How does Big O Tires fund the Midas warranty program in the United States?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
sale | (23,549) | |---|---| | Balance as of March 31, 2025 | $10,286 | For certain Midas products, customers are provided a written warranty from Midas for products purchased from Midas shops in North America, namely brake friction, mufflers, shocks, and struts. 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 future cost of redemption of each future warranty. Management develops these estimates based on actual historical registration and redemption data as well as actual cost information on current redemptions.
The Midas warranty program in the United States was funded directly by Midas franchisees. The franchisees are charged a fee for each warranted product sold to customers and are issued credits
(A Joint Venture of Michelin North America, Inc. and Sumitomo Corporation of Americas) Notes to Consolidated Financial Statements March 31, 2025, 2024 and 2023
(USO in thousands, unless otherwise noted)
for all warranties that are redeemed.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to the 2025 Big O Tires FDD, the Midas warranty program in the United States is funded directly by Midas franchisees. Midas franchisees are charged a fee for each warranted product sold to customers. In return, the franchisees receive credits for all warranties that are redeemed.
The fees collected from franchisees are recorded as receivables by Midas on behalf of the warranty fund. The redemption credits issued to franchisees are recorded as a liability to the fund. This arrangement means that Midas does not record any revenues or expenses related to the warranty program, and the program has no net impact on Midas's operational results.
For a Big O Tires franchisee, this information is relevant because Big O Tires and Midas are both under the umbrella of TBC Holdings, LLC. While Big O franchisees do not directly fund the Midas warranty program, this excerpt from the FDD demonstrates how warranty programs within the TBC Holdings, LLC operate. Big O franchisees should understand the funding mechanisms for warranties, as they may be required to participate in similar warranty programs for products sold other than Big O Program Products.