UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

____________________________________________________________

(Mark One)

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

For the quarterly period ended June ~~29, 2019.~~27, 2020.

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

For the transition period from _____________ to _____________

Commission File Number: 0-19357

____________________________________________________________

MONRO, INC.

(Exact name of registrant as specified in its charter)

____________________________________________________________


New York	16-0838627
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification #)No.)

200 Holleder Parkway, Rochester, New York	14615
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (585) 647-6400

_________________________________________

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

MNRO

The Nasdaq Stock Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

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

Large Accelerated Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company ¨

Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

~~As of July 26, 2019, 33,224,179~~There were 33,285,901 shares of the registrant's common stock, par value $0.01 per share, ~~were outstanding.~~outstanding at July 24, 2020.

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MONRO, INC.

INDEX


Part I. Financial Information	Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets ~~as of June 29, 2019 and March 30, 2019~~	3
Consolidated Statements of Comprehensive Income ~~for the quarters ended June 29, 2019 and June 30, 2018~~	4
Consolidated ~~Statement~~Statements of Changes in Shareholders’ Equity ~~for the quarters ended June 29, 2019 and June 30, 2018~~	5
Consolidated Statements of Cash Flows ~~for the quarters ended June 29, 2019 and June 30, 2018~~	6
Notes to Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1613
Item 3. Quantitative and Qualitative Disclosures About Market Risk	1918
Item 4. Controls and Procedures	1918
Part II. Other Information
Item 1. Legal Proceedings	20
Item ~~6. Exhibits~~1A. Risk Factors	20
Item 6. Exhibits	21
Signatures	2122

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MONRO, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MONRO, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	June 29,		March 30,		June 27,		March 28,
	2019		2019		2020		2020
	(Dollars in thousands)				(Dollars in thousands)
Assets
Current assets:
Cash and equivalents	$	8,513	$	6,214	$	147,174	$	345,476
Trade receivables		17,380		14,617		13,415		14,510
Federal and state income taxes receivable		—		5,586		7,345		8,056
Inventories		173,655		171,038		176,530		187,441
Other current assets		46,733		42,452		36,792		40,537
Total current assets		246,281		239,907		381,256		596,020
Property, plant and equipment		647,015		640,421		692,618		682,932
Less - Accumulated depreciation and amortization		(335,997)		(327,869)		(363,703)		(354,295)
Net property, plant and equipment		311,018		312,552		328,915		328,637
Finance lease and financing obligation assets, net		142,066		128,029		253,956		196,575
Operating lease assets, net		201,401		—		206,252		199,729
Goodwill		626,108		565,503		671,831		671,843
Intangible assets		32,085		51,107
Intangible assets, net						28,706		29,781
Other non-current assets		13,779		13,024		21,787		20,688
Long-term deferred income tax assets		5,716		2,166		6,139		6,184
Total assets	$	1,578,454	$	1,312,288	$	1,898,842	$	2,049,457
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt, finance leases and financing obligations	$	25,745	$	22,229
Current portion of finance leases and financing obligations					$	33,744	$	32,257
Current portion of operating lease liabilities		28,804		—		30,696		30,181
Trade payables		104,828		103,602		110,853		99,504
Federal and state income taxes payable		3,191		—
Accrued payroll, payroll taxes and other payroll benefits		26,054		20,231		17,873		14,429
Accrued insurance		39,574		38,742		42,461		43,387
Deferred revenue		13,163		12,059		12,281		13,129
Other current liabilities		22,438		21,584		33,868		22,049
Total current liabilities		263,797		218,447		281,776		254,936
Long-term debt		160,000		137,682		326,200		566,400
Long-term finance leases and financing obligations		260,818		238,089		350,212		298,373
Long-term operating lease liabilities		160,163		—		180,767		170,954
Accrued rent expense		—		4,053
Other long-term liabilities		11,308		12,724		17,280		12,873
Long-term deferred income tax liabilities		1,738		—		10,461		10,069
Long-term income taxes payable		2,042		1,783		1,426		1,412
Total liabilities		859,866		612,778		1,168,122		1,315,017
Commitments and contingencies
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $0.064 conversion value, 150,000 shares authorized; 21,802 shares issued and outstanding		33		33
Common Stock, $0.01 par value, 65,000,000 shares authorized; 39,581,865 and 39,510,932 shares issued at June 29, 2019 and March 30, 2019, respectively		396		395
Treasury Stock, 6,359,871 shares at June 29, 2019 and March 30, 2019, at cost		(108,729)		(108,729)
Class C Convertible Preferred Stock, $1.50 par value, $0.064 conversion value, ‎150,000 shares authorized; 21,802 shares issued and outstanding						33		33
Common Stock, $0.01 par value, 65,000,000 shares authorized; 39,645,772 and ‎39,644,228 shares issued at June 27, 2020 and March 28, 2020, respectively						396		396
Treasury Stock, 6,359,871 shares, at cost						(108,729)		(108,729)
Additional paid-in capital		224,742		220,173		230,683		229,774
Accumulated other comprehensive loss		(4,625)		(4,536)		(7,059)		(6,889)
Retained earnings		606,771		592,174		615,396		619,855
Total shareholders' equity		718,588		699,510		730,720		734,440
Total liabilities and shareholders' equity	$	1,578,454	$	1,312,288	$	1,898,842	$	2,049,457

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

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MONRO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Quarter Ended				Quarter Ended
	Fiscal June				June 27,		June 29,
	2019		2018		2020		2019
	(Dollars in thousands, except per share data)				(Dollars in thousands, ‎except per share data)
Sales	$	317,063	$	295,811	$	247,059	$	317,063
Cost of sales, including distribution and occupancy costs		188,916		178,573		159,605		188,916
Gross profit		128,147		117,238		87,454		128,147
Operating, selling, general and administrative expenses		91,776		84,166		76,053		91,776
Operating income		36,371		33,072		11,401		36,371
Interest expense, net of interest income		7,157		6,580		7,385		7,157
Other income, net		(175)		(227)
Income before provision for income taxes		29,389		26,719
Other loss (income), net						9		(175)
Income before income taxes						4,007		29,389
Provision for income taxes		6,783		6,075		1,020		6,783
Net income		22,606		20,644	$	2,987	$	22,606
Other comprehensive loss, net of tax:
Other comprehensive loss:
Changes in pension, net of tax benefit		(89)		(77)		(170)		(89)
Other comprehensive loss						(170)		(89)
Comprehensive income	$	22,517	$	20,567	$	2,817	$	22,517
Earnings per common share:
Basic	$	0.68	$	0.63	$	0.09	$	0.68
Diluted	$	0.67	$	0.62	$	0.09	$	0.67
Weighted average number of common shares outstanding ‎ used in computing earnings per share:
Basic		33,183		32,853		33,285		33,183
Diluted		33,964		33,457		33,854		33,964

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

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MONRO, INC.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)

(Dollars and shares in thousands)



	Class C Convertible ‎Preferred Stock			Common Stock			Treasury Stock			Additional ‎Paid-in		Accumulated ‎Other ‎Comprehensive		Retained					Class C Convertible ‎Preferred Stock			Common Stock			Treasury Stock			Additional ‎Paid-in		Accumulated ‎Other ‎Comprehensive		Retained
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Earnings		Total			Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Earnings		Total
Balance at March 30, 2019	22	$	33	39,511	$	395	6,360	$	(108,729)	$	220,173	$	(4,536)	$	592,174	$	699,510	Balance at March 30, 2019	22	$	33	39,511	$	395	6,360	$	(108,729)	$	220,173	$	(4,536)	$	592,174	$	699,510
Accounting change - cumulative effect															(582)		(582)	Accounting change - cumulative effect															(582)		(582)
Adjusted balance	22		33	39,511		395	6,360		(108,729)		220,173		(4,536)		591,592		698,928	Adjusted balance	22		33	39,511		395	6,360		(108,729)		220,173		(4,536)		591,592		698,928
Net income															22,606		22,606	Net income															22,606		22,606
Other comprehensive loss:																		Other comprehensive loss:
Pension liability adjustment ‎ ($118) pre-tax													(89)				(89)	Pension liability adjustment ‎ ($118) pre-tax													(89)				(89)
Cash dividends ⁽¹⁾: Preferred															(112)		(112)
Common															(7,305)		(7,305)
Cash dividends ⁽¹⁾:																		Preferred															(112)		(112)
																		Common															(7,305)		(7,305)
Dividend payable															(10)		(10)	Dividend payable															(10)		(10)
Activity related to equity- based plans				71		1					3,644						3,645
Activity related to equity-based plans																		Activity related to equity-based plans				71		1					3,644						3,645
Stock-based compensation											925						925	Stock-based compensation											925						925
Balance at June 29, 2019	22	$	33	39,582	$	396	6,360	$	(108,729)	$	224,742	$	(4,625)	$	606,771	$	718,588	Balance at June 29, 2019	22	$	33	39,582	$	396	6,360	$	(108,729)	$	224,742	$	(4,625)	$	606,771	$	718,588

Balance at March 31, 2018	22	$	33	39,166	$	392	6,330	$	(106,563)	$	199,576	$	(4,248)	$	539,286	$	628,476
Balance at March 28, 2020																		Balance at March 28, 2020	22	$	33	39,645	$	396	6,360	$	(108,729)	$	229,774	$	(6,889)	$	619,855	$	734,440
Net income															20,644		20,644	Net income															2,987		2,987
Other comprehensive loss:																		Other comprehensive loss:
Pension liability adjustment ‎ ($101) pre-tax													(77)				(77)
Cash dividends ⁽¹⁾: Preferred															(102)		(102)
Common															(6,572)		(6,572)
Pension liability adjustment ‎ ($226) pre-tax																		Pension liability adjustment ‎ ($226) pre-tax													(170)				(170)
Cash dividends ⁽¹⁾:																		Preferred															(112)		(112)
																		Common															(7,323)		(7,323)
Dividend payable															(12)		(12)	Dividend payable															(11)		(11)
Activity related to equity- based plans				38		—	8		(445)		1,223						778
Activity related to equity-based plans																		Activity related to equity-based plans				1		—					5						5
Stock-based compensation											1,084						1,084	Stock-based compensation											904						904
Balance at June 30, 2018	22	$	33	39,204	$	392	6,338	$	(107,008)	$	201,883	$	(4,325)	$	553,244	$	644,219
Balance at June 27, 2020																		Balance at June 27, 2020	22	$	33	39,646	$	396	6,360	$	(108,729)	$	230,683	$	(7,059)	$	615,396	$	730,720

(1)First quarter fiscal year dividend ~~payment~~payments of $0.22 ~~and $0.20~~ per common share or common share equivalent paid on June ~~17, 2019~~22, 2020 and June ~~14, 2018, respectively.~~17, 2019.

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

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MONRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Quarter Ended				Quarter Ended
	Fiscal June				June 27,		June 29,
	2019		2018		2020		2019
	(Dollars in thousands)				(Dollars in thousands)
	Increase (Decrease) in Cash				Increase (Decrease) in Cash
Cash flows from operating activities:
Net income	$	22,606	$	20,644	$	2,987	$	22,606
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		14,839		13,227		18,410		14,839
Loss on disposal of assets		122		397
(Gain) loss on disposal of assets						(256)		122
Stock-based compensation expense		925		1,084		904		925
Net change in deferred income taxes		2,223		2,082		494		2,223
Change in operating assets and liabilities (excluding acquisitions):
Trade receivables		(2,763)		(3,562)		1,095		(2,763)
Inventories		51		2,275		10,985		51
Other current assets		(3,966)		(1,465)		3,745		(3,966)
Other non-current assets		6,573		887		7,294		7,741
Trade payables		1,226		6,115		11,349		1,226
Accrued expenses		14,250		5,756		17,555		14,250
Federal and state income taxes payable		5,586		3,457		711		5,586
Other long-term liabilities		(6,903)		(924)		(2,751)		(6,903)
Long-term income taxes payable		3,450		198		14		3,450
Total adjustments		35,613		29,527		69,549		36,781
Net cash provided by operating activities		58,219		50,171		72,536		59,387
Cash flows from investing activities:
Capital expenditures		(13,996)		(11,440)		(15,304)		(13,996)
Acquisitions, net of cash acquired		(54,720)		(27,518)		(200)		(54,720)
Proceeds from the disposal of assets		103		303		7		103
Other		34		—		323		34
Net cash used for investing activities		(68,579)		(38,655)		(15,174)		(68,579)
Cash flows from financing activities:
Proceeds from borrowings		119,603		108,668		—		119,603
Principal payments on long-term debt, finance leases and financing obligations		(103,257)		(103,535)		(247,364)		(103,257)
Exercise of stock options		3,730		778		9		3,730
Dividends paid		(7,417)		(6,674)		(7,435)		(7,417)
Net cash provided by (used for) financing activities		12,659		(763)
Increase in cash		2,299		10,753
Deferred financing costs						(874)		(1,168)
Net cash (used for) provided by financing activities						(255,664)		11,491
(Decrease) increase in cash						(198,302)		2,299
Cash at beginning of period		6,214		1,909		345,476		6,214
Cash at end of period	$	8,513	$	12,662	$	147,174	$	8,513
Supplemental information:
Leased assets obtained in exchange for finance lease liabilities					$	64,216	$	3,099
Leased assets obtained in exchange for operating lease liabilities						13,796		3,632

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

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Note~~NOTE 1 – ~~Condensed Consolidated Financial Statements~~DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

~~The consolidated balance sheets as~~Description of June 29, 2019 and March 30, 2019, the consolidated statements of comprehensive income for the quarters ended June 29, 2019 and June 30, 2018, the consolidated statements of changes in shareholders’ equity for the quarters ended June 29, 2019 and June 30, 2018 and the consolidated statements of cash flows for the quarters ended June 29, 2019 and June 30, 2018, include financial information for Business

Monro, Inc. and its ~~wholly-owned~~wholly owned operating subsidiaries, Monro Service ~~Corporation;~~Corporation, Car-X, ~~LLC;~~LLC, MNRO Holdings, LLC and MNRO Service Holdings, LLC ~~(collectively, “Monro,” “we,” “us,” “our,”~~(together, “Monro”, the “Company”~~). These unaudited, condensed consolidated financial statements have been prepared by Monro. We believe all known adjustments (consisting of normal recurring accruals~~, “we”, “us”, or ~~adjustments) have been made to fairly state the financial position, results of operations~~“our”), are engaged principally in providing automotive undercar repair and ~~cash flows for the unaudited periods presented.~~

Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally acceptedtire sales and services in the United States of America. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019.

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


~~“Quarter Ended Fiscal June 2019”~~	~~March 31, 2019 – June 29, 2019 (13 weeks)~~
~~“Quarter Ended Fiscal June 2018”~~	~~April 1, 2018 – June 30, 2018 (13 weeks)~~

~~Fiscal 2020, ending March 28, 2020, is a 52 week year.~~States.

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.

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements (“Consolidated Financial Statements”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The Consolidated Financial Statements include the consolidated accounts of the Company with all intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for a fair statement of the results for the interim period. The Consolidated Financial Statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020 (“fiscal 2020”). Operating results and cash flows for the quarter ended June 27, 2020 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending March 27, 2021 (“fiscal 2021”).

Fiscal Year


“Quarter Ended Fiscal June 2020”	March 29, 2020 – June 27, 2020 (13 weeks)
“Quarter Ended Fiscal June 2019”	March 31, 2019 – June 29, 2019 (13 weeks)

Fiscal 2021 is a 52 week year.

Reclassifications

Certain amounts in these financial statements have been reclassified to maintain comparability among the periods presented.

Recent Accounting Pronouncements

In February 2016, the FASB issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases are classified as either finance or operating, 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. We adopted this standard as of March 31, 2019 using the modified retrospective approach and elected the optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. In addition, we elected the package of practical expedients permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification and provided relief from reviewing existing contracts to determine if they contain leases. We did not elect to use hindsight in determining the lease term.

The adoption of this guidance resulted in a $165.3 million increase to total assets and a $165.9 million increase to total liabilities as of March 31, 2019. The Company recognized $186.9 million of operating lease ROU assets, $174.4 million of operating lease obligations, and a $0.7 million finance lease asset and liability related to embedded leases. The difference between the operating lease ROU assets and operating lease liabilities primarily represents the existing favorable lease intangibles of $19.6 million and unfavorable lease intangibles and deferred rent accruals of $7.2 million resulting from historical operating lease accounting. These were reclassified as operating ROU assets upon adoption. In addition, we recognized $8.4 million and $16.6 million of finance lease assets and liabilities, respectively, and removed $11.1 million and $18.6 million of assets and liabilities related to financial obligations connected with the construction of leased stores that are no longer considered a failed sale leaseback. As a result of using the modified retrospective approach, the adoption resulted in a cumulative-effect adjustment to retained earnings, net of tax, of approximately $0.6 million. The adoption of this guidance did not have a material impact to our Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. At adoption, we reclassified prior year capital lease and financing obligation assets from the Net property, plant and equipment line to the Finance lease and financing obligation assets, net line of our Consolidated Balance Sheet. See Note 8 for additional lease disclosures.

In June 2018, the FASB issued new accounting guidance that amends the accounting for nonemployee share-based awards. Under the new guidance, the existing guidance related to the accounting for employee share-based awards will apply to nonemployee share-based transactions, with certain exceptions. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption was permitted. We adopted this guidance during the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

In August 2018, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued new accounting guidance which eliminates, adds and modifies certain disclosure requirements for fair value measurements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption iswas permitted. We ~~are currently evaluating~~adopted this guidance during the ~~potential impact~~first quarter of ~~the~~fiscal 2021. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

In December 2019, the FASB issued new accounting guidance intended to simplify the accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification Topic 740 Income Taxes and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a material 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 our Consolidated Financial Statements.

~~Financing~~

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NOTE 2 – IMPACT OF THE COVID-19 PANDEMIC

In ~~April 2019,~~response to the unprecedented and rapid spread of COVID-19 (coronavirus), many U.S. state governments, in states in which we ~~entered into~~operate, have taken preventative or protective actions, such as issuing stay-at-home restrictions and social distancing measures. State and local governments have ordered temporary closures of some businesses and numerous other businesses have temporarily closed voluntarily. Further, individuals’ ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of certain businesses. Substantially all Company-operated retail stores operated under a new five year $600 million revolving credit facility agreement currently with eight banks (the “Credit Facility”). The Credit Facility amended and restated our previous revolving credit facility which would have expired in January 2021. Interest only is payable monthlyreduced schedule throughout the ~~Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us~~quarter to request an increase in availability of up to an additional $250 million. The Credit Facility bears interest at 75 to 200 basis points over LIBOR or at the prime rate, depending on the type of borrowing and the rates then in effect. The Credit Facility requires fees payable quarterly throughout the term between 0.125% and 0.35% of the amount of the average net availability under the Credit Facility during the preceding quarter.

Within the Credit Facility, we have a sub-facility of $80 million available for the purpose of issuing standby letters of credit. The line requires fees aggregating 87.5 to 212.5 basis points over LIBOR annually of the face amount of each standby letter of credit, payable quarterly in arrears.

Specific terms of the Credit Facility permit the payment of cash dividends (with certain limitations), 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. match lower demand.

~~Commitments~~Given the uncertainties surrounding the impacts of the COVID-19 pandemic on our future financial condition, results of operations and ~~Contingencies~~cash flows, we have taken a number of actions in response to prevailing uncertain market conditions. In order to enhance our liquidity position, we took a precautionary measure and borrowed $350 million available to us under our Credit Facility in March 2020. We subsequently repaid $240 million of these borrowings during the quarter ended June 27, 2020. Additionally, we negotiated rent deferrals for a significant number of our stores, as well as other rent reductions. See additional discussion of these rent deferrals and reductions under Note 10.

As of the date of this report, other than changes related to adoption of the new lease accounting standard as described in Note 8 to the Consolidated Financial Statements, there were no material changes to our commitments and contingencies outside those related to business acquisitions since March 30, 2019, as reported in our Form 10-K.

~~Note 2~~NOTE 3 – ~~Acquisitions~~ACQUISITIONS

Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in our existing and contiguous markets, expand ~~in to~~into new markets and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this footnote include acquisitions of ~~five~~5 or more locations as well as acquisitions of ~~one~~1 to ~~four~~4 locations that are part of our greenfield store growth strategy.

~~Subsequent Events~~

Subsequent to June 29, 2019, we signed definitive asset purchase agreements to complete the acquisition of eight retail tire and automotive repair stores located in Louisiana. These transactions are expected to close during the second quarter of fiscal 2020 and are expected to be financed through our existing credit facility.

Fiscal 2020

During the first quarter of fiscal 2020, we acquired the following businesses for an aggregate purchase price of ~~$54.5~~$54.1 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.

On June 23, 2019, we acquired ~~two~~2 retail tire and automotive repair stores located in California from BAW LLC. These stores operate under the Tire Choice name.

On May 19, 2019, we acquired 40 retail tire and automotive repair stores and ~~one~~1 distribution center located in California from Certified Tire & Service Centers, Inc. These stores operate under the Tire Choice name.

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

On March 31, 2019, we acquired 12 retail tire and automotive repair stores located in Louisiana from Allied Discount Tire & Brake, Inc. These stores operate under the Tire Choice 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, as well as 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 lists.

We expensed all costs related to acquisitions in the quarter ended June 29, 2019. The total costs related to completed acquisitions were $0.5 million for the quarter ended June 29, 2019. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Sales for the fiscal 2020 acquired entities for the quarter ended June 29, 2019 totaled $7.1 million for the period from acquisition date through June 29, 2019.

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

~~The preliminary fair values~~8

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We have recorded the identifiable assets acquired and liabilities assumed ~~were based on preliminary valuations and estimates. The~~at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the consideration transferred and net identifiable liabilities assumed ~~were~~ recorded as ~~goodwill. The preliminary allocation of the aggregate purchase price as of June 29, 2019 was~~goodwill as follows:



	As of ‎Acquisition ‎Date
	(Dollars in ‎thousands)
Inventories	$	~~2,856~~2,691
Other current assets		~~300~~371
Property, plant and equipment		~~456~~1,558
Finance lease and financing obligation assets, net		~~17,977~~15,867
Operating lease assets, net		~~18,757~~23,411
Intangible assets		~~1,523~~1,598
Other non-current assets		103
Long-term deferred income tax assets		~~4,223~~3,489
Total assets acquired		~~46,195~~49,088
Current portion of ~~long-term debt,~~ finance leases and financing obligations		~~2,445~~1,470
Current portion of operating lease liabilities		~~1,684~~2,644
Deferred revenue		~~1,047~~1,069
Other current liabilities		214
Long-term finance leases and financing obligations		~~30,720~~20,750
Long-term operating lease liabilities		~~15,688~~25,674
Other long-term liabilities		~~1,155~~1,171
Total liabilities assumed		~~52,953~~52,992
Total net identifiable liabilities assumed	$	~~(6,758)~~(3,904)
Total consideration transferred	$	~~54,505~~54,093
Less: total net identifiable liabilities assumed		~~(6,758)~~(3,904)
Goodwill	$	~~61,263~~57,997

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

~~Fiscal 2019~~

During the first quarter of fiscal 2019, we acquired the following businesses for an aggregate purchase price of $27.2 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

On May 13, 2018, we acquired 12 retail/commercial tire and automotive repair stores and one retread facility located in Tennessee, as well as four wholesale locations in North Carolina, Tennessee and Virginia, from Free Service Tire Company, Incorporated. These locations operate under the Free Service Tire name.

~~On April 1, 2018, we acquired four retail tire and automotive repair stores located in Minnesota from Liberty Auto Group, Inc. These stores operate under the Car-X name.~~

We expensed all costs related to acquisitions in the quarter ended June 30, 2018. The total costs related to completed acquisitions were $0.2 million for the quarter ended June 30, 2018. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

~~Sales for the fiscal 2019 acquired entities for the quarter ended June 30, 2018 totaled $5.4 million for the period from acquisition date through June 30, 2018.~~

We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the remainder recorded as goodwill as follows:



	~~As of~~ ‎~~Acquisition~~ ‎~~Date~~
	~~(Dollars in~~ ‎~~thousands)~~
~~Trade receivables~~	$	~~1,674~~
~~Inventories~~		~~7,594~~
~~Other current assets~~		~~192~~
~~Property, plant and equipment~~		~~2,342~~
~~Finance lease and financing obligation assets, net~~		~~2,893~~
~~Intangible assets~~		~~6,812~~
~~Long-term deferred income tax assets~~		~~1,051~~
~~Total assets acquired~~		~~22,558~~
~~Current portion of long-term debt, finance leases and financing obligations~~		~~557~~
~~Deferred revenue~~		~~115~~
~~Other current liabilities~~		~~419~~
~~Long-term finance leases and financing obligations~~		~~6,320~~
~~Other long-term liabilities~~		~~274~~
~~Total liabilities assumed~~		~~7,685~~
~~Total net identifiable assets acquired~~	$	~~14,873~~
~~Total consideration transferred~~	$	~~27,167~~
~~Less: total net identifiable assets acquired~~		~~14,873~~
~~Goodwill~~	$	~~12,294~~

~~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~~	$	~~5,247~~		~~13 years~~
~~Favorable leases~~		~~1,165~~		~~10 years~~
~~Trade name~~		~~400~~		~~2 years~~
~~Total~~	$	~~6,812~~		~~12 years~~

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

As a result of the updated purchase price allocations for the entities acquired during the fiscal year ended March ~~30, 2019,~~28, 2020, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments resulted from updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates include a decrease in inventories of $0.3 million; an increase in other current assets of $0.1 million; an increase in property, plant and equipment of $0.1 million; a decrease in finance lease and financing obligation assets, net of $0.8 million; a decrease in intangible assets of $0.3 million; a decrease in long-term deferred income tax assets of $0.3 million; an increase in current portion of long-term debt, finance leases and financing obligations of $0.2 million and a decrease in long-term finance leases and financing obligations of $2.4 million. The measurement period adjustments resulted in a decrease of goodwill of $0.7 million.

The measurement period adjustments were not material to the Consolidated Balance Sheet and Statement of Comprehensive Income for the quarter ended June ~~29, 2019.~~27, 2020.

We continue to refine the valuation data and estimates primarily related to inventory, warranty reserves, intangible assets ~~real estate,~~ and real property leases for fiscal ~~2019~~2020 acquisitions which closed subsequent to June ~~30, 2018 and the fiscal 2020 acquisitions,~~29, 2019, 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.

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~~Note 3~~NOTE 4 – ~~Earnings per Common Share~~EARNINGS PER COMMON SHARE

Basic earnings per common share amounts are computed by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common ~~shares~~stock outstanding. Diluted earnings per common share amounts ~~assume~~are calculated by dividing net income by the ~~issuance~~weighted average number of shares of common stock ~~for all potentially dilutive equivalent securities~~and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed exercise of common stock options outstanding.

~~The following is a~~A reconciliation of basic and diluted earnings per common share for the ~~respective periods:~~quarters ended June is as follows:



	Quarter Ended				Quarter Ended
	Fiscal June				June 27,		June 29,
	2019		2018		2020		2019
	(Amounts in thousands,				(Amounts in thousands,
	except per share data)				except per share data)
Numerator for earnings per common share calculation:
Net income	$	22,606	$	20,644	$	2,987	$	22,606
Less: Preferred stock dividends		(112)		(102)		(112)		(112)
Income available to common shareholders	$	22,494	$	20,542	$	2,875	$	22,494
Denominator for earnings per common share calculation:
Weighted average common shares, basic		33,183		32,853		33,285		33,183
Effect of dilutive securities:
Preferred stock		510		510		510		510
Stock options		231		68		31		231
Restricted stock		40		26		28		40
Weighted average common shares, diluted		33,964		33,457		33,854		33,964
Basic earnings per common share:	$	0.68	$	0.63	$	0.09	$	0.68
Diluted earnings per common share:	$	0.67	$	0.62	$	0.09	$	0.67

The computation of diluted earnings per common share excludes the effect of the assumed exercise of approximately ~~59,000~~585,000 and ~~486,000~~59,000 stock options for the quarters ended June ~~29, 2019~~27, 2020 and June ~~30, 2018,~~29, 2019, respectively. Such amounts were excluded as the exercise price of these stock options was greater than the average market value of our common stock for those periods, resulting in an anti-dilutive effect on diluted earnings per common share.

~~Note 4~~NOTE 5 – ~~Income Taxes~~INCOME TAXES

InFor the ~~normal course of business, we provide~~quarter ended June 27, 2020, our effective income tax rate was 25.5% compared to 23.1% for ~~uncertain tax positions and~~ the related interest and penalties, and adjust our unrecognized tax benefits and accrued interest and penalties accordingly. The total amount of unrecognized tax benefits was $6.7 million and $6.4 million atquarter ended June 29, 2019, ~~and March 30, 2019, respectively, the majority of which, if recognized, would affect our effective tax rate. Additionally, we have accrued interest and penalties~~as discrete items, primarily related to ~~unrecognized~~employee share-based compensation, resulted in a larger tax ~~benefits of approximately $0.4 million as of June 29, 2019 and March 30, 2019.~~

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~We file U.S. federal income tax returns and income tax returns~~rate benefit in ~~various state jurisdictions. Our fiscal 2018 U.S. federal tax~~the prior year ~~and various state tax years remain subject to income tax examinations by tax authorities.~~ period.

~~Note 5~~NOTE 6 – ~~Fair Value~~FAIR VALUE

Long-term debt had a carrying amount that approximates a fair value of ~~$160.0~~$326.2 million as of June ~~29, 2019,~~27, 2020, as compared to a carrying amount and a fair value of ~~$137.7~~$566.4 million as of March ~~30, 2019.~~28, 2020. The carrying value of our debt approximated its fair value due to the variable interest nature 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.~~debt.

~~Note 6~~NOTE 7 – ~~Cash Dividend~~CASH DIVIDEND

In May 2019, our Board of Directors declared its intention to pay a regular quarterly cash dividend during fiscal 2020 of $0.22 per common share or common share equivalent beginning with the first quarter of fiscal 2020. We paid dividends of $7.4 million during the quarter ended June ~~29, 2019.~~27, 2020. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate for the period from June 30, 2020 to June 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended. For additional information regarding our Credit Facility, see Note 9.

~~Note 7~~

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NOTE 8 – ~~Revenues~~REVENUES

Automotive undercar repair and tire sales and ~~tire~~ services represent the vast majority of our revenues. We also earn revenue from the sale of tire road hazard warranty agreements as well as commissions earned from the delivery of tires on behalf of certain tire vendors.

Revenue from automotive undercar repair and tire sales and ~~tire~~ services is recognized at the time the customers take possession of their vehicle or merchandise. For sales to certain customers that are financed through the offering of credit on account, payment terms are established for customers based on our pre-established credit requirements. Payment terms vary depending on the customer and generally range from 15 to 45 days. Based on the nature of receivables, no significant financing components exist. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns based on current sales levels and our historical return experience. Such amounts are immaterial to our Consolidated Financial Statements.

Revenue from the sale of tire road hazard warranty agreements (included in the Tires product group in the second table below) is initially deferred and is recognized over the contract period as costs are expected to be incurred in performing such services, typically 21 to 36 months. The amounts recorded for deferred revenue balances at June ~~29, 2019~~27, 2020 and March ~~30, 2019~~28, 2020 were ~~$19.0~~$17.0 million and ~~$17.2~~$18.5 million, respectively, of which ~~$13.2~~$12.3 million and ~~$12.1~~$13.1 million, respectively, are reported in Deferred revenue and ~~$5.8~~$4.7 million and ~~$5.1~~$5.4 million, respectively, are reported in Other long-term liabilities in our Consolidated Balance Sheets.

The following table summarizes deferred revenue related to road hazard warranty agreements from March ~~30, 2019~~28, 2020 to June ~~29, 2019:~~27, 2020



	Dollars in
	thousands
Balance at March ~~30, 2019~~28, 2020	$	~~17,150~~18,506
Deferral of revenue		~~4,496~~3,169
Deferral of revenue from acquisitions		~~1,909~~—
Recognition of revenue		~~(4,598)~~(4,643)
Balance at June ~~29, 2019~~27, 2020	$	~~18,957~~17,032

We expect to recognize ~~$10.9~~$10.2 million of deferred revenue related to road hazard warranty agreements in the remainder of fiscal ~~2020, $6.5~~2021, $5.6 million of ~~such~~ deferred revenue during our fiscal year ending March ~~27, 2021,~~26, 2022, and ~~$1.6~~$1.2 million of ~~such~~ deferred revenue thereafter.

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. (Included in the Tires product group in the following table.)

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The following table summarizes disaggregated revenue by product group:



	Quarter Ended				Quarter Ended
	Fiscal June				June 27,		June 29,
	2019		2018		2020		2019
	(Dollars in thousands)				(Dollars in thousands)
Revenues:
Brakes	$	46,776	$	42,748	$	28,564	$	46,776
Exhaust		6,953		7,076		4,432		6,953
Steering		26,232		25,059		18,468		26,232
Tires		154,065		141,103		137,270		154,065
Maintenance		82,174		79,010		57,620		82,174
Other		863		815		705		863
Total	$	317,063	$	295,811	$	247,059	$	317,063

~~Note 8 – Leasing~~

We enter into lease agreements for certain retail stores, warehouses, distribution centers, office space and land as well as service contracts that are considered leases. We determine if an arrangement is or contains a lease at inception. We record ROU assets and lease obligations for our finance and operating leases, which are initially based on the discounted future minimum lease payments over the term of the lease. As the rate implicit in our leases is not easily determinable, our applicable incremental borrowing rate is used in calculating the present value of the lease payments. We estimate our incremental borrowing rate considering the market rates of our outstanding collateralized borrowings and comparisons to comparable borrowings of similar terms.

Our leases have remaining lease terms of less than one year to approximately 39 years. Most of our leases include one or more options to extend the lease, for periods ranging from one year to 69 years or more. If it is reasonably certain that an option to extend will be exercised, that option is considered in the lease term at inception. For leases with an initial term of 12 months or less, no ROU assets or lease obligations are recorded on the balance sheet and we recognize short-term lease expense for these leases on a straight-line basis over the lease term.

Certain of our lease agreements include rental payments based on a percentage of retail sales over specified levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. For the majority of all classes of underlying assets, we have elected to separate lease from non-lease components. We have elected to combine lease and non-lease components for certain classes of equipment. We sublease excess space to third parties.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Interest expense for finance leases is recognized using the effective interest method. Variable payments, short-term rentals and payments associated with non-lease components are expensed as incurred.

Historical failed sale leasebacks that were assumed through acquisitions and do not qualify for sale leaseback accounting continue to be accounted for as financing obligations. As of June 29, 2019, net assets of $4.6 million and liabilities of $7.7 million due to failed sale leaseback arrangements were included with finance lease assets and liabilities, respectively, on the Consolidated Balance Sheet.

~~The components of operating and finance lease cost were as follows:~~


	~~Quarter Ended~~
	~~Fiscal June~~
	~~2019~~
	~~(Dollars in thousands)~~
~~Operating lease cost~~	$	~~9,228~~
~~Finance lease/financing obligations cost:~~
~~Amortization of assets~~		~~4,247~~
~~Interest on liabilities~~		~~5,278~~
~~Short term and variable lease cost~~		~~565~~
~~Sublease income~~		~~(33)~~
~~Total lease cost~~	$	~~19,285~~

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Supplemental cash flow information related to leases was as follows:~~


	~~Quarter Ended~~
	~~Fiscal June~~
	~~2019~~
	~~(Dollars in thousands)~~
~~Cash paid for amounts included in measurement of lease obligations:~~
~~Operating cash flows from operating leases~~	$	~~8,669~~
~~Operating cash flows from finance leases/financing obligations~~		~~5,268~~
~~Financing cash flows from finance leases/financing obligations~~		~~5,942~~
~~Assets obtained in exchange for operating lease obligations~~		~~6,730~~
~~Assets obtained in exchange for finance lease obligations~~		~~6,220~~

~~The following table summarizes weighted average remaining lease term and discount rates:~~

Operating
‎Leases
Finance
‎ Leases and
‎ Financing
‎Obligations
Weighted average remaining lease term, in years
9.4
10.1
Weighted average discount rate
3.67
%
10.31
%

~~Future maturities of our lease liabilities, excluding subleases, as of June 29, 2019 are as follows:~~

Operating
‎Leases
Finance
‎ Leases and
‎ Financing
‎Obligations
(Dollars in thousands)
Remainder 2020
$
26,526
$
34,894
2021
33,404
46,962
2022
29,922
46,679
2023
25,652
46,456
2024
20,594
39,749
Thereafter
90,251
211,637
Total undiscounted lease obligations
$
226,349
$
426,377
Less: imputed interest
(37,382)
(139,834)
Net lease obligation
$
188,967
$
286,543

Total lease payments include $68 million related to options to extend operating leases that are reasonably certain of being exercised, include $106 million related to options to extend finance leases that are reasonably certain of being exercised and exclude $15 million of legally binding lease payments for leases signed but not yet commenced as of June 29, 2019.

~~The aggregate minimum annual lease rentals at March 30, 2019 for the remaining contractual term of non-cancelable leases were as follows:~~

Operating
‎Leases
Finance
‎ Leases and
‎ Financing
‎Obligations
(Dollars in thousands)
2020
$
33,225
$
43,034
2021
28,819
43,791
2022
23,552
43,459
2023
17,949
42,981
2024
11,488
37,733
Thereafter
33,614
191,366
Total minimum rentals before sublease income
$
148,647
$
402,364
Less: minimum sublease rentals
(488)
—
Total minimum rentals
$
148,159
$
402,364
Less: imputed interest
(142,086)
Present value of minimum lease payments
$
260,278

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Note 9 – Subsequent Events~~

~~See Note 2 for a discussion of acquisitions subsequent to June 29, 2019.~~

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NOTE 9 – LONG-TERM DEBT

In April 2019, we entered into a new five year $600 million revolving credit facility agreement with 8 banks (the “Credit Facility”). Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $250 million.

On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement through the first quarter of fiscal 2022 to provide us with additional flexibility to operate our business. The First Amendment will permanently amend the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75%. For the period from June 30, 2020 to June 30, 2021, the minimum interest rate spread charged on borrowings will be 225 basis points over LIBOR. Additionally, during the same period, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate and the acquisition of stores or other businesses up to $100 million in the aggregate are permitted if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect.

In order to enhance our liquidity position during the COVID-19 pandemic, we took a precautionary measure and borrowed $350 million available to us under our Credit Facility in March 2020. We subsequently repaid $240 million of these borrowings during the quarter ended June 27, 2020. The net availability under the Credit Facility was $240.2 million at June 27, 2020.

We were in compliance with all debt covenants at June 27, 2020.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Payments due by period under long-term debt, other financing instruments and commitments are as follows:



			Within		2 to		4 to		After
	Total		1 Year		3 Years		5 Years		5 Years
	(Dollars in thousands)
Principal payments on long-term debt	$	326,200					$	326,200
Finance lease commitments/financing obligations (a)		503,276	$	52,009	$	104,839		97,008	$	249,420
Operating lease commitments (a)		243,829		36,422		66,101		53,192		88,114
Accrued rent		3,118		2,764		319		18		17
Other liabilities		1,733		800		933		—		—
Total	$	1,078,156	$	91,995	$	172,192	$	476,418	$	337,551

_______________

(a)Operating and finance lease commitments represent future undiscounted lease payments and include $62.5 million and $96.1 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised.

In the first quarter of fiscal 2021, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the third and fourth quarters of fiscal 2021 and the first and second quarters of fiscal 2022. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the rent deferrals as accrued liabilities. The accrued rent reflected in the table above includes $1.5 million related to rent deferrals and $1.6 million due to timing of other lease related expenses. We will continue to recognize expense during the deferral periods.

In addition, we negotiated rent reductions with certain landlords on approximately 20% of our leases in exchange for extending our current lease term during the first quarter of fiscal 2021. As these agreements represent substantive changes to our contractual obligations, the leases were remeasured in accordance with existing guidance. As a result, finance lease and financing obligation assets, net and finance leases and financing obligations were increased by $59.8 million and $56.3 million, respectively, and operating lease assets, net and operating lease liabilities were increased by $13.8 million and $17.3 million, respectively. The negotiated terms were generally consistent with terms of normal renewal agreements.

We believe that we can fulfill our commitments utilizing our cash flow from operations and, if necessary, cash on hand and/or bank financing.

As of the date of this report, there were no material changes to our contingencies since March 28, 2020, as reported in our Form 10-K for the fiscal year ended March 28, 2020.

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

Forward-Looking Statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including (without limitation) statements made in ~~the~~this Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words “anticipates,” ~~��believes,~~“believes,” “contemplates,” “expects,” “see,” “could,” “may,” “estimate,” “appear,” “intend,” “plans,” “potential,” ~~“strategy”~~“strategy,” “will” 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 duration and impact of the COVID-19 pandemic and its impact on our customers, executive officers and employees, the effect of economic conditions, seasonality, the impact of weather conditions and natural disasters, the impact of competitive services and pricing, parts supply restraints or difficulties, our dependence on vendors, including foreign vendors, changes in U.S. or foreign trade policies, including the impacts of tariffs ~~or proposed tariffs,~~on products imported from China, 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 this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March ~~30, 2019.~~28, 2020. Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking ~~statement~~statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. References to fiscal ~~2020~~2021 and fiscal ~~2019~~2020 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal years ending March 27, 2021 and March 28, 2020, respectively.

Impact of the COVID-19 Pandemic

In response to the unprecedented and rapid spread of COVID-19 (coronavirus), many U.S. state governments, in states in which we operate, have taken preventative or protective actions, such as issuing stay-at-home restrictions and social distancing measures. State and local governments have ordered temporary closures of some businesses and numerous other businesses have temporarily closed voluntarily. Further, individuals’ ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of certain businesses.

As a result, demand for automotive undercar repair and tire sales and services declined at a rapid pace and has remained depressed, which has had an unprecedented and materially adverse impact on our results of operations and business operations. Although demand improved during the quarter ended June 27, 2020, we experienced a significant decline in traffic throughout the quarter, as compared to the prior year, due to the COVID-19 pandemic. During the quarter in midst of the COVID-19 pandemic, comparable store sales decreased 25.8% from the same period in the prior year. (We define comparable store sales as sales for stores that have been opened or acquired at least one fiscal year prior to March ~~30, 2019, respectively.~~29, 2020.) Substantially all Company-operated retail stores operated under a reduced schedule throughout the quarter to match lower demand.

Given the uncertainties surrounding the impacts of the COVID-19 pandemic on our future financial condition, results of operations and cash flows, we have taken a number of actions in response to prevailing uncertain market conditions. In order to enhance our liquidity position, we took a precautionary measure and borrowed $350 million available to us under our credit facility in March 2020. We subsequently repaid $240 million of these borrowings during the quarter ended June 27, 2020. To improve our liquidity, we took the following measures during the first quarter of fiscal 2021 to reduce costs and improve cash flows: (i) suspended all non-critical capital expenditures, including the suspension of all capital expenditures related to our store rebrand and reimage initiatives; (ii) reduced store hours and store labor to align with reduced demand across our store locations; (iii) undertook significant reductions in operating expenses across the Company, including non-store compensation expense through the furlough of or other reduction to certain members of our non-store workforce; and (iv) paused any acquisitions activity until we are able to better understand the impact of the COVID-19 pandemic. Additionally, we negotiated rent deferrals for a significant number of our stores, as well as other rent reductions.

To protect our employees and customers, we have implemented strict cleaning and sanitation measures. In addition, we have provided face masks and other protective equipment, including sneeze guards installed at each sales counter, necessary to ensure the safety our employees and customers. We have also implemented various measures intended to reduce the spread of COVID-19 among our non-store workforce including working from home and encouraging employees to adhere to prevention measures recommended by the Centers for Disease Control and the World Health Organization. Since our non-store workforce is able to work remotely using various technology tools, we are able to maintain our operations and internal controls over financial reporting and disclosures.

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Despite the challenges, some positive signs have begun to emerge. Since the low point during the beginning of April, we have experienced steady improvement in sales driven by improvement in traffic. However, there can be no assurance as to the time required to fully recover operations and sales to pre-pandemic levels or if we will reach those levels again.

Current Trends

Although we experienced a significant decline in traffic during the first quarter of fiscal 2021, Company-operated stores have experienced a steady improvement in sales. The following table presents information about our current trends in the fiscal months of the first quarter of fiscal 2021, as well as the fiscal month of July subsequent to the end of the quarter. There is no assurance that these trends will continue.



	Fiscal Month Ended
	April		May		June		July
Comparable store sales % (year-over-year decline)	(41)	%	(24)	%	(14)	%	(12)	%

As we move through this transition and anticipate sales trends to improve, we expect to incur some labor inefficiencies as we adjust to new operating models and federal and local health and safety protocols with a goal to remain as efficient as possible while still offering safe and high quality service to our customers. Those labor inefficiencies may include difficulty in hiring employees required to maintain store staffing levels needed to meet demand. We will also incur additional costs and investments in supplies necessary to keep our teams and customers safe, such as face masks, hand sanitizer and cleaning supplies, which are all expected to be ongoing costs for the duration of the COVID-19 pandemic and recovery period.

Given the unpredictable nature of this situation, we cannot estimate with certainty the long-term impacts of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows.

As of July 31, 2020, we had $143.3 million in cash on hand. During the month of July 2020, we have paid down an additional $19.9 million in borrowings from our five-year $600 million revolving credit facility with eight banks (the “Credit Facility”). We believe we have sufficient liquidity available from operating cash flow and, if necessary, cash on hand and/or bank financing to support our operations for at least the next 12 months.

Non-GAAP Financial Measures

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures, such as adjusted net income and adjusted diluted earnings per common share (“EPS”) not derived in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows, and may not be comparable to similarly titled non-GAAP financial measures used by other companies. We have included reconciliations of the non-GAAP financial measures used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to their most directly comparable GAAP measures in the section titled “Reconciliation of Non-GAAP Financial Measures” below.

Results of Operations

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



	Quarter Ended
	June 27,		June 29,
	2020 (a)		2019 (a)
Sales	100.0	%	100.0	%
Cost of sales, including distribution and occupancy costs	64.6		59.6
Gross profit	35.4		40.4
Operating, selling, general and administrative expenses	30.8		28.9
Operating income	4.6		11.5
Interest expense, net of interest income	3.0		2.3
Other income, net	—		(0.1)
Income before income taxes	1.6		9.3
Provision for income taxes	0.4		2.1
Net income	1.2	%	7.1	%

Quarter Ended
Fiscal June
2019
2018
Sales
100.0
%
100.0
%
Cost of sales, including distribution and occupancy costs
59.6
60.4
Gross profit
40.4
39.6
Operating, selling, general and administrative expenses
28.9
28.5
Operating income
11.5
11.2
Interest expense - net
2.3
2.2
Other income - net
(0.1)
(0.1)
Income before provision for income taxes
9.3
9.0
Provision for income taxes
2.1
2.1
Net income
7.1
%
7.0
%

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(a) The table may not subtract down by +/- 0.1% due to rounding as percentages are calculated based on unrounded numbers.

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First Quarter Ended June ~~29, 2019~~27, 2020 as Compared to First Quarter Ended June ~~30, 2018~~29, 2019

Sales were $247.1 million for the quarter ended June 27, 2020 as compared with $317.1 million for the quarter ended June 29, ~~2019 as compared with $295.8~~2019. The sales decrease of $70.0 million, or 22.1%, was due to a decrease in comparable store sales for the quarter ended June ~~30, 2018. The sales increase~~27, 2020 of ~~$21.3 million, or 7.2%, was due~~25.8% as compared to ~~an increase of $19.6 million related to new stores, of which $16.6 million came from~~ the ~~fiscal 2020 and fiscal 2019 acquisitions.~~same period in the prior quarter. Additionally, ~~comparable store sales increased by 0.8%. Partially offsetting this~~there was a decrease in sales from closed stores amounting to ~~$0.7 million.~~$3.1 million in the quarter. Partially offsetting these decreases was an increase of $12.7 million related to new stores, of which $11.1 million came from fiscal 2020 acquisitions. There were 90 selling days in the quarter ended June ~~29, 2019~~27, 2020 and in the quarter ended June ~~30, 2018. We define comparable store sales as sales for stores that have been open or acquired at least one fiscal year prior to March 31,~~29, 2019.

At June ~~29, 2019,~~27, 2020, we had ~~1,251~~1,247 Company-operated stores in operation and 9897 franchised locations as compared with ~~1,164~~1,251 Company-operated stores in operation and 98 franchised locations at June ~~30, 2018.~~29, 2019. At March ~~30, 2019,~~28, 2020, we had ~~1,197~~1,283 Company-operated stores in operation and 98 franchised locations. During the quarter ended June 27, 2020, we closed 36 Company-operated stores. Additionally, one franchised location was closed during the quarter ended June 27, 2020.

Comparable store brakes, maintenance services, and tires category sales for the quarter ended June 27, 2020 decreased by approximately 41%, 35%, and 14%, respectively, from the prior year quarter. Additionally, alignment, front end/shocks, and exhaust category sales for the quarter ended June 27, 2020 decreased by approximately 32%, 36%, and 37%, respectively, on a comparable store basis as compared to the same period in the prior year. Comparable store sales were impacted by lower traffic resulting from the impact of the COVID-19 pandemic in our markets, partially offset by higher average ticket.

Gross profit for the quarter ended June 27, 2020 was $87.5 million or 35.4% of sales as compared with $128.1 million or 40.4% of sales for the quarter ended June 29, 2019. The decrease in gross profit for the quarter ended June 27, 2020, as a percentage of sales, was due primarily to an increase in material costs, as a percentage of sales, as a result of a shift in sales mix to tires and lower vendor rebates due to slower inventory turns, as well as an increase in distribution and occupancy costs, as a percentage of sales, as we lost leverage on these largely fixed costs with lower overall comparable store sales. Partially offsetting these increases was a decrease in labor costs, which decreased from the prior year quarter as a percentage of sales, due to reductions to store staffing levels related to our store staffing optimization initiative during the COVID-19 pandemic.

Operating expenses for the quarter ended June 27, 2020 were $76.1 million or 30.8% of sales as compared to $91.8 million or 28.9% of sales for the quarter ended June 29, 2019. The decrease of $15.7 million in operating expenses from the comparable period of the prior year is primarily due to decreased expenses as a result of focused cost control measures taken in response to the COVID-19 pandemic, including reducing store staffing to match lower demand and realigned marketing spend toward digital channels. The decrease in operating expenses from the comparable period of the prior year also reflect lower expenses from a net reduction of four stores compared to the prior year period. Partially offsetting these decreases was an increase in store closure costs of $2.5 million.

Operating income for the quarter ended June 27, 2020 of approximately $11.4 million decreased by 68.7% as compared to operating income of approximately $36.4 million for the quarter ended June 29, 2019, and decreased as a percentage of sales from 11.5% to 4.6% for the reasons described above.

Net interest expense for the quarter ended June 27, 2020 increased by approximately $0.2 million as compared to the same period in the prior year, and increased from 2.3% to 3.0% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 27, 2020 increased by approximately $486 million as compared to the quarter ended June 29, 2019. This increase is primarily related to an increase in debt outstanding under our Credit Facility that was borrowed in response to the COVID-19 pandemic in late fiscal 2020, as well as an increase in finance lease debt recorded in connection with the fiscal 2020 acquisitions and greenfield expansion, along with renegotiated leases. Partially offsetting these increases was a decrease in the weighted average interest rate of approximately 350 basis points from the prior year quarter due to a decrease in Credit Facility borrowing rates, as well as lower borrowing rates associated with new leases.

Income before income taxes for the quarter ended June 27, 2020 of approximately $4.0 million decreased by 86.4% as compared to income before income taxes of approximately $29.4 million for the quarter ended June 29, 2019, and decreased as a percentage of sales from 9.3% to 1.6% for the reasons described above.

For the quarter ended June 27, 2020, our effective income tax rate was 25.5% compared to 23.1% for the quarter ended June 29, 2019, as discrete items, primarily related to employee share-based compensation, resulted in a larger tax rate benefit in the prior year period.

Net income for the quarter ended June 27, 2020 of $3.0 million decreased 86.8% from net income for the quarter ended June 29, 2019. Adjusted net income (a non-GAAP financial measure) was $5.1 million and $23.4 million for the quarters ended June 27, 2020 and June 29, 2019, respectively. Diluted EPS for the quarter ended June 27, 2020 of $0.09 decreased 86.6% as compared to diluted EPS of $0.67 for the quarter ended June 29, 2019. Adjusted diluted EPS (a non-GAAP financial measure) was $0.15 and $0.69 for the quarters ended June 27, 2020 and June 29, 2019, respectively. Please refer to the “Reconciliation of Non-GAAP Financial

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Measures” section below for a discussion of these non-GAAP financial measures, adjusted net income and adjusted diluted EPS, and the reconciliations to their most comparable GAAP measures, net income and diluted EPS, respectively.

Reconciliation of Non-GAAP Financial Measures

In addition to reporting net income and diluted EPS, which are GAAP measures, this Form 10-Q includes adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures. We have included reconciliations to adjusted net income and adjusted diluted EPS from our most directly comparable GAAP measures, net income and diluted EPS, below. Management views these non-GAAP financial measures as indicators to better assess comparability between periods because management believes these non-GAAP financial measures reflect the core business operations while excluding certain non-recurring items and items related to Monro.Forward or acquisition initiatives.

These non-GAAP financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-GAAP financial measures may be different from similarly titled non-GAAP financial measures used by other companies.

Adjusted net income is summarized as follows:



Reconciliation of Adjusted Net Income
	Quarter Ended
	June 27,		June 29,
	2020		2019
	(Dollars in thousands)
Net income	$	2,987	$	22,606
Store closing costs		2,527		—
Monro.Forward initiative costs		182		538
Acquisition due diligence and integration costs		17		482
Provision for income taxes on adjustments		(641)		(255)
Adjusted net income	$	5,072	$	23,371

Adjusted diluted EPS is summarized as follows:



Reconciliation of Adjusted Diluted EPS
	Quarter Ended
	June 27,		June 29,
	2020 (a)		2019
Diluted EPS	$	0.09	$	0.67
Store closing costs		0.06		—
Monro.Forward initiative costs		—		0.01
Acquisition due diligence and integration costs		—		0.01
Adjusted diluted EPS	$	0.15	$	0.69

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(a)For the quarter ended June 27, 2020, the Monro.Forward initiative and acquisition due diligence and integration costs are each minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS.

The adjustments to diluted EPS reflect adjusted effective tax rates of 23.5% and 25.0% for the quarters ended June 27, 2020 and June 29, 2019, respectively. These adjusted effective tax rates exclude the income tax impacts from stock based compensation. See adjustments from the Reconciliation of Adjusted Net Income table above for pre-tax amounts.

Capital Resources, Commitments and Liquidity

Capital Resources

Our primary capital requirements in fiscal 2021 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the quarter ended June 27, 2020, we ~~added 55 Company-operated stores~~spent approximately $15.5 million on these items, of which approximately $9.9 million was related to our Monro.Forward initiatives, including our store technology infrastructure upgrade project. Capital requirements were met primarily by cash flow from operations and ~~closed one store.~~ from cash on hand. While we suspended all capital expenditures related to our store rebrand and reimage initiatives during the first quarter of fiscal 2021, we expect to gradually resume this program in the second quarter of fiscal 2021.

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Comparable store brakes, alignment and tires category sales for the quarter ended June 29, 2019 increased by approximately 6%, 2% and 1%, respectively, from the prior year quarter. However, maintenance services and front end/shocks category sales for the quarter ended June 29, 2019 decreased by approximately 2% and 1%, respectively, on a comparable store basis as compared to the same period in the prior year. Comparable store sales were impacted by higher average ticket from improved in-store execution, offset by lower traffic.

Gross profit for the quarter ended June 29, 2019 was $128.1 million or 40.4% of sales as compared with $117.2 million or 39.6% of sales for the quarter ended June 30, 2018. The increase in gross profit for the quarter ended June 29, 2019, as a percentage of sales, was due primarily to a decrease in material costs which decreased as a percentage of sales as compared to the prior year quarter, as well as a decrease in labor costs as a percentage of sales from the prior year quarter due to a continued focus on our store staffing optimization initiative. We were able to decrease material costs as a percentage of sales by increasing attachment sales related to the improved in-store execution on the conversion of higher-value service package offerings that were launched during the first quarter of fiscal 2019.

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. In recent years, including fiscal 2019, 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 lower gross margin sales mix resulting from the sale of commercial tires and the lower gross margin of the wholesale locations. The lower gross margin at our wholesale locations is due primarily 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. During the quarter ended June 29, 2019, there was an increase in consolidated revenue from the prior year quarter of approximately $4.5 million due to a full quarter of increased sales from commercial and wholesale locations acquired in fiscal 2019. Additionally, due to the impact of a full quarter of the sales mix from our commercial and wholesale locations acquired in fiscal 2019, our consolidated gross margin for the quarter ended June 29, 2019 was reduced by approximately 50 basis points from the prior year quarter.

~~Distribution and occupancy costs decreased as a percentage of sales as compared to the prior year, as we gained leverage on these largely fixed costs with higher overall comparable store sales.~~

~~On a comparable store basis, gross profit for the quarter ended June 29, 2019 increased by approximately 140 basis points as compared to the prior year quarter.~~

Operating expenses for the quarter ended June 29, 2019 were $91.8 million or 28.9% of sales as compared to $84.2 million or 28.5% of sales for the quarter ended June 30, 2018. The increase of $7.6 million in operating expenses from the comparable period of the prior year is primarily due to increased expenses for 87 net new stores.

Operating income for the quarter ended June 29, 2019 of approximately $36.4 million increased by 10.0% as compared to operating income of approximately $33.1 million for the quarter ended June 30, 2018, and increased as a percentage of sales from 11.2% to 11.5% for the reasons described above.

Net interest expense for the quarter ended June 29, 2019 increased by approximately $0.6 million as compared to the same period in the prior year, and increased from 2.2% to 2.3% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 29, 2019 increased by approximately $18.4 million as compared to the quarter ended June 30, 2018. This increase is primarily related to an increase in finance lease debt recorded in connection with the fiscal 2019 and fiscal 2020 acquisitions and greenfield expansion, as well as an increase in the weighted average interest rate for the quarter ended June 29, 2019 of approximately 30 basis points as compared to the first quarter of the prior year. The increase in the weighted average interest rate for the quarter ended June 29, 2019 was due to higher interest expense associated with finance leases.

~~The effective income tax rate for the quarter ended June 29, 2019 and June 30, 2018 was 23.1% and 22.7%, respectively, of pre-tax income.~~

Net income for the quarter ended June 29, 2019 of $22.6 million increased 9.5% from net income for the quarter ended June 30, 2018. Earnings per common share on a diluted basis for the quarter ended June 29, 2019 of $0.67, including $0.01 per common share in incremental costs related to increased acquisition activity, increased 8.1% as compared to diluted earnings per common share of $0.62 for the quarter ended June 30, 2018, which included $0.02 per common share of non-recurring costs related to Monro.Forward initiatives and investments.

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~~Capital Resources and Liquidity~~

~~Capital Resources~~

~~Our primary capital requirements in fiscal 2020 are the upgrading of facilities and systems and the funding of our store expansion~~ ~~program, including potential acquisitions of existing store chains. For the quarter ended June 29, 2019, we spent approximately $68.7 million on these items. Capital requirements~~ ~~were met primarily by cash flow from operations and from our revolving credit facility.~~

In May 2019, our Board of Directors declared its intention to pay a regular quarterly cash dividend of $0.22 per common share or common share equivalent beginning with the first quarter of fiscal 2020. We paid dividends of $7.4 million during the quarter ended June 29~~, 2019~~.27, 2020. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on ~~Monro’s~~our financial condition, results of operations, capital requirements, compliance with charter and ~~credit facility~~ restrictions under the Credit Facility, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate for the period from June 30, 2020 to June 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended.

~~Additionally,~~ Because acquisitions remain a pillar of our growth strategy, we ~~have signed definitive asset purchase agreements to complete the~~are evaluating potential acquisition ~~of eight retail tire and automotive repair stores located in Louisiana. These transactions are expected to close during the second quarter of fiscal 2020 and are expected to be financed through~~candidates that we believe would fit our ~~existing credit facility.~~

~~We plan to continue to seek suitable acquisition candidates.~~growth strategy while maintaining financial discipline. We believe we have sufficient resources available (including cash flow from operations and, if necessary, cash on hand and/or bank financing) to expand our business as currently planned for the next twelve months.

~~Liquidity~~Commitments

Payments due by period under long-term debt, other financing instruments and commitments are as follows:



			Within		2 to		4 to		After
	Total		1 Year		3 Years		5 Years		5 Years
	(Dollars in thousands)
Principal payments on long-term debt	$	326,200					$	326,200
Finance lease commitments/financing obligations (a)		503,276	$	52,009	$	104,839		97,008	$	249,420
Operating lease commitments (a)		243,829		36,422		66,101		53,192		88,114
Accrued rent		3,118		2,764		319		18		17
Other liabilities		1,733		800		933		—		—
Total	$	1,078,156	$	91,995	$	172,192	$	476,418	$	337,551

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Liquidity

In April 2019, we entered into a new five-year $600 million revolving ~~credit facility agreement currently~~Credit Facility with eight banks ~~(the “Credit Facility”). The Credit Facility amended and restated our previous revolving credit facility which would have expired~~that will expire in ~~January 2021.~~April 2024. Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $250 million. The Credit Facility bears interest at 75 to 200 basis points over LIBOR (or replacement index) or at the prime rate, depending on the type of borrowing and the rates then in effect. The Credit Facility requires fees payable quarterly throughout the term between 0.125% and 0.35% of the amount of the average net availability under the Credit Facility during the preceding quarter. There was ~~$160.0~~$326.2 million outstanding under the Credit Facility at June ~~29, 2019.~~ 27, 2020.

Within the Credit Facility, we have a sub-facility of $80 million available for the purpose of issuing standby letters of credit. The line requires fees aggregating 87.5 to 212.5 basis points ~~over LIBOR~~ annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was a $33.6 million outstanding letter of credit at June ~~29, 2019.~~27, 2020.

The net availability under the Credit Facility at June ~~29, 2019~~27, 2020 was ~~$406.4~~$240.2 million.

~~Specific terms of the Credit Facility permit the payment of cash dividends (with certain limitations), and permit mortgages~~Mortgages and specific lease financing arrangements with other parties (with certain limitations). are permitted under the Credit Facility. Other specific terms and the maintenance of specified ratios are generally consistent with our prior financing

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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.

On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement to provide us with additional flexibility to operate our business through the first quarter of fiscal 2022. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect.

Specifically, from June 11, 2020 to June 26, 2021, the First Amendment (1) eliminates the covenant for us to maintain an interest coverage ratio above 1.55x; (2) requires us to maintain liquidity of $275 million as of the end of each fiscal month; and (3) adjusts the ratio of maximum adjusted debt to EBITDAR. The ratio of maximum adjusted debt to EBITDAR will vary by quarter as follows: (a) 5.50x in the first quarter of fiscal 2021; (b) 6.00x in the second quarter of fiscal 2021; (c) 6.25x in the third quarter of fiscal 2021; (d) 5.50x in the fourth quarter of fiscal 2021; (e) 5.00x in the first quarter of fiscal 2022; and (f) thereafter, returning to 4.75x.

For the period from June 30, 2020 to June 30, 2021, we are permitted under the First Amendment to acquire stores or other businesses up to $100 million in the aggregate, as long as, on a pro forma basis after taking the acquisition into account, we would comply with the financial covenants and other restrictions in the First Amendment. In addition, from June 30, 2020 to June 30, 2021, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate, if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility.

The First Amendment will permanently amend the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75% and also added two levels of interest rate pricing applicable during the covenant relief period in the event the ratio of adjusted debt to EBITDAR is higher than 5.00x. During the covenant relief period, the minimum interest rate spread charged on borrowings will be 225 basis points over LIBOR.

We were in compliance with all debt covenants at June ~~29, 2019.~~27, 2020.

We believe that we can fulfill our commitments and working capital needs utilizing our cash flow from operations and, if necessary, cash on hand and/or bank financing for at least the next 12 months and the foreseeable future.

In addition, we have financed certain store properties with finance leases/financing obligations, which amounted to ~~$286.6~~$384.0 million at June ~~29, 2019~~27, 2020 and are due in installments through ~~May~~March 2049.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 1 ~~of the Company’s Condensed~~to our Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our ~~Condensed~~ Consolidated Financial Statements as of June ~~29, 2019~~27, 2020 and the expected impact on the Consolidated Financial Statements for future periods.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from potential changes in interest rates. As of June ~~29, 2019, approximately 0.01% of our debt financing,~~27, 2020, excluding finance leases and financing obligations, ~~was~~we had no debt financing at fixed interest rates, ~~and, therefore,~~of which the fair value ~~of such debt financing is~~would be affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately ~~$1.6~~$3.3 million based upon our debt position at June ~~29, 2019~~27, 2020 and approximately ~~$1.4~~$5.7 million ~~for the fiscal year ended~~based upon our debt position at March ~~30, 2019,~~28, 2020, respectively, given a change in LIBOR of 100 basis points.

Debt financing had a carrying amount that approximates a fair value of ~~$160.0~~$326.2 million as of June ~~29, 2019,~~27, 2020, as compared to a carrying amount and a fair value of ~~$137.7~~$566.4 million as of March ~~30, 2019.~~28, 2020.

Item 4. Controls and Procedures

Disclosure controls and procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit to the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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

Changes in internal controls over financial reporting

There were no changes in our internal control over financial reporting during the quarter ended June ~~29, 2019~~27, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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MONRO, INC.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Except as stated below, there have been no material changes from the risk factors previously disclosed in Part I – Item 1A of the Company’s Form 10-K for the fiscal year ended March 28, 2020.

Matters related to the COVID-19 pandemic have and will continue to significantly and adversely impact our business, financial position, results of operations and cash flows.

The spread of COVID-19 has created a global public health crisis that has resulted in widespread volatility and deteriorations in household, business, economic and market conditions. We have experienced negative impacts to demand for our products and services from the COVID-19 pandemic, which has and will continue to adversely affect our results of operations, and we are continuing to experience significant disruption to our normal business operations and planned implementation of certain strategic initiatives.

Our business will continue to be affected by the broader economic effects from the COVID-19 pandemic and related regulatory and individual actions, including customer demand for our products and services. Because more people in the United States are working from home, those workers will likely drive less often, and are less likely to require our services or will require our services less often. If this trend continues, we may see a permanent decline in demand for our services. Although travel by car may replace air travel as the preferred means of transportation because of fear of the spread of COVID-19, the recessionary economic environment resulting from the COVID-19 pandemic may reduce levels of leisure travel, which would reduce the demand for our products and services. We anticipate disruption to the demand for our products and services throughout the course of the pandemic. For example, in the first quarter of fiscal 2021, we experienced significant declines in comparable store sales compared to the first quarter of fiscal 2020 due to lower store traffic and reduced store hours as a result of our, individuals’, and governmental responses to the COVID-19 pandemic. Additionally, our growth strategy was impacted by the pandemic, as we paused all store acquisition, rebrand, and reimage initiatives during the first quarter of fiscal 2021 in order to focus our efforts on determining the full impact of the COVID-19 pandemic on our business.

While we have so far been able to source required products at reasonable cost, the pandemic may also affect our supply chain in ways that are beyond our control. We may also incur costs or experience further disruption to comply with new or changing regulations in response to the pandemic.

In addition, our continuing response to the pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our teammates and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value, increase vulnerability to information technology or cybersecurity related risks as certain of our teammates work remotely and otherwise continue to disrupt our business operations. For example, we have and expect to continue to incur additional costs and investments in supplies necessary to keep our teams and customers safe, such as face masks, hand sanitizer and cleaning supplies. We expect to encounter labor inefficiencies as we adjust to new protocols and operating models to adapt to operating during the pandemic while experiencing what we believe will be an increase in sales activity from the first quarter of fiscal 2021. Those labor inefficiencies may include difficulty in hiring employees if enhanced unemployment benefits are signed into law. As our teammates return to more normalized store hours, there will also be increased risks to the health and safety of our employees and customers, particularly if there were to be one or more clusters of COVID-19 cases occurring at any of our stores or our corporate headquarters. We may also be subject to enhanced legal risks, including potential litigation related to the COVID-19 pandemic.

The overall magnitude of the COVID-19 pandemic, including the extent of its direct and indirect impact on our business, financial position, results of operations or liquidity is inherently uncertain due to the rapid development and fluidity of the situation. Further, the ultimate impact of the COVID-19 pandemic depends on many factors that are not within our control, including, but not limited to: governmental, business and individuals' actions that have been and continue to be taken in response to the COVID-19 pandemic; the severity and duration of outbreaks of the virus; the impact of the COVID-19 pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery, particularly in our markets, when the COVID-19 pandemic subsides.

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We are unable to estimate the impact of the COVID-19 pandemic with certainty on our business and operations at this time. The pandemic could cause us to experience impairment of our goodwill and other financial assets, further reduce demand for our products and services and other adverse impacts on our financial position, results of operations and cash flows. Sustained adverse effects may also prevent us from satisfying financial covenants in our credit agreement or result in downgrades in our credit ratings.

Item 6. Exhibits


		Exhibit Index

		10.22a – Amendment No. 1 to Amended and Restated Credit Agreement, dated as of June 11, 2020 (June 2020 Form 8-K, Exhibit No. 22a).

		31.1 – Certification of Brett T. Ponton pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

		31.2 – Certification of Brian J. D’Ambrosia pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

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

		101.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

		101.CAL - XBRL Taxonomy Extension Calculation Linkbase

		104 - Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

~~Exhibit Index~~

~~10.22 Amended Credit Arrangement, dated as of April 25, 2019, incorporated by reference to Exhibit 10.22 to the Company’s Current Report on Form 8-K filed on May 1, 2019~~

~~31.1 – Certification of Brett T. Ponton pursuant to Section 302 of the Sarbanes – Oxley Act of 2002~~

~~31.2 – Certification of Brian J. D’Ambrosia pursuant to Section 302 of the Sarbanes – Oxley Act of 2002~~

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

~~101.CAL - XBRL Taxonomy Extension Calculation Linkbase~~

~~101.INS - XBRL Instance Document~~

~~101.LAB - XBRL Taxonomy Extension Label Linkbase~~

~~101.PRE - XBRL Taxonomy Extension Presentation Linkbase~~

~~101.SCH - XBRL Taxonomy Extension Schema Linkbase~~

~~101.DEF - XBRL Taxonomy Extension Definition Linkbase~~

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2021

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MONRO, INC.

DATE: August ~~8, 2019~~6, 2020	By:	/s/ Brett T. Ponton
		Brett T. Ponton
		Chief Executive Officer and President ‎(Principal Executive Officer)

DATE: August ~~8, 2019~~6, 2020	By:	/s/ Brian J. D’Ambrosia
		Brian J. D’Ambrosia
		Executive Vice President-Finance, Chief Financial Officer and
		Treasurer (Principal Financial Officer and Principal Accounting Officer)

2122


	Operating ‎Leases			Finance ‎ Leases and ‎ Financing ‎Obligations
Weighted average remaining lease term, in years		9.4			10.1
Weighted average discount rate		3.67	%		10.31	%

As of
‎Acquisition Date

Dollars in
‎thousands

Weighted
‎Average
‎Useful Life

Customer lists

~~1,523~~1,598