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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, 1996
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, 1996, the aggregate market value of voting stock held by
non-affiliates of the registrant was $84,659,742.
As of June 1, 1996, 6,968,655 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 1996 Annual Meeting of Shareholders (the
"Proxy Statement") are incorporated by reference into Part III hereof.
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PART I
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ITEM 1. BUSINESS
GENERAL
Monro Muffler Brake, Inc. ("Monro" or the "Company") is a chain of
company-operated stores providing automotive undercar repair services in the
United States. At March 31, 1996, Monro operated 274 stores in New York,
Pennsylvania, Ohio, Connecticut, Massachusetts, West Virginia, Virginia,
Maryland, Vermont, New Hampshire, New Jersey, North Carolina, South Carolina
and Indiana. The Company's stores typically are situated in high-visibility
locations in suburban areas and small towns. Monro serviced approximately
1,296,000 vehicles in fiscal 1996. *
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 added
215 stores and expanded its marketing area to include thirteen additional
states. In 1987, Jack M. Gallagher succeeded Charles J. August as President and
Chief Executive Officer. On April 1, 1995, Lawrence C. Day, who has over 19
years of experience in the automotive parts and service industries and
previously served as Chief Operating Officer of the Company since July 1993,
succeeded Jack M. Gallagher as President and Chief Executive Officer.
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.
Monro provides a full range of services on passenger cars, light
trucks and vans for mufflers and exhaust systems (estimated at 32% of fiscal
1996 sales); brakes (35%); and steering, drive train, suspension and wheel
alignment (19%). The Company also provides other products and services
including tires and state inspections (14%). 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 and a heating and cooling system "flush and fill" service.
The Company does not sell parts or accessories to the do-it-yourself market.
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In fiscal 1993, the Company formed a wholly-owned subsidiary, Monro
Service Corporation, a Delaware corporation qualified to do business in the
State of New York. The Company contributed to Monro Service Corporation all
assets, rights, responsibilities and liabilities associated with the Company's
warehousing, purchasing, advertising, accounting, office services, payroll,
cash management, semi-truck maintenance and certain other operations which are
wholly performed within New York State. The Company believes that this
restructuring has enhanced and will continue to enhance operational efficiency
and provide cost savings.
* 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 1996" are to the
Company's fiscal year ended March 31, 1996).
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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 Company believes that 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.
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.
Complete Undercar Service
All Monro stores provide a full range of undercar repair services for
mufflers and exhaust systems, brakes, steering, 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, substantially all of the stores provide oil change services
as well as tire sales and installation. Stores in New York, West
Virginia, New Hampshire, Pennsylvania, Virginia, Massachusetts and
North Carolina also perform annual state inspections. In fiscal 1996,
a heating and cooling system "flush and fill" service was added to all
stores.
Customer Satisfaction
The Company has developed "The Monro Doctrine", a set of customer
satisfaction principles, which is displayed in each store so that
customers and employees will understand the Company's customer service
philosophy. These principles are: 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.
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Competitive Pricing/Advertising
The Company seeks to set competitive prices for quality services and
products. The Company supports its pricing strategy by advertising
through newspaper and direct mail coupon inserts and in-store
promotional signage and displays. In addition, the Company advertises
through television, radio and yellow pages to increase consumer
awareness of the services offered.
Centralized Control
Unlike many of its competitors, the Company owns and operates rather
than franchises its stores. Monro believes that direct operation of
all 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 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.
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.
EXPANSION STRATEGY
Monro has experienced significant growth due to the opening of new
stores and increases in comparable store sales. In fiscal 1996, comparable
store sales declined in the first three quarters of the year, but the company
experienced a strong comparable store sales increase in its fourth fiscal
quarter. Management believes that the continued growth in sales and profits of
the Company is dependent, in large part, upon its continued ability to open 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.
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As of March 31, 1996, Monro operated 274 stores located in 14 states.
The following table shows the growth in the number of stores over the last five
fiscal years:
STORE OPENINGS AND CLOSINGS
Year ended March 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Stores open at beginning of year......... 143 161 184 202 232
Stores opened during year................ 18 23 20 30 43
Stores closed during year (a)............ 0 0 (2) 0 (1)
---- ----- ----- ----- ----
Stores open at end of year........ ...... 161 184 202 232 274
---- ----- ----- ----- ----
(a) 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.
Monro believes that there are expansion opportunities in new as well
as existing market areas and expects to open a total of 40-50 stores in fiscal
1997. This expansion 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.
The Company has developed a systematic method for selecting new store
locations and a more 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 or contiguous to Monro's
established marketing areas.
The Company believes that management and operating improvements
implemented over the last several fiscal years will enhance its ability to
sustain its growth. Monro 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. In fiscal 1995, the Company added electronic cataloging to its POS
system. This feature allows store managers to electronically research the
specific parts needed for the make and model of car being serviced.
Enhancements continue to be made to the system annually which increase
efficiency, improve the quality and timeliness of store reporting and enable
the Company to better serve its customers.
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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 $136,000 for equipment
(including a point-of-sale system), and approximately $53,000 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 three fiscal years' openings), from $210,000 to
$790,000 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, 1996, Monro leased the land and/or the building at 73% 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 have average sales of approximately $340,000 in their first
twelve months of operation.
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 20 cars. Most service bays
are equipped with aboveground electric vehicle lifts. The typical
store carries $53,000 of inventory and 2,500 stock keeping units
("SKUs"). Generally, each store is located within 35 miles of a "key"
store which carries approximately 20% more inventory than a typical
store and serves as a mini-distribution point for other stores in its
area.
The stores generally are situated in high-visibility locations in
suburban areas or small towns and offer easy customer access. The
typical store is open from 7:30 a.m. to 8:00 p.m. on Mondays,
Tuesdays, Thursdays and Fridays; from 7:30 a.m. to 6:00 p.m. on
Wednesdays; and from 7:30 a.m. to 5:00 p.m. on Saturdays.
Inventory Control and Management Information System
All Monro stores are linked to 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 "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
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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. 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, once every other month, to better
understand the latest developments at the store level.
Customer comment cards, pre-addressed to the headquarters office, are
available at each store for customers to comment on the Company's
services. The Company's Chief Executive Officer personally reads and
responds to these completed comment cards, and customer concerns are
addressed via personal follow-up by field management.
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 four
survey mailings per store annually. (Each mailing consists of 100
surveys.) Completed surveys are read by the Chief Executive Officer,
and at his direction, customer concerns are addressed via letter and
personal follow-up by field management.
Additionally, in fiscal 1994, the Company implemented its "Double
Check for Accuracy Program." 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 are committed 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 every Monro store 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.
Store Personnel and Training
The Company supervises store operations primarily through its five
district managers who oversee 27 regional managers. The typical store
is staffed by a store manager and four to six technicians, one of whom
serves as the assistant manager.
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All store managers receive a base salary, and assistant managers
receive hourly compensation. In addition, all store managers and
assistant managers receive other compensation based on their store's
customer relations, gross profit, labor cost controls, safety, sales
volume and other factors. A quarterly bonus is awarded to all store
managers and assistant managers based on performance against these
goals.
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, life and disability
insurance; profit-sharing and pension plans; as well as the
opportunity to advance within the Company. Most of the Company's
managers and regional managers started with Monro as technicians.
Most 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 lease program through which trainee technicians
can acquire their own set of tools. The Company also will reimburse
technicians for the cost of ASE certification 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 store maintains a library of 20-25
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.
During fiscal 1995, the Company began testing a "training store"
concept in one of its regions. This involves a six-week comprehensive
training program for a group of entry-level technicians which occurs
in a fully functioning Monro store. The program is taught by a full-
time training manager who is permanently assigned to the store, along
with the store manager. In the past, new technicians were trained in
a less formal manner by an experienced technician at the store for
which they were hired. In addition to providing a more focused
training effort, this new training structure relieves the store
managers and more experienced technicians of the initial training
burden. The structure also contributes to more efficient and
profitable store environments. Technicians completing this program
are assigned to stores within the region. Based upon the success of
the program, the Company established training stores in two other
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regions during fiscal 1996, and plans to expand the number of
training stores in the future.
PURCHASING AND DISTRIBUTION
The Company, through its wholly-owned subsidiary Monro Service
Corporation, selects and purchases parts and supplies for all stores on a
centralized basis. Although purchases outside the centralized system are made
when needed at the store level, these purchases accounted for approximately 12%
of all parts used in fiscal 1996.
The Company's ten largest vendors accounted for approximately two
thirds of its parts purchases, with the largest vendor accounting for slightly
over 18% of total purchases in fiscal 1996. The Company purchases parts from
over 100 vendors and has no long-term contracts with any vendor. 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.
Parts are shipped by vendors to the Company's warehouse facility in
Rochester, New York, and are distributed to stores through the Company's owned
and operated tractor/trailer fleet. Most stores are replenished once every week
from the warehouse, and such replenishment fills, on the average, 97% of all
items ordered by the stores' automatic POS-driven replenishment system. The
warehouse stocks approximately 10,000 SKUs.
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 local undercar specialty chains, both
franchised and company-operated; car dealerships; and, to a lesser extent, gas
stations and independent garages. Monro considers Midas International Corp.,
Meineke Discount Mufflers Inc. and Speedy Muffler King 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."
EMPLOYEES
As of March 31, 1996, Monro had 1,694 employees, of whom 1,564 were
employed in the field organization, 44 were employed at the warehouse and 86
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 generates and handles used automotive
oils and certain solvents, which are disposed of by licensed third-party
contractors. Thus, the Company is subject to a number of federal, state
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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.
In 1992, two national chains with which the Company competes were the
subject of investigations by consumer protection agencies and the Attorneys
General of various states, including several states in which the Company does
business. These occurrences caused a heightened awareness on the part of the
automotive service industry of the need to make certain a properly informed
consumer is making the decision on the auto service needs of his or her car.
They have also precipitated the introduction of proposed legislation in various
states where the Company operates which would further regulate the auto service
industry. Throughout its 39-year history, the Company has believed that a
satisfied customer is its best advertisement and continues to place strong
emphasis on customer satisfaction. To date, none of this legislation has been
enacted. The Company continues to monitor such proposed legislation and
believes that because of its method of operation and strength of its systems,
it will be in a strong position, relative to its competition, to comply with
any legislation which may be enacted.
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.
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, located in Rochester, New
York.
Of Monro's 274 stores at March 31, 1996, 75 were owned, 142 were
leased and for 57, the land only was leased. 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 90% of the non-capital leases (160
stores) expire after 2003. 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
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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 41 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 existing and former headquarters office and warehouse facility and
38 of the owned stores are subject to mortgages held by commercial banks or
private investors. As of March 31, 1996, the outstanding amount under the
mortgage on the existing headquarters office and warehouse facility was $2.9
million, the outstanding amount under the mortgage on the former headquarters
office and warehouse facility was $.2 million and the aggregate outstanding
amount under the permanent mortgages on 38 of the owned stores was $11.8
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 new headquarters
office and warehouse is located, and a term loan of $ .7 million secured by the
existing 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 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY AS OF JUNE 1, 1996
The following persons are the executive officers of the Company,
having been elected by and serving at the discretion of the Board of Directors
of the Company:
Name Age Position
- ---- --- --------
Lawrence C. Day 46 President and Chief Executive Officer
John W. August 42 Sr. Vice President - Business Development
Robert W. August 44 Sr. Vice President - Marketing, and Secretary
G. Michael Cox 43 Sr. Vice President - Store Operations
Catherine D'Amico 40 Sr. Vice President - Finance, Chief Financial
Officer and Treasurer
Thomas J. Budreau 39 Vice President - Eastern Operations
William E. Thackrah 39 Vice President - Western Operations
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The following is a brief account of the business experience of each of
the executive officers of the Company:
Lawrence C. Day has been President and Chief Executive Officer since
April 1995 and a director since July 1993. Mr. Day was Executive Vice President
and Chief Operating Officer from July 1993 to April 1995. Prior to joining the
Company, Mr. Day was Vice President of the Auto Express Division of Montgomery
Ward & Co., Incorporated from December 1991 to June 1993, Field Director of the
Auto Express Division of Montgomery Ward & Co., Incorporated from December 1989
to December 1991 and Vice President of Automotive Industries, Inc. from
February 1989 to December 1989. From September 1976 to January 1989, Mr. Day
held various management positions for the Firestone Tire & Rubber Company.
John W. August has been Senior Vice President - Business Development
since November 1994. Mr. August was Senior Vice President - Store Operations
from May 1992 to November 1994, Vice President - Western Operations from August
1988 to May 1992, Vice President - Real Estate from June 1985 to August 1988,
and has worked for Monro in various other capacities since 1972.
Robert W. August has been Senior Vice President - Marketing since May
1992, Secretary since July 1984 and a director since June 1982. Mr. August was
Vice President - Marketing from July 1989 to May 1992, Executive Vice President
from 1984 to July 1989, and has worked for Monro in various other capacities
since 1968.
G. Michael Cox has been Senior Vice President - Store Operations since
January 1995. Prior to joining the Company, Mr. Cox was Director of Affiliated
Dealer Operations for Bridgestone/Firestone, Inc. from 1993 to January 1995,
Director of Corporate Accounts for Bridgestone/Firestone, Inc. from 1992 to
1993 and a Zone Manager for Bridgestone/Firestone, Inc. from 1990 to 1992. Mr.
Cox held various other management positions for Bridgestone/Firestone, Inc.
from 1976 to 1990.
Catherine D'Amico has been Senior Vice President - Finance, Chief
Financial Officer and Treasurer since August 1993. Ms. D'Amico, a certified
public accountant, was previously a Senior Audit Manager with Price Waterhouse
LLP in Rochester, New York and was affiliated with such firm from 1978 to 1993.
Thomas J. Budreau has been Vice President - Eastern Operations since
October 1995. Prior to joining the Company, Mr. Budreau was the National Auto
Express Service Manager for Montgomery Ward & Co., Incorporated from March 1994
to October 1995. From 1975 to March 1994, Mr. Budreau held various other
management positions with Montgomery Ward & Co., Incorporated.
William E. Thackrah has been Vice President - Western Operations since
May 1994. From May 1992 through April 1994, Mr. Thackrah was a district
manager, and a regional manager from August 1987 through April 1992. Mr.
Thackrah has worked for Monro in various other capacities since February 1978,
excluding the period from June 1985 through July 1987 when he was self-employed
as a sales representative for Snap-On Tool.
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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 1996 FISCAL 1995
----------- -----------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
June 30, 18 13/16 13 5/8 16 3/8 14 1/4
September 30, 15 3/4 14 1/4 17 7/8 15 1/2
December 31, 15 3/4 13 3/4 20 16 3/8
March 31, 16 1/4 12 3/4 19 15 3/4
Amounts in these tables have been adjusted to reflect the five percent
stock dividends paid in August 1995 and in August 1994.
Holders
At June 1, 1996, the Company's Common Stock was held by approximately
1,421 shareholders of record or through nominee or street name
accounts with brokers.
Dividends
On January 26, 1996, the Company's Board of Directors declared a five
percent stock dividend, payable August 5, 1996, to shareholders of
record as of June 21, 1996. Information regarding the number of shares
of Common Stock outstanding, as set forth in this Form 10-K, does not
include any shares of Common Stock to be issued in connection with
such dividend.
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.
14
15
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, 1996. The
financial data and certain operating data have been derived from the Company's
financial statements which have been examined by Price Waterhouse 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,
-------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
INCOME STATEMENT DATA:
Sales................................ $117,104 $109,098 $93,620 $78,507 $70,424
Cost of sales including distribution
and occupancy costs................ 66,236 59,725 51,196 42,591 37,491
------- ------- ------- ------- -------
Gross profit......................... 50,868 49,373 42,424 35,916 32,933
Operating, selling, general and
administrative expenses............ 35,299 32,304 28,068 23,611 21,010
------- ------- ------- ------- -------
Operating income..................... 15,569 17,069 14,356 12,305 11,923
Interest expense - net............... 2,637 1,939 2,080 2,074 2,142
Other expense (income) - net......... 330 22 107 (43) (17)
------- ------- ------- ------- --------
Income before provision for income taxes 12,602 15,108 12,169 10,274 9,798
Provision for income taxes........... 4,988 6,024 4,818 4,120 4,094
------- ------- ------- ------- -------
Net income........................... $ 7,614 $ 9,084 $ 7,351 $ 6,154 $ 5,704
======= ======= ======= ======== ========
Earnings per share(a)................ $ .99 $ 1.18 $ .96 $ .81 $ .76
======= ======= ======= ======== ========
Weighted average number of Common Stock
shares and equivalents (a)......... 7,693 7,699 7,653 7,635 7,513
======= ======= ======= ======== ========
SELECTED OPERATING DATA:
Sales growth:
Total.............................. 7.3 % 16.5% 19.3% 11.5% 10.3%
Comparable store (b)............... (3.9)% 6.1% 9.5% 2.9% 3.6%
Stores open at beginning of year..... 232 202 184 161 143
Stores open at end of year........... 274 232 202 184 161
Capital expenditures ................ $ 25,581 $20,299 $14,374 $14,759 $ 9,284
BALANCE SHEET DATA (AT PERIOD END):
Net working capital.................. $ 8,891 $ 6,863 $ 7,894 $ 8,140 $ 8,426
Total assets......................... 120,055 93,042 77,042 63,507 51,531
Long-term debt....................... 45,459 28,749 24,326 22,599 17,863
Shareholders' equity................. 55,887 48,169 38,815 31,425 25,255
(a) Earnings per share for each fiscal year was computed by dividing net
income after preferred dividends 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
August 1995 and in August 1994, and to the 5.43-1 stock split in June
1991.
(b) Comparable store sales data is calculated based on the change in sales of
only those stores open as of the beginning of the preceding fiscal year.
15
16
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,
1996 1995 1994
----- ----- -----
Sales...................................................... 100.0% 100.0% 100.0%
Cost of sales including distribution and occupancy costs... 56.6 54.7 54.7
------ ------ -----
Gross profit............................................... 43.4 45.3 45.3
Operating, selling, general and administrative expenses.... 30.1 29.7 30.0
------ ------ -----
Operating income........................................... 13.3 15.6 15.3
Interest expense - net..................................... 2.2 1.8 2.2
Other expense - net........................................ 0.3 0.0 0.1
------ ------ -----
Income before provision for income taxes................... 10.8 13.8 13.0
Provision for income taxes................................. 4.3 5.5 5.1
------ ------ -----
Net income................................................. 6.5% 8.3% 7.9%
====== ====== =====
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 and
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.
FISCAL 1996 AS COMPARED TO FISCAL 1995
Sales for fiscal 1996 increased $8.0 million, or 7.3%, over sales for
fiscal 1995. This increase was due to an increase of approximately $17.3
million for stores opened since April 1, 1995, partially offset by a comparable
store sales decrease of 3.9%. During the year, 43 stores were opened and one
was closed. At March 31, 1996, the Company had 274 stores in operation.
Management believes that the comparable store sales decrease resulted
from a slowdown in consumer spending for most of calendar 1995, caused by a
general decline in economic conditions, particularly in the northeastern part
of the country where most of the Company's stores are located.
Gross profit for fiscal 1996 was $50.9 million or 43.4% of sales, as
compared with $49.4 million or 45.3% of sales for fiscal 1995. The reduction in
gross profit as a percent of sales was due, in part, to an increase in
purchases at the store level of certain higher-cost parts. During periods of
slower sales, store personnel more readily accept undercar repair work outside
of the normal recurring services the store usually provides. This repair work
often involves parts not stocked by the
16
17
Company. In addition, labor costs increased as a percent of sales because,
during periods of slower sales when technicians may not be fully productive,
they will receive a minimum base level wage. Lastly, distribution and occupancy
costs increased as a percent of sales for fiscal 1996 primarily due to an
increase in the number of stores versus sales increases.
Operating, selling, general and administrative expenses for fiscal
1996 increased by $3.0 million to $35.3 million and, as a percentage of sales,
increased by .4% as compared to fiscal 1995. This increase in total dollars
expended is due, among other things, to additional supervision and advertising
expense in newly-added stores and regions, greater costs related to the
Company's continuing investment in training, and additional store expenses
related to the growth in the number of stores. Although expenses increased
during fiscal 1996 as compared to fiscal 1995, the growth rate of these
expenses (9.3%) was lower than the percentage increase in the number of stores
(18.5%), due to ongoing, concerted efforts by management to control costs and
to operate within budgetary constraints. Accounting for a large portion of the
cost reductions were decreases in bonus and profit sharing expenses. Since the
Company did not attain the minimum required percentage of targeted profit
performance, employee bonus payments were significantly reduced and were
eliminated for executive officers, and profit sharing contributions were
eliminated.
Operating income in fiscal 1996 of $15.6 million, or 13.3% of sales,
decreased by $1.5 million from the fiscal 1995 level of $17.1 million due to
the factors discussed above.
Interest expense, net of interest income, increased as a percent of
sales from 1.8% in fiscal 1995 to 2.2% in fiscal 1996 primarily due to
increased borrowings. Average debt outstanding for the year ended March 31,
1996 was up approximately $9.7 million as compared to the year ended March 31,
1995.
Other expense, net, of $.3 million in fiscal 1996 represents costs
incurred to move to the Company's new office/warehouse facility as well as
carrying costs for the former warehouse facility through fiscal 1997.
The Company's effective tax rate decreased to 39.6% of pre-tax income
in fiscal 1996 from 39.9% in fiscal 1995 primarily due to reductions in state
tax rates in two of the states in which the Company operates.
Net income for fiscal 1996 decreased by $1.5 million or 16.2% compared
to fiscal 1995 due to the factors discussed above.
FISCAL 1995 AS COMPARED TO FISCAL 1994
Sales for fiscal 1995 increased $15.5 million, or 16.5%, over sales
for fiscal 1994. This increase was due to a comparable store sales increase of
6.1%, and an increase of approximately $10.2 million for stores opened since
the beginning of fiscal 1994. During the year, 30 stores were opened and none
were closed. At March 31, 1995, the Company had 232 stores in operation.
17
18
Management believes that successful execution of key elements of its
operating strategy, including an unwavering commitment to customer
satisfaction, comprehensive training of service technicians and competitive
pricing, helped contribute to the sales increase.
Gross profit for fiscal 1995 at $49.4 million increased from $42.4
million for fiscal 1994, but was unchanged as a percent of sales at 45.3%.
Operating, selling, general and administrative expenses for fiscal
1995 increased by 15.1% or $4.2 million to $32.3 million and, as a percentage
of sales, declined by .3% as compared to fiscal 1994. This increase in total
dollars expended is due, among other things, to additional supervision and
advertising expense in newly-added stores and regions, greater costs related to
the Company's continuing investment in training, and additional store expenses
related to the growth in the number of stores. Although expenses increased
during fiscal 1995 as compared to fiscal 1994, the growth rate of expenses was
lower than the sales growth rate, due to ongoing, concerted efforts by
management to control costs and to operate within budgetary constraints. One
area accounting for a more significant portion of the decline as a percent of
sales was workers compensation expense. Management believes that continued
emphasis on safety programs has contributed to a decline in the severity of
job-related injuries.
Operating income in fiscal 1995 of $17.1 million, or 15.6% of sales,
increased by $2.7 million over the fiscal 1994 level of $14.4 million due to
the factors discussed above.
Interest expense, net of interest income, decreased as a percent of
sales from 2.2% in fiscal 1994 to 1.8% in fiscal 1995 due to the Company's
funding of new store construction during most of fiscal 1995 with cash flow
from operations, paydown of $1.8 million on a term loan on April 1, 1994 and
increased capitalized construction period interest. The increase in capitalized
construction period interest is due to an increase in interest rates and an
increase in construction-in-progress.
The Company's effective tax rate increased to 39.9% of pre-tax income
in fiscal 1995 from 39.6% in fiscal 1994 due to the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," in
fiscal year 1994 which resulted in a one-time decrease in the provision for
income taxes of $70,000.
Net income for fiscal 1995 increased by $1.7 million or 23.6% over
fiscal 1994 due to the factors discussed above.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The Company's primary capital requirements for fiscal 1996 were the
funding of its new store expansion program, the upgrading of
facilities and systems in existing stores and the construction of the
new headquarters office and warehouse facility, totalling $27.0
million, and principal payments on long-term debt and capital leases
of $22.7 million.
18
19
In fiscal 1995, the Company's primary capital requirements were the
funding of its new store expansion program and the upgrading of
facilities and systems in existing stores totaling $20.3 million, and
principal payments on long-term debt and capital lease obligations
totaling $6.9 million.
In both fiscal years 1996 and 1995, these capital requirements were
met by cash flow from operations and by interim and permanent
mortgage financing of new stores. Additionally, in fiscal 1996,
capital requirements were met through the use of a Revolving Credit
Facility. (See additional discussion under "Liquidity".)
In fiscal 1997, the Company intends to open 40-50 new stores. Total
capital required to open a new store ranges, on average (based upon
the last three fiscal years' openings), from $210,000 to $790,000
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
At March 31, 1996, the Company had a $3.5 million line of credit for
the purpose of issuing stand-by-letters of credit on an unsecured
basis. The line requires fees aggregating .875% annually of the face
amount of each stand-by-letter of credit, payable quarterly in
advance. A total of $2.9 million was outstanding under this line at
March 31, 1996.
As of June 1, 1996, the Company had outstanding $5.5 million in
principal amount of its 10.65% Senior Notes due 1999 (the "Senior
Notes") with Massachusetts Mutual Life Insurance Company pursuant to
a Senior Note Agreement. The third of six annual installments of
principal of $1.8 million was paid on April 1, 1996.
The Company has available a line of credit of $7.5 million under a
short-term borrowing agreement at the lower of the prime rate or
other rate options available at the time of borrowing. There are no
commitment fees associated with this line of credit and no amounts
were outstanding at year end.
Through February 1996, the Company had a real estate line of credit
of $25.0 million to be used for the placement of store mortgages.
This line was terminated in fiscal 1996 at the Company's initiative
and replaced by a new unsecured Revolving Credit Facility with two
banks. Under the terms of the Agreement, the Company may borrow up
to $30.0 million through February 1999. The Company must pay a
facility fee of .125% annually on the unused portion of the
commitment.
Prior to the termination of the real estate line, the Company had
utilized $13.2 million for permanent mortgages. Any mortgage may be
converted from a floating rate to a fixed rate loan during the first
five years of its seven-year term. Interest is payable monthly.
Monthly installments of principal are required based on 20-year
amortization periods.
19
20
During fiscal 1995, the Company purchased 12.7 acres of land for $.7
million from the City of Rochester, New York, on which its new
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 2014.
To finance its new 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 equal 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%.
The Company also obtained a commitment for a $.5 million term loan to
finance equipment for the new office/warehouse building. The
obligation requires equal monthly principal payments to fully
amortize the debt over a five-year term. Interest is payable monthly,
and the obligation may be converted from a floating rate to a fixed
rate loan during the first three years. No amounts had been borrowed
under this term loan as of March 31, 1996.
Certain of the Company's long-term debt agreements require, among
other things, the maintenance of specified current ratios, interest
and rent coverage ratios and amounts of tangible net worth, and also
contain restrictions on dividend payments and capital expenditures.
The Company is in compliance with these requirements at March 31,
1996, and does not believe that the covenants materially affect its
business.
As of March 31, 1996, the Company had cash and equivalents of $5.3
million.
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
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109), was adopted by the Company as of April 1,
1993. The adoption of SFAS 109 resulted in a one-time decrease in the
provision for income taxes of $70,000.
20
21
Statement of Position (SOP) 93-7, "Reporting on Advertising Costs,"
which provides guidance on financial reporting on advertising costs,
was issued in December 1993. This Statement was adopted by the
Company in fiscal 1996 and had an immaterial effect on the results of
operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," was issued in October 1995 and has not yet
been adopted by the Company. This Statement encourages entities to
adopt a fair value based method of accounting for employee stock
option plans (whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the employee
service period) rather than the current intrinsic value based method
of accounting (whereby compensation cost is measured at the grant
date as the difference between market value and the price for the
employee to acquire the stock). The Company plans to adopt the
Statement in fiscal 1997, and plans to continue using the intrinsic
value method of accounting which will require pro forma disclosures
of net income and earnings per share, as if the fair value based
method of accounting had been applied.
21
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants..........................................23
Audited Financial Statements:
Consolidated Balance Sheet at March 31, 1996 and 1995.............24
Consolidated Statement of Income for the three years
ended March 31, 1996.....................................25
Consolidated Statement of Changes in Shareholders'
Equity for the three years ended March 31, 1996..........26
Consolidated Statement of Cash Flows for the three
years ended March 31, 1996...............................27
Notes to Consolidated Financial Statements........................28
Selected Quarterly Financial Information (Unaudited).......................41
22
23
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 subsidiary at March 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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 the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
May 20, 1996
23
24
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31,
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $5,280
in 1996 and $4,855 in 1995 $ 5,280 $ 4,855
Trade receivables 1,230 1,056
Inventories 16,538 13,612
Federal and state income taxes receivable 18 28
Deferred income tax asset 1,275 801
Other current assets 2,206 1,790
---------------- --------------
Total current assets 26,547 22,142
---------------- --------------
Property, plant and equipment 126,248 99,519
Less - Accumulated depreciation and amortization (35,969) (29,672)
---------------- --------------
Net property, plant and equipment 90,279 69,847
Other noncurrent assets 3,229 1,053
---------------- --------------
Total assets $ 120,055 $ 93,042
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,165 $ 2,913
Trade payables 6,897 5,197
Accrued interest 345 322
Accrued payroll, payroll taxes and other payroll benefits 2,836 3,654
Accrued insurance 1,552 1,217
Other current liabilities 2,861 1,976
---------------- --------------
Total current liabilities 17,656 15,279
Long-term debt 45,459 28,749
Deferred income tax liability 1,053 845
---------------- --------------
Total liabilities 64,168 44,873
---------------- --------------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.251 and $.263
conversion value at March 31, 1996 and 1995, respectively; 150,000 shares
authorized; 91,727 shares issued and outstanding in 1996 and 1995 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 6,914,835 shares
and 6,531,230 shares issued and outstanding in 1996 and 1995, respectively 69 65
Additional paid-in capital 17,061 10,959
Retained earnings 38,619 37,007
---------------- --------------
Total shareholders' equity 55,887 48,169
---------------- --------------
Total liabilities and shareholders' equity $120,055 $ 93,042
================ ==============
The accompanying notes are an integral part of these financial statements.
24
25
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales $117,104 $109,098 $93,620
Cost of sales, including distribution and occupancy costs (a) 66,236 59,725 51,196
------------- ----------- ------------
Gross profit 50,868 49,373 42,424
Operating, selling, general and administrative expenses 35,299 32,304 28,068
------------- ----------- ------------
Operating income 15,569 17,069 14,356
Interest expense, net of interest income of $39 in 1996,
$157 in 1995 and $161 in 1994 (a) 2,637 1,939 2,080
Other expense, net 330 22 107
------------- ----------- ------------
Income before provision for income taxes 12,602 15,108 12,169
Provision for income taxes 4,988 6,024 4,818
------------- ----------- ------------
Net income $ 7,614 $ 9,084 $ 7,351
============= =========== ============
Earnings per share $ .99 $ 1.18 $ .96
============= =========== ============
Weighted average number of shares of common stock and
common stock equivalents used in computing earnings per share 7,693 7,699 7,653
============= =========== ============
(a) Costs and expenses include charges for payments under operating and
capital leases with affiliated parties totaling $1,688, $1,812 and $1,705
for the years ended March 31, 1996, 1995 and 1994, respectively.
The accompanying notes are an integral part of these financial statements.
25
26
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CLASS C
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----- ----- ------- -------- -----
(DOLLARS IN THOUSANDS)
Balance at March 31, 1993 $138 $59 $ 5,343 $25,885 $31,425
Net income 7,351 7,351
Exercise of stock options 1 38 39
------ ------ --------- ---------- ----------
Balance at March 31, 1994 138 60 5,381 33,236 38,815
Net income 9,084 9,084
Exercise of stock options 2 268 270
Stock dividend 3 5,310 (5,313)
------ ------ --------- ----------- ----------
Balance at March 31, 1995 138 65 10,959 37,007 48,169
Net income 7,614 7,614
Exercise of stock options 104 104
Stock dividend 4 5,998 (6,002)
------ ------ --------- ----------- ----------
Balance at March 31, 1996 $138 $69 $17,061 $38,619 $55,887
====== ====== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
26
27
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 7,614 $ 9,084 $ 7,351
------------- ------------- -------------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 6,762 5,492 4,901
Net change in deferred income taxes (266) 152 (287)
(Gain) loss on disposal of property, plant and equipment (1) 21
Increase in trade receivables (174) (100) (176)
Increase in inventories (2,721) (1,938) (1,356)
(Increase) decrease in other current assets (373) 10 (214)
Increase in other noncurrent assets (462) (48) (75)
Increase in trade payables 1,700 1,362 281
Increase in accrued expenses 380 840 1,344
Increase (decrease) in federal and state income taxes
payable 10 (177) 37
------------- ------------- -------------
Total adjustments 4,855 5,593 4,476
------------- ------------- -------------
Net cash provided by operating activities 12,469 14,677 11,827
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from the sale of short-term investments 171 1,635
Purchase of short-term investments (843)
Capital expenditures (25,581) (20,299) (14,374)
Proceeds from the sale of property, plant and
equipment 68 36
Payment for purchase of miscellaneous acquisitions (2,416)
------------- ------------- -------------
Net cash used for investing activities (27,929) (20,128) (13,546)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from the sale of common stock 104 270 39
Proceeds from borrowings 38,520 11,260 5,701
Principal payments on long-term debt and capital
lease obligations (22,739) (6,854) (2,367)
------------- ------------- -------------
Net cash provided by financing activities 15,885 4,676 3,373
------------- ------------- -------------
Increase (decrease) in cash 425 (775) 1,654
Cash at beginning of year 4,855 5,630 3,976
------------- ------------- -------------
Cash at end of year $ 5,280 $ 4,855 $ 5,630
============= ============= =============
The accompanying notes are an integral part of these financial statements.
27
28
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Monro Muffler Brake, Inc. and its wholly owned subsidiary, Monro Service
Corporation (the "Company"), had 274 automotive repair centers operating
primarily in the northeast region of the United States as of March 31, 1996.
The Company experienced a change in control during 1984 which was accounted for
as a purchase and required the recording of a new basis for assets and
liabilities.
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
subsidiary, Monro Service Corporation, 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.
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 $647,000, $556,000 and $434,000 higher at March 31,
1996, 1995 and 1994, respectively. The FIFO value of inventory approximates the
current replacement cost.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment are stated at cost. For assets acquired in
conjunction with the 1984 change in control referred to above, cost represents
an allocation of the total purchase price to individual assets based on their
estimated fair values at the date of acquisition. 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 7 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 4).
28
29
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Advertising expense for the years ended March 31, 1996, 1995 and 1994 was not
material to these financial statements.
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 agreement 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.
EARNINGS PER SHARE
Earnings per share 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. Common stock equivalents consist of shares of
common stock (i) issuable upon exercise of outstanding stock options and (ii)
issuable upon conversion of the Class C convertible preferred stock (the "Class
C preferred stock"). The weighted average number of shares for all periods
presented in the accompanying financial statements has been adjusted for the
five percent stock dividends paid in August 1995 and in August 1994 (Note 9).
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid instruments with a maturity of three months or less to be cash
equivalents.
NOTE 2 - CHANGE IN ACCOUNTING METHOD
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of
SFAS 109 changes the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. Previously, the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and tax
bases of other assets and liabilities.
The adjustments to the April 1, 1993 balance sheet to adopt SFAS 109 resulted
in a $70,000 net increase in income. This amount is not considered material to
the financial statements as a whole. It primarily represents the impact of
adjusting deferred taxes to reflect the current tax rate as opposed to the
higher tax rates that were in effect when the deferred taxes originated.
Under SFAS 109, assets and liabilities acquired in purchase business
combinations are assigned their fair values assuming equal tax bases, and
deferred taxes are provided for lower or higher tax bases. Under APB 11,
assigned values were net of tax. In adopting SFAS 109, the Company adjusted the
carrying amounts of assets acquired in 1984 in the change of control (Note 1).
Pretax income from operations for the year ended March 31, 1994 was reduced by
approximately $50,000 representing the increase in depreciation expense
resulting from the higher carrying amounts.
29
30
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS
During fiscal 1996, the Company completed the acquisition of 14 existing
automotive repair stores in five separate transactions totalling $2.8 million.
The largest of the acquisitions was the purchase of the operating assets of
seven Muffler Xpress stores located in North and South Carolina and Virginia
for $1.2 million in September 1995. These acquisitions were accounted for as
purchases and did not have a significant effect on the Company's consolidated
financial statements.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are as follows:
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
----- ------ ----- ----- ------ -----
(DOLLARS IN THOUSANDS)
Land $15,864 $15,864 $12,461 $12,461
Buildings and
improvements 54,517 $6,391 60,908 42,094 $5,841 47,935
Equipment, signage
and fixtures 37,831 82 37,913 29,629 82 29,711
Vehicles 5,905 222 6,127 4,817 4,817
Construction-in-
progress 5,436 5,436 4,595 4,595
-------------- -------------- -------------- ----------- ---------- ----------
119,553 6,695 126,248 93,596 5,923 99,519
Less - Accumulated
depreciation and
amortization 32,444 3,525 35,969 26,507 3,165 29,672
-------------- -------------- -------------- ----------- ---------- ----------
$87,109 $3,170 $90,279 $67,089 $2,758 $69,847
============== ============== ============== =========== ========== ==========
Interest costs capitalized aggregated $617,000 in 1996 and $492,000 in 1995.
Amortization expense recorded under capital leases totaled $360,000, $326,000
and $356,000 for the years ended March 31, 1996, 1995 and 1994, respectively.
NOTE 5 - OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
MARCH 31,
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
Deferred debt issuance costs $ 578 $ 337
Non-compete agreements 555 56
Investment in limited partnership 378 394
Goodwill 1,393 53
Other 325 213
-------- ---------
$3,229 $1,053
====== ======
30
31
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated amortization associated with noncurrent assets at March 31, 1996
and 1995 amounted to $1,211,000 and $1,009,000, respectively.
Goodwill is being amortized on a straight-line basis over periods ranging from
5 to 20 years.
NOTE 6- LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31,
--------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
Revolving Credit Facility $19,790
10.65% Senior Notes, due in installments through 1999 7,333 $ 9,167
8.5% Mortgage Note Payable, secured by warehouse and office
building, due in installments through 1997 162 256
Mortgage Notes Payable, LIBOR plus 1.6%, secured by store
properties, due in installments through 2000 (a) 4,466 4,728
Mortgage Notes Payable, LIBOR plus 1.35%, secured by store properties,
due in installments through 2001 (a) 1,990 2,099
Mortgage Notes Payable, LIBOR plus 1.25%, secured by store properties, due
in installments through 2002 (a) 3,683 5,000
Mortgage Note Payable, LIBOR plus .8%, secured by new warehouse and
office building, due in installments through 2005 (a) 2,903 2,880
Term loan financing, LIBOR plus .8%, secured by new warehouse and
office building, due in installments through 2003 (a) 702 720
Mortgage Note Payable, non-interest bearing, secured by new warehouse and office
land, due in one installment in 2014 660 660
Other mortgages and notes, prime plus .75% to 10.5%, partially secured by store
properties and equipment, due in installments through 2003 (a) 1,932 1,681
Obligations under capital leases, 6.0% to 16.8%, secured by store properties and
certain equipment, due in installments through 2011 5,055 4,558
------------- -------------
48,676 31,749
Less - Unamortized debt discount (b) 52 87
------------- -------------
48,624 31,662
Less - Current portion 3,165 2,913
------------- -------------
$45,459 $28,749
============= =============
(a) The prime rate at March 31, 1996 was 8.25%. The London Interbank
Offered Rate (LIBOR) at March 31, 1996 was 5.47%.
(b) The debt discount is the result of valuing the debt at fair market
value as of the 1984 purchase date.
31
32
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has available an unsecured line of credit of $7.5 million under a
short-term borrowing agreement at the lower of the prime rate or other rate
options available at the time of borrowing. There are no commitment fees
associated with this line of credit and no amounts were outstanding at year
end.
At March 31, 1996, the Company has a $3.5 million line of credit for the
purpose of issuing stand-by-letters of credit on an unsecured basis. The line
requires fees aggregating .875% annually of the face amount of each
stand-by-letter of credit, payable quarterly in advance. A total of $2.9
million was outstanding under this line at March 31, 1996.
Through February 1996, the Company had a real estate line of credit of $25.0
million to be used for the placement of store mortgages, inclusive of a $5.0
million sublimit which existed to finance land acquisition and construction
costs of new stores until permanent mortgages had been granted. A total of $5.0
million was outstanding under this sublimit at March 31, 1995.
The real estate line of credit was terminated in fiscal 1996 at the Company's
initiative and replaced by a new Revolving Credit Facility. Amounts outstanding
under the sublimit were repaid in full.
Prior to the termination of the real estate line of credit, the Company had
utilized $13.2 million for permanent mortgages. Any mortgage may be converted
from a floating rate to a fixed rate loan during the first five years of its
seven-year term. Interest is payable monthly. Equal monthly installments of
principal are required based on 20-year amortization periods.
In February 1996, the Company finalized an unsecured Revolving Credit Agreement
with two banks. Under the terms of the Agreement, the Company may borrow up to
$30.0 million through February 1999 at the prime rate or at a LIBOR based rate
which fluctuates quarterly dependent upon Company performance. The Company must
pay a facility fee of .125% annually on the unused portion of the commitment.
During fiscal 1995, the Company purchased 12.7 acres of land for $.7 million
from the City of Rochester, New York, on which its new 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 2014.
To finance its new 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%.
The Company also has obtained a commitment for a $.5 million term loan to
finance equipment for the new office/warehouse building. The obligation
requires equal monthly principal payments to fully amortize the debt over a
five-year term. Interest is payable monthly at LIBOR plus .8%, and the
obligation may be converted from a floating rate to a fixed rate loan during
the first three years. No amounts had been borrowed under this term loan as of
March 31, 1996.
Certain of the Company's long-term debt agreements require, among other things,
the maintenance of specified current ratios, interest and rent coverage ratios
and amounts of tangible net worth, and also contain restrictions on dividend
payments and capital expenditures. The Company is in compliance with these
requirements at March 31, 1996. These agreements permit mortgages and specific
financing lease arrangements with other parties with certain limitations.
32
33
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate debt maturities (excluding amortization of debt discount) 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)
1997 $ 1,167 $ (868) $ 2,898 $ 3,197
1998 1,122 (820) 3,698 4,000
1999 1,079 (770) 3,827 4,136
2000 1,054 (716) 7,802 8,140
2001 1,060 (651) 6,814 7,223
Thereafter 6,397 (2,999) 18,582 21,980
-----------
Total $48,676
===========
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consisted of the following:
MARCH 31,
1996
----
CARRYING FAIR
VALUE VALUE
----- -----
(DOLLARS IN THOUSANDS)
Cash and cash equivalents $ 5,280 $ 5,280
Long-term debt, including current portion $ 43,621 $43,768
The carrying amount of cash and cash equivalents approximates fair value
because their maturity is generally less than one year in duration. Fair value
of long-term debt was estimated using either quoted market prices for the same
or similar issues, or the current rates offered to the Company for debt with
similar maturities.
33
34
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes" (Note 2).
The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
Currently payable -
Federal $ 4,340 $ 4,760 $ 4,073
State 908 1,148 1,056
------- ------- -------
5,248 5,908 5,129
Deferred -
Federal (219) 98 (230)
State (41) 18 (81)
------- ------- -------
(260) 116 (311)
------- ------- -------
Total $ 4,988 $ 6,024 $ 4,818
======= ======= =======
Deferred tax (liabilities) assets are comprised of the following:
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
Depreciation $(1,352) $(1,241) $(1,182)
Prepaid expenses (316) (365) (353)
Tax shelter investment (263) (240) (216)
Other (33) (82) (38)
------- ------- -------
Gross deferred tax liabilities (1,964) (1,928) (1,789)
------- ------- -------
Capital leases 527 640 677
Insurance accruals 605 524 564
Inventory reserves 65 84 113
Pension liability 56 71
Vacation accrual 166 152 122
Warranty and other reserves 551 388 258
Other 272 40 92
------- ------- -------
Gross deferred tax assets 2,186 1,884 1,897
------- ------- -------
Net deferred tax asset (liability) $ 222 $ (44) $ 108
======= ======= =======
The Company believes that it is more likely than not that the net deferred tax
asset will be realized through taxable earnings or alternative tax strategies.
34
35
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
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,
--------------------
1996 1995 1994
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Federal income tax based on
statutory tax rate applied
to income before taxes $ 4,311 34.2 $5,188 34.3 $4,159 34.2
State income tax, net of
federal income tax benefit 570 4.5 766 5.1 642 5.3
Impact of change in accounting
method (Note 2) (70) (.6)
Other 107 .9 70 .5 87 .7
------- ------ ------ ------ ------ ------
$ 4,988 39.6 $6,024 39.9 $4,818 39.6
======= ====== ====== ====== ====== ======
NOTE 9 - 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:
Common Class C
Stock Convertible Preferred
Shares Stock
----------------- --------------------------------
Balance at March 31, 1994 5,952,198 91,727
Stock options exercised 281,452
Stock dividend 297,580
----------------- --------------
Balance at March 31, 1995 6,531,230 91,727
Stock options exercised 57,116
Stock dividend 326,489
----------------- --------------
Balance at March 31, 1996 6,914,835 91,727
================= ==============
On May 17, 1995, the Board of Directors declared a five percent stock dividend
on the Company's common stock, paid August 7, 1995, to shareholders of record as
of June 23, 1995. On May 17, 1994, the Board of Directors declared a five
percent stock dividend on the Company's common stock, paid August 1, 1994, to
shareholders of record as of June 17, 1994. All share and per share information
included in the accompanying financial statements and notes have been adjusted
to give retroactive effect to these dividends.
Additionally, in accordance with antidilution provisions of the Class C
convertible preferred stock, the conversion value of the preferred stock was
restated to $.251 per share.
35
36
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 628,590 shares (as
retroactively adjusted for the five percent stock dividends) of the common stock
were reserved for issuance to officers and key employees. The 1989 Incentive
Stock Option Plan authorized an additional 149,664 shares (as retroactively
adjusted for the five percent stock dividends) for issuance.
In January 1994, the Board of Directors authorized an additional 222,705 shares
(as retroactively adjusted for the five percent stock dividends) for issuance
under the 1989 Plan, which was approved by shareholders in August 1994.
In May 1995, the Board of Directors authorized an additional 95,000 shares (as
retroactively adjusted for the five percent stock dividends) for issuance under
the 1989 Plan, which was approved by shareholders in August 1995.
Generally, options vest with respect to 60% of the shares of common stock
subject thereto three years after the date of grant. Options on 50% of the
remaining shares vest on the fourth anniversary of the date of grant, and the
balance vests on the fifth anniversary of the date of grant. Options to purchase
316,902 shares, 354,672 shares and 603,605 shares were exercisable at March 31,
1996, 1995 and 1994, respectively, at prices ranging from $1.67 to $14.51 per
share (as retroactively adjusted for the five percent stock dividends).
The outstanding options have a duration of ten years and are exercisable through
January 2006.
A summary of changes in outstanding stock options (as retroactively adjusted for
the five percent stock dividends) is as follows:
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
Outstanding at beginning of year 481,121 755,866 717,174
Options granted at $12.36, $13.38 and $16.90 per share 72,214
Options granted at $17.74 per share 21,000
Options granted at $14.75, $17.27 and $13.00 per share 158,400
Options canceled at $14.51 per share (220) (552)
Options canceled at $14.51, $16.90 and $13.00 per share (3,248)
Options exercised at $1.67 and $2.09 per share
in 1996, $.50, $2.09, $3.00 and $14.51 per share in 1995
and $.50, $1.67, $2.09 and $3.00 per share in 1994 (57,116) (295,525) (32,970)
---------------- ---------------- ---------------
Outstanding at end of year 579,157 481,121 755,866
================ ================ ===============
Shares available for grant 123,621 183,764 204,544
================ ================ ===============
Price of options outstanding at end of year $1.67 - $17.74 $1.67 - $17.74 $.50 - $16.90
================ ================ ===============
In August 1994, subject to the approval of shareholders in August 1995, the
Board of Directors authorized a non-employee directors' stock option plan. The
plan initially reserves 57,750 shares of common stock (as retroactively adjusted
for the five percent stock dividends), and provides for (i) the grant to each
non-employee director as of August 1, 1994 of an option to purchase 2,625 shares
of the Company's common stock (as retroactively adjusted for the five percent
stock dividends) and (ii) the annual grant to each non-employee director of an
option to purchase 2,625 shares (as retroactively adjusted for the five percent
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.
36
37
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of changes in these stock options is as follows:
YEAR ENDED MARCH 31,
--------------------
1996 1995
---- ----
Outstanding at beginning of year 18,375 0
Options granted at $16.37 18,375
Options granted at $14.75 18,375
------------------- -----------------
Outstanding at end of year 36,750 18,375
=================== =================
Shares available for grant 21,000 39,375
=================== =================
Price of options outstanding at end of year $14.75 - $16.37 $16.37
=================== =================
NOTE 10 - 1996 STOCK DIVIDEND
On January 26, 1996, the Board of Directors declared a five percent stock
dividend, payable August 5, 1996, to common stockholders of record as of June
21, 1996. Shares of common or preferred stock included in the accompanying
financial statements and notes have not been adjusted to reflect this dividend.
NOTE 11 - OPERATING LEASES AND OTHER COMMITMENTS
The Company leases retail facilities and computer equipment under
noncancellable lease agreements which expire at various dates through 2012. 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.
Future minimum payments required under noncancellable leases are as follows:
YEAR ENDED MARCH 31, AMOUNT
- -------------------- ------
(DOLLARS IN THOUSANDS)
1997 $ 6,297
1998 5,958
1999 5,703
2000 5,641
2001 5,170
Thereafter 19,914
-------
Total $48,683
=======
Rent expense under operating leases totaled $5,500,000, $4,681,000 and
$3,941,000 in 1996, 1995 and 1994, respectively, including contingent rentals
of $511,000, $587,000 and $550,000 in each respective year.
37
38
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
The Company has a noncontributory defined benefit plan covering most employees.
Coverage under the plan begins after completing one year of service and
attainment of age twenty-one. Benefits are 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.
Pension cost included the following components:
YEAR ENDED MARCH 31,
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
Service cost - benefits earned during the period $ 230 $ 215 $ 170
Interest cost on projected benefit obligation 277 248 214
Return on plan assets (227) (159) (113)
Amortization of net transition asset 14 (13) (107)
------- -------- --------
Net pension cost $ 294 $ 291 $ 164
======= ======= =======
The plan's funded status was as follows:
MARCH 31,
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
Actuarial present value of benefit obligation:
Vested benefit obligation $(3,177) $(2,870)
======== ========
Accumulated benefit obligation $(3,322) $(3,044)
======== ========
Projected benefit obligation $(4,103) $(3,628)
Plan assets at fair value 3,370 2,904
-------- --------
Projected benefit obligation in excess of plan assets (733) (724)
Unrecognized net loss 766 669
Unrecognized prior service cost 27 30
Unrecognized net transition asset (175) (204)
--------- --------
Pension liability at March 31 $ (115) $ (229)
========= ========
The projected benefit obligation at March 31, 1996 and 1995 assumed discount
rates of 7.5%. Increase in future compensation levels was assumed to be 5% in
1996 and 1995. The assumed long-term rates of return on plan assets at March
31, 1996 and 1995 were 8% and 7.5%, respectively. In 1995, assumptions
concerning turnover and mortality were also revised to better reflect the
Company's demographics. The net effect of assumption changes was to increase
net pension cost in fiscal 1995 by approximately $27,000.
The unrecognized transition asset is being amortized over fifteen years
beginning April 1, 1988. The unrecognized prior service cost is being amortized
over fifteen years beginning April 1, 1990.
38
39
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also has a profit sharing plan which covers full-time employees who
meet the age and service requirements of the plan. The annual contribution to
the plan is at the discretion of the Compensation and Benefits Committee of the
Board of Directors and totaled $475,000 and $450,000 for the years ended March
31, 1995 and 1994, respectively. No contribution was made for the year ended
March 31, 1996.
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 $104,000, $764,000 and $500,000 for the years ended March
31, 1996, 1995 and 1994, respectively. Because the Company did not attain a
minimum required percentage of targeted profit performance in fiscal 1996, 1996
expense does not include any bonus amounts for executive officers.
NOTE 13 - RELATED PARTY TRANSACTIONS
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 $1,688,000,
$1,812,000 and $1,705,000 for the years ended March 31, 1996, 1995 and 1994,
respectively. Amounts payable under these lease agreements totaled $79,000 and
$51,000, respectively, at March 31, 1996 and 1995.
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.
Effective July 1991, the Company entered into 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 1996,
1995 and 1994, the Company incurred fees of $160,000 annually under this
agreement.
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following transactions represent noncash investing and financing activities
during the periods indicated:
YEAR ENDED MARCH 31, 1996
In connection with the declaration of a five percent stock dividend (Note 9),
the Company increased common stock and additional paid-in capital by $4,000 and
$5,998,000, respectively, and decreased retained earnings by $6,002,000.
Capital lease obligations of $772,000 were incurred under various lease
agreements.
In connection with the acquisition of several automotive repair stores,
liabilities were assumed as follows:
(DOLLARS IN
THOUSANDS)
Fair value of assets acquired $2,835
Cash paid 2,416
-------------
Liabilities assumed $ 419
=============
YEAR ENDED MARCH 31, 1995
In connection with the declaration of a five percent stock dividend (Note 9),
the Company increased common stock and additional paid-in capital by $3,000 and
$5,310,000, respectively, and decreased retained earnings by $5,313,000.
A capital lease obligation of $35,000 was incurred under a lease agreement.
39
40
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1994
Capital lease obligations of $386,000 were incurred under various lease
agreements.
In connection with the remeasurement of assets to fair value under SFAS 109
(Note 2), adjustments were made increasing buildings, accumulated depreciation
and deferred taxes by $494,000, $216,000 and $278,000, respectively.
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
Cash paid during the year:
Interest, net $3,205 $2,447 $2,377
Income taxes, net $5,244 $6,049 $5,068
40
41
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth income statement data by quarter for the fiscal
years ended March 31, 1996 and 1995.
FOR THE QUARTER ENDED
---------------------
JUNE 30, SEPT.30, DEC.31, MARCH 31,
1995 1995 1995 1996
----- ------- -------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Sales.....................................$28,945 $31,217 $28,190 $28,752
Cost of sales including distribution
and occupancy costs..................... 15,865 17,004 16,995 16,372
------- ------- ------- -------
Gross profit.............................. 13,080 14,213 11,195 12,380
Operating, selling, general
and administrative expenses............. 8,863 8,528 8,709 9,199
------- ------- ------- -------
Operating income.......................... 4,217 5,685 2,486 3,181
Interest expense - net.................... 666 573 544 854
Other expense............................. 129 5 3 193
-------- ------- ------- -------
Income before provision for income taxes.. 3,422 5,107 1,939 2,134
Provision for income taxes................ 1,347 2,043 745 853
------- ------- ------- -------
Net income................................$ 2,075 $ 3,064 $ 1,194 $ 1,281
======= ======= ======= =======
Earnings per share (b)....................$ .27 $ .40 $ .16 $ .17
======= ======= ======= =======
Weighted number of Common Stock
shares and equivalents (a) (b).......... 7,705 7,688 7,686 7,688
======= ======= ======= =======
1994 1994 1994 1995
---- ---- ---- ----
Sales.....................................$29,625 $31,129 $25,643 $22,701
Cost of sales including distribution
and occupancy costs..................... 15,461 16,685 14,643 12,936
------- ------- ------- -------
Gross profit.............................. 14,164 14,444 11,000 9,765
Operating, selling, general
and administrative expenses............. 8,498 8,319 7,940 7,547
------- ------- ------- -------
Operating income.......................... 5,666 6,125 3,060 2,218
Interest expense - net.................... 470 488 497 484
Other (income) expense.................... (14) 3 3 30
-------- ------- ------- -------
Income before provision for income taxes.. 5,210 5,634 2,560 1,704
Provision for income taxes................ 2,095 2,265 1,029 635
------- ------- ------- -------
Net income................................$ 3,115 $ 3,369 $ 1,531 $ 1,069
======= ======= ======= =======
Earnings per share (b)....................$ .41 $ .44 $ .20 $ .14
======= ======= ======= =======
Weighted number of Common Stock
shares and equivalents (a) (b).......... 7,679 7,695 7,712 7,709
======= ======= ======= =======
(a) Earnings per share for each period was computed by dividing net income
after preferred dividends by the weighted average number of shares of Common
Stock and Common Stock equivalents outstanding during the respective quarters.
(b) All share and per share information has been adjusted to give retroactive
effect to the five percent stock dividends paid in August 1995 and in August
1994.
41
42
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 of the Company is incorporated herein by
reference to the section captioned "Election of Directors" in the Proxy
Statement.
Information concerning the executive officers of the Company is set forth in
Item 4A of Part I hereof.
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
"Principal Shareholders" 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.
42
43
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
No reports on Form 8-K were filed during the last quarter of fiscal
1996.
43
44
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/ Lawrence C. Day
-------------------------------------
Lawrence C. Day
President and Chief Executive Officer
Date: June 27, 1996
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 27, 1996.
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/ Lawrence C. Day
---------------------------------------
Lawrence C. Day
Chief Executive Officer,
Director and as Attorney-in-Fact
44
45
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)
4.01 55 Revolving Credit Agreement, dated February 7,
1996, among Monro Muffler Brake, Inc., as
borrower, and The Chase Manhattan Bank, N.A. and
Fleet Bank as lenders, and The Chase Manhattan
Bank, N.A. as agent.
4.02* Senior Note Agreement, dated March 1, 1989, between the
Company and Massachusetts Mutual Life Insurance
Company. (Form S-1, Exhibit No. 4.02)
4.02a* Amendment No. 1, dated June 17, 1991, to Senior Note
Agreement, between the Company and Massachusetts
Mutual Life Insurance Company. (Amendment No. 1,
Exhibit No. 4.02a)
4.03* 10.65% Senior Notes Due April 1, 1999, dated March 22,
1989, issued by the Company to Massachusetts
Mutual Life Insurance Company. (Form S-1,
Exhibit No. 4.03)
4.04* Form of 10% Subordinated Promissory Note, dated July 12,
1984, issued by the Company to Charles J. August,
Robert W. August, John W. August, Burton Stuart
August and Waldemar Bachman. No amounts were
outstanding as of March 31, 1995. (Form S-1,
Exhibit No. 4.07)
4.05* Unsecured Line of Credit, Commitment Letter, dated
October 5, 1995, between the Company and The
Chase Manhattan Bank, N.A. (September 1995 Form
10-Q, Exhibit No. 4.01)
4.06* Offering Line of Credit for Standby Letters of
Credit,Commitment Letter, dated October 5, 1995,
between the Company and The Chase Manhattan Bank,
N.A. (September 1995 Form 10-Q, Exhibit No. 4.02)
4.07* Real Estate Line of Credit, Commitment Letter, dated
January 13, 1995, between the Company and The
Chase Manhattan Bank, N.A. (December 1994 Form
10-Q, Exhibit No. 4.01)
4.08* Commitment Letter for new headquarters facility, dated
January 13, 1995, between the Company and The
Chase Manhattan Bank, N.A. (December 1994 Form
10-Q, Exhibit No. 4.04)
- ---------------------
46
* 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"); the
Company's Registration Statement on Form S-8,
filed with the Securities and Exchange Commission
on December 24, 1992 ("Form S-8"); (5) the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1993 ("1993 Form
10-K"); (6) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September
30, 1993 ("September 1993 Form 10-Q"); (7) the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1994 ("December
1994 Form 10-Q"); (8) the Company's Annual
Report on Form 10-K for the fiscal year ended
March 31, 1994 ("1994 Form 10-K"); (9) the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 ("1995 Form
10-K") or (10) the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September
30, 1995 ("September 1995 Form 10-Q"). The
appropriate document and exhibit number are
indicated in parentheses.
47
Exhibit No. Page Document
- ----------- ---- --------
10.01* 1984 Employees' Incentive Stock Option Plan, as amended
through December 23, 1992. (Form S-8, Exhibit
No. 4-1)**
10.02* 1987 Employees' Incentive Stock Option Plan, as amended
through December 23, 1992. (Form S-8, Exhibit
No. 4-2)**
10.03* 1989 Employees' Incentive Stock Option Plan, as amended
through December 23, 1992. (Form S-8, Exhibit
No. 4-3)**
10.03a* Amendment, dated as of January 25, 1994, to 1989
Employees' Incentive Stock Option Plan. (1994
Form 10-K, Exhibit No. 10.03a)**
10.03b* Amendment, dated as of May 17, 1995 to the 1989
Employees' Incentive Stock Option Plan (1995 Form
10-K, Exhibit No. 10.03)**
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)**
10.06* Mortgage and Security Agreement, dated September 1, 1987,
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated September 21,
1987, and Conditional Assignment of Leases and
Rents, dated September 1, 1987, with respect to
Shop No. 87. (Form S-1, Exhibit No. 10.07)
10.07* Bond and Mortgage, dated April 9, 1986, among the
Company, Gerald Levin and Eleanor B. Levin, and
Frank A. Cancelino and Jemma A. Cancelino, with
respect to Shop No. 75. (Form S-1, Exhibit No.
10.08)
10.08* Mortgage, dated July 31, 1987, between the Company and
Central Trust Company, with Mortgage Note, dated
July 31, 1987, with respect to Shop No. 82.
(Form S-1, Exhibit No. 10.09)
10.08a* Amendment, dated June 17, 1991, to Mortgage with respect
to Shop No. 82, between the Company and Central
Trust Company. (Amendment No. 1, Exhibit No.
10.09a)
10.09* Mortgage and Security Agreement, dated September 21, 1987
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated September 21,
1987, and Conditional Assignment of Leases and
Rents, dated September 1, 1987, with respect to
Shop No. 78. (Form S-1, Exhibit No. 10.10)
- --------------------
** 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.
48
Exhibit No. Page Document
- ----------- ---- --------
10.10* Mortgage and Security Agreement, dated September 1, 1987,
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated September 1,
1987, and Conditional Assignment of Leases and
Rents, dated September 1, 1987, with respect to
Shop No. 86. (Form S-1, Exhibit No. 10.11)
10.11* Mortgage and Security Agreement, dated December 1, 1987,
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated December 28,
1987, and Conditional Assignment of Leases and
Rents, dated December 1, 1987, with respect to
Shop No. 90. (Form S-1, Exhibit No. 10.12)
10.12* Mortgage and Security Agreement, dated August 1, 1988,
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated August 9, 1988,
and Conditional Assignment of Leases and Rents,
dated August 1, 1988, with respect to Shop No.
120. (Form S-1, Exhibit No. 10.13)
10.13* Mortgage and Security Agreement, dated August 1, 1988,
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated August 9, 1988,
and Conditional Assignment of Leases and Rents,
dated August 1, 1988, with respect to Shop No.
124. (Form S-1, Exhibit No. 10.14)
10.14* Mortgage and Security Agreement, dated August 1, 1988,
between the Company and Chase Lincoln First Bank,
N.A., with Mortgage Note, dated August 9, 1988,
and Conditional Assignment of Leases and Rents,
dated August 1, 1988, with respect to Shop No.
125. (Form S-1, Exhibit No. 10.15)
10.15* Mortgage, dated January 1, 1983, among the Company,
Lincoln First Bank, N.A., Mary C. Vasile, David
A. Vasile, Marie J. Vasile, Vincenza Vasile,
Anthony G. Cashette, Joseph A. Fischette and
Lillian Lobene, with Mortgage Note, dated January
1, 1983, and Assignment of Mortgage, dated
December 3, 1984, by Lillian Lobene to Leo and
Matilda Iaia, with respect to the Company's
headquarters offices and warehouse facilities.
(Form S-1, Exhibit No. 10.16)
10.15a* Modification and Extension Agreement, dated January 28,
1993, among the Company, The Chase Manhattan
Bank, N.A. (formerly Lincoln First Bank, N.A.),
Mary C. Vasile, David A. Vasile, Robert
Oppenheimer, Vincenza Vasile, Anthony G.
Cashette, Joseph A. Fischette and Leo and Matilda
Iaia, with respect to the Company's headquarters
offices and warehouse facilities. (1993 Form
10-K, Exhibit No. 10.15a)
10.16* Modification and Extension Agreement, dated August 12,
1991, between AA & L Associates, L.P. and the
Company, with respect to Shop No. 1. (1992 Form
10-K, Exhibit No. 10.18)
10.17* 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 Shop No. 3. (Form S-1, Exhibit No.
10.19)
49
Exhibit No. Page Document
- ----------- ---- --------
10.18* 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 Shop No. 7. (Form S-1,
Exhibit No. 10.20)
10.18a* 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 Shop No. 7. (1992
Form 10-K, Exhibit No. 10.20a)
10.19* 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 Shop No. 8. (Form S-1, Exhibit No.
10.21)
10.20* 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 Shop No. 9.
(Form S-1, Exhibit No. 10.22)
10.21* 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 Shop No. 10. (Form S-1, Exhibit No.
10.23)
10.22* 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 Shop No. 12. (Form S-1, Exhibit
No. 10.24)
10.23* 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 Shop No. 14. (Form S-1, Exhibit
No. 10.25)
10.24* 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 Shop No. 15. (Form S-1,
Exhibit No. 10.26)
10.25* Lease, dated as of September 25, 1991, among Charles J.
August, Burton S. August and Sheldon A. Lane and
the Company, with respect to Shop No. 17. (1992
Form 10-K, Exhibit No. 10.27)
50
Exhibit No. Page Document
- ----------- ---- --------
10.26* 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 Shop No. 23. (Form S-1, Exhibit
No. 10.28)
10.27* 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 Shop No. 25. (Form S-1, Exhibit
No. 10.29)
10.28* 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 Shop No. 27. (Form S-1, Exhibit
No. 10.30)
10.29* 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 Shop No. 28. (Form S-1, Exhibit
No. 10.31)
10.30* 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 Shop No. 29. (Form S-1, Exhibit
No. 10.32)
10.31* 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 Shop No. 30. (Form S-1, Exhibit
No. 10.33)
10.32* 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 Shop No. 31. (Form S-1, Exhibit No.
10.34)
10.33* 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 Shop No. 33.
(1992 Form 10-K, Exhibit No. 10.35)
51
Exhibit No. Page Document
- ----------- ---- --------
10.34* 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 Shop No. 34. (Form S-1, Exhibit No.
10.36)
10.35* 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 Shop No. 35. (Form S-1, Exhibit
No. 10.37)
10.36* 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 Shop No. 36. (Form
S-1, Exhibit No. 10.38)
10.36a* 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 Shop
No. 36. (1992 Form 10-K, Exhibit No. 10.38a)
10.37* 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 Shop No. 43. (Form S-1, Exhibit
No. 10.39)
10.38* 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 Shop No. 44.
(Form S-1, Exhibit No. 10.40)
10.39* 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 Shop No. 45. (Form S-1, Exhibit
No. 10.41)
10.40* 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 Shop No. 48. (Form S-1, Exhibit
No. 10.42)
10.41* 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 Shop No. 49.
(Form S-1, Exhibit No. 10.43)
52
Exhibit No. Page Document
- ----------- ---- --------
10.42* 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 Shop No. 51.
(Form S-1, Exhibit No. 10.44)
10.43* 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 Shop No. 52. (Form S-1,
Exhibit No. 10.45)
10.44* 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 Shop No. 53. (Form S-1, Exhibit No. 10.46)
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 Shop No. 54. (Form S-1,
Exhibit No. 10.47)
10.46* 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 Shop No. 55. (Form S-1, Exhibit
No. 10.48)
10.47* 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 Shop No. 57. (Form S-1, Exhibit
No. 10.49)
10.48* 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 Shop No. 58. (Form S-1,
Exhibit No. 10.50)
10.49* Modification and Extension Agreement, dated August 12,
1991, between AA & L Associates, L.P. and the
Company, with respect to Shop No. 60. (1992 Form
10-K, Exhibit No. 10.51)
10.50* Lease, signed October 22, 1986, between the Company and
Conifer Johnstown Associates, with respect to
Shop No. 63. (Form S-1, Exhibit No. 10.52)
10.51* Lease, effective October 20, 1986, between the Company
and Conifer Wappingers Falls Associates, with
respect to Shop No. 79. (Form S-1, Exhibit No.
10.53)
10.52* 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 Shop No. 107. (Form S-1, Exhibit
No. 10.54)
53
Exhibit No. Page Document
- ----------- ---- --------
10.53* 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 Shop. No. 109. (Form S-1,
Exhibit No. 10.55)
10.54* 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 Shop No.
114. (Form S-1, Exhibit No. 10.56)
10.55* 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 Shop No. 116. (Form S-1, Exhibit No. 10.57)
10.56* Lease, dated May 12, 1989, between the Company and
Conifer Penfield Associates (as successor to
Conifer Development, Inc.), with respect to Shop
No. 132. (Form S-1, Exhibit No. 10.58)
10.57* Modification and Extension Agreement, dated November 1,
1993, between A A & L Associates, L.P. and the
Company, with respect to Shop Nos. 1, 23, 25, 27,
28, 29, 35, 53, 57 and 60. (1994 Form 10-K,
Exhibit No. 10.57)
10.58* Form of Mortgage and Security Agreement, between
the Company and Chase Manhattan Bank, N.A., with
Form of Mortgage Note and Form of Conditional
Assignment of Leases and Rents, in connection
with each of fifteen mortgages on Shop Nos. 137,
140, 143, 146, 162, 164, 168, 169, 172, 177, 179,
184, 185, 186 and 191 entered into since the
filing of the 1992 Form 10-K. (1993 Form 10-K,
Exhibit No. 10.57)
10.59* Form of Mortgage and Security Agreement, between the
Company and 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 Shop 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)
10.60* Mortgage Agreement, dated September 28, 1994, between the
Company and the the City of Rochester, New York.
(1995 Form 10-K, Exhibit No. 10.60)
10.61* Lease Agreement, dated October 11, 1994, between the
Company and the City of Rochester, New York.
(1995 Form 10-K, Exhibit 10.61)
10.62* 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)
54
Exhibit No. Page Document
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10.63* 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)
10.64* 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)
10.65* Employment Agreement dated February 18, 1995, between the
Company and Jack M. Gallagher. (1995 Form 10-K,
Exhibit No. 10.62)**
10.66* Asset Purchase Agreement by and between Monro Muffler
Brake, Inc. as the buyer and Xpress Automotive
Group, Inc. as the seller, as entered into July
25, 1995. (September 1995 Form 10-Q, Exhibit
No. 10.03)
11.01 125 Computation of Per Share Earnings.
21.01 126 Subsidiaries of the Company.
23.01 127 Consent of Price Waterhouse.
24.01 128 Powers of Attorney.
27 Financial Data Schedule