SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For Fiscal Year Ended March 29, 2014
OR25, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-19357
MONRO MUFFLER BRAKE, INC.
(Exact name of registrant as specified in its charter)
New York | 16-0838627 | |||
(State of incorporation) | (I.R.S. Employer Identification No.) | |||
200 Holleder Parkway, | ||||
Rochester, New York | 14615 | |||
(Address of principal executive offices) | (Zip code) |
Registrant’s
Registrant's telephone number, including area code:
(585) 647-6400
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
Name of each exchange on which registered: The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
Indicate by check mark if 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 has submitted electronically and posted on its corporate Web site, 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 x☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “small reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
LargeAcceleratedFiler | AcceleratedFiler ☐ | Non‑AcceleratedFiler | SmallerReportingCompany | |||||
Emerging Growth Company ☐ | (Do not check if a 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 x☒
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’sregistrant's most recently completed second fiscal quarter, September 28, 2013,24, 2016, was approximately $1,386,400,000.$1,918,400,000.
As of May 9, 2014, 31,510,4795, 2017, 32,692,965 shares of the registrant’sregistrant's Common Stock, par value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’sregistrant's definitive proxy statement (to be filed pursuant to Regulation 14A) for the 20142017 Annual Meeting of Shareholders (the “Proxy Statement”"Proxy Statement") are incorporated by reference into Part III hereof.
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FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K that are not historical facts, including (without limitation) statements made in this Item 1.Business
GENERAL
and in “Item 1 – Business”, 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 Annual Report on Form 10-K, the words “anticipates”, “believes”, “contemplates”, “expects”, “see”, “could”, “may”, “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 Muffler Brake, Inc.’s (“Monro”, the “Company”, “we”, “us”, or “our”) 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, our dependence on vendors, including foreign vendors, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, advances in automotive technologies, disruption or unauthorized access to our computer systems, risks relating to protection of customer and employee personal data, business interruptions, risks relating to litigation, risks relating to integration of acquired businesses, including goodwill impairment and the risks set forth in “Item 1A. Risk Factors”. Except as required by law, we do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf.
GENERAL
Monro is a chain of 9531,118 Company-operated stores (as of March 29, 2014)25, 2017), three114 franchised locations, five wholesale locations, two retread facilities and 14 dealer-operated stores providing automotive undercar repair and tire sales and services in the United States. At March 29, 2014,25, 2017, Monro operated Company stores in 2227 states, including New York, Pennsylvania, Ohio, Connecticut, Delaware, Florida, Georgia, Iowa, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, West Virginia, Virginia, Maryland, Vermont,Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Indiana, Rhode Island, Delaware, Maine, Illinois, Missouri,Tennessee, Vermont, Virginia, West Virginia and Wisconsin, Tennessee and Kentucky primarily under the names “Monro Muffler Brake & Service”, “Tread Quarters Discount Tire”, “Mr. Tire”, “Autotire Car Care Center”, “Tire Warehouse”, “Tire Barn Warehouse” and, “Ken Towery’s Tire & Auto Care” (together, the “Company Stores”), “The Tire Choice”, “Car-X” and “McGee Tire”. Company StoresCompany-operated stores typically are situated in high-visibility locations in suburban areas and small towns, as well as in major metropolitan areas. Company StoresCompany-operated stores serviced approximately 5.35.9 million vehicles in fiscal 2014.2017. (References herein to fiscal years are to the Company’sCompany's year ended fiscal March [e.g., references to “fiscal 2014”"fiscal 2017" are to the Company’sCompany's fiscal year ended March 29, 2014]25, 2017].)
The predecessor to the Company was founded by Charles J. August in 1957 as a Midas Muffler franchise in Rochester, New York, specializing in mufflers and exhaust systems. The Company was incorporated in the State of New York in 1959. In 1966, we discontinued our affiliation with Midas Muffler, and began to diversify into a full line of undercar repair services. An investor group led by Peter J. Solomon and Donald Glickman purchased a controlling interest in the Company in July 1984. At that time, Monro operated 59 stores, located primarily in upstate New York, with approximately $21 million in sales in fiscal 1984. Since 1984, we have continued our growth and have expanded our marketing area to include 2226 additional states (including dealer locations).states.
In December 1998, Monro appointed Robert G. Gross as President and Chief Executive Officer, who began full-time responsibilities on January 1, 1999. Effective October 1, 2012, Mr. Gross assumed the role of Executive Chairman and John W. Van Heel was appointed Chief Executive Officer.
The Company’sCompany's principal executive offices are located at 200 Holleder Parkway, Rochester, New York 14615, and our telephone number is (585) 647-6400.
Monro provides a broad range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment. Monro also provides other products and services, including tires and routine maintenance services, including state inspections. Monro specializes in the repair and replacement of parts which must be periodically replaced as they wear out. Normal wear on these parts generally is not covered by new car warranties. Monro typically does not perform under-the-hood repair services except for oil change services, various “flush and fill” services and some minor tune-up services. Monro does not sell parts or accessories to the do-it-yourself market.
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All of the Company’sCompany-operated stores, except Tire Warehouse and Tire Barn Warehouse stores, provide the services described above. Tire Warehouse and Tire Barn Warehouse stores only sell tires and tire related services and alignments. However, a growing number of our Company-operated stores are more specialized in tire replacement and service and, accordingly, have a higher mix of sales in the tire category. These Company-operated stores are described below as tire stores, whereas the majority of ourremaining stores are described as service stores. (See additional discussion under “Operating Strategy”.) Included in the number of Company-operated stores described as tire stores are certain locations that also service commercial customers. Our locations that serve commercial customers conduct tire and automotive repair activities that are similar to our retail locations, other than with respect to the sales mix resulting from the sale of commercial tires. At March 29, 2014,25, 2017, there were 532534 stores designated as service stores and 421584 as tire stores.
During fiscal 2017, we acquired four wholesale locations and one retread facility located in North Carolina, South Carolina and Tennessee in connection with the Clark Tire & Auto, Inc. acquisition that operate under the Tires Now name. Additionally, we acquired one retread facility located in Florida in connection with the McGee Tire Stores, Inc. acquisition that operates under the McGee Tire name. (See additional discussion under Note 2 to the Company’s Consolidated Financial Statements.)
1As of March 25, 2017, Monro had five wholesale locations and two retread facilities. The wholesale locations, in most cases, sell tires to customers for resale, although these tire sales do not include installation or other tire related services. The retread facilities re-manufacture tires through the replacement of tread on worn tires that are later sold to customers.
Our sales mix for fiscal 2014, 20132017, 2016 and 2012 is2015 was as follows:
Service Stores | Tire Stores | Total Company | ||||||||||||||||||||||||||||||||||
FY14 | FY13 | FY12 | FY14 | FY13 | FY12 | FY14 | FY13 | FY12 | ||||||||||||||||||||||||||||
Brakes | 24 | % | 24 | % | 26 | % | 9 | % | 9 | % | 10 | % | 15 | % | 15 | % | 18 | % | ||||||||||||||||||
Exhaust | 9 | 9 | 10 | 1 | 1 | 1 | 4 | 4 | 5 | |||||||||||||||||||||||||||
Steering | 11 | 12 | 12 | 8 | 8 | 8 | 9 | 10 | 10 | |||||||||||||||||||||||||||
Tires | 18 | 17 | 16 | 60 | 60 | 60 | 44 | 42 | 39 | |||||||||||||||||||||||||||
Maintenance | 38 | 38 | 36 | 22 | 22 | 21 | 28 | 29 | 28 | |||||||||||||||||||||||||||
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Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
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| Service Stores |
| Tire Stores |
| Total Company | |||||||||||||||||||||
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| FY17 |
| FY16 |
| FY15 |
| FY17 |
| FY16 |
| FY15 |
| FY17 |
| FY16 |
| FY15 | |||||||||
Brakes |
| 23 | % |
| 25 | % |
| 25 | % |
| 9 | % |
| 10 | % |
| 10 | % |
| 13 | % |
| 15 | % |
| 15 | % |
Exhaust |
| 8 |
|
| 9 |
|
| 9 |
|
| 1 |
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| 1 |
|
| 1 |
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| 2 |
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| 3 |
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| 3 |
|
Steering |
| 11 |
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| 11 |
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| 11 |
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| 8 |
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| 9 |
|
| 9 |
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| 9 |
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| 10 |
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| 10 |
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Tires |
| 22 |
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| 20 |
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| 19 |
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| 59 |
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| 56 |
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| 57 |
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| 49 |
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| 45 |
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| 44 |
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Maintenance |
| 36 |
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| 35 |
|
| 36 |
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| 23 |
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| 24 |
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| 23 |
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| 27 |
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| 27 |
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| 28 |
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Total |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % |
| 100 | % |
The Company has onetwo wholly-owned subsidiary,subsidiaries, Monro Service Corporation which isand Car-X, LLC.
Monro Service Corporation, a Delaware corporation qualified to do business in the states of Kentucky, Maryland, New Hampshire, New York, Maryland, Illinois,North Carolina, South Carolina, Tennessee and Virginia, Kentucky and New Hampshire.
Monro Service Corporation holds all assets, rights, responsibilities and liabilities associated with our warehousing, purchasing, advertising, accounting, office services, payroll, cash management and certain other operations that are performed in the states of New York, Maryland, Illinois, Virginia, Kentucky and New Hampshire.aforementioned states. We believe that this structure has enhanced operational efficiency and provides cost savings.
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. (See additional discussion under Note 2 to the Company’s Consolidated Financial Statements.) Car-X, LLC, a Delaware limited liability company, operates as the franchisor through a standard royalty agreement, while Car-X remains a separate and independent brand and business with franchise operations based in Illinois.
As of March 25, 2017, Monro had 113 Car-X franchised locations.
Monro’s operations are organized and managed in one operating segment. The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale locations. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting.
INDUSTRY OVERVIEW
According to industry reports, demand
Demand for automotive repair services, including undercar repair and tire sales and services has increased dueis correlated to the general increase in theoverall number of vehicles registered,in operation and the increase in theincreasing average age of vehicles, and theto a lesser extent, with increased complexityaverage miles driven. The number of vehicles in operation is expected to continue to grow over the next several years, with vehicles six years or older representing the vast majority of this growth. This is in contrast to the past several years in which makesthe number of vehicles six to 10 years old declined significantly in response to the lower volume of new vehicles sold during 2008 to 2012. Additionally, vehicles continue to increase in complexity, making it more difficult for a vehicle owner to perform do-it-yourself repairs.
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At the same time as demand for automotive repair services has grown, the number of general repair outlets has decreased, principally because fewer gas stations now perform repairs, and because there are fewer new car dealers as a result of dealership closures by car manufacturers, such as Chrysler and General Motors.repairs. We believe that these factors present opportunities for increased sales by the Company, even though the number of specialized repair outlets (such as those operated by Monro and our direct competitors) has increased to meet growing demand.
EXPANSION STRATEGY
Monro has experienced significant growth in recent years due tothrough acquisitions and, to a lesser extent, the opening of new construction stores. Management believes that the continued growth in sales and profits of the Company is dependent, in large part, upon our continued ability to open/acquire and operate new stores on a profitable basis. Overall profitability of the Company may not meet expectations if acquired or new stores do not attain expected profitability.
Monro believes that there are significant expansion opportunities in new as well as existing market areas, which may result from a combination of constructing stores on vacant land and acquiring existing store locations.locations as well as purchasing existing businesses. We believe that, as the industry consolidates due to the increasingly complex nature of automotive repair, the expanded capital requirements for state-of-the-art equipment and aging of existing shop owners, there will be increasing opportunities for acquisitions of existing businesses or store structures.
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In that regard, we have completed severalmany acquisitions, in recent years, as follows:including:
Date of |
| Seller | Number of | Location of Stores | Current | |||||||
March 2004 | Atlantic Automotive Corp. | 26 | MD, VA | Mr. Tire | ||||||||
October 2004 | Rice Tire, Inc. | 5 | MD | Mr. Tire/Tread Quarters | ||||||||
March 2005 | Henderson Holdings, Inc. | 10 | MD | Mr. Tire | ||||||||
April 2006 | ProCare Automotive Service Solutions LLC | 75 | OH, PA | Monro/Mr. Tire | ||||||||
July 2007 | Valley Forge Tire & Auto Centers | 11 | PA | Mr. Tire | ||||||||
July 2007 | Craven Tire & Auto | 8 | VA | Mr. Tire | ||||||||
January 2008 | Broad Elm Group | 7 | NY | Mr. Tire | ||||||||
June 2009 | Am-Pac Tire Distributors | 26 | IL, MO | Autotire | ||||||||
October 2009 | Tire Warehouse Central, Inc. | 41 | (c) | ME, MA, NH, RI, VT | Tire Warehouse | |||||||
March 2010 | Import Export Tire, Co. | 5 | PA | Mr. Tire | ||||||||
June 2011 | Vespia Tire Centers, Inc. | 24 | NJ, PA | Mr. Tire | ||||||||
October 2011 | Terry's Tire Town | 7 | PA, OH | Mr. Tire | ||||||||
April 2012 | Kramer Tire Co. | 20 | (d) | VA | Kramer Tire/Tread Quarters | |||||||
June 2012 | Colony Tire Corporation | 18 | NC | Mr. Tire/Tread Quarters | ||||||||
August 2012 | Tuffy Associates Corp. | 17 | SC, WI | Monro/Tread Quarters | ||||||||
October 2012 | ChesleyCo, Inc. | 5 | NY | Monro/Mr. Tire | ||||||||
November 2012 | Everybody's Oil Corporation | 31 | IL, IN, TN | Tire Barn Warehouse | ||||||||
December 2012 | Ken | 27 | (e) | IN, KY | Ken Towery Tire & Auto Care | |||||||
December 2012 | Tire King of Durham, Inc. | 9 | NC | Mr. Tire | ||||||||
December 2012 | Enger Auto Service, Inc. | 12 | OH | Mr. Tire | ||||||||
August 2013 | Curry's Automotive Group | 10 | MD, VA | Curry's/Mr. Tire | ||||||||
November 2013 | ||||||||||||
Carl King Tire Co., Inc. | 6 | DE, MD | Mr. Tire | |||||||||
June 2014 | Kan Rock Tire Company, Inc. | 9 | (g) | MI | Monro | |||||||
June 2014 | Lentz U.S.A. Service Centers, Inc. | 10 | (g) | MI | Monro | |||||||
August 2014 | Hennelly Tire & Auto, | 35 | FL | The Tire Choice | ||||||||
September 2014 | Wood & Fullerton Stores, LLC | 9 | GA | Mr. Tire | ||||||||
December 2014 | Gold Coast Tire & Auto Centers | 9 | FL | The Tire Choice | ||||||||
March 2015 | Martino Tire Stores | 8 | FL | The Tire Choice | ||||||||
August 2015 | Kost Tire Distributors, Inc. | 27 | NY, PA | Mr. Tire | ||||||||
May 2016 | McGee Tire Stores, Inc. | 29 | (h) | FL | McGee Tire | |||||||
September 2016 | Clark Tire & Auto, Inc. | 26 | (i) | NC | Mr. Tire | |||||||
February 2017 | Nona, Inc. | 16 | IL, IA | Car-X |
_________________
(a) | Table includes only acquisitions of five or more Company-operated stores. |
(b) | Forty stores were subsequently closed due to redundancies or failure to achieve an acceptable level of profitability. See additional discussion under “Store Additions and Closings”. |
(c) | Six franchised locations were |
(d)
Two heavy truck tire and truck repair stores, two wholesale operations and a retread facility were also acquired and subsequently sold. |
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(e) | One wholesale operation was also acquired and is operating under the |
(f) | In this table, “Monro” refers to the brand of “Monro |
(g) | One acquired store was never opened. |
(h) | One retread facility was also acquired and is operating under the McGee Tire name. |
(i) | Four wholesale locations and one retread facility were also acquired and are operating under the Tires Now name. |
The total number
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As of March 29, 2014,25, 2017, Monro had 9531,118 Company-operated stores, three114 franchised locations, five wholesale locations, two retread facilities and 14 dealer locations located in 2327 states. The following table shows the growth in the number of Company-operated stores over the last five fiscal years:
STORE ADDITIONS AND CLOSINGS (a)
Year Ended Fiscal March | ||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Stores open at beginning of year | 937 | 803 | 781 | 777 | 710 | |||||||||||||||
Stores added during year | 29 | (b) | 144 | (c) | 36 | (d) | 12 | (e) | 79 | (f) | ||||||||||
Stores closed during year(a) | (13 | ) | (10 | ) | (14 | ) | (8 | ) | (12 | ) | ||||||||||
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Stores open at end of year | 953 | 937 | 803 | 781 | 777 | |||||||||||||||
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Service (including BJ’s) stores | 532 | 540 | 536 | 547 | 551 | |||||||||||||||
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Tire stores | 421 | 397 | 267 | 234 | 226 | |||||||||||||||
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| Year Ended Fiscal March | |||||||||||||
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| 2017 |
| 2016 |
| 2015 |
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| 2014 |
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| 2013 |
| ||
Stores open at beginning of year |
| 1,029 |
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| 999 |
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| 953 |
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| 937 |
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| 803 |
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Stores added during year |
| 105 | (c) |
| 52 | (d) |
| 92 | (e) |
| 29 | (f) |
| 144 | (g) |
Stores closed during year (b) |
| (16) |
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| (22) |
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| (46) |
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| (13) |
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| (10) |
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Stores open at end of year |
| 1,118 |
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| 1,029 |
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| 999 |
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| 953 |
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| 937 |
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Service (including BJ’s) stores |
| 534 |
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| 515 |
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| 509 |
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| 532 |
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| 540 |
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Tire stores |
| 584 |
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| 514 |
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| 490 |
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| 421 |
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| 397 |
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_________________
(a) | Table includes only Company-operated stores. No franchised, wholesale, retread or dealer locations are included. |
(b) | Generally, stores were closed because they failed to achieve or maintain an acceptable level of profitability or because a new Company Store was opened in the same market at a more favorable location. Additionally, in fiscal |
(c) | Includes 90 stores acquired in the |
(d) | Includes 40 stores acquired in the fiscal 2016 Acquisitions. |
(e) | Includes 85 stores acquired in the fiscal 2015 Acquisitions. (Excludes the Kan Rock and Lentz stores that were never opened.) |
(f) | Includes 24 stores acquired in the fiscal 2014 Acquisitions. |
(g) | Includes 140 stores acquired in the fiscal 2013 Acquisitions. |
We plan to add approximately four20 to 40 new greenfield stores in fiscal 20152018 and to pursue appropriate acquisition candidates. Greenfield stores include new construction as well as the acquisition of one to four store operations.
Key factors in market and site selection for selecting new greenfield store locations include population, demographic characteristics, vehicle population and the intensity of competition. Monro attempts to cluster stores in market areas in order to achieve economies of scale in advertising, supervision and distribution costs. All new greenfield sites presently under consideration are within Monro’sMonro's established market areas.
As a result of extensive analysis of our historical and projected store opening strategy, we have established major market profiles, as defined by market awareness: mature, existing and new markets. Over the next several years, we expect to build or acquire a greater percentage of stores in mature and existing markets in order to capitalize on our market presence and consumer awareness. During fiscal 2014, all2017, 59 of the stores added (including acquired stores) were located in existing markets and 46 stores were added in new markets.
We believe that management and operating improvements implemented over the last several fiscal years have enhanced our ability to sustain our growth. Monro has a chain-wide computerized inventory control and electronic point-of-sale (“POS”) management information system, which has increased management’smanagement's ability to monitor operations as the number of stores has grown.
4
We have customized the POS system to specific service and tire store requirements and deploy the appropriate version in each type of store. Being Windows-based, the system has simplified training of new employees. Additionally, the system includes the following:
· | Electronic mail and electronic cataloging, which allows store managers to electronically research the specific parts needed for the make and model of the car being serviced; |
· | Electronic repair manuals that allow for instant access to a single source of accurate, up-to-date, original equipment manufacturer-direct diagnosis, repair and maintenance information; |
· | Software which contains data that mirrors the scheduled maintenance requirements in vehicle owner’s manuals, specifically by make, model, year and mileage for every major automobile brand. Management believes that this software facilitates the presentation and sale of scheduled maintenance services to customers; |
· | Streamlining of estimating and other processes; |
· | Graphic catalogs; |
· | A feature which facilitates tire searches by size; |
· | Direct mail support; |
· | Appointment scheduling; |
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Electronic repair manuals that allow for instant access to a single sourceTable of accurate, up to date, original equipment manufacturer-direct diagnosis, repair and maintenance information;Contents
· | Customer service history; |
· | A thermometer graphic which guides store managers on the profitability of each job; |
· | The ability to view inventory of up to the closest 14 stores or warehouse; and |
· | Expanded monitoring of price changes. This requires more specificity on the reason for a discount, which management believes helps to control discounting. |
Software which contains data that mirrors the scheduled maintenance requirements in vehicle owners’ manuals, specifically by make, model, year and mileage for every major automobile brand. Management believes that this software facilitates the presentation and sale of scheduled maintenance services to customers;
Streamlining of estimating and other processes;
Graphic catalogs;
A feature which facilitates tire searches by size;
Direct mail support;
Appointment scheduling;
Customer service history;
A thermometer graphic which guides store managers on the profitability of each job;
The ability to view inventory of up to the closest 14 stores or warehouse; and
Expanded monitoring of price changes. This requires more specificity on the reason for a discount, which management believes helps to control discounting.
Enhancements will continue to be made to the POS system annually in an effort to increase efficiency, improve the quality and timeliness of store reporting and enable us to better serve our customers.
The financing to openbuild a new greenfield service store location may be accomplished in one of three ways: a store lease for the land and building (in which case, land and building costs will be financed primarily by the lessor), a land lease with the building constructed by Monro (with building costs paid by Monro), or a land purchase with the building constructed by Monro. In all three cases, for service stores, each new store also will require approximately $200,000$225,000 for equipment (including a POS system and a truck) and approximately $55,000 in inventory. Because we generally do not extend credit to ourmost customers, stores generate almost no receivables and a new store’sstore's actual net working capital investment is nominal. Total capital required to openbuild a new greenfield service store ranges, on average, from $350,000$360,000 to $950,000$990,000 depending on the location and which of the three financing methods is used. In general, tire stores are larger and have more service bays than Monro’s traditional service stores and, as a result, construction costs are at the high end of the range of new store construction costs. Total capital required to openbuild a new greenfield tire (land and building leased) location costs, on average, approximately $600,000, including $225,000$250,000 for equipment and $150,000 for inventory. In instances where Monro acquires an existing business, it may pay additional amounts for intangible assets such as customer lists, covenants not-to-compete, trade names and goodwill, but generally will pay less per bay for equipment and real property.
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At March 29, 2014,25, 2017, we leased the land and/or the building at approximately 71%70% of our store locations and owned the land and building at the remaining locations. Monro’sMonro's policy is to situate new stores in the best locations, without regard to the form of ownership required to develop the locations.
New service and tire stores, (excluding acquired stores and BJ’s locations)stores), have average sales of approximately $384,000$400,000 and $1,015,000,$1,050,000, respectively, in their first 12 months of operation, or $64,000$67,000 and $145,000,$150,000, respectively, per bay.
STORE OPERATIONS
Store Format
The typical format for a Monro store is a free-standing building consisting of a sales area, fully-equipped service bays and a parts/tires storage area. In BJ’s locations, Monro and BJ’s both operate counters in the sales area, while Monro operates the service bay area. Most service bays are equipped with above-ground electric vehicle lifts. Generally, each store is located within 25 miles of a “key” store which carries approximately double the inventory of a typical store and serves as a mini-distribution point for slower moving inventory for other stores in its area. Individual store sizes, number of bays and stocking levels vary greatly, even within the service and tire store groups, and are dependent primarily on the availability of suitable store locations, population, demographics and intensity of competition among other factorsfactors. (See additional discussion under “Store Additions and Closings”). A summary of average store data for service and tire stores is presented below:
Average Number of Bays | Average Square Feet | Average Inventory | Average Number of Stock Keeping Units (SKUs) | |||||||||||||
Service stores (excluding BJ’s and ProCare) | 6 | 4,400 | $ | 100,000 | 2,700 | |||||||||||
Tire stores (excluding Tire Warehouse and Tire Barn Warehouse stores) | 7 | 6,500 | $ | 145,000 | 1,400 |
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Tire stores (excluding Tire Warehouse and Tire Barn |
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| $ | 127,000 |
| 1,300 |
Data for the acquired ProCare service stores has been excluded because the stores’ stock rooms are smaller than those in typical service stores, and therefore, they generally carry approximately half the amount of inventory of a typical service store.
Data for the Tire Warehouse and Tire Barn Warehouse stores has been excluded because these locations primarily install new tires and wheels and many perform alignments. Additionally, most Tire Warehouse stores have noone indoor service bays.bay to perform alignments. The store building houses a waiting room, storage area and an area to mount and balance tires on the car’s wheels once the wheels and tires have been removed from the car. Removal of old tires and wheels from, and installation of new tires and wheels on, customers’ cars are performed outdoors under a carport. A growing number of Tire Warehouse stores have an indoor bay to perform alignments. The average inventory carried by the Tire Warehouse and Tire Barn Warehouse stores is $236,000$231,000 per store.
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Stores generally are situated in high-visibility locations in suburban areas, major metropolitan areas or small towns and offer easy customer access. The typical store is open from 7:30 a.m. to 7:00 p.m. on Monday through Friday and from 7:30 a.m. to 6:00 p.m. on Saturday. A majority of store locations are also open Sundays from 9:00 a.m. to 5:00 p.m.
Inventory Control and Management Information System
All Company Stores communicate daily with the central office and warehouse by computerized inventory control and electronic POS management information systems, which enable us to collect sales and operational data on a daily basis, to adjust store pricing to reflect local conditions and to control inventory on a near “real-
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time”"real-time" basis. Additionally, each store has access, through the POS system, to the inventory carried by up to the 14 stores or warehouse nearest to it. Management believes that this feature improves customer satisfaction and store productivity by reducing the time required to locate out-of-stock parts and tires. It also improves profitability because it reduces the amount of inventory which must be purchased outside Monro from local vendors.
Quality Control and Warranties
To maintain quality control, we conduct audits to rate our employees’employees' telephone sales manner and the accuracy of pricing information given.
We have a customer survey program to monitor customer attitudes toward service quality, friendliness, speed of service, and several other factors for each store. Customer concerns are addressed by customer service and field management personnel.
Monro uses a “Double Check for Accuracy Program” as part of our routine store procedures. This quality assurance program requires that a technician and supervisory-level employee (or in certain cases, another technician in tire stores) independently inspect a customer’s vehicle, diagnose and document the necessary repairs, and agree on an estimate before presenting it to a customer. This process is formally documented on the written estimate by store personnel.
We are an active member of the Automotive Maintenance & Repair Association (AMRA)(“AMRA”). AMRA is an organization of automotive retailers, wholesalers and manufacturers which was established as part of an industry-wide effort to address the ethics and business practices of companies in the automotive repair industry through the Motorist Assurance Program (MAP)(“MAP”). Participating companies commit to improving consumer confidence and trust in the automotive repair industry by adopting “Uniform Inspection Communication Standards” (“UICS”) established by MAP. These “UICS” are available in our stores and serve to provide consistent recommendations to customers in the diagnosis and repair of a vehicle.
We offer limited warranties on substantially all of the products and services that we provide. We believe that these warranties are competitive with industry practices and serve as a marketing tool to increase repeat business at our stores.
Store Personnel and Training
Monro supervises store operations primarily through our Divisional Vice Presidents who oversee Zone Managers who, in turn, oversee Market Managers. The typical service store is staffed by a Store Manager and four to six technicians, one of whom serves as the Assistant Manager. The typical tire store, except Tire Warehouse and Tire Barn stores, is staffed by a Store Manager, an Assistant Manager and/or Service Manager, and four to eight technicians. Larger volume service and tire stores may also have one or two sales people. The higher staffing level at many tire stores is necessary to support their higher sales volume. Tire Warehouse and Tire Barn stores are generally staffed by a Store Manager and two to four technicians, one of whom serves as the Assistant Manager. All Store Managers receive a base salary and Assistant Managers receive either hourly or salaried compensation. In addition, Store Managers and Assistant Managers may receive other compensation based on their store’sstore's customer relations, gross profit, labor cost controls, safety, sales volume and other factors via a monthly or quarterly bonus based on performance in these areas.
We believe that the ability to recruit and retain qualified technicians is an important competitive factor in the automotive repair industry, which has historically experienced a high turnover rate. We make a concerted effort to recruit individuals who will have a long-term commitment to the Company and offer an hourly rate structure and additional compensation based on productivity; a competitive benefits package including health, dental, life and disability insurance; a 401(k)/profit-sharing plan; as well as the opportunity to advance within the Company. Many of our Store Managers and Market Managers started with the Company as technicians.
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Many of our new technicians join the Company in their early twenties as trainees or apprentices. As they progress, many are promoted to technician and eventually master technician, the latter requiring ASEAutomotive Service Excellence (“ASE”) certification in both brakes and suspension.eight different categories. We offer a tool purchase program through which trainee technicians can acquire their own set of tools. We also will reimburse technicians for the cost of ASE certification registration fees and test fees and encourage all technicians to become certified by providing a higher hourly wage rate following their certification. We also offer free online ASE certification preparation courses, as well as a tool purchase program through which trainee technicians can acquire their own set of tools.
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Our training program provides multiple training sessions to both Store Managers and technicians in each store, each year.
Management training courses are developed and delivered by our dedicated training department and Operationsoperations management, and are supplemented with live and on-line vendor training courses. Management training covers safety, customer service, sales, human resources (counseling, recruiting, interviewing, etc.), leadership, scheduling, financial and operational areas, and is delivered on a regular basis. We believe that involving Operations management in the development and delivery of these sessions results in more relevant and actionable training for Store Managers, and helps to improve overall performance and staff retention.
Our training department develops and coordinates technical training courses on critical areas of automotive repair to Monro technicians (e.g. Antilock braking systems (“ABS”) brake repair, drivability, tire pressure monitoring system (“TPMS”), etc.) and also conducts required technical training to maintain compliance with state inspection licenses, where applicable, and AMRA/MAP accreditation. Additionally, our training department holds periodic field technical clinics for store personnel and coordinates technician attendance at technical clinics offered by our vendors. We have electronic repair manuals installed in all of our stores for daily reference. We also issue technical bulletins to all stores on innovative or complex repair processes, and maintain a centralized database for technical repair problems. In addition, Monro has established a telephone technical help line to provide assistance to store personnel in resolving problems encountered while diagnosing and repairing vehicles. The help line is available during all hours of store operation. In March 2017, we introduced a comprehensive set of on-line courses in automotive repair and tire service for our technicians to participate in. These courses are offered at no cost to our employees.
Monro also maintains an employee web pagewebsite that contains many resources that are available for both managers and technicians to reference.reference including Human Resource information and forms. Additionally, there is a Facilities section containing important environmental and equipment information, as well as a Training section that contains training programs, including on-line training videos, and documents for both managers and technicians.
OPERATING STRATEGY
Monro’s
Monro's operating strategy is to provide our customers with a wide range of dependable, high-quality automotive services at a competitive price by emphasizing the following key elements.
Products and Services
The typical store provides a full range of undercar repair services for brakes, steering, mufflers and exhaust systems, drive train, suspension and wheel alignment, as well as tire replacement and service. These services apply to all makes and models of domestic and foreign cars, light trucks and vans. As a percentage of sales, the service stores provide significantly more brake and exhaust serviceservices than tire stores, and tire stores provide substantially more tire replacement and related services than service stores.
Stores generally provide many of the routine maintenance services (except engine diagnostic), which automobile manufacturers suggest or require in the vehicle owners’owner’s manuals, and which fulfill manufacturers’ requirements for new car warranty compliance. We offer “Scheduled Maintenance”"Scheduled Maintenance" services in our stores whereby the aforementioned services are packaged and offered to consumers based upon the year, make, model and mileage of each specific vehicle. Management believes that we are able to offer this service in a more convenient and cost competitive fashion than auto dealers can provide.
Included in maintenance services are oil change services, heating and cooling system “flush"flush and fill”fill" service, belt installation, fuel system service and a transmission “flush"flush and fill”fill" service. Additionally, most stores replace and service batteries, starters and alternators. Stores in Georgia, Illinois, Maine, Maryland, Massachusetts, Missouri, New Hampshire, New York, West Virginia, New Hampshire,
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Maryland,North Carolina, Pennsylvania, Rhode Island, Pennsylvania, North Carolina,Vermont, Virginia, Missouri, Maine, VermontWest Virginia and Wisconsin perform annual state inspections. Approximately 46%59% of our stores also offer air conditioning services.
We began a program in the third quarter of fiscal year 2007 to increase tire and tire related sales, such as alignments, in our service stores. The goal was to increase the overall sales of these stores by capturing tire and related sales from existing store traffic and eventually drive additional traffic and sales. The program involves increasing the specific sales training of store managers, expanding the tire merchandise selection in these stores, and raising the focus of store advertising in this category. This initiative, which is called “Black Gold”, has now been rolled out to 263 of the Company’s service stores, primarily in markets where we also have tire stores, which allows for greater utilization of inventory.
The format of the Tire Warehouse and Tire Barn Warehouse stores acquired in fiscal year 2010 and fiscal year 2013, respectively, are slightly different from Monro’s typical service or tire stores (as described above) in that, generally, over 94%93% of the stores’ sales involve tire services, including the mounting and balancing of tires, and the sale of road hazard warranties. AllMost of these stores also provide the installation of wiper blades. Currently, 2574% of Tire Warehouse and 2190% of Tire Barn Warehouse stores perform alignments. In fiscal year 2015,2018, Monro plans to expand the number of Tire Warehouse and Tire Barn Warehouse stores offering alignment services to a84% of total stores, as compared to 80% of 52 stores.total Tire Warehouse and Tire Barn Warehouse stores offering alignment services in fiscal 2017.
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Customer Satisfaction
Monro’s vision of being the dominant Auto Serviceauto service provider in the markets we serve is supported by a set of values displayed in each Company Store emphasizing TRUST:
· | T |
· | Respect, Recognize and Reward (employees who are committed to these values) |
· | Unparalleled Quality and Integrity |
· | Superior Value and |
· | Teamwork |
Respect, Recognize and Reward (employees who are committed to these values)
Unparalleled Quality and Integrity
Superior Value and
Teamwork
Also displayed in each Company Store are guiding principles in support of our commitment to customer service: only present needed work; fix vehicles right the first time; complete vehicle service on time; and exceed the customer’s expectations.
Additionally, each Company-operated store operates under the following set of customer satisfaction principles: free inspection of brakes, tires, shocks, front end and exhaust systems (as applicable); item-by-item review with customers of problem areas; free written estimates; written guarantees; drive-in service without an appointment; fair and reasonable prices; a 30-day best price guarantee; and repairs by professionally-trained undercar and tire specialists. (See additional discussion under “Store Operations: Quality Control and Warranties”.)
Competitive Pricing, Advertising and Co-branding Initiatives
Monro seeks to set competitive prices for quality services and products. We support our pricing strategy by advertisingwith special offers and coupons distributed through a variety of channels including: direct mail, coupon insertsemail, digital advertising, newspaper, promotional store signage and in-store promotional signage and displays. In addition, to increase consumer awareness of the services we offer, Monro advertises through radio, cable television and yellow pages, newspapers, service reminders and digital marketing.page advertising. Our digital marketing efforts include email marketing, paid and organic search on all major search engines, search remarketing and banner and mobile advertising. We also manage social media profiles for all Monro brands on Twitter, Facebook and Foursquare.
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Our websites includewww.Monro.com,www.MrTire.com,www.Tirewarehouse.netwww.TQTire.com, www.Kentowery.comwww.AutoTire.com,www.TireWarehouse.net, www.KenTowery.com, www.TireBarn.com, www.TheTireChoice.com, www.Mcgeetire.com and www.Currysauto.comwww.Tiresnowonline.com. These sites help customers search for store locations, print coupons, make service appointments, shop for tires and access information on our services and products, as well as car care tips.
Monro currently maintains mobile apps on the iPhone and Android platforms for the Monro, Mr. Tire and Tire Warehouse brands. Our mobile appsthat enable customers to manage vehicle service records on their smart phones and access information, coupons and specials and make appointments on their smart phones, as they do on our websites.
Centralized Control
Unlike many of our competitors,
While we both operate rather thanand franchise most of our stores, (except for the three Tire Warehouse franchises and 14 dealer locations). Wewe believe that direct operation of stores enhances our ability to compete by providing centralized control of such areas of operations as service quality, store appearance, promotional activity and pricing. We also believe our experience in operating stores makes us a more valuable partner to our franchisees. A high level of competence is maintained throughout the Company, as we require as a condition of employment, that employees participate in periodic training programs, including sales, management, customer service and changes in automotive technology. Additionally, purchasing, distribution, merchandising, advertising, accounting and other store support functions are centralized primarily in Monro’sMonro's corporate headquarters in Rochester, New York, and are provided through our subsidiary, Monro Service Corporation. The centralization of these functions results in efficiencies and gives management the ability to closely monitor and control costs.
Comprehensive Training
We provide ongoing, comprehensive training to our store employees. We believe that such training provides a competitive advantage by enabling our technicians to provide quality service to our customers in all areas of undercar repair and tire service. (See additional discussion under “Store Operations: Store Personnel and Training”.)
PURCHASING AND DISTRIBUTION
Through our wholly-owned subsidiary Monro Service Corporation, we select and purchase tires, parts and supplies for all Company-operated stores on a centralized basis through an automatic replenishment system. Although purchases outside the centralized system (“outside purchases”) are made when needed at the store level, these purchases are low by industry standards, and accounted for approximately 16%22% of all parts and tires used in fiscal 2014.2017.
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Our ten largest vendors accounted for approximately 83%68% of our parts and tire purchases, with the largest vendor accounting for approximately 21%25% of total stocking purchases in fiscal 2014.2017. In fiscal 20142017, Monro imported approximately 28%20% of our parts and tire purchases. We purchase parts, oil and tires from approximately 100120 vendors. Management believes that our relationships with vendors are excellent and that alternative sources of supply exist, at comparable cost, for substantially all parts used in our business. We routinely obtain bids from vendors to ensure we are receiving competitive pricing and terms.
Most parts are shipped by vendors to our primary warehouse facility in Rochester, New York, and are distributed to stores by the Monro-operated tractor/trailer fleet. The majority of tires are shipped to our stores directly by vendors pursuant to orders placed by our headquarters staff. During fiscal 2013, we completed an expansion of our Rochester warehouse from 80,000 square feet to 135,000 square feet. Stores are replenished at least monthlybi-weekly from this warehouse, and such replenishment fills, on average, 95%97% of all items ordered by the stores’stores' automatic POS-driven replenishment system. The Rochester warehouse stocks approximately 4,4003,300 SKUs. Monro also operates warehouses in Maryland, Virginia, Illinois,Maryland; Virginia; New HampshireHampshire; Kentucky; North Carolina, including two warehouse locations; South Carolina and Kentucky.Tennessee. These warehouses carry, on average, 1,200; 300; 1,200; 9001,000; 100; 700; 1,000; 4,500; 2,800; 2,800 and 1,0002,300 SKUs, respectively.
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We enter into contracts with certain parts and tire suppliers, some of which require us to buy (at market competitive prices) up to 100% of our annual purchases of specific products. These agreements expire at various dates through July 2017.dates. We believe these agreements provide us with high quality, branded merchandise at preferred pricing, along with strong marketing and training support.
COMPETITION
Monro competes in the retail automotive service and tire industry. This industry is generally highly competitive and fragmented, and the number, size and strength of competitors vary widely from region to region. We believe that competition in this industry is based on customer service and reputation, store location, name awareness and price. Monro’sMonro's primary competitors include national and regional undercar, tire specialty and general automotive service chains, both franchised and company-operated; car dealerships, mass merchandisers’ operating service centers; and, to a lesser extent, gas stations, independent garages and Internet tire sellers. Monro considers TBC Corporation (operating under the NTB, Merchant’s Tire, Midas and Tire Kingdom brands), Firestone Complete Auto Care service stores, The Pep Boys – Manny, Moe and Jack service stores and Meineke Discount Mufflers Inc. to be direct competitors. In most of the new markets that we have entered, at least one competitor was already present. In identifying new markets, we analyze, among other factors, the intensity of competition. (See “Expansion"Expansion Strategy” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations".)
EMPLOYEES
As of March 29, 2014,25, 2017, Monro had 6,1397,535 employees, of whom 5,7797,097 were employed in the field organization, 139158 were employed at the warehouses, 185220 were employed at our corporate headquarters and 3660 were employed in other offices. Monro’sMonro's employees are not members of any union. We believe that our relations with our employees are good.
REGULATION
We are subject to various federal, state and local laws and governmental regulations relating to the operation of our business, including those governing workplace safety, zoning and the handling, storage and disposal of hazardous substances contained in the products that we sell and use in our service bays, the recycling of batteries, tires and used lubricants, and the ownership and operation of real property. We maintain programs to facilitate compliance with these laws and regulations. We believe that we are in substantial compliance with all applicable environmental and other laws and regulations, and that the cost of such compliance is not material to the Company.
Monro stores new oil and recycled antifreeze and generates and/or handles used tires and automotive oils, antifreeze and certain solvents, which are disposed of by licensed third-party contractors. In certain states, as required, we also recycle oil filters. Thus, we are subject to a number of federal, state and local environmental laws including the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”). In addition, the United States Environmental Protection Agency (the “EPA”"EPA"), under the Resource Conservation and Recovery Act (“RCRA”("RCRA"), and various state and local environmental protection agencies regulate our handling and disposal of waste. The EPA, under the Clean Air Act, also regulates the installation of catalytic converters by Monro and all other repair stores by periodically spot checking repair jobs, and has the power to fine businesses that use improper procedures or materials. The EPA has the authority to impose sanctions, including civil penalties up to $37,500 per violation (or up to $37,500 per day for certain willful violations or failures to cooperate with authorities), for violations of RCRA and the Clean Air Act.
We are subject to various laws and regulations concerning workplace safety, zoning and other matters relating to our business. We maintain programs to facilitate compliance with these laws and regulations. We believe that we are in substantial compliance with all applicable environmental and other laws and regulations and that the cost of such compliance is not material to the Company.
Monro is environmentally conscious, and takes advantage of recycling opportunities at our offices, warehouses and stores. Cardboard, plastic shrink wrap and parts’ cores are returned to the warehouse by the stores on Monro stock trucks. There, they are accumulated for sale to recycling companies or returned to parts manufacturers for credit.
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11SEASONALITY
SEASONALITY
Although our business is not highly seasonal, customers do purchase more undercar service during the period of March through October than the period of November through February, when miles driven tend to be lower. In the tire stores, the better sales months are typically May through August, and October through December. The slowest months are typically January through April and September. As a result, profitability is typically lower during slower sales months, or months where mix is more heavily weighted toward tires, which is a lower margin category. Additionally, since our stores are primarily located in the northeastern and midwestern United States, profitability tends to be lower in the winter months when certain costs, such as utilities and snow plowing, are typically higher.
COMPANY INFORMATION AND SEC FILINGS
Monro maintains a website atwww.monro.com and makes its annual, quarterly and periodic Securities and Exchange Commission (“SEC”) filings available through the Investor Information section of that website. Monro’s SEC filings are available through this website free of charge, via a direct link to the SEC website atwww.sec.gov. Monro’s filingsAny materials that we file with the SEC are also available to the public at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.1‑800‑SEC‑0330.
In addition to the risks discussed elsewhere in this annual report, the following are the important factors that could cause Monro’s actual results to differ materially from those projected in any forward looking statements:
We operate in the highly competitive automotive repair industry.
The automotive repair industry in which we operate is generally highly competitive and fragmented, and the number, size and strength of our competitors varies widely from region to region. We believe that competition in the industry is based primarily on customer service, reputation, store location, name awareness and price. Our primary competitors include national and regional undercar, tire specialty and general automotive service chains, both franchised and company-operated, car dealerships, mass merchandisers’merchandisers operating service centers and, to a lesser extent, gas stations, independent garages and Internet tire sellers. Some of our competitors have greater financial resources, are more geographically diverse and have better name recognition than we do, which might place us at a competitive disadvantage to those competitors. Because we seek to offer competitive prices, if our competitors reduce prices, we may be forced to reduce our prices, which could have a material adverse effect on our business, financial condition and results of operations. Further, our success within this industry also depends upon our ability to respond in a timely manner to changes in customer demands for both products and services. We cannot assure that we, or any of our stores, will be able to compete effectively. If we are unable to compete successfully in new and existing markets, we may not achieve our projected revenue and profitability targets.
We are subject to seasonality and cycles in the general economy and customers’ use of vehicles, which may impact demand for our products and services.
Although our business is not highly seasonal, our customers typically purchase more undercar services during the period of March through October than the period of November through February, when miles driven tend to be lower. Further, customers may defer or forego vehicle maintenance at any time during periods of inclement weather. In the tire stores, the better sales months are typically May through August, and October through December. The slowest months are typically January through April and September. As a result, profitability is typically lower during slower sales months or months where mix is more heavily weighted toward tires, which is a lower margin category.
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Additionally, sincefor our stores are primarily located in the northeastern and midwestern United States, profitability tends to be lower in the winter months when certain costs, such as utilities and snow plowing, are typically higher. Sales can also be volatile in these areas in reaction to warm weather in winter months or severe weather, which can result in store closures.
The automotive repair industry is subject to fluctuations in the general economy. During a downturn in the economy, customers may defer or forego vehicle maintenance or repair. During periods of good economic conditions, consumers may decide to purchase new vehicles rather than having their older vehicles serviced. We purchase products such as oil and tires, which are subject to cost variations related to commodity costs. If we cannot pass along cost increases, our profitability would be negatively impacted.
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Further, our industry is influenced by the number of miles driven by automobile owners. Factors that may cause the number of miles driven by automobile owners to decrease include the weather, travel patterns, gas prices and, as discussed above, fluctuations in the general economy. Should a significant reduction in the number of miles driven by automobile owners occur, it would likely have an adverse effect on the demand for our products and services. For example, when the retail cost of gasoline increases, the number of miles driven by automobile owners may decrease, which could result in less frequent service intervals and fewer repairs. Accordingly, a significant reduction in the number of miles driven by automobile owners could have a material adverse effect on our business and results of operations.
We depend on our relationships with our vendors, including foreign sources, for certain inventory. Our business may be negatively affected by the risks associated with such relationships and international trade.
We depend on close relationships with our vendors for parts, tires and supplies and for our ability to purchase products at competitive prices and terms. Our ability to purchase at competitive prices and terms results from the volume of our purchases from these vendors. We have entered into various contracts with parts suppliers that require us to buy from them (at market competitive prices) up to 100% of our annual purchases of specific products. These agreements expire at various dates through July 2017.dates.
We believe that alternative sources exist for most of the products we sell or use at our stores, and we would not expect the loss of any one supplier to have a material adverse effect on our business, financial condition or results of operations. Our dependence on a small number of suppliers, however, subjects us to the risks of shortages and interruptions. If any of our suppliers do not perform adequately or otherwise fail to distribute parts or other supplies to our stores, our inability to replace the suppliers in a timely manner and on acceptable terms could increase our costs and could cause shortages or interruptions that could have a material adverse effect on our business, financial condition and results of operations.
Further, we depend on a number of products (e.g. brake parts, tires, oil filters) produced in foreign markets. We face risks associated with the delivery of inventory originating outside the United States, including:
· | potential economic and political instability in countries where our suppliers are located; |
· | increases in shipping costs; |
· | transportation delays and interruptions; |
| · | changes in U.S. and foreign laws affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws; |
| · | compliance with the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or making other prohibited payments to foreign officials; and |
· | significant fluctuations in exchange rates between the U.S. dollar and foreign currencies. |
Our industry is subject to environmental, consumer protection and other regulation.
We are subject to various federal, state and local environmental laws, building and zoning requirements, employment laws and other governmental regulations regarding the operation of our business. For example, we
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are subject to rules governing the handling, storage and disposal of hazardous substances contained in some of the products such as motor oil that we sell and use at our stores, the recycling of batteries, tires and used lubricants, and the ownership and operation of real property. These laws and regulations can impose fines and criminal sanctions for violations and require the installation of pollution control equipment or operational changes to decrease the likelihood of accidental hazardous substance releases. Accordingly, we could become subject to material liabilities relating to the investigation and cleanup of contaminated properties, and to claims alleging personal injury or property damage as a result of exposure to, or release of, hazardous substances. In addition, stricter interpretation of existing laws and regulations, new laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations.
National automotive repair chains have also been the subject of investigations and reports by consumer protection agencies and the Attorneys General of various states. Publicity in connection with these kinds of investigations could have an adverse effect on our sales and, consequently, our business, financial condition and results of operations. State and local governments have also enacted numerous consumer protection laws with which we must comply.
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The costs of operating our stores may increase if there are changes in laws governing minimum hourly wages, working conditions, overtime, workers’ compensation and health insurance rates, unemployment tax rates or other laws and regulations. A material increase in these costs that we were unable to offset by increasing our prices or by other means could have a material adverse effect on our business, financial condition and results of operations.
We are involved in litigation from time to time arising from the operation of our business and, as such, we could incur substantial judgments, fines, legal fees or other costs.
We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various actions. From time to time, we are involved in litigation involving claims related to, among other things, breach of contract, negligence, tortious conduct and employment law matters, including payment of wages. The damages sought against us in some of these litigation proceedings could be substantial. Although we maintain liability insurance for some litigation claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Business interruptions may negatively impact our store operations, availability of products and/or the operability of our computer systems, which may have a material negative effect on our business and results of operations. A breach of our computer systems could damage our reputation and have a material adverse effect on our business and results of operations.
If any of our locations in a particular region are unexpectedly closed permanently or for a period of time, it could have a negative impact on our business. Such closures could occur as a result of circumstances out of our control, including war, acts of terrorism, extreme weather conditions and other natural disasters. Further, if our ability to obtain products and merchandise for use in our stores is impeded, it could have a negative impact on our business. Factors that could negatively affect our ability to obtain products and merchandise include the sudden inability to import goods into the United States, for any reason and the curtailment or delay of commercial transportation. While we do maintain business interruption insurance, there is no guarantee that we will be able to use such insurance for any particular location closure or other interruption in operations.
Additionally, given the number of individual transactions we process each year, it is critical that we maintain uninterrupted operation of our computer and communications hardware and software systems. Our systems could be subject to damage or interruption from power outages, computer and telecommunications
14
failures, computer viruses, security breaches, including breaches of our transaction processing or other systems that result in the compromise of confidential customer data, catastrophic events such as fires, tornadoes and hurricanes, and usage errors by our employees. If our systems are breached, damaged or cease to function properly, we may have to make a significant investment to fix or replace them, we may suffer interruptions in our operations in the interim, we may face costly litigation, and our reputation with our customers may be harmed. The risk of disruption is increased in periods where complex and significant systems changes are undertaken. undertaken. Any material interruption in our computer operations may have a material adverse effect on our business or results of operations.
If we fail to protect theexperience a data security of personalbreach and confidential customer or employee information about our customers or employees,is disclosed, we couldmay be subject to costly government enforcement actions or private litigation,penalties and experience negative publicity, which could affect our reputation could suffer.customer relationships and have a material adverse effect on our business. We may incur increasing costs in an effort to minimize these cybersecurity risks.
The nature of our business involves the receipt and storage of personal information aboutpersonally identifiable data of our customers and employees. If we experienceThis type of data is subject to legislation and regulation in various jurisdictions. Data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting state and federal legislative proposals addressing data security breach, we could beprivacy and security. We may become exposed to government enforcement actionspotential liabilities with respect to the data that we collect, manage and private litigation.process, and may incur legal costs if our information security policies and procedures are not effective or if we are required to defend our methods of collection, processing and storage of personal data. Future investigations, lawsuits or adverse publicity relating to our methods of handling personal data could adversely affect our business, results of operations, financial condition and cash flows due to the costs and negative market reaction relating to such developments.
We may not have the resources or technical expertise to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our customers, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur increasing costs, including costs to hire additional personnel, purchase additional protection technologies, train employees, and engage third-party experts and consultants. In addition, data and security breaches can also occur as a result of non-technical issues, including breach by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our customerssecurity could loseresult in violation of applicable privacy and other laws, significant legal and financial exposure, and a loss of confidence in our ability to protect their personal information,security measures, which could cause them to discontinue usagehave a material adverse effect on our results of credit cards or decline to useoperations and our services altogether. The lossreputation.
15
Our business is affected by advances in automotive technology.
The demand for our products and services could be adversely affected by continuing developments in automotive technology. Automotive manufacturers are producing cars that last longer and require service and maintenance at less frequent intervals in certain cases. Quality improvement of manufacturers’ original equipment parts has in the past reduced, and may in the future reduce, demand for our products and services, adversely affecting our sales. For example, manufacturers’ use of stainless steel exhaust components has significantly increased the life of those parts, thereby decreasing the demand for exhaust repairs and replacements. Longer and more comprehensive warranty or service programs offered by automobile manufacturers and other third parties also could adversely affect the demand for our products and services. We believe that a majority of new automobile owners have their cars serviced by a dealer during the period that the car is under warranty. In addition, advances in automotive technology continue to require us to incur additional costs to update our diagnostic capabilities and technical training programs. Changes in vehicle and powertrain technology and advances in autonomous vehicles and mobility could have a negative effect on our business, results of operations or investors’ perceptions of our business, any of which could have an adverse effect on the price of our stock.
We may not be successful in integrating new and acquired stores.
Management believes that our continued growth in sales and profit is dependent, in large part, upon our ability to open/acquire and operate new stores on a profitable basis. In order to do so, we must find reasonably priced new store locations and acquisition candidates that meet our criteria and we must integrate any new stores (opened or acquired) into our system. Our growth and profitability could be adversely affected if we are unable to open or acquire new stores or if new or existing stores do not operate at a sufficient level of profitability. If new stores do not achieve expected levels of profitability, this may adversely impact our ability to remain in compliance with our debt covenants or to make required payments under our credit facility.
Any impairment of goodwill, other intangible assets or long-lived assets could negatively impact our results of operations.
Our goodwill, other intangible assets or long-lived assets, are subject to an impairment test on an annual basis and are also tested whenever events and circumstances indicate that goodwill, intangible assets and/or long-lived assets may be impaired. Any excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill and indefinite-lived intangible assets) and other long-lived assets are generally amortized or depreciated over the useful life of such assets. In addition, from time
15
to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired tangible and intangible assets. We have significantly increased our goodwill as a result of our acquisitions. We may subsequently experience unforeseen issues with the businesses we acquire, which may adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business.assets. Future determinations of significant write-offs of goodwill, intangible assets or other long-lived assets, as a result of an impairment test or any accelerated amortization or depreciation of other intangible assets or other long-lived assets could have a material negative impact on our results of operations and financial condition. We have completed our annual impairment test for goodwill, and have concluded that we do not have any impairment of goodwill for the year ended March 29, 2014.25, 2017.
Store closings result in acceleration of costs.
From time to time, in the ordinary course of our business, we close certain stores, generally based on considerations of store profitability, competition, strategic factors and other considerations. Closing a store could subject us to costs including the write-down of leasehold improvements, equipment, furniture and fixtures. In addition, we could remain liable for future lease obligations.
We rely on an adequate supply of skilled field personnel.
In order to continue to provide high quality services, we require an adequate supply of skilled field managers and technicians. Trained and experienced automotive field personnel are in high demand, and may be in short supply in some areas. We cannot assure that we will be able to attract, motivate and maintain an adequate skilled workforce necessary to operate our existing and future stores efficiently, or that labor expenses will not increase as a result of a shortage in the supply of skilled field personnel, thereby adversely impacting our financial performance. While the automotive repair industry generally operates with high field employee turnover, any material increases in employee turnover rates in our stores or any widespread employee dissatisfaction could also have a material adverse effect on our business, financial condition and results of operations.
16
If we are unable to generate sufficient cash flows from our operations, our liquidity will suffer and we may be unable to satisfy our obligations.
We currently rely on cash flow from operations and our Revolving Credit Facility to fund our business. Amounts outstanding on the Revolving Credit Facility are reported as debt on our balance sheet. While we believe that we have the ability to sufficiently fund our planned operations and capital expenditures for the foreseeable future, various risks to our business could result in circumstances that would materially affect our liquidity. For example, cash flows from our operations could be affected by changes in consumer spending habits, the failure to maintain favorable vendor payment terms or our inability to successfully implement sales growth initiatives, among other factors. We may be unsuccessful in securing alternative financing when needed on terms that we consider acceptable.
In addition, a significant increase in our leverage could have the following risks:
· | our ability to obtain additional financing for working capital, capital expenditures, store renovations, acquisitions or general corporate purposes may be impaired in the future; |
· | our failure to comply with the financial and other restrictive covenants governing our debt, which, among other things, require us to comply with certain financial ratios and limit our ability to incur additional debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations; and |
· | our exposure to certain financial market risks, including fluctuations in interest rates associated with bank borrowings could become more significant. |
16
our exposure to certain financial market risks, including fluctuations in interest rates associated with bank borrowings could become more significant.
If we do not perform in accordance with our debt covenants, our lenders may restrict our ability to draw on our Revolving Credit Facility. We cannot assure that we will remain in compliance with our debt covenants in the future.
We depend on the services of key executives.
Our senior executives are important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. It may be difficult to replace them quickly with executives of equal experience and capabilities. Although we have employment agreements with selected executives, we cannot prevent them from terminating their employment with us. Other executives are not bound by theirany employment agreements with us.
New accounting guidance or changes in the interpretation or application of existing accounting guidance could affect our financial performance adversely.
New accounting guidance may require systems and other changes that could increase our operating costs and/or change our financial statements. For example, implementing future accounting guidance related to leases and other areas impacted by the current convergence project between the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) couldwill likely require us to make significant changes to our lease management system or other accounting systems, and couldwill likely result in changes to our financial statements. Additionally, implementing future accounting guidance related to leases or other items could potentiallywill likely impact certain performance metrics and financial ratios, and potentially require the renegotiation of debt covenants.ratios.
Unanticipated changes in the interpretation or application of existing accounting guidance could result in material charges or restatements of our financial statements, which may further result in litigation or regulatory actions which could have an adverse effect on our financial condition and results of operations.
Healthcare reform legislation could have a negative impact on our business, financial condition and results of operations.
The Patient Protectioneffect of recent changes to U.S. healthcare laws may increase our healthcare costs and negatively impact our financial results.
We offer eligible employees the opportunity to enroll in healthcare coverage subsidized by us. For various reasons, many of our eligible employees currently choose not to participate in our healthcare plans. However, under the comprehensive U.S. healthcare reform law enacted in 2010, the Affordable Care Act, (the “Act”), as well aschanges that became effective in 2014, and the employer mandate and employer penalties that became effective January 1, 2015, may significantly increase our labor costs. Changes in the law that took effect in 2014, including the imposition of increasing penalties on individuals who do not obtain healthcare coverage, may result in more eligible employees deciding to enroll in our healthcare plans. This may increase our healthcare costs in the future. Additionally, implementing the requirements of the Affordable Care Act has imposed some additional administrative costs on us, and those costs may increase over time. The costs and other effects of these new healthcare requirements cannot be determined with certainty, but they may have a material adverse effect on our financial and operating results. Further, other healthcare reform legislation being considered by Congress and state legislators,that may be enacted in the future could significantly impact our healthcare cost structure and increaseaffect our healthcare-related expenses. The Act requires employers, such as us, to provide health insurance for all qualifying employees or pay penalties for not providing coverage. Although we cannot predict with certainty the financial and operational impacts the Act will have, we expect to be required to provide health benefits to more employees than we currently do, which could raise our labor costs. We continue to evaluate the potential impact the healthcare reform legislation will have on our business and the steps necessary to mitigate the impacts, including potential modifications to our current benefit plans, operational changes to minimize the impact of the legislation to our cost structure and increases to selling prices to mitigate the expected increase in healthcare-related expenses. If we cannot effectively modify our programs and operations in response to healthcare reform legislation that may be enacted in the new legislation,future, our results of operations, financial condition and cash flows may be adversely impacted.
Item17
The market price of our common stock may be volatile and could expose us to shareholder action including securities class action litigation.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions. Downturns in the stock market may cause the price of our common stock to decline. The market price of our stock may also be affected by our ability to meet analysts’ expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, shareholder action including securities class action litigation has often been instituted against such a company. If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could have an adverse effect on our business.
Item 1B.Unresolved Staff Comments
None.
17None.
The Company, through Monro Service Corporation, owns its office/warehouse facility of approximately 165,000 square feet, (including 70,000 square feet from our recent expansion), which is located on 12.7 acres of land in Holleder Technology Park, in Rochester, New York. Monro Service Corporation also owns a second office/warehouse facility of approximately 28,000 square feet, which is located on 11.8 acres of land in Swanzey, New Hampshire. Additionally, weWe lease additional warehouse space in Maryland, Virginia, Kentucky, North Carolina, including two warehouse locations, South Carolina and Tennessee, and office space in Illinois and Kentucky.for our Car-X franchise operations. The Company also owns one retread facility in North Carolina.
Of Monro’s 953Monro's 1,118 Company-operated stores at March 29, 2014, 28025, 2017, 331 were owned, 571689 were leased and for 10298 stores, only the land was leased. In addition to the Company-operated stores, five wholesale locations and one retread facility were leased at March 25, 2017. In general, we lease store sites for a ten-year period with several five-year renewal options. Giving effect to all renewal options, approximately 59%66% of the leases (396(518 stores) expire after 2024.2027. Certain of the leases provide for contingent rental payments if a percentage of annual gross sales exceeds the base fixed rental amount. The highest contingent percentage rent of any lease is 6.75%10.0%, and no such lease has adversely affected profitability of the store subject thereto. AnA former officer of Monro or members of his family are the lessors, or such former officer or family members have interests in entities that are the lessors, with respect to six of the leases. No related party leases exist, other than thethese six assumed as part of the Mr. Tire Acquisition in March 2004, have been entered into,leases, and no new related party leases are contemplated.
As of March 29, 2014, there was $.7 million outstanding under a mortgage held by the City of Rochester, New York, secured by the land on which the headquarters office and warehouse is located.
Monro currently and from time to time is involved in litigation incidental to the conduct of our business, including employment-related litigation arising from claims by current and former employees. Although we diligently defend against these claims, we may enter into discussions regarding settlement of these and other lawsuits, and may enter into settlement agreements, if management believes settlement is in the best interests of Monro and our shareholders. Although the amount of liability that may result from these matters cannot be ascertained, management does not currently believe that, in the aggregate, they will result in liabilities material to Monro’s financial condition or results of operations.
ItemItem 4.Mine Safety Disclosures
Not applicable.
18
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PART IIIte
Item 5.m 5. Market for the Company’sCompany's Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION
Monro’s common stock, par value $.01 per share, (the “Common Stock”) is traded on the NASDAQ Stock Market under the symbol “MNRO”"MNRO". The following table sets forth, for oureach quarter during the last two fiscal years, the range of high and low sales prices on the NASDAQ Stock Market for the Common Stock:
Fiscal 2014 | Fiscal 2013 | |||||||||||||||
Quarter Ended | High | Low | High | Low | ||||||||||||
June | $ | 50.66 | $ | 37.88 | $ | 42.45 | $ | 31.43 | ||||||||
September | $ | 51.12 | $ | 41.35 | $ | 39.33 | $ | 30.72 | ||||||||
December | $ | 56.00 | $ | 43.87 | $ | 36.49 | $ | 30.72 | ||||||||
March | $ | 62.11 | $ | 53.85 | $ | 41.30 | $ | 33.00 |
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| Fiscal 2017 |
| Fiscal 2016 | ||||||||
Quarter Ended |
| High |
| Low |
| High |
| Low | ||||
June |
| $ | 73.86 |
| $ | 56.15 |
| $ | 66.53 |
| $ | 55.34 |
September |
| $ | 70.78 |
| $ | 55.24 |
| $ | 68.81 |
| $ | 60.12 |
December |
| $ | 62.07 |
| $ | 52.05 |
| $ | 77.00 |
| $ | 62.25 |
March |
| $ | 61.10 |
| $ | 51.65 |
| $ | 71.03 |
| $ | 59.66 |
HOLDERS
At May 9, 2014,5, 2017, Monro’s Common Stock was held by approximately 4,40040 shareholders of record. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record or through nominee or street name accounts with brokers.by brokerage firms and clearing agencies.
EQUITY COMPENSATION PLAN INFORMATION
As of March 29, 2014,25, 2017, Monro maintained stock option plans under which employees and non-employee directors could be granted Common Stock options to purchase shares of Monro’s Common Stock. The following table contains information relating to such plans as of March 29, 2014.25, 2017.
Plan Category | Number of Securities To Be Issued Upon Exercise of Outstanding Options (a) | Weighted Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |||||||||
Equity compensation plans approved by security holders | 1,773,401 | $ | 31.58 | 2,148,327 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
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Total | 1,773,401 | $ | 31.58 | 2,148,327 | ||||||||
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| Remaining Available for |
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| Future Issuance Under |
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| To Be Issued |
| Weighted Average |
| Equity Compensation | |
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| Upon Exercise of |
| Exercise Price of |
| Plans (Excluding Securities | |
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| Outstanding Options |
| Outstanding Options |
| Reflected in Column (a)) | |
Plan Category |
| (a) |
| (b) |
| (c) | |
Equity compensation plans approved |
| 896,344 |
| $ | 51.67 |
| 1,549,716 |
Equity compensation plans not approved |
| — |
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| — |
| — |
Total |
| 896,344 |
| $ | 51.67 |
| 1,549,716 |
DIVIDENDS
In May 2012,2015, Monro’s Board of Directors declared its intention to pay a regular quarterly cash dividend of $.10$.15 per common share or common share equivalent to be paid beginning with the first quarter of fiscal year 2013. Monro’s Board of Directors accelerated the record and payment date of the $.10 per share regular quarterly cash dividend for the fourth quarter such that the dividend was paid together with the third quarter dividend in December 2012. This combined dividend of $.20 per share was paid on December 21, 2012 to shareholders of record as of December 11, 2012.2016.
In May 2013,2016, Monro’s Board of Directors declared its intention to pay a regular quarterly cash dividend of $.11$.17 per common share or common share equivalent to be paid beginning with the first quarter of fiscal year 2014.
19
In May 2014,2017, Monro’s Board of Directors declared its intention to pay a regular quarterly cash dividend of $.13$.18 per common share or common share equivalent to be paid to shareholders of record as of June 2, 2014.2017. The dividend will be paid on June 12, 2014.2017.
The declaration of and 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 contractual restrictions, and such other factors as the Board of Directors deems relevant. Under our Revolving Credit Facility, we are not permitted to pay cash dividends in excess of 50% of our preceding year’s net income. For additional information regarding our Revolving Credit Facility, see Note 6 to the Company’s Consolidated Financial Statements.
19
20
Item 6.Item 6. Selected Financial Data
The following table sets forth selected financial and operating data of Monro for each fiscal year in the five-year period ended March 29, 2014.25, 2017. The financial data and certain operating data have been derived from Monro’s audited financial statements. This data should be read in conjunction with the financial statements and related notes included under Item 8 of this report and in conjunction with other financial information included elsewhere in this Form 10-K.
Year Ended Fiscal March | ||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||||
Sales | $ | 831,432 | $ | 731,997 | $ | 686,552 | $ | 636,678 | $ | 564,639 | ||||||||||||
Cost of sales, including distribution and occupancy costs | 511,458 | 453,850 | 410,155 | 379,166 | 333,465 | |||||||||||||||||
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Gross profit | 319,974 | 278,147 | 276,397 | 257,512 | 231,174 | |||||||||||||||||
Operating, selling, general and administrative expenses | 224,627 | 204,442 | 184,981 | 179,127 | 171,938 | |||||||||||||||||
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Operating income | 95,347 | 73,705 | 91,416 | 78,385 | 59,236 | |||||||||||||||||
Interest expense, net | 9,470 | 7,213 | 5,220 | 5,095 | 6,090 | |||||||||||||||||
Other income, net | (659 | ) | (332 | ) | (490 | ) | (647 | ) | (279 | ) | ||||||||||||
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Income before provision for income taxes | 86,536 | 66,824 | 86,686 | 73,937 | 53,425 | |||||||||||||||||
Provision for income taxes | 32,077 | 24,257 | 32,074 | 28,096 | 20,234 | |||||||||||||||||
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Net income | $ | 54,459 | $ | 42,567 | $ | 54,612 | $ | 45,841 | $ | 33,191 | ||||||||||||
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Earnings per share | Basic(a) | $ | 1.72 | $ | 1.36 | $ | 1.77 | $ | 1.52 | $ | 1.12 | |||||||||||
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Diluted(a) | $ | 1.67 | $ | 1.32 | $ | 1.69 | $ | 1.44 | $ | 1.07 | ||||||||||||
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Weighted average number of Common Shares and equivalents |
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Basic(b) | 31,394 | 31,067 | 30,716 | 30,200 | 29,508 | |||||||||||||||||
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Diluted(b) | 32,642 | 32,308 | 32,237 | 31,807 | 30,978 | |||||||||||||||||
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Cash dividends per common share or common share equivalent(b)(c) | $ | 0.44 | $ | 0.40 | $ | 0.35 | $ | 0.28 | $ | 0.23 | ||||||||||||
Selected Operating Data:(d) |
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Sales growth: |
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Total | 13.6 | % | 6.6 | % | 7.8 | % | 12.8 | % | 18.6 | % | ||||||||||||
Comparable store(e) | (0.5 | )% | (7.3 | )% | 2.0 | % | 4.2 | % | 7.2 | % | ||||||||||||
Stores open at beginning of year | 937 | 803 | 781 | 777 | 710 | |||||||||||||||||
Stores open at end of year | 953 | 937 | 803 | 781 | 777 | |||||||||||||||||
Capital Expenditures(f) | $ | 32,150 | $ | 34,185 | $ | 28,556 | $ | 17,507 | $ | 21,333 | ||||||||||||
Balance Sheet Data (at period end): |
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Net working capital | $ | 31,375 | $ | 28,280 | $ | 24,506 | $ | 19,343 | $ | 24,715 | ||||||||||||
Total assets | 759,956 | 739,433 | 510,092 | 451,840 | 444,143 | |||||||||||||||||
Long-term obligations | 187,040 | 214,809 | 51,164 | 41,990 | 96,427 | |||||||||||||||||
Shareholders’ equity | 415,984 | 365,042 | 327,499 | 280,249 | 232,670 |
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Income Statement Data: |
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Sales |
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| $ | 1,021,511 |
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| $ | 943,651 |
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| $ | 894,492 |
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| $ | 831,432 |
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| $ | 731,997 |
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Cost of sales, including distribution |
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| 624,622 |
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| 557,948 |
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| 541,142 |
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| 511,458 |
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| 453,850 |
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Gross profit |
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| 396,889 |
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| 385,703 |
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| 353,350 |
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| 319,974 |
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| 278,147 |
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Operating, selling, general and |
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| 280,505 |
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| 265,114 |
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| 243,561 |
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| 224,627 |
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| 204,442 |
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Operating income |
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| 116,384 |
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| 120,589 |
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| 109,789 |
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| 95,347 |
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| 73,705 |
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Interest expense, net |
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| 19,768 |
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| 15,542 |
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| 11,342 |
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| 9,470 |
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| 7,213 |
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Other income, net |
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| (628) |
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| (374) |
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| (908) |
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| (659) |
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| (332) |
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Income before provision for income taxes |
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| 97,244 |
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| 105,421 |
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| 99,355 |
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| 86,536 |
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| 66,824 |
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Provision for income taxes |
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| 35,718 |
|
|
| 38,616 |
|
|
| 37,556 |
|
|
| 32,077 |
|
|
| 24,257 |
|
Net income |
|
| $ | 61,526 |
|
| $ | 66,805 |
|
| $ | 61,799 |
|
| $ | 54,459 |
|
| $ | 42,567 |
|
Earnings per share | Basic (a) |
| $ | 1.88 |
|
| $ | 2.07 |
|
| $ | 1.94 |
|
| $ | 1.72 |
|
| $ | 1.36 |
|
| Diluted (a) |
| $ | 1.85 |
|
| $ | 2.00 |
|
| $ | 1.88 |
|
| $ | 1.67 |
|
| $ | 1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of | Basic |
|
| 32,413 |
|
|
| 32,026 |
|
|
| 31,605 |
|
|
| 31,394 |
|
|
| 31,067 |
|
| Diluted |
|
| 33,301 |
|
|
| 33,353 |
|
|
| 32,944 |
|
|
| 32,642 |
|
|
| 32,308 |
|
Cash dividends per common share |
|
| $ | 0.68 |
|
| $ | 0.60 |
|
| $ | 0.52 |
|
| $ | 0.44 |
|
| $ | 0.40 |
|
Selected Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales growth: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
| 8.3 | % |
|
| 5.5 | % |
|
| 7.6 | % |
|
| 13.6 | % |
|
| 6.6 | % |
Comparable store (b) |
|
|
| (4.3) | % |
|
| (0.1) | % |
|
| (1.4) | % |
|
| (0.5) | % |
|
| (7.3) | % |
Company-operated stores open at |
|
|
| 1,029 |
|
|
| 999 |
|
|
| 953 |
|
|
| 937 |
|
|
| 803 |
|
Company-operated stores open at |
|
|
| 1,118 |
|
|
| 1,029 |
|
|
| 999 |
|
|
| 953 |
|
|
| 937 |
|
Capital Expenditures (d) |
|
| $ | 34,640 |
|
| $ | 36,834 |
|
| $ | 34,750 |
|
| $ | 32,150 |
|
| $ | 34,185 |
|
Balance Sheet Data (at period end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital (e) |
|
| $ | 13,337 |
|
| $ | 2,504 |
|
| $ | 5,549 |
|
| $ | 17,665 |
|
| $ | 15,126 |
|
Total assets (e) |
|
|
| 1,185,264 |
|
|
| 999,438 |
|
|
| 907,794 |
|
|
| 759,816 |
|
|
| 739,433 |
|
Long-term obligations |
|
|
| 395,503 |
|
|
| 269,045 |
|
|
| 255,688 |
|
|
| 187,040 |
|
|
| 214,809 |
|
Shareholders’ equity |
|
|
| 581,254 |
|
|
| 536,195 |
|
|
| 473,611 |
|
|
| 415,984 |
|
|
| 365,042 |
|
_________________
Results from all fiscal years are based on a 52 week year
(a) | See Note 10 to |
(b)
Comparable store sales data (not adjusted for days) is calculated based on the change in sales of only those stores open as of the beginning of the preceding fiscal year. |
(c) | Includes only Company-operated stores. No franchised, wholesale, retread or dealer locations are included. |
(d) | Amount does not include the funding of the purchase price |
(e) | Fiscal years 2013 - 2015 reflect reclassifications of deferred taxes. |
20
21
Item 7.Management’s7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following table sets forth income statement data of Monro expressed as a percentage of sales for the fiscal years indicated:
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales, including distribution and occupancy costs | 61.5 | 62.0 | 59.7 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 38.5 | 38.0 | 40.3 | |||||||||
Operating, selling, general and administrative expenses | 27.0 | 27.9 | 26.9 | |||||||||
|
|
|
|
|
| |||||||
Operating income | 11.5 | 10.1 | 13.3 | |||||||||
Interest expense, net | 1.1 | 1.0 | 0.8 | |||||||||
Other income, net | (0.1 | ) | — | (0.1 | ) | |||||||
|
|
|
|
|
| |||||||
Income before provision for income taxes | 10.4 | 9.1 | 12.6 | |||||||||
Provision for income taxes | 3.9 | 3.3 | 4.7 | |||||||||
|
|
|
|
|
| |||||||
Net income | 6.5 | % | 5.8 | % | 8.0 | % | ||||||
|
|
|
|
|
|
FORWARD-LOOKING STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Sales |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Cost of sales, including distribution and occupancy costs |
| 61.1 |
|
| 59.1 |
|
| 60.5 |
|
Gross profit |
| 38.9 |
|
| 40.9 |
|
| 39.5 |
|
Operating, selling, general and administrative expenses |
| 27.5 |
|
| 28.1 |
|
| 27.2 |
|
Operating income |
| 11.4 |
|
| 12.8 |
|
| 12.3 |
|
Interest expense, net |
| 1.9 |
|
| 1.6 |
|
| 1.3 |
|
Other income, net |
| (0.1) |
|
| — |
|
| (0.1) |
|
Income before provision for income taxes |
| 9.5 |
|
| 11.2 |
|
| 11.1 |
|
Provision for income taxes |
| 3.5 |
|
| 4.1 |
|
| 4.2 |
|
Net income |
| 6.0 | % |
| 7.1 | % |
| 6.9 | % |
The statements contained in this Annual Report on Form 10-K that are not historical facts, including (without limitation) statements made in this Item and in “Item 1 – Business”, 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 Annual Report on Form 10-K, the words “anticipates”, “believes”, “contemplates”, “see”, “could”, “estimate”, “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, 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 “Item 1A. Risk Factors”. Except as required by law, we do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf.
CRITICAL ACCOUNTING POLICIES
We believe that the accounting policies listed below are those that are most critical to the portrayal of our financial condition and results of operations, and that required management’s most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. This section should be read in conjunction with Note 1 to the Company’s Consolidated Financial Statements which includes other significant accounting policies.
Inventory
We evaluate whether inventory is stated at the lower of cost or marketnet realizable value based on historical experience with the carrying value and life of inventory. The assumptions used in this evaluation are based on current market conditions and we believe inventory is stated at the lower of cost or marketnet realizable value in the consolidated financial
22
statements. In addition, historically we have been able to return excess items to vendors for credit or sell such inventory to other wholesalers. Future changes by vendors in their policies or willingness to accept returns of excess inventory could require a revision in the estimates.
Business Combinations
We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions, we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While we believe those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.
Carrying Values of Goodwill and Long-Lived Assets
We have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. The carrying value of goodwill is subject to annual impairment reviews, which we typically perform in the third quarter of the fiscal year. Impairment reviews may also be triggered by any significant events or changes in circumstances affecting our business.
21
We have only one reporting unit which encompasses all operations including new acquisitions. The goodwill impairment test consists of a two-step process, if necessary. We perform a qualitative assessment to determine if it is more likely than not that the fair value is less than the carrying value of goodwill. The qualitative assessment includes a review of business changes, economic outlook, financial trends and forecasts, growth rates, industry data, market capitalization and other relevant qualitative factors. If the qualitative factors are triggered, we perform the two-step process. The first step is to compare the fair value of our reporting unit to the book value of our reporting unit. If the fair value is less than its carrying value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. We believe there is little risk of impairment.
Intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses and are amortized over their estimated useful lives. All intangibles and other long-lived assets are reviewed when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying values.
A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in our cash flow models, but may also negatively impact other assumptions used in our analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, as discussed above, we are required to ensure that assumptions used to determine fair value in our analyses are consistent with the assumptions a hypothetical marketplace participant would use. As a result, the cost of capital and/or discount rates used in our analyses may increase or decrease based on market conditions and trends, regardless of whether our actual cost of capital has changed. Therefore, we may recognize an impairment of an intangible asset or assets even though realized actual cash flows are approximately equal to or greater than our previously forecasted amounts.
Self-Insurance Reserves
We are largely self-insured with respect to workers’ compensation, general liability and employee medical claims. In order to reduce our risk and better manage our overall loss exposure, we purchase stop-loss insurance that covers individual claims in excess of the deductible amounts, and caps total losses in a fiscal year. We maintain 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 claim volume, the average cost for settled claims, current trends in claim costs, changes in our 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 is warranted. For more complex reserve calculations, such as workersworkers’ compensation, we use the services of an actuary on an annual basis to assist in determining the required reserve for open claims.
23
Stock-Based Compensation
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the following assumptions. Expected volatilities are based on historical changes in the market price of the Company’s Common Stock. The expected term of options granted is derived from the terms and conditions of the award, as well as historical exercise behavior, and represents the period of time that options granted are expected to be outstanding. The risk-free rate is calculated using the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards. We use historical data to estimate forfeitures. The dividend yield is based on historical experience and expected future changes.
Income Taxes
Our provision for income taxes and effective tax rates are calculated by legal entity and jurisdiction and are based on a number of factors, including our income, tax planning strategies, differences between tax laws and accounting rules, statutory tax rates and credits, uncertain tax positions and valuation allowances. We use significant judgment and estimates in evaluating our tax positions.
Tax law and accounting rules often differ as to the timing and treatment of certain items of income and expense. As a result, the tax rate reflected in our tax return (the current or cash tax rate) is differentmay differ from the tax rate reflected in our Consolidated Financial Statements. Some of the differences are permanent, while other differences are temporary as they reverse over time. We record deferred tax assets and liabilities for any temporary differences between the tax reflected in our Consolidated Financial Statementsfinancial statement and tax bases.basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We establish valuation allowances when we believe it is more-likely-than-not that some portion of our deferred tax assets will not be realized.
22
At any one time, our tax returns for several tax years are subject to examination by U.S. federal and state taxing jurisdictions. We establish tax liabilities in accordance with the accounting guidance on income taxes. Under the accounting guidance, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized in the financial statements unless it is more-likely-than-not to be sustained. We adjust these tax liabilities, as well as the related interest and penalties, based on the latest facts and circumstances, including recently published rulings, court cases and outcomes of tax audits. To the extent our actual tax liability differs from our established tax liabilities for unrecognized tax benefits, our effective tax rate may be materially impacted. While it is often difficult to predict the final outcome of, the timing of, or the tax treatment of any particular tax position or deduction, we believe that our tax balances reflect the more-likely-than-not outcome of known tax contingencies.
RESULTS OF OPERATIONS
Fiscal 20142017 As Compared To Fiscal 20132016
Sales for fiscal 20142017 increased $99.4$77.9 million or 13.6%8.3% to $831.4 million$1.022 billion as compared to $732.0$943.7 million in fiscal 2013.2016. The increase was due to an increase of $110$124.3 million related to new stores, of which $107$102.5 million came from the fiscal 20132016 and fiscal 20142017 acquisitions. PartiallyLargely offsetting this was a decrease in comparable store salesstores of .5%4.3%. Additionally, there was a decrease in sales from closed stores amounting to $5.0$8.1 million. There were 361 selling days in both fiscal 20142017 and fiscal 2013.2016.
Barter sales of slower moving inventory totaled approximately $2.5 and $2.0 million for fiscal years 2017 and 2016, respectively.
During the year, 29105 Company-operated stores were added and 1316 were closed. At March 29, 2014,25, 2017, we had 9531,118 Company-operated stores in operation.
With regard to franchised locations, during fiscal 2017, we purchased 15 from existing franchisees and six closed. At March 25, 2017, we had 114 franchised locations.
We believe that the slight decreasedecline in comparable store sales for fiscal 20142017 resulted primarilymainly from continued weakthe challenging economic conditions. We believe that consumers continue to defer service repairs and tire replacements, especially on higher ticket items.
24
For the year, comparable store traffic was up slightly while average ticket was down. The brake, exhaust and shock categories each increased by about 1% on a comparable store basis for the year. The tire category declined about 1%conditions facing our customers as consumers traded down from higher priced tires. However, tire unit sales increased approximately 1% on a comparable store basis.
Harshwell as unseasonably warmer winter weather also negatively impacted sales during the fourth quarterin certain of fiscal 2014, which resulted in stores being closed for periods of time, and consumers reluctant to travel.our markets.
Gross profit for fiscal 20142017 was $320.0$396.9 million or 38.5%38.9% of sales as compared with $278.1$385.7 million or 38.0%40.9% of sales for fiscal 2013.2016. The increasedecrease in gross profit for fiscal 2014,2017, as a percentage of sales, iswas primarily due to several factors. Labor costsa shift in sales mix related to recent acquisitions and the impact of a decrease in comparable store sales.
At our retail tire and automotive repair locations, we provide a broad range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment. We also provide other products and services, including tires and routine maintenance services, including state inspections. During fiscal 2017, we acquired certain tire and automotive repair locations that also serve commercial customers and sell tires to customers for resale. These locations conduct tire and automotive repair activities that are similar to our retail locations, other than with respect to the sales mix resulting from the sale of commercial tires as well as the gross margin of the wholesale locations being different primarily due to the higher mix of tires sold and the fact that those tire sales do not include installation or other tire related services that are more common at other locations. In aggregate, the commercial and wholesale locations impacted consolidated revenue by approximately $56.5 million for the year ended March 25, 2017. Additionally, due to the sales mix from our commercial and wholesale locations, our consolidated gross profit margin for the year ended March 25, 2017 was reduced by approximately 170 basis points.
On a comparable store basis, gross profit margin for fiscal 2017 decreased as a percentage of salesslightly as compared to the prior year through focused payroll control. Labor productivity, as measured by sales per man hour, improved over the prior year as well.year.
Distribution and occupancy costs decreased as a percentage of sales from the prior year as we leveraged these largely fixed costs with the increase in sales from acquired stores.
Total materialand labor costs were relatively flat as a percentage of sales as compared to the prior year. This was due to a shift in mix to the lower margin service and tire categories, the latter due primarily to the acquisition of more tire stores, offset by a meaningful decline in product costs, particularly tires.
Operating expenses for fiscal 20142017 were $224.6$280.5 million or 27.0%27.5% of sales compared with $204.4$265.1 million or 27.9%28.1% of sales for fiscal 2013. Excluding the2016. The dollar increase in operating expensesprimarily related to the stores acquired in fiscal 2014 and fiscal 2013, operatingincreased expenses actually decreased by approximately $2.2 million. This demonstrates that we experienced leverage in this line onfor new stores. On a comparable store basis, through focusedoperating expenses for the year ended March 25, 2017 decreased as compared to the prior year. We believe that this demonstrates the effectiveness of our strong cost control and pay plans which appropriately adjust for performance.in a period of soft sales.
Operating income in fiscal 20142017 of $95.3$116.4 million increased 29.4%decreased 3.5% compared to operating income of $73.7$120.6 million in fiscal 2013,2016, and increaseddecreased as a percentage of sales from 10.1%12.8% to 11.5%11.4% for the reasons described above.
23
Net interest expense for fiscal 20142017 increased by approximately $2.3$4.2 million as compared to the prior year, and increased as a percentage of sales from 1.0%1.6% to 1.1%1.9%. The weighted average debt outstanding for the year ended March 29, 201425, 2017 increased by approximately $61$80 million from fiscal 2013, primarily related to an increase in debt outstanding under our Revolving Credit Facility to fund the purchase of our acquisitions, as well as increased capital leases related to our fiscal 2013 acquisitions. Partially offsetting this increase was a decrease in the weighted average interest rate of approximately 40 basis points from the prior year due to a shift in the percentage of debt (revolver vs. capital leases) outstanding at a lower rate.
Our effective tax rate was 37.1% and 36.3%, respectively, of pre-tax income in fiscal 2014 and 2013. The difference primarily relates to the accounting for uncertain tax positions which may vary from year to year.
Net income for fiscal 2014 increased by $11.9 million, or 27.9%, from $42.6 million in fiscal 2013, to $54.5 million in fiscal 2014, and earnings per diluted share increased by 26.5% from $1.32 to $1.67 due to the factors discussed above.
Fiscal 2013 As Compared To Fiscal 2012
Sales for fiscal 2013 increased $45.4 million or 6.6% to $732.0 million as compared to $686.6 million in fiscal 2012. The increase was due to an increase of $99.6 million related to new stores, of which $95.3 million came from the fiscal 2012 and fiscal 2013 acquisitions. Offsetting this was a decrease in comparable store sales of 7.3%. Additionally, there was a decrease in sales from closed stores amounting to $6.4 million. Fiscal 2013 was a 52-week year, and therefore, there were 361 selling days as compared to 368 selling days in fiscal 2012. Adjusting for days, comparable store sales were down 5.5%.
25
As occurred in previous years, we completed the bulk sale of approximately $2.4 million of slower moving inventory to Icon International, a barter company, in exchange for barter credits. The margin recognized in these transactions is typically less than our normal profit margin. The barter transaction that occurred in fiscal 2013 decreased gross profit and operating expenses by .1% of sales.
During the year, 144 stores were added and 10 were closed. At March 30, 2013, we had 937 Company-operated stores in operation.
We believe that the decline in comparable store sales for fiscal 2013 resulted mainly from the continued weak U.S. economy. With the continuation of high gasoline prices, lack of consumer confidence and high unemployment, we believe that customers are continuing to defer tire purchases and service repairs, especially on higher ticket items. Additionally, we believe that the milder winter weather in 2013 and 2012 also led to consumers deferring tire purchases. While it appears that repairs and tire purchases are being deferred more and for longer than in prior years, most can only be deferred for a period of time due to safety issues or state inspection requirements.
Gross profit for fiscal 2013 was $278.1 million or 38.0% of sales as compared with $276.4 million or 40.3% of sales for fiscal 2012. The decrease in gross profit for fiscal 2013, as a percentage of sales, is due to several factors. Total material costs increased as a percentage of sales as compared to the prior year. This was due to a shift in mix to the lower margin service and tire categories, the latter due in part to the acquisition of more tire stores.
Distribution and occupancy costs increased as a percentage of sales from the prior year as we lost leverage on these largely fixed costs with lower comparable store sales.
Labor costs were relatively flat as a percentage of sales as compared to the prior year.
Operating expenses for fiscal 2013 were $204.4 million or 27.9% of sales compared with $185.0 million or 26.9% of sales for fiscal 2012. Excluding the operating expenses related to the stores acquired in fiscal 2013, operating expenses actually decreased by approximately $1.5 million, after adjusting for the extra week in fiscal 2012. This demonstrates that the Company experienced leverage in this line on a comparable store basis through focused cost control and pay plans which appropriately adjust for performance.
Operating income in fiscal 2013 of $73.7 million decreased 19.4% compared to operating income of $91.4 million in fiscal 2012, and decreased as a percentage of sales from 13.3% to 10.1% for the reasons described above.
Net interest expense for fiscal 2013 increased by approximately $2.0 million as compared to the prior year, and increased as a percentage of sales from .8% to 1.0%. The weighted average debt outstanding for the year ended March 30, 2013 increased by approximately $82 million from fiscal 2012,26, 2016. This increase was primarily related to an increase in debt outstanding under our Revolving Credit Facility to fund the purchase of our fiscal 20132017 acquisitions, as well as increased capital leases related to our fiscal 2016 and fiscal 2017 acquisitions. LargelyThe weighted average interest rate for the year ended March 25, 2017 remained relatively flat as compared to the same period of the prior year.
Our effective tax rate was 36.7% and 36.6%, respectively, of pre-tax income in fiscal 2017 and 2016. We previously engaged tax specialists to assess the qualification of intercompany transactions in accordance with U.S. Treasury Regulations of 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 the year ended March 26, 2016. Excluding this net tax benefit, the effective income tax rate would have been approximately 37.3% for the year ended March 26, 2016. The difference in the effective income tax rate relates primarily to the accounting for uncertain tax positions and recorded income tax credits which may vary from year to year.
Net income for fiscal 2017 decreased by $5.3 million, or 7.9%, from $66.8 million in fiscal 2016, to $61.5 million in fiscal 2017, and earnings per diluted share decreased by 7.5% from $2.00 to $1.85 due to the factors discussed above.
Fiscal 2016 As Compared To Fiscal 2015
Sales for fiscal 2016 increased $49.2 million or 5.5% to $943.7 million as compared to $894.5 million in fiscal 2015. The increase was due to an increase of $68.7 million related to new stores, of which $63.5 million came from the fiscal 2015 and fiscal 2016 acquisitions. Partially offsetting this increase was a decrease in sales from closed stores amounting to $19.6 million, largely related to the BJ’s store closures in fiscal 2015. Additionally, there was a decrease in comparable store sales of .1%. There were 361 selling days in both fiscal 2016 and fiscal 2015.
Barter sales of slower moving inventory totaled approximately $2.0 and $5.0 million for fiscal years 2016 and 2015, respectively.
During the year, 52 Company-operated stores were added (including seven acquired from Car-X franchisees), and 22 were closed. At March 26, 2016, we had 1,029 Company-operated stores in operation.
With regard to franchised locations, during fiscal 2016, we acquired 146, added two, and seven closed. Additionally, we purchased seven during the year from existing franchisees. At March 26, 2016, we had 135 franchised locations.
We believe that the slight decrease in comparable store sales for fiscal 2016 resulted primarily from continued weak economic conditions and lack of normal winter weather in our markets.
For the year, comparable store traffic was up slightly while average ticket was down slightly (both less than 1%). Comparable store maintenance, front end/shocks and exhaust sales declined in fiscal 2016. However, key service categories of brakes and alignments increased by approximately 2% and 7%, respectively, on a comparable store basis as compared to the prior year, demonstrating our belief that needed repairs cannot be deferred indefinitely. Although comparable store tire unit sales decreased during the year, tire category sales were relatively flat on a comparable store basis as we collected more from the consumer in average selling price per tire, and some consumers traded up to higher priced tires.
Gross profit for fiscal 2016 was $385.7 million or 40.9% of sales as compared with $353.3 million or 39.5% of sales for fiscal 2015. The increase in gross profit for fiscal 2016, as a percentage of sales, was due primarily to a decrease in total material costs as compared to the prior year. Total material costs, including outside purchases, decreased as compared to the prior year. This was largely due to a decrease in oil and tire costs.
Distribution and occupancy and labor costs were relatively flat as a percentage of sales as compared to the prior year. Labor productivity, as measured by sales per man hour, improved slightly over the prior year.
Operating expenses for fiscal 2016 were $265.1 million or 28.1% of sales compared with $243.6 million or 27.2% of sales for fiscal 2015. Excluding the increase in due diligence costs and the operating expenses associated with fiscal 2015 and fiscal 2016 acquisitions, operating expenses increased only $2.7 million or approximately 1% over the prior year. As a percentage of sales, the increase was largely due to increased expenses against flat comparable store sales.
Operating income in fiscal 2016 of $120.6 million increased 9.8% compared to operating income of $109.8 million in fiscal 2015, and increased as a percentage of sales from 12.3% to 12.8% for the reasons described above.
24
Net interest expense for fiscal 2016 increased by approximately $4.2 million as compared to the prior year, and increased as a percentage of sales from 1.3% to 1.6%. The weighted average debt outstanding for the year ended March 26, 2016 increased by approximately $41 million from fiscal 2015. This increase was due to an increase in capital lease debt primarily related to 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 37080 basis points from the prior year, largely due to a shiftcapital lease debt, as well as an increase in the percentage of debt (revolver vs. capital leases) outstanding at a lower rate. Additionally, amortization of financing fees overLIBOR and prime rates versus the higher outstanding revolving credit balance is causing a decrease in the weighted average interest rate.same time last year.
Our effective tax rate was 36.3%36.6% and 37.0%37.8%, respectively, of pre-tax income in fiscal 20132016 and 2012.2015. The decrease in the effective income tax rate for the year ended March 26, 2016 related primarily to a net tax benefit that was recorded for $.7 million. We engaged tax specialists to assess the qualification of intercompany transactions in accordance with U.S. Treasury Regulations of 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 the year. Excluding this net tax benefit, the effective income tax rate would have been approximately 37.3% for the year ended March 26, 2016. The remaining difference in the effective income tax rate relates primarily relates to the accounting for uncertain tax positions which may vary from year to year.
Net income for fiscal 2013 decreased2016 increased by $12.0$5.0 million, or 22.1%8.1%, from $54.6$61.8 million in fiscal 2012,2015, to $42.6$66.8 million in fiscal 2013,2016, and earnings per diluted share decreasedincreased by 21.9%6.4% from $1.69$1.88 to $1.32$2.00 due to the factors discussed above.
26
CAPITAL RESOURCES, CONTRACTUAL OBLIGATIONS AND LIQUIDITY
Capital Resources
Our primary capital requirements for fiscal 20142017 were divided among the funding of acquisitions for $27.5$142.6 million, as well as the upgrading of facilities and systems and the funding of our store expansion program totaling $32.2$34.6 million. In fiscal 2013,2016, our primary capital requirements were divided among the funding of acquisitions for $163.3$49.0 million, as well as the upgrading of facilities and systems including the completion of the approximate $4.6 million expansion of the Rochester, New York office and warehouse facility which began in fiscal 2012, and the funding of our store expansion program totaling $34.2$36.8 million. In both fiscal years 20142017 and 2013,2016, capital requirements were primarily met by cash flow from operations and from our revolving credit facility.
In fiscal 2015,2018, we intend to open approximately four20 to 40 new greenfield stores. Greenfield stores include new construction as well as the acquisition of one to four store operations. Total capital required to openbuild a new greenfield service store ranges, on average, (excluding the acquired stores and BJ’s locations), from $350,000$360,000 to $950,000$990,000 depending on whether the store is leased, owned or land leased. Total capital required to openbuild a new greenfield tire (land and building leased) location costs, on average, approximately $600,000, including $225,000$250,000 for equipment and $150,000 for inventory.
Monro paid dividends of $14.2$22.5 million in fiscal 2014.2017. In May 2014,2017, Monro’s Board of Directors declared its intention to pay a regular quarterly cash dividend of $.13$.18 per common share or common share equivalent beginning with the first quarter of fiscal 2015.2018.
We also plan to continue to seek suitable acquisition candidates. Management believes that we have sufficient resources available (including cash flow from operations and bank financing) to expand our business as currently planned for the next several years.
Contractual Obligations
Payments due by period under long-term debt, other financing instruments and commitments are as follows:
Total | Within 1 Year | 1 to 3 Years | 3 to 5 Years | After 5 Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Principal payments on long-term debt | $ | 106,501 | $ | 660 | $ | 105,841 | ||||||||||||||
Capital lease commitments/financing obligations | 88,091 | 6,892 | $ | 13,311 | 14,602 | $ | 53,286 | |||||||||||||
Operating lease commitments | 126,417 | 33,204 | 52,791 | 29,276 | 11,146 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 321,009 | $ | 40,756 | $ | 66,102 | $ | 149,719 | $ | 64,432 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Within |
| 1 to |
| 3 to |
| After | ||||
|
| Total |
| 1 Year |
| 3 Years |
| 5 Years |
| 5 Years | |||||
|
| (Dollars in thousands) | |||||||||||||
Principal payments on long-term debt |
| $ | 182,357 |
| $ | 20 |
| $ | 40 |
| $ | 182,297 |
|
|
|
Capital lease commitments/financing obligations |
|
| 228,444 |
|
| 15,278 |
|
| 34,121 |
|
| 39,710 |
| $ | 139,335 |
Operating lease commitments |
|
| 154,170 |
|
| 35,577 |
|
| 52,128 |
|
| 31,490 |
|
| 34,975 |
Other liabilities |
|
| 4,333 |
|
| 800 |
|
| 1,600 |
|
| 1,600 |
|
| 333 |
Total |
| $ | 569,304 |
| $ | 51,675 |
| $ | 87,889 |
| $ | 255,097 |
| $ | 174,643 |
We believe that we can fulfill our contractual commitments utilizing our cash flow from operations and, if necessary, bank financing.
25
Liquidity
In June 2011,January 2016, we entered into a new five-year $175$600 million Revolving Credit Facility agreement with sevennine banks (the “Credit Facility”). The Credit Facility replaced our previous revolving credit facility, as amended, and restated,which would have expired in its entirety,December 2017. Interest only is payable monthly throughout the Credit Facility agreement previously entered into by Monro as of July 2005 and amended from time to time.Facility’s term. The Credit Facility also providedincreased our borrowing capacity from our prior financing agreement by $350 million to $600 million, and includes an accordion feature permitting us to request an increase in availability of up to an additional $75 million.
In December 2012,$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. The Credit Facility requires fees payable quarterly throughout the term between .15% and .35% of the amount of the average net availability under the Credit Facility was amended to includeduring 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
27
Credit 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. There are now six banks participating in the syndication.preceding quarter. There was $105.8$182.3 million outstanding under the Credit Facility at March 29, 2014.25, 2017. We were in compliance with all debt covenants as of March 29, 2014.25, 2017.
The
At March 25, 2017 and March 26, 2016, the interest rate onspread paid by the Credit Facility increased fromCompany was 100 basis points to 125 basis points over LIBOR during fiscal year 2014. At March 29, 2014, the interest rate was 125 basis points over LIBOR.
Within the Credit Facility, we have a sub-facility of $40$80 million for the purpose of issuing standby letters of credit. The line requires fees aggregating 1.375%87.5 to 187.5 basis points over LIBOR annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was $22.7$26.5 million in an outstanding letter of credit at March 29, 2014.25, 2017.
The net availability under the Credit Facility at March 29, 201425, 2017 was $121.5$391.2 million.
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. Other 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. The agreement also requires the maintenance of specified interest and rent coverage ratios.
In addition, we have financed certain store properties and vehicles with capital leases/financing obligations, which amount to $88$228.4 million and are due in installments through 2042.May 2045. We also have a $.1 million payable to the seller of an acquired business at March 25, 2017, due in equal installments through September 2019.
During fiscal 1995, Monro purchased 12.7 acres of land for $.7 million from the City of Rochester, New York, on which its office/warehouse facility is located. The City has provided financing for 100% of the cost of the land via a 20-year non-interest bearing mortgage, all due and payable in fiscal 2015.
INFLATION
We do not believe our operations have been materially affected by inflation. Monro has been successful, in many cases, in mitigating the effects of merchandise cost increases principally through the use of volume discounts and alternative vendors, as well as selling price increases. See additional discussion under Risk Factors.
FINANCIAL ACCOUNTING STANDARDS
See “Recent Accounting Pronouncements” in Note 1 to the consolidated financial statementsCompany’s Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our Consolidated Financial Statements as of March 29, 201425, 2017 and for the year then ended, as well as the expected impact on the Consolidated Financial Statements for future periods.
Item 7A.Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Monro is exposed to market risk from potential changes in interest rates. At year endAs of March 2014 and 2013,25, 2017, approximately .6% and .5%, respectively,.03% of our debt financing, excluding capital leases and financing obligations, was at fixed interest rates and, therefore, the fair value of such debt financing is affected by changes in market interest rates. OurGiven a 1% change in LIBOR, our cash flow exposure on floating rate debt interest expense would result in interest expense fluctuating approximately $1.1$1.8 million based upon our debt position at fiscal year endedas of March 29, 2014 and $1.3 million for fiscal year ended March 30, 2013 given a 1% change in LIBOR.25, 2017.
Debt financing including current portion, had a carrying amount of $106.5 million and a fair value of $106.5$182.4 million as of March 29, 2014,25, 2017, as compared to a carrying amount of $127.8 million and a fair value of $127.8$103.3 million as of March 30, 2013.
28
26
ItemItem 8.Financial Statements and Supplementary Data
Page | ||||
28 | ||||
Audited Financial Statements: | ||||
Consolidated Balance Sheets at March | 29 | |||
30 | ||||
31 | ||||
Consolidated Statements of Cash Flows for the fiscal three years ended March | 32 | |||
33 | ||||
58 |
27
29
ReReportport of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Monro Muffler Brake, Inc.:
In our opinion, the accompanying consolidated financialbalance sheets and the related consolidated statements listedof comprehensive income, of changes in the accompanying indexshareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Monro Muffler Brake, Inc. and its subsidiarysubsidiaries at March 29, 201425, 2017 and March 30, 2013,26, 2016, and the results of their operations and their cash flows for each of the three years in the period ended March 29, 201425, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 29, 2014,25, 2017, based on criteria established inInternal Control—Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Report on Internal Control over Financial Reporting appearing under Item 9A.8. Our responsibility is to express opinions on these financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
May 28, 2014
30
28
MONROMONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
March 29, 2014 | March 30, 2013 | |||||||
(Dollars in thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 1,205 | $ | 1,463 | ||||
Trade receivables | 2,728 | 2,835 | ||||||
Federal and state income taxes receivable | 2,171 | 2,336 | ||||||
Inventories | 124,920 | 118,210 | ||||||
Deferred income tax assets | 13,710 | 13,154 | ||||||
Other current assets | 23,382 | 28,412 | ||||||
|
|
|
| |||||
Total current assets | 168,116 | 166,410 | ||||||
|
|
|
| |||||
Property, plant and equipment | 531,505 | 504,080 | ||||||
Less—Accumulated depreciation and amortization | (249,622 | ) | (229,034 | ) | ||||
|
|
|
| |||||
Net property, plant and equipment | 281,883 | 275,046 | ||||||
Goodwill | 270,039 | 249,803 | ||||||
Intangible assets | 29,371 | 32,396 | ||||||
Other non-current assets | 10,547 | 10,458 | ||||||
Long-term deferred income tax assets | — | 5,320 | ||||||
|
|
|
| |||||
Total assets | $ | 759,956 | $ | 739,433 | ||||
|
|
|
| |||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt, capital leases and financing obligations | $ | 7,552 | $ | 6,833 | ||||
Trade payables | 53,321 | 61,006 | ||||||
Accrued payroll, payroll taxes and other payroll benefits | 20,206 | 18,302 | ||||||
Accrued insurance | 32,353 | 29,498 | ||||||
Warranty reserves | 9,557 | 9,060 | ||||||
Other current liabilities | 13,752 | 13,431 | ||||||
|
|
|
| |||||
Total current liabilities | 136,741 | 138,130 | ||||||
Long-term capital leases and financing obligations | 81,199 | 86,962 | ||||||
Long-term debt | 105,841 | 127,847 | ||||||
Accrued rent expense | 5,700 | 6,057 | ||||||
Other long-term liabilities | 11,558 | 11,965 | ||||||
Deferred income tax liabilities | 140 | — | ||||||
Long-term income taxes payable | 2,793 | 3,430 | ||||||
|
|
|
| |||||
Total liabilities | 343,972 | 374,391 | ||||||
|
|
|
| |||||
Commitments | ||||||||
Shareholders’ equity: | ||||||||
Class C Convertible Preferred Stock, $1.50 par value, $.064 conversion value; | 49 | 49 | ||||||
Common Stock, $.01 par value, 65,000,000 shares authorized; 37,567,902 and 37,327,967 shares issued at March 29, 2014 and March 30, 2013, respectively | 376 | 373 | ||||||
Treasury Stock, 6,076,951 and 6,073,836 shares at March 29, 2014 and March 30, 2013, respectively, at cost | (90,241 | ) | (90,064 | ) | ||||
Additional paid-in capital | 141,365 | 131,460 | ||||||
Accumulated other comprehensive loss | (3,135 | ) | (4,043 | ) | ||||
Retained earnings | 367,570 | 327,267 | ||||||
|
|
|
| |||||
Total shareholders’ equity | 415,984 | 365,042 | ||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | $ | 759,956 | $ | 739,433 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 25, |
| March 26, | ||
|
| 2017 |
| 2016 | ||
|
| (Dollars in thousands) | ||||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and equivalents |
| $ | 8,995 |
| $ | 7,985 |
Trade receivables |
|
| 11,465 |
|
| 4,301 |
Federal and state income taxes receivable |
|
| 3,527 |
|
| 80 |
Inventories |
|
| 142,604 |
|
| 129,035 |
Other current assets |
|
| 32,639 |
|
| 28,674 |
Total current assets |
|
| 199,230 |
|
| 170,075 |
Property, plant and equipment |
|
| 712,999 |
|
| 639,936 |
Less - Accumulated depreciation and amortization |
|
| (318,365) |
|
| (288,354) |
Net property, plant and equipment |
|
| 394,634 |
|
| 351,582 |
Goodwill |
|
| 501,736 |
|
| 400,132 |
Intangible assets |
|
| 54,288 |
|
| 39,520 |
Other non-current assets |
|
| 11,331 |
|
| 12,774 |
Long-term deferred income tax assets |
|
| 24,045 |
|
| 25,355 |
Total assets |
| $ | 1,185,264 |
| $ | 999,438 |
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of long-term debt, capital leases and financing obligations |
| $ | 15,298 |
| $ | 11,244 |
Trade payables |
|
| 79,492 |
|
| 69,887 |
Accrued payroll, payroll taxes and other payroll benefits |
|
| 24,979 |
|
| 23,989 |
Accrued insurance |
|
| 35,325 |
|
| 35,967 |
Warranty reserves |
|
| 10,843 |
|
| 10,793 |
Other current liabilities |
|
| 19,956 |
|
| 15,691 |
Total current liabilities |
|
| 185,893 |
|
| 167,571 |
Long-term debt |
|
| 182,337 |
|
| 103,315 |
Long-term capital leases and financing obligations |
|
| 213,166 |
|
| 165,730 |
Accrued rent expense |
|
| 5,037 |
|
| 5,145 |
Other long-term liabilities |
|
| 15,137 |
|
| 18,363 |
Long-term income taxes payable |
|
| 2,440 |
|
| 3,119 |
Total liabilities |
|
| 604,010 |
|
| 463,243 |
Commitments and contingencies |
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
Class C Convertible Preferred Stock, $1.50 par value, $.064 conversion value; |
|
| 33 |
|
| 49 |
Common Stock, $.01 par value, 65,000,000 shares authorized; 39,012,189 and |
|
| 390 |
|
| 386 |
Treasury Stock, 6,322,417 and 6,316,652 shares at March 25, 2017 and |
|
| (106,212) |
|
| (105,856) |
Additional paid-in capital |
|
| 191,553 |
|
| 186,550 |
Accumulated other comprehensive loss |
|
| (3,161) |
|
| (4,576) |
Retained earnings |
|
| 498,651 |
|
| 459,642 |
Total shareholders' equity |
|
| 581,254 |
|
| 536,195 |
Total liabilities and shareholders' equity |
| $ | 1,185,264 |
| $ | 999,438 |
The accompanying notes are an integral part of these financial statements.
3129
MONROMONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
(Amounts in thousands, except per share data) | ||||||||||||
Sales | $ | 831,432 | $ | 731,997 | $ | 686,552 | ||||||
Cost of sales, including distribution and occupancy costs | 511,458 | 453,850 | 410,155 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 319,974 | 278,147 | 276,397 | |||||||||
Operating, selling, general and administrative expenses | 224,627 | 204,442 | 184,981 | |||||||||
|
|
|
|
|
| |||||||
Operating income | 95,347 | 73,705 | 91,416 | |||||||||
Interest expense, net of interest income | 9,470 | 7,213 | 5,220 | |||||||||
Other income, net | (659 | ) | (332 | ) | (490 | ) | ||||||
|
|
|
|
|
| |||||||
Income before provision for income taxes | 86,536 | 66,824 | 86,686 | |||||||||
Provision for income taxes | 32,077 | 24,257 | 32,074 | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 54,459 | $ | 42,567 | $ | 54,612 | ||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss): | ||||||||||||
Changes in pension, net of tax provision (benefit) of $556, ($299) and ($1,211), respectively | 908 | (488 | ) | (1,977 | ) | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) | 908 | (488 | ) | (1,977 | ) | |||||||
|
|
|
|
|
| |||||||
Comprehensive income | $ | 55,367 | $ | 42,079 | $ | 52,635 | ||||||
|
|
|
|
|
| |||||||
Earnings per share: | ||||||||||||
Basic | $ | 1.72 | $ | 1.36 | $ | 1.77 | ||||||
|
|
|
|
|
| |||||||
Diluted | $ | 1.67 | $ | 1.32 | $ | 1.69 | ||||||
|
|
|
|
|
| |||||||
Weighted average number of common shares outstanding used in computing earnings per share: | ||||||||||||
Basic | 31,394 | 31,067 | 30,716 | |||||||||
|
|
|
|
|
| |||||||
Diluted | 32,642 | 32,308 | 32,237 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
| (Amounts in thousands, except | |||||||
|
| per share data) | |||||||
Sales |
| $ | 1,021,511 |
| $ | 943,651 |
| $ | 894,492 |
Cost of sales, including distribution and occupancy costs |
|
| 624,622 |
|
| 557,948 |
|
| 541,142 |
Gross profit |
|
| 396,889 |
|
| 385,703 |
|
| 353,350 |
Operating, selling, general and administrative expenses |
|
| 280,505 |
|
| 265,114 |
|
| 243,561 |
Operating income |
|
| 116,384 |
|
| 120,589 |
|
| 109,789 |
Interest expense, net of interest income |
|
| 19,768 |
|
| 15,542 |
|
| 11,342 |
Other income, net |
|
| (628) |
|
| (374) |
|
| (908) |
Income before provision for income taxes |
|
| 97,244 |
|
| 105,421 |
|
| 99,355 |
Provision for income taxes |
|
| 35,718 |
|
| 38,616 |
|
| 37,556 |
Net income |
| $ | 61,526 |
| $ | 66,805 |
| $ | 61,799 |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Changes in pension, net of tax provision (benefit) of $788, $65 |
|
| 1,415 |
|
| 8 |
|
| (1,449) |
Other comprehensive income (loss) |
|
| 1,415 |
|
| 8 |
|
| (1,449) |
Comprehensive income |
| $ | 62,941 |
| $ | 66,813 |
| $ | 60,350 |
Earnings per share: |
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.88 |
| $ | 2.07 |
| $ | 1.94 |
Diluted |
| $ | 1.85 |
| $ | 2.00 |
| $ | 1.88 |
Weighted average number of common shares outstanding used in |
|
|
|
|
|
|
|
|
|
Basic |
|
| 32,413 |
|
| 32,026 |
|
| 31,605 |
Diluted |
|
| 33,301 |
|
| 33,353 |
|
| 32,944 |
The accompanying notes are an integral part of these financial statements.
3230
MONROMONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’SHAREHOLDERS' EQUITY
Class C Convertible Preferred Stock | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Balance at March 26, 2011 | $ | 49 | $ | 360 | $ | (72,317 | ) | $ | 99,871 | $ | 253,864 | $ | (1,578 | ) | $ | 280,249 | ||||||||||||
Net income | 54,612 | 54,612 | ||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||
Pension liability adjustment (($3,188) pre-tax) | (1,977 | ) | (1,977 | ) | ||||||||||||||||||||||||
Dividends (1): | ||||||||||||||||||||||||||||
Preferred | (266 | ) | (266 | ) | ||||||||||||||||||||||||
Common | (10,770 | ) | (10,770 | ) | ||||||||||||||||||||||||
Tax benefit from exercise of stock options | 5,314 | 5,314 | ||||||||||||||||||||||||||
Exercise of stock options(2) | 8 | (14,176 | ) | 11,810 | (2,358 | ) | ||||||||||||||||||||||
Stock option compensation | 2,695 | 2,695 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at March 31, 2012 | 49 | 368 | (86,493 | ) | 119,690 | 297,440 | (3,555 | ) | 327,499 | |||||||||||||||||||
Net income | 42,567 | 42,567 | ||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||
Pension liability adjustment (($787) pre-tax) | (488 | ) | (488 | ) | ||||||||||||||||||||||||
Dividends(1): | ||||||||||||||||||||||||||||
Preferred | (304 | ) | (304 | ) | ||||||||||||||||||||||||
Common | (12,436 | ) | (12,436 | ) | ||||||||||||||||||||||||
Tax benefit from exercise of stock options | 2,764 | 2,764 | ||||||||||||||||||||||||||
Exercise of stock options(2) | 5 | (3,571 | ) | 5,922 | 2,356 | |||||||||||||||||||||||
Stock option compensation | 3,084 | 3,084 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at March 30, 2013 | 49 | 373 | (90,064 | ) | 131,460 | 327,267 | (4,043 | ) | 365,042 | |||||||||||||||||||
Net income | 54,459 | 54,459 | ||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Pension liability adjustment ($1,464 pre-tax) | 908 | 908 | ||||||||||||||||||||||||||
Dividends(1): | ||||||||||||||||||||||||||||
Preferred | (334 | ) | (334 | ) | ||||||||||||||||||||||||
Common | (13,822 | ) | (13,822 | ) | ||||||||||||||||||||||||
Tax benefit from exercise of stock options | 1,866 | 1,866 | ||||||||||||||||||||||||||
Exercise of stock options(2) | 3 | (177 | ) | 4,488 | 4,314 | |||||||||||||||||||||||
Stock option compensation | 3,551 | 3,551 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at March 29, 2014 | $ | 49 | $ | 376 | $ | (90,241 | ) | $ | 141,365 | $ | 367,570 | $ | (3,135 | ) | $ | 415,984 | ||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Class C |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| ||||
|
| Convertible |
|
|
|
|
|
|
|
|
|
|
| Additional |
| Other |
|
|
|
|
|
| |||||
|
| Preferred |
| Common |
| Treasury |
| Paid-In |
| Comprehensive |
| Retained |
|
|
| ||||||||||||
|
| Stock |
| Stock |
| Stock |
| Capital |
| Loss |
| Earnings |
| Total | |||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
| (Dollars and shares in thousands) |
|
|
| ||||||||||||||||||||
Balance at March 29, 2014 |
| 33 |
| $ | 49 |
| 37,568 |
| $ | 376 |
| 6,077 |
| $ | (90,241) |
| $ | 141,365 |
| $ | (3,135) |
| $ | 367,570 |
| $ | 415,984 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 61,799 |
|
| 61,799 |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,449) |
|
|
|
|
| (1,449) |
Dividends (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (395) |
|
| (395) |
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (16,450) |
|
| (16,450) |
Stock issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (14) |
|
|
|
|
|
|
|
| (14) |
Tax benefit from exercise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,208 |
|
|
|
|
|
|
|
| 2,208 |
Exercise of stock options (2) |
|
|
|
|
|
| 440 |
|
| 4 |
| 103 |
|
| (5,397) |
|
| 14,057 |
|
|
|
|
|
|
|
| 8,664 |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,264 |
|
|
|
|
|
|
|
| 3,264 |
Balance at March 28, 2015 |
| 33 |
|
| 49 |
| 38,008 |
|
| 380 |
| 6,180 |
|
| (95,638) |
|
| 160,880 |
|
| (4,584) |
|
| 412,524 |
|
| 473,611 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 66,805 |
|
| 66,805 |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8 |
|
|
|
|
| 8 |
Dividends (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (456) |
|
| (456) |
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (19,231) |
|
| (19,231) |
Tax benefit from exercise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,677 |
|
|
|
|
|
|
|
| 6,677 |
Exercise of stock options (2) |
|
|
|
|
|
| 549 |
|
| 6 |
| 137 |
|
| (10,218) |
|
| 16,243 |
|
|
|
|
|
|
|
| 6,031 |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,750 |
|
|
|
|
|
|
|
| 2,750 |
Balance at March 26, 2016 |
| 33 |
|
| 49 |
| 38,557 |
|
| 386 |
| 6,317 |
|
| (105,856) |
|
| 186,550 |
|
| (4,576) |
|
| 459,642 |
|
| 536,195 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 61,526 |
|
| 61,526 |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,415 |
|
|
|
|
| 1,415 |
Dividends (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (447) |
|
| (447) |
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (22,070) |
|
| (22,070) |
Conversion of Class C |
| (11) |
|
| (16) |
| 250 |
|
| 2 |
|
|
|
|
|
|
| 14 |
|
|
|
|
|
|
|
| — |
Tax benefit from exercise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,510 |
|
|
|
|
|
|
|
| 3,510 |
Exercise of stock options |
|
|
|
|
|
| 205 |
|
| 2 |
| 5 |
|
| (356) |
|
| (1,004) |
|
|
|
|
|
|
|
| (1,358) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,483 |
|
|
|
|
|
|
|
| 2,483 |
Balance at March 25, 2017 |
| 22 |
| $ | 33 |
| 39,012 |
| $ | 390 |
| 6,322 |
| $ | (106,212) |
| $ | 191,553 |
| $ | (3,161) |
| $ | 498,651 |
| $ | 581,254 |
_________________
(1) | Dividends paid per common share or common share equivalent were |
(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.
3331
MONROMONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
(Dollars in thousands) Increase (Decrease) in Cash | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 54,459 | $ | 42,567 | $ | 54,612 | ||||||
|
|
|
|
|
| |||||||
Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||||||
Depreciation and amortization | 31,688 | 27,500 | 23,583 | |||||||||
Stock-based compensation expense | 3,551 | 3,084 | 2,695 | |||||||||
Excess tax benefits from share-based payment arrangements | (195 | ) | (441 | ) | (294 | ) | ||||||
Net change in deferred income taxes | 4,520 | (375 | ) | 3,162 | ||||||||
Gain on bargain purchase | (217 | ) | — | — | ||||||||
Loss (gain) on disposal of assets | 373 | 375 | (1,247 | ) | ||||||||
Change in operating assets and liabilities (excluding acquisitions) | ||||||||||||
Trade receivables | 107 | (511 | ) | 153 | ||||||||
Inventories | (5,192 | ) | (5,968 | ) | 4,589 | |||||||
Other current assets | 5,149 | (7,176 | ) | (3,668 | ) | |||||||
Other non-current assets | 1,844 | 5,468 | (6,942 | ) | ||||||||
Trade payables | (7,685 | ) | 15,657 | 4,048 | ||||||||
Accrued expenses | 3,656 | 3,826 | (323 | ) | ||||||||
Federal and state income taxes payable | 2,031 | 1,779 | 3,577 | |||||||||
Other long-term liabilities | 491 | (844 | ) | (539 | ) | |||||||
Long-term income taxes payable | (637 | ) | (505 | ) | (780 | ) | ||||||
|
|
|
|
|
| |||||||
Total adjustments | 39,484 | 41,869 | 28,014 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 93,943 | 84,436 | 82,626 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (32,150 | ) | (34,185 | ) | (28,556 | ) | ||||||
Acquisitions, net of cash acquired | (27,467 | ) | (163,326 | ) | (39,243 | ) | ||||||
Proceeds from the disposal of assets | 3,916 | 3,037 | 2,102 | |||||||||
|
|
|
|
|
| |||||||
Net cash used for investing activities | (55,701 | ) | (194,474 | ) | (65,697 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from borrowings | 304,321 | 371,031 | 189,502 | |||||||||
Principal payments on long-term debt, capital leases and financing obligations | (333,174 | ) | (253,445 | ) | (198,236 | ) | ||||||
Exercise of stock options | 4,314 | 2,957 | 3,134 | |||||||||
Excess tax benefits from share-based payment arrangements | 195 | 441 | 294 | |||||||||
Dividends paid | (14,156 | ) | (12,740 | ) | (11,036 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash (used for) provided by financing activities | (38,500 | ) | 108,244 | (16,342 | ) | |||||||
|
|
|
|
|
| |||||||
(Decrease) increase in cash | (258 | ) | (1,794 | ) | 587 | |||||||
Cash at beginning of year | 1,463 | 3,257 | 2,670 | |||||||||
|
|
|
|
|
| |||||||
Cash at end of year | $ | 1,205 | $ | 1,463 | $ | 3,257 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
| (Dollars in thousands) | |||||||
|
| Increase (Decrease) in Cash | |||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 61,526 |
| $ | 66,805 |
| $ | 61,799 |
Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 44,629 |
|
| 39,769 |
|
| 35,721 |
Stock-based compensation expense |
|
| 2,483 |
|
| 2,750 |
|
| 3,264 |
Excess tax benefits from share-based payment arrangements |
|
| — |
|
| (8) |
|
| (121) |
Net change in deferred income taxes |
|
| 11,256 |
|
| 6,589 |
|
| 6,338 |
Gain on bargain purchase |
|
| — |
|
| — |
|
| (386) |
Loss (gain) on disposal of assets |
|
| 85 |
|
| (41) |
|
| 265 |
Change in operating assets and liabilities (excluding acquisitions) |
|
|
|
|
|
|
|
|
|
Trade receivables |
|
| (74) |
|
| (1,477) |
|
| 168 |
Inventories |
|
| 5,044 |
|
| 1,555 |
|
| 805 |
Other current assets |
|
| (2,879) |
|
| (6,847) |
|
| 2,622 |
Other non-current assets |
|
| 5,680 |
|
| 2,886 |
|
| (498) |
Trade payables |
|
| 9,605 |
|
| 7,079 |
|
| 9,599 |
Accrued expenses |
|
| (3,224) |
|
| 2,414 |
|
| 2,937 |
Federal and state income taxes receivable |
|
| 63 |
|
| 6,212 |
|
| 4,764 |
Other long-term liabilities |
|
| (3,580) |
|
| (1,399) |
|
| (1,037) |
Long-term income taxes payable |
|
| (679) |
|
| 217 |
|
| 109 |
Total adjustments |
|
| 68,409 |
|
| 59,699 |
|
| 64,550 |
Net cash provided by operating activities |
|
| 129,935 |
|
| 126,504 |
|
| 126,349 |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (34,640) |
|
| (36,834) |
|
| (34,750) |
Acquisitions, net of cash acquired |
|
| (142,567) |
|
| (49,018) |
|
| (84,367) |
Proceeds from the disposal of assets |
|
| 1,583 |
|
| 2,625 |
|
| 409 |
Net cash used for investing activities |
|
| (175,624) |
|
| (83,227) |
|
| (118,708) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
| 470,027 |
|
| 336,942 |
|
| 343,561 |
Principal payments on long-term debt, capital leases and financing obligations |
|
| (404,303) |
|
| (366,707) |
|
| (336,617) |
Exercise of stock options |
|
| 3,492 |
|
| 8,602 |
|
| 8,664 |
Excess tax benefits from share-based payment arrangements |
|
| — |
|
| 8 |
|
| 121 |
Dividends paid |
|
| (22,517) |
|
| (19,687) |
|
| (16,845) |
Deferred financing costs |
|
| — |
|
| (2,180) |
|
| — |
Net cash provided by (used for) financing activities |
|
| 46,699 |
|
| (43,022) |
|
| (1,116) |
Increase in cash |
|
| 1,010 |
|
| 255 |
|
| 6,525 |
Cash at beginning of year |
|
| 7,985 |
|
| 7,730 |
|
| 1,205 |
Cash at end of year |
| $ | 8,995 |
| $ | 7,985 |
| $ | 7,730 |
The accompanying notes are an integral part of these financial statements.
3432
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
NOTENOTE 1 —– SIGNIFICANT ACCOUNTING POLICIES
Background
Monro Muffler Brake, Inc. and its wholly owned subsidiary,subsidiaries, Monro Service Corporation and Car-X, LLC (together, “Monro”, the “Company”, “we”, “us”, or “our”), are engaged principally in providing automotive undercar repair and tire sales and services in the United States. Monro had 9531,118 Company-operated stores, three114 franchised locations, five wholesale locations, two retread facilities and 14 dealer-operated automotive repair centers located primarily in the northeast and Great Lakes regions of the United States27 states as of March 29, 2014. 25, 2017.
Monro’s operations are organized and managed in one operating segment. The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale locations. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting.
Accounting estimates
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with such principles requires the use of estimates by management during the reporting period. Actual results could differ from those estimates.
Fiscal year
Monro reports its results on a 52/53 week fiscal year ending on the last Saturday of March of each year. The following are the dates represented by each fiscal period:
“Year ended Fiscal March 2014”2017”: March 31, 201327, 2016 – March 29, 201425, 2017 (52 weeks)
“Year ended Fiscal March 2013”2016”: April 1, 2012March 29, 2015 – March 30, 201326, 2016 (52 weeks)
“Year ended Fiscal March 2012”2015”: March 27, 201130, 2014 – March 31, 2012 (5328, 2015 (52 weeks)
Consolidation
The Consolidated Financial Statements include Monro Muffler Brake, Inc. and its wholly owned subsidiary,subsidiaries, Monro Service Corporation and Car-X, LLC, after the elimination of intercompany transactions and balances.
Reclassifications
Certain amounts in these financials statements have been reclassified to maintain comparability among the periods presented.
Retrospective adjustments – Purchase accounting
During the quarter ended December 2013, we finalized the purchase accounting for several acquisitions that occurred in fiscal year 2013. We retrospectively adjusted the provisional amounts recognized at the acquisition dates to reflect fair value and made adjustments to the March 30, 2013 Consolidated Balance Sheet. (See Note 2.)
35
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue recognition
Sales are recorded upon completion of automotive undercar repair, tire delivery and tire services provided to customers. The following was Monro’s sales mix for fiscal 2014, 20132017, 2016 and 2012:2015:
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Brakes | 15 | % | 15 | % | 18 | % | ||||||
Exhaust | 4 | 4 | 5 | |||||||||
Steering | 9 | 10 | 10 | |||||||||
Tires | 44 | 42 | 39 | |||||||||
Maintenance | 28 | 29 | 28 | |||||||||
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| |||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
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| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Brakes |
| 13 | % |
| 15 | % |
| 15 | % |
Exhaust |
| 2 |
|
| 3 |
|
| 3 |
|
Steering |
| 9 |
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| 10 |
|
| 10 |
|
Tires |
| 49 |
|
| 45 |
|
| 44 |
|
Maintenance |
| 27 |
|
| 27 |
|
| 28 |
|
Total |
| 100 | % |
| 100 | % |
| 100 | % |
Revenue from the sale of tire road hazard warranty agreements is recognized on a straight-line basis over the contract period or other method when costs are not incurred ratably.
Under various arrangements, we receive from certain tire vendors a delivery commission and reimbursement for the cost of the tire that we may deliver to customers on behalf of the tire vendor. The commission we earn from these transactions is as an agent and the net amount retained is recorded as sales.
Cash equivalents
We consider all highly liquid instruments with original maturities of three months or less to be cash equivalents.
33
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories
Our inventories consist of automotive parts and tires. Inventories are valued at the lower of cost or marketnet realizable value using the first-in, first-out (FIFO) method.
Barter credits
We value barter credits at the fair market value of the inventory exchanged, as determined by reference to price lists for buying groups and jobber pricing. We use these credits primarily to pay vendors for purchases (mainly inventory vendors for the purchase of parts, oil and tires) or to purchase other goods or services from the barter company such as advertising and travel.advertising.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is provided on a straight-line basis. Buildings and improvements related to owned locations are depreciated over lives varying from 10 to 39 years; machinery, fixtures and equipment over lives varying from 53 to 15 years; and vehicles over lives varying from 54 to 10 years. Computer hardware and software is depreciated over lives varying from 3 to 7 years. Buildings and improvements related to leased locations are depreciated over the shorter of the asset’s useful life or the reasonably assured lease term, as defined in the accounting guidance on leases. When property is sold or retired, the cost and accumulated depreciation are eliminated from the accounts and a gain or loss is recorded in the Consolidated Statements of Comprehensive Income. Expenditures for maintenance and repairs are expensed as incurred. (See Note 4.)
36
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Long-lived assets
Long-lived assets
We evaluate the ability to recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to the extent the carrying value exceeds the fair value. In addition, we report assets to be disposed of at the lower of the carrying amount or the fair market value.value less costs to sell.
Store opening and closing costs
New store opening costs are charged to expense in the fiscal year when incurred. When we close a store, the estimated unrecoverable costs, including the remaining lease obligation net of sublease income, if any, are charged to expense.
Leases
Leases
Financing Obligations –
We are often involved in the construction of leased stores. In some cases, we are responsible for construction cost over runsoverruns or non-standard tenant improvements. As a result of this involvement, we are deemed the “owner” for accounting purposes during the construction period, requiring us to capitalize the construction costs on our Consolidated Balance Sheet. Upon completion of the project, we perform a sale-leaseback analysis pursuant to guidance on accounting for leases to determine if we can remove the assets from our Consolidated Balance Sheet. For some of these leases, we are considered to have “continuing involvement”, which precludes us from derecognizing the assets from our Consolidated Balance Sheet when construction is complete (“failed sale-leaseback”). In conjunction with these leases, we capitalize the construction costs on our Consolidated Balance Sheet and also record financing obligations representing payments owed to the landlord. We do not report rent expense for the properties which are owned for accounting purposes. Rather, rental payments under the lease are recognized as a reduction of the financing obligation and as interest expense.
Additionally, since
Since we often assume leases in acquisition transactions, the accounting for a seller who was involved in the construction of leased stores passes to us.
During the fourth quarter of fiscal 2013, Monro conducted a review of its lease accounting practices as it relates to certain sale-leaseback transactions.
InAdditionally, we may incur other financing obligations in connection with this review, we recorded an out of period adjustment to record previously unrecognized failed sale-leaseback transactions. The adjustment resulted in the recognition of additional property of $.4 million and capital leases and financing obligations of $.7 million on our March 2013 Consolidated Balance Sheet. As some of the stores impacted related to prior year acquisitions, we also recorded increases in goodwill of $1.9 million, deferred tax assets of $1.2 million and other long term liabilities of $2.3 million in our Consolidated Balance Sheet as of March 30, 2013. The impact to the fiscal 2013 Consolidated Statement of Comprehensive Income was recorded in the fourth quarter as a decrease of $1.0 million in occupancy costs and an increase of $.5 million in interest expense. The Company determined that this adjustment was not material to its current or prior period Consolidated Financial Statements.accounting for acquisitions.
Capital Leases –
Some of our property is held under capital leases. These assets are included in property, plant and equipment and depreciated over the term of the lease. We do not report rent expense for capital leases. Rather, rental payments under the lease are recognized as a reduction of the capital lease obligation and interest expense.
34
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Operating Leases –
All other leases are considered operating leases. Rent expense, including rent escalations, is recognized on a straight-line basis over the reasonably assured lease term, as defined in the accounting guidance on leases. Generally, the lease term is the base lease term plus certain renewal option periods for which renewal is reasonably assured.
Goodwill and intangible assets
We have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. The carrying value of goodwill is subject to annual impairment reviews in accordance with accounting guidance on goodwill, which we typically perform in the third quarter of the fiscal year. Impairment reviews may also be triggered by any significant events or changes in circumstances affecting our business.
We have one reporting unit which encompasses all operations including new acquisitions. The goodwill impairment test consists of a two-step process, if necessary. We perform a qualitative assessment to determine if it is more likely than not that the fair value is less than the carrying value of goodwill. The qualitative assessment includes a review of business changes, economic outlook, financial trends and forecasts, growth rates, industry data, market capitalization and other relevant qualitative factors. If the qualitative factors are triggered, we perform the two-step process. The first step is to compare the fair value of our invested capitalreporting unit to the book value of its invested capital.our reporting unit. If the fair value is less than its carrying value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill.
Intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses and are amortized over their estimated useful lives. All intangibles and other long-lived assets are reviewed when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. No such indicators were present in 2014, 2013fiscal 2017, 2016 or 2012.2015.
A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in our cash flow models, but may also negatively impact other assumptions used in our analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, as discussed above, in accordance with accounting guidance, we are required to ensure that assumptions used to determine fair value in our analyses are consistent with the assumptions a hypothetical market participant would use. As a result, the cost of capital and/or discount rates used in our analyses may increase or decrease based on market conditions and trends, regardless of whether our actual cost of capital has changed. Therefore, we may recognize an impairment of an intangible asset or assets even though realized actual cash flows are approximately equal to or greater than its previously forecasted amounts.
As a result of our annual qualitative assessment performed in the third quarter of fiscal 2014,2017, there were no impairments. There have been no triggering events during the fourth quarter of fiscal 2014.2017.
Self-insurance reserves
We are largely self-insured with respect to workers’ compensation, general liability and employee medical claims. In order to reduce our risk and better manage our overall loss exposure, we purchase stop-loss insurance
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MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
that covers individual claims in excess of the deductible amounts.amounts, and caps total losses in a fiscal year. We maintain 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 claim volume, the average cost for settled claims, current trends in claim costs, changes in our 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 is warranted. For more complex reserve calculations, such as workers’ compensation, we use the services of an actuary on an annual basis to assist in determining the required reserve for open claims.
35
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Warranty
We provide an accrual for estimated future warranty costs for parts that we install based upon the historical relationship of warranty costs to sales. Warranty expense related to all product warranties at and for the years ended March 2014, 20132017, 2016 and 20122015 was not material to our financial position or results of operations. See additional discussion of tire road hazard warranty agreements under the “Revenue recognition” section of this footnote.
Comprehensive income
As it relates to Monro, comprehensive income is defined as net earnings as adjusted for pension liability adjustments and is reported net of related taxes in the Consolidated Statements of Comprehensive Income and in the Consolidated Statements of Changes in Shareholders’ Equity.
Income taxes
Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using tax rates based on currently enacted rules and legislation and anticipated rates that will be in effect when the differences are expected to reverse. The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Monro recognizes a tax benefit from an uncertain tax position in the financial statements only when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’sauthority's administrative practices and precedents. (See Note 7.)
Treasury stock
Treasury stock is accounted for using the par value method. During the year ended March 31, 2012,26, 2016, Monro’s former Chief Executive Officer surrendered 386,00032,000 shares of Monro’s Common Stock at fair market value to pay the exercise price and the related taxes on the exercise of 89,000 stock options. Additionally, Monro’s Executive Chairman surrendered 100,000 shares of Common Stock at fair market value to partiallypay the exercise price and to satisfy tax withholding obligations on the exercise of 563,000150,000 stock options. During the year ended March 30, 2013,28, 2015, Monro’s current Chief Executive Officer surrendered 43,00077,000 shares of Monro’s Common Stock at fair market value to pay the exercise price and to partially satisfy tax withholding obligations on the exercise of 113,000 stock options. There was no activity for the Chief Executive Officer or Executive Chairman during the year ended March 29, 2014.25, 2017.
Stock-based compensation
We measure compensation cost arising from the grant of share-based payments to an employee at fair value, and recognize such cost in income over the period during which the employee is required to provide service in exchange for the award, usually the vesting period. Forfeitures are estimated on the grant date and revised in subsequent periods if actual forfeitures differ from those estimates.
39
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We recognize compensation expense related to stock options using the straight-line approach. Option awards generally vest equally over the service period established in the award, typically four years. We estimate fair value using the Black-Scholes valuation model. Assumptions used to estimate the compensation expense are determined as follows:
· | Expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees; |
· | Expected volatility is measured using historical changes in the market price of Monro’s Common Stock; |
· | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; |
· | Forfeitures are based substantially on the history of cancellations of similar awards granted by Monro in prior years; and |
· | Dividend yield is based on historical experience and expected future changes. |
36
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted average fair value of options granted during fiscal 2014, 20132017, 2016 and 20122015 was $10.10, $8.67$12.17, $13.10 and $8.41,$11.27, respectively. The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Risk-free interest rate | .86 | % | .53 | % | 1.11 | % | ||||||
Expected life, in years | 4 | 4 | 4 | |||||||||
Expected volatility | 29.7 | % | 34.0 | % | 33.9 | % | ||||||
Expected dividend yield | .97 | % | 1.14 | % | 1.03 | % |
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| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Risk-free interest rate |
| 1.20 | % |
| 1.25 | % |
| 1.23 | % |
Expected life, in years |
| 4 |
|
| 4 |
|
| 4 |
|
Expected volatility |
| 25.9 | % |
| 27.2 | % |
| 27.7 | % |
Expected dividend yield |
| 1.10 | % |
| 0.96 | % |
| 0.99 | % |
Total stock-based compensation expense included in cost of sales and selling, general and administrative expenses in Monro’s Consolidated Statements of Comprehensive Income for the fiscal years ended March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 201228, 2015 was $3.6$2.5 million, $3.1$2.8 million and $2.7$3.3 million, respectively. The related income tax benefit was $1.3$1.0 million, $1.0 million and $1.2 million, and $1.0 million, respectively.
Earnings per share
Basic earnings per share isare calculated by dividing net income less preferred stock dividends by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings per share isare calculated by dividing net income by the weighted average number of shares of Common Stock and equivalents outstanding during the year. Common Stock equivalents represent shares issuable upon the assumed exercise of stock options. (See Note 10.)
Advertising
We expense the production costs of advertising the first time the advertising takes place, except for direct response advertising which is capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of coupons for Monro’s services. The capitalized costs of this advertising are amortized over the period of the coupon’s validity, which is typically two months.
40
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Prepaid advertising at March 29, 201425, 2017 and March 30, 2013,26, 2016, and advertising expense for the fiscal years ended March 2014, 20132017, 2016 and 2012,2015, were not material to these financial statements.
Vendor rebates and cooperative advertising credits
We account for vendor rebates and cooperative advertising credits as a reduction of the cost of products purchased, except where the rebate or credit is a reimbursement of costs incurred to sell the vendor’s product, in which case it is offset against the costs incurred.
Guarantees
At the time we issue a guarantee, we recognize an initial liability for the fair value, or market value, of the obligation we assume under that guarantee. Monro has guaranteed certain lease payments, primarily related to franchisees, amounting to $7.5 million. This amount represents the maximum potential amount of future payments under the guarantees as of March 25, 2017. The leases are guaranteed through April 2020. In the event of default by the franchise owner, Monro generally retains the right to assume the lease of the related store, enabling Monro to re-franchise the location or to operate that location as a Company-operated store. As of March 25, 2017, we have recorded a liability of $.6 million related to anticipated defaults under the foregoing leases.
37
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Recent accounting pronouncements
In February 2013,May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for the reporting of amounts reclassified out of accumulated other comprehensive income.revenue from contracts with customers. This guidance requires companiesprovides guidelines a company will apply to reportdetermine the effectmeasurement of significant reclassifications outrevenue and timing of accumulated other comprehensive income onwhen it is recognized. Additional guidance has subsequently been issued to amend or clarify the respective line items in net income when applicable, or to cross-reference the reclassificationsreporting of revenue from contracts with other disclosures that provide additional detail about the reclassification made when the reclassifications are not made to net income. Thiscustomers. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2012. The2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. While the evaluation of the impact of the new revenue recognition guidance on our Consolidated Financial Statements has not yet been fully determined, we anticipate the provisions to primarily impact the deferral of revenue generated by the sale of an extended warranty. Generally, in relation to these provisions, the new guidance will require the transaction price of an arrangement including an extended warranty to be allocated based on the relative standalone selling prices of the extended warranty and the original service/product rather than the contract price of the extended warranty. Therefore, the allocation may impact the amount of revenue deferred. We are required to adopt this guidance inutilizing one of two methods: retrospective restatement for each reporting period presented at time of adoption, or a modified retrospective approach with the first quartercumulative effect of fiscal 2014 did notinitially applying this guidance recognized at the date of initial application. We intend to elect an adoption methodology after we have anfully evaluated the impact on Monro’sour Consolidated Financial Statements, however, we do not expect this change to have a material impact on our Consolidated Financial Statements. We are currently preparing to implement changes to our accounting policies, systems and controls to support the new revenue recognition and disclosure requirements.
In July 2013,August 2014, the Financial Accounting Standards BoardFASB issued new accounting guidance for income tax presentationthe disclosure of an unrecognized tax benefit whenentity’s ability to continue as a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists.going concern. This guidance establishes specific guidelines to an entity’s management on their responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern. This guidance is effective for fiscal years ending after December 15, 2016, and interim periods thereafter. We have adopted this guidance during the fourth quarter of fiscal 2017 and we have evaluated the Company’s ability to continue as a going concern as well as the need for related footnote disclosure. We have concluded no disclosure is necessary regarding the Company’s ability to continue as a going concern.
In February 2016, the FASB issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires an entitya lessee to net its unrecognized tax benefits againstrecord a ROU asset and lease liability on the deferred tax assetsbalance sheet for all same jurisdiction netleases with terms longer than twelve months. Leases will be classified as either finance or operating, loss or similar tax loss carryforwards, or tax credit carryforwards.with classification affecting the pattern of expense recognition. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. Approximately 50% of our store leases and all of our land leases are currently not recorded on our balance sheet. Recording ROU assets and liabilities for these leases is expected to be applied prospectively (with an optionhave a material impact on our balance sheet. We are currently evaluating the impact that recording ROU assets and liabilities will have on our statements of comprehensive income and the financial statement impact that the standard will have on leases which are currently recorded on our balance sheet.
In March 2016, the FASB issued new accounting guidance intended to apply retrospectively)simplify various aspects related to accounting for share-based payments and will apply to all unrecognized tax benefits that exist attheir presentation in the effective date.financial statements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013, with early2016. Early adoption is permitted. As we already net our unrecognized tax benefits againstWe are currently evaluating the deferred tax assets for all same jurisdiction net operating loss carryforwards,potential impact of the adoption of this guidance had noon our Consolidated Financial Statements.
In August 2016, the FASB issued new accounting guidance related to cash flow classification. This guidance clarifies and provides specific guidance on eight cash flow classification issues that are not addressed by current GAAP and thereby reduce the current diversity in practice. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
In January 2017, the FASB issued new accounting guidance which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. This guidance provides a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. This screen requires that when substantially all of the fair value of the assets is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance provides a framework to evaluate whether both an input and a substantive process are present to be considered a business. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted for certain transactions. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
38
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In January 2017, the FASB issued new accounting guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required the determination of an implied fair value of goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This guidance is not expected to have an impact on Monro’sour Consolidated Financial Statements.
In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. This guidance requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are to be presented separately from the service cost component and outside of any subtotal of income from operations. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and should be applied retrospectively. Early adoption is permitted as of the beginning of an annual period for which financial statements have not yet been issued. This guidance is not expected to have an impact on our Consolidated Financial Statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected to have a material effect on Monro’s Consolidated Financial Statements.
NOTE 2 —– ACQUISITIONS
Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in our existing and contiguous markets, and leverage fixed operating costs such as distribution, advertising and advertising.administration. Acquisitions in this footnote include acquisitions of five or more locations as well as acquisitions of one to four locations that are part of the Company’s greenfield store growth strategy.
Subsequent Events
We have signed two definitive asset purchase agreements to complete the acquisition of ten and ninefive retail tire and automotive repair stores located in Michigan from Lentz U.S.A. Service Centers, Inc. and Kan Rock Tire Company, Inc., respectively, in June 2014.within our existing markets through four additional acquisitions. These stores will operate undertransactions are expected to close during the Monro Brake & Tire name. Thesefirst quarter of fiscal 2018. The acquisitions willare expected to be financed through our existing credit facility.
41
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On April 13, 2014,23, 2017, we acquired twoone retail tire and automotive repair storesstore located in New HampshireFlorida from BaldCollier Automotive Group, Inc. The store operates under The Tire & Auto, Inc. These retail tire and automotive repair stores were previously Tire Warehouse franchise locations and will continue to operate under the Tire WarehouseChoice name. The acquisition was financed through our existing credit facility.
Fiscal 20142017
During fiscal 2014,2017, we acquired the following businesses for an aggregate purchase price of $27.5$141.8 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 March 2, 2014, we acquired one retail tire and automotive repair store located in Kentucky from Hometown Tire Company, Inc. This store operates under the Ken Towery Tire and Auto Care
· | On February 26, 2017, we acquired 16 retail tire and automotive repair stores located in Illinois and Iowa from Nona, Inc., a Car-X franchisee. These stores operate under the Car-X name. |
On November 17, 2013, we acquired six retail tire and automotive repair stores located in Maryland and Delaware from Carl King Tire Co., Inc.
· | On February 5, 2017, we acquired two retail tire and automotive repair stores located in North Carolina and Virginia from Thrifty Tire of Roxboro, LLC. These stores operate under the Mr. Tire name. |
| · | On October 16, 2016, we acquired one retail tire and automotive repair store located in Rhode Island from Hamel Tire Center, Inc. This store operates under the Monro name. |
| · | On October 2, 2016, we acquired three retail tire and automotive repair stores located in Ohio from Parkway D/C Enterprises, Inc. These stores operate under the Mr. Tire name. |
On August 18, 2013, we acquired ten retail tire and automotive repair stores located in Virginia and Maryland from Curry’s Automotive Group. These stores operate under the Curry’s/Mr.
· | On September 19, 2016, we acquired one retail tire and automotive repair store located in Florida from Florida Tire Service, LLC. This store will operate under The Tire Choice name. |
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MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
· | On September 18, 2016, we acquired two retail tire and automotive repair stores located in Michigan from Davco Development Company and Ricketts, Inc. These stores operate under the Monro name. |
On August 11, 2013, we acquired one retail tire and automotive repair store located in New Jersey from Mitchell Tire Service. This store operates
· | On September 11, 2016, we acquired 26 retail tire and automotive repair stores and one retread facility located in North Carolina, as well as four wholesale locations in North Carolina, South Carolina and Tennessee, from Clark Tire & Auto, Inc. These stores operate under the Mr. Tire name. The wholesale locations and retread facility operate under the Tires Now name. |
· | On July 18, 2016, we acquired one retail tire and automotive repair store located in Indiana from NTI, LLC. This store operates under the Car-X name. |
· | On July 17, 2016, we acquired one retail tire and automotive repair store located in Georgia from Kwik-Fit Tire & Service. This store operates under the Mr. Tire name. |
· | On July 10, 2016, we acquired four retail tire and automotive repair stores located in Minnesota from Task Holdings, Inc. and Autopar, Inc. These stores operate under the Car-X name. |
· | On June 26, 2016, we acquired one retail tire and automotive repair store located in Michigan from Harlow Tire Company. This store operates under the Monro name. |
· | On June 19, 2016, we acquired two retail tire and automotive repair stores located in New Hampshire from Express Tire Centers, LLC. These stores operate under the Tire Warehouse name. |
· | On May 8, 2016, we acquired one retail tire and automotive repair store located in Florida from Pioneer Tire Pros. This store operates under The Tire Choice name. |
· | On May 1, 2016, we acquired 29 retail tire and automotive repair stores and one retread facility located in Florida from McGee Tire Stores, Inc. These stores will operate primarily under The Tire Choice name. The retread facility operates under the McGee Tire name. |
These 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, favorable leases and trade names and a non-compete agreement.names.
We expensed all costs related to the acquisitions during fiscal 2014.2017. The total costs related to thesecompleted acquisitions were not material to$1.0 million for the Consolidated Statements of Comprehensive Income.year ended March 25, 2017. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales and net incomeloss for the fiscal 20142017 acquired entitieslocations totaled $15.1$104.9 million and $.1approximately ($1.0) million, respectively, for the period from acquisition date through March 29, 2014.25, 2017. The net loss includes an allocation of certain traditional corporate related items, including vendor rebates, interest expense and income taxes.
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.
40
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuation data and estimates. The excess of the net purchase price over the net tangible and intangible assets
42
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
acquired was recorded as goodwill. Where the fair value of the net tangible and intangible assets exceeds the net purchase price, a gain was recorded. The preliminary allocation of the aggregate purchase price as of March 29, 201425, 2017 was as follows:
As of Acquisition Date | ||||
(Dollars in thousands) | ||||
Inventories | $ | 1,549 | ||
Other current assets | 122 | |||
Property, plant and equipment | 8,549 | |||
Intangible assets | 1,283 | |||
Deferred income tax assets | 111 | |||
Other non-current assets | 94 | |||
|
| |||
Total assets acquired | 11,708 | |||
Warranty reserves | 167 | |||
Other current liabilities | 1,616 | |||
Other long-term liabilities | 130 | |||
|
| |||
Total liabilities assumed | 1,913 | |||
|
| |||
Total net identifiable assets acquired | $ | 9,795 | ||
|
| |||
Total consideration transferred | $ | 27,518 | ||
Plus: gain on bargain purchase | 217 | |||
Less: total net identifiable assets acquired | 9,795 | |||
|
| |||
Goodwill | $ | 17,940 | ||
|
|
As of Acquisition Date | |||
(Dollars in thousands) | |||
Cash and equivalents | $ | 15 | |
Trade receivables | 6,977 | ||
Inventories | 18,432 | ||
Other current assets | 416 | ||
Property, plant and equipment | 31,993 | ||
Intangible assets | 21,394 | ||
Other non-current assets | 208 | ||
Long-term deferred income tax assets | 9,334 | ||
Total assets acquired | 88,769 | ||
Warranty reserves | 491 | ||
Other current liabilities | 3,970 | ||
Long-term capital leases and financing obligations | 41,011 | ||
Other long-term liabilities | 1,141 | ||
Total liabilities assumed | 46,613 | ||
Total net identifiable assets acquired | $ | 42,156 | |
Total consideration transferred | $ | 141,807 | |
Less: total net identifiable assets acquired | 42,156 | ||
Goodwill | $ | 99,651 |
The total consideration of $141.8 million is comprised of $141.7 million in cash, and a $.1 million payable to a seller. The payable is being paid via equal annual payments through September 2019.
The following are the intangible assets acquired and their respective fair values and weighted average useful lives.
As of Acquisition Date | ||||||||
Dollars in thousands | Weighted Average Useful Life | |||||||
Customer lists | $ | 767 | 7 years | |||||
Trade name | 501 | 7 years | ||||||
Non-compete agreement | 15 | 3 years | ||||||
|
| |||||||
Total | $ | 1,283 | 7 years | |||||
|
|
As of Acquisition Date | |||||
Weighted | |||||
Dollars | Average | ||||
in thousands | Useful Life | ||||
Customer lists | $ | 11,999 | 13 years | ||
Favorable leases | 6,440 | 14 years | |||
Trade names | 2,955 | 17 years | |||
Total | $ | 21,394 | 14 years |
We continue to refine the valuation data and estimates related to inventory, road hazard warranty, intangible assets, real estate and real property leases for the fiscal 20142017 acquisitions and expect to complete the 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.
Fiscal 20132016
During fiscal 2013,2016, we acquired the following businesses for an aggregate purchase price of $163.5$51.1 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.
· | During fiscal 2016, 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 January 31, 2016, we acquired one retail tire and automotive repair store located in Georgia from Marietta Tire & Service, Inc. This store operates under the Mr. Tire name. |
· | On December 13, 2015, we acquired four retail tire and automotive repair stores located in Wisconsin from McMar, Inc., a former Car-X franchisee. These stores operate under the Car-X name. |
43
41
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On December 30, 2012, we acquired 12 retail tire and automotive repair stores located in Ohio from Enger Auto Service Mentor, Inc. These stores operate under the Mr.
· | On December 13, 2015, we acquired one retail tire and automotive repair store located in Florida from Host Tires of Lakeland, Inc. This store operates under The Tire Choice name. |
On December 30, 2012, we acquired nine retail tire and automotive repair stores located in North Carolina from Tire King of Durham, Inc.
· | On August 16, 2015, we acquired 27 retail tire and automotive repair stores located in New York and Pennsylvania from Kost Tire. These stores operate under the Mr. Tire name. |
On December 16, 2012, we acquired 27 retail tire and automotive repair stores located in Indiana and Kentucky and a wholesale operation and warehouse in Kentucky from Ken Towery’s Auto Care of Kentucky, Inc. and Ken Towery’s Auto Care of Indiana, Inc. These retail stores operate under the Ken Towery’s
· | 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 |
| · | 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. |
On October 14, 2012, we acquired one retail tire and automotive repair store located in Massachusetts from Brothers Tire, Inc. This store operates under the Monro brand name.
On October 7, 2012, we acquired five retail tire and automotive repair stores located in New York from Chesley Co. Inc., a former Midas franchisee. These stores operate under the Mr. Tire and Monro brand names.
On August 12, 2012, we acquired 17 retail tire and automotive repair stores located in Wisconsin and South Carolina from Tuffy Associates Corp. These stores operate under the Monro and Tread Quarters brand names.
On June 3, 2012, we acquired 18 retail tire and automotive repair stores located in North Carolina from Colony Tire Corporation. These stores operate primarily under the Mr. Tire name.
On April 1, 2012, we acquired 20 retail tire and automotive repair stores located in Virginia from Kramer Tire Co. These stores operate primarily under the Tread Quarters brand name. As part of the Kramer acquisition, two heavy truck tire and truck repair stores, two wholesale operations and a retread facility also located in Virginia were acquired. The non-retail facilities and the two heavy truck tire and truck repair stores were disposed of during May 2012.
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 franchise agreements, trade name, favorable leases and customer relationships, trade names and favorable leases.relationships.
We expensed all costs related to the acquisitions during fiscal 2013.2016. The total costs related to thesecompleted acquisitions were $2.1$.7 million for the year ended March 30, 2013.26, 2016. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales, including franchise royalty income, and net lossincome for the fiscal 20132016 acquired entitieslocations totaled $87.0$24.8 million and approximately $1.4 million, respectively, for the period from acquisition date through March 30, 2013.26, 2016. Net income includes an allocation of certain traditional corporate related items, including vendor rebates, interest expense and income taxes.
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.
44
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We finalized the purchase accounting relative to Kramer duringthe fiscal 2013 and the other fiscal 20132016 acquisitions during fiscal 2014.2017. As a result of the final 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 recorded in fiscal 20142017 include an increase in trade receivables of $.1 million; an increase in property, plant and equipment of $2.4$2.6 million; an increase in intangible assets of $4.3$.4 million; an increase in the long-term deferred income tax assetassets of $7.5$1.4 million; an increase in theother current portionliabilities of long-term debt, capital leases and financing obligations of $2.0 million; a decrease in warranty reserves of $.2$.6 million; an increase in long-term capital leases and financing obligations of $28.9$5.8 million; and an increase in total other long-term liabilities of $.3$.1 million. The measurement period adjustments resulted in an increase to goodwill of $16.8$2.0 million.
These adjustments were not material to the Consolidated Statements of Comprehensive Income for the fiscal years ended March 25, 2017 and March 26, 2016.
42
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have recorded the identifiable assets acquired and liabilities assumed at their estimated fair values as of their respective acquisition dates (including any measurement prior adjustments), with the remainder recorded as goodwill as follows:
As of Acquisition Date | ||||
(Dollars in thousands) | ||||
Inventories | $ | 16,854 | ||
Other current assets | 1,167 | |||
Property, plant and equipment | 49,605 | |||
Intangible assets | 21,112 | |||
Deferred income tax assets | 13,179 | |||
Other non-current assets | 9 | |||
|
| |||
Total assets acquired | 101,926 | |||
Warranty reserves | 3,217 | |||
Other current liabilities | 4,694 | |||
Long-term capital leases and financing obligations | 44,086 | |||
Other long-term liabilities | 4,256 | |||
|
| |||
Total liabilities assumed | 56,253 | |||
|
| |||
Total net identifiable assets acquired | $ | 45,673 | ||
|
| |||
Total consideration transferred | $ | 163,517 | ||
Less: total net identifiable assets acquired | 45,673 | |||
|
| |||
Goodwill | $ | 117,844 | ||
|
|
As part of the purchase accounting adjustments recorded during the quarter ended December 2013, the March 30, 2013 consolidated balance sheet was retrospectively adjusted to reflect some of the purchase accounting measurement period adjustments described above. The retrospective adjustments included an increase in property, plant and equipment of $4.2 million; an increase in intangible assets of $3.9 million; an increase in the long-term deferred income tax asset of $7.4 million; an increase in goodwill of $14.5 million; an increase in the current portion of long-term debt, capital leases and financing obligations of $1.9 million; a decrease in warranty reserves of $.2 million; an increase in long-term capital leases and financing obligations of $28.1 million; and an increase in other long-term liabilities of $.2 million.
Additionally, the purchase accounting adjustments did not have a material impact on the current period or any prior period consolidated statements of comprehensive income, and, therefore, prior period consolidated statements of comprehensive income have not been retrospectively adjusted.
As of Acquisition Date | |||
(Dollars in thousands) | |||
Trade receivables | $ | 377 | |
Inventories | 916 | ||
Other current assets | 502 | ||
Property, plant and equipment | 13,785 | ||
Intangible assets | 11,678 | ||
Other non-current assets | 25 | ||
Long-term deferred income tax assets | 6,902 | ||
Total assets acquired | 34,185 | ||
Warranty reserves | 184 | ||
Other current liabilities | 2,202 | ||
Long-term capital leases and financing obligations | 27,975 | ||
Other long-term liabilities | 885 | ||
Total liabilities assumed | 31,246 | ||
Total net identifiable assets acquired | $ | 2,939 | |
Total consideration transferred | $ | 51,139 | |
Less: total net identifiable assets acquired | 2,939 | ||
Goodwill | $ | 48,200 |
45
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The total consideration of $51.1 million is comprised of $45.1 million in cash, and a $6.0 million payable to a seller. The 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.
As of Acquisition Date | ||||||||
Dollars in thousands | Weighted Average Useful Life | |||||||
Customer lists | $ | 9,160 | 7 years | |||||
Trade names | 6,570 | 17 years | ||||||
Favorable leases | 5,382 | 12 years | ||||||
|
| |||||||
Total | $ | 21,112 | 11 years | |||||
|
|
As of Acquisition Date | |||||
Weighted | |||||
Dollars | Average | ||||
in thousands | Useful Life | ||||
Franchise agreements | $ | 7,100 | 13 years | ||
Trade name | 2,000 | 15 years | |||
Favorable leases | 1,889 | 13 years | |||
Customer lists | 689 | 7 years | |||
Total | $ | 11,678 | 13 years |
NOTE 3 —– OTHER CURRENT ASSETS
The composition of other current assets is as follows:
Year Ended Fiscal March | ||||||||
2014 | 2013 | |||||||
(Dollars in thousands) | ||||||||
Vendor rebates receivable | $ | 7,258 | $ | 10,662 | ||||
Other | 16,124 | 17,750 | ||||||
|
|
|
| |||||
$ | 23,382 | $ | 28,412 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | ||||
|
| 2017 |
| 2016 | ||
|
| (Dollars in thousands) | ||||
Vendor rebates receivable |
| $ | 14,327 |
| $ | 11,984 |
Other |
|
| 18,312 |
|
| 16,690 |
|
| $ | 32,639 |
| $ | 28,674 |
43
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 4—4 – PROPERTY, PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are as follows:
March 29, 2014 | March 30, 2013 | |||||||||||||||||||||||
Assets Owned | Assets Under Capital Lease/ Financing Obligations | Total | Assets Owned | Assets Under Capital Lease/ Financing Obligations | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Land | $ | 69,836 | $ | 69,836 | $ | 69,401 | $ | 69,401 | ||||||||||||||||
Buildings and improvements | 186,093 | $ | 66,057 | 252,150 | 177,869 | $ | 64,993 | 242,862 | ||||||||||||||||
Equipment, signage and fixtures | 183,373 | 183,373 | 169,233 | 169,233 | ||||||||||||||||||||
Vehicles | 19,632 | 67 | 19,699 | 18,256 | 67 | 18,323 | ||||||||||||||||||
Construction-in-progress | 6,447 | 6,447 | 4,261 | 4,261 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
465,381 | 66,124 | 531,505 | 439,020 | 65,060 | 504,080 | |||||||||||||||||||
Less – Accumulated depreciation and amortization | 226,870 | 22,752 | 249,622 | 210,490 | 18,544 | 229,034 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 238,511 | $ | 43,372 | $ | 281,883 | $ | 228,530 | $ | 46,516 | $ | 275,046 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 25, 2017 |
| March 26, 2016 | ||||||||||||||
|
|
|
|
| Assets Under |
|
|
|
|
|
|
| Assets Under |
|
|
| ||
|
|
|
|
| Capital Lease/ |
|
|
|
|
|
|
| Capital Lease/ |
|
|
| ||
|
| Assets |
| Financing |
|
|
|
| Assets |
| Financing |
|
|
| ||||
|
| Owned |
| Obligations |
| Total |
| Owned |
| Obligations |
| Total | ||||||
|
| (Dollars in thousands) | ||||||||||||||||
Land |
| $ | 83,675 |
|
|
|
| $ | 83,675 |
| $ | 80,195 |
|
|
|
| $ | 80,195 |
Buildings and improvements |
|
| 223,566 |
| $ | 147,786 |
|
| 371,352 |
|
| 212,421 |
| $ | 112,969 |
|
| 325,390 |
Equipment, signage and fixtures |
|
| 225,977 |
|
|
|
|
| 225,977 |
|
| 208,204 |
|
|
|
|
| 208,204 |
Vehicles |
|
| 28,831 |
|
|
|
|
| 28,831 |
|
| 23,608 |
|
|
|
|
| 23,608 |
Construction-in-progress |
|
| 3,164 |
|
|
|
|
| 3,164 |
|
| 2,539 |
|
|
|
|
| 2,539 |
|
|
| 565,213 |
|
| 147,786 |
|
| 712,999 |
|
| 526,967 |
|
| 112,969 |
|
| 639,936 |
Less - Accumulated |
|
| 282,196 |
|
| 36,169 |
|
| 318,365 |
|
| 258,516 |
|
| 29,838 |
|
| 288,354 |
|
| $ | 283,017 |
| $ | 111,617 |
| $ | 394,634 |
| $ | 268,451 |
| $ | 83,131 |
| $ | 351,582 |
Depreciation expense totaled $28.6$39.5 million, $24.7$36.0 million and $22.0$32.1 million for the fiscal years ended March 2014, 20132017, 2016 and 2012,2015, respectively.
46
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amortization expense recorded under capital leases and financing obligations and included in depreciation expense above totaled $5.2$9.5 million, $3.9$7.5 million and $3.2$5.7 million for the fiscal years ended March 2014, 20132017, 2016 and 2012,2015, respectively.
NOTE 5 —– GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill during fiscal 20142017 and 20132016 were as follows:
Dollars in thousands | ||||
Balance at March 31, 2012 | $ | 132,656 | ||
Fiscal 2013 acquisitions | 115,548 | |||
Disposal of assets related to fiscal 2013 acquisitions | (704 | ) | ||
Adjustments to fiscal 2012 purchase accounting | 404 | |||
Other adjustments | 1,899 | |||
|
| |||
Balance at March 30, 2013 | 249,803 | |||
Fiscal 2014 acquisitions | 17,940 | |||
Adjustments to fiscal 2013 purchase accounting | 2,296 | |||
|
| |||
Balance at March 29, 2014 | $ | 270,039 | ||
|
|
Dollars in thousands | |||
Balance at March 28, 2015 | $ | 349,088 | |
Fiscal 2016 acquisitions | 46,247 | ||
Adjustments to fiscal 2015 purchase accounting | 4,326 | ||
Other adjustments | 471 | ||
Balance at March 26, 2016 | 400,132 | ||
Fiscal 2017 acquisitions | 99,651 | ||
Adjustments to fiscal 2016 purchase accounting | 1,953 | ||
Balance at March 25, 2017 | $ | 501,736 |
In fiscal 2013,2016, the other adjustments relate to our reviewan immaterial correction of an out of period error related to the lease accounting practices. (See Note 1).liability for a fiscal 2013 acquisition.
The composition of other intangible assets is as follows:
Year Ended Fiscal March | ||||||||||||||||
2014 | 2013 | |||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Customer lists | $ | 19,566 | $ | 8,548 | $ | 18,799 | $ | 6,313 | ||||||||
Trade names | 14,003 | 4,648 | 13,502 | 3,891 | ||||||||||||
Favorable leases | 12,700 | 3,751 | 12,293 | 2,117 | ||||||||||||
Other intangible assets | 660 | 611 | 645 | 522 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total intangible assets | $ | 46,929 | $ | 17,558 | $ | 45,239 | $ | 12,843 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | ||||||||||
|
| 2017 |
| 2016 | ||||||||
|
| Gross |
|
|
|
| Gross |
|
|
| ||
|
| Carrying |
| Accumulated |
| Carrying |
| Accumulated | ||||
|
| Amount |
| Amortization |
| Amount |
| Amortization | ||||
|
| (Dollars in thousands) | ||||||||||
Customer lists |
| $ | 34,489 |
| $ | 16,372 |
| $ | 22,490 |
| $ | 13,283 |
Favorable leases |
|
| 25,378 |
|
| 7,764 |
|
| 18,418 |
|
| 5,996 |
Trade names |
|
| 20,852 |
|
| 8,358 |
|
| 18,002 |
|
| 6,960 |
Franchise agreements |
|
| 7,220 |
|
| 1,167 |
|
| 7,320 |
|
| 487 |
Other intangible assets |
|
| 540 |
|
| 530 |
|
| 540 |
|
| 524 |
Total intangible assets |
| $ | 88,479 |
| $ | 34,191 |
| $ | 66,770 |
| $ | 27,250 |
44
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Monro’s intangible assets are being amortized over their estimated useful lives. The weighted average useful lives of Monro’s intangible assets are approximately nine10 years for customer lists, 14 years for favorable leases, 14 years for trade names, 1513 years for favorable leasesfranchise agreements and five years for other intangible assets.
Amortization of intangible assets, excluding amortization of favorable leases included in rent expense, during fiscal 2014, 20132017, 2016 and 20122015 totaled $3.1$5.1 million, $2.8$3.8 million and $1.6$3.6 million, respectively.
47
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated future amortization of intangible assets is as follows:
Customer lists/ Trade names/ | Favorable | |||||||
Year Ending Fiscal March | Other | Leases | ||||||
(Dollars in thousands) | ||||||||
2015 | $ | 3,025 | $ | 977 | ||||
2016 | 2,890 | 887 | ||||||
2017 | 2,741 | 846 | ||||||
2018 | 2,673 | 818 | ||||||
2019 | 2,419 | 780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Customer lists/ |
|
|
| |
|
| Trade names/ |
|
|
| |
|
| Franchise agreements/ |
| Favorable | ||
Year Ending Fiscal March |
| Other |
| Leases | ||
|
| (Dollars in thousands) | ||||
2018 |
| $ | 5,397 |
| $ | 1,887 |
2019 |
|
| 4,804 |
|
| 1,823 |
2020 |
|
| 3,845 |
|
| 1,774 |
2021 |
|
| 3,183 |
|
| 1,707 |
2022 |
|
| 2,891 |
|
| 1,590 |
NOTE 6 —– LONG-TERM DEBT, CAPITAL LEASES AND FINANCING OBLIGATIONS
Long-term debt, capital leases and financing obligations consist of the following:
March 29, 2014 | March 30, 2013 | |||||||
(Dollars in thousands) | ||||||||
Revolving Credit Facility, LIBOR-based (a) | $ | 105,841 | $ | 127,187 | ||||
Mortgage Note Payable, non-interest bearing, secured by warehouse and office land, due in one installment in 2015 | 660 | |||||||
|
|
|
| |||||
Long-term debt | $ | 105,841 | $ | 127,847 | ||||
|
|
|
| |||||
Obligations under capital leases and financing obligations at various interest rates, due in installments through 2042 | $ | 88,091 | $ | 93,795 | ||||
Mortgage Note Payable, non-interest bearing, secured by warehouse and office land, due in one installment in 2015 | 660 | |||||||
Less – Current portion of long-term debt, capital leases and financing obligations | (7,552 | ) | (6,833 | ) | ||||
|
|
|
| |||||
Long-term capital leases and financing obligations | $ | 81,199 | $ | 86,962 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 25, |
| March 26, | ||
|
| 2017 |
| 2016 | ||
|
| (Dollars in thousands) | ||||
Revolving Credit Facility, LIBOR-based (a) |
| $ | 182,297 |
| $ | 103,315 |
Note payable, non-interest bearing, due in equal installments through September 2019 |
|
| 60 |
|
| — |
Less – Current portion of long-term debt |
|
| (20) |
|
| — |
Long-term debt |
| $ | 182,337 |
| $ | 103,315 |
Obligations under capital leases and financing obligations at various |
| $ | 228,444 |
| $ | 176,974 |
Less – Current portion of capital leases and financing obligations |
|
| (15,278) |
|
| (11,244) |
Long-term capital leases and financing obligations |
| $ | 213,166 |
| $ | 165,730 |
_________________
(a) | The London Interbank Offered Rate (LIBOR) at March |
In June 2011,January 2016, we entered into a new five-year $175$600 million Revolving Credit Facility agreement with sevennine banks (the “Credit Facility”). This Credit Facility amended and restated, in its entirety, the Credit Facility agreement previously entered into by Monro as of July 2005 and amended from time to time. The Credit Facility also providedreplaced our previous revolving credit facility, as amended, which would have expired in December 2017. Interest only is payable monthly throughout the Credit Facility’s term. The Credit Facility increased our borrowing capacity from our prior financing agreement by $350 million to $600 million, and includes an accordion feature permitting us to request an increase in availability of up to an additional $75 million.
In December 2012,$100 million, an increase of $25 million from our prior revolving credit facility. The expanded facility bears interest at 75 to 175 basis points over LIBOR. The Credit Facility requires fees payable quarterly throughout the term between .15% and .35% of the amount of the average net availability under the Credit Facility was amended to includeduring 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 Credit 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. There are now six banks participating in the syndication.preceding quarter. There was $105.8$182.3 million outstanding under the Credit Facility at March 29, 2014.25, 2017. We were in compliance with all debt covenants as of March 29, 2014.25, 2017.
The
At March 25, 2017 and March 26, 2016, the interest rate onspread paid by the Credit Facility increased fromCompany was 100 basis points to 125 basis points over LIBOR during fiscal year 2014. At March 29, 2014, the interest rate was 125 basis points over LIBOR.
48
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Within the Credit Facility, we have a sub-facility of $40$80 million for the purpose of issuing standby letters of credit. The line requires fees aggregating 1.375%87.5 to 187.5 basis points over LIBOR annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was $22.7$26.5 million in an outstanding letter of credit at March 29, 2014.25, 2017.
The net availability under the Credit Facility at March 29, 201425, 2017 was $121.5$391.2 million.
45
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Other 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. The agreement also requires the maintenance of specified interest and rent coverage ratios.
Long-term debt including current portion, had a carrying amount of $106.5 million and a fair value of $106.5$182.4 million as of March 29, 2014,25, 2017, as compared to a carrying amount of $127.8 million and a fair value of $127.8$103.3 million as of March 30, 2013.26, 2016. 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.
In addition, we have financed certain store properties and vehicles with capital leases/financing obligations, which amount to $88.1$228.4 million and are due in installments through 2042.May 2045. We also have a $.1 million payable to the seller of an acquired business at March 25, 2017, due in equal installments through September 2019.
During fiscal 1995, Monro purchased 12.7 acres of land for $.7 million from the City of Rochester, New York, on which its office/warehouse facility is located. The City has provided financing for 100% of the cost of the land via a 20-year non-interest bearing mortgage, all due and payable in fiscal 2015.
Aggregate debt maturities over the next five years are as follows:
Capital Leases/ Financing Obligations | ||||||||||||||||
Year Ending Fiscal March | Aggregate Amount | Imputed Interest | All Other Debt | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
2015 | $ | 13,459 | $ | (6,567 | ) | $ | 660 | $ | 7,552 | |||||||
2016 | 12,732 | (6,061 | ) | 6,671 | ||||||||||||
2017 | 12,204 | (5,564 | ) | 6,640 | ||||||||||||
2018 | 12,186 | (5,050 | ) | 105,841 | 112,977 | |||||||||||
2019 | 11,976 | (4,510 | ) | 7,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital Leases/ |
|
|
|
|
|
| ||||
|
| Financing Obligations |
|
|
|
|
|
| ||||
|
| Aggregate |
| Imputed |
| All Other |
|
|
| |||
Year Ending Fiscal March |
| Amount |
| Interest |
| Debt |
| Total | ||||
|
| (Dollars in thousands) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
| $ | 30,960 |
| $ | (15,682) |
| $ | 20 |
| $ | 15,298 |
2019 |
|
| 31,487 |
|
| (14,961) |
|
| 20 |
|
| 16,546 |
2020 |
|
| 31,503 |
|
| (13,908) |
|
| 20 |
|
| 17,615 |
2021 |
|
| 32,173 |
|
| (12,683) |
|
| 182,297 |
|
| 201,787 |
2022 |
|
| 31,513 |
|
| (11,293) |
|
|
|
|
| 20,220 |
49
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 7 —– INCOME TAXES
The components of the provision for income taxes are as follows:
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
(Dollars in thousands) | ||||||||||||
Current - | ||||||||||||
Federal | $ | 25,978 | $ | 22,366 | $ | 26,002 | ||||||
State | 1,579 | 2,266 | 2,910 | |||||||||
|
|
|
|
|
| |||||||
27,557 | 24,632 | 28,912 | ||||||||||
|
|
|
|
|
| |||||||
Deferred - | ||||||||||||
Federal | 4,793 | (101 | ) | 3,273 | ||||||||
State | (273 | ) | (274 | ) | (111 | ) | ||||||
|
|
|
|
|
| |||||||
4,520 | (375 | ) | 3,162 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 32,077 | $ | 24,257 | $ | 32,074 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
| (Dollars in thousands) | |||||||
Current - |
|
|
|
|
|
|
|
|
|
Federal |
| $ | 22,040 |
| $ | 29,202 |
| $ | 28,262 |
State |
|
| 2,422 |
|
| 2,825 |
|
| 2,956 |
|
|
| 24,462 |
|
| 32,027 |
|
| 31,218 |
Deferred - |
|
|
|
|
|
|
|
|
|
Federal |
|
| 10,120 |
|
| 6,216 |
|
| 6,194 |
State |
|
| 1,136 |
|
| 373 |
|
| 144 |
|
|
| 11,256 |
|
| 6,589 |
|
| 6,338 |
Total |
| $ | 35,718 |
| $ | 38,616 |
| $ | 37,556 |
46
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred tax (liabilities) assets consist of the following:
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||||
| March 25, |
| March 26, | |||||||||||
March 29, 2014 | March 30, 2013 |
| 2017 |
| 2016 | |||||||||
(Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||
Goodwill | $ | (18,189 | ) | $ | (13,104 | ) |
| $ | (39,715) |
| $ | (31,075) | ||
Other | (734 | ) | (242 | ) |
|
| (968) |
|
| (266) | ||||
|
| |||||||||||||
Total deferred tax liabilities | (18,923 | ) | (13,346 | ) |
|
| (40,683) |
|
| (31,341) | ||||
|
| |||||||||||||
Property and equipment |
|
| 36,980 |
|
| 28,085 | ||||||||
Insurance reserves | 9,774 | 8,872 |
|
| 11,075 |
|
| 11,626 | ||||||
Property and equipment | 5,815 | 6,637 | ||||||||||||
Warranty and other reserves | 4,228 | 4,322 |
|
| 4,810 |
|
| 4,671 | ||||||
Stock options | 3,897 | 2,982 |
|
| 2,509 |
|
| 3,040 | ||||||
Deferred rent | 1,961 | 2,086 | ||||||||||||
Accrued compensation | 1,650 | 1,444 | ||||||||||||
Other | 5,168 | 5,477 |
|
| 9,354 |
|
| 9,274 | ||||||
|
| |||||||||||||
Total deferred tax assets | 32,493 | 31,820 |
|
| 64,728 |
|
| 56,696 | ||||||
|
| |||||||||||||
Net deferred tax assets | $ | 13,570 | $ | 18,474 |
| $ | 24,045 |
| $ | 25,355 | ||||
|
|
We have $3.7$4.4 million of state net operating loss carryforwards available as of March 29, 2014.25, 2017. The carryforwards expire in varying amounts through 2034.2037. Based on all available evidence, we have determined that it is more likely than not that sufficient taxable income of the appropriate character within the carryforward period will exist for the realization of the tax benefits on existing state net operating loss carryforwards.
We believe it is more likely than not that all other future tax benefits will be realized as a result of current and future income.
50
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation between the U. S. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows:
Year Ended Fiscal March | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Federal income tax based on statutory tax rate applied to income before taxes | $ | 30,287 | 35.0 | $ | 23,388 | 35.0 | $ | 30,340 | 35.0 | |||||||||||||||
State income tax, net of federal income tax benefit | 2,097 | 2.4 | 1,159 | 1.7 | 2,231 | 2.6 | ||||||||||||||||||
Other | (307 | ) | (0.3 | ) | (290 | ) | (0.4 | ) | (497 | ) | (0.6 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 32,077 | 37.1 | $ | 24,257 | 36.3 | $ | 32,074 | 37.0 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||||||||
|
| 2017 |
| 2016 |
| 2015 | |||||||||
|
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | |||
|
| (Dollars in thousands) | |||||||||||||
Federal income tax based on |
| $ | 34,035 |
| 35.0 |
| $ | 36,897 |
| 35.0 |
| $ | 34,774 |
| 35.0 |
State income tax, net of |
|
| 2,700 |
| 2.8 |
|
| 2,306 |
| 2.2 |
|
| 2,170 |
| 2.2 |
Other |
|
| (1,017) |
| (1.1) |
|
| (587) |
| (0.6) |
|
| 612 |
| 0.6 |
|
| $ | 35,718 |
| 36.7 |
| $ | 38,616 |
| 36.6 |
| $ | 37,556 |
| 37.8 |
47
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a rollforward of Monro’s liability for income taxes associated with unrecognized tax benefits:
Dollars in thousands | ||||
Balance at March 26, 2011 | $ | 5,964 | ||
Tax positions related to current year: | ||||
Additions | 1,000 | |||
Reductions | ||||
Tax positions related to prior years: | ||||
Additions | 230 | |||
Reductions | (904 | ) | ||
Settlements | (166 | ) | ||
Lapses in statutes of limitations | (640 | ) | ||
|
| |||
Balance at March 31, 2012 | 5,484 | |||
Tax positions related to current year: | ||||
Additions | 1,198 | |||
Reductions | ||||
Tax positions related to prior years: | ||||
Additions | ||||
Reductions | ||||
Settlements | (266 | ) | ||
Lapses in statutes of limitations | (712 | ) | ||
|
| |||
Balance at March 30, 2013 | 5,704 | |||
Tax positions related to current year: | ||||
Additions | 1,678 | |||
Reductions | ||||
Tax positions related to prior years: | ||||
Additions | ||||
Reductions | (88 | ) | ||
Settlements | (381 | ) | ||
Lapses in statutes of limitations | (1,013 | ) | ||
|
| |||
Balance at March 29, 2014 | $ | 5,900 | ||
|
|
| |||
Dollars in thousands | |||
Balance at March 29, 2014 | $ | 5,900 | |
Tax positions related to current year: | |||
Additions | 2,066 | ||
Reductions | |||
Tax positions related to prior years: | |||
Additions | 164 | ||
Reductions | 33 | ||
Settlements | |||
Lapses in statutes of limitations | (668) | ||
Balance at March 28, 2015 | 7,495 | ||
Tax positions related to current year: | |||
Additions | 1,116 | ||
Reductions | |||
Tax positions related to prior years: | |||
Additions | |||
Reductions | (922) | ||
Settlements | |||
Lapses in statutes of limitations | (760) | ||
Balance at March 26, 2016 | 6,929 | ||
Tax positions related to current year: | |||
Additions | 981 | ||
Reductions | |||
Tax positions related to prior years: | |||
Additions | 66 | ||
Reductions | (352) | ||
Settlements | |||
Lapses in statutes of limitations | (732) | ||
Balance at March 25, 2017 | $ | 6,892 |
The total amount of unrecognized tax benefits was $5.9$6.9 million at March 29, 2014,25, 2017, the majority of which, if recognized, would affect the effective tax rate.
In the normal course of business, Monro provides for uncertain tax positions and the related interest and penalties, and adjusts its unrecognized tax benefits and accrued interest and penalties accordingly. During the yearsyear ended March 29, 2014, March 30, 2013 and March 31, 2012,28, 2015, we recorded a benefit from the reversal of accruedrecognized interest and penalties of approximately $.1 million $.2 million and $.3 million, respectively, in income tax expense. Additionally, we had approximately $.3 million and $.5$.4 million of interest and penalties associated with uncertain tax benefits accrued as of March 29, 201425, 2017 and March 30, 2013, respectively.26, 2016.
Monro is currently under state audit for the fiscal 2011 through 2012 tax years. It is reasonably possible that the examination phase of the audits for these years may conclude in the next 12 months, and that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns may change from those recorded as liabilities for uncertain tax positions in Monro’s Consolidated Financial Statements as of March 29, 2014. However, based on the status of the examinations, it is not possible to estimate the effect of any amount of such change to previously recorded uncertain tax positions.
We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Monro’s fiscal 20112014 through 20132016 U.S. federal tax years and various state tax years remain subject to income tax examinations by tax authorities.
48
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 8 —– STOCK OWNERSHIP
A summary of the changes in the number of shares of Common Stock, Class C preferred stock and treasury stock is as follows:
|
|
|
|
|
| |||||||||||||
Common Stock Shares Issued | Class C Convertible Preferred Stock Shares Issued | Treasury Stock Shares |
|
|
|
|
|
| ||||||||||
Balance at March 26, 2011 | 36,038,664 | 32,500 | 5,577,984 | |||||||||||||||
Stock options exercised | 816,594 | 390,007 | ||||||||||||||||
|
|
|
|
|
| Class C |
|
| ||||||||||
Balance at March 31, 2012 | 36,855,258 | 32,500 | 5,967,991 | |||||||||||||||
Stock options exercised | 472,709 | 105,845 | ||||||||||||||||
|
|
|
| Common |
| Convertible |
|
| ||||||||||
Balance at March 30, 2013 | 37,327,967 | 32,500 | 6,073,836 | |||||||||||||||
Stock options exercised | 239,935 | 3,115 | ||||||||||||||||
|
| Stock |
| Preferred |
| Treasury | ||||||||||||
|
| Shares |
| Stock Shares |
| Stock | ||||||||||||
|
|
|
| Issued |
| Issued |
| Shares | ||||||||||
Balance at March 29, 2014 | 37,567,902 | 32,500 | 6,076,951 |
| 37,567,902 |
| 32,500 |
| 6,076,951 | |||||||||
|
|
| ||||||||||||||||
Stock options exercised |
| 439,635 |
|
|
| 103,538 | ||||||||||||
Balance at March 28, 2015 |
| 38,007,537 |
| 32,500 |
| 6,180,489 | ||||||||||||
Stock options exercised |
| 549,141 |
|
|
| 136,163 | ||||||||||||
Balance at March 26, 2016 |
| 38,556,678 |
| 32,500 |
| 6,316,652 | ||||||||||||
Conversion of preferred shares |
| 250,212 |
| (10,698) |
|
| ||||||||||||
Stock options exercised |
| 205,299 |
|
|
| 5,765 | ||||||||||||
Balance at March 25, 2017 |
| 39,012,189 |
| 21,802 |
| 6,322,417 |
In March 2012, Monro’s Board of Directors approved a resolution to amend Monro’s Restated Certificate of Incorporation, subject to shareholder approval, to increase the number of authorized shares of Common Stock from 45,000,000 to 65,000,000. Monro’s shareholders approved the increase at our Annual Shareholders’ meeting on August 7, 2012.
Holders of at least 60% of the Class C preferred stock must approve any action authorized by the holders of Common Stock. In addition, there are certain restrictions on the transferability of shares of Class C preferred stock. In the event of a liquidation, dissolution or winding-up of Monro, the holders of the Class C preferred stock would be entitled to receive $1.50 per share out of the assets of Monro before any amount would be paid to holders of Common Stock. The conversion value of the Class C convertible preferred stock was $.064 per share at March 29, 201425, 2017 and March 30, 2013.
52
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 9 —– SHARE BASED COMPENSATION
Monro currently grants stock option awards under the 2007 Incentive Stock Option Plan (the “2007 Plan”). The 2007 Plan was authorized by the Board of Directors in June 2007, initially reserving 873,000 shares (as retroactively adjusted for stock splits) of Common Stock for issuance to eligible employees and all non-employee directors. The 2007 Plan was approved by shareholders in August 2007. Prior to fiscal 2008, Monro had options outstanding under three other stock option plans: the 1994 Non-Employee Directors Stock Option Plan (the “1994 Plan”) (which was approved by shareholders in August 1995); the 1998 Incentive Stock Option Plan (the “1998 Plan”) (which was approved by shareholders in August 1999); and the 2003 Non-Employee Directors Stock Option Plan (the “2003 Plan”) (which was approved by shareholders in August 2003), collectively the “Prior Plans.”Plans”. Upon shareholder approval of the 2007 Plan, all shares of Common Stock available for award under the 1998 and 2003 Plans were transferred to, and made available for award under the 2007 Plan. The 1994 Plan had no options available for grant upon adoption of the 2007 Plan. No further option grants may be made under the Prior Plans, although outstanding awards under the Prior Plans will remain outstanding in accordance with the terms of those plans and the stock option agreements entered into under those plans.
The 1994 Plan had a total of 675,345 common shares authorized for issuance; the 1998 Plan had a total of 4,016,250 shares authorized for issuance; and the 2003 Plan had a total of 315,000 shares authorized for issuance (all as retroactively adjusted for stock splits). Upon authorization of the 2007 Plan by shareholders, 628,662628,620 shares (as retroactively adjusted for stock splits) were transferred from the 1998 and 2003 Plans into the 2007 Plan, bringing the total authorized shares to 1,501,6621,501,620 (as retroactively adjusted for stock splits). In addition, in May 2013 and 2010, the Compensation Committee of the Board of Directors authorized an additional 2,000,000 and 1,500,000 shares (as retroactively adjusted for stock splits), respectively, of common stock for grant under the 2007 Plan, which were approved by shareholders in August 2013 and August 2010, respectively. At March 29, 2014,25, 2017, there waswere a total of 5,001,6625,001,620 shares authorized for grant under the 2007 Plan (as retroactively adjusted for stock splits), including the shares transferred from the 1998 and 2003 Plans.
Generally, employee options vest within the first five years of their term,over a four year period, and have a duration of six to ten years. Outstanding options are exercisable for various periods through March 2020.2023.
49
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of changes in outstanding stock options is as follows:
Weighted Average Exercise Price | Options Outstanding | |||||||
At March 26, 2011 | $ | 19.35 | 2,525,678 | |||||
Granted | $ | 32.86 | 173,075 | |||||
Exercised | $ | 14.47 | (816,594 | ) | ||||
Canceled | $ | 21.10 | (30,571 | ) | ||||
|
| |||||||
At March 31, 2012 | $ | 22.75 | 1,851,588 | |||||
|
| |||||||
Granted | $ | 35.19 | 511,600 | |||||
Exercised | $ | 12.54 | (472,709 | ) | ||||
Canceled | $ | 29.99 | (26,365 | ) | ||||
|
| |||||||
At March 30, 2013 | $ | 28.66 | 1,864,114 | |||||
|
| |||||||
Granted | $ | 45.38 | 181,400 | |||||
Exercised | $ | 18.73 | (239,935 | ) | ||||
Canceled | $ | 35.48 | (32,178 | ) | ||||
|
| |||||||
At March 29, 2014 | $ | 31.58 | 1,773,401 | |||||
|
|
53
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
| |
|
| Average |
|
| |
|
| Exercise |
| Options | |
|
| Price |
| Outstanding | |
At March 29, 2014 |
| $ | 31.58 |
| 1,773,401 |
Granted |
| $ | 52.73 |
| 211,225 |
Exercised |
| $ | 31.98 |
| (439,635) |
Canceled |
| $ | 43.04 |
| (26,661) |
At March 28, 2015 |
| $ | 34.21 |
| 1,518,330 |
Granted |
| $ | 62.28 |
| 243,410 |
Exercised |
| $ | 29.59 |
| (549,141) |
Canceled |
| $ | 50.69 |
| (23,808) |
At March 26, 2016 |
| $ | 41.75 |
| 1,188,791 |
Granted |
| $ | 62.01 |
| 232,560 |
Exercised |
| $ | 31.61 |
| (485,660) |
Canceled |
| $ | 61.20 |
| (39,347) |
At March 25, 2017 |
| $ | 51.67 |
| 896,344 |
The total shares exercisable at March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 201228, 2015 were 563,109, 789,422 and 1,098,601, respectively. The weighted average exercise price of all shares exercisable at March 25, 2017 was 1,160,572, 984,917 and 1,129,513, respectively.$46.61. There were 2,148,3271,549,716 shares available for grant at March 29, 2014.25, 2017.
The weighted average contractual term of all options outstanding at March 29, 201425, 2017 and March 30, 201326, 2016 was 3.1 years and 3.83.0 years, respectively. The aggregate intrinsic value of all options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) outstanding at March 29, 201425, 2017 and March 30, 201326, 2016 was $44.2$4.9 million and $20.6$33.2 million, respectively.
The weighted average contractual term of all options exercisable at March 29, 201425, 2017 and March 30, 201326, 2016 was 2.82.4 years and 3.42.5 years, respectively. The aggregate intrinsic value of all options exercisable at March 29, 201425, 2017 and March 30, 201326, 2016 was $31.5$4.8 million and $14.7$26.0 million, respectively.
A summary of the status of and changes in nonvested stock options granted is as follows:
|
|
|
|
| |||||||||
Options | Weighted Average Grant-Date Fair Value (per Option) |
|
|
|
|
| |||||||
Non-vested at March 26, 2011 | 930,039 | $ | 7.83 | ||||||||||
|
|
|
| Weighted | |||||||||
|
|
|
| Average | |||||||||
|
|
|
| Grant-Date | |||||||||
|
|
|
| Fair Value | |||||||||
|
| Options |
| (per Option) | |||||||||
Non-vested at March 29, 2014 |
| 612,829 |
| $ | 8.88 | ||||||||
Granted | 173,075 | $ | 8.41 |
| 211,225 |
| $ | 11.27 | |||||
Vested | (357,697 | ) | $ | 7.54 |
| (382,197) |
| $ | 9.22 | ||||
Canceled | (23,342 | ) | $ | 6.62 |
| (22,128) |
| $ | 10.37 | ||||
| |||||||||||||
Non-vested at March 31, 2012 | 722,075 | $ | 8.16 | ||||||||||
| |||||||||||||
Non-vested at March 28, 2015 |
| 419,729 |
| $ | 9.70 | ||||||||
Granted | 511,600 | $ | 8.67 |
| 243,410 |
| $ | 13.10 | |||||
Vested | (332,566 | ) | $ | 7.98 |
| (242,841) |
| $ | 10.38 | ||||
Canceled | (21,912 | ) | $ | 8.26 |
| (20,929) |
| $ | 10.18 | ||||
| |||||||||||||
Non-vested at March 30, 2013 | 879,197 | $ | 8.52 | ||||||||||
| |||||||||||||
Non-vested at March 26, 2016 |
| 399,369 |
| $ | 11.26 | ||||||||
Granted | 181,400 | $ | 10.11 |
| 232,560 |
| $ | 12.17 | |||||
Vested | (417,743 | ) | $ | 8.66 |
| (266,112) |
| $ | 10.48 | ||||
Canceled | (30,025 | ) | $ | 8.90 |
| (32,582) |
| $ | 12.79 | ||||
| |||||||||||||
Non-vested at March 29, 2014 | 612,829 | $ | 8.88 | ||||||||||
| |||||||||||||
Non-vested at March 25, 2017 |
| 333,235 |
| $ | 12.37 |
50
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes information about fixed stock options outstanding at March 29, 2014:25, 2017:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices | Shares Under Option | Weighted Average Remaining Life | Weighted Average Exercise Price | Shares Under Option | Weighted Average Exercise Price | |||||||||||||||
$ 9.27 - $26.64 | 467,267 | 2.71 | $ | 18.82 | 429,343 | $ | 18.28 | |||||||||||||
$26.65 - $33.64 | 518,489 | 3.54 | $ | 33.25 | 214,709 | $ | 33.26 | |||||||||||||
$33.65 - $35.31 | 433,250 | 2.03 | $ | 35.28 | 340,750 | $ | 35.28 | |||||||||||||
$35.32 - $61.58 | 354,395 | 4.39 | $ | 41.45 | 175,770 | $ | 40.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options Outstanding |
| Options Exercisable | ||||||||
|
|
|
| Weighted |
| Weighted |
|
|
| Weighted | ||
|
|
|
| Average |
| Average |
| Shares |
| Average | ||
Range of |
| Shares |
| Remaining |
| Exercise |
| Under |
| Exercise | ||
Exercise Prices |
| Under Option |
| Life |
| Price |
| Option |
| Price | ||
$11.76 - $44.49 |
| 269,881 |
| 1.36 |
| $ | 34.36 |
| 255,924 |
| $ | 33.83 |
$44.50 - $57.25 |
| 241,393 |
| 3.28 |
| $ | 53.45 |
| 122,843 |
| $ | 52.05 |
$57.26 - $62.53 |
| 219,635 |
| 4.23 |
| $ | 60.13 |
| 108,217 |
| $ | 59.03 |
$62.54 - $75.76 |
| 165,435 |
| 4.24 |
| $ | 66.10 |
| 76,125 |
| $ | 63.18 |
During the fiscal years ended March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 2012,28, 2015, the fair value of awards vested under Monro’s stock plans was $3.6$2.8 million, $2.7$2.5 million and $2.7$3.5 million, respectively.
The aggregate intrinsic value is based on Monro’s closing stock price of $56.51, $39.71$52.15, $69.68 and $41.49$64.96 as of the last trading day of the periods ended March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 2012,28, 2015, respectively. The
54
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
aggregate intrinsic value of options exercised during the fiscal years ended March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 201228, 2015 was $7.4$13.3 million, $10.6$22.3 million and $17.6$10.3 million, respectively. As of March 29, 2014, March 30, 2013 and March 31, 2012,25, 2017, there was $4.1$3.2 million $6.0 million and $4.9 million, respectively, of unrecognized compensation expense related to non-vested fixed stock options that is expected to be recognized over a weighted average period of approximately two years, three years and three years, respectively.years.
Cash received from option exercises under all stock option plans was $4.3$3.5 million, $3.0$8.6 million and $3.1$8.7 million for the fiscal years ended March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 2012,28, 2015, respectively. The actual tax benefit realized for the tax deductions from option exercises was $1.9$3.5 million, $2.8$6.7 million and $5.3$2.2 million for the fiscal years ended March 29, 2014,25, 2017, March 30, 201326, 2016 and March 31, 2012,28, 2015, respectively.
Monro issues new shares of Common Stock upon the exercise of stock options.
NOTE 10 —– EARNINGS PER COMMON SHARE
The following is a reconciliation of basic and diluted earnings per common share for the respective years:
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||
Year Ended Fiscal March |
| Year Ended Fiscal March | |||||||||||||||||||
2014 | 2013 | 2012 |
| 2017 |
| 2016 |
| 2015 | |||||||||||||
(Amounts in thousands, except per share data) |
| (Amounts in thousands, except per share data) | |||||||||||||||||||
Numerator for earnings per common share calculation: |
|
|
|
|
|
|
|
|
| ||||||||||||
Net Income | $ | 54,459 | $ | 42,567 | $ | 54,612 |
| $ | 61,526 |
| $ | 66,805 |
| $ | 61,799 | ||||||
Less: Preferred stock dividends | (334 | ) | (304 | ) | (266 | ) |
|
| (447) |
|
| (456) |
|
| (395) | ||||||
|
|
| |||||||||||||||||||
Income available to common stockholders | $ | 54,125 | $ | 42,263 | $ | 54,346 |
| $ | 61,079 |
| $ | 66,349 |
| $ | 61,404 | ||||||
|
|
| |||||||||||||||||||
Denominator for earnings per common share calculation: |
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average common shares, basic | 31,394 | 31,067 | 30,716 |
|
| 32,413 |
|
| 32,026 |
|
| 31,605 | |||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
| ||||||||||||
Preferred stock | 760 | 760 | 760 |
|
| 675 |
|
| 760 |
|
| 760 | |||||||||
Stock options | 488 | 481 | 761 |
|
| 213 |
|
| 567 |
|
| 579 | |||||||||
|
|
| |||||||||||||||||||
Weighted average common shares, diluted | 32,642 | 32,308 | 32,237 |
|
| 33,301 |
|
| 33,353 |
|
| 32,944 | |||||||||
|
|
| |||||||||||||||||||
Basic earnings per common share: | $ | 1.72 | $ | 1.36 | $ | 1.77 |
| $ | 1.88 |
| $ | 2.07 |
| $ | 1.94 | ||||||
|
|
| |||||||||||||||||||
Diluted earnings per common share: | $ | 1.67 | $ | 1.32 | $ | 1.69 |
| $ | 1.85 |
| $ | 2.00 |
| $ | 1.88 | ||||||
|
|
|
The computation of diluted earnings per common share for fiscal 2014, 20132017, 2016 and 20122015 excludes the effect of assumed exercise of approximately 91,000, 955,000304,000, 171,000 and 682,000145,000 of stock options, respectively, as the exercise price of these options was greater than the average market value of Monro’s Common Stock for those periods, resulting in an anti-dilutive effect on diluted earnings per share.
NOTE 11 —– OPERATING LEASES AND OTHER COMMITMENTS
We lease retailvarious facilities under noncancellable lease agreements which expire at various dates through fiscal 2032.2041. In addition to stated minimum payments, certain real estate leases have provisions for contingent rentals when retail sales exceed specified levels. Generally, the leases provide for renewal for various periods at stipulated rates. Most of the facilities’ leases require payment of property taxes, insurance and maintenance costs in addition to rental payments, and several provide an option to purchase the property at the end of the lease term.
51
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In recent years, we have entered into agreements for the sale/leaseback of certain stores. Realized gains are deferred and are credited to income as rent expense adjustments over the lease terms. We have lease renewal options under the real estate agreements at projected future fair market values.
Future minimum payments required under noncancellable leases (including closed stores) are as follows:
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
| Less - |
|
|
| |||||||||||||
|
|
|
| Sublease |
|
|
| ||||||||||||||
Year Ending Fiscal March | Leases | Less - Sublease Income | Net |
| Leases |
| Income |
| Net | ||||||||||||
(Dollars in thousands) |
| (Dollars in thousands) | |||||||||||||||||||
2015 | $ | 33,547 | $ | (343 | ) | $ | 33,204 | ||||||||||||||
2016 | 29,068 | (295 | ) | 28,773 | |||||||||||||||||
2017 | 24,218 | (200 | ) | 24,018 | |||||||||||||||||
2018 | 18,105 | (137 | ) | 17,968 |
| $ | 35,668 |
| $ | (91) |
| $ | 35,577 | ||||||||
2019 | 11,363 | (55 | ) | 11,308 |
|
| 29,188 |
|
| (68) |
|
| 29,120 | ||||||||
2020 |
|
| 23,081 |
|
| (73) |
|
| 23,008 | ||||||||||||
2021 |
|
| 18,362 |
|
| (74) |
|
| 18,288 | ||||||||||||
2022 |
|
| 13,280 |
|
| (78) |
|
| 13,202 | ||||||||||||
Thereafter | 11,237 | (91 | ) | 11,146 |
|
| 35,281 |
|
| (306) |
|
| 34,975 | ||||||||
|
|
| |||||||||||||||||||
Total | $ | 127,538 | $ | (1,121 | ) | $ | 126,417 |
| $ | 154,860 |
| $ | (690) |
| $ | 154,170 | |||||
|
|
|
Rent expense under operating leases, net of sublease income, totaled $32,841,000, $32,204,000$38,628,000, $36,717,000 and $28,490,000$35,848,000 in fiscal 2014, 20132017, 2016 and 2012,2015, respectively, including contingent rentals of $46,000, $59,000 $85,000 and $93,000$44,000 in each respective fiscal year. Sublease income totaled $533,000, $636,000$130,000, $149,000 and $386,000,$161,000, respectively, in fiscal 2014, 20132017, 2016 and 2012.2015.
We enter into contracts with parts and tire suppliers, certain of which require us to buy (at market competitive prices) up to 100% of our annual purchases of specific products. The agreements expire at various dates through July 2017.dates. We believe these agreements provide us with high quality, branded merchandise at preferred pricing, along with strong marketing and training support.
On August 7, 2012, we entered into a new employment agreement with our Executive Chairman, Robert G. Gross (the “2012 Agreement”). The 2012 Agreement became effective on October 1, 2012 and has a three-year term. Under the 2012 Agreement, Mr. Gross (i) is paid a base salary of $420,000; (ii) is eligible to earn a target annual bonus, pursuant to the terms of Monro’s Management Incentive Compensation Plan, of up to 150% of his base salary upon the achievement of certain predetermined corporate objectives and (iii) participates in Monro’s other incentive and welfare and benefit plans made available to executives. Mr. Gross is entitled to certain payments upon death, disability, a termination without Cause (as defined therein), a resignation by Mr. Gross for Good Reason (as defined therein) or a termination in the event of a Change in Control of the Company (as defined therein), all as set forth in detail in the Agreement.
Prior to the existing agreement, we entered into an employment agreement with Mr. Gross, our then Chief Executive Officer (the “2007 Agreement”). The 2007 Agreement was effective on October 1, 2007 and had a five-year term. Under the 2007 Agreement, Mr. Gross (i) was paid a base salary of $840,000; (ii) was eligible to earn a target annual bonus, pursuant to the terms of Monro’s Management Incentive Compensation Plan, of up to 150% of his base salary upon the achievement of certain predetermined corporate objectives and (iii) participated in Monro’s other incentive and welfare and benefit plans made available to executives. Mr. Gross also received a special bonus of $750,000, paid in five annual installments of $150,000, which began on October 1, 2007 (the “Special Bonus”). If the 2007 Agreement terminated before October 1, 2012 either for Cause (as defined therein) or as the result of Mr. Gross’s resignation without Good Reason (as defined therein), then Mr. Gross would have been required to repay a portion of the last-received annual installment of the Special Bonus, pro-rata to the date
56
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of termination. In consideration for Mr. Gross’s covenant not-to-compete with Monro or to solicit its employees, Monro began paying him an additional $750,000, payable in five equal installments of $150,000, beginning on October 1, 2012. These payments will continue through October 1, 2016.
On October 2, 2007, and in consideration for Mr. Gross’s execution of the 2007 Agreement, Monro’s Compensation Committee awarded to Mr. Gross an option to purchase 562,500 shares of Monro’s Common Stock at an exercise price equal to the closing price of Monro’s Common Stock on the date of the award of $15.20 per share, pursuant to our 2007 Stock Incentive Plan. As of October 1, 2010, these options were fully vested. (Both the number of shares and share price reflect the impact of the December 2010 stock split.)
On August 7, 2012, we entered into a new employment agreement with John W. Van Heel in recognition of his promotion to Chief Executive Officer (the “Van Heel Agreement”). The Van Heel Agreement became effective on October 1, 2012 and has a five-year term. Under the Van Heel Agreement, Mr. Van Heel (i) is paid a base salary of $550,000; (ii) is eligible to earn a target annual bonus, pursuant to the terms of Monro’s Management Incentive Compensation Plan, of up to 150% of his base salary upon the achievement of certain predetermined corporate objectives and (iii) participates in Monro’s other incentive and welfare and benefit plans made available to executives. Mr. Van Heel is entitled to certain payments upon death, disability, a termination without Cause (as defined therein), a resignation by Mr. Van Heel for Good Reason (as defined therein) or a termination in the event of a Change in Control of the Company (as defined therein), all as set forth in detail in the Van Heel Agreement.
On October 1, 2012, and in consideration for his execution of the Van Heel Agreement, Monro’s Compensation Committee awarded to Mr. Van Heel an option to purchase 300,000 shares of Monro’s Common Stock at an exercise price equal to the closing price of Monro’s Common Stock on the date of the award of $33.64 per share, pursuant to our 2007 Stock Incentive Plan. These options vest equally over four years, beginning October 1, 2013.
In February 2014, the Company entered into a new employment agreement (the “Tomarchio Agreement”) with Joseph Tomarchio Jr., Executive Vice President. The Tomarchio Agreement became effective April 1, 2014, and superseded the Company’s previous employment contract with Mr. Tomarchio, which was set to expire in December 2014. As planned, the Tomarchio Agreement extends Mr. Tomarchio’s employment as an Executive Vice President of the Company through June 2017 at a reduced schedule. Under the terms of the Tomarchio Agreement, Mr. Tomarchio will render exclusive services to the Company, leading the Company’s growing tire purchasing programs and related vendor relationships. In addition, he will continue to assist on sourcing acquisitions, provide input on advertising and marketing, and contribute at field meetings.
Under the Tomarchio Agreement, Mr. Tomarchio (i) is paid a base salary of $242,500; (ii) is eligible to earn a target annual bonus, pursuant to the terms of the Company’s bonus plan, of up to 87.5% of his base salary upon the achievement of certain predetermined corporate objectives, which is consistent with both other Company executives and Mr. Tomarchio’s previous employment agreement; and (iii) participates in the Company’s other incentive and welfare and benefit plans made available to executives. In addition, under the Agreement, Mr. Tomarchio is entitled to certain payments upon a termination without Cause (as defined therein), a resignation by Mr. Tomarchio for Good Reason (as defined therein) or a termination in the event of a Change in Control of the Company (as defined therein), all as set forth in detail in the Agreement.
On December 30, 2010, we entered into employment agreements with Mr. Van Heel, then President of Monro; Mr. Tomarchio, then Executive Vice President Store Operations; and Catherine D’Amico, our Executive Vice President and Chief Financial Officer (collectively, the “Agreements”). All three Agreements became
57
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
effective on January 1, 2011 and have a four-year term. Mr. Van Heel’s agreement terminated in connection with his promotion to Chief Executive Officer and execution of his new employment agreement effective October 1, 2012. Mr. Tomarchio’s agreement terminated in connection with his change in responsibilities and execution of his new employment agreement effective April 1, 2014.
Under the Agreement, Ms. D’Amico (i) is entitled to an annual base salary; (ii) is eligible to earn a target bonus, pursuant to the terms of the Monro’s bonus plan, up to 87.5% of her base salary, upon the achievement of certain predetermined corporate objectives and (iii) participate in Monro’s other incentive and welfare and benefit plans made available to executives. The base salary of each executive is reviewed annually by Monro’s Compensation Committee and may be increased to reflect performance and responsibilities of each such executive.
Finally, Ms. D’Amico is entitled to certain payments upon death, disability, and termination without Cause (as defined in the Agreement), a resignation by the executive for Good Reason (as defined in the Agreement) or a termination in the event of a Change in Control of the Company (as defined in the Agreement), all set forth in detail in the Agreement.
Also, on December 30, 2010 and in consideration of the executives’ execution of the Agreements, Monro’s Compensation Committee awarded to Messrs. Van Heel and Tomarchio and Ms. D’Amico an option to purchase 150,000, 120,000 and 90,000 shares of Monro’s Common Stock, respectively, at an exercise price equal to the closing price of Monro’s Common Stock on the date of the award of $35.31 per share, pursuant to our 2007 Stock Incentive Plan (together, the “Executive Options”). Each of the Executive Options vest equally over four years, beginning December 30, 2011.
In accordance with the policy adopted by Monro’s Compensation Committee in May 2009, no executives’ contracts include any provision for the payment of what is commonly referred to as an “excise tax gross-up” with respect to payments received by an executive upon a Change in Control (as defined in the Agreements).
NOTE 12 —– EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
We sponsor a noncontributory defined benefit pension plan for Monro employees and the former Kimmel Automotive, Inc. employees. In fiscal 2005, the previously separate Monro and Kimmel pension plans were merged. The merged plan provides benefits to certain full-time employees who were employed with Monro and with Kimmel prior to April 2, 1998 and May 15, 2001, respectively.
Effective as of those dates, each company’s Board of Directors approved plan amendments whereby the benefits of each of the defined benefit plans would be frozen and the plans would be closed to new participants. Prior to these amendments, coverage under the plans began after employees completed one year of service and attainment ofattained age 21. Benefits under both plans, and now the merged plan, are based primarily on years of service and employees’ pay near retirement. The funding policy for Monro’s merged plan is consistent with the funding requirements of Federal law and regulations. The measurement date used to determine the pension plan measurements disclosed herein is March 31 for both 20142017 and 2013.2016.
The overfunded/funded/(underfunded) status of Monro’s defined benefit plan is recognized as an other non-current asset/other long-term liability in the Consolidated Balance Sheets as of March 29, 201425, 2017 and March 30, 2013,26, 2016, respectively.
58
52
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fundedfunded/(underfunded) status of the plan is set forth below:
Fiscal March | ||||||||
2014 | 2013 | |||||||
(Dollars in thousands) | ||||||||
Change in Plan Assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 18,224 | $ | 17,344 | ||||
Actual return on plan assets | 1,726 | 1,496 | ||||||
Employee contribution | 0 | 0 | ||||||
Benefits paid | (581 | ) | (616 | ) | ||||
|
|
|
| |||||
Fair value of plan assets at end of year | 19,369 | 18,224 | ||||||
|
|
|
| |||||
Change in Projected Benefit Obligation: | ||||||||
Benefit obligation at beginning of year | 19,285 | 17,500 | ||||||
Interest cost | 776 | 793 | ||||||
Actuarial (gain)/loss | (432 | ) | 1,608 | |||||
Benefits paid | (581 | ) | (616 | ) | ||||
|
|
|
| |||||
Benefit obligation at end of year | 19,048 | 19,285 | ||||||
|
|
|
| |||||
Funded status of plan | $ | 321 | $ | (1,061 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal March | ||||
|
| 2017 |
| 2016 | ||
|
| (Dollars in thousands) | ||||
Change in Plan Assets: |
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
| $ | 19,465 |
| $ | 20,241 |
Actual return on plan assets |
|
| 2,309 |
|
| (95) |
Benefits paid |
|
| (1,072) |
|
| (681) |
Fair value of plan assets at end of year |
|
| 20,702 |
|
| 19,465 |
Change in Projected Benefit Obligation: |
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
| 21,373 |
|
| 22,160 |
Interest cost |
|
| 806 |
|
| 803 |
Actuarial gain |
|
| (702) |
|
| (909) |
Benefits paid |
|
| (1,072) |
|
| (681) |
Benefit obligation at end of year |
|
| 20,405 |
|
| 21,373 |
Funded/(underfunded) status of plan |
| $ | 297 |
| $ | (1,908) |
The projected and accumulated benefit obligations were equivalent at March 29, 201431 for both 2017 and March 30, 2013.2016.
Amounts recognized in accumulated other comprehensive loss consist of:
Year Ended Fiscal March | ||||||||
2014 | 2013 | |||||||
(Dollars in thousands) | ||||||||
Unamortized transition obligation | $ | 0 | $ | 0 | ||||
Unamortized prior service cost | 0 | 0 | ||||||
Unamortized net loss | 5,056 | 6,520 | ||||||
|
|
|
| |||||
Total | $ | 5,056 | $ | 6,520 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended | ||||
|
| Fiscal March | ||||
|
| 2017 |
| 2016 | ||
|
| (Dollars in thousands) | ||||
Unamortized transition obligation |
| $ | 0 |
| $ | 0 |
Unamortized prior service cost |
|
| 0 |
|
| 0 |
Unamortized net loss |
|
| 5,117 |
|
| 7,320 |
Total |
| $ | 5,117 |
| $ | 7,320 |
Changes in plan assets and benefit obligations recognized in other comprehensive income consist of:
Year Ended Fiscal March | ||||||||
2014 | 2013 | |||||||
(Dollars in thousands) | ||||||||
Net transition obligation | $ | 0 | $ | 0 | ||||
Prior service cost | 0 | 0 | ||||||
Net actuarial income/(loss) | 1,464 | (787 | ) | |||||
|
|
|
| |||||
Total | $ | 1,464 | $ | (787 | ) | |||
|
|
|
|
59
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended | ||||
|
| Fiscal March | ||||
|
| 2017 |
| 2016 | ||
|
| (Dollars in thousands) | ||||
Net transition obligation |
| $ | 0 |
| $ | 0 |
Prior service cost |
|
| 0 |
|
| 0 |
Net actuarial income |
|
| 2,203 |
|
| 73 |
Total |
| $ | 2,203 |
| $ | 73 |
Pension (income) expense (income) included the following components:
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest cost on projected benefit obligation | $ | 776 | $ | 793 | $ | 809 | ||||||
Expected return on plan assets | (1,193 | ) | (1,192 | ) | (1,189 | ) | ||||||
Amortization of unrecognized actuarial loss | 658 | 517 | 71 | |||||||||
|
|
|
|
|
| |||||||
Net pension expense (income) | $ | 241 | $ | 118 | $ | (309 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
| (Dollars in thousands) | |||||||
Interest cost on projected benefit obligation |
| $ | 806 |
| $ | 803 |
| $ | 832 |
Expected return on plan assets |
|
| (1,332) |
|
| (1,389) |
|
| (1,388) |
Amortization of unrecognized actuarial loss |
|
| 524 |
|
| 648 |
|
| 300 |
Net pension (income) expense |
| $ | (2) |
| $ | 62 |
| $ | (256) |
The weighted-average assumptions used to determine benefit obligations are as follows:
Year Ended Fiscal March | ||||||||
2014 | 2013 | |||||||
Discount rate | 4.42 | % | 4.08 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended | ||||
|
| Fiscal March | ||||
|
| 2017 |
| 2016 | ||
Discount rate |
| 3.98 | % |
| 3.83 | % |
53
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted-average assumptions used to determine net periodic pension costs are as follows:
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Discount rate | 4.08 | % | 4.49 | % | 5.75 | % | ||||||
Expected long-term return on assets | 7.00 | % | 7.00 | % | 7.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Discount rate |
| 3.83 | % |
| 3.69 | % |
| 4.42 | % |
Expected long-term return on assets |
| 7.00 | % |
| 7.00 | % |
| 7.00 | % |
The expected long-term rate of return on plan assets is established based upon assumptions related to historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.
The investment strategy of the plan is to conservatively manage the assets in order to meet the plan’s long-term obligations while maintaining sufficient liquidity to pay current benefits. This is achieved by holding equity investments while investing a portion of assets in long duration bonds to match the long-term nature of the liabilities. Monro’s general target allocation for the plan is 40% fixed income and 60% equity securities.
Monro’s asset allocations, by asset category, are as follows at the end of each year:
March 29, 2014 | March 30, 2013 | |||||||
Cash and cash equivalents | 2.9 | % | 1.6 | % | ||||
Fixed income | 34.1 | % | 39.5 | % | ||||
Equity securities | 63.0 | % | 58.9 | % | ||||
|
|
|
| |||||
Total | 100.0 | % | 100.0 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 25, |
| March 26, | ||
|
| 2017 |
| 2016 | ||
Cash and cash equivalents |
| 1.7 | % |
| 3.4 | % |
Fixed income |
| 39.7 | % |
| 36.8 | % |
Equity securities |
| 58.6 | % |
| 59.8 | % |
Total |
| 100.0 | % |
| 100.0 | % |
60
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following table provides fair value measurement information for Monro’s major categories of defined benefit plan assets at March 29, 201425, 2017 and March 30, 2013,26, 2016, respectively:
Fair Value Measurements at March 29, 2014 Using | ||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
(Dollars in thousands) | ||||||||||||||
Equity securities: | ||||||||||||||
U.S. companies | $ | 7,966 | $ | 7,966 | ||||||||||
International companies | 4,241 | 4,241 | ||||||||||||
Fixed income: | ||||||||||||||
U.S. corporate bonds | 6,300 | $ | 6,300 | |||||||||||
International bonds | 302 | 302 | ||||||||||||
Cash equivalents | 560 | 560 | ||||||||||||
|
|
|
|
|
| |||||||||
Total | $ | 19,369 | $ | 12,207 | $ | 7,162 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Fair Value Measurements at March 25, 2017 Using | ||||||||||||||||||||||||
|
|
|
|
| Quoted Prices |
|
|
|
|
|
| |||||||||||||||
|
|
|
|
| in Active |
| Significant |
|
|
| ||||||||||||||||
|
|
|
| Markets for |
| Other |
| Significant | ||||||||||||||||||
Fair Value Measurements at March 30, 2013 Using |
|
|
|
| Identical |
| Observable |
| Unobservable | |||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
|
|
|
| Assets |
| Inputs |
| Inputs | ||||||||||||||
|
|
|
|
|
| Total | (Level 1) |
| (Level 2) |
| (Level 3) | |||||||||||||||
(Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
U.S. companies | $ | 6,465 | $ | 6,465 |
| $ | 8,296 |
| $ | 7,984 |
| $ | 312 |
|
|
| ||||||||||
International companies | 3,590 | 3,590 |
|
| 3,839 |
|
| 3,839 |
|
|
|
|
|
| ||||||||||||
Fixed income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
U.S. corporate bonds | 6,840 | $ | 6,840 |
|
| 7,902 |
|
|
|
|
| 7,902 |
|
|
| |||||||||||
International bonds | 364 | 364 |
|
| 317 |
|
|
|
|
| 317 |
|
|
| ||||||||||||
Cash equivalents | 288 | 288 |
|
| 348 |
|
|
|
|
| 348 |
|
|
| ||||||||||||
Commodities | 677 | 677 | ||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||
Total | $ | 18,224 | $ | 10,732 | $ | 7,492 |
| $ | 20,702 |
| $ | 11,823 |
| $ | 8,879 |
|
|
| ||||||||
|
|
|
54
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at March 26, 2016 Using | ||||||||||
|
|
|
|
| Quoted Prices |
|
|
|
|
|
| |
|
|
|
|
| in Active |
| Significant |
|
|
| ||
|
|
|
|
| Markets for |
| Other |
| Significant | |||
|
|
|
|
| Identical |
| Observable |
| Unobservable | |||
|
|
|
|
| Assets |
| Inputs |
| Inputs | |||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
| (Dollars in thousands) | ||||||||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies |
| $ | 7,800 |
| $ | 7,623 |
| $ | 177 |
|
|
|
International companies |
|
| 3,850 |
|
| 3,850 |
|
|
|
|
|
|
Fixed income: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate bonds |
|
| 6,788 |
|
|
|
|
| 6,788 |
|
|
|
U.S. Treasury bill |
|
| 374 |
|
| 374 |
|
|
|
|
|
|
Cash equivalents |
|
| 653 |
|
|
|
|
| 653 |
|
|
|
Total |
| $ | 19,465 |
| $ | 11,847 |
| $ | 7,618 |
|
|
|
There are no required or expected contributions in fiscal 20152018 to the plan.
The following pension benefit payments are expected to be paid:
Year Ended Fiscal March | ||||
(Dollars in thousands) | ||||
2015 | $ | 705 | ||
2016 | 742 | |||
2017 | 772 | |||
2018 | 803 | |||
2019 | 851 | |||
2020 - 2024 | 5,101 |
61
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
| Year Ended | |
|
| Fiscal March | |
|
| (Dollars in thousands) | |
2018 |
| $ | 895 |
2019 |
|
| 929 |
2020 |
|
| 968 |
2021 |
|
| 1,026 |
2022 |
|
| 1,084 |
2023 - 2027 |
|
| 5,843 |
We have a 401(k)/Profit Sharing Plan that covers full-time employees who meet the age and service requirements of the plan. The 401(k) salary deferral option was added to the plan during fiscal 2000. The first employee deferral occurred in March 2000. We make matching contributions consistent with the provisions of the plan. Charges to expense for our matching contributions for fiscal 2014, 20132017, 2016 and 20122015 amounted to approximately $612,000, $615,000$828,000, $731,000 and $631,000,$655,000, respectively. We may also make annual profit sharing contributions to the plan at the discretion of Monro’s Compensation Committee.
We have a deferred compensation plan (the “Deferred Compensation Plan”) to provide an opportunity for additional tax-deferred savings to a select group of management or highly compensated employees. The Deferred Compensation Plan permits participants to defer all or any portion of the compensation that would otherwise be payable to them for the calendar year. In addition, Monro will credit to the participants’ accounts such amounts as would have been contributed to Monro’s 401(k)/Profit Sharing Plan but for the limitations that are imposed under the Internal Revenue Code based upon the participants’ status as highly compensated employees. We may also make such additional discretionary allocations as are determined by the Compensation Committee. The Deferred Compensation Plan is an unfunded arrangement and the participants or their beneficiaries have an unsecured claim against the general assets of Monro to the extent of their Deferred Compensation Plan benefits. We maintain accounts to reflect the amounts owed to each participant. At least annually, the accounts are credited with earnings or losses calculated on the basis of an interest rate or other formula as determined by Monro’s Compensation Committee. The total liability recorded in our financial statements at March 29, 201425, 2017 and March 30, 201326, 2016 related to the Deferred Compensation Plan was $1,433,000$2,106,000 and $1,179,000,$1,921,000, respectively.
Monro’s
Monro's management bonus plan provides for the payment of annual cash bonus awards to participating employees, as selected by our Board of Directors, based primarily on Monro’sMonro's attaining pre-tax income targets established by our Board of Directors. During the years ended March 29, 201425, 2017, March 26, 2016 and March 31, 2012,28, 2015, we recorded charges to expense of $1,066,000$463,000, $2,124,000 and $1,730,000,$1,092,000, respectively. During the year ended March 30, 2013, we recorded a benefit
55
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 13 —– RELATED PARTY TRANSACTIONS
We are currently a party to leases for certain facilities where the lessor is ana former officer of Monro or a family membersmember of such officer.former officer, or such former officer or family member has an interest in entities that are lessors. Six leases were assumed in March 2004 in connection with the Mr. Tire Acquisition.Acquisition, as well as one additional lease entered into during the year ended March 26, 2016. In March 2015, Monro purchased the property and building of one of these leased locations from this same former officer of Monro and a family member of such former officer for approximately $1.0 million. The payments under such operating and capital leases amounted to $702,000, $685,000$754,000, $711,000 and $669,000$717,000 for the fiscal years ended March 2014, 20132017, 2016 and 2012,2015, respectively. These payments are comparable to rents paid to unrelated parties. No amounts were payable at March 29, 201425, 2017 or March 30, 2013.26, 2016. No related party leases exist, other than thethese six assumed as part of the Mr. Tire Acquisition in March 2004,leases, and no new leases are contemplated.
We have
For many years, we had a managementconsulting agreement with an investment banking firm associated with a principal shareholder/director of Monro to provide financial advice. TheIn recent years, the agreement providesprovided for an annual fee of $300,000, plus reimbursement of out-of-pocket expenses. During each of the fiscal years 2014, 2013 and 2012,Under this agreement, we incurred fees of $225,000 and $300,000 under this agreement.during the years ended March 26, 2016 and March 28, 2015, respectively. No amounts wereamount was payable at March 29, 2014 or March 30, 2013. In addition, this investment banking firm, from time to time, provides additional investment banking services to us for customary fees.26, 2016. Approximately half of all payments made to the investment banking firm under the managementconsulting agreement arewere paid to another principal shareholder/director of Monro.
62
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 14 —– SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following transactions represent non-cash investing and financing activities during the periods indicated:
Year ended March 29, 201425, 2017
In connection with the fiscal 20142017 acquisitions and fiscal 2016 acquisition measurement period adjustments (see Note 2), liabilities were assumed as follows:
Fair value of assets acquired | $ | 11,708,000 | ||
Goodwill | 17,940,000 | |||
Gain on bargain purchase | (217,000 | ) | ||
Cash paid, net of cash acquired | (27,518,000 | ) | ||
|
| |||
Liabilities assumed | $ | 1,913,000 | ||
|
|
Fair value of assets acquired | $ | 93,316,000 | |
Goodwill | 101,604,000 | ||
Cash paid, net of cash acquired | (142,567,000) | ||
Amounts payable to seller | 740,000 | ||
Liabilities assumed | $ | 53,093,000 |
In connection with the accounting for capital leases and financing obligations, we increased both property, plant and equipment and capital leases and financing obligations by $14,243,000.
Year ended March 30, 201326, 2016
In connection with the fiscal 20132016 acquisitions and fiscal 2015 acquisition measurement period adjustments (see Note 2), liabilities were assumed as follows:
Fair value of assets acquired | $ | 101,926,000 | ||
Goodwill | 117,602,000 | |||
Cash paid, net of cash acquired | (163,275,000 | ) | ||
|
| |||
Liabilities assumed | $ | 56,253,000 | ||
|
|
In connection with the exercise of stock options and the satisfaction of tax withholding obligations by Monro’s Chief Executive Officer (see Note 1), an Executive Vice President and two members of Monro’s Board of Directors, we increased current liabilities, Common Stock, paid-in capital and treasury stock by $601,000, $2,000, $2,968,000 and $3,571,000, respectively.
Fair value of assets acquired | $ | 35,335,000 | |
Goodwill | 50,573,000 | ||
Cash paid, net of cash acquired | (49,018,000) | ||
Amounts payable to seller | (1,626,000) | ||
Liabilities assumed | $ | 35,264,000 |
In connection with the accounting for financing obligations, we increased deferred income tax asset, property, plant and equipment, goodwill, capital leases and financing obligations, other long-term liabilitieswe increased both property, plant and equipment and capital leases and financing obligations by $1,164,000, $200,000, $1,899,000, $629,000 and $2,567,000, respectively and decreased intangible assets by $67,000.$13,265,000.
56
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year ended March 31, 201228, 2015
In connection with the fiscal 20122015 acquisitions, liabilities were assumed as follows:
Fair value of assets acquired | $ | 12,751,000 | ||
Goodwill | 34,204,000 | |||
Cash paid, net of cash acquired | (39,243,000 | ) | ||
|
| |||
Liabilities assumed | $ | 7,712,000 | ||
|
|
In connection with the recording of the pension liability adjustment, we decreased other non-current assets, other comprehensive income and long-term deferred tax liabilities by $3,033,000, $1,977,000 and $1,212,000, respectively and increased other long-term liabilities by $156,000.
| |||
Fair value of assets acquired | $ | 62,184,000 | |
Goodwill | 79,316,000 | ||
Gain on bargain purchase | (386,000) | ||
Cash paid, net of cash acquired | (84,403,000) | ||
Amounts payable to seller | (3,507,000) | ||
Liabilities assumed | $ | 53,204,000 |
In connection with the accounting for income tax benefits related to the exercise of stock options,capital leases and financing obligations, we decreased current liabilitiesincreased both property, plant and increased paid-inequipment and capital by $5,314,000.
In connection with the exercise of stock optionsleases and the satisfaction of tax withholdingfinancing obligations by Monro’s former Chief Executive Officer (see Note 1) and one member of Monro’s Board of Directors, we increased current liabilities, Common Stock, paid-in capital and treasury stock by $5,485,000, $6,000, $8,685,000 and $14,176,000, respectively.$11,599,000.
Year Ended Fiscal March | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
(Dollars in thousands) | ||||||||||||
Cash paid during the year: | ||||||||||||
Interest, net | $ | 9,099 | $ | 6,914 | $ | 4,924 | ||||||
Income taxes, net | $ | 25,849 | $ | 22,850 | $ | 25,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended Fiscal March | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
| (Dollars in thousands) | |||||||
Cash paid during the year: |
|
|
|
|
|
|
|
|
|
Interest, net |
| $ | 20,970 |
| $ | 15,687 |
| $ | 11,119 |
Income taxes, net |
| $ | 24,778 |
| $ | 25,322 |
| $ | 26,141 |
NOTE 15 —– LITIGATION
We are currently a party to various claims and legal proceedings incidental to the conduct of our business. If management believes that a loss arising from any of these matters is probable and can reasonably be estimated, we will record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur and may include monetary damages. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which any such ruling occurs, or in future periods. However, based on currently available information, management believes that the ultimate outcome of any of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position, overall trends in results of operations or cash flow.flows.
NOTE 16 —– SUBSEQUENT EVENTS
In May 2014,2017, Monro’s Board of Directors declared a regular quarterly cash dividend of $.13$.18 per common share or common share equivalent to be paid to shareholders of record as of June 2, 2014.2017. The dividend will be paid on June 12, 2014.2017.
See Note 2 for a discussion of acquisitions subsequent to March 29, 2014.
64
57
MONROMONRO MUFFLER BRAKE, INC. AND SUBSIDIARYSUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth consolidated statement of income data by quarter for the years ended March 20142017 and 2013.2016. Individual line items summed by quarters may not agree to the annual amounts reported due to rounding.
Fiscal Quarter Ended | ||||||||||||||||
June 2013 | Sept. 2013 | Dec. 2013 | March 2014 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
Sales | $ | 206,172 | $ | 205,321 | $ | 216,695 | $ | 203,244 | ||||||||
Cost of sales | 127,294 | 123,573 | 134,371 | 126,220 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 78,878 | 81,748 | 82,324 | 77,024 | ||||||||||||
Operating, selling, general and administrative expenses | 55,770 | 57,837 | 55,398 | 55,622 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income | 23,108 | 23,911 | 26,926 | 21,402 | ||||||||||||
Interest expense, net | 1,809 | 2,048 | 3,216 | 2,397 | ||||||||||||
Other income, net | (52 | ) | (179 | ) | (352 | ) | (76 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income before provision for income taxes | 21,351 | 22,042 | 24,062 | 19,081 | ||||||||||||
Provision for income taxes | 7,779 | 8,392 | 8,733 | 7,173 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | $ | 13,572 | $ | 13,650 | $ | 15,329 | $ | 11,908 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Basic earnings per share | $ | 0.43 | $ | 0.43 | $ | 0.49 | $ | 0.38 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per share(a) | $ | 0.42 | $ | 0.42 | $ | 0.47 | $ | 0.36 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average number of common shares used in computing earnings per share | ||||||||||||||||
Basic | 31,302 | 31,390 | 31,417 | 31,469 | ||||||||||||
Diluted | 32,486 | 32,553 | 32,633 | 32,768 | ||||||||||||
Fiscal Quarter Ended | ||||||||||||||||
June 2012 | Sept. 2012 | Dec. 2012 | March 2013 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
Sales | $ | 169,175 | $ | 176,475 | $ | 190,437 | $ | 195,910 | ||||||||
Cost of sales | 101,063 | 106,624 | 120,827 | 125,336 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 68,112 | 69,851 | 69,610 | 70,574 | ||||||||||||
Operating, selling, general and administrative expenses | 48,423 | 50,126 | 50,782 | 55,111 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income | 19,689 | 19,725 | 18,828 | 15,463 | ||||||||||||
Interest expense, net | 1,299 | 1,370 | 1,473 | 3,071 | ||||||||||||
Other income, net | (53 | ) | (139 | ) | (59 | ) | (81 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income before provision for income taxes | 18,443 | 18,494 | 17,414 | 12,473 | ||||||||||||
Provision for income taxes | 6,806 | 6,946 | 6,159 | 4,346 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | $ | 11,637 | $ | 11,548 | $ | 11,255 | $ | 8,127 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Basic earnings per share | $ | 0.37 | $ | 0.37 | $ | 0.36 | $ | 0.26 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per share(a) | $ | 0.36 | $ | 0.36 | $ | 0.35 | $ | 0.25 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average number of common shares used in computing earnings per share | ||||||||||||||||
Basic | 30,922 | 31,023 | 31,116 | 31,206 | ||||||||||||
Diluted | 32,164 | 32,206 | 32,240 | 32,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Quarter Ended | ||||||||||
|
| June |
| Sept. |
| Dec. |
| March | ||||
|
| 2016 |
| 2016 |
| 2016 |
| 2017 | ||||
|
| (Amounts in thousands, except per share data) | ||||||||||
Sales |
| $ | 235,290 |
| $ | 245,927 |
| $ | 288,283 |
| $ | 252,011 |
Cost of sales |
|
| 137,222 |
|
| 145,930 |
|
| 182,683 |
|
| 158,787 |
Gross profit (a) |
|
| 98,068 |
|
| 99,997 |
|
| 105,600 |
|
| 93,224 |
Operating, selling, general and administrative expenses |
|
| 66,773 |
|
| 68,072 |
|
| 72,526 |
|
| 73,133 |
Operating income |
|
| 31,295 |
|
| 31,925 |
|
| 33,074 |
|
| 20,091 |
Interest expense, net |
|
| 4,485 |
|
| 4,488 |
|
| 5,261 |
|
| 5,535 |
Other income, net |
|
| (154) |
|
| (126) |
|
| (165) |
|
| (183) |
Income before provision for income taxes |
|
| 26,964 |
|
| 27,563 |
|
| 27,978 |
|
| 14,739 |
Provision for income taxes |
|
| 10,209 |
|
| 10,019 |
|
| 10,412 |
|
| 5,078 |
Net income |
| $ | 16,755 |
| $ | 17,544 |
| $ | 17,566 |
| $ | 9,661 |
Basic earnings per share |
| $ | 0.52 |
| $ | 0.54 |
| $ | 0.54 |
| $ | 0.29 |
Diluted earnings per share (b) |
| $ | 0.50 |
| $ | 0.53 |
| $ | 0.53 |
| $ | 0.29 |
Weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 32,258 |
|
| 32,291 |
|
| 32,466 |
|
| 32,637 |
Diluted |
|
| 33,327 |
|
| 33,317 |
|
| 33,292 |
|
| 33,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Quarter Ended | ||||||||||
|
| June |
| Sept. |
| Dec. |
| March | ||||
|
| 2015 |
| 2015 |
| 2015 |
| 2016 | ||||
|
| (Amounts in thousands, except per share data) | ||||||||||
Sales |
| $ | 236,520 |
| $ | 239,155 |
| $ | 238,942 |
| $ | 229,034 |
Cost of sales |
|
| 136,802 |
|
| 138,430 |
|
| 145,575 |
|
| 137,141 |
Gross profit |
|
| 99,718 |
|
| 100,725 |
|
| 93,367 |
|
| 91,893 |
Operating, selling, general and administrative expenses |
|
| 66,111 |
|
| 66,632 |
|
| 66,937 |
|
| 65,434 |
Operating income |
|
| 33,607 |
|
| 34,093 |
|
| 26,430 |
|
| 26,459 |
Interest expense, net |
|
| 3,392 |
|
| 3,758 |
|
| 3,853 |
|
| 4,540 |
Other (income) expense, net |
|
| (106) |
|
| (103) |
|
| (198) |
|
| 32 |
Income before provision for income taxes |
|
| 30,321 |
|
| 30,438 |
|
| 22,775 |
|
| 21,887 |
Provision for income taxes |
|
| 11,522 |
|
| 11,566 |
|
| 7,544 |
|
| 7,984 |
Net income |
| $ | 18,799 |
| $ | 18,872 |
| $ | 15,231 |
| $ | 13,903 |
Basic earnings per share |
| $ | 0.59 |
| $ | 0.59 |
| $ | 0.47 |
| $ | 0.43 |
Diluted earnings per share (b) |
| $ | 0.57 |
| $ | 0.57 |
| $ | 0.46 |
| $ | 0.42 |
Weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 31,855 |
|
| 31,961 |
|
| 32,077 |
|
| 32,207 |
Diluted |
|
| 33,108 |
|
| 33,160 |
|
| 33,333 |
|
| 33,293 |
_________________
(a) | We have evaluated the principal versus agent accounting guidance in assessing the appropriate presentation for certain transactions primarily related to our fiscal 2017 acquisitions. We have determined agent accounting is appropriate for such transactions and therefore concluded the amounts previously presented on a gross basis should have been recorded on a net basis. Accordingly, we have revised amounts previously recorded in connection with these transactions during the first and second quarters of fiscal 2017. The revisions resulted in a reduction of sales and cost of sales by equal amounts of $1.6 million and $2.7 million for the first and second quarters of fiscal 2017, respectively. These revisions were not material to any prior comparable period and did not impact gross profit as previously reported. |
(b) | Earnings per share for each period was computed by dividing net income by the weighted average number of shares of Common Stock and Common Stock Equivalents outstanding during the respective quarters. |
58
65
Significant fourth quarter adjustments
There were no material, extraordinary, unusual or infrequently occurring items recognized in the fourth quarter of fiscal 2014.
During the fourth quarter of fiscal 2013, we recorded one significant adjustment. We decreased occupancy costs by $1.0 million and increased interest expense by $.5 million related to our review of lease accounting practices as discussed in Note 1 to the Consolidated Financial Statements.
66
Item 9.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Item 9A. Controls and Procedures
Evaluation of 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 pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms, and that such information is accumulated and communicated to Monro’s management, including its 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 theour Chief Executive Officer and Chief Financial Officer, we conduct an evaluation of the effectiveness of our disclosure controls and procedures. It is the conclusion of Monro’s Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of March 29, 2014,25, 2017, that our disclosure controls and procedures were effective in ensuring that any material information relating to Monro was recorded, processed, summarized and reported to its principal officers to allow timely decisions regarding required disclosures.
Management’s
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Monro’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Monro’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Monro; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Monro are being made only in accordance with authorizations of management and directors of Monro; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Monro’sMonro's assets that could have a material effect on the financial statements.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework inInternal Control—Control - Integrated Framework (1992) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Monro’sMonro's internal control over financial reporting was effective as of March 29, 2014,25, 2017, the end of our fiscal year. Management has reviewed the results of its assessment with the Audit Committee of the Board of Directors. The effectiveness of Monro’sMonro's internal control over financial reporting as of March 29, 201425, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Inherent Limitations on Effectiveness of Controls
Monro’s management, including theits Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent or detect all
67
errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Monro have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
59
Changes in Internal Controls over Financial Reporting
There were no changes in Monro’s internal control over financial reporting during the quarter ended March 29, 201425, 2017 that materially affected, or are reasonably likely to materially affect, Monro’s internal control over financial reporting.
60
68
PART IIIIt
Itemem 10.Directors and Executive Officers of the Company and Corporate Governance
Information concerning the directors and executive officers of Monro is incorporated herein by reference to the section captioned “Election of Directors” and “Executive Officers”, respectively, in the Proxy Statement.
Information concerning required Section 16(a) disclosure is incorporated herein by reference to the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
Information concerning Monro’s corporate governance policies and procedures is incorporated herein by reference to the section captioned “Corporate Governance” in the Proxy Statement.
Monro’s directors and executive officers are subject to the provisions of Monro’s Code of Ethics for Management Employees, Officers and Directors (the “Code”), which is available in the Investor Information section of Monro’s web site,website, www.monro.com. Changes to the Code and any waivers are also posted on Monro’s web sitewebsite in the Investor Information section.
ItemItem 11.Executive Compensation
Information concerning executive compensation is incorporated herein by reference to the sections captioned “Compensation Discussion and Analysis” and “Executive Compensation” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning Monro’s shares authorized for issuance under its equity compensation plans at March 29, 201425, 2017 and security ownership of certain beneficial owners and management is incorporated herein by reference to the sectionssection captioned “Security Ownership of Principal Shareholders, Directors and Executive Officers” and “Equity Compensation Plan Information” in the Proxy Statement.
ItemItem 13.Certain Relationships and Related Transactions and Director Independence
Information concerning certain relationships and related transactions is incorporated herein by reference to the sections captioned “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions” in the Proxy Statement.
ItemItem 14.Principal Accountant Fees and Services
Information concerning Monro’s principal accounting fees and services is incorporated herein by reference to the section captioned “Approval of Independent Registered Public Accounting Firm” in the Proxy Statement.
61
69
PART IV
ItemItem 15.Exhibits and Financial Statement Schedules
Financial Statements
Reference is made to Item 8 of Part II hereof.
Financial Statement Schedules
Schedules have been omitted because they are inapplicable, not required, the information is included elsewhere in the Financial Statements or the notes thereto or is immaterial. Specific to warranty reserves and related activity, as stated in the Financial Statements, these amounts are immaterial.
Exhibits
Reference is made to the Index to Exhibits accompanying this Form 10-K as filed with the Securities and Exchange Commission. The agreements accompanying this Form 10-K or incorporated herein by reference may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and such agreements should not be relied upon by buyers, sellers or holders of Monro’s securities.
70None.
62
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MONRO MUFFLER BRAKE, INC. | |||
(Registrant) | |||
By: | /s/ John W. Van Heel |
| |
John W. Van Heel | |||
Chief Executive Officer and President | |||
Date: May 28, 201424, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature | Title | Date | ||
/s/ | Chief Executive Officer, President | May 24, 2017 | ||
John W. Van Heel |
and Director (Principal Executive Officer) | |||
/s/ | Executive Chairman, Director | May 24, 2017 | ||
Robert G. Gross | ||||
/s/
|
| May 24, 2017 | ||
Brian J. D’Ambrosia | Chief Financial Officer and Treasurer | |||
(Principal Financial | ||||
| ||||
/s/ | Director | May 24, 2017 | ||
Frederick M. Danziger | ||||
/s/ | Director | May 24, 2017 | ||
Donald Glickman | ||||
/s/ | Director | May 24, 2017 | ||
Stephen C. McCluski | ||||
/s/ | Director | May 24, 2017 | ||
Robert E. Mellor | ||||
/s/ | Director | May 24, 2017 | ||
Peter J. Solomon | ||||
/s/ | Director | May 24, 2017 | ||
James R. Wilen | ||||
/s/ | Director | May 24, 2017 | ||
Elizabeth A. Wolszon |
* By: /s/ John W. | |||||
John W. Van Heel, as Attorney-in-Fact |
| ||||
63
71
The following is a list of all exhibits filed herewith or incorporated by reference herein:
Exhibit No. | Document | |
3.01* | ||
Restated Certificate of Incorporation of the Company, dated July 23, 1991, with Certificate of Amendment, dated November 1, 1991. (SEC File No:0-19357, 1992 Form 10-K, Exhibit No. 3.01) | ||
3.01a* | ||
Certificate of Change of the Certificate of Incorporation of the Company, dated January 26, 1996. (August 2004 Form S-3, Exhibit 4.1(b)) | ||
3.01b* | ||
Certificate of Amendment to Restated Certificate of Incorporation, dated April 15, 2004. (August 2004 Form S-3, Exhibit No. 4.1(c)) | ||
3.01c* | ||
Certificate of Amendment to Restated Certificate of Incorporation, dated October 10, 2007. (2008 Form 10-K, Exhibit 3.01c) | ||
3.01d* | ||
Certificate of Amendment to Restated Certificate of Incorporation, dated August 1, 2012. (2013 Form 10-K, Exhibit 3.01d) | ||
3.02* | ||
Amended and Restated By-Laws of the Company, dated August 7, 2012. (December 2012Form 8-K, Exhibit No. 3.02) | ||
10.01* | ||
2007 Stock Incentive Plan, effective as of June 29, 2007. (May 2008 Form S-8, Exhibit No. 4)** | ||
10.01a* | ||
Amendment No. 1 to the 2007 Stock Incentive Plan, dated August 9, 2007. (May 2008 Form S-8, Exhibit No. 4.1)** | ||
10.01b* | ||
Amendment No. 2 to the 2007 Stock Incentive Plan, dated September 27, 2007. (May 2008 Form S-8, Exhibit No. 4.2)** | ||
10.01c* | ||
Amendment No. 3 to the 2007 Stock Incentive Plan, dated August 10, 2010. (August 2010 Form 8-K, Exhibit No. 10.1)** | ||
10.01d* | ||
Amendment No. 4 to the 2007 Stock Incentive Plan, dated May 16, 2012. (2012 Form 10-K, Exhibit No. 10.01d)** | ||
10.01e* | ||
Amendment No. 5 to the 2007 Stock Incentive Plan, dated June 28, 2013. (2013 Proxy, Exhibit A)** | ||
10.01f* | ||
Amendment No. 6 to the 2007 Stock Incentive Plan, dated June 28, 2013. | ||
10.03* | ||
Monro Muffler Brake, Inc. Deferred Compensation Plan, dated January 1, 2005, and last amended and restated as of January 1, | ||
10.04* | ||
Monro Muffler Brake, Inc. Retirement Plan, adopted | ||
10.04a* | Amendment No. 1 to April 1, 2013 Restatement to Monro Muffler Brake, Inc. Retirement Plan, dated as of October 27, 2014 and effective as of June 26, 2013. (December 2015 Form 10-Q, Exhibit No. 10.04a)** | |
10.04b* | Amendment No. 2 to April 1, 2013 Restatement to Monro Muffler Brake, Inc. Retirement Plan, dated as of December 10, 2015 and effective as of April 1, |
72
|
| |
10.05* | ||
Monro Muffler Brake, Inc. Profit Sharing Plan, adopted |
64
Exhibit No. | Document | |
10.05a* | First Amendment to December 8, 2014 Restatement to the Monro Muffler Brake, Inc. Profit Sharing Plan, dated December 10, 2015 and effective as of April 1, | |
10.07* | ||
Employment Agreement, dated as of | ||
10.14* | ||
Employment Agreement, dated | ||
10.18* | ||
Credit Agreement, dated as of | ||
10.18a* | Amendment No. 1 to Credit Agreement, dated as of August 26, 2016. (September 2016 Form 10-Q, Exhibit No. |
73
|
| |
10.20* | ||
Guaranty, dated as of | ||
10.21* | Negative Pledge Agreement, | |
10.60* | ||
Lease Agreement, dated as of | ||
10.61* | ||
Leaseback Agreement, dated | ||
10.67* | ||
Employment Agreement, dated as of August 7, 2012 and effective as of October 1, 2012, between the Company and John W. Van Heel. (August 2012 Form 8-K, Exhibit No. 99.1)** | ||
10.68* | ||
Employment Agreement, dated December 30, | ||
10.69* | ||
Employment Agreement, dated February 11, 2014 and effective April 1, 2014, between the Company and Joseph Tomarchio, Jr. (February 2014 Form 8-K, Exhibit No. 99.1)** | ||
10.69a* | ||
Amendment to Employment Agreement of Joseph Tomarchio, Jr., dated May 14, 2014 and effective April 1, 2014, between the Company and Joseph Tomarchio, Jr. (May 2014 Form 8-K, Exhibit No. 99.1)** | ||
10.69b | Letter Agreement, effective April 1, 2017, between the Company and Joseph Tomarchio, Jr., terminating the Employment Agreement, as amended.** | |
10.72*† | Supply Agreement, dated as of August 1, 2012, by and between Ashland Consumer Markets (a commercial business unit of Ashland, Inc.) and Monro Service | |
10.77* | ||
Monro Muffler Brake, Inc. Management Incentive Compensation Plan, effective as of June 1, 2002. (2002 Form 10-K, Exhibit No. 10.77)** | ||
74
|
| |
Agreement, dated January 1, 1997, between The Three Marquees and Mr. Tire, Inc., as predecessor-in-interest to the Company, with respect to Store No. 753. (2004 Form 10-K, Exhibit No. 10.80) |
65
Exhibit No. | Document | |
10.80a* | Assignment and Assumption of Lease, dated March 1, 2004, between Mr. Tire, Inc. and the Company, with respect to Store No. 753. (2004 Form 10-K, Exhibit No. 10.80a) | |
10.80b* | ||
Landlord’s Consent and Estoppel Certificate, dated as of February 27, 2004, by 1746 E. Joppa Road, LLC (formerly known as The Three | ||
10.80c* | ||
Renewal Letter, dated March 6, 2006, from the Company to 1746 E. Joppa Road, LLC (formerly known as The Three | ||
10.80d | Lease Amendment, dated September 17, 2014, from the Company to 1746 E. Joppa Road, LLC (formerly known as The Three Marquees), with respect to Store No. 753. | |
10.81* | Agreement, dated April 1, 1998, between 425 Manchester Road, LLC and Mr. Tire, Inc., as predecessor-in-interest to the Company, with respect to Store No. 754. (2004 Form 10-K, Exhibit No. 10.81) | |
10.81a* | ||
Assignment and Assumption of Lease, dated March 1, 2004, between Mr. Tire, Inc. and the Company, with respect to Store No. 754. (2004 Form 10-K, Exhibit No. 10.81a) | ||
10.81b* | ||
Landlord’s Consent and Estoppel Certificate, dated as of February 27, 2004, by 425 Manchester Road, LLC, with respect to Store No. 754. (2004 Form 10-K, Exhibit No. 10.81b) | ||
10.81c* | ||
Renewal Letter, dated June 8, 2007, from the Company to 425 Manchester Road, LLC, with respect to Store No. 754. (2008 Form 10-K, Exhibit No. 10.81c) | ||
10.82* | ||
Agreement, dated January 1, 1997, between The Three Marquees and Mr. Tire, Inc., as predecessor-in-interest to the Company, with respect to Store No. 756. (2004 Form 10-K, Exhibit No. 10.82) | ||
10.82a* | ||
Assignment and Assumption of Lease, dated March 1, 2004, between Mr. Tire, Inc. and the Company, with respect to Store No. 756. (2004 Form 10-K, Exhibit No. 10.82a) | ||
10.82b* | ||
Landlord’s Consent and Estoppel Certificate, dated as of February 27, 2004, by The Three Marquees, with respect to Store No. 756. (2004 Form 10-K, Exhibit No. 10.82b) | ||
10.82c* | ||
Renewal Letter, dated March 6, 2006, from the Company to The Three Marquees, with respect to Store No. 756. (2006 Form 10-K, Exhibit No. 10.82c) | ||
10.82d* | Renewal Letter, dated November 30, 2015, from the Company to The Three Marquees, with respect to Store No. 756. (2016 Form 10-K, Exhibit No. 10.82d) | |
10.83* | Agreement, dated January 1, 1997, between The Three Marquees and Mr. Tire, Inc., as predecessor-in-interest to the Company, with respect to Store No. 758. (2004 Form 10-K, Exhibit No. 10.83) | |
10.83a* | ||
Assignment and Assumption of Lease, dated March 1, 2004, between Mr. Tire, Inc. and the Company, with respect to Store No. 758. (2004 Form 10-K, Exhibit No. 10.83a) | ||
10.83b* | ||
Landlord’s Consent and Estoppel Certificate, dated as of February 27, 2004, by The Three Marquees, with respect to Store No. 758. (2004 Form 10-K, Exhibit No. 10.83b) | ||
10.83c* | ||
Renewal Letter, dated March 6, 2006, from the Company to The Three Marquees, with respect to Store No. 758. (2006 Form 10-K, Exhibit No. 10.83c) | ||
10.83d* | Renewal Letter, dated November 30, 2015, from the Company to The Three Marquees, with respect to Store No. 758. (2016 Form 10-K, Exhibit No. 10.83d) | |
10.84* | Agreement, dated September 2, 1999, between LPR Associates and Mr. Tire, Inc., as predecessor-in-interest to the Company, with respect to Store No. 765. (2004 Form 10-K, Exhibit No. 10.84) |
66
75
Exhibit No. | Document | |
10.84a* | ||
Assignment and Assumption of Lease, dated March 1, 2004, between Mr. Tire, Inc. and the Company, with respect to Store No. 765. (2004 Form 10-K, Exhibit No. 10.84a) | ||
10.84b* | ||
Landlord’s Consent and Estoppel Certificate, dated as of February 27, 2004, by Mt. Airy South Main Street, LLC (formerly known as LPR | ||
10.84c* | ||
Renewal Letter, dated October 29, 2008, from the Company to Mt. Airy South Main Street, LLC (formerly known as LPR | ||
10.84d* | ||
Renewal Letter, dated December 4, 2013, from the Company to Mt. Airy South Main Street, LLC (formerly known as LPR | ||
21.01 | ||
Subsidiaries of the Company. | ||
23.01 | ||
Consent of PricewaterhouseCoopers LLP. | ||
24.01 | ||
Powers of Attorney. | ||
31.1 | ||
Certification of John W. Van Heel, President and Chief Executive Officer. | ||
31.2 | ||
Certification of | ||
32.1 | ||
Certification Pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). | ||
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 one of the following documents: (1) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 67 ** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) hereof. † Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 of the Securities Exchange Act of 1934. ‡ Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement of prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or deemed filed for purpose of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections. 68An asterisk “*” following an exhibit number indicates that the exhibit is incorporated herein by reference to an exhibit to one of the following documents: (1) the Company’s Registration Statement on Form S-1 (Registration No. 33-41290), filed with the Securities and Exchange Commission on June 19, 1991 (“Form S-1”); (2) Amendment No. 1 thereto, filed July 22, 1991 (“Amendment No. 1”); (3) the Company’s1992 (“1992 ("1992 Form 10-K"); (2) the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2002 (“2002 Form 10-K”); (3) the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2004 (“2004 Form 10-K”); (4) the Company’s Registration Statement on Form S-3 (Registration No. 333-118176), filed with the Securities and Exchange Commission on August 12, 2004 (“August 2004 Form S-3”); (5) the Company’s Registration Statement on Form S-8 (Registration No. 333-133044) filed with the Securities and Exchange Commission on April 6, 2006 (“April 2006 Form S-8 for 2003 Plan”); (6) the Company’s Annual Report on Form 10-K for the fiscal year ended March 25, 2006 (“2006 Form 10-K”); (4) the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1995 (“1995 Form 10-K”); (5) the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 (“September 1995 Form 10-Q”); (6) the Company’s Registration Statements on Forms S-8, filed with the Securities and Exchange Commission on March 22, 2001 (each a “March 2001 Form S-8”); (7) the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2002 (“2002 Form 10-K”); (8) the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2003 (“2003 Form 10-K”); (9) the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2004 (“2004 Form 10-K”); (10) the Company’s Registration Statement on Form S-3 (Registration No. 333-118176), filed with the Securities and Exchange Commission on August 12, 2004 (“August 2004 Form S-3”); (11) the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2005 (“June 2005 Form 10-Q”); (12) the Company’s Current Report on Form 8-K, filed March 31, 2006 (“March 2006 Form 8-K/A”); (13) the Company’s Registration Statement on Form S-8 (Registration No. 333-133044) filed with the Securities and Exchange Commission on April 6, 2006. (“April 2006 Form S-8 for 2003 Plan”); (14) the Company’s Registration Statement on Form S-8 (Registration No. 333-133045) filed with the Securities and Exchange Commission on April 6, 2006. (“April 2006 Form S-8 for 1998 Plan”); (15) the Company’s Annual Report on Form 10-K for the fiscal year ended March 25, 2006 (“2006 Form 10-K”); (16) the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 (“2007 Form 10-K”);76(17) the Company’s Annual Report on Form 10-K for fiscal year ended March 29, 2008 (“2008Form 10-K”); (18) (8) the Company’s Registration Statement on Form S-8 (Registration No. 333-151196) filed with the Securities and Exchange Commission on May 27, 2008 (“May 2008 Form S-8”); (19)(9) the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2009 (“2009 Form 10-K”); (20)(10) the Company’s Current Report on Form 8-K, filed on August 12, 2010 (“August 2010 Form 8-K”); (21) the Company’s Current Report on Form 8-K, filed on January 4, 2011 (“January 2011 Form 8-K”); (22) the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2011 (“2011 Form 10-K”); (23)(11) the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012 (“2012 Form 10-K”); (24) the Company’s Current Report on Form 8-K, filed on June 16, 2011 (“June 2011Form 8-K”); (25)(12) the Company’s Current Report on Form 8-K, filed August 9, 2012 (“August 2012Form 8-K”); (26) (13) the Company’s Current Report on Form 8-K, filed on December 20, 2012 (“December 2012 Form 8-K”); (27)(14) the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2012 (“December 2012 Form 10-Q”); (28)(15) the Company’s Current Report onForm 8-K, filed February 11, 2014 (“February 2014 Form 8-K”); (29)(16) the Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2013 (“2013 Form 10-K”); (30)(17) the Company’s Definitive Proxy Statement on Form DEF14A, filed June 10, 2013 (“2013 Proxy”); and (31)(18) the Company’s Current Report onForm 8-K, filed May 20, 2014 (“May 2014 Form 8-K”); (19) the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014 (“2014 Form 10-K”); (20) the Company’s Current Report on Form 8-K, filed August 29, 2014 (“August 2014 Form 8-K”); (21) the Company’s Current Report on Form 8-K, filed May 27, 2015 (“May 2015 Form 8-K”); (22) the Company’s Annual Report on Form 10-K, for the fiscal year ended March 28, 2015 (“2015 Form 10-K”); (23) the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 2015 (“December 2015 Form 10-Q”); (24) the Company’s Current Report on Form 8-K, filed January 28, 2016 (“January 2016 Form 8-K”); (25) the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2016 (the “2016 Form 10-K”); (26) the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 24, 2016 (“September 2016 Form 10-Q”); and (27) the Company’s Current Report on Form 8-K, filed January 4, 2017 (“January 2017 Form 8-K”). The appropriate document and exhibit number are indicated in parentheses.77