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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For Fiscal Year Ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-19357
MONRO MUFFLER BRAKE, INC.
(Exact name of registrant as specified in its charter)
New York 16-0838627
(State of incorporation) (I.R.S. Employer Identification No.)
200 Holleder Parkway, Rochester, New York 14615
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (716) 647-6400
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark if the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of June 1, 2001, the aggregate market value of voting stock held by
non-affiliates of the registrant was $79,958,000.
As of June 1, 2001, 8,158,253 shares of the registrant's Common Stock, par value
$.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement (to be filed pursuant to
Regulation 14A) for the 2001 Annual Meeting of Shareholders (the "Proxy
Statement") are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Monro Muffler Brake, Inc. ("Monro" or the "Company") is a chain of 511
Company-operated and 19 dealer-operated stores providing automotive undercar
repair services in the United States. At March 31, 2001, Monro operated Company
stores in New York, Pennsylvania, Ohio, Connecticut, Massachusetts, West
Virginia, Virginia, Maryland, Vermont, New Hampshire, New Jersey, North
Carolina, South Carolina, Indiana, Rhode Island and Delaware under the name
"Monro Muffler Brake & Service" and "Speedy Auto Service by Monro" (together,
the "Company Stores"). The Company's stores typically are situated in
high-visibility locations in suburban areas and small towns, as well as in major
metropolitan areas. The Company Stores serviced approximately 2,117,000 vehicles
in fiscal 2001. (References herein to fiscal years are to the Company's fiscal
years ending or ended March 31 of each year [e.g., references to "fiscal 2001"
are to the Company's fiscal year ended March 31, 2001].)
The predecessor to the Company was founded by Charles J. August in 1957 as a
Midas Muffler franchise in Rochester, New York, specializing in mufflers and
exhaust systems. In 1966, the Company discontinued its affiliation with Midas
Muffler, and began to diversify into a full line of undercar repair services. An
investor group led by Peter J. Solomon and Donald Glickman purchased a
controlling interest in the Company in July 1984. At that time, Monro operated
59 stores, located primarily in upstate New York, with approximately $21 million
in sales in fiscal 1984. Since 1984, Monro has continued its growth and has
expanded its marketing area to include 16 additional states. Recent expansion
included the September 1998 acquisition of 189 company-owned and 14 franchised
Speedy stores, all located in the United States, from SMK Speedy International
Inc. of Toronto Canada (the "Acquisition"). (See additional discussion under
"Expansion Strategy.")
In December 1998, the Company appointed Robert G. Gross as President and Chief
Executive Officer who began full-time responsibilities on January 1, 1999.
The Company was incorporated in the State of New York in 1959. The Company's
principal executive offices are located at 200 Holleder Parkway, Rochester, New
York 14615, and its telephone number is (716) 647-6400.
The Company provides a broad range of services on passenger cars, light trucks
and vans for mufflers and exhaust systems (estimated at 26% of fiscal 2001
sales); brakes (34%); and steering, drive train, suspension and wheel alignment
(16%). The Company also provides other products and services including tires,
scheduled maintenance and state inspections (24%). Monro specializes in the
repair and replacement of parts which must be periodically replaced as they wear
out. Normal wear on these parts generally is not covered by new car warranties.
The Company typically does not perform under-the-hood repair services except for
oil change services, a heating and cooling system "flush and fill" service and
some minor tune-up services. (See additional discussion under "Operating
Strategy.") The Company does not sell parts or accessories to the do-it-yourself
market.
The Company has two wholly-owned subsidiaries, Monro Service Corporation and
Monro Leasing, LLC, both of which are Delaware corporations qualified to do
business in the State of New York.
Monro Service Corporation holds all assets, rights, responsibilities and
liabilities associated with the Company's warehousing, purchasing, advertising,
accounting, office services, payroll, cash management and certain other
operations which are wholly performed within New York State. The Company
believes that this structure has enhanced, and will continue to enhance,
operational efficiency and provide cost savings.
Monro Leasing, LLC was established primarily to act as lessee in real estate
transactions for store locations. Currently, the sole member of the entity is
the Company.
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INDUSTRY OVERVIEW
According to industry reports, demand for automotive repair services, including
undercar repair services, has increased due to the general increase in the
number of vehicles registered, the growth in vehicle miles driven, the increase
in the average age of vehicles and the increased complexity of vehicles, which
makes it more difficult for a vehicle owner to perform do-it-yourself repairs.
At the same time as demand for automotive repair services has grown, the number
of general repair outlets has decreased, principally because fewer gas stations
now perform repairs, and because there are fewer new car dealers. Monro believes
that these factors present opportunities for increased sales by the Company,
even though the number of specialized repair outlets (such as those operated by
the Company and its direct competitors) has increased to meet the growth in
demand.
EXPANSION STRATEGY
Monro has experienced significant growth in recent years due to acquisitions
and, to a lesser extent, the opening of new stores. Management believes that
the continued growth in sales and profits of the Company is dependent, in large
part, upon its continued ability to open/acquire and operate new stores on a
profitable basis. In addition, overall profitability of the Company could be
reduced if new stores do not attain profitability.
Monro believes that there are expansion opportunities in new as well as existing
market areas which will result from a combination of constructing stores on
vacant land and acquiring existing store locations. The Company believes that,
as the industry consolidates due to the increasingly complex nature of
automotive repair and the expanded capital requirements for state-of-the art
equipment, there will be more opportunities for acquisitions of existing
businesses or store structures.
In that regard, in September 1998, the Company completed the acquisition of 189
company-operated and 14 franchised Speedy stores (the "Acquired Speedy stores"),
from SMK Speedy International Inc. of Toronto Canada. The Acquired Speedy stores
are located primarily in complementary areas in Monro's existing markets in the
Northeast, Mid-Atlantic and Midwest regions of the United States.
Through March 31, 2000, the Company closed, sold or subleased 41 of the Acquired
Speedy stores due to geographic conflicts or substandard performance. Four Monro
locations were also closed due to geographic conflicts with Acquired Speedy
locations during fiscal 2000, and five during fiscal 1999. Seven and four other
Monro stores were closed during fiscal 2000 and fiscal 1999, respectively,
primarily due to their failure to meet return-on-investment goals.
In connection with the Acquisition, the arrangement with the franchisees was
renegotiated in fiscal 1999 such that they became "dealers" of the Company. No
franchise fees are paid by the dealers, and no services are required to be
performed by the Company. Dealers reimburse the Company for shared advertising
costs and may purchase inventory from the Company.
As of March 31, 2001, Monro had 511 Company-operated stores and 19 dealer
locations located in 17 states. The following table shows the growth in the
number of Company-operated stores over the last five fiscal years:
STORE OPENINGS AND CLOSINGS
YEAR ENDED MARCH 31,
--------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Stores open at beginning of year 274 313 350 524 512
Stores opened during year ...... 40 39 210(a) 13 4
Stores closed during year (b) .. (1) (2) (36) (25) (5)
---- ---- ---- ---- ----
Stores open at end of year ..... 313 350 524 512 511
==== ==== ==== ==== ====
(a) Includes 189 Acquired Speedy stores.
(b) These stores were closed because they failed to achieve an acceptable level
of profitability or because a new Monro store was opened in the same market
at a more favorable location. Fiscal 1999 and 2000 closures primarily
relate to underperforming or redundant Speedy locations.
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The Company plans to open approximately five new stores in fiscal 2002, and to
continue to search for appropriate acquisition candidates. In future years,
should the Company find that there are not suitable acquisition candidates, it
would increase its new store (green field) openings.
The Company has developed a systematic method for selecting new store locations
and a targeted approach to marketing new stores. Key factors in market and site
selection include population, demographic characteristics, vehicle population
and the intensity of competition. These factors are evaluated through the use of
a proprietary computer model developed for the Company. The characteristics of
each potential site are compared by the model to the profiles of existing
stores, and the model then projects sales for that site. Monro attempts to
cluster stores in market areas in order to achieve economies of scale in
advertising, supervision and distribution costs. All new sites presently under
consideration are within Monro's established marketing areas.
In fiscal year 1998, the Company performed a comprehensive analysis of its
historical and projected store opening strategy. As a result of this analysis,
the Company established major market profiles, as defined by market awareness:
mature, existing and new markets. Over the next several years, the Company
expects to build a greater percentage of stores in mature and existing markets
in order to capitalize on the Company's market presence and consumer awareness.
Three of the four stores opened in fiscal 2001 were in mature or existing
markets.
The Company believes that management and operating improvements implemented over
the last several fiscal years will enhance its ability to sustain its growth.
The Company (including the Company-operated Acquired Speedy stores) has a
chain-wide computerized inventory control and electronic point-of-sale (POS)
management information system, which has increased management's ability to
monitor operations as the number of stores has grown. Late in fiscal 2001, the
Company installed a new Windows-based, point-of-sale system in all of its
stores. Being Windows-based, management believes that the system will simplify
training of new employees. Additionally, the system includes electronic mail and
electronic cataloging, which allows store managers to electronically research
the specific parts needed for the make and model of the car being serviced. This
enhanced system includes software which contains data that mirrors the scheduled
maintenance requirements in vehicle owners' manuals, specifically by make,
model, year and mileage for every automobile. Management believes that this
software will facilitate the presentation and sale of Scheduled Maintenance
services to customers. Other enhancements include the streamlining of estimating
and other processes; graphic catalogs; a thermometer graphic which guides store
managers on the profitability of each job; and expanded monitoring of price
changes. This latter change requires more specificity on the reason for a
discount, which management believes will lead to reduced discounting.
Enhancements will continue to be made to the POS system annually which increase
efficiency, improve the quality and timeliness of store reporting and enable the
Company to better serve its customers.
The financing to open a new store location may be accomplished in one of three
ways: a store lease for the land and building (in which case, land and building
costs will be financed primarily by the lessor), a land lease with the building
constructed by the Company (with building costs paid by the Company), or a land
purchase with the building constructed by the Company. In all three cases, each
new store also will require approximately $137,000 for equipment (including a
point-of-sale system and a truck), and approximately $66,000 in inventory.
Because Monro generally does not extend credit to its customers, stores generate
almost no receivables and a new store's actual net working capital investment is
nominal. Total capital required to open a new store ranges, on average (based
upon the last five fiscal years' openings, excluding the Acquired Speedy
locations), from $284,000 to $893,000 depending on the location and which of the
three financing methods is used. In instances where Monro acquires an existing
business, it may pay additional amounts for intangible assets such as customer
lists, covenants not-to-compete and goodwill.
At March 31, 2001, the Company leased the land and/or the building at
approximately 78% of its store locations and owned the land and building at the
remaining locations. Monro's policy is to situate new stores in the best
locations, without regard to the form of ownership required to develop the
locations.
New stores, excluding the Acquired Speedy stores, have average sales of
approximately $360,000 in their first 12 months of operation, or $60,000 per
bay.
OPERATING STRATEGY
Monro's operating strategy is to provide its customers with dependable,
high-quality automotive service at a competitive price by emphasizing the
following key elements.
Products and Services
All stores provide a full range of undercar repair services for brakes,
steering, mufflers and exhaust systems, drive train, suspension and wheel
alignment. These services apply to all makes and models of domestic and foreign
cars, light trucks and vans. In addition, both Monro
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stores and the Acquired Speedy stores provide many of the routine maintenance
services (except engine diagnostic and major transmission repair) which
automobile manufacturers suggest or require in the vehicle owners' manuals, and
which fulfill manufacturers' requirements for new car warranty compliance. At
the end of fiscal 2001, the Company introduced "Scheduled Maintenance" services
in all of its stores whereby the aforementioned services are formally packaged
and offered to consumers based upon the year, make, model and mileage of each
specific vehicle. Management believes that the Company is able to offer this
service in a more convenient and cost competitive fashion than auto dealers can
provide.
Substantially all of the stores provide oil change services as well as tire
sales and installation. All stores perform a heating and cooling system "flush
and fill" service, a transmission "flush and fill" service, and belt and hose
installation. Additionally, all stores replace and service batteries, starters
and alternators. Stores in New York, West Virginia, New Hampshire, Pennsylvania,
North Carolina, Virginia and Vermont also perform annual state inspections.
Approximately 25% of the Company's stores also offer air conditioning services.
Customer Satisfaction
The Company's vision of being the dominant Auto Service provider in the markets
it serves is supported by a set of values displayed in each Company store
emphasizing TRUST:
- - Total Customer Satisfaction
- - Respect, Recognize and Reward (employees who are committed to these values)
- - Unparalleled Quality and Integrity
- - Superior Value and
- - Teamwork
Additionally, each Company-operated store displays the following set of customer
satisfaction principles: free inspection of brakes, shocks, front end and
exhaust systems; item-by-item review with customers of problem areas; free
written estimates; written guarantees; drive-in service without an appointment;
fair and reasonable prices as advertised; and repairs by professionally trained
undercar specialists, many of whom are Automotive Service Excellence (ASE)
certified in brakes and suspension. (See additional discussion under "Store
Operations: Quality Control and Warranties.")
Competitive Pricing, Advertising and Co-branding Initiatives
The Company seeks to set competitive prices for quality services and products.
The Company supports its pricing strategy by advertising through direct mail
coupon inserts and in-store promotional signage and displays. In addition, the
Company advertises through radio, yellow pages, newspapers and electronic mail
to increase consumer awareness of the services offered.
The Company employs co-branding initiatives to more quickly increase consumer
awareness in certain markets. The Company believes that, especially in newer
markets, customers may more readily be drawn into its stores because of their
familiarity with national brand names. Some of these initiatives have included
cross-promotional offers with professional sports teams, national fast food
chains and video rental stores, as well as with regional supermarkets.
Additionally, the Company introduced Bridgestone/Firestone tires into most of
its stores in the late 1990s and Goodyear tires in fiscal 2001, where it had
previously carried a private label tire. Through this initiative, the Company
believes that it attracts some brand-loyal tire customers who otherwise might
not have visited Monro. This gives the Company the opportunity to introduce
itself to this new customer, and sell other needed services.
Centralized Control
Unlike many of its competitors, the Company operates, rather than franchises,
all of its stores (except for the 19 dealer locations). Monro believes that
direct operation of stores enhances its ability to compete by providing
centralized control of such areas of operations as service quality, store
appearance, promotional activity and pricing. A high level of technical
competence is maintained throughout the Company as Monro requires, as a
condition of employment, that employees participate in comprehensive training
programs to keep pace with technology changes. Additionally, purchasing,
distribution, merchandising, advertising, accounting and other store support
functions are centralized in the Company's corporate headquarters in Rochester,
New York, and are provided through the Company's subsidiary, Monro Service
Corporation. The centralization of these functions results in efficiencies and
gives management the ability to closely monitor and control costs.
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Comprehensive Training
The Company provides ongoing, comprehensive training to its store employees.
Monro believes that such training provides a competitive advantage by enabling
its technicians to provide quality service to its customers in all areas of
undercar repair. (See additional discussion under "Store Operations: Store
Personnel and Training.")
STORE OPERATIONS
Store Format
The typical format for a Monro repair store is a free-standing building of
approximately 4,500 square feet consisting of a sales area, six fully-equipped
service bays and a parts storage area, with a parking lot with space for
approximately 17 cars. Acquired Speedy stores average five bays per location
with approximately 4,200 square feet. Most service bays are equipped with
aboveground electric vehicle lifts. The typical Company store carries
approximately $65,000 of inventory and approximately 3,100 stock keeping units
("SKUs"). Generally, each store is located within 25 miles of a "key" store
which carries approximately 50% more inventory than a typical store, and serves
as a mini-distribution point for slower moving inventory for other stores in its
area.
The stores generally are situated in high-visibility locations in suburban
areas, major metropolitan areas or small towns and offer easy customer access.
The typical store is open from 7:30 a.m. to 7:00 p.m. on Monday through Friday
and from 7:30 a.m. to 5:00 p.m. on Saturday.
Inventory Control and Management Information System
All Monro and Acquired Speedy stores communicate daily with the central office
and warehouse by a computerized inventory control and electronic POS management
information system, which enables the Company to collect sales and operational
data on a daily basis, to adjust store pricing to reflect local conditions and
to control inventory on a near "real-time" basis. Additionally, each store has
access, through the POS system, to the inventory carried by the seven stores
nearest to it. Management believes that this feature improves customer
satisfaction and store productivity by reducing the time required to locate
out-of-stock parts.
Quality Control and Warranties
To maintain quality control, the Company conducts audits to rate its employees'
telephone sales manner and the accuracy of pricing information given.
The Company has a customer survey program to monitor customer attitudes toward
service quality, friendliness, speed of service, and several other factors for
each store. This program includes monthly survey mailings to customers of all
stores. (Each mailing consists of approximately 30 surveys.) Customer concerns
are addressed via letter and personal follow-up by field management.
The Company uses a "Double Check for Accuracy Program" as part of its routine
store procedures. This quality assurance program requires that a technician and
supervisory-level employee independently inspect a customer's vehicle, diagnose
and document the necessary repairs, and agree on an estimate before presenting
it to a customer. This process is formally documented on the written estimate by
store personnel.
The Company is an active member of the Motorist Assurance Program (MAP). MAP is
an organization of automotive retailers, wholesalers and manufacturers which was
established as part of an industry-wide effort to address the ethics and
business practices of companies in the automotive repair industry. Participating
companies commit to improving consumer confidence and trust in the automotive
repair industry by adopting "Uniform Inspection Guidelines" and "Standards of
Service" established by MAP. These "Standards of Service" are posted in Monro
and Speedy stores and serve to provide consistent recommendations to customers
in the diagnosis and repair of a vehicle.
Monro offers limited warranties on substantially all of the products and
services that it provides. The Company believes that these warranties are
competitive with industry practices, and serve as a marketing tool to increase
repeat business at the stores.
All headquarters management personnel participate in the Company's
day-in-the-store program by working in a store under the direction of the store
manager, to better understand the latest developments at the store level, and
with the goal of improving support and service to the field.
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Store Personnel and Training
The Company supervises store operations primarily through its Divisional Vice
Presidents who oversee Zone Managers who, in turn, oversee Market Managers. The
typical store is staffed by a Store Manager and four to six technicians, one of
whom serves as the Assistant Manager. All Store Managers receive a base salary,
and Assistant Managers receive hourly compensation. In addition, Store Managers
and Assistant Managers may receive other compensation based on their store's
customer relations, gross profit, labor cost controls, safety, sales volume and
other factors via a quarterly bonus based on performance in these areas.
Monro believes that the ability to recruit and retain qualified technicians is
an important competitive factor in the automotive repair industry, which has
historically experienced a high turnover rate. Monro makes a concerted effort to
recruit individuals who will have a long-term commitment to the Company and
offers an hourly rate structure and additional compensation based on
productivity; a competitive benefits package including health, dental, life and
disability insurance; a 401k/profit-sharing plan; as well as the opportunity to
advance within the Company. Many of the Company's Managers and Market Managers
started with Monro or Speedy as technicians.
Many of the Company's new technicians join the Company in their early twenties
as trainees or apprentices. As they progress, they are promoted to technician
and eventually master technician, the latter requiring ASE certification in both
brakes and suspension. The Company offers a tool purchase program through which
trainee technicians can acquire their own set of tools. The Company also will
reimburse technicians for the cost of ASE certification registration fees and
test fees and encourages all technicians to become certified by providing a
higher hourly wage rate following their certification.
The Company's training department conducts in-house technical clinics for store
personnel and management training programs for new Store Managers, and
coordinates attendance at technical clinics offered by the Company's vendors.
Each Monro store maintains a library of 20 to 25 instructional videos. The
Company issues technical bulletins to all stores on innovative or complex repair
processes, and maintains a centralized data base for technical repair problems.
In addition, the Company has established a telephone technical hotline to
provide assistance to store personnel in resolving problems encountered while
diagnosing and repairing vehicles. The help line is available during all hours
of store operation.
The Company has established Monro University to provide comprehensive training
and development of current and prospective Store Managers. Training is
accomplished through an intensive one-week instructional program at a separate
facility in Rochester, New York. Topics covered include sales training,
customer service, time management, human resources (counseling, recruiting,
interviewing, etc.), leadership, inventory control and financial management.
The courses employ a variety of instructional techniques including video
taping, role playing, and testing. Several of the courses are conducted by
officers of the Company, whose first priority is instilling the Company's
culture, philosophies and values into the individuals who hold these important
positions. The one week class follows a field training segment which ranges
from two to four weeks depending upon the individual's level of experience.
Monro management is closely tracking the performance of the managers who have
completed the class. On average, the program has led to increased store
profitability as well as longer retention of the Store Managers.
PURCHASING AND DISTRIBUTION
The Company, through its wholly-owned subsidiary Monro Service Corporation,
selects and purchases parts and supplies for all Company-operated stores on a
centralized basis through an automatic replenishment system. Although purchases
outside the centralized system ("outside purchases") are made when needed at
the store level, these purchases are low by industry standards, and accounted
for approximately 15% of all parts used in fiscal 2001.
The Company's ten largest vendors accounted for approximately 53% of its parts
purchases, with the largest vendor accounting for approximately 17% of total
purchases in fiscal 2001. The Company purchases parts from over 100 vendors.
Management believes that the Company's relationships with vendors are excellent
and that alternative sources of supply exist, at comparable cost, for
substantially all parts used in the Company's business. The Company routinely
obtains bids from vendors to ensure it is receiving competitive pricing and
terms.
Most parts are shipped by vendors to the Company's warehouse facility in
Rochester, New York, and are distributed to stores through the Company-operated
tractor/trailer fleet. Most stores are replenished once every week from the
warehouse, and such replenishment fills, on the average, 94% of all items
ordered by the stores' automatic POS-driven replenishment system. The warehouse
stocks approximately 6,900 SKUs.
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In February 1999, the Company signed a purchasing agreement with the National
Automotive Parts Association ("NAPA") of Atlanta, Georgia. Effective March 1,
1999, NAPA became the Company's primary outside purchases vendor for auto parts
at 90% of its locations. The agreement enables the Company to reduce costs on
outside purchases through uniform and competitive pricing on all purchases made
at NAPA's 530 locations participating in the program. In addition, the
arrangement will streamline the Company's billing process on outside purchases
with electronic data interface, and provides the Company's automotive
technicians with access to NAPA's extensive "in-field" training courses.
The Company has entered into various contracts with parts suppliers which
require it to buy up to 90% of its annual purchases of specific products
including brakes, exhaust, oil and ride control at market prices. The agreements
expire at various dates through December 2004. The Company believes these
agreements provide it with high quality, branded merchandise at preferred
pricing, along with strong marketing and training support.
COMPETITION
The Company competes in the retail automotive service industry. This industry is
generally highly competitive and fragmented, and the number, size and strength
of competitors varies widely from region to region. The Company believes that
competition in this industry is based on customer service and reputation, store
location, name awareness and price. Monro's primary competitors include national
and regional undercar specialty and general automotive service chains, both
franchised and company-operated; car dealerships; and, to a lesser extent, gas
stations and independent garages. Monro considers Midas, Inc. and Meineke
Discount Mufflers Inc. to be direct competitors. In most of the new markets that
the Company has entered, at least one competitor was already present. In
identifying new markets, the Company analyzes, among other factors, the
intensity of competition. (See "Expansion Strategy" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations.")
EMPLOYEES
As of March 31, 2001, Monro had 2,509 employees, of whom 2,332 were employed in
the field organization, 53 were employed at the warehouse and 124 were employed
at the Company's corporate headquarters. Monro's employees are not members of
any union. The Company believes that its relations with its employees are good.
REGULATION
The Company stores new oil and recycled antifreeze, and generates and handles
used automotive oils, antifreeze and certain solvents, which are disposed of by
licensed third-party contractors. In certain states, as required, the Company
also recycles oil filters. Thus, the Company is subject to a number of federal,
state and local environmental laws including the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"). In addition, the United
States Environmental Protection Agency (the "EPA"), under the Resource
Conservation and Recovery Act ("RCRA"), and various state and local
environmental protection agencies regulate the Company's handling and disposal
of waste. The EPA, under the Clean Air Act, also regulates the installation of
catalytic converters by the Company and all other repair stores by periodically
spot checking jobs, and has the power to fine businesses that use improper
procedures or materials. The EPA has the authority to impose sanctions,
including civil penalties up to $25,000 per violation (or up to $25,000 per day
for certain willful violations or failures to cooperate with authorities), for
violations of RCRA and the Clean Air Act.
The Company is subject to various laws and regulations concerning workplace
safety, zoning and other matters relating to its business. The Company believes
that it is in substantial compliance with all applicable environmental and other
laws and regulations, and that the cost of such compliance is not material to
the Company.
The Company is environmentally conscious, and takes advantage of recycling
opportunities both at its headquarters and at its stores. Cardboard, plastic
shrink wrap and parts' cores are returned to the warehouse by the stores on the
weekly stock truck. There, they are accumulated for sale to recycling companies
or returned to parts manufacturers for credit.
SEASONALITY
Although the Company's business is not highly seasonal, customers do require
more undercar service during the period of March through October than the period
of November through February, when miles driven tend to be lower. As a result,
sales and profitability are lower during the latter period.
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ITEM 2. PROPERTIES
The Company, through Monro Service Corporation, owns its office/warehouse
facility of approximately 95,000 square feet, which is located on 12.7 acres of
land in Holleder Industrial Park, in Rochester, New York.
In connection with the Speedy Acquisition, the Company financed most of the real
estate formerly owned by SMK Speedy International Inc. via a synthetic lease
(off-balance sheet) agreement. This lease was part of a new $135 million secured
credit facility from a syndication of lenders. (See additional discussion under
"Capital Resources and Liquidity.") Of the total number of Company-operated
Acquired Speedy locations, 23 buildings on land-leased sites and 71 parcels of
land and buildings on formerly owned locations are currently leased under this
arrangement. (There are also seven closed Acquired Speedy stores which are
financed under the synthetic lease.)
Of Monro's 511 Company-operated stores at March 31, 2001, 113 were owned, 288
were leased and for 110, the land only was leased, including stores under the
synthetic lease arrangement. In general, the Company leases store sites for a
ten-year period with several five-year renewal options. Giving effect to all
renewal options, over 84% of the operating leases (308 stores) expire after
2009. Certain of the leases provide for contingent rental payments if a
percentage of annual gross sales exceeds the base fixed rental amount. The
highest contingent percentage rent of any lease is 6.75%, and no such lease has
adversely affected profitability of the store subject thereto. Certain officers
and directors of the Company or members of their families are the lessors, or
have interests in entities that are the lessors, with respect to 40 of the
leases. No related party leases, other than renewals or modifications of leases
on existing stores, have been entered into since May 1989, and no new related
party leases are contemplated.
The office and warehouse facility and 14 of the owned stores are subject to
mortgages held by commercial banks or private investors. As of March 31, 2001,
the outstanding amount under the mortgage on the headquarters office and
warehouse facility was $2.2 million, and the aggregate outstanding amount under
the permanent mortgages on 14 of the owned stores was $4.2 million. There was
also $.7 million outstanding under a mortgage held by the City of Rochester, New
York, secured by the land on which the headquarters office and warehouse is
located, and a term loan of $.2 million secured by the headquarters facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party or subject to any legal proceedings other than
certain routine claims and lawsuits that arise in the normal course of its
business. The Company does not believe that such routine claims or lawsuits,
individually or in the aggregate, will have a material adverse effect on its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
9
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Common Stock is traded on the over-the-counter market and is quoted on the
NASDAQ National Market System under the symbol "MNRO." The following table sets
forth, for the Company's last two fiscal years, the range of high and low sales
prices on the NASDAQ National Market System for the Common Stock:
FISCAL 2001 FISCAL 2000
----------- -----------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
June 30 $ 9.19 $ 7.75 $ 8.63 $ 6.81
September 30 11.25 8.63 8.31 6.69
December 31 11.06 8.94 7.88 5.75
March 31 11.00 8.94 9.63 7.50
Holders
At May 31, 2001, the Company's Common Stock was held by approximately 1,800
shareholders of record or through nominee or street name accounts with brokers.
Dividends
While the Company has not paid any cash dividends on the Common Stock since its
inception, any future determination as to the payment of dividends will be at
the discretion of the Board of Directors and will depend on the Company's
financial condition, results of operations, capital requirements, compliance
with charter and contractual restrictions, and such other factors as the Board
of Directors deems relevant.
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11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of the
Company for each year in the five-year period ended March 31, 2001. The
financial data and certain operating data have been derived from the Company's
financial statements which have been examined by PricewaterhouseCoopers LLP,
independent accountants. This data should be read in conjunction with the
Financial Statements and related notes included under Item 8 of this report and
in conjunction with other financial information included elsewhere in this Form
10-K.
YEAR ENDED MARCH 31,
2001 2000 1999 1998 1997
--------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Sales ....................................... $ 222,955 $ 223,605 $ 193,458 $ 154,294 $141,169
Cost of sales, including distribution
and occupancy costs ...................... 133,196 134,169 115,117 87,510 78,792
--------- --------- --------- --------- --------
Gross profit ................................ 89,759 89,436 78,341 66,784 62,377
Operating, selling, general and
administrative expenses .................. 66,988 66,889 64,062 46,120 41,749
--------- --------- --------- --------- --------
Operating income ............................ 22,771 22,547 14,279 20,664 20,628
Interest expense, net ....................... 5,768 6,831 5,600 3,829 3,224
Other expense, net .......................... 896 2,091 730 331 475
--------- --------- --------- --------- --------
Income before provision for income taxes .... 16,107 13,625 7,949 16,504 16,929
Provision for income taxes .................. 6,411 5,418 3,203 6,650 6,738
--------- --------- --------- --------- --------
Net income .................................. $ 9,696 $ 8,207 $ 4,746 $ 9,854 $ 10,191
========= ========= ========= ========= ========
Earnings per share (a) Basic ................ $ 1.19 $ .99 $ .57 $ 1.19 $ 1.24
========= ========= ========= ========= ========
Diluted .............. $ 1.09 $ .92 $ .53 $ 1.09 $ 1.13
========= ========= ========= ========= ========
Weighted average number of Common
Stock and equivalents (a) Basic ......... 8,182 8,305 8,317 8,256 8,187
===== ===== ===== ===== =====
Diluted ....... 8,891 8,964 8,997 9,016 9,009
===== ===== ===== ===== =====
SELECTED OPERATING DATA (b):
Sales growth:
Total .................................... (0.3%) 15.6% 25.4% 9.3% 20.5%
Comparable store (c) ..................... (1.4%) (1.6%) (1.3%) (0.2%) 7.9%
Stores open at beginning of year ............ 512 524 350 313 274
Stores open at end of year .................. 511 512 524 350 313
Capital expenditures ........................ $ 11,045 $ 14,265 $ 23,310(d) $ 25,391 $ 27,562
BALANCE SHEET DATA (AT PERIOD END):
Net working capital ......................... $ 13,198 $ 11,876 $ 18,168 $ 13,517 $ 9,579
Total assets ................................ 193,839 196,025 202,934 159,088 146,267
Long-term debt .............................. 50,857 63,639 78,672 54,102 54,850
Shareholders' equity ........................ 97,810 88,775 80,951 76,558 66,625
(a) Earnings per share for each fiscal year was computed by dividing net income
by the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the respective year. All share and per share
information has been adjusted to give retroactive effect to the five
percent stock dividends paid in June 1998 and August 1997.
(b) Includes Company-operated stores only - no dealer locations.
(c) Comparable store sales data are calculated based on the change in sales of
only those stores open as of the beginning of the preceding fiscal year.
(d) Amount does not include the funding of the Speedy acquisition.
11
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth income statement data of the Company expressed as
a percentage of sales for the fiscal years indicated:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
------ ------ ------
Sales ................................................... 100.0% 100.0% 100.0%
Cost of sales, including distribution and occupancy costs 59.7 60.0 59.5
------ ------ ------
Gross profit ............................................ 40.3 40.0 40.5
Operating, selling, general and administrative expenses . 30.1 29.9 33.1
------ ------ ------
Operating income ........................................ 10.2 10.1 7.4
Interest expense, net ................................... 2.6 3.1 2.9
Other expense, net ...................................... 0.4 0.9 0.4
------ ------ ------
Income before provision for income taxes ................ 7.2 6.1 4.1
Provision for income taxes .............................. 2.9 2.4 1.6
------ ------ ------
Net income .............................................. 4.3% 3.7% 2.5%
====== ====== ======
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K which are not
historical facts, including (without limitation) in particular, statements made
in this Item and in "Item 1 - Business," may contain forward-looking statements
that are subject to important factors that could cause actual results to differ
materially from those in the forward-looking statement, including (without
limitation) product demand; the effect of economic conditions; the impact of
competitive services, products and pricing; product development; parts supply
restraints or difficulties; industry regulation; the continued availability of
capital resources and financing and other risks set forth or incorporated herein
and in the Company's Securities and Exchange Commission filings. The Company
does not undertake to update any forward-looking statement that may be made from
time to time by or on behalf of the Company.
SPEEDY ACQUISITION
On September 17, 1998, the Company completed the acquisition of 189
company-operated and 14 dealer-operated Speedy stores, all located in the United
States. Sales for the Speedy fiscal year ended January 3, 1998 for the 189
company-operated stores, some of which were opened only part of the year, were
approximately $86 million.
Although the 203 Speedy stores were in the same general markets in which the
Company competed, the Monro and Speedy locations were mainly situated in
non-overlapping areas. While Monro has tended to open stores in suburban and
small town locations, Speedy had tended to locate in major metropolitan areas.
Therefore, the combination represented an excellent geographic fit.
Prior to the Acquisition, the Speedy stores were experiencing significant
declining comparable store sales and EBITDA margins. The Company believes that
the attention of Speedy's management was diverted to the expansion of its
European operations. In addition, Speedy's management did not respond to the
declining exhaust business by offering other services, as had Monro.
The result was that the Acquisition had a dilutive effect on earnings in the
1999 fiscal year. The weakness in Speedy's sales from September 1998 through
March 1999 represented a continuation of a decline which was most pronounced
prior to the Acquisition in September 1998. The conversion of systems and
inventory during the third quarter of fiscal 1999 at all Company-operated
Acquired Speedy stores also impacted the performance of these locations. These
conversions involved the installation of new point-of-sale systems in the
Acquired Speedy stores, as well as the return of slow moving items to
manufacturers and restocking with more popular parts, representing
approximately half of the inventory in the Speedy stores. The new point-of-sale
systems put all of the Company-operated Acquired Speedy stores on Monro's
centralized distribution and automatic replenishment system whereas,
previously, each store received parts directly from the various manufacturers.
Although essential to margin improvement in future periods, this conversion
process was very disruptive to the operations of the Acquired Speedy stores in
the third quarter of fiscal 1999. The Company did experience a substantial
reduction in cost of goods in the Acquired Speedy stores between the third and
fourth quarters of fiscal 1999, through reduced outside purchases and lower
acquisition costs from vendors as parts were distributed through the Company's
centralized distribution system.
12
13
It was management's belief that, with moderately improved sales and further cost
reductions, the acquired operations would begin to contribute to earnings per
share during fiscal 2000, and should be increasingly accretive in subsequent
years. This belief proved to be true, with the Speedy stores solidly accretive
for the years ended March 31, 2000 and 2001.
FISCAL 2001 AS COMPARED TO FISCAL 2000
Sales for fiscal 2001 decreased $.6 million, or .3% from fiscal 2000 sales. The
decrease was due to a loss of sales from closed stores of $1.1 million and a
comparable store sales decrease of 1.4%. These decreases were partially offset
by an increase of approximately $3.5 million from stores opened since April 1,
1999. There were 307 selling days in fiscal year 2001 and 309 days in fiscal
year 2000.
During the year, four stores were opened and five were closed. At March 31,
2001, the Company had 511 stores in operation.
Management believes that the comparable store sales decrease resulted, in
part, from manufacturers' use of non-corrosive stainless steel exhaust systems
on almost all new cars (beginning in the mid - 1980s and completed in the mid -
1990s) which has extended the life of exhaust systems and resulted in declining
exhaust sales. However, management believes that these declines were partially
offset by positive industry factors including an increase in the average age
of vehicles, a decrease in the number of service bays, an increase in the
number of registered vehicles, and a shift in the consumer mentality from
"do-it-yourself" to "do-it-for-me" caused by the increased complexity of cars
and aging population. It is also management's belief that the decline in
exhaust sales is beginning to level off as the vehicles manufactured with
stainless steel exhaust systems continue to age, particularly in the northeast
which experiences more severe winter weather conditions. Additionally,
management believes that the Company's strategy of product diversification and
expanded manager training assisted in minimizing the comparable store sales
decline vis-a-vis its competitors.
The Company introduced "Scheduled Maintenance" services in all of its stores
late in the fourth quarter of fiscal 2001. These services are required by
vehicle manufacturers to comply with warranty schedules, and are offered by
Monro in a more convenient and cost competitive fashion than auto dealers can
provide. Management believes that these services, which are offered both in
bundled "packages" and individually, will make a positive contribution to
comparable store sales in future years, and continue to help to mitigate the
aforementioned challenges to comparable store sales which negatively impacted
recent fiscal years.
In addition, management believes that comparable store sales have suffered in
recent years from a decline in vehicle population in the five-to-nine year old
segment. Although the number of registered vehicles has increased steadily in
recent years, the early 1990s recession in new car sales negatively impacted
this particular segment of the vehicle population. This segment represents the
prime repair age of vehicles and is the target market for the Company's
services. However, as a result of increased car sales in the mid-to-late 1990s,
the five-to-nine year old segment began to increase in calendar 2000.
Gross profit for fiscal 2001 was $89.8 million or 40.3% of sales, as compared
with $89.4 million or 40% of sales for fiscal 2000. The improvement in gross
profit as a percentage of sales is primarily attributable to a decrease in
technician labor costs as a percent of sales due to improved productivity and
control during the year ended March 31, 2001. However, this improvement was
partially offset by an increase in occupancy costs as a percent of sales
reflecting the impact of fixed costs (such as rent and depreciation) against a
decline in comparable store sales.
Operating, selling, general and administrative expenses for fiscal 2001
increased by $.1 million to $67.0 million and, as a percentage of sales,
increased by .2% as compared to fiscal 2000. Although spending was relatively
flat in this line item, there was pressure on certain expense lines which were
overcome through savings in others. More employees earned a bonus in fiscal 2001
than in fiscal 2000, increasing expense by $.4 million. Additionally, utilities
increased by approximately $.7 million over the prior year due to colder weather
and higher gas prices. Due to the hardening of the insurance market, the Company
also experienced an increase in insurance costs in the form of increased
deductibles - this in spite of a lower number and relatively flat dollar amount
of claims as compared to fiscal 2000.
These increases were offset, however, by strong cost control in other areas such
as health care costs and field operations support costs. Additionally, there was
an increase in cooperative advertising credits resulting from improved
purchasing agreements with the Company's major parts suppliers.
Operating income in fiscal 2001 of $22.8 million, or 10.2% of sales, increased
by $.2 million over the fiscal 2000 level of $22.5 million, due to the factors
discussed above.
Interest expense, net of interest income, decreased as a percent of sales from
3.1% in fiscal 2000 to 2.6% in fiscal 2001. The weighted average interest rate
for the year ended March 31, 2001 was approximately .3% higher than the rate of
9.1% for the year ended March 31, 2000. However, the weighted average debt
outstanding for the year ended March 31, 2001 decreased by approximately $13.5
million from fiscal 2000, resulting in a decrease in expense between the two
years.
13
14
Other expense, net, at .4% of sales for the year ended March 31, 2001 decreased
from .9% of sales for the year ended March 31, 2000. This decrease was primarily
due to less expense related to store closings.
The Company's effective tax rate was 39.8% of pre-tax income in both fiscal 2001
and fiscal 2000.
Net income for fiscal 2001 increased by $1.5 million or 18.1% as compared to
fiscal 2000, due to the factors discussed above.
FISCAL 2000 AS COMPARED TO FISCAL 1999
Sales for fiscal 2000 increased $30.1 million, or 15.6% over sales for fiscal
1999. The increase was due to an increase of approximately $38.2 million for
stores opened since April 1, 1998, including $30.7 million from the
newly-acquired Speedy stores, partially offset by a loss of sales from closed
Monro stores and a comparable store sales decrease of 1.6%. During the year, 13
stores were opened and 25 were closed. At March 31, 2000, the Company had 512
stores in operation.
Gross profit for fiscal 2000 was $89.4 million or 40% of sales, as compared with
$78.3 million or 40.5% of sales for fiscal 1999. The reduction in gross profit
as a percentage of sales is primarily attributable to an increase in occupancy
costs as a percent of sales reflecting the impact of fixed costs (such as rent
and depreciation) against a decline in comparable store sales and soft new store
sales. Additionally, labor costs increased over the prior year. During periods
of slower sales when technicians may not be fully productive, they receive a
minimum base-level wage which increases labor cost as a percent of sales.
Operating, selling, general and administrative expenses for fiscal 2000
increased by $2.8 million to $66.9 million and, as a percentage of sales,
decreased by 3.2% as compared to fiscal 1999. The decline as a percentage of
sales is due to several factors including increased cooperative advertising
credits resulting from improved purchasing agreements with the Company's major
parts suppliers, further reductions in corporate overhead and field supervision
begun in fiscal 1999, and non-recurring Y2K costs in fiscal 1999.
Since the Company did not attain the minimum required percentage of targeted
profit performance, employee bonus payments and profit sharing contributions
were significantly reduced from previous, more profitable years.
Operating income in fiscal 2000 of $22.5 million, or 10.1% of sales, increased
by $8.3 million over the fiscal 1999 level of $14.3 million due to the factors
discussed above.
Interest expense, net of interest income, increased as a percent of sales from
2.9% in fiscal 1999 to 3.1% in fiscal 2000. The weighted average debt
outstanding for the year ended March 31, 2000 was approximately $7.9 million
greater than the amount outstanding for the year ended March 31, 1999.
Additionally, the weighted average interest rate increased by approximately .8%.
Other expense, net, at .9% of sales for the year ended March 31, 2000 increased
from .4% of sales for the year ended March 31, 1999. This increase was primarily
due to amortization of goodwill from the Speedy acquisition and expenses related
to Monro store closings.
The Company's effective tax rate was 39.8% and 40.3% of pre-tax income in fiscal
2000 and fiscal 1999, respectively.
Net income for fiscal 2000 increased by $3.5 million or 72.9% as compared to
fiscal 1999, due to the factors discussed above.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The Company's primary capital requirements for fiscal 2001 were divided among
the funding of its new store expansion program and the upgrading of facilities
and systems in existing stores, totaling $11.0 million, as well as net principal
payments on long-term debt and capital leases of $10.5 million.
In both fiscal years 2001 and 2000, these capital requirements were primarily
met by cash flow from operations and through the use of a Revolving Credit
facility.
In December 1999, the Company's Board of Directors authorized a share repurchase
plan for up to 300,000 of the Company's common shares. In May 2000, the Board of
Directors approved an increase of 120,000 shares, bringing the total
authorization to 420,000 shares. During fiscal 2001 and 2000, the Company
purchased approximately 117,000 and 100,000 shares, respectively at an aggregate
price of $1.0 and .8 million, respectively. Purchases of the shares are expected
to be made from time-to-time, depending upon market conditions.
14
15
In fiscal 2002, the Company intends to open approximately five new stores. Total
capital required to open a new store ranges, on average (based upon the last
three fiscal years' openings - excluding the Acquired Speedy stores), from
$284,000 to $893,000 depending on whether the store is leased, owned or land
leased. Management believes that the Company has sufficient resources available
(including cash and equivalents, cash flow from operations and bank financing)
to expand its business as currently planned for the next several years.
Liquidity
Concurrent with the closing of the Speedy acquisition in September 1998, the
Company obtained a new $135 million secured credit facility from a syndication
of lenders led by The Chase Manhattan Bank. Approximately $55 million was
borrowed under this facility to pay the all-cash purchase price, including
transaction expenses of approximately $4 million. In addition, the Company
refinanced approximately $35 million of indebtedness through the new credit
facility, with the balance of the facility available for future working capital
needs. More specifically, the new financing structure consists of a $25 million
term loan (of which approximately $18 million was outstanding at March 31,
2001), a $75 million Revolving Credit facility (of which approximately $32
million was outstanding at March 31, 2001), and synthetic lease (off-balance
sheet) financing for a significant portion of the Speedy real estate, totaling
$35 million (of which approximately $32 million was outstanding at March 31,
2001). The loans bear interest at the prime rate or other LIBOR-based rate
options tied to the Company's financial performance. The Company must also pay a
facility fee on the unused portion of the commitment.
The credit facility has a five-year term. Interest only is payable monthly on
the Revolving Credit and synthetic lease borrowings throughout the term. In
addition to monthly interest payments, the $25 million term loan requires
quarterly principal payments which began September 30, 1999.
The term loan and Revolving Credit facility are secured by all accounts
receivable, inventory and other personal property. The Company has also entered
into a negative pledge agreement not to encumber any real property, with certain
permissible exceptions. The synthetic lease is secured by the real property to
which it relates.
Within the aforementioned $75 million Revolving Credit facility, the Company has
available a subfacility of $7 million for the purpose of issuing stand-by
letters of credit. The line requires fees aggregating 1.875% annually of the
face amount of each stand-by-letter of credit, payable quarterly in arrears. No
letters of credit were outstanding under this line at March 31, 2001.
During fiscal 1995, the Company purchased 12.7 acres of land for $.7 million
from the City of Rochester, New York, on which its office/warehouse facility is
located. The City has provided financing for 100 percent of the cost of the land
via a 20-year non-interest bearing mortgage, all due and payable in 2015.
To finance its office/warehouse building, the Company obtained permanent
mortgage financing consisting of a 10-year mortgage for $2.9 million and an
eight-year term loan in the amount of $.7 million. Both obligations require
monthly interest payments, and each may be converted from a floating rate to a
fixed rate loan before the last two years of their respective terms. The
mortgage requires equal monthly installments of principal based on a 20-year
amortization period, and the term loan requires constant monthly payments of
principal to fully amortize the debt over the eight-year term. The Company
entered into an interest rate swap agreement with a major financial institution
which effectively fixes the interest rate over the terms of the aforementioned
agreements at 7.15%.
Interest is payable monthly on the Mortgage Notes Payable which have seven-year
terms. Equal monthly installments of principal are required based on 20-year
amortization periods.
The Company is a party to three additional interest rate swap agreements,
expiring in calendar years 2002 and 2003, with an aggregate notional amount of
$40.0 million. The purpose of these agreements is to limit the interest rate
exposure on the Company's floating rate debt. Fixed rates under these agreements
range from 5.21% to 6.25%.
Certain of the Company's long-term debt agreements require, among other things,
the maintenance of specified interest and rent coverage ratios and amounts of
tangible net worth. They also contain restrictions on dividend payments. The
Company is in compliance with these requirements at March 31, 2001. These
agreements permit mortgages and specific lease financing arrangements with other
parties with certain limitations.
As of March 31, 2001, the Company had cash and equivalents of $.8 million.
15
16
INFLATION
The Company does not believe its operations have been materially affected by
inflation. The Company has been successful, in many cases, in mitigating the
effects of merchandise cost increases principally through the use of volume
discounts and alternative vendors.
FINANCIAL ACCOUNTING STANDARDS
On June 17, 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 2000. This statement standardizes the accounting for derivatives and
hedging activities and requires that all derivatives be recognized in the
statement of financial position as either assets or liabilities at fair value.
Changes in the fair value of derivatives that do not meet the hedge accounting
criteria are to be reported in earnings. Adoption of this standard did not have
a material effect on the Company's financial position, results of operations or
cash flows in the first quarter of fiscal 2002.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from potential changes in interest rates.
The Company regularly evaluates these risks and has entered into four interest
rate swap agreements, expiring from 2002 to 2005, with an aggregate notional
amount of $42.3 million. The agreements limit the interest rate exposure on the
Company's floating rate debt via the exchange of fixed and floating rate
interest payments periodically over the life of the agreement without the
exchange of the underlying principal amounts. Fixed rates under these agreements
range from 5.21% to 7.15%.
At March 31, 2001 and 2000, approximately 2% and 1% respectively, of the
Company's long-term debt, excluding capital leases, is at fixed interest rates
and therefore, the fair value is affected by changes in market interest rates.
Long-term debt, including current portion, had a carrying amount of $57.1
million and a fair value of $55.2 million as of March 31, 2001, as compared to a
carrying amount of $66.9 million and a fair value of $65.3 million as of March
31, 2000. The Company's cash flow exposure on floating rate debt, which is not
supported by interest rate swap agreements, would have resulted in interest
expense fluctuating approximately $.5 million for each of the years ended March
31, 2001 and 2000, given a 1% change in LIBOR.
The Company believes the amount of risk and the use of derivative financial
instruments described above are not material to the Company's financial
condition or results of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Accountants...........................................18
Audited Financial Statements:
Consolidated Balance Sheet at March 31, 2001 and 2000..............19
Consolidated Statement of Income for the three
years ended March 31, 2001................................20
Consolidated Statement of Changes in Shareholders'
Equity for the three years ended March 31, 2001...........21
Consolidated Statement of Cash Flows for the three
years ended March 31, 2001................................22
Notes to Consolidated Financial Statements.........................23
Selected Quarterly Financial Information (Unaudited)........................38
17
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Monro Muffler Brake, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Monro
Muffler Brake, Inc. and its subsidiaries at March 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
May 16, 2001
18
19
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
MARCH 31,
---------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $751
in 2001 and $507 in 2000 $ 751 $ 507
Trade receivables 1,161 980
Inventories 41,071 39,698
Deferred income tax asset 899 1,415
Other current assets 5,885 5,537
---------------- --------------
Total current assets 49,767 48,137
---------------- --------------
Property, plant and equipment 209,420 202,779
Less - Accumulated depreciation and amortization (77,934) (68,904)
---------------- --------------
Net property, plant and equipment 131,486 133,875
Other noncurrent assets 12,586 14,013
---------------- --------------
Total assets $193,839 $196,025
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $10,646 $ 8,455
Trade payables 11,148 11,608
Federal and state income taxes payable 648 718
Accrued interest 477 288
Accrued payroll, payroll taxes and other payroll benefits 5,150 4,474
Accrued insurance 948 1,539
Accrued restructuring costs 400 1,210
Other current liabilities 7,152 7,969
---------------- --------------
Total current liabilities 36,569 36,261
Long-term debt 50,857 63,639
Other long-term liabilities 730 1,058
Accrued long-term restructuring costs 1,859 2,487
Deferred income tax liability 6,014 3,805
---------------- --------------
Total liabilities 96,029 107,250
---------------- --------------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.216 conversion
value; 150,000 shares authorized; 91,727 shares issued and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 8,373,678 shares
issued at March 31, 2001; 8,321,701 shares issued at March 31, 2000 84 83
Treasury Stock, 216,800 shares at March 31, 2001; 100,100 shares at
March 31, 2000; at cost (1,831) (803)
Additional paid-in capital 36,344 35,978
Retained earnings 63,075 53,379
---------------- --------------
Total shareholders' equity 97,810 88,775
---------------- --------------
Total liabilities and shareholders' equity $193,839 $196,025
================ ==============
The accompanying notes are an integral part of these financial statements.
19
20
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales $222,955 $223,605 $193,458
Cost of sales, including distribution and occupancy costs 133,196 134,169 115,117
------------- ----------- -----------
Gross profit 89,759 89,436 78,341
Operating, selling, general and administrative expenses 66,988 66,889 64,062
------------- ----------- -----------
Operating income 22,771 22,547 14,279
Interest expense, net of interest income of $95 in 2001, $56 in 2000
and $32 in 1999 5,768 6,831 5,600
Other expense, net 896 2,091 730
------------- ----------- -----------
Income before provision for income taxes 16,107 13,625 7,949
Provision for income taxes 6,411 5,418 3,203
------------- ----------- -----------
Net income $ 9,696 $ 8,207 $ 4,746
============= =========== ===========
Earnings per share:
Basic $ 1.19 $ .99 $ .57
============= =========== ===========
Diluted $ 1.09 $ .92 $ .53
============= =========== ===========
Weighted average number of shares of Common Stock and Common Stock equivalents
used in computing earnings per share:
Basic 8,182 8,305 8,317
============= =========== ===========
Diluted 8,891 8,964 8,997
============= =========== ===========
The accompanying notes are an integral part of these financial statements.
20
21
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
CLASS C
CONVERTIBLE ADDITIONAL
PREFERRED COMMON TREASURY PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS TOTAL
----------- ------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Balance at March 31, 1998 $138 $79 $ 29,284 $ 47,057 $ 76,558
Net income 4,746 4,746
Other comprehensive income (1):
Minimum pension liability adjustment (317) (317)
Exercise of stock options 462 462
Stock dividend 4 6,624 (6,629) (1)
Note receivable from shareholder (497) (497)
---- --- ------- -------- -------- --------
Balance at March 31, 1999 138 83 35,873 44,857 80,951
Net income 8,207 8,207
Other comprehensive income (1):
Minimum pension liability adjustment 315 315
Note receivable from shareholder 105 105
Purchase of treasury shares $ (803) (803)
---- --- ------- -------- -------- --------
Balance at March 31, 2000 138 83 (803) 35,978 53,379 88,775
Net income 9,696 9,696
Exercise of stock options 1 262 263
Note receivable from shareholder 104 104
Purchase of treasury shares (1,028) (1,028)
---- --- ------- -------- -------- --------
Balance at March 31, 2001 $138 $84 $(1,831) $ 36,344 $ 63,075 $ 97,810
==== === ======= ======== ======== ========
(1) Components of comprehensive income are reported net of related taxes of
$210.
The accompanying notes are an integral part of these financial statements.
21
22
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $9,696 $8,207 $ 4,746
----------- ----------- ------------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 12,963 13,058 11,751
Net change in deferred income taxes 2,725 1,736 708
(Gain) loss on disposal of property, plant and equipment (154) 59 (191)
(Increase) decrease in trade receivables (181) 311 (450)
Increase in inventories (1,330) (1,042) (4,385)
(Increase) decrease in other current assets (393) (477) 1,101
Decrease (increase) in other noncurrent assets 947 104 (1,780)
(Decrease) increase in trade payables (460) 1,863 (2,892)
(Decrease) increase in accrued expenses (1,205) (1,653) 1,134
Increase (decrease) in income taxes payable (70) 1,808 (1,090)
Decrease in other long-term liabilities (1,145) (1,393) (1)
----------- ----------- ------------
Total adjustments 11,697 14,374 3,905
----------- ----------- ------------
Net cash provided by operating activities 21,393 22,581 8,651
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures (11,045) (14,265) (23,310)
Proceeds from the sale of property, plant and equipment 1,113 2,235 8,114
Payment for purchase of Speedy stores (20,632)
----------- ------------ ------------
Net cash used for investing activities (9,932) (12,030) (35,828)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 77,050 121,067 147,155
Principal payments on long-term debt and capital
lease obligations (87,502) (135,907) (119,659)
Purchase of common stock (1,028) (803)
Exercise of stock options 263 462
Loan to shareholder (497)
----------- ----------- ------------
Net cash (used for) provided by financing activities (11,217) (15,643) 27,461
Increase (decrease) in cash 244 (5,092) 284
Cash at beginning of year 507 5,599 5,315
----------- ----------- ------------
Cash at end of year $ 751 $ 507 $ 5,599
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
22
23
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Monro Muffler Brake, Inc. and its wholly owned subsidiaries, Monro Service
Corporation and Monro Leasing, LLC (the "Company"), had 511 Company-operated and
19 dealer-operated automotive repair centers located primarily in the northeast
region of the United States as of March 31, 2001.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with such principles requires the use of
estimates by management during the reporting period. Actual results could differ
from those estimates.
A description of the Company's major accounting policies follows.
FISCAL YEAR
The Company's fiscal year ends on March 31.
CONSOLIDATION
The consolidated financial statements include the Company and its wholly owned
subsidiaries, Monro Service Corporation and Monro Leasing, LLC, after the
elimination of intercompany transactions and balances.
REVENUE RECOGNITION
Sales are recorded upon completion of automotive undercar repair services
provided to customers or upon the sale of incidental products and services to
customers.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income", at the beginning of fiscal 1999. As it
relates to the Company, comprehensive income is defined as net earnings less
minimum pension liability and is reported net of related taxes.
WARRANTY
The Company provides an accrual for estimated future warranty costs based upon
the historical relationship of warranty costs to sales. Actual expenses have not
materially differed from the accruals estimated in prior periods.
INVENTORIES
The Company's inventories consist of automotive parts and tires.
Substantially all merchandise inventories are valued under the last-in,
first-out (LIFO) method. Under the first-in, first-out (FIFO) method, these
inventories would have been $47,000, $124,000 and $170,000 higher at March 31,
2001, 2000 and 1999, respectively. The FIFO value of inventory approximates the
current replacement cost.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is provided on the straight-line basis. Buildings and
improvements are depreciated over lives varying from 10 to 39 years; machinery,
fixtures and equipment over lives varying from 5 to 15 years; and vehicles over
lives varying from 5 to 8 years.
Certain leases have been capitalized and are classified on the balance sheet as
fixed assets. These assets are being amortized on a straight-line basis over
their estimated lives, which coincide with the terms of the leases (Note 3).
23
24
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 121 ("SFAS
121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the Company assesses all long-lived assets, including
property, plant and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
GOODWILL
Goodwill is amortized on a straight-line basis over periods ranging from 7 to 20
years. In accordance with SFAS 121, the Company evaluates goodwill for
impairment at least annually or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
ADVERTISING
The Company expenses the production costs of advertising the first time the
advertising takes place, except for direct response advertising which is
capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of coupons for the Company's
services. The capitalized costs of this advertising are amortized over the
period of the coupon's validity, which ranges from six weeks to one year.
Prepaid advertising at March 31, 2001 and 2000 and advertising expense for the
years ended March 31, 2001, 2000 and 1999 were not material to these financial
statements.
STORE OPENING AND CLOSING COSTS
New store opening costs are charged to expense in the fiscal year when incurred.
When the Company closes a store, the estimated unrecoverable costs, including
the remaining lease obligation, are charged to expense.
INTEREST RATE HEDGE AGREEMENTS
The Company enters into interest rate hedge agreements which involve the
exchange of fixed and floating rate interest payments periodically over the life
of the agreements without the exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
The Company does not utilize financial instruments for trading or other
speculative purposes.
The Company adopted Statement of Financial Accounting Standards No. 133
effective April 1, 2001. Adoption of this standard did not have a material
effect on the Company's financial position, results of operations or cash flows.
TREASURY STOCK
In November 1999, the Board of Directors approved a share repurchase program
initially authorizing the Company to purchase up to 300,000 shares of its common
stock at market prices. In May 2000, the Board of Directors approved an increase
of 120,000 shares, bringing the total authorization to 420,000 shares. The
amount and timing of any purchase will depend upon a number of factors,
including the price and availability of the Company's shares and general market
conditions. The Company's purchases of common stock are recorded as "Treasury
Stock" and result in a reduction of "Shareholders' equity".
STOCK-BASED COMPENSATION
The Company measures stock-based compensation cost as the excess of the quoted
market price of the Company's common stock at the grant date over the amount the
employee must pay for the stock. The Company's policy generally is to grant
stock options at fair market value at the date of grant.
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid instruments with original maturities of three months or less to be cash
equivalents.
24
25
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RECLASSIFICATIONS
Certain amounts in the Consolidated Balance Sheet and the Consolidated Statement
of Cash Flows have been reclassified to improve reporting and maintain
comparability among the periods presented.
NOTE 2 - ACQUISITION OF SPEEDY U.S.A. STORES
In September 1998, the Company completed the acquisition of 189 company-operated
and 14 dealer-operated Speedy stores, all located in the United States, from SMK
Speedy International Inc. of Toronto Canada ("the Speedy acquisition"). Speedy
stores provide automotive repair services, specializing in undercar care, in 11
states located primarily in the northeast. The acquisition was accounted for as
a purchase, and accordingly, the operating results of Speedy have been included
in the Company's consolidated financial statements since the date of the
acquisition.
In connection with the acquisition, the Company recorded a reserve for accrued
restructuring costs of approximately $7.8 million. This reserve relates to costs
associated with the closing of 41 duplicative or poorly performing Speedy
stores, and includes charges for rent and real estate taxes (net of anticipated
sublease income), the write down of assets to their fair market value, and net
losses experienced by these stores through their closure date. The remaining
balance in the accrued restructuring reserve was $2.3 million at March 31, 2001.
The excess of the aggregate purchase price over the fair value of net assets
acquired of approximately $9.4 million is being amortized on a straight-line
basis over 20 years.
An investment banking firm associated with a principal shareholder/director of
the Company served as consultant to the Company in connection with the
acquisition and related financing (Note 12).
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are as follows:
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
----- ------ ----- ----- ------ -----
(DOLLARS IN THOUSANDS)
Land $27,143 $27,143 $26,267 $26,267
Buildings and
improvements 90,851 $6,950 97,801 88,206 $7,084 95,290
Equipment, signage
and fixtures 71,573 71,573 67,674 67,674
Vehicles 10,076 1,226 11,302 10,313 1,299 11,612
Construction-in-
progress 1,601 1,601 1,936 1,936
-------------- ------------- -------------- ------------ ---------- -----------
201,244 8,176 209,420 194,396 8,383 202,779
Less - Accumulated
depreciation and
amortization 72,436 5,498 77,934 63,808 5,096 68,904
-------------- ------------- -------------- ------------ ---------- -----------
$128,808 $2,678 $131,486 $130,588 $3,287 $133,875
============== ============= ============== ============ ========== ===========
Interest costs capitalized aggregated $343,000 in 2001 and $292,000 in 2000.
Amortization expense recorded under capital leases totaled $534,000, $552,000
and $470,000 for the years ended March 31, 2001, 2000 and 1999, respectively.
25
26
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
MARCH 31,
----------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Goodwill $ 9,094 $ 9,724
Deferred debt issuance costs 1,265 1,847
Barter trade credits 1,506 1,507
Non-compete agreements 172 283
Investment in limited partnership 292 310
Other 257 342
------- -------
$12,586 $14,013
======= =======
Accumulated amortization associated with noncurrent assets at March 31, 2001 and
2000 amounted to $3,542,000 and $2,486,000, respectively. Amortization expense
totaled $692,000, $795,000 and $510,000 for the years ended March 31, 2001, 2000
and 1999, respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31,
---------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Revolving Credit Facility $32,100 $35,350
Term loan financing, LIBOR-based,
due in installments through fiscal year 2004 (a) 17,500 21,250
Mortgage Notes Payable, LIBOR plus 1.0%, secured by store properties, due
in installments through 2003 (a) 4,182 6,740
Mortgage Note Payable, LIBOR plus .8%, secured by warehouse and
office building, due in installments through 2006 (a) 2,162 2,310
Term loan financing, LIBOR plus .8%, secured by warehouse and
office building, due in installments through 2004 (a) 239 332
Mortgage Note Payable, non-interest bearing, secured by warehouse and office
land, due in one installment in 2015 660 660
Other notes, 7.75% to 8.0%, partially secured by store equipment, due in
installments through 2008 212 272
Obligations under capital leases at various interest rates, secured by store
properties and certain equipment, due in installments through 2014 4,448 5,180
------------- -------------
61,503 72,094
Less - Current portion 10,646 8,455
------------- -------------
$50,857 $63,639
============= =============
(a) The prime rate at March 31, 2001 was 8.0%. The London Interbank
Offered Rate (LIBOR) at March 31, 2001 was 5.08%.
26
27
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Concurrent with the closing of the Speedy acquisition in September 1998, the
Company obtained a new $135 million secured credit facility from a syndication
of lenders led by The Chase Manhattan Bank. Approximately $55 million was
borrowed under this facility to pay the all-cash purchase price, including
transaction expenses of approximately $4 million. In addition, the Company
refinanced approximately $35 million of indebtedness through the new credit
facility, with the balance of the facility available for future working capital
needs. More specifically, the new financing structure consists of a $25 million
term loan (of which approximately $18 million was outstanding at March 31,
2001), a $75 million Revolving Credit facility (of which approximately $32
million was outstanding at March 31, 2001), and synthetic lease (off-balance
sheet) financing for a significant portion of the Speedy real estate, totaling
$35 million (of which approximately $32 million was outstanding at March 31,
2001). The loans bear interest at the prime rate or other LIBOR-based rate
options tied to the Company's financial performance. The Company must also pay a
facility fee on the unused portion of the commitment.
The credit facility has a five-year term. Interest only is payable monthly on
the Revolving Credit and synthetic lease borrowings throughout the term. In
addition to monthly interest payments, the $25 million term loan requires
quarterly principal payments which began September 30, 1999.
The term loan and Revolving Credit facility are secured by all accounts
receivable, inventory and other personal property. The Company has also entered
into a negative pledge agreement not to encumber any real property, with certain
permissible exceptions. The synthetic lease is secured by the real property to
which it relates.
Within the aforementioned $75 million Revolving Credit facility, the Company has
available a subfacility of $7 million for the purpose of issuing stand-by
letters of credit. The line requires fees aggregating 1.875% annually of the
face amount of each stand-by-letter of credit, payable quarterly in arrears. No
letters of credit were outstanding under this line at March 31, 2001.
During fiscal 1995, the Company purchased 12.7 acres of land for $.7 million
from the City of Rochester, New York, on which its office/warehouse facility is
located. The City has provided financing for 100 percent of the cost of the land
via a 20-year non-interest bearing mortgage, all due and payable in 2015.
To finance its office/warehouse building, the Company obtained permanent
mortgage financing consisting of a 10-year mortgage for $2.9 million and an
eight-year term loan in the amount of $.7 million. Both obligations require
monthly interest payments, and each may be converted from a floating rate to a
fixed rate loan before the last two years of their respective terms. The
mortgage requires equal monthly installments of principal based on a 20-year
amortization period, and the term loan requires constant monthly payments of
principal to fully amortize the debt over the eight-year term. The Company
entered into an interest rate swap agreement with a major financial institution
which effectively fixes the interest rate over the terms of the aforementioned
agreements at 7.15%.
Interest is payable monthly on the Mortgage Notes Payable which have seven year
terms. Equal monthly installments of principal are required based on 20-year
amortization periods.
The Company is a party to three additional interest rate swap agreements,
expiring in calendar years 2002 and 2003, with an aggregate notional amount of
$40.0 million. The purpose of these agreements is to limit the interest rate
exposure on the Company's floating rate debt. Fixed rates under these agreements
range from 5.21% to 6.25%.
Certain of the Company's long-term debt agreements require, among other things,
the maintenance of specified interest and rent coverage ratios and amounts of
tangible net worth. They also contain restrictions on dividend payments. The
Company is in compliance with these requirements at March 31, 2001. These
agreements permit mortgages and specific lease financing arrangements with other
parties with certain limitations.
27
28
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Aggregate debt maturities over the next five years and thereafter are as
follows:
CAPITAL LEASES
--------------
AGGREGATE IMPUTED ALL OTHER
YEAR ENDED MARCH 31, AMOUNT INTEREST DEBT TOTAL
-------------------- ------ -------- ---- -----
(DOLLARS IN THOUSANDS)
2002 $1,260 $(629) $10,015 $10,646
2003 1,004 (555) 10,361 10,810
2004 914 (514) 34,235 34,635
2005 876 (466) 164 574
2006 754 (412) 164 506
Thereafter 3,282 (1,067) 2,117 4,332
----------
Total $61,503
==========
The interest amounts and balloon payment due under the synthetic lease financing
are treated as operating rent commitments, and are excluded from this table of
aggregate debt maturities (Note 10).
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of the following:
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
------ ------ ----- ------ ------ -----
(DOLLARS IN THOUSANDS)
LIABILITIES
Long-term debt, including current portion $57,055 $55,168 $66,914 $65,332
DERIVATIVE INSTRUMENTS
Interest rate swap agreements $42,333 $50,086
The fair value of cash and cash equivalents, accounts receivable and accounts
payable, approximated book value at March 31, 2001 and 2000 because their
maturity is generally less than one year in duration. The fair value of
long-term debt was estimated based on discounted cash flow analyses using either
quoted market prices for the same or similar issues, or the current interest
rates offered to the Company for debt with similar maturities.
While it is not the Company's intention to terminate its derivative financial
instruments, fair values were estimated, based on market rates or quotes from
brokers, which represented the amounts that the Company would receive or pay if
the instruments were terminated at the balance sheet dates. These fair values
indicated that the termination of interest rate swaps would have resulted in a
$.6 million loss and a $2.1 million gain, as of March 31, 2001 and 2000,
respectively.
28
29
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
The components of the provision for income taxes are as follows:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Currently payable -
Federal $3,092 $2,920 $2,075
State 594 762 630
--------- --------- ---------
3,686 3,682 2,705
--------- --------- ---------
Deferred -
Federal 2,322 1,392 423
State 403 344 75
--------- --------- ----------
2,725 1,736 498
--------- --------- ----------
Total $6,411 $5,418 $3,203
========= ========= ==========
Deferred tax (liabilities) assets consist of the following:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Property and equipment basis differences $(4,472) $(2,858) $(2,591)
Prepaid expenses (360) (371) (417)
Partnership investment (304) (316) (389)
Goodwill (1,153) (793)
Capital leases (362)
Pension (507) (192) (83)
Other (134) (139) (159)
------------------ ----------------- -----------------
Gross deferred tax liabilities (7,292) (4,669) (3,639)
------------------ ----------------- -----------------
Capital leases 165 548
Insurance accruals 505 715 748
Vacation accrual 307 306 330
Warranty and other reserves 597 649 558
Other 768 444 801
----------------- ----------------- -----------------
Gross deferred tax assets 2,177 2,279 2,985
----------------- ----------------- -----------------
Net deferred tax liability $(5,115) $(2,390) $ (654)
================= ================ ================
The Company has $4.3 million of net operating loss carryforwards available as of
March 31, 2001. The carryforwards expire in varying amounts from 2004 through
2020.
29
30
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A reconciliation between the U. S. Federal statutory tax rate and the effective
tax rate reflected in the accompanying financial statements is as follows:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Federal income tax based on
statutory tax rate applied
to income before taxes $5,571 34.6 $4,669 34.3 $2,703 34.0
State income tax, net of
Federal income tax benefit 759 4.7 671 4.9 465 5.9
Other 81 .5 78 .6 35 .4
----------- -------- ------------ ------------ ------------ ------------
$6,411 39.8 $5,418 39.8 $3,203 40.3
=========== ======== ============ ============ ============ ============
NOTE 8 - CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
A summary of the changes in the number of shares of Class C preferred stock and
common stock is as follows:
CLASS C
COMMON CONVERTIBLE
STOCK PREFERRED TREASURY
SHARES STOCK SHARES STOCK
ISSUED ISSUED SHARES
------ ------ ------
Balance at March 31, 1998 7,876,901 91,727
Stock options exercised 51,030
Stock dividend 393,770
------------ ---------------
Balance at March 31, 1999 8,321,701 91,727
Purchase of treasury shares 100,100
------------ --------------- -------------
Balance at March 31, 2000 8,321,701 91,727 100,100
Stock options exercised 51,977
Purchase of treasury shares 116,700
------------ --------------- -------------
Balance at March 31, 2001 8,373,678 91,727 216,800
============ =============== =============
On May 13, 1998, the Board of Directors declared a five percent stock dividend
on the Company's common stock, paid June 18, 1998, to shareholders of record as
of June 8, 1998. All share and per share information included in the
accompanying financial statements and notes have been adjusted to give
retroactive effect to this dividend.
Additionally, in accordance with antidilution provisions of the Class C
convertible preferred stock, the conversion value of the preferred stock was
restated to $.216 per share.
Holders of at least 60% of the Class C preferred stock must approve any action
authorized by the holders of common stock. In addition, there are certain
restrictions on the transferability of shares of Class C preferred stock.
Under the 1984 and 1987 Incentive Stock Option Plans, 727,672 shares (as
retroactively adjusted for stock dividends) of the common stock were reserved
for issuance to officers and key employees. The 1989 Incentive Stock Option Plan
authorized an additional 173,255 shares (as retroactively adjusted for stock
dividends) for issuance.
In January 1994, May 1995 and May 1997, the Board of Directors authorized an
additional 257,809, 109,974 and 210,000 shares, respectively (as retroactively
adjusted for stock dividends), for issuance under the 1989 Plan. These amounts
were approved by shareholders in August 1994, August 1995 and August 1997,
respectively.
30
31
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In November 1998, the Board of Directors authorized the 1998 Incentive Stock
Option Plan, reserving 750,000 shares of common stock for issuance to officers
and key employees. The Plan was approved by shareholders in August 1999.
Generally, options vest within the first five years of their term, and have a
duration of ten years. Outstanding options are exercisable for various periods
through March 2011.
A summary of changes in outstanding stock options (as retroactively adjusted for
stock dividends) is as follows:
WEIGHTED AVERAGE AVAILABLE
EXERCISE PRICE OUTSTANDING EXERCISABLE FOR GRANT
-------------- ----------- ----------- ---------
At March 31, 1998 $ 11.81 418,873 201,901 338,541
Authorized 750,000
Granted $ 9.01 547,888 (547,888)
Became exercisable 66,464
Exercised $ 9.06 (51,030) (51,030)
Canceled $ 12.38 (9,136) (4,018) 9,136
Rounding for stock dividend (18) (3)
----------- ------------ ------------
At March 31, 1999 $ 10.26 906,577 213,314 549,789
Granted $ 8.11 30,000 (30,000)
Became exercisable 161,069
Canceled $ 13.79 (96,452) (31,434) 96,452
----------- ------------ ------------
At March 31, 2000 $ 9.78 840,125 342,949 616,241
Granted $ 8.15 94,250 (94,250)
Became exercisable 106,484
Exercised $ 5.05 (51,977) (51,977)
Canceled $ 11.00 (22,594) (11,096) 22,594
----------- ------------ ------------
At March 31, 2001 $ 10.03 859,804 386,360 544,585
=========== ============ ============
The following table summarizes information about fixed stock options outstanding
at March 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF SHARES REMAINING EXERCISE SHARES EXERCISE
EXERCISE PRICES UNDER OPTION LIFE PRICE UNDER OPTION PRICE
--------------- ------------ ---- ----- ------------ -----
$ 6.31 - $10.00 570,675 6.94 $ 7.91 139,281 $ 7.82
$10.01 - $15.00 228,229 4.00 $13.57 214,975 $13.48
$15.01 - $17.58 60,900 4.23 $16.63 32,104 $16.67
In August 1994, the Board of Directors authorized a non-employee directors'
stock option plan which was approved by shareholders in August 1995. The Plan
initially reserved 66,852 shares of common stock (as retroactively adjusted for
stock dividends), and provides for (i) the grant to each non-employee director
as of August 1, 1994 of an option to purchase 3,039 shares of the Company's
common stock (as retroactively adjusted for stock dividends) and (ii) the annual
grant to each non-employee director of an option to purchase 3,039 shares (as
retroactively adjusted for stock dividends) on the date of the annual meeting of
shareholders beginning in 1995. The options expire ten years from the date of
grant and have an exercise price equal to the fair market value of the Company's
common stock on the date of grant. Options vest immediately upon issuance.
31
32
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In May 1997 and May 1999, the Board of Directors authorized an additional 68,250
and 65,000 shares, respectively (as retroactively adjusted for stock dividends)
for issuance under the Plan. These amounts were approved by shareholders in
August 1997 and August 1999, respectively.
A summary of changes in these stock options is as follows:
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
--------- ----------- ----------- ---------
AT MARCH 31, 1998 $12.74 - $17.01 85,084 85,084 50,018
Granted $12.63 21,273 21,273 (21,273)
----------- ---------- -----------
AT MARCH 31, 1999 $12.63 - $17.01 106,357 106,357 28,745
Authorized 65,000
Granted $7.50 21,273 21,273 (21,273)
----------- ---------- -----------
AT MARCH 31, 2000 $7.50 - $17.01 127,630 127,630 72,472
Granted $9.38 21,273 21,273 (21,273)
----------- ---------- ------------
AT MARCH 31, 2001 $7.50 - $17.01 148,903 148,903 51,199
=========== ========== ============
As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation", the Company measures
stock-based compensation cost as the excess of the quoted market price of the
Company's common stock at the grant date over the amount the employee must pay
for the stock. However, SFAS 123 requires disclosure of pro forma net income and
pro forma net income per share as if the fair value-based method had been
applied in measuring compensation cost for the stock-based awards granted
subsequent to fiscal year 1995. Management believes that 2000 and 1999 pro forma
amounts are not representative of the effects of stock-based awards on future
pro forma net income and pro forma earnings per share because those pro forma
amounts exclude the pro forma compensation expense related to unvested stock
options granted before fiscal 1996.
Reported and pro forma net income and earnings per share amounts are set forth
below:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income
As reported $9,696 $8,207 $4,746
Pro forma 9,132 7,518 3,978
Earnings per share - diluted
As reported $1.09 $ .92 $ .53
Pro forma $1.01 $ .84 $ .44
The weighted average fair value per option at the date of grant for options
granted during fiscal 2001, 2000 and 1999 was $4.36, $4.30 and $4.40,
respectively.
32
33
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The fair values of the options granted were estimated on the date of their grant
using the Black-Scholes option-pricing model based on the following weighted
average assumptions:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
Risk free interest rate 6.02% 6.29% 4.83%
Expected life 9 years 9 years 9 years
Expected volatility 29.7% 30.0% 30.5%
Expected dividend yield 0% 0% 0%
Forfeitures are recognized as they occur.
NOTE 9 - EARNINGS PER COMMON SHARE
The following is a reconciliation of basic and diluted earnings per common share
for the respective years:
FISCAL YEAR
-----------
2001 2000 1999
---- ---- ----
NUMERATOR FOR EARNINGS PER COMMON SHARE CALCULATION:
Net income $9,696 $8,207 $4,746
=========== =========== ============
DENOMINATOR FOR EARNINGS PER COMMON SHARE CALCULATION:
Weighted average common shares, basic 8,182 8,305 8,317
Effect of dilutive securities:
Preferred stock 636 636 636
Stock options 73 23 44
----------- ----------- ------------
Weighted average common shares, diluted 8,891 8,964 8,997
=========== =========== ============
BASIC EARNINGS PER COMMON SHARE: $ 1.19 $ .99 $ .57
=========== =========== ============
DILUTED EARNINGS PER COMMON SHARE: $ 1.09 $ .92 $ .53
=========== =========== ============
NOTE 10 - OPERATING LEASES AND OTHER COMMITMENTS
The Company leases retail facilities and store equipment under noncancellable
lease agreements which expire at various dates through fiscal year 2017. In
addition to stated minimum payments, certain real estate leases have provisions
for contingent rentals when retail sales exceed specified levels. Generally, the
leases provide for renewal for various periods at stipulated rates. Most of the
facilities' leases require payment of property taxes, insurance and maintenance
costs in addition to rental payments, and several provide an option to purchase
the property at the end of the lease term.
In recent years, the Company has entered into agreements for the sale/leaseback
of certain stores, and into agreements for the sale/leaseback of store
equipment. The Company has lease renewal options under the real estate
agreements at projected future fair market values, and has both purchase and
renewal options under the equipment lease agreements. Realized gains are
deferred and are credited to income as rent expense adjustments over the lease
terms.
33
34
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Future minimum payments required under noncancellable leases are as follows:
LESS-
SUBLEASE
YEAR ENDED MARCH 31, SYNTHETIC LEASE OTHER INCOME TOTAL
- -------------------- --------------- ----- ------ -----
(DOLLARS IN THOUSANDS)
2002 $2,214 $14,520 $ (559) $16,175
2003 2,214 13,495 (464) 15,245
2004 27,999 11,465 (372) 39,092
2005 9,736 (310) 9,426
2006 7,711 (201) 7,510
Thereafter 24,759 (383) 24,376
---------- ------------ ----------- -----------
Total $32,427 $81,686 $(2,289) $111,824
========== ============ =========== ===========
Rent expense under operating leases, net of sublease income, totaled
$16,444,000, $16,406,000 and $13,019,000 in 2001, 2000 and 1999, respectively,
including contingent rentals of $347,000, $428,000 and $508,000 in each
respective year. Sublease income totaled $657,000, $704,000 and $440,000,
respectively, in 2001, 2000 and 1999.
Future minimum lease commitments include amounts payable under the synthetic
lease agreement structured to finance most of the real estate in the Speedy
acquisition (Notes 2 and 5). Should the Company or the lessor choose not to
renew the lease at the end of its initial five year term, the Company may buy
all of the properties (including closed stores) for their original acquisition
cost of $32.4 million. Alternatively, the properties will be sold, and the
Company has guaranteed a residual value of 81.5% of the acquisition cost. Of the
$28.0 million commitment for fiscal year 2004, approximately $26.4 million
represents the minimum principal amount (i.e. the guaranteed residual) due on
September 15, 2003, should the synthetic lease not be renewed. Renewal options
provide for one five year renewal term and 30 additional renewal terms of one
year each.
The Company has entered into various contracts with parts suppliers which
require it to buy up to 90% of its annual purchases of specific products
including brakes, exhaust, oil and ride control at market prices. The agreements
expire at various dates through December 2004. The Company believes these
agreements provide it with high quality, branded merchandise at preferred
pricing, along with strong marketing and training support.
NOTE 11 - EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
The Company has a noncontributory defined benefit plan that is available to
certain full-time employees who were employed with the Company prior to April 2,
1998. The Company's Board of Directors approved a plan whereby the benefits of
the defined benefit plan would be frozen and the plan would be closed to new
participants as of that date. Prior to this amendment, coverage under the plan
began after completing one year of service and attainment of age 21. Benefits
were based primarily on years of service and employees' pay near retirement. The
Company's funding policy is consistent with the funding requirements of Federal
law and regulations. Plan assets are invested in fixed income funds.
34
35
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The funded status of the plan at March 31 is set forth below:
YEAR ENDED MARCH 31,
--------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $5,289 $4,755
Actual return on plan assets 874 25
Employer contribution 631 785
Benefits paid (593) (276)
------------ -----------
Fair value of plan assets at end of year 6,201 5,289
------------ -----------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year 5,139 5,936
Service cost 280
Interest cost 417 415
Impact of amendments (560)
Actuarial loss (gain) 1,004 (656)
Benefits paid (593) (276)
----------- -----------
Benefit obligation at end of year 5,967 5,139
------------ -----------
Funded status of plan 234 150
Unrecognized net loss 900 420
Unrecognized net transition asset (29) (58)
------------ -----------
Pension asset at March 31 $1,105 $ 512
============ ===========
Pension cost included the following components:
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Interest cost on projected benefit obligation $ 417 $ 415 $ 379
Expected return on plan assets (401) (395) (365)
Service cost - benefits earned during the period 280 474
Amortization of net transition asset (29) (29) (29)
Amortization of prior service cost 3 3
Recognized actuarial loss 50 42 72
Curtailment 16
-------- --------- ---------
Net pension cost $ 37 $332 $534
======== ========= =========
The projected benefit obligation at March 31, 2001 and 2000 assumed discount
rates of 7.5% and 8.0%, respectively. Increase in future compensation levels was
assumed to be 4.0% in 2000. The assumed long-term rate of return on plan assets
at March 31, 2001 and 2000 was 8.0%.
The unrecognized transition asset is being amortized over 15 years beginning
April 1, 1988. The unrecognized prior service cost is being amortized over 15
years beginning April 1, 1990.
35
36
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has a 401(k)/profit sharing plan which covers full-time employees
who meet the age and service requirements of the plan. The 401(k) salary
deferral option was added to the plan during fiscal 2000. The first employee
deferral occurred in March 2000. The Company makes matching contributions
consistent with the provisions of the plan. The Company's matching contributions
for fiscal 2001 and 2000 amounted to approximately $467,000 and $41,000,
respectively. The Company may also make annual profit sharing contributions to
the plan at the discretion of the Compensation and Benefits Committee of the
Board of Directors. For years ended March 31, 2000 and 1999, the Company
contributed $80,000 and $100,000, respectively, inclusive of forfeitures.
The Company's management bonus plan provides for the payment of annual cash
bonus awards to participating employees, as selected by the Board of Directors,
based primarily on the Company's attaining pre-tax income targets established by
the Board of Directors. Charges to expense applicable to the management bonus
plan totaled $642,000, $207,000 and $127,000 for the years ended March 31, 2001,
2000 and 1999, respectively. In addition, in August 1998, during the search for
a permanent Chief Executive Officer, the Company's Board of Directors voted to
award a $100,000 retention bonus to its Executive Vice President of Store
Operations. The bonus was paid in April 1999. The Company also paid a $150,000
signing bonus to its new Chief Executive Officer in January 1999 upon his
joining the Company. Because the Company did not attain a minimum required
percentage of targeted profit performance in fiscal 1999 and 2000, expense for
those years does not include any bonus amounts related to profit performance for
executive officers.
NOTE 12 - RELATED PARTY TRANSACTIONS
In December 1998, the Company loaned $523,000 to its newly-appointed Chief
Executive Officer to purchase 75,000 shares of the Company's common stock at the
then fair market value. (This loan was made subsequent to the Executive's
purchase of 25,000 shares using his own funds.) The loan, which bears an
interest rate of 5.5% per annum, matures on December 1, 2003, and requires five
equal annual installments of principal beginning on the first anniversary of the
loan. If the Executive is employed with the Company when a principal payment is
due, that installment will be forgiven by the Company. All interest is due on
the fifth anniversary of the loan, and shall also be forgiven if the Executive
is employed with the Company at that time. The loan is secured by the common
stock.
Certain (a) principal shareholders/directors of the Company, (b) partnerships in
which such persons have interests or (c) trusts of which members of their
families are beneficiaries are lessors of certain facilities to the Company.
Payments under such operating and capital leases amounted to $1,694,000,
$1,713,000 and $1,783,000 for the years ended March 31, 2001, 2000 and 1999,
respectively. Amounts payable under these lease agreements totaled $39,000 and
$53,000, respectively, at March 31, 2001 and 2000.
No related party leases, other than renewals or modifications of leases on
existing stores, have been entered into since May 1989, and no new leases are
contemplated.
The Company has a management agreement with an investment banking firm
associated with a principal shareholder/director of the Company to provide
financial advice. The agreement provides for an annual fee of $160,000, plus
reimbursement of out-of-pocket expenses. During fiscal 2001, 2000 and 1999, the
Company incurred fees of $160,000 annually under this agreement. In addition,
this investment banking firm, from time to time, provides additional investment
banking services to the Company for customary fees. This firm provided financial
advisory services to the Company in connection with the acquisition of and
financing for Speedy Muffler King Inc., for fees of approximately $1 million in
fiscal 1999 (Note 2).
Approximately half of all payments made to the investment banking firm are paid
to another principal shareholder/director of the Company.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following transactions represent noncash investing and financing activities
during the periods indicated:
YEAR ENDED MARCH 31, 2001
In connection with the termination of capital leases, the Company reduced debt
and fixed assets by $141,000 and $75,000 respectively, and recorded a gain of
$67,000.
36
37
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In connection with the sale of assets, the Company reduced fixed assets, other
current liabilities and accrued long-term restructuring costs by $736,000,
$84,000 and $440,000, respectively, and increased other current assets by
$212,000.
YEAR ENDED MARCH 31, 2000
Capital lease obligations of $85,000 were incurred under various lease
agreements.
In connection with the termination of a capital lease, the Company reduced debt
and fixed assets by $331,000 and $196,000, respectively, and recorded a gain of
$135,000.
In connection with the sale of assets, the Company reduced fixed assets and
accrued long-term restructuring costs by $1,382,000 and $329,000, respectively,
and increased other current assets and other non-current assets by $58,000 and
$995,000, respectively.
YEAR ENDED MARCH 31, 1999
In connection with the acquisition of Speedy stores (Note 2), liabilities were
assumed as follows:
(DOLLARS IN THOUSANDS)
Fair value of assets acquired $31,985
Cash paid 20,632
-------
Liabilities assumed $11,353
=======
These amounts do not include real property assets financed under the synthetic
lease arrangement. These assets were purchased at their fair market value of
$34.8 million in September 1998 by a third party lessor on behalf of the Company
(Note 5).
Capital lease obligations of $1,179,000 were incurred under various lease
agreements.
In connection with the declaration of a five percent stock dividend (Note 8),
the Company increased accrued expenses, common stock and additional paid-in
capital by $1,000, $4,000 and $6,624,000, respectively, and decreased retained
earnings by $6,629,000.
YEAR ENDED MARCH 31,
--------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Cash paid during the year:
Interest, net $5,519 $6,728 $5,602
Income taxes, net $3,755 $2,084 $3,589
NOTE 14 - LITIGATION
The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. In management's opinion,
the outcome of such current legal proceedings is not expected to have a material
effect on future operating results or on the Company's consolidated financial
position.
37
38
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The following table sets forth income statement data by quarter for the fiscal
years ended March 31, 2001 and 2000.
QUARTER ENDED
-------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
2000 2000 2000 2001
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales $60,693 $60,398 $51,792 $50,072
Cost of sales 34,826 35,273 31,952 31,145
------- ------- ------- -------
Gross profit 25,867 25,125 19,840 18,927
Operating, selling, general
and administrative expenses 18,437 17,675 15,930 14,946
------- ------- ------- -------
Operating income 7,430 7,450 3,910 3,981
Interest expense, net 1,600 1,525 1,399 1,244
Other expense, net 105 157 239 395
------- ------- ------- -------
Income before provision for income taxes 5,725 5,768 2,272 2,342
Provision for income taxes 2,278 2,296 904 933
------- ------- ------- -------
Net income $ 3,447 $ 3,472 $ 1,368 $ 1,409
======= ======= ======= =======
Basic earnings per share $ .42 $ .42 $ .17 $ .17
======= ======= ======= =======
Diluted earnings per share (a) $ .39 $ .39 $ .15 $ .16
======= ======= ======= =======
Weighted average number of shares of
Common Stock and Common Stock equivalents
used in computing earnings per share: Basic 8,203 8,197 8,177 8,151
Diluted 8,882 8,930 8,884 8,865
1999 1999 1999 2000
------- ------- ------- -------
Sales $60,979 $60,513 $52,077 $50,036
Cost of sales 35,391 35,356 32,145 31,277
------- ------- ------- -------
Gross profit 25,588 25,157 19,932 18,759
Operating, selling, general
and administrative expenses 19,082 17,727 15,807 14,273
------- ------- ------- -------
Operating income 6,506 7,430 4,125 4,486
Interest expense, net 1,717 1,689 1,692 1,733
Other expense, net 315 400 524 852
------- ------- ------- -------
Income before provision for income taxes 4,474 5,341 1,909 1,901
Provision for income taxes 1,781 2,128 760 749
------- ------- ------- -------
Net income $ 2,693 $ 3,213 $ 1,149 $ 1,152
======= ======= ======= =======
Basic earnings per share $ .32 $ .39 $ .14 $ .14
======= ======= ======= =======
Diluted earnings per share (a) $ .30 $ .36 $ .13 $ .13
======= ======= ======= =======
Weighted average number of shares of
Common Stock and Common Stock equivalents
used in computing earnings per share: Basic 8,322 8,322 8,322 8,255
Diluted 8,977 8,975 8,973 8,930
(a) Earnings per share for each period was computed by dividing net income by
the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the respective quarters.
38
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the directors and executive officers of the Company is
incorporated herein by reference to the section captioned "Election of
Directors" and "Executive Officers", respectively, in the Proxy Statement.
Information concerning required Section 16(a) disclosure is incorporated herein
by reference to the section captioned "Compliance with Section 16(a) of the
Exchange Act" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to the section captioned "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference to the sections captioned
"Security Ownership of Principal Shareholders, Directors and Executive Officers"
and "Election of Directors" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated herein by reference to the sections captioned "Compensation
Committee Interlocks and Insider Participation" and "Certain Transactions" in
the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Reference is made to Item 8 of Part II hereof.
FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the Financial
Statements or the notes thereto.
EXHIBITS
Reference is made to the Index to Exhibits accompanying this Form 10-K
as filed with the Securities and Exchange Commission. The Company will
furnish to any shareholder, upon written request, any exhibit listed
in such Index to Exhibits upon payment by such shareholder of the
Company's reasonable expenses in furnishing any such exhibit.
REPORTS ON FORM 8-K
A report on Form 8-K was filed on March 23, 2001 reporting the Board
of Directors' resolution to change the Company's fiscal year end from
March 31 to the last Saturday in March. The change is effective
beginning with fiscal year 2002 which begins on April 1, 2001.
39
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MONRO MUFFLER BRAKE, INC.
(Registrant)
By /s/ Robert G. Gross
------------------------------
Robert G. Gross
President and Chief Executive Officer
Date: June 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of June 22, 2001.
Signature Title
- --------- -----
/s/ Catherine D'Amico Senior Vice President-Finance, Chief
- --------------------- Financial Officer and Treasurer
Catherine D'Amico (Principal Financial and Accounting Officer)
Burton S. August* Director
Charles J. August* Director
Robert W. August* Director
Frederick M. Danziger* Director
Jack M. Gallagher* Director
Donald Glickman* Director
Peter J. Solomon* Director
Lionel B. Spiro* Director
W. Gary Wood* Director
*By /s/ Robert G. Gross
--------------------------------
Robert G. Gross
Chief Executive Officer,
Director and as Attorney-in-Fact
40
41
INDEX TO EXHIBITS
-----------------
The following is a list of all exhibits filed herewith or incorporated by
reference herein:
Exhibit No. Page Document
- ----------- ---- --------
3.01* Restated Certificate of Incorporation of the
Company, dated July 23, 1991, with Certificate of
Amendment, dated November 1, 1991. (1992 Form
10-K, Exhibit No. 3.01)
3.02* Restated By-Laws of the Company, dated July 23,
1991. (Amendment No. 1, Exhibit No. 3.04)
10.02* Non-Employee Directors' Stock Option Plan. (March
2001 Form S-8, Exhibit No. 4.1)**
10.02a* Amendment, dated as of May 12, 1997, to the
Non-Employee Directors' Stock Option Plan. (March
2001 Form S-8, Exhibit No. 4.2) **
10.02b* Amendment, dated as of May 18, 1999, to the
Non-Employee Directors' Stock Option Plan. (March
2001 Form S-8, Exhibit No. 4.3) **
10.03* 1989 Employees' Incentive Stock Option Plan, as
amended through December 23, 1992. (December 1992
Form S-8, Exhibit No. 4-3)**
10.03a* Amendment, dated as of January 25, 1994, to the
1989 Employees' Incentive Stock Option Plan. (1994
Form 10-K, Exhibit No. 10.03a and March 2001 Form
S-8, Exhibit No. 4.2)**
10.03b* Amendment, dated as of May 17, 1995, to the 1989
Employees' Incentive Stock Option Plan (1995 Form
10-K, Exhibit No. 10.03b and March 2001 Form S-8,
Exhibit No. 4.3) **
10.03c* Amendment, dated as of May 12, 1997, to the 1989
Employees' Incentive Stock Option Plan (1997 Form
10-K, Exhibit No. 10.03c and March 2001 Form S-8,
Exhibit No. 4.4)**
10.03d* Amendment, dated as of January 29, 1998 to the
1989 Employees' Incentive Stock Option Plan (1998
Form 10-K, Exhibit No. 10.03d)**
10.04* Retirement Plan of the Company, as amended and
restated effective as of April 1, 1989. (September
1993 Form 10-Q, Exhibit No. 10)**
10.05* Profit Sharing Plan, amended and restated as of
April 1, 1993. (1995 Form 10-K, Exhibit No. 10.05)
**
10.05a* Amendment, dated as of ______________, to the
Profit Sharing Plan. (June 2001 Form S-8, Exhibit
No. 4)**
10.06* Amended and Restated Employment Agreement, dated
February 16, 1999, by and between the Company and
Robert G. Gross. (December 1998 Form 10-Q, Exhibit
No. 10.1)**
10.07* Amended and Restated Secured Loan Agreement, dated
February 16, 1999, by and between the Company and
Robert G. Gross. (December 1998 Form 10-Q, Exhibit
No. 10.2)**
10.08* 1998 Stock Option Plan, effective November 18,
1998. (December 1998 Form 10-Q, Exhibit No. 10.3
and March 2001 Form S-8, Exhibit No. 4)**
- ---------------------
42
Exhibit No. Page Document
- ----------- ---- --------
10.09* Credit Agreement, dated as of September 15, 1998,
by and among the Company, The Chase Manhattan
Bank, as agent, and certain lenders party thereto.
(September 1998 Form 10-Q, Exhibit No. 10.1)**
10.09a* Amendment to "Credit Agreement" dated as of May
31, 1999, by and among the Company, The Chase
Manhattan Bank, as agent, and certain lenders
party thereto. (September 1999 Form 10-Q, Exhibit
No. 10.01)
10.10* Credit Agreement, dated as of September 15, 1998,
executed by and among Brazos Automotive
Properties, L.P., The Chase Manhattan Bank, and
certain lenders party thereto. (September 1998
Form 10-Q, Exhibit No. 10.2)
10.11* Residual Guaranty, dated as of September 15, 1998,
between the Company and The Chase Manhattan Bank.
(September 1998 Form 10-Q, Exhibit No. 10.3)
10.12* Agreement for Facilities Lease, dated as of
September 15, 1998, between Brazos Automotive
Properties, L.P. and Monro Leasing LLC. (September
1998 Form 10-Q, Exhibit No. 10.4)
10.13* Facilities Lease Agreement, dated as of September
15, 1998, between Brazos Automotive Properties,
L.P. and Monro Leasing LLC. (September 1998 Form
10-Q, Exhibit No. 10.5)
10.14* Agreement for Ground Lease, dated as of September
15, 1998, between Brazos Automotive Properties,
L.P. and Monro Leasing LLC. (September 1998 Form
10-Q, Exhibit No. 10.6)
10.15* Ground Lease Agreement, dated as of September 15,
1998, between Brazos Automotive Properties, L.P.
and Monro Leasing LLC. (September 1998 Form 10-Q,
Exhibit No. 10.7)
10.16* Guaranty, dated as of September 15, 1998, between
the Company and Brazos Automotive Properties, L.P.
(September 1998 Form 10-Q, Exhibit No. 10.8)
10.17* Agreement of Sublease, dated as of September 15,
1998, by and among Monro Leasing LLC, the Company
and Brazos Automotive Properties, L.P. (September
1998 Form 10-Q, Exhibit No. 10.9)
10.18* Modification and Extension Agreement, dated August
12, 1991, between AA & L Associates, L.P. and the
Company, with respect to Store No. 1. (1992 Form
10-K, Exhibit No. 10.18)
10.19* Sublease, dated June 1, 1980, among August, August
and Lane Co-venture and the Company, with
Amendment of Lease, dated July 11, 1984, and
assigned by August, August and Lane Co-venture to
AA & L Associates, L.P., effective January 2, 1996
with respect to Store No. 3. (Form S-1, Exhibit
No. 10.19)
10.19a* Assignment of Lease, effective January 2, 1996,
among August, August and Lane Co-venture and AA &
L Associates, L.P. and August, August and Lane of
Rochester LLC, with respect to Store Nos. 3, 12,
17, 44, 49, 51, 52, 54, 58, 31, 33 and 34. (1999
Form 10-K, Exhibit No. 10.19a)
10.20* Lease, dated March 8, 1972, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, with respect to Store No. 7. (Form S-1,
Exhibit No. 10.20)
10.20a* Confirmation of Assignment of Lease, dated
December 31, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and Stoneridge 7
Realty Partnership, with respect to Store No. 7.
(1992 Form 10-K, Exhibit No. 10.20a)
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2
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Exhibit No. Page Document
- ----------- ---- --------
10.21* Lease, effective December 1, 1985, among Chase
Lincoln First Bank, N.A. and Burton S. August, as
Trustees and the Company, with Assignment of
Lease, dated June 7, 1991, among Chase Lincoln
First Bank, N.A. and Burton S. August, as
Trustees, and August, Eastwood & August, with
respect to Store No. 8. (Form S-1, Exhibit No.
10.21)
10.22* Lease, dated February 10, 1972, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company as amended July 11, 1984 and assigned
to Lane, August, August Trust on June 7, 1991, and
assigned to Lane, August, August LLC effective
January 2, 1996, with respect to Store No. 9.
(Form S-1, Exhibit No. 10.22)
10.22a* Modification and Extension Agreement, dated
November 19, 1998, between AA & L Associates,
L.P., and the Company, with respect to Store No.
9. (1999 Form 10-K, Exhibit No. 10.22a)
10.23* Lease, dated May 1, 1973, among Charles J. August,
Burton S. August and Sheldon A. Lane and the
Company, with Amendment of Lease, dated July 11,
1984, and Assignment of Lease, dated June 7, 1991,
among Charles J. August, Burton S. August and
Sheldon A. Lane and 35 Howard Road Joint Venture,
with respect to Store No. 10. (Form S-1, Exhibit
No. 10.23)
10.24* Lease, dated May 7, 1973, among Charles J. August,
Burton S. August and Sheldon A. Lane and the
Company, with Amendment of Lease, dated July 11,
1984, and assigned by Mssrs. August, August and
Lane to AA & L Associates, L.P., effective January
2, 1996, with respect to Store No. 12. (Form S-1,
Exhibit No. 10.24)
10.25* Lease, dated July 25, 1974, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 14. (Form S-1, Exhibit
No. 10.25)
10.26* Lease, effective April 1, 1975, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and Lane, August, August Trust
and assigned by Lane, August, August Trust to
Lane, August, August LLC, effective January 2,
1996, with respect to Store No. 15. (Form S-1,
Exhibit No. 10.26)
10.26a* Modification and Extension Agreement, dated
November 19, 1998, between AA & L Associates,
L.P., and the Company, with respect to Store No.
15. (1999 Form 10-K, Exhibit No. 10.26a)
10.27* Lease, dated as of September 25, 1991, among
Charles J. August, Burton S. August and Sheldon A.
Lane and the Company, with respect to Store No.
17. (1992 Form 10-K, Exhibit No. 10.27)
10.28* Lease, effective May 1, 1979, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 23. (Form S-1, Exhibit
No. 10.28)
10.29* Lease, effective May 1, 1980, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 25. (Form S-1, Exhibit
No. 10.29)
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Exhibit No. Page Document
- ----------- ---- --------
10.30* Lease, effective March 1, 1980, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 27. (Form S-1, Exhibit
No. 10.30)
10.30a 50 Lease termination, effective July 31, 2000,
among Charles J. August, Burton S. August, Sheldon
A. Lane and AA & L Associates, L.P. and the
Company with respect to Store No. 27.
10.31* Lease, effective July 1, 1980, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 28. (Form S-1, Exhibit
No. 10.31)
10.32* Lease, effective November 1, 1980, among Charles
J. August, Burton S. August and Sheldon A. Lane
and the Company, with Amendment of Lease, dated
July 11, 1984, and Assignment of Lease, dated June
7, 1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 29. (Form S-1, Exhibit
No. 10.32)
10.33* Lease, effective August 1, 1983, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 30. (Form S-1, Exhibit
No. 10.33)
10.33a* Modification and Extension Agreement, dated
February 25, 1998, between AA & L Associates,
L.P., and the Company, with respect to Store Nos.
30, 36 and 43. (1999 Form 10-K, Exhibit No.
10.33a)
10.34* Lease, effective March 1, 1997, between August,
August and Lane of Rochester, LLC, and the
Company, dated March 3, 1997 with respect to Store
No. 31. (1999 Form 10-K, Exhibit No. 10.34)
10.35* Modification and Extension Agreement, dated August
12, 1991, among Charles J. August, Burton S.
August and Sheldon A. Lane and the Company, and
assigned by Mssrs. August, August and Lane to
August, August and Lane of Rochester, LLC,
effective January 2, 1996, with respect to Store
No. 33. (1992 Form 10-K, Exhibit No. 10.35)
10.36* Lease, effective December 1, 1981, among Charles
J. August, Burton S. August and Sheldon A. Lane
and the Company, with Amendment of Lease, dated
July 11, 1984, and assigned by Mssrs. August,
August and Lane to August, August and Lane of
Rochester, LLC, effective January 2, 1996, with
respect to Store No. 34. (Form S-1, Exhibit No.
10.36)
10.37* Lease, dated April 10, 1984, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 35. (Form S-1, Exhibit
No. 10.37)
10.38* Lease, effective October 1, 1983, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, with respect to Store No. 36. (Form S-1,
Exhibit No. 10.38)
10.38a* Assignment of Lease, dated October 1, 1991, among
Charles J. August, Burton S. August and Sheldon A.
Lane and AA & L Associates, L.P., with respect to
Store No. 36. (1992 Form 10-K, Exhibit No. 10.38a)
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Exhibit No. Page Document
- ----------- ---- --------
10.39* Lease, effective July 1, 1983, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 43. (Form S-1, Exhibit
No. 10.39)
10.40* Lease, dated as of February 1, 1983, among Charles
J. August, Burton S. August and Sheldon A. Lane
and the Company, with Amendment of Lease, dated
July 11, 1984, and assigned by Mssrs. August,
August and Lane to AA & L Associates, L.P.,
effective January 2, 1996, with respect to Store
No. 44. (Form S-1, Exhibit No. 10.40)
10.41* Sublease, dated as of May 1, 1979, among Charles
J. August, Burton S. August and Sheldon A. Lane
and the Company, with Amendment of Lease, dated
July 11, 1984, and Assignment of Lease, dated June
7, 1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 45. (Form S-1, Exhibit
No. 10.41)
10.42* Lease, effective October 1, 1985, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated as of
July 11, 1984, and Assignment of Lease, dated June
7, 1991, among Burton S. August, as Trustee, and
Lane, August, August Trust, and assigned by Lane,
August, August Trust to Lane, August, August LLC,
effective January 2, 1996, with respect to Store
No. 48. (Form S-1, Exhibit No. 10.42)
10.42a 51 Extension Agreement, effective October 1, 2001,
among the Company and Burton S. August, as
Trustee, and Lane, August, August Trust, and
assigned by Lane, August, August Trust to Lane,
August, August LLC, with respect to Store No. 48.
10.43* Lease, dated as of January 1, 1984, among Charles
J. August, Burton S. August and Sheldon A. Lane
and the Company, with Amendment of Lease, dated
July 11, 1984, and assigned by Mssrs. August,
August and Lane to AA & L Associates, L.P.,
effective January 2, 1996, with respect to Store
No. 49. (Form S-1, Exhibit No. 10.43)
10.44* Lease, dated July 1, 1982, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and assigned by Mssrs. August, August
and Lane to AA & L Associates, L.P., effective
January 2, 1996, with respect to Store No. 51.
(Form S-1, Exhibit No. 10.44)
10.45* Lease, dated July 1, 1982, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, with respect to Store No. 52. (Form S-1,
Exhibit No. 10.45)
10.46* Lease, dated May 1, 1979, among Charles J. August,
Burton S. August and Sheldon A. Lane and the
Company, with Amendment of Lease, dated July 11,
1984, and Assignment of Lease, dated June 7, 1991,
among Charles J. August, Burton S. August and
Sheldon A. Lane and AA & L Associates, L.P., with
respect to Store No. 53. (Form S-1, Exhibit No.
10.46)
10.47* Lease, dated July 1, 1982, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, with respect to Store No. 54. (Form S-1,
Exhibit No. 10.47)
10.47a* Modification Agreement, effective January 1988,
among Charles J. August, Burton S. August and
Shelden A. Lane, and the Company, with respect to
Store No. 54. (1999 Form 10-K, Exhibit No. 10.47a)
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5
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Exhibit No. Page Document
- ----------- ---- --------
10.48* Lease, effective September 1, 1983, among Charles
J. August, Burton S. August and Sheldon A. Lane
and the Company, with Amendment of Lease, dated
July 11, 1984, and Assignment of Lease, dated June
7, 1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 55. (Form S-1, Exhibit
No. 10.48)
10.49* Lease, dated as of July 1, 1984, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, and Assignment of Lease, dated June 7,
1991, among Charles J. August, Burton S. August
and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Store No. 57. (Form S-1, Exhibit
No. 10.49)
10.49a* Modification and Extension Agreement, dated
September 15, 1999, between AA & L Associates,
L.P. and the Company, with respect to Store No.
57. (2000 Form 10-K, Exhibit No. 10.49a)
10.50* Lease, dated July 1, 1982, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with Amendment of Lease, dated July
11, 1984, with respect to Store No. 58. (Form S-1,
Exhibit No. 10.50)
10.50a* Modification and Extension Agreement, dated August
12, 1991, between AA & L Associates, L.P. and the
Company, with respect to Store No. 60. (1992 Form
10-K, Exhibit No. 10.51)
10.52* Lease, signed October 22, 1986, between the
Company and Conifer Johnstown Associates, with
respect to Store No. 63. (Form S-1, Exhibit No.
10.52)
10.52a* Lease Addendum, effective February 18, 1996,
between Conifer Johnstown Associates and the
Company, with respect to Store No. 63. (1999 Form
10-K, Exhibit No. 10.52a)
10.54* Lease, dated January 25, 1988, between the Company
and Conifer Northeast Associates, with Letter
Agreement, dated February 3, 1988, amending Lease
and Amendment Agreement, dated January 6, 1989,
with respect to Store No. 107. (Form S-1, Exhibit
No. 10.54)
10.54a* Lease Addendum, effective February 18, 1996,
between Conifer Northeast Associates and the
Company, with respect to Store No. 107. (1999 Form
10-K, Exhibit No. 10.54a)
10.55* Lease, dated March 16, 1988, between the Company
and Conifer Northeast Associates, with Letter
Agreement, dated February 3, 1988, amending Lease
and Amendment Agreement, dated January 6, 1989,
with respect to Store No. 109. (Form S-1, Exhibit
No. 10.55)
10.55a* Lease Addendum, effective February 18, 1996,
between Conifer Northeast Associates and the
Company, with respect to Store No. 109. (1999 Form
10-K, Exhibit No. 10.55a)
10.56* Lease, dated February 11, 1988, between the
Company and Conifer Northeast Associates, with
Letter Agreement, dated February 3, 1988, amending
Lease and Amendment Agreement, dated January 6,
1989, and Non-Disturbance and Attornment
Agreement, dated February 11, 1988, between the
Company and Central Trust Company, with respect to
Store No. 114. (Form S-1, Exhibit No. 10.56)
10.56a* Lease Addendum, effective February 18, 1996,
between Conifer Northeast Associates and the
Company, with respect to Store No. 114. (1999 Form
10-K, Exhibit No. 10.56a)
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Exhibit No. Page Document
- ----------- ---- --------
10.57* Purchase Agreement, dated December 1, 1987,
between the Company and Conifer Northeast
Associates, with Lease, dated February 25, 1988,
between the Company and Conifer Northeast
Associates, Letter Agreement, dated February 3,
1988, amending Lease; Amendment Agreement, dated
January 6, 1989; and Non-Disturbance and
Attornment Agreement, dated February 25, 1988,
between the Company and Central Trust Company,
with respect to Store No. 116. (Form S-1, Exhibit
No. 10.57)
10.57a* Lease Addendum, effective February 18, 1996,
between Conifer Northeast Associates and the
Company, with respect to Store No. 116. (1999 Form
10-K, Exhibit No. 10.57a)
10.58* Lease, dated May 12, 1989, between the Company and
Conifer Penfield Associates (as successor to
Conifer Development, Inc.), with respect to Store
No. 132. (Form S-1, Exhibit No. 10.58)
10.58a* Amendment Agreement, dated June 30, 1993, between
Conifer Penfield Associates, L.P. and the Company,
with respect to Store No. 132. (1999 Form 10-K,
Exhibit No. 10.58a)
10.59* Modification and Extension Agreement, dated
November 1, 1993, between AA & L Associates, L.P.
and the Company, with respect to Store Nos. 1, 23,
25, 27, 28, 29, 35, 53, 57 and 60. (1994 Form
10-K, Exhibit No. 10.57)
10.61* Form of Mortgage and Security Agreement, between
the Company and The Chase Manhattan Bank, N.A.,
with Form of Mortgage Note and Form of Conditional
Assignment of Leases and Rents, in connection with
each of five mortgages on Store Nos. 160, 183,
190, 192 and 193 entered into since the filing of
the 1993 Form 10-K. (1994 Form 10-K, Exhibit No.
10.59)
10.62* Mortgage Agreement, dated September 28, 1994,
between the Company and the City of Rochester, New
York. (1995 Form 10-K, Exhibit No. 10.60)
10.63* Lease Agreement, dated October 11, 1994, between
the Company and the City of Rochester, New York.
(1995 Form 10-K, Exhibit No. 10.61)
10.64* Mortgage Notes, Collateral Security Mortgage and
Security Agreement, Indemnification Agreement and
Guarantee, dated September 22, 1995 between Monro
Service Corporation, County of Monroe Industrial
Development Agency, the Company and The Chase
Manhattan Bank, N.A. (September 1995 Form 10-Q,
Exhibit No. 10.02)
10.65* Form of Mortgage and Security Agreement, between
the Company and The Chase Manhattan Bank, N.A.,
with Form of Mortgage Note and Form of Conditional
Assignment of Leases and Rents, in connection with
each of nine mortgages on Store Nos. 205, 207,
210, 213, 216, 226, 229, 230 and 236 entered into
September 14, 1995. (September 1995 Form 10-Q,
Exhibit No. 10.01)
10.66* Amendment to Lease Agreement, dated September 19,
1995 between the Company and the County of Monroe
Industrial Development Agency. (September 1995
Form 10-Q, Exhibit No. 10.00)
10.67* Employment Agreement dated February 18, 1998,
between the Company and Jack M. Gallagher. (1998
Form 10-K, Exhibit No. 10.65)**
10.68 53 Employment Agreement dated December 1, 2000,
between the Company and Catherine D'Amico. **
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48
Exhibit No. Page Document
- ----------- ---- --------
10.69* Mortgage Modification Agreement, dated October 11,
1996 between the Company and The Chase Manhattan
Bank, N.A., in connection with each of 14
mortgages for Store Nos. 160, 183, 190, 192, 193,
205, 207, 210, 213, 216, 226, 229, 230 and 236.
(September 1996 Form 10-Q, Exhibit No. 10)
10.70* Purchase Agreement between Walker Manufacturing
Company, a division of Tenneco Automotive and
Monro Muffler Brake, Inc. dated as of June 29,
1999. (2000 Form 10-K, Exhibit No. 10.70)
10.71* Asset Purchase Agreement by and among Speedy
Muffler King Inc., Bloor Automotive Inc., Speedy
Car-X Inc., Speedy (U.S.A.) Inc., Speedy Holding
Corp. and Monro Muffler Brake, Inc., dated as of
April 13, 1998. (April 1998 Form 8-K, Exhibit
10.1)
10.71a* Amendment No. 2 to the Asset Purchase Agreement by
and among Speedy Muffler King Inc., Bloor
Automotive Inc., Speedy Car-X Inc., Speedy
(U.S.A.) Inc., Speedy Holding Corp. and Monro
Muffler Brake, Inc., dated August 31, 1998.
(September 1998 Form 8-K, Exhibit No. 10.1)
10.72* Form of Agreement - "Purchase Agreement and Escrow
Instructions" between Realty Income Corporation -
buyer and Monro Muffler Brake, Inc. - seller dated
November 12, 1997. (1998 10-K, Exhibit No. 10.70)
10.73* "Purchase Agreement and Escrow Instructions"
between Realty Income Corporation - buyer and
Monro Muffler Brake, Inc. - seller dated March 31,
1999. (1999 Form 10-K, Exhibit No. 10.73)
10.73a* Amendment to "Purchase Agreement and Escrow
Instructions" between Realty Income Corporation -
buyer and Monro Muffler Brake, Inc. - seller dated
May 6, 1999, with respect to Stores No. 372 and
368. (1999 Form 10-K, Exhibit No. 10.73a)
10.74* "Minimum Purchase and Preferred Supplier
Agreement" between Honeywell International Inc.,
on behalf of its Friction Materials business and
Monro Service Corporation, dated January 13, 2000.
(2000 Form 10-K, Exhibit No. 10.74)
21.01 60 Subsidiaries of the Company.
23.01 61 Consent of PricewaterhouseCoopers LLP.
24.01 62 Powers of Attorney.
** Management contract or compensatory plan or
arrangement required to be filed as an exhibit to
this Form 10-K pursuant to Item 14(c) hereof.
* An asterisk "*" following an exhibit number
indicates that the exhibit is incorporated herein
by reference to an exhibit to one of the following
documents: (1) the Company's Registration
Statement on Form S-1 (Registration No. 33-41290),
filed with the Securities and Exchange Commission
on June 19, 1991 ("Form S-1"); (2) Amendment No. 1
thereto, filed July 22, 1991 ("Amendment No. 1");
(3) the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1992 ("1992 Form
10-K"); (4) the Company's Registration Statement
on Form S-8, filed with the Securities and
Exchange Commission on December 24, 1992
("December 1992 Form S-8"); (5) the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1993 ("September 1993
Form 10-Q"); (6) the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994
("1994 Form 10-K"); (7) the Company's Annual
Report on Form 10-K for the fiscal year ended
March 31, 1995 ("1995 Form 10-K"); (8) the
Company's Quarterly Report on Form 10-Q for the
fiscal
8
49
quarter ended September 30, 1995 ("September 1995
Form 10-Q"); (9) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September
30, 1996 ("September 1996 Form 10-Q"); (10) the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997 ("1997 Form
10-K"); (11) the Company's Current Report on Form
8-K filed on April 28, 1998 ("April 1998 Form
8-K"); (12) the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31,
1998 ("December 1998 Form 10-Q"); (13) the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 ("1998 Form
10-K"); (14) the Company's Current Report on Form
8-K filed on September 23, 1998 ("September 1998
Form 8-K"); (15) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September
30, 1998 ("September 1998 Form 10-Q"); (16) the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1999 ("1999 Form
10-K"); (17) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September
30, 1999 ("September 1999 Form 10-Q"); (18) the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2000 ("2000 Form
10-K"); (19) the Company's Registration Statement
on Form S-8, filed with the Securities and
Exchange Commission on April 7, 2000 ("April 2000
Form S-8"); (20) the Company's Registration
Statements on Forms S-8, filed with the Securities
and Exchange Commission on March 22, 2001 (each a
"March 2001 Form S-8"); or (21) the Company's
Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on June _____,
2001 ("June 2001 Form S-8"). The appropriate
document and exhibit number are indicated in
parentheses.
9