Annual Statements Open main menu

MONRO, INC. - Quarter Report: 2015 December (Form 10-Q)

Table of Contents

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

 

 

 

 

 

 

 

 

FORM 10-Q

 

 

 

 

 

 

 

 

 

 

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 26, 2015.

 

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: 0-19357

 

 

 

 

 

 

 

 

 

 

MONRO MUFFLER BRAKE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

16-0838627

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification #)

 

 

200 Holleder Parkway, Rochester, New York

14615

(Address of principal executive offices)

(Zip code)

 

585-647-6400

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

 

 

 

 

 

 

 

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       No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes       No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes       No

 

As of January 22, 2016, 32,194,656 shares of the registrant's common stock, par value $ .01 per share, were outstanding.

 

 

 

 

 


 

Table of Contents

 

MONRO MUFFLER BRAKE, INC.

 

INDEX

 

 

 

Part I.  Financial Information 

Page No.

Item 1.  Financial Statements (Unaudited) 

 

Consolidated Balance Sheets at December 26, 2015 and March 28, 2015 

Consolidated Statements of Comprehensive Income for the quarters and nine months ended December 26, 2015 and December 27, 2014 

Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended December 26, 2015 

Consolidated Statements of Cash Flows for the nine months ended December 26, 2015 and December 27, 2014 

Notes to Consolidated Financial Statements 

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

14 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

17 

Item 4.  Controls and Procedures 

17 

Part II.  Other Information 

 

Item 1.  Legal Proceedings 

18 

Item 6.  Exhibits 

18 

Signatures 

19 

Exhibit Index 

20 

 

 

2

 


 

Table of Contents

 

MONRO MUFFLER BRAKE, INC.

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 26,

 

March 28,

 

 

2015

 

2015

 

 

(Dollars in thousands)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and equivalents

 

$

4,165 

 

$

7,730 

Trade receivables

 

 

4,475 

 

 

2,561 

Federal and state income taxes receivable

 

 

2,018 

 

 

 —

Inventories

 

 

131,315 

 

 

129,727 

Deferred income tax assets

 

 

15,075 

 

 

13,942 

Other current assets

 

 

32,739 

 

 

21,324 

Total current assets

 

 

189,787 

 

 

175,284 

Property, plant and equipment

 

 

630,754 

 

 

592,206 

Less - Accumulated depreciation and amortization

 

 

(281,670)

 

 

(265,454)

Net property, plant and equipment

 

 

349,084 

 

 

326,752 

Goodwill

 

 

399,353 

 

 

349,088 

Intangible assets

 

 

40,280 

 

 

34,555 

Other non-current assets

 

 

12,474 

 

 

11,947 

Long-term deferred income tax assets

 

 

11,641 

 

 

10,168 

Total assets

 

$

1,002,619 

 

$

907,794 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt, capital leases and financing obligations

 

$

10,770 

 

$

8,908 

Trade payables

 

 

69,241 

 

 

62,920 

Federal and state income taxes payable

 

 

 —

 

 

385 

Accrued payroll, payroll taxes and other payroll benefits

 

 

16,726 

 

 

22,265 

Accrued insurance

 

 

35,939 

 

 

32,373 

Warranty reserves

 

 

10,956 

 

 

10,752 

Other current liabilities

 

 

17,684 

 

 

18,190 

Total current liabilities

 

 

161,316 

 

 

155,793 

Long-term capital leases and financing obligations

 

 

161,855 

 

 

133,145 

Long-term debt

 

 

127,359 

 

 

122,543 

Accrued rent expense

 

 

5,226 

 

 

5,342 

Other long-term liabilities

 

 

19,168 

 

 

14,458 

Long-term income taxes payable

 

 

3,644 

 

 

2,902 

Total liabilities

 

 

478,568 

 

 

434,183 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Class C Convertible Preferred Stock, $1.50 par value, $.064 conversion value,
    150,000 shares authorized; 32,500 shares issued and outstanding 

 

 

49 

 

 

49 

Common Stock, $.01 par value, 65,000,000 shares authorized; 38,492,533
    and 38,007,537 shares issued at December 26, 2015 and March 28, 2015,
    respectively

 

 

385 

 

 

380 

Treasury Stock, 6,316,652 and 6,180,489 shares at December 26, 2015 and
March 28, 2015, respectively, at cost

 

 

(105,856)

 

 

(95,638)

Additional paid-in capital

 

 

183,684 

 

 

160,880 

Accumulated other comprehensive loss

 

 

(4,899)

 

 

(4,584)

Retained earnings

 

 

450,688 

 

 

412,524 

Total shareholders' equity

 

 

524,051 

 

 

473,611 

Total liabilities and shareholders' equity

 

$

1,002,619 

 

$

907,794 

 

The accompanying notes are an integral part of these financial statements.

3

 


 

Table of Contents

 

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

Fiscal December

 

Fiscal December

 

 

2015

 

2014

 

2015

 

2014

 

 

(Dollars in thousands,

 

 

except per share data)

Sales

 

$

238,942 

 

$

236,553 

 

$

714,617 

 

$

675,358 

Cost of sales, including distribution and
    occupancy costs

 

 

145,575 

 

 

146,357 

 

 

420,807 

 

 

405,667 

Gross profit

 

 

93,367 

 

 

90,196 

 

 

293,810 

 

 

269,691 

Operating, selling, general and administrative
    expenses

 

 

66,932 

 

 

62,237 

 

 

199,669 

 

 

183,395 

Operating income

 

 

26,435 

 

 

27,959 

 

 

94,141 

 

 

86,296 

Interest expense, net of interest income

 

 

3,853 

 

 

2,929 

 

 

11,003 

 

 

7,837 

Other income, net

 

 

(193)

 

 

(506)

 

 

(396)

 

 

(811)

Income before provision for income taxes

 

 

22,775 

 

 

25,536 

 

 

83,534 

 

 

79,270 

Provision for income taxes

 

 

7,544 

 

 

9,550 

 

 

30,632 

 

 

30,022 

Net income

 

 

15,231 

 

 

15,986 

 

 

52,902 

 

 

49,248 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in pension, net of tax benefit

 

 

(105)

 

 

(62)

 

 

(315)

 

 

(185)

Comprehensive income

 

$

15,126 

 

$

15,924 

 

$

52,587 

 

$

49,063 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.47

 

$

.50

 

$

1.64 

 

$

1.55 

Diluted

 

$

.46

 

$

.49

 

$

1.59 

 

$

1.50 

 

The accompanying notes are an integral part of these financial statements.

4

 


 

Table of Contents

 

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)

 

(Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Treasury Stock

 

Paid-in

 

Comprehensive

 

Retained

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Loss

 

Earnings

 

Total

Balance at March 28, 2015

 

33 

 

$

49 

 

38,008 

 

$

380 

 

6,180 

 

$

(95,638)

 

$

160,880 

 

$

(4,584)

 

$

412,524 

 

$

473,611 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,902 

 

 

52,902 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension liability adjustment
   [($505) pre-tax]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(315)

 

 

 

 

 

(315)

Cash dividends (1):   Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(342)

 

 

(342)

                                 Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,396)

 

 

(14,396)

Tax benefit from exercise
   of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,907 

 

 

 

 

 

 

 

 

5,907 

Exercise of stock options (2)

 

 

 

 

 

 

485 

 

 

 

137 

 

 

(10,218)

 

 

14,584 

 

 

 

 

 

 

 

 

4,371 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,313 

 

 

 

 

 

 

 

 

2,313 

Balance at December 26, 2015

 

33 

 

$

49 

 

38,493 

 

$

385 

 

6,317 

 

$

(105,856)

 

$

183,684 

 

$

(4,899)

 

$

450,688 

 

$

524,051 

 

(1)

Represents first, second and third quarter fiscal year 2016 dividend payments of $.15 per common share or common share equivalent paid on June 11, 2015, August 27, 2015 and December 24, 2015, respectively.

(2)

Includes the receipt of treasury stock in connection with the exercise of stock options and to partially satisfy tax withholding obligations.

 

The accompanying notes are an integral part of these financial statements.

5

 


 

Table of Contents

 

 

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

Fiscal December

 

 

2015

 

2014

 

 

(Dollars in thousands)

 

 

Increase (Decrease) in Cash

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

52,902 

 

$

49,248 

Adjustments to reconcile net income to net cash provided by
   operating activities -

 

 

 

 

 

 

Depreciation and amortization

 

 

29,402 

 

 

26,172 

Gain on bargain purchase

 

 

 —

 

 

(386)

(Gain) loss on disposal of assets

 

 

(383)

 

 

638 

Stock-based compensation expense

 

 

2,313 

 

 

2,885 

Excess tax benefits from share-based payment arrangements

 

 

(8)

 

 

(81)

Net change in deferred income taxes

 

 

4,691 

 

 

1,252 

Change in operating assets and liabilities (excluding acquisitions):

 

 

 

 

 

 

Trade receivables

 

 

(1,654)

 

 

(481)

Inventories

 

 

(714)

 

 

(6,429)

Other current assets

 

 

(10,913)

 

 

(2,245)

Other non-current assets

 

 

568 

 

 

(1,083)

Trade payables

 

 

5,281 

 

 

14,260 

Accrued expenses

 

 

(3,067)

 

 

(2,603)

Federal and state income taxes payable

 

 

3,504 

 

 

7,994 

Other long-term liabilities

 

 

(923)

 

 

(988)

Long-term income taxes payable

 

 

742 

 

 

463 

Total adjustments

 

 

28,839 

 

 

39,368 

Net cash provided by operating activities

 

 

81,741 

 

 

88,616 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(28,841)

 

 

(26,517)

Acquisitions, net of cash acquired

 

 

(48,157)

 

 

(82,658)

Proceeds from the disposal of assets

 

 

2,453 

 

 

365 

Net cash used for investing activities

 

 

(74,545)

 

 

(108,810)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings

 

 

280,006 

 

 

275,623 

Principal payments on long-term debt, capital leases

 

 

 

 

 

 

and financing obligations

 

 

(282,979)

 

 

(241,607)

Exercise of stock options

 

 

6,942 

 

 

2,124 

Excess tax benefits from share-based payment arrangements

 

 

 

 

81 

Dividends paid

 

 

(14,738)

 

 

(12,610)

Net cash (used for) provided by financing activities

 

 

(10,761)

 

 

23,611 

(Decrease) increase in cash

 

 

(3,565)

 

 

3,417 

Cash at beginning of period

 

 

7,730 

 

 

1,205 

Cash at end of period

 

$

4,165 

 

$

4,622 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

6

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Condensed Consolidated Financial Statements

 

The consolidated balance sheets as of December 26, 2015 and March 28, 2015, the consolidated statements of comprehensive income for the quarters and nine months ended December 26, 2015 and December 27, 2014, the consolidated statement of changes in shareholders’ equity for the nine months ended December 26, 2015, and the consolidated statements of cash flows for the nine months ended December 26, 2015 and December 27, 2014, include financial information for Monro Muffler Brake, Inc. and its wholly-owned subsidiaries, Monro Service Corporation and Car-X, LLC (collectively, “Monro”, “we”, “us”, “our”).  These unaudited, condensed consolidated financial statements have been prepared by Monro.  We believe all known adjustments (consisting of normal recurring accruals or adjustments) have been made to fairly state the financial position, results of operations and cash flows for the unaudited periods presented.

 

Interim results are not necessarily indicative of results for a full year.  The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 28, 2015.

 

We report our results on a 52/53 week fiscal year with the fiscal year ending on the last Saturday in March of each year.  The following are the dates represented by each fiscal period reported in these condensed financial statements:

 

 

 

“Quarter Ended Fiscal December 2015”  

  September 27, 2015 - December 26, 2015 (13 weeks)

“Quarter Ended Fiscal December 2014”  

  September 28, 2014 - December 27, 2014 (13 weeks)

“Nine Months Ended Fiscal December 2015”  

  March 29, 2015 - December 26, 2015 (39 weeks)

“Nine Months Ended Fiscal December 2014”  

  March 30, 2014 - December 27, 2014 (39 weeks)

 

Fiscal year 2016, ending March 26, 2016, is a 52 week year.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued new accounting guidance for the reporting of revenue from contracts with customers.  This guidance provides guidelines a company will apply to determine the measurement of revenue and timing of when it is recognized.  In August 2015, the FASB delayed the effective date of the guidance to fiscal years beginning after December 15, 2017.  Early adoption is permitted, but not before the original effective date for public entities.  We are currently evaluating the potential effect of the adoption of this guidance on our Consolidated Financial Statements.

 

In April 2015, the FASB issued new accounting guidance related to the presentation of debt issuance costs.  This guidance will require debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability rather than as an asset.  These costs will continue to be amortized to interest expense using the effective interest method.  This guidance is effective for fiscal years and for interim periods within those years beginning after December 15, 2015.  Retrospective adoption is required.  In September 2015, the FASB issued guidance clarifying that debt issuance costs related to revolver and line of credit arrangements can be recorded as an asset and amortized over the term of the arrangement, which is consistent with Monro’s current presentation.  The adoption of this guidance will not have a material effect on our Consolidated Financial Statements.

 

In April 2015, the FASB issued new accounting guidance related to the measurement date of an employer's defined benefit obligation and plan assets.  This guidance permits a reporting entity with a fiscal year-end that does not coincide with a month-end to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year.  This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted.  The new guidance should be applied on a prospective basis.  The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

 

In July 2015, the FASB issued new accounting guidance for the reporting of inventory.  This guidance requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value.  This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted.  We are currently evaluating the potential effect of the adoption of this guidance on our Consolidated Financial Statements.

 

7

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In September 2015, the FASB issued new accounting guidance that is intended to simplify the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments.  This guidance requires an entity to present separately on the face of the income statement or disclose in the notes the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  This guidance is effective for fiscal years and for interim periods within those years beginning after December 15, 2015.  The adoption of this guidance is not anticipated to have a material effect on our Consolidated Financial Statements.

 

In November 2015, the FASB issued new guidance related to the balance sheet classification of deferred taxes.  This guidance will require that deferred taxes and liabilities be classified as non-current in a classified statement of financial position.  This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016.  Early adoption is permitted.  The adoption of this guidance will not have a material effect on our Consolidated Financial Statements.

 

Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the SEC did not, or are not expected to have a material effect on Monro’s Consolidated Financial Statements.

 

Guarantees

 

We have guaranteed certain lease payments, primarily related to franchisees, amounting to $11.0 million.  This amount represents the maximum potential amount of future payments under the guarantees as of December 26, 2015.  The leases are guaranteed through April 2020.  In the event of default by the franchise owner, we generally retain the right to assume the lease of the related store, enabling us to re-franchise the location or to operate that location as a company-operated store.  As of December 26, 2015, we recorded a liability of $.4 million related to anticipated defaults under the foregoing leases.

 

Note 2 – Acquisitions

 

Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in existing and contiguous markets, and leverage fixed operating costs such as distribution and advertising.

 

Subsequent Event

 

On January 31, 2016, we acquired one retail tire and automotive repair store located in Georgia that will operate under the Mr. Tire name.  The acquisition was financed through our existing credit facility.

 

Fiscal 2016

 

During fiscal 2016, we acquired the following businesses for an aggregate purchase price of $50.8 million.  The acquisitions were financed through our existing credit facility.  The results of operations for these acquisitions are included in Monro’s financial results from the respective acquisition dates.

 

On December 13, 2015, we acquired four retail tire and automotive repair stores from a former Car-X franchisee located in Wisconsin, as well as one retail tire and automotive repair store located in Florida.  These stores operate under the Car-X name and The Tire Choice name, respectively.

 

In July and August 2015, we acquired three retail tire and automotive repair stores located in Illinois and Indiana from two former Car-X franchisees.  These stores operate under the Car-X name.

 

On August 16, 2015, we acquired 27 retail tire and automotive repair stores located in Central New York and Pennsylvania from Kost Tire.  These stores operate under the Mr. Tire name.

 

On July 12, 2015, we acquired four retail tire and automotive repair stores located in Massachusetts from Windsor Tire Co., Inc.  These stores operate under the Monro Brake & Tire name.

 

On April 25, 2015, we acquired the Car-X Brand, as well as the franchise rights for 146 auto service centers from Car-X Associates Corp., a subsidiary of Tuffy Associates Corp.  At the time of acquisition, the Car-X stores were owned and operated by 32 independent Car-X franchisees in Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri, Ohio, Tennessee, Texas and Wisconsin.  The franchise locations operate under the Car-X name.  Monro operates as the franchisor through a standard royalty agreement, while Car-X remains a separate and independent brand and business through Car-X, LLC, Monro’s wholly-owned subsidiary, with franchise operations based in Illinois.

 

8

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining  these businesses with ours, and unidentifiable intangible assets.  All of the goodwill is expected to be deductible for tax purposes.  We have recorded finite-lived intangible assets at their estimated fair value related to customer relationships, trade name, favorable leases and franchise agreements.

 

We expensed all costs related to acquisitions in the nine months ended December 26, 2015.  The total costs related to completed acquisitions were $.1 million and $.6 million for the three and nine months ended December 26, 2015, respectively. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

 

Sales for the fiscal 2016 acquired entities, including franchise royalty income, for the three and nine months ended December 26, 2015 totaled $9.6 million and $15.6 million, respectively, for the period from acquisition date through December 26, 2015.

 

Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.

 

The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates.  The excess of the net purchase price over net tangible and intangible assets acquired was recorded as goodwill.  The preliminary allocation of the aggregate purchase price as of December 26, 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

As of
Acquisition
Date

 

 

(Dollars in
thousands)

Trade receivables

 

$

260 

Inventories

 

 

929 

Other current assets

 

 

502 

Property, plant and equipment

 

 

10,080 

Intangible assets

 

 

11,708 

Long-term deferred income tax assets

 

 

5,583 

Other non-current assets

 

 

25 

Total assets acquired

 

 

29,087 

Warranty reserves

 

 

162 

Other current liabilities

 

 

1,610 

Long-term capital leases and financing obligations

 

 

22,143 

Other long-term liabilities

 

 

545 

Total liabilities assumed

 

 

24,460 

Total net identifiable assets acquired

 

$

4,627 

Total consideration transferred

 

$

50,769 

Less: total net identifiable assets acquired

 

 

4,627 

Goodwill

 

$

46,142 

 

The total consideration of $50.8 million is comprised of $44.8 million in cash, and a $6.0 million payable to a sellerThe payable is being liquidated via equal monthly payments through August 2022.

 

The following are the intangible assets acquired and their respective fair values and weighted average useful lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollars in
thousands

 

As of
Acquisition
Date
Weighted
Average
Useful Life

Customer relationships

 

$

1,369 

 

 

7 years

Trade name

 

 

2,100 

 

 

15 years

Franchise agreements

 

 

7,200 

 

 

18 years

Favorable leases

 

 

1,039 

 

 

15 years

Total

 

 $

11,708 

 

 

16 years

 

9

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Fiscal 2015

 

During fiscal 2015, we acquired the following businesses for an aggregate purchase price of $82.7 million.  The acquisitions were financed through our existing credit facility.  The results of operations for these acquisitions were included in Monro’s financial results for the period from acquisition date through December 27, 2014.

 

On December 7, 2014, we acquired nine retail tire and automotive repair stores in Florida from Gold Coast Tire & Auto Centers.  These stores operate under The Tire Choice name. 

 

During July and December 2014, we acquired four retail tire and automotive repair stores located in New York and Georgia through four separate transactions.  These stores operate under the Mr. Tire name. 

 

On September 28, 2014, we acquired nine retail tire and automotive repair stores located in Georgia from Wood & Fullerton Stores, LLC.  These stores operate under the Mr. Tire name. 

 

On August 8, 2014, we acquired 35 retail tire and automotive repair stores located in Florida from Hennelly Tire & Auto, Inc.  These stores operate under The Tire Choice name. 

 

On June 15, 2014, we acquired ten and nine retail tire and automotive repair stores located in Michigan from Lentz U.S.A. Service Centers, Inc. and Kan Rock Tire Company, Inc., respectively.  Two of the acquired stores never opened. These stores operate under the Monro Brake & Tire name.

 

On April 13, 2014, we acquired two retail tire and automotive repair stores located in New Hampshire from Bald Tire & Auto, Inc.  These stores were previously Tire Warehouse franchise locations and continue to operate under the Tire Warehouse name.

 

The acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, and unidentifiable intangible assets.  All of the goodwill is expected to be deductible for tax purposes.  We have recorded finite-lived intangible assets at their estimated fair value related to trade names, customer relationships and favorable leases.

 

We expensed all costs related to acquisitions in the nine months ended December 27, 2014.  The total costs related to completed acquisitions were $.3 million and $.9 million for the three and nine months ended December 27, 2014, respectively.  These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

 

Sales for the fiscal 2015 acquired entities for the three and nine months ended December 27, 2014 totaled $18.8 million and $29.5 million, respectively, for the period from acquisition date through December 27, 2014.

 

Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.

 

10

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

We have recorded the identifiable assets acquired and liabilities assumed at their estimated fair value as of their respective acquisition dates, with the remainder recorded as goodwill as follows:

 

 

 

 

 

 

 

 

 

 

 

 

As of
Acquisition
Date

 

 

(Dollars in
thousands)

Inventories

  

$

4,974 

Other current assets

 

 

563 

Property, plant and equipment

  

 

33,788 

Intangible assets

  

 

7,311 

Long-term deferred income tax assets

  

 

16,728 

Other non-current assets

 

 

72 

Total assets acquired

  

 

63,436 

Warranty reserves

  

 

737 

Other current liabilities

  

 

3,476 

Long-term capital leases and financing obligations

  

 

55,036 

Other long-term liabilities

  

 

1,465 

Total liabilities assumed

  

 

60,714 

Total net identifiable liabilities acquired

  

$

2,722 

Total consideration transferred

  

$

82,709 

Plus: gain on bargain purchase

 

 

383 

Less: total net identifiable liabilities acquired

  

 

2,722 

Goodwill

  

$

80,370 

 

The following are the intangible assets acquired and their respective fair values and weighted average useful lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollars in
thousands

 

 

As of
Acquisition
Date
Weighted
Average
Useful Life

Trade names

  

$

1,900 

  

  

 

10 years

Customer relationships

  

 

2,034 

  

  

 

7 years

Favorable leases

  

 

3,377 

  

  

 

14 years

Total

  

$

7,311 

  

  

 

11 years

 

As a result of the updated purchase price allocations, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates include an increase in property, plant and equipment of $3.6 million; a decrease in intangible assets of $1.7 million; an increase in long-term deferred income tax assets of $1.5 million; an increase in current liabilities of $.7 million; an increase in long-term capital leases and financing obligations of $7.2 million;  and a decrease in purchase price of $.4 million. The measurement period adjustments resulted in an increase to goodwill of $4.1 million.

 

We continue to refine the valuation data and estimates primarily related to inventory, road hazard warranty, intangible assets, real estate and real property leases for fiscal 2015 acquisitions subsequent to December 27, 2014, and for the fiscal 2016 acquisitions, and expect to complete valuations no later than the first anniversary date of the respective acquisition.  We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.

 

Note 3 – Earnings Per Share

 

Basic earnings per common share (“EPS”) amounts are computed by dividing income available to common shareholders, after deducting preferred stock dividends, by the average number of common shares outstanding.  Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalent securities outstanding.

11

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following is a reconciliation of basic and diluted EPS for the respective periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

Fiscal December

 

Fiscal December

 

 

2015

 

2014

 

2015

 

2014

 

 

(Dollars in thousands,

 

 

except per share data)

Numerator for earnings per common
share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

15,231 

 

$

15,986 

 

$

52,902 

 

$

49,248 

Preferred stock dividends

 

 

(114)

 

 

(98)

 

 

(342)

 

 

(296)

Income available to common stockholders

 

$

15,117 

 

$

15,888 

 

$

52,560 

 

$

48,952 

Denominator for earnings per common
share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares, basic

 

 

32,077 

 

 

31,596 

 

 

31,966 

 

 

31,558 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

760 

 

 

760 

 

 

760 

 

 

760 

Stock options

 

 

496 

 

 

481 

 

 

609 

 

 

514 

Weighted average number of common shares, diluted

 

 

33,333 

 

 

32,837 

 

 

33,335 

 

 

32,832 

Basic Earnings per common share:

 

$

.47

 

$

.50

 

$

1.64 

 

$

1.55 

Diluted Earnings per common share:

 

$

.46

 

$

.49

 

$

1.59 

 

$

1.50 

 

The computation of diluted EPS excludes the effect of the assumed exercise of approximately 164,000 and 168,000 stock options for the three and nine months ended fiscal December 26, 2015, respectively, and 153,000 and 154,000 for the three and nine months ended December 27, 2014, respectively.  Such amounts were excluded as the exercise prices of these stock options were greater than the average market value of our Common Stock for those periods, resulting in an anti-dilutive effect on diluted EPS.

 

Note 4 – Income Taxes

 

In the normal course of business, we provide for uncertain tax positions and the related interest and penalties, and adjust our unrecognized tax benefits and accrued interest and penalties accordingly.  The total amounts of unrecognized tax benefits were $8.0 million and $7.5 million at December 26, 2015 and March 28, 2015, respectively, the majority of which, if recognized, would affect the effective tax rate.  As of December 26, 2015, we had approximately $.6 million of interest and penalties accrued related to unrecognized tax benefits.

 

We file U.S. federal income tax returns and income tax returns in various state jurisdictions.  Our fiscal 2013 through fiscal 2015 U.S. federal tax years and various state tax years remain subject to income tax examinations by tax authorities.

 

Note 5 – Fair Value

 

Long-term debt had a carrying amount and a fair value of $127.4 million as of December 26, 2015, as compared to a carrying amount and a fair value of $122.5 million as of March 28, 2015.  The fair value of long-term debt was estimated based on discounted cash flow analyses using either quoted market prices for the same or similar issues, or the current interest rates offered to Monro for debt with similar maturities.

 

12

 


 

Table of Contents

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 6 – Supplemental Disclosure of Cash Flow Information

 

The following represents non-cash investing and financing activities during the periods indicated:

 

Nine Months Ended December 26, 2015:

 

In connection with the fiscal 2016 acquisitions, liabilities were assumed as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Fair value of assets acquired

 

$

29,087 

Goodwill acquired

 

 

46,142 

Cash paid, net of cash acquired

 

 

(44,769)

Less: Amount payable to the seller

 

 

(6,000)

Liabilities assumed

 

$

24,460 

 

Nine Months Ended December 27, 2014:

 

In connection with the fiscal 2015 acquisitions, liabilities were assumed as follows:

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Fair value of assets acquired

 

$

63,436 

Goodwill acquired

 

 

80,370 

Gain on bargain purchase

 

 

(383)

Cash paid, net of cash acquired

 

 

(82,709)

Liabilities assumed

 

$

60,714 

 

These amounts reflect final purchase accounting adjustments for the fiscal 2015 acquisitions.  (See Note 2).

 

Purchase accounting adjustments related to the fiscal 2015 acquisitions increased goodwill by $4.1 million in fiscal 2016.

 

Note 7 – Cash Dividend

 

In May 2015, our Board of Directors declared its intention to pay a regular quarterly cash dividend during fiscal 2016 of $.15 per common share or common share equivalent to be paid beginning with the first quarter of fiscal 2016.  However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.

 

Note 8 – Subsequent Events

 

On January 25, 2016, we entered into a new five-year, $600 million Senior Secured Revolving Credit Facility agreement with nine banks (the “Credit Facility”).  Interest only is payable monthly throughout the Credit Facility’s term.  The Credit Facility increases our current borrowing capacity by $350 million to $600 million and includes an accordion feature permitting us to request an increase in availability of up to an additional $100 million, an increase of $25 million from our prior financing agreement.  The expanded facility bears interest at 75 to 175 basis points over LIBOR.

 

Within the Credit Facility, we have a sub-facility of $80 million for the purpose of issuing standby letters of credit.  The line requires fees aggregating 87.5 to 187.5 basis points over LIBOR annually of the face amount of each standby letter of credit, payable quarterly in arrears. 

 

Specific terms and the maintenance of specified ratios are generally consistent with our prior financing agreement.  Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions.

 

See Note 2 for a discussion of an acquisition subsequent to December 26, 2015.

 

 

 

13

 


 

Table of Contents

 

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

 

Forward-Looking Statements

 

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including (without limitation) statements made in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  When used in this Quarterly Report on Form 10-Q, the words “anticipates”, “believes”, “contemplates”, “see”, “could”, “estimate”, “appear”, “intend”, “plans” and variations thereof and similar expressions, are intended to identify forward-looking statements.  Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed.  These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which Monro’s stores are located, the need for and costs associated with store renovations and other capital expenditures, the effect of economic conditions, seasonality, the impact of weather conditions, the impact of competitive services and pricing, parts supply restraints or difficulties, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, disruption or unauthorized access to our computer systems, risks relating to protection of customer and employee personal data, risks relating to litigation, risks relating to integration of acquired businesses, including goodwill impairment and the risks set forth in our Annual Report on Form 10-K for the fiscal year ended March 28, 2015Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

 

Results of Operations

 

The following table sets forth income statement data of Monro Muffler Brake, Inc. expressed as a percentage of sales for the fiscal periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

Fiscal December

 

Fiscal December

 

 

2015

 

2014

 

2015

 

2014

Sales

 

100.0 

%

 

100.0 

 

100.0 

%

 

100.0 

Cost of sales, including distribution and
    occupancy costs

 

60.9 

 

 

61.9 

 

 

58.9 

 

 

60.1 

 

Gross profit

 

39.1 

 

 

38.1 

 

 

41.1 

 

 

39.9 

 

Operating, selling, general and administrative
    expenses

 

28.0 

 

 

26.3 

 

 

27.9 

 

 

27.2 

 

Operating income

 

11.1 

 

 

11.8 

 

 

13.2 

 

 

12.8 

 

Interest expense - net

 

1.6 

 

 

1.2 

 

 

1.5 

 

 

1.2 

 

Other income - net

 

(0.1)

 

 

(0.2)

 

 

(0.1)

 

 

(0.1)

 

Income before provision for income taxes

 

9.5 

 

 

10.8 

 

 

11.7 

 

 

11.7 

 

Provision for income taxes

 

3.2 

 

 

4.0 

 

 

4.3 

 

 

4.4 

 

Net income

 

6.4 

%

 

6.8 

 

7.4 

%

 

7.3 

 

Third Quarter and Nine Months Ended December 26, 2015 Compared to Third Quarter and Nine Months Ended December 27, 2014

 

Sales were $238.9 million for the quarter ended December 26, 2015 as compared with $236.6 million for the quarter ended December 27, 2014.  The sales increase of $2.4 million, or 1.0%, was due primarily to an increase of $13.9 million related to new stores, of which $13.0 million came from the fiscal 2015 and fiscal 2016 acquisitions.  Partially offsetting this was a decrease in comparable store sales of 2.5%.  Additionally, there was a decrease in sales from closed stores amounting to $5.2 million, largely related to the BJ’s store closures in fiscal year 2015.  There were 89 selling days in both the quarters ended December 26, 2015 and December 27, 2014. 

 

Additionally, during the quarter ended December 27, 2014, we completed the bulk sale of approximately $2.1 million of slower moving inventory to a barter company in exchange for barter credits.  There was no similar transaction in the third quarter of fiscal 2016.

 

Sales were $714.6 million for the nine months ended December 26, 2015 as compared with $675.4 million for the nine months ended December 27, 2014.  The sales increase of $39.3 million or 5.8%, was due primarily to an increase of $57.6 million related to new stores, of which $53.7 million came from the fiscal 2015 and fiscal 2016 acquisitions.  Partially offsetting this was a decrease in sales from closed stores amounting to $16.5 million.  Additionally, there was a decrease in comparable store sales of .3%.  There were 270 selling days in both the first nine months of fiscal 2016 and fiscal 2015. 

 

14

 


 

Table of Contents

 

Barter sales of slower moving inventory totaled approximately $2.0 million and $5.0 million for the nine months ended December 26, 2015 and December 27, 2014, respectively.

 

At December 26, 2015, we had 1,031 company-operated stores and 138 franchised locations as compared with 1,017 company-operated stores and one franchised location at December 27, 2014.  During the quarter ended December 26, 2015, we added seven company-operated stores and closed five stores.  Year-to-date, we have added 46 company-operated stores and closed 14 stores.

 

With regard to franchised locations, we opened one during the third quarter of this year, closed two and purchased four.  Year-to-date, we have opened one franchised location, closed three and purchased seven.

 

The third quarter fiscal 2016 decline in comparable store sales related primarily to a decline of approximately 4% in comparable store tire sales, resulted mainly from the impact of milder winter weather conditions in our markets.   Historically, the Company’s third fiscal quarter is the strongest quarter for tire sales due to harsh winter weather conditions.  Despite the adverse weather impact, comparable store sales in some key service categories remained positive, including an increase of approximately 2% in brakes and 6% in alignments.

 

Gross profit for the quarter ended December 26, 2015 was $93.4 million or 39.1% of sales as compared with $90.2 million or 38.1% of sales for the quarter ended December 27, 2014.  The increase in gross profit for the quarter ended December 26, 2015, as a percentage of sales, is due to a decrease in material costs.  Total material costs, including outside purchases, decreased as a percentage of sales as compared to the quarter ended December 27, 2014.  This was largely due to a decrease in oil and tire costs, as well as a shift in mix from the lower margin tire category to higher margin service categories.  Additionally, the barter sale in the quarter ended December 27, 2014 had a small negative impact on gross profit, as the margin recognized in these transactions is typically less than our normal profit margin.   

 

Offsetting the decrease in total material costs, as a percentage of sales, was a slight increase in distribution and occupancy costs, which are largely fixed costs, and slight increase in labor costs as compared to the comparable period in the prior year.  However, productivity, as measured by sales per man hour, was up as compared to the same quarter of last year.

 

Gross profit for the nine months ended December 26, 2015 was $293.8 million or 41.1% of sales as compared with $269.7 million or 39.9% of sales for the nine months ended December 27, 2014.  The year-to-date increase in gross profit as a percent of sales is largely due to decreased material costs as described above, but all related to cost and not mix, as well as the impact of the barter transactions.  Additionally, labor costs as a percentage of sales decreased slightly as compared to the prior year.

 

Operating expenses for the quarter ended December 26, 2015 were $66.9 million or 28.0% of sales as compared with $62.2 million or 26.3% of sales for the quarter ended December 27, 2014.  As a percent of sales, the increase is largely due to an increase of $2.1 million of due diligence costs (the majority of which related to an unsuccessful transaction), as well as the pressure of relatively fixed store direct costs on negative comparable store sales.

 

For the nine months ended December 26, 2015, operating expenses increased by $16.3 million to $199.7 million from the comparable period of the prior year and were 27.9% of sales as compared to 27.2% of sales for the nine months ended December 27, 2014.  Largely accounting for the increase as a percent of sales, was an increase of $2.5 million of due diligence costs as compared to the first nine months of the prior year, as well as margin pressure related to negative comparable store sales.

 

Operating income for the quarter ended December 26, 2015 of approximately $26.4 million decreased by 5.5% as compared to operating income of approximately $28.0 million for the quarter ended December 27, 2014, and decreased as a percentage of sales from 11.8% to 11.1% for the reasons described above.

 

Operating income for the nine months ended December 26, 2015 of approximately $94.1 million increased by 9.1% as compared to operating income of approximately $86.3 million for the nine months ended December 27, 2014, and increased as a percentage of sales from 12.8% to 13.2% for the reasons described above.

 

Net interest expense for the quarter ended December 26, 2015 increased by approximately $.9 million as compared to the same period in the prior year, and increased from 1.2% to 1.6% as a percentage of sales for the same periods.  The weighted average debt outstanding for the quarter ended December 26, 2015 increased by approximately $15 million as compared to the quarter ended December 27, 2014.  This increase is all related to an increase in capital lease debt recorded in connection with the fiscal 2015 and fiscal 2016 acquisitions, partially offset by a decrease in debt outstanding under our Revolving Credit Facility.  There was also an increase in the weighted average interest rate of approximately 100 basis points from the prior year, largely due to capital lease debt, as well as an increase in the LIBOR and prime rates versus the same time last year.

 

15

 


 

Table of Contents

 

Net interest expense for the nine months ended December 26, 2015 increased by approximately $3.2 million as compared to the same period in the prior year, and increased from 1.2% to 1.5% as a percentage of sales for the same periods.  Weighted average debt increased by approximately $48 million and the weighted average interest rate increased by approximately 75 basis points as compared to the same period of the prior year due to an increase in capital lease debt.

 

The effective income tax rate for the quarter ended December 26, 2015 and December 27, 2014 was 33.1% and 37.4%, respectively.  The decrease in the effective income tax rate for the quarter ended December 26, 2015 related primarily to a net tax benefit that was recorded for $.7 million.  Prior to the quarter ended December 26, 2015, we engaged tax specialists to assess the qualification of intercompany transactions in accordance with U.S. Treasury Regulations of the Internal Revenue Code Section 482.  Based on this assessment, we concluded that certain tax benefits of $.7 million should be recognized as a discrete item during this period.  Excluding this net tax benefit, the effective income tax rate would have been approximately 36.3% for the quarter ended December 26, 2015.

 

Over the past five years, we have recorded an average tax benefit of approximately $.02 earnings per share in the third quarter of each fiscal year, primarily due to normal accounting for uncertain tax positions and other third quarter provision-to-return adjustments.  This year was slightly higher due to the reduction of tax reserves related to the aforementioned refinement of transfer pricing.

 

The effective tax rate for the nine months ended December 26, 2015 and December 27, 2014 was 36.7% and 37.9%, respectively, of pre-tax income.

 

Net income for the quarter ended December 26, 2015 of $15.2 million decreased 4.7% from net income for the quarter ended December 27, 2014.  Earnings per share on a diluted basis for the quarter ended December 26, 2015 of $.46 decreased 6.1%.

 

For the nine months ended December 26, 2015, net income of $52.9 million increased 7.4% and diluted earnings per share of $1.59 increased 6.0%.

 

Capital Resources and Liquidity

 

Capital Resources

 

Our primary capital requirements in fiscal 2016 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains.  For the nine months ended December 26, 2015, we spent approximately $77.0 million on these items.  Capital requirements were met primarily by cash flow from operations and from our revolving credit facility.

 

In May 2015, our Board of Directors declared its intention to pay a regular quarterly cash dividend of $.15 per common share or common share equivalent beginning with the first quarter of fiscal 2016.  We paid dividends of $14.7 million during the nine months ended December 26, 2015.  However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on Monro’s financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.

 

We also plan to continue to seek suitable acquisition candidates.  We believe we have sufficient resources available (including cash flow from operations and bank financing) to expand our business as currently planned for the next twelve months.

 

Liquidity

 

In June 2011, we entered into a five-year, $175 million Revolving Credit Facility agreement with seven banks (the “Credit Facility”).  The Credit Facility amended and restated, in its entirety, the Credit Facility previously entered into by Monro as of July 2005 and amended from time to time.  The Credit Facility also provided an accordion feature permitting us to request an increase in availability of up to an additional $75 million.

 

In December 2012, the Credit Facility was amended to include the following: the committed sum was increased by $75 million to $250 million; the term was extended for another one and a half years, such that the Facility now expires in December 2017; and the $75 million accordion feature was maintained.  There were no other changes in terms including those related to covenants or interest rates.  Six banks participate in the syndication.  There was $127.4 million outstanding under the Credit Facility at December 26, 2015.

 

Within the Credit Facility, we have a sub-facility of $40 million available for the purpose of issuing standby letters of credit.  There was an outstanding letter of credit for $23.7 million at December 26, 2015.

 

The net availability under the Credit Facility at December 26, 2015 was $98.9 million.

16

 


 

Table of Contents

 

 

Specific terms of the Credit Facility permit the payment of cash dividends not to exceed 50% of the prior year’s net income, and permit mortgages and specific lease financing arrangements with other parties with certain limitations.  Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions.  The agreement also requires the maintenance of specified interest and rent coverage ratios.  We were in compliance with all debt covenants at December 26, 2015.

 

On January 25, 2016, we entered into a new five-year, $600 million Senior Secured Revolving Credit Facility agreement with nine banks (the “New Credit Facility”).  The New Credit Facility includes an accordion feature permitting us to request an increase in availability of up to an additional $100 million.  Within the New Credit Facility, we have a sub-facility of $80 million for the purpose of issuing standby letters of credit. 

 

We have financed certain store properties and equipment with capital leases/financing obligations, which amounted to $172.6 million at December 26, 2015 and are due in installments through fiscal year 2045.

 

Recent Accounting Pronouncements

 

Refer to Note 1 for the discussion of recent accounting pronouncements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk from potential changes in interest rates.  There was no fixed rate debt outstanding at December 26, 2015.  Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately $1.3 million based upon our debt position at December 26, 2015 and $1.2 million for the fiscal year ended March 28, 2015, given a 1% change in LIBOR.

 

Debt financing had a carrying amount and a fair value of $127.4 million as of December 26, 2015, as compared to a carrying amount and a fair value of $122.5 million as of March 28, 2015.

 

Item 4.  Controls and Procedures

 

Disclosure controls and procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit to the Securities and Exchange Commission pursuant to 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, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

In conjunction with the close of each fiscal quarter and under the supervision of our Chief Executive Officer and Chief Financial Officer, we conduct an update, a review and an evaluation of the effectiveness of our disclosure controls and procedures.  It is the conclusion of our Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that our disclosure controls and procedures were effective.

 

Changes in internal controls over financial reporting

 

There were no changes in our internal control over financial reporting during the quarter ended December 26, 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

17

 


 

Table of Contents

 

MONRO MUFFLER BRAKE, INC.

PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

We are not a party or subject to any legal proceedings other than certain claims and lawsuits that arise in the normal course of our business.  We do not believe that such claims or lawsuits, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

 

Item 6.  Exhibits

 

Exhibits

 

10.04a – Amendment No. 1 to April 1, 2013 Restatement, dated October 27, 2014, to the Monro Muffler Brake, Inc. Retirement Plan

 

10.04b – Amendment No. 2 to April 1, 2013 Restatement, dated December 10, 2015, to the Monro Muffler Brake, Inc. Retirement Plan

 

10.05a – First Amendment to the 2014 Restatement, dated December 10, 2015, to the Monro Muffler Brake, Inc. Amended and Restated Profit Sharing Plan

 

10.18* – Credit Agreement dated January 25, 2016 among Monro Muffler Brake, Inc., Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein (January 2016 Form 8-K, Exhibit No. 10.18)

 

10.19 – Security Agreement dated January 25, 2016 among Monro Muffler Brake, Inc., Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein

 

10.20 – Guaranty dated January 25, 2016 among Monro Muffler Brake, Inc., Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein

 

10.21 – Negative Pledge Agreement dated January 25, 2016 among Monro Muffler Brake, Inc., Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein

 

31.1 – Certification of John W. Van Heel pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

 

31.2 – Certification of Catherine D’Amico pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

 

32.1 – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002

 

101.CAL - XBRL Taxonomy Extension Calculation Linkbase

 

101.INS - XBRL Instance Document

 

101.LAB - XBRL Taxonomy Extension Label Linkbase

 

101.PRE - XBRL Taxonomy Extension Presentation Linkbase

 

101.SCH - XBRL Taxonomy Extension Schema Linkbase

 

101.DEF - XBRL Taxonomy Extension Definition Linkbase

 

* An asterisk “*” following an exhibit number indicates that the exhibit is incorporated herein by reference to an exhibit to the Company’s Current Report on Form 8-K, filed on January 28, 2016 (“January 2016 Form 8-K”).

 

 

18

 


 

Table of Contents

 

SIGNATURES

 

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.

 

 

 

 

 

 

 

MONRO MUFFLER BRAKE, INC.

 

 

 

 

DATE: February 4, 2016

 

By:

/s/ John W. Van Heel

 

 

 

John W. Van Heel

 

 

 

Chief Executive Officer and President

 

 

 

 

DATE: February 4, 2016

 

By:

/s/ Catherine D’Amico

 

 

 

Catherine D’Amico

 

 

 

Executive Vice President-Finance, Treasurer and

 

 

 

Chief Financial Officer (Principal Financial Officer)

 

 

 

 

DATE: February 4, 2016

 

By:

/s/ Brian J. D’Ambrosia

 

 

 

Brian J. D’Ambrosia

 

 

 

Vice President-Controller and Chief Accounting

 

 

 

Officer (Principal Accounting Officer)

 

 

 

 

 

19

 


 

Table of Contents

 

EXHIBIT INDEX

 

 

 

 

Exhibit No.

Description

.

10.04a

Amendment No. 1 to April 1, 2013 Restatement, dated October 27, 2014, to the Monro Muffler Brake, Inc. Retirement Plan

 

10.04b

Amendment No. 2 to April 1, 2013 Restatement, dated December 10, 2015, to the Monro Muffler Brake, Inc. Retirement Plan

 

10.05a

First Amendment to the 2014 Restatement, dated December 10, 2015, to the Monro Muffler Brake, Inc. Amended and Restated Profit Sharing Plan

 

10.19

Security Agreement dated January 25, 2016 among Monro Muffler Brake, Inc., Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein

 

10.20

Guaranty dated January 25, 2016 among Monro Muffler Brake, Inc., Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein

 

10.21

Negative Pledge Agreement dated January 25, 2016 among Citizens Bank N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., Key Bank National Association and the Lenders Named therein

 

31.1

Certification of John W. Van Heel pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

Certification of Catherine D’Amico pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

 

101.INS

XBRL Instance Document

 

101.LAB

XBRL Taxonomy Extension Label Linkbase

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

101.SCH

XBRL Taxonomy Extension Schema Linkbase

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase

 

 

 

 

20