of the Securities and Exchange Commission. The condensed interim period financial statements should be read in conjunction with the annual financial
statements included in the annual report on Form 10-K for the fiscal year ended January 3, 2004. In the opinion of management, these financial statements have been prepared in conformity with accounting principles generally accepted in the United
States and reflect all adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods ended October 2, 2004 (third quarter fiscal 2004) and September 27, 2003 (third quarter fiscal
2003) and of its financial position as of October 2, 2004. All such adjustments are of a normal recurring nature. The results of operations for the third quarter fiscal 2004 and 2003 are not necessarily indicative of the results of operations
for the full year.



The unaudited condensed financial
statements present the consolidated financial information for Midas, Inc. and its wholly-owned subsidiaries (Midas or the Company). The unaudited condensed financial statements for the quarters ended October 2, 2004 and
September 27, 2003 both cover a 13-week period, while the unaudited condensed financial statements for the nine months ended October 2, 2004 and September 27, 2003 both cover a 39-week period. All significant inter-company balances and transactions
have been eliminated in consolidation.



Certain
reclassifications have been made to the previously reported fiscal 2003 financial statements in order to provide consistency with the fiscal 2004 results. These reclassifications did not affect previously reported net income or earnings per share.



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



|                                           |  |                                        |  |                                            |  |      |  |     
|------------------------------------------ |  | -------------------------------------- |  | ------------------------------------------ |  | ---- |  | ----
|                                           |  | For the quarter ended fiscal September |  | For the nine months ended fiscal September
|                                           |  | 2004                                   |  | 2003                                       |  | 2004 |  | 2003
|Weighted-average common shares outstanding |  | 15.5                                   |  | 15.1                                       |  | 15.3 |  | 15.1
|Common stock warrants                      |  | 0.2                                    |  | 0.5                                        |  | 0.3  |  | 0.3 
|                                           |  |                                        |  |                                            |  |      |  |     
|Shares applicable to basic earnings        |  | 15.7                                   |  | 15.6                                       |  | 15.6 |  | 15.4
|Effect of dilutive stock awards            |  | 0.5                                    |  |                                           |  | 0.5  |  |    
|                                           |  |                                        |  |                                            |  |      |  |     
|Shares applicable to diluted earnings      |  | 16.2                                   |  | 15.6                                       |  | 16.1 |  | 15.4
|                                           |  |                                        |  |                                            |  |      |  |     
|Potential common share equivalents:        |  |                                        |  |                                            |  |      |  |     
|Stock options                              |  | 1.7                                    |  | 2.1                                        |  | 1.7  |  | 2.1 



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



2. Supplemental Cash Flow Activity



Net cash flows from operating activities reflect cash payments and receipts for interest and taxes as follows (in millions):



|                   |  |                                            |      |   |      |   |      |  
|------------------ |  | ------------------------------------------ | ---- | - | ---- | - | ---- | -
|                   |  | For the nine months ended fiscal September |     
|                   |  | 2004                                       |      |   | 2003 |  
|Interest paid      |  | $                                          | 7.4  |   |      | $ | 11.7 |  
|Income tax refunds |  |                                            | (0.4 | ) |      |   | (6.9 | )
|Income taxes paid  |  |                                            | 0.1  |   |      |   | 1.1  |  



5



---

3. Inventories



Inventories, summarized by major classification, were as follows (in millions):



|                                  |  |                      |      |                     |   |     
|--------------------------------- |  | -------------------- | ---- | ------------------- | - | ----
|                                  |  | FiscalSeptember 2004 |      | FiscalDecember 2003
|                                  |  | (Unaudited)          |      |                    
|Raw materials and work in process |  | $                    | 3.2  |                     | $ | 2.9 
|Finished goods, net of reserves   |  |                      | 10.1 |                     |   | 12.2
|                                  |  |                      |      |                     |   |     
|                                  |  | $                    | 13.3 |                     | $ | 15.1
|                                  |  |                      |      |                     |   |     



4.
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 the assets of Parts Warehouse, Inc. (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 is having the effect of substantially lowering overall Company revenues and expenses compared to historical levels. Furthermore, the implementation of the Companys strategic initiatives has resulted in the Company recording
substantial business transformation charges in fiscal 2003, 2002 and 2001, to reflect the write-down of assets, the disposition of lease agreements, severance costs, and other related expenses.



The fiscal 2004 activity affecting the accrual for business transformation
charges was as follows (shown in millions):



|                                |  |                   |      |   |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  
|------------------------------- |  | ----------------- | ---- | - | ---------------------------------------- | - | ---- | --------------------------------------- |  | - | -------------------------------------------- | - |  | ----- | ---- | - |  | - | ---- | -
|                                |  | Dispositionof PWI |      |   | Rationalizationof Company-Operated Shops |   |      | Redesign ofWholesaleDistributionNetwork |  |   | AdministrativeCosts,Severance andOther Costs |   |  | Total |     
|Balance at January 3, 2004      |  | $                 | 0.8  |   |                                          | $ | 3.0  |                                         |  | $ | 5.3                                          |   |  | $     | 4.0  |   |  | $ | 13.1 |  
|Non-cash addition (utilization) |  |                   |     |   |                                          |   |     |                                         |  |   | 0.5                                          |   |  |       | (0.4 | ) |  |   | 0.1  |  
|Cash payments                   |  |                   | (0.7 | ) |                                          |   | (0.9 | )                                       |  |   | (4.4                                         | ) |  |       | (1.3 | ) |  |   | (7.3 | )
|                                |  |                   |      |   |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  
|Balance at October 2, 2004      |  | $                 | 0.1  |   |                                          | $ | 2.1  |                                         |  | $ | 1.4                                          |   |  | $     | 2.3  |   |  | $ | 5.9  |  
|                                |  |                   |      |   |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  



5.
Debt Agreements



As of January 4, 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.



6



---

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. Due to the refinancing of the Companys debt in March 2004, the amounts due after January 1,
2005 were classified as long-term in the January 3, 2004 balance sheet.



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 (discussed in Note 9) 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 October 2,
2004 balance sheet as a result of this amendment.



The
amendment also eliminates the Companys restrictions on capital expenditures and treasury stock repurchases, and reduces the interest rate on both the term loan and revolving loan by 50 basis points. Based on the new rates and the
Companys current debt levels, interest on the revolving loan is now payable at LIBOR plus 2.25% and interest on the term loan is now 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. As of October 2, 2004, the fair value of this instrument was approximately $100,000, net of taxes. This amount was recorded in other
comprehensive income as a gain on derivative instruments.



The
components of debt as of October 2, 2004 and January 3, 2004 were as follows (shown in millions):



|                                 |  |                |      |                |   |      |  
|-------------------------------- |  | -------------- | ---- | -------------- | - | ---- | -
|                                 |  | October 2,2004 |      | January 3,2004 |  
|Revolving credit facility        |  | $              | 20.1 |                | $ |     |  
|Term loan                        |  |                | 56.2 |                |   |     |  
|Term loan A                      |  |                |     |                |   | 64.7 |  
|Term loan B                      |  |                |     |                |   | 29.4 |  
|Unamortized debt discount        |  |                |     |                |   | (2.6 | )
|                                 |  |                |      |                |   |      |  
|Total debt                       |  |                | 76.3 |                |   | 91.5 |  
|Less amounts due within one year |  |                | 6.0  |                |   | 6.3  |  
|                                 |  |                |      |                |   |      |  
|Long-term debt                   |  | $              | 70.3 |                | $ | 85.2 |  
|                                 |  |                |      |                |   |      |  



6.
Pension Plans



Certain Midas employees 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. Contributions of approximately $75,000 were made to the plans for the nine months ended October 2, 2004. The Company does not expect to make material contributions to the plans during the remainder of the fiscal year.



The components of net periodic pension cost recognized for the interim
periods are presented in the following table (in millions):



7



---

|                                              |  |                                        |      |   |                                           |   |      |      |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | -------------------------------------- | ---- | - | ----------------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                              |  | For the quarter ended fiscal September |      |   | For the nine monthsended fiscal September |  
|                                              |  | 2004                                   |      |   | 2003                                      |   |      | 2004 |  |   | 2003 |  
|Service cost  benefits                       |  | $                                      | 0.4  |   |                                           | $ | 0.3  |      |  | $ | 1.2  |   |  | $ | 1.0  |  
|Interest cost on projected benefit obligation |  |                                        | 0.8  |   |                                           |   | 0.8  |      |  |   | 2.5  |   |  |   | 2.4  |  
|Expected return on plan assets                |  |                                        | (1.2 | ) |                                           |   | (1.2 | )    |  |   | (3.6 | ) |  |   | (3.6 | )
|Amortization of prior service cost            |  |                                        |     |   |                                           |   | 0.1  |      |  |   |     |   |  |   | 0.2  |  
|Amortization of net loss                      |  |                                        | 0.3  |   |                                           |   | 0.2  |      |  |   | 0.8  |   |  |   | 0.6  |  
|                                              |  |                                        |      |   |                                           |   |      |      |  |   |      |   |  |   |      |  
|Total periodic cost                           |  | $                                      | 0.3  |   |                                           | $ | 0.2  |      |  | $ | 0.9  |   |  | $ | 0.6  |  
|                                              |  |                                        |      |   |                                           |   |      |      |  |   |      |   |  |   |      |  



7.
Stock-Based Compensation



Stock options granted under the
Companys stock incentive plans are granted at market prices on the date of grant and generally vest over three or five years commencing one year after the date of the grant.



Midas accounts for stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations using the intrinsic value method, which resulted in no compensation cost for options granted.



Midass net income (loss) and earnings (loss) per share would equal the pro forma amounts shown below if compensation
cost had been determined based on the fair value at the grant dates in accordance with SFAS No. 123, Accounting for Stock-Based Compensation. (In millions, except for earnings per share):



|                                                                                            |  |                                       |      |   |      |   |       |  
|------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---- | - | ---- | - | ----- | -
|                                                                                            |  | For the quarterended fiscal September |     
|                                                                                            |  | 2004                                  |      |   | 2003 |  
|Net income (loss)                                                                           |  |                                       |      |   |      |   |       |  
|As reported                                                                                 |  | $                                     | 2.1  |   |      | $ | (11.8 | )
|Plus: stock-based compensation expense included in reported net income (loss), net of taxes |  |                                       | 0.1  |   |      |   | 0.1   |  
|Less: fair value impact of employee stock compensation, net of taxes                        |  |                                       | (0.4 | ) |      |   | (1.0  | )
|                                                                                            |  |                                       |      |   |      |   |       |  
|Pro forma                                                                                   |  | $                                     | 1.8  |   |      | $ | (12.7 | )
|                                                                                            |  |                                       |      |   |      |   |       |  
|Basic earnings (loss) per share                                                             |  |                                       |      |   |      |   |       |  
|As reported                                                                                 |  | $                                     | 0.14 |   |      | $ | (0.76 | )
|Pro forma                                                                                   |  |                                       | 0.12 |   |      |   | (0.82 | )
|Diluted earnings (loss) per share                                                           |  |                                       |      |   |      |   |       |  
|As reported                                                                                 |  | $                                     | 0.13 |   |      | $ | (0.76 | )
|Pro forma                                                                                   |  |                                       | 0.11 |   |      |   | (0.82 | )



|                                                                                            |  |                                           |      |   |      |   |       |  
|------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ---- | - | ---- | - | ----- | -
|                                                                                            |  | For the nine monthsended fiscal September |     
|                                                                                            |  | 2004                                      |      |   | 2003 |  
|Net income (loss)                                                                           |  |                                           |      |   |      |   |       |  
|As reported                                                                                 |  | $                                         | 2.1  |   |      | $ | (50.9 | )
|Plus: stock-based compensation expense included in reported net income (loss), net of taxes |  |                                           | 0.8  |   |      |   | 0.2   |  
|Less: fair value impact of employee stock compensation, net of taxes                        |  |                                           | (2.3 | ) |      |   | (1.9  | )
|                                                                                            |  |                                           |      |   |      |   |       |  
|Pro forma                                                                                   |  | $                                         | 0.6  |   |      | $ | (52.6 | )
|                                                                                            |  |                                           |      |   |      |   |       |  
|Basic earnings (loss) per share                                                             |  |                                           |      |   |      |   |       |  
|As reported                                                                                 |  | $                                         | 0.14 |   |      | $ | (3.31 | )
|Pro forma                                                                                   |  |                                           | 0.04 |   |      |   | (3.42 | )
|Diluted earnings (loss) per share                                                           |  |                                           |      |   |      |   |       |  
|As reported                                                                                 |  | $                                         | 0.13 |   |      | $ | (3.31 | )
|Pro forma                                                                                   |  |                                           | 0.04 |   |      |   | (3.42 | )



8



---

8. Warranty



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. Midas now accrues 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. Warranty expense is included in cost of sales and revenues in the condensed statements of operations.



Year-to-date warranty activity through October 2, 2004 is summarized as follows (in millions):



|                                                             |  |   |      |  
|------------------------------------------------------------ |  | - | ---- | -
|Accrued warranty at beginning of period                      |  | $ | 39.0 |  
|Warranty expense                                             |  |   | 7.1  |  
|Changes in foreign currency exchange rate                    |  |   | 0.1  |  
|Warranty credit issued to franchisees (warranty claims paid) |  |   | (7.3 | )
|                                                             |  |   |      |  
|Accrued warranty at end of period                            |  |   | 38.9 |  
|Less current portion (included in accrued expenses)          |  |   | (5.1 | )
|                                                             |  |   |      |  
|Accrued warranty  non-current                               |  | $ | 33.8 |  
|                                                             |  |   |      |  



9.
Subsequent Events



On October 27, 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. Going forward,
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 and allow the Company to continue to provide for the long-standing
Midas lifetime warranty on mufflers. 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
of exiting 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 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 has not yet been finalized and 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 is expected to more than offset the cash costs associated with employee severance and facility shut down.



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. See Note 5 for additional information.



9



---

Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.



RESULTS OF OPERATIONS



The Midas Business Transformation



The Company is in the process of transforming its business. In the past two
years, management has dramatically restructured the Companys operations and re-directed the Companys strategic focus towards the Midas retail system. These actions are 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. The implementation
of these initiatives is having the effect of substantially lowering overall Company revenues and expenses in fiscal 2004 compared with historical levels.



Certain aspects of the transformation were completed in fiscal 2003 while others continue in 2004. 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 all 77 of its Parts Warehouse, Inc. (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. Going forward, 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 and allow the Company to continue to provide for the long-standing Midas lifetime warranty on mufflers. 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.



The Midas business transformation, and resulting changes to the way the
Company does business, will continue to evolve through 2004 and into fiscal 2005. The ultimate objective of the Midas business transformation is reflected in Midas 2010 vision of 4-3-2-1. Midas management is working towards:



| | (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.



Third
Quarter Fiscal 2004 Compared with Third Quarter Fiscal 2003



The following is a summary of the Companys sales and revenues for the third quarter of fiscal 2004 and 2003: ($ millions)



|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|-------------------------------------------- |  | ---- | ---- | --------------- | ----- | - | ---- | - | --------------- |  | ----- | -
|                                             |  | 2004 |      | Percentto Total |       |   | 2003 |   | Percentto Total | 
|Franchise royalties and license fees         |  | $    | 16.6 |                 | 32.4  | % |      | $ | 16.3            |  | 21.1  | %
|Real estate revenues                         |  |      | 9.2  |                 | 17.9  |   |      |   | 9.1             |  | 11.9  |  
|Company-operated shop retail sales           |  |      | 9.2  |                 | 17.9  |   |      |   | 9.6             |  | 12.5  |  
|Replacement part sales and product royalties |  |      | 15.7 |                 | 30.6  |   |      |   | 41.6            |  | 54.0  |  
|Other                                        |  |      | 0.6  |                 | 1.2   |   |      |   | 0.4             |  | 0.5   |  
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|Total sales and revenues                     |  | $    | 51.3 |                 | 100.0 | % |      | $ | 77.0            |  | 100.0 | %
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  



Sales and revenues for
the third quarter of fiscal 2004 decreased $25.7 million or 33.4% from the third quarter of fiscal 2003 to $51.3 million, reflecting the impact of the Companys business transformation that began during fiscal 2003.



10



---

Within the retail auto service business, royalty revenues and license fees increased 1.8% from the third
quarter of 2003 due to an increase in royalties from international licensees, a 1.6% comparable shop increase in system-wide Midas retail sales and the positive sales impact of the Companys re-franchising of certain 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 certain company-operated shops increased franchise fee revenue. Sales from company-operated shops declined $0.4 million, or a decrease of 4.2% from the same period in fiscal 2003. The sales decrease reflects a reduction in the
average number of company-operated shops in operation during the third quarter compared to the prior year. Comparable shop sales for company-operated shops increased nearly 2% in the third quarter of 2004 compared to the same period in 2003.
Revenues from real estate rentals increased slightly to $9.2 million. The increase primarily reflects scheduled rent increases and the re-franchising of certain 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 $25.9 million to $15.7 million from $41.6 million in the third quarter of fiscal 2003. The decrease reflects the Companys exit from the traditional wholesale and PWI parts distribution businesses during fiscal 2003.
In fiscal 2004, such revenues are comprised of the distribution of exhaust products to AutoZone, Inc. in the US, Uni-Select Inc. in Canada and to certain independent exhaust distributors, as well as sales derived from the Companys coordination
and administration of certain merchandise programs on behalf of Midas dealers, including tires, batteries and oil. Product royalties reflect royalties earned on the sale of parts to Midas dealers by AutoZone and Uni-Select. During the third quarter
of fiscal 2004, product royalties increased more than two fold when compared to the royalties earned in the same period in 2003.



Gross profit margin was 56.0% in the third quarter of fiscal 2004 compared to a gross margin of 32.9% in the third quarter of fiscal 2003. During the
third quarter of fiscal 2003, the Company recorded charges to gross profit of $9.1 million to establish a reserve for estimated future warranty claims related to its lifetime guarantee of exhaust and brake products in Canada and to write-down the
value of inventory associated with the Companys exit from the traditional wholesale parts distribution business in Canada. Excluding these charges to gross profit, the Companys gross profit margin of 56.0% in the third quarter of fiscal
2004 compares to a gross margin of 44.7% in the third quarter of fiscal 2003. This increase was primarily due to a shift in the mix of the Companys revenues. In fiscal 2004, more than 50% of the Companys sales and revenues were derived
from the higher margin franchising and company-operated shop operations, compared with only 34% in the third quarter of fiscal 2003. 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 parts directly to Midas franchisees.



Selling, general and administrative expenses for the third quarter of 2004
decreased $8.9 million, or 28.1%, from $31.7 million in the third quarter of 2003 to $22.8 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 the third quarter of fiscal 2003.



During the third quarter of fiscal 2003, the Company recorded charges of $6.8 million related to the Companys business transformation activities.
The charges primarily reflected costs incurred as a result of the Companys decision to exit the traditional auto parts distribution business in the US and Canada, as well as costs related to PWI closures and the closure and re-franchising of
certain company-operated shops.



As a result of the above
changes, operating income increased $19.1 million from a loss of $13.2 million in the third quarter of 2003 to income of $5.9 million in the third quarter of 2004. These changes caused an increase in operating income margin to 11.5% in the third
quarter of 2004 from a negative 17.1% in the third quarter of 2003.



Interest expense decreased from $6.8 million in the third quarter of 2003 to $2.6 million in the third quarter of 2004 due to much lower interest rates on borrowings as a result of the March 2004 refinancing and a substantial reduction in
the Companys total debt compared to the prior year.



The
Companys effective tax rate was 34.1% in the third quarter of fiscal 2004 compared to 38.9% in fiscal 2003 primarily due to state tax refunds.



11



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As a result of the above items, net income improved $13.9 million from a loss of $11.8 million in the
third quarter of 2003 to income of $2.1 million in the third quarter of 2004.



Nine Months Ended Fiscal 2004 Compared with Nine Months Ended Fiscal 2003



The following is a summary of the Companys sales and revenues for the first nine months of fiscal 2004 and 2003: ($ millions)



|                                             |  |      |       |                 |       |   |      |   |                 |  |       |  
|-------------------------------------------- |  | ---- | ----- | --------------- | ----- | - | ---- | - | --------------- |  | ----- | -
|                                             |  | 2004 |       | Percentto Total |       |   | 2003 |   | Percentto Total | 
|Franchise royalties and license fees         |  | $    | 47.9  |                 | 31.9  | % |      | $ | 46.6            |  | 20.3  | %
|Real estate revenues                         |  |      | 27.3  |                 | 18.2  |   |      |   | 27.0            |  | 11.7  |  
|Company-operated shop retail sales           |  |      | 27.1  |                 | 18.0  |   |      |   | 32.5            |  | 14.2  |  
|Replacement part sales and product royalties |  |      | 46.0  |                 | 30.6  |   |      |   | 122.0           |  | 53.2  |  
|Other                                        |  |      | 1.9   |                 | 1.3   |   |      |   | 1.3             |  | 0.6   |  
|                                             |  |      |       |                 |       |   |      |   |                 |  |       |  
|Total sales and revenues                     |  | $    | 150.2 |                 | 100.0 | % |      | $ | 229.4           |  | 100.0 | %
|                                             |  |      |       |                 |       |   |      |   |                 |  |       |  



Sales and revenues for
the first nine months of fiscal 2004 decreased $79.2 million or 34.5% from the first nine months of fiscal 2003 to $150.2 million, reflecting the impact of the Companys business transformation that began during fiscal 2003.



Within the retail auto service business, royalty revenues and license fees
increased 2.8% from the first nine months of 2003 due to an increase in royalties from international licensees, a 1.5% comparable shop increase in system-wide Midas retail sales 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 $5.4 million, or a decrease of 16.6% from the same period in fiscal 2003. The sales decrease reflects a
reduction in the average number of company-operated shops in operation during the first nine months compared to the prior year. Comparable shop sales for company-operated shops increased nearly 1% in the first nine months of 2004 compared to the
same period in 2003. Revenues from real estate rentals increased slightly to $27.3 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 $76.0 million to $46.0 million from $122.0 million in the first nine months of fiscal 2003. The decrease reflects the Companys exit from the traditional wholesale and PWI parts distribution businesses
during fiscal 2003. During the first nine months of 2004, product royalties earned on the sale of parts to Midas dealers by AutoZone and Uni-Select increased more than five fold over the prior year when the transition to the AutoZone and Uni-Select
outsourced distribution arrangements had only just begun.



Gross profit margin was 57.2% in the first nine months of fiscal 2004 compared to a gross profit margin of 26.1% in the first nine months of fiscal 2003. During the first nine months of fiscal 2003, the Company recorded charges to gross
profit of $51.0 million to establish a reserve for estimated future warranty claims related to its lifetime guarantee of exhaust and brake products in the US and Canada, and to write-down the value of inventory associated with the Companys
exit from the traditional wholesale parts distribution business. Excluding these charges to gross profit, the Companys gross profit margin of 57.2% in the first nine months of fiscal 2004 compares to a gross margin of 48.3% in the first nine
months of 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 parts directly to Midas franchisees.



Selling, general and administrative expenses for the first nine months of 2004 decreased $37.3 million, or 35.4%, from $105.5 million in the first nine months of 2003 to $68.2 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 the first nine months of fiscal 2003.



12



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During the first nine months of fiscal 2003, the Company recorded charges of $19.4 million related to the
Companys business transformation activities. The charges primarily reflected costs incurred as a result of the Companys decision to exit the traditional auto parts distribution business in the US and Canada, as well as costs related to
PWI closures and the closure and re-franchising of certain company-operated shops.



As a result of the above changes, operating income increased $82.8 million from a loss of $65.1 million in the first nine months of 2003 to income of $17.7 million in the first nine months of 2004. These changes
caused an increase in operating income margin to 11.8% in the first nine months of 2004 from a negative 28.4% in the first nine months of 2003.



Interest expense decreased from $18.4 million in the first nine months of 2003 to $10.2 million in the first nine months of 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 the first nine months of
fiscal 2004 to reflect a write-off of the unamortized debt discount and financing fees related to the Companys prior debt agreement. In the first nine months of fiscal 2003, the Company recorded $1.4 million in charges related to the
extinguishment of a prior debt agreement.



The Companys
effective tax rate was 34.1% in the first nine months of fiscal 2004 compared to 38.9% in the first nine months of fiscal 2003 primarily due to state tax refunds.



As a result of the above items, net income improved $53.0 million from a loss of $50.9 million in the first nine months of
2003 to income of $2.1 million in the first nine months of 2004.



LIQUIDITY
AND CAPITAL RESOURCES



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 $6.8 million in the first nine months of fiscal 2004.



The Companys operating activities generated net cash of $12.9 million
during the first nine months of fiscal 2004 compared to $15.1 million of cash generated in the first nine months of fiscal 2003. The year-over-year decrease of $2.2 million was primarily due to a $64.7 million reduction in business transformation
costs, net of cash payments, a $4.6 million reduction in depreciation and amortization, and $20.1 million less cash generated by changes in assets and liabilities. These decreases to cash flow from operating activities were largely offset by a $53.0
million increase in net income, a $34.2 million increase in deferred income taxes, and a $3.3 million increase in loss on early extinguishment of debt. The $20.1 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. This smaller reduction in inventory was partially offset by lower
growth in accounts receivable in the first nine months of fiscal 2004 relative to 2003, and an increase in accounts payable in the first nine months of fiscal 2004 compared to a decrease in accounts payable in the first nine months of fiscal 2003.
In fiscal 2004, the collection of remaining receivables associated with the traditional wholesale and PWI operations has offset the typical seasonal growth in royalty accounts receivable. The fiscal 2003 decline in the Companys accounts
payable primarily reflected the reduction of vendor payables for vendors who supplied the Companys former wholesale parts distribution operation.



Investing activities used $1.2 million in cash during the first nine months of fiscal 2004 compared to generating $7.4 million in cash during the first
nine months of fiscal 2003. Fiscal 2004 investing activities consisted primarily of capital expenditures to maintain facilities and investments in information systems. Fiscal 2003 investing activities primarily consisted of $1.6 million in systems
development and other maintenance capital expenditures, and $9.4 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 $18.5 million in the first nine months of fiscal 2004, compared to net cash used of $20.2 million in the first nine months of fiscal 2003. In fiscal 2004, the Company reduced total debt by



13



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$19.1 million and paid $2.1 million in fees in association with the Companys debt refinancing in March 2004. In addition, the Company received $3.1
million in cash from the exercise of outstanding stock options. In fiscal 2003, the Company paid $4.8 million in financing fees and reduced total debt by $20.4 million. Additionally, the Company issued 1.0 million warrants valued at $5.0 million in
connection with its 2003 debt restructuring.



As of January 4,
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 October 2, 2004 balance sheet as a result of this amendment.



The amendment also eliminates the companys restrictions on capital expenditures and treasury stock repurchases, and
reduces the interest rate on both the term loan and revolving loan by 50 basis points. Based on the new rates and the Companys current debt levels, interest on the revolving loan is now payable at LIBOR plus 2.25% and interest on the term loan
is now 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.



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.



14



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES



In preparing the condensed 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 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.



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.



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 accruals to cover losses in the normal course of operation, 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.



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



15



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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.



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.



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.



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 No. 87 and is recognized to net periodic
pension cost over a five-year period.



Carrying Values of
Long-Lived Assets



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.



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 October 2, 2004. 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. Effective 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.



IMPACT OF NEW ACCOUNTING STANDARDS



On May 15, 2003, the Financial Accounting Standards Board (FASB)
issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The provisions of the Statement change the classification of certain freestanding financial instruments that are
now classified as equity. Generally, the



16



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Statement is effective for financial instruments entered into or modified after May 31, 2003. For certain mandatorily redeemable financial instruments, the
Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The adoption of Statement No. 150 did not have a material
effect on the financial position, results of operations, or cash flows of the Company.



In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, (FIN 46R) which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in variable interest entities (VIEs) created after December 31, 2003. For variable interests in VIEs
created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling
interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting
change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE.



FIN 46R specifically allows for certain franchisors to not adopt the above
described provisions of FIN 46 when the franchisees have sufficient decision-making authority that enables them to impact the operations and success of the franchise. Midas management believes Midas franchisees possess this threshold level of
decision-making authority and therefore does not treat any of its franchised or licensed shops as VIEs.



In December 2003, the 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 6 of Notes to Condensed Financial Statements incorporates the requirements of Statement No. 132 (revised).



FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS



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 the Companys annual report on Form 10-K. 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.



17



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As of January 1, 2005, the Companys system of internal controls must comply with the rules,
regulations and standards of the Securities and Exchange Commission and the Public Company Accounting Oversight Board adopted pursuant to or otherwise related to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404 Rules). The
Company is currently in the process of documenting and testing its internal control procedures in order to satisfy the requirements of the Section 404 Rules, which require annual management assessments of the effectiveness of internal controls over
financial reporting and a report by the Companys registered independent accounting firm addressing these assessments. During the course of testing the Company may identify deficiencies that it may not be able to remediate in time to meet the
deadline imposed by the Section 404 Rules. The failure to achieve and maintain an effective system of internal controls, or the existence of material weaknesses related to such system of internal controls, could adversely affect the Companys
stock price.



Item 3. 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. Interest rate risk is managed through a combination of fixed rate debt and variable rate borrowings. 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.



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.



Item 4. 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.



(b) Changes in internal controls over financial reporting.



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



18



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



None



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.



There were no shares repurchased during the third quarter of fiscal 2004. There were no publicly announced share repurchase
plans or programs ongoing during the third quarter of fiscal 2004 or as of October 2, 2004.



Item 3. Defaults Upon Senior Securities.



None



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



None



Item 5. Other Information.



None



Item 6. Exhibits.



|      |  |                                                                                                                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|4.27  |  | First Amendment to Amended and Restated Credit Agreement, dated as of November 5, 2004, among Midas International Corporation 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.
|      | 
|4.28  |  | Third Amendment to Rights Agreement, dated as of November 9, 2004, between Midas, Inc. and EquiServe Trust Company, N.A.                                                                                                                                                                                                                               
|      | 
|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.                                                                                                                                                              
|      | 
|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.                                                                                                                                                          
|      | 
|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.                                                                                                       
|      | 
|31.1  |  | Rule 13a  14(a) / 15d  14(a) Certification of Chief Executive Officer.                                                                                                                                                                                                                                                                               
|      | 
|31.2  |  | Rule 13a  14(a) / 15d  14(a) Certification of Chief Financial Officer.                                                                                                                                                                                                                                                                               
|      | 
|32.1  |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                           



19



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SIGNATURE



Pursuant to the requirements 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.



|                        |  |  |  |                                                  
|----------------------- |  |  |  | -------------------------------------------------
|                        |  | 
|Date: November 11, 2004 |  |  |  | /s/ Alan D. Feldman                              
|                        |  |  |  | Alan D. Feldman                                  
|                        |  |  |  | President and Chief Executive Officer            
|                        |  | 
|                        |  |  |  | /s/ William M. Guzik                             
|                        |  |  |  | William M. Guzik                                 
|                        |  |  |  | Senior Vice President and Chief Financial Officer
|                        |  | 
|                        |  |  |  | /s/ James M. Haeger, Jr.                         
|                        |  |  |  | James M. Haeger, Jr.                             
|                        |  |  |  | Vice President and Controller                    



20