MONRO MUFFLER 10-K
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
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For Fiscal Year Ended
March 25, 2006
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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Commission
file number 0-19357
Monro Muffler Brake,
Inc.
(Exact name of registrant as
specified in its charter)
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New York
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16-0838627
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(State of
incorporation)
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(I.R.S. Employer Identification
No.)
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200 Holleder Parkway,
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Rochester, New York
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14615
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(Address of principal executive
offices)
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(Zip code)
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Registrants telephone number, including area code:
(585)
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 is not required to fill
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
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 þ No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one)
Large Accelerated
Filer o Accelerated
Filer þ Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 26, 2006, the aggregate market value of voting
stock held by non-affiliates of the registrant was $457,096,000.
As of May 26, 2006, 14,036,799 shares of the
registrants Common Stock, par value $.01 per share,
were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the registrants definitive proxy statement (to
be filed pursuant to Regulation 14A) for the 2006 Annual
Meeting of Shareholders (the Proxy Statement) are
incorporated by reference into Part III hereof.
PART I
GENERAL
Monro Muffler Brake, Inc. (Monro or the
Company) is a chain of 700 Company-operated stores
(as of May 1, 2006) and 16 dealer-operated stores
providing automotive undercar repair and tire services in the
United States. At March 25, 2006, Monro operated
Company stores in New York, Pennsylvania, Ohio, Connecticut,
Massachusetts, West Virginia, Virginia, Maryland, Vermont, New
Hampshire, New Jersey, North Carolina, South Carolina, Indiana,
Rhode Island, Delaware and Maine under the names Monro
Muffler Brake & Service, Tread Quarters
Discount Tire and Mr. Tire (together, the
Company Stores). The Companys Stores typically
are situated in high-visibility locations in suburban areas and
small towns, as well as in major metropolitan areas. The Company
Stores serviced approximately 3,180,000 vehicles in fiscal 2006.
(References herein to fiscal years are to the Companys
year ended fiscal March [e.g., references to fiscal
2006 are to the Companys fiscal year ended
March 25, 2006].)
The predecessor to the Company was founded by Charles J. August
in 1957 as a Midas Muffler franchise in Rochester, New York,
specializing in mufflers and exhaust systems. In 1966, the
Company discontinued its affiliation with Midas Muffler, and
began to diversify into a full line of undercar repair services.
An investor group led by Peter J. Solomon and Donald Glickman
purchased a controlling interest in the Company in July 1984. At
that time, Monro operated 59 stores, located primarily in
upstate New York, with approximately $21 million in sales
in fiscal 1984. Since 1984, Monro has continued its growth and
has expanded its marketing area to include 17 additional
states.
In December 1998, the Company appointed Robert G. Gross as
President and Chief Executive Officer, who began full-time
responsibilities on January 1, 1999.
The Company was incorporated in the State of New York in 1959.
The Companys principal executive offices are located at
200 Holleder Parkway, Rochester, New York 14615, and its
telephone number is
(585) 647-6400.
The Company provides a broad range of services on passenger
cars, light trucks and vans for brakes (estimated at 24% of
fiscal 2006 sales); mufflers and exhaust systems (11%); and
steering, drive train, suspension and wheel alignment (14%). The
Company also provides other products and services including
tires (23%) and routine maintenance services including state
inspections (28%). 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, various
flush and fill services and some minor
tune-up
services. The Company does not sell parts or accessories to the
do-it-yourself market.
All of the Companys stores provide the services described
above. However, a growing number of the Companys stores
are more specialized in tire replacement and service and,
accordingly, have a higher mix of sales in the tire category.
These stores are described below as tire stores, whereas the
majority of the Companys stores are described as service
stores. (See additional discussion under Operating
Strategy.)
The Companys sales mix for fiscal 2006 and 2005 is as
follows:
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Service Stores
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Tire Stores
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Total Company
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FY06
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FY05
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FY06
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FY05
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FY06
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FY05
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Brakes
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30
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%
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30
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%
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11
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11
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%
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24
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%
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26
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%
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Exhaust
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15
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17
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1
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1
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11
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13
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Steering
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15
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15
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11
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13
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14
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14
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Tires
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8
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8
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57
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57
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23
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20
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Maintenance
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32
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30
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20
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18
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28
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27
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Total
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100
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%
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100
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%
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100
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%
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100
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%
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100
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%
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100
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%
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1
The Company has two active wholly-owned subsidiaries, Monro
Service Corporation and Monro Leasing, LLC, both of which are
Delaware companies qualified to do business in the State of New
York.
Monro Service Corporation holds all assets, rights,
responsibilities and liabilities associated with the
Companys warehousing, purchasing, advertising, accounting,
office services, payroll, cash management and certain other
operations that are performed in New York State and Maryland.
The Company believes that this structure has enhanced, and will
continue to enhance, operational efficiency and provide cost
savings.
Monro Leasing, LLC was established primarily to act as lessee in
real estate transactions for store locations. Currently, the
sole member of the entity is the Company.
INDUSTRY
OVERVIEW
According to industry reports, demand for automotive repair
services, including undercar repair and tire services, has
increased due to the general increase in the number of vehicles
registered, the growth in vehicle miles driven, the increase in
the average age of vehicles and the increased complexity of
vehicles, which makes it more difficult for a vehicle owner to
perform do-it-yourself repairs.
At the same time as demand for automotive repair services has
grown, the number of general repair outlets has decreased,
principally because fewer gas stations now perform repairs, and
because there are fewer new car dealers. Monro believes that
these factors present opportunities for increased sales by the
Company, even though the number of specialized repair outlets
(such as those operated by the Company and its direct
competitors) has increased to meet the growth in demand.
EXPANSION
STRATEGY
Monro has experienced significant growth in recent years due to
acquisitions and, to a lesser extent, the opening of new stores.
Management believes that the continued growth in sales and
profits of the Company is dependent, in large part, upon its
continued ability to open/acquire and operate new stores on a
profitable basis. In addition, overall profitability of the
Company could be reduced if new stores do not attain
profitability.
Monro believes that there are significant expansion
opportunities in new as well as existing market areas which will
result from a combination of constructing stores on vacant land,
opening full service Monro stores within host retailers
service center locations (e.g. BJs Wholesale Clubs) 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 increasing opportunities for
acquisitions of existing businesses or store structures, and to
open stores in host retailers locations.
In that regard, the Company has completed several acquisitions
in recent years, as follows:
In September 1998, the Company completed the acquisition of 189
Company-operated and 14 franchised Speedy stores (the
Acquired Speedy stores), from SMK Speedy
International Inc. of Toronto, Canada. The Acquired Speedy
stores are located primarily in complementary areas in
Monros existing markets in the Northeast, Mid-Atlantic and
Midwest regions of the United States. These stores now operate
under the Monro brand name.
Effective April 1, 2002, the Company completed the
acquisition of Kimmel Automotive, Inc. (the Kimmel
Acquisition). Kimmel operated 34 tire and automotive
repair stores in Maryland and Virginia, as well as Wholesale and
Truck Tire Divisions (including two commercial stores). In June
2002, Monro disposed of Kimmels Truck Tire Division,
including its retread plant and two commercial stores. The
Maryland stores now operate primarily under the Mr. Tire
brand name while the Virginia stores continue to operate under
the Tread Quarters brand name.
In February 2003, Monro acquired ten company-operated tire and
automotive repair store locations in the Charleston and
Columbia, South Carolina markets from Frasier Tire Service, Inc.
(the Frasier Acquisition). These stores now operate
under the Tread Quarters brand name.
Effective March 1, 2004, the Company completed the
acquisition of Mr. Tire stores (the Mr. Tire
Acquisition) from Atlantic Automotive Corp., which added
26 retail tire and automotive repair stores in Maryland and
Virginia, as well as a wholesale operation based in Baltimore,
Maryland.
2
With the Mr. Tire Acquisition, the Company has 51 stores in
the Baltimore, Maryland area. To further solidify the
Companys leading position in this large metropolitan area,
in the first quarter of fiscal 2005, the Companys existing
Speedy locations were converted to Monro branded stores and the
Kimmel stores were converted to Monro and Mr. Tire branded
stores. The Company believes that this initiative will increase
brand awareness and raise visibility of its two dominant brands
in the market. In connection with this re-branding effort, the
Company closed one existing Kimmel store in fiscal 2005.
In fiscal 2005, the Company further expanded its presence in
Maryland through the acquisition of certain assets of Rice Tire,
Inc. (the Rice Acquisition) and Henderson Holdings,
Inc. (the Henderson Acquisition), which added five
and ten retail tire and automotive repair stores in the
Frederick and southern Maryland markets, respectively. Fourteen
of these stores operate under the Mr. Tire brand name and
one under the Tread Quarters brand name.
On November 1, 2005, the Company acquired a 13 percent
stake in R&S Parts and Service, Inc. (R&S),
a privately owned automotive aftermarket parts and service
chain, for $2.0 million from GDJ Retail LLC. As part of the
transaction, the Company also funded R&S $5.0 million
under a secured subordinated debt agreement that has a five-year
term and carries an 8 percent interest rate. The Company is
accounting for this investment on the cost method. At
March 25, 2006, the Companys investment is recorded
within Other non-current assets on the Balance Sheet.
R&S operates 100 retail stores under the name of Strauss
Discount Auto (Strauss) that provide automotive
parts and accessories, 69 of which also have service bays that
offer a full range of aftermarket services. The stores generated
approximately $170 million in annual sales in their fiscal
year ended December 2005, and are located throughout New York,
New Jersey and Philadelphia. The Company also has the option to
purchase the remaining 87 percent stake in Strauss on or
before September 30, 2006, for an additional
$12.0 million in cash and $1.0 million of Monro stock.
On April 29, 2006, the Company acquired substantially all
of the assets of ProCare Automotive Service Solutions LLC
(ProCare) for $14.7 million in cash. The
Company acquired 75 ProCare locations that offer automotive
maintenance and repair services. The stores are located in eight
metropolitan areas throughout Ohio and Pennsylvania. The Company
will convert 31 of the acquired ProCare stores to tire stores
which will operate under the Mr. Tire brand. The remaining
stores will operate as service stores under the Monro brand.
During fiscal 2006, the Company opened four full-service, Monro
branded stores within BJs Wholesale Clubs in New York (1),
North Carolina (1), Pennsylvania (1), and Massachusetts (1),
bringing the total number of stores that the Company operates in
BJs Wholesale Clubs to 34 at March 25, 2006.
3
As of March 25, 2006, Monro had 625 Company-operated stores
and 16 dealer locations located in 18 states. The following
table shows the growth in the number of Company-operated stores
over the last five fiscal years:
Store
Additions and Closings
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Year Ended Fiscal
March
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2006
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2005
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2004
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2003
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2002
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Stores open at beginning of year
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626
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595
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560
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514
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511
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Stores added during year
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10
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35
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(d)
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40
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(c)
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50
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(b)
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4
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Stores closed during year(a)
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(11
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(4
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(5
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(4
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(1
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Stores open at end of year
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625
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626
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595
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560
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514
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Tire stores
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81
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80
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70
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44
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0
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Service (including BJs)
stores
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544
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546
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525
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516
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514
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(a) |
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Generally, stores were closed because they failed to achieve or
maintain an acceptable level of profitability or because a new
Monro store was opened in the same market at a more favorable
location. Store closures in fiscal 2003 include the sale of two
commercial tire stores and a retread plant that were acquired in
the purchase of Kimmel in the first quarter of fiscal 2003. |
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(b) |
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Includes 37 stores acquired in the Kimmel Acquisition and 10
stores acquired in the Frasier Acquisition. |
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(c) |
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Includes 26 stores acquired in the Mr. Tire Acquisition and
12 stores opened in BJs Wholesale Club locations. |
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(d) |
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Includes 15 stores acquired in the Henderson and Rice
Acquisitions and 16 stores opened in BJs Wholesale Club
locations. |
Excluding the completed ProCare and the potential Strauss
acquisition, the Company plans to open approximately 15 new
stores in fiscal 2007, including eight in BJs Wholesale
Clubs, and to continue to search for appropriate acquisition
candidates or opportunities to operate stores within host
retailers locations. In future years, should the Company
find that there are no suitable acquisition or retail
partnership candidates, it might increase its new store
(greenfield) openings.
The Company has developed a systematic method for selecting new
store locations and a targeted approach to marketing new stores.
Key factors in market and site selection include population,
demographic characteristics, vehicle population and the
intensity of competition. The characteristics of each potential
site are compared to the profiles of existing stores in
projecting 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 Monros
established market areas.
As a result of extensive analysis of its historical and
projected store opening strategy, the Company has established
major market profiles, as defined by market awareness: mature,
existing and new markets. Over the next several years, the
Company expects to build a greater percentage of stores in
mature and existing markets in order to capitalize on the
Companys market presence and consumer awareness. All 10
stores opened in fiscal 2006 were in mature or existing markets.
The Company believes that management and operating improvements
implemented over the last several fiscal years will enhance its
ability to sustain its growth. The Company has a chain-wide
computerized inventory control and electronic
point-of-sale
(POS) management information system, which has
increased managements ability to monitor operations as the
number of stores has grown. The Company has customized the POS
system to specific service and tire store requirements and
deploys the appropriate version in each type of store. Being
Windows-based, the system has simplified training of new
employees. Additionally, the system includes electronic mail and
electronic cataloging, which allows store managers to
electronically research the specific parts needed for the make
and model of the car being serviced. This enhanced system
includes software which contains data that mirrors the scheduled
maintenance requirements in vehicle owners manuals,
specifically by make, model, year and mileage for every
automobile. Management believes that this software facilitates
the presentation and sale of scheduled
4
maintenance services to customers. Other enhancements include
the streamlining of estimating and other processes; graphic
catalogs; a feature which facilitates tire searches by size;
direct mail support; appointment scheduling; customer service
history; a thermometer graphic which guides store managers on
the profitability of each job; and expanded monitoring of price
changes. This latter change requires more specificity on the
reason for a discount, which management believes has helped to
control discounting. Enhancements will continue to be made to
the POS system annually in an effort to increase efficiency,
improve the quality and timeliness of store reporting and enable
the Company to better serve its customers.
The financing to open a new greenfield service store location
may be accomplished in one of three ways: a store lease for the
land and building (in which case, land and building costs will
be financed primarily by the lessor), a land lease with the
building constructed by 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 $125,000 for equipment (including a POS
system and a truck) and approximately $60,000 in inventory.
Because Monro generally does not extend credit to its customers,
stores generate almost no receivables and a new stores
actual net working capital investment is nominal. Total capital
required to open a new greenfield service store ranges, on
average (based upon the last five fiscal years openings,
excluding the BJs locations and the acquired stores), from
$300,000 to $1,000,000 depending on the location and which of
the three financing methods is used. In general, tire stores are
larger and have more service bays than Monros traditional
service stores and, as a result, construction costs are at the
high end of the range of new store construction costs. In
instances where Monro acquires an existing business, it may pay
additional amounts for intangible assets such as customer lists,
covenants
not-to-compete,
trade names and goodwill.
Total capital required to open a store within a BJs
Wholesale Club is substantially less than opening a greenfield
store.
At March 25, 2006, the Company leased the land
and/or the
building at approximately 70% of its store locations and owned
the land and building at the remaining locations. Monros
policy is to situate new stores in the best locations, without
regard to the form of ownership required to develop the
locations.
New stores, excluding acquired stores and BJs locations,
have average sales of approximately $360,000 in their first
12 months of operation, or $60,000 per bay.
OPERATING
STRATEGY
Monros operating strategy is to provide its customers with
dependable, high-quality automotive service at a competitive
price by emphasizing the following key elements.
Products
and Services
All stores provide a full range of undercar repair services for
brakes, steering, mufflers and exhaust systems, drive train,
suspension and wheel alignment, as well as tire replacement and
service. These services apply to all makes and models of
domestic and foreign cars, light trucks and vans. The service
stores provide significantly more exhaust service than tire
stores, and tire stores provide substantially more tire services
than service stores.
All stores provide many of the routine maintenance services
(except engine diagnostic), which automobile manufacturers
suggest or require in the vehicle owners manuals, and
which fulfill manufacturers requirements for new car
warranty compliance. The Company offers Scheduled
Maintenance services in all of its stores whereby the
aforementioned services are packaged and offered to consumers
based upon the year, make, model and mileage of each specific
vehicle. Management believes that the Company is able to offer
this service in a more convenient and cost competitive fashion
than auto dealers can provide.
Included in maintenance services are oil change services,
heating and cooling system flush and fill service,
belt installation, and a transmission flush and fill
service. Additionally, all stores replace and service batteries,
starters and alternators. Stores in New York, West Virginia, New
Hampshire, Maryland, Rhode Island, New Jersey, Pennsylvania,
North Carolina, Virginia and Vermont also perform annual state
inspections. Approximately 34% of the Companys stores also
offer air conditioning services.
5
Customer
Satisfaction
The Companys vision of being the dominant Auto Service
provider in the markets it serves is supported by a set of
values displayed in each Company store emphasizing TRUST:
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Total Customer Satisfaction
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Respect, Recognize and Reward (employees who are
committed to these values)
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Unparalleled Quality and Integrity
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Superior Value and
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Teamwork
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Additionally, each Company-operated store displays and operates
under the following set of customer satisfaction principles:
free inspection of brakes, shocks, front end and exhaust
systems;
item-by-item
review with customers of problem areas; free written estimates;
written guarantees; drive-in service without an appointment;
fair and reasonable prices; a
30-day best
price guarantee; and repairs by professionally trained undercar
specialists. (See additional discussion under Store
Operations: Quality Control and Warranties.)
Competitive
Pricing, Advertising and Co-branding
Initiatives
The Company seeks to set competitive prices for quality services
and products. The Company supports its pricing strategy by
advertising through direct mail coupon inserts and in-store
promotional signage and displays. In addition, the Company
advertises through radio, yellow pages, newspapers and
electronic mail to increase consumer awareness of the services
offered.
The Company employs co-branding initiatives to more quickly
increase consumer awareness in certain markets. The Company
believes that, especially in newer markets, customers may more
readily be drawn into its stores because of their familiarity
with national brand names. As part of its BJs Wholesale
Club program, the Company has implemented a series of co-branded
initiatives to market the Companys services to the large
number of BJs Wholesale Club members where a new Monro
store has opened within the BJs Wholesale Club service
center.
Centralized
Control
Unlike many of its competitors, the Company operates, rather
than franchises, all of its stores (except for the 16 dealer
locations). Monro believes that direct operation of stores
enhances its ability to compete by providing centralized control
of such areas of operations as service quality, store
appearance, promotional activity and pricing. A high level of
technical competence is maintained throughout the Company, as
Monro requires, as a condition of employment, that employees
participate in comprehensive training programs to keep pace with
changes in technology. Additionally, purchasing, distribution,
merchandising, advertising, accounting and other store support
functions are centralized primarily in the Companys
corporate headquarters in Rochester, New York, and are provided
through the Companys 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
and tire service. (See additional discussion under Store
Operations: Store Personnel and Training.)
6
STORE
OPERATIONS
Store
Format
The typical format for a Monro repair store is a free-standing
building consisting of a sales area, fully-equipped service bays
and a parts/tires storage area. In BJs locations, the
Company and BJs both operate counters in the sales area,
while the Company operates the service bay area. Most service
bays are equipped with above-ground electric vehicle lifts.
Generally, each store is located within 25 miles of a
key store which carries approximately 91% more
inventory than a typical store and serves as a mini-distribution
point for slower moving inventory for other stores in its area.
Individual store sizes, number of bays and stocking levels vary
greatly, even within the service and tire store groups, and are
dependent primarily on the availability of suitable store
locations, population, demographics and intensity of competition
among other factors (See additional discussion under Store
Additions and Closings). A summary of average store data
for service and tire stores is presented below:
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Average
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Number
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Average
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Average
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of Stock
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Number
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Square
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Average
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Keeping
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of Bays
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Feet
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Inventory
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Units (SKUs)
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Service stores (excluding
BJs)
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6
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4,300
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$
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83,000
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3,500
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Tire stores
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7
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6,000
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$
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122,000
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2,200
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The stores generally are situated in high-visibility locations
in suburban areas, major metropolitan areas or small towns and
offer easy customer access. The typical store is open from
7:30 a.m. to 7:00 p.m. on Monday through Friday and
from 7:30 a.m. to 5:00 p.m. on Saturday. Selected tire
locations are also open Sundays from 9:00 a.m. to
5:00 p.m.
Inventory
Control and Management Information System
All Company stores communicate daily with the central office and
warehouse by computerized inventory control and electronic POS
management information systems, which enable the Company to
collect sales and operational data on a daily basis, to adjust
store pricing to reflect local conditions and to control
inventory on a near real-time basis. Additionally,
each store has access, through the POS system, to the inventory
carried by the seven stores nearest to it. Management believes
that this feature improves customer satisfaction and store
productivity by reducing the time required to locate
out-of-stock
parts.
Quality
Control and Warranties
To maintain quality control, the Company conducts audits to rate
its employees telephone sales manner and the accuracy of
pricing information given.
The Company has a customer survey program to monitor customer
attitudes toward service quality, friendliness, speed of
service, and several other factors for each store. This program
includes a monthly telephone survey contacting customers of all
stores. (Twenty customers are contacted for each store during
each fiscal quarter.) Customer concerns are addressed via letter
and personal
follow-up by
customer service and field management personnel.
The Company uses a Double Check for Accuracy Program
as part of its routine store procedures. This quality assurance
program requires that a technician and supervisory-level
employee (or in certain cases, another technician in tire
stores) independently inspect a customers vehicle,
diagnose and document the necessary repairs, and agree on an
estimate before presenting it to a customer. This process is
formally documented on the written estimate by store personnel.
The Company is an active member of the Motorist Assurance
Program (MAP). MAP is an organization of automotive
retailers, wholesalers and manufacturers which was established
as part of an industry-wide effort to address the ethics and
business practices of companies in the automotive repair
industry. Participating companies commit to improving consumer
confidence and trust in the automotive repair industry by
adopting Uniform Inspection Communication Standards
established by MAP. These UICS are available in the
Companys stores and serve to provide consistent
recommendations to customers in the diagnosis and repair of a
vehicle.
7
Monro offers limited warranties on substantially all of the
products and services that it provides. The Company believes
that these warranties are competitive with industry practices
and serve as a marketing tool to increase repeat business at the
stores.
Store
Personnel and Training
The Company supervises store operations primarily through its
Divisional Vice Presidents who oversee Zone Managers who, in
turn, oversee Market Managers. The typical service store is
staffed by a Store Manager and four to six technicians, one of
whom serves as the Assistant Manager. The typical tire store is
staffed by a Store Manager, an Assistant Manager
and/or
Service Manager, and four to eight technicians. Larger volume
tire stores may also have one or two sales people. The higher
staffing level at many tire stores is necessary to support their
higher sales volume. All Store Managers receive a base salary,
and Assistant Managers receive hourly compensation. In addition,
Store Managers and Assistant Managers may receive other
compensation based on their stores customer relations,
gross profit, labor cost controls, safety, sales volume and
other factors via a monthly or quarterly bonus based on
performance in these areas.
Monro believes that the ability to recruit and retain qualified
technicians is an important competitive factor in the automotive
repair industry, which has historically experienced a high
turnover rate. Monro makes a concerted effort to recruit
individuals who will have a long-term commitment to the Company
and offers an hourly rate structure and additional compensation
based on productivity; a competitive benefits package including
health, dental, life and disability insurance; a
401(k)/profit-sharing plan; as well as the opportunity to
advance within the Company. Many of the Companys Managers
and Market Managers started with the Company as technicians.
Many of the Companys new technicians join the Company in
their early twenties as trainees or apprentices. As they
progress, they are promoted to technician and eventually master
technician, the latter requiring ASE certification in both
brakes and suspension. The Company offers a tool purchase
program through which trainee technicians can acquire their own
set of tools. The Company also will reimburse technicians for
the cost of ASE certification registration fees and test fees
and encourages all technicians to become certified by providing
a higher hourly wage rate following their certification.
The Companys training department conducts in-house
technical clinics for store personnel and management training
programs for new Store Managers, and coordinates attendance at
sales and technical clinics offered by the Companys
vendors. Each service store maintains a library of 20 to 25
instructional videos. The Company issues technical bulletins to
all stores on innovative or complex repair processes, and
maintains a centralized data base for technical repair problems.
In addition, the Company has established a telephone technical
hotline to provide assistance to store personnel in resolving
problems encountered while diagnosing and repairing vehicles.
The help line is available during all hours of store operation.
The Company has established Monro University to provide
comprehensive training and development of current and
prospective Store Managers. Training is accomplished through an
intensive one-week instructional program at a separate facility
in Rochester, New York. Topics covered include sales training,
customer service, time management, human resources (counseling,
recruiting, interviewing, etc.), leadership, inventory control
and financial management. The courses employ a variety of
instructional techniques including video taping, role playing
and testing. Several of the courses are conducted by officers of
the Company, whose first priority is instilling the
Companys culture, philosophies and values into the
individuals who hold these important positions. The one-week
class follows a field training segment for new managers which
ranges from two to four weeks depending upon the
individuals level of experience. Monro management is
closely tracking the performance of the Managers who have
completed the class. On average, the program has led to
increased store profitability as well as longer retention of the
Store Managers.
PURCHASING
AND DISTRIBUTION
The Company, through its wholly-owned subsidiary Monro Service
Corporation, selects and purchases parts and supplies for all
Company-operated stores on a centralized basis through an
automatic replenishment system. Although purchases outside the
centralized system (outside purchases) are made when
needed at the store level, these purchases are low by industry
standards, and accounted for approximately 14% of all parts used
in fiscal 2006.
8
The Companys ten largest vendors accounted for
approximately 69% of its parts and tire purchases, with the
largest vendor accounting for approximately 17% of total
purchases in fiscal 2006. The Company purchases parts and tires
from over 100 vendors. Management believes that the
Companys relationships with vendors are excellent and that
alternative sources of supply exist, at comparable cost, for
substantially all parts used in the Companys business. The
Company routinely obtains bids from vendors to ensure it is
receiving competitive pricing and terms.
Most parts are shipped by vendors to the Companys primary
warehouse facility in Rochester, New York, and are distributed
to stores through the Company-operated tractor/trailer fleet.
Stores are replenished either on a weekly or bi-weekly basis
from this warehouse, and such replenishment fills, on the
average, 96% of all items ordered by the stores automatic
POS-driven replenishment system. The Rochester warehouse stocks
approximately 7,000 SKUs. The Company also operates warehouses
in Baltimore and Virginia that service the tire stores in those
markets. These warehouses carry, on average 4,800 and 2,100
SKUs, respectively.
The Company has entered into various contracts with parts and
tire suppliers, certain of which require the Company to buy up
to 100% of its annual purchases of specific products including
brakes, exhaust, oil and ride control at market prices. These
agreements expire at various dates through March 2010. The
Company believes these agreements provide it with high quality,
branded merchandise at preferred pricing, along with strong
marketing and training support.
COMPETITION
The Company competes in the retail automotive service industry.
This industry is generally highly competitive and fragmented,
and the number, size and strength of competitors vary 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. Monros primary
competitors include national and regional undercar, tire
specialty and general automotive service chains, both franchised
and company-operated; car dealerships, mass merchandisers
operating service centers; and, to a lesser extent, gas stations
and independent garages. Monro considers Midas, Inc. and Meineke
Discount Mufflers Inc. to be direct competitors. In most of the
new markets that the Company has entered, at least one
competitor was already present. In identifying new markets, the
Company analyzes, among other factors, the intensity of
competition. (See Expansion Strategy and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.)
EMPLOYEES
As of March 25, 2006, Monro had 3,561 employees, of whom
3,322 were employed in the field organization, 76 were employed
at the warehouses, 141 were employed at the Companys
corporate headquarters and 22 were employed in its Baltimore
office. Monros employees are not members of any union. The
Company believes that its relations with its employees are good.
REGULATION
The Company stores new oil and recycled antifreeze and generates
and/or
handles used tires and automotive oils, antifreeze and certain
solvents, which are disposed of by licensed third-party
contractors. In certain states, as required, the Company also
recycles oil filters. Thus, the Company is subject to a number
of federal, state and local environmental laws including the
Comprehensive Environmental Response Compensation and Liability
Act (CERCLA). In addition, the United States
Environmental Protection Agency (the EPA), under the
Resource Conservation and Recovery Act (RCRA), and
various state and local environmental protection agencies
regulate the Companys 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 maintains programs to facilitate
compliance with these laws and regulations.
9
The Company believes that it is in substantial compliance with
all applicable environmental and other laws and regulations and
that the cost of such compliance is not material to the Company.
The Company is environmentally conscious, and takes advantage of
recycling opportunities both at its headquarters and at its
stores. Cardboard, plastic shrink wrap and parts cores are
returned to the warehouse by the stores on the weekly stock
truck. There, they are accumulated for sale to recycling
companies or returned to parts manufacturers for credit.
SEASONALITY
Although the Companys business is not highly seasonal,
customers do purchase more undercar service during the period of
March through October than the period of November through
February, when miles driven tend to be lower. As a result, sales
and profitability are typically lower during the latter period.
In the tire stores, the better sales months are typically May
through August, and October through December. The slowest months
are typically January through April and September.
COMPANY
INFORMATION AND SEC FILINGS
The Company maintains a website at www.monro.com and
makes its annual, quarterly and periodic Securities and Exchange
Commission (SEC) filings available through the
Investor Information section of that website. The Companys
SEC filings are available through this website free of charge,
via a direct link to the SEC website at www.sec.gov. The
Companys filings with the SEC are also available to the
public at the SEC Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or by calling the SEC at
1-800-SEC-0330.
RISKS
RELATED TO OUR BUSINESS
In addition to the risk factors discussed elsewhere in this
annual report, the following are some of the important factors
that could cause the Companys actual results to differ
materially from those projected in any forward looking
statements:
We
operate in the highly competitive automotive repair
industry.
The automotive repair industry in which we operate is generally
highly competitive and fragmented, and the number, size and
strength of our competitors varies widely from region to region.
We believe that competition in the industry is based primarily
on customer service, reputation, store location, name awareness
and price. Our primary competitors include national and regional
undercar, tire specialty and general automotive service chains,
both franchised and company-operated, car dealerships, mass
merchandisers operating service centers and, to a lesser extent,
gas stations and independent garages. Some of our competitors
have more financial resources, are more geographically diverse
and have better name recognition than we do, which might place
us at a competitive disadvantage to those competitors. Because
we seek to offer competitive prices, if our competitors reduce
prices, we may be forced to reduce our prices, which could have
a material adverse effect on our business, financial condition
and results of operations. We cannot assure that we or any of
our stores will be able to compete effectively. If we are unable
to compete successfully in new and existing markets, we may not
achieve our projected revenue and profitability targets.
We are
subject to seasonality and cycles in the general economy that
impact demand for our products and services.
Although our business is not highly seasonal, our customers
typically purchase more undercar service during the period of
March through October than the period of November through
February, when miles driven tend to be lower. As a result, our
sales and profitability tend to be lower during the latter
period. In our tire stores, the slowest months are typically
January through April and September. Further, customers may
defer or forego vehicle maintenance at any time during periods
of inclement weather.
10
The automotive repair industry is subject to fluctuations in the
general economy. During a downturn in the economy, customers may
defer or forego vehicle maintenance or repair. During periods of
good economic conditions, consumers may decide to purchase new
vehicles rather than having their older vehicles serviced. While
the number of automobiles registered in the United States has
steadily increased, this trend may not continue. In any event,
should a reduction in the number of miles driven by automobile
owners occur, it would likely have an adverse effect on the
demand for our products and services. For example, when the
retail cost of gasoline increases, the number of miles driven by
automobile owners may decrease, which would result in less
frequent service intervals and fewer repairs.
We
depend on our relationships with our vendors.
We depend on close relationships with our vendors for parts and
supplies and for our ability to purchase products at competitive
prices and terms. Our ability to purchase at competitive prices
and terms results from the volume of our purchases from these
vendors. We have entered into various contracts with parts
suppliers that require us to buy from them (at market prices) up
to 100% of our annual purchases of specific products including
brakes, exhaust, oil and ride control products. These agreements
expire at various dates through March 2010.
We believe that alternative sources exist for most of the
products we sell or use at our stores, and we would not expect
the loss of any one supplier to have a material adverse effect
on our business, financial condition or results of operations.
Our dependence on a small number of suppliers, however, subjects
us to the risks of shortages and interruptions. If any of our
suppliers do not perform adequately or otherwise fail to
distribute parts or other supplies to our stores, our inability
to replace the suppliers in a timely manner and on acceptable
terms could increase our costs and could cause shortages or
interruptions that could have a material adverse effect on our
business, financial condition and results of operations.
Our
industry is subject to environmental, consumer protection and
other regulation.
We are subject to various federal, state and local environmental
laws and other governmental regulations regarding the operation
of our business. For example, we are subject to rules governing
the handling, storage and disposal of hazardous substances
contained in some of the products such as motor oil that we sell
and use at our stores, the recycling of batteries, tires and
used lubricants, and the ownership and operation of real
property. These laws and regulations can impose fines and
criminal sanctions for violations and require the installation
of pollution control equipment or operational changes to
decrease the likelihood of accidental hazardous substance
releases. Accordingly, we could become subject to material
liabilities relating to the investigation and cleanup of
contaminated properties, and to claims alleging personal injury
or property damage as a result of exposure to, or release of,
hazardous substances. In addition, stricter interpretation of
existing laws and regulations, new laws and regulations, the
discovery of previously unknown contamination or the imposition
of new or increased requirements could require us to incur costs
or become the basis of new or increased liabilities that could
have a material adverse effect on our business, financial
condition and results of operations.
National automotive repair chains have also been the subject of
investigations and reports by consumer protection agencies and
the Attorneys General of various states. Publicity in connection
with these investigations could have an adverse effect on our
sales and, consequently, our business, financial condition and
results of operations. State and local governments have also
enacted numerous consumer protection laws that we must comply
with.
The costs of operating our stores may increase if there are
changes in laws governing minimum hourly wages, working
conditions, overtime, workers compensation insurance
rates, unemployment tax rates or other laws and regulations. A
material increase in these costs that we were unable to offset
by increasing our prices or by other means could have a material
adverse effect on our business, financial condition and results
of operations.
Our
business is affected by advances in automotive
technology.
The demand for our products and services could be adversely
affected by continuing developments in automotive technology.
Automotive manufacturers are producing cars that last longer and
require service and maintenance at less frequent intervals in
certain cases. Quality improvement of manufacturers
original equipment
11
parts has in the past reduced, and may in the future reduce,
demand for our products and services, adversely affecting our
sales. For example, manufacturers use of stainless steel
exhaust components has significantly increased the life of those
parts, thereby decreasing the demand for exhaust repairs and
replacements. Longer and more comprehensive warranty or service
programs offered by automobile manufacturers and other third
parties also could adversely affect the demand for our products
and services. We believe that a majority of new automobile
owners have their cars serviced by a dealer during the period
that the car is under warranty. In addition, advances in
automotive technology continue to require us to incur additional
costs to update our diagnostic capabilities and technical
training programs.
We may
not be successful in integrating new and acquired
stores.
Management believes that our continued growth in sales and
profit is dependent, in large part, upon our continuing ability
to open/acquire and operate new stores on a profitable basis. In
order to do so, we must find reasonably priced new store
locations and acquisition candidates that meet our criteria and
we must integrate any new stores (opened or acquired) into our
system. Our growth and profitability could be adversely affected
if we are unable to open or acquire new stores or if new or
existing stores do not operate at a sufficient level of
profitability. In addition, we generally fund our acquisitions
through our existing bank credit facility. If new stores do not
achieve expected levels of profitability, this may adversely
impact our ability to remain in compliance with our debt
covenants or to make required payments under our credit facility.
Store
closings result in costs.
From time to time, in the ordinary course of our business, we
close certain stores, generally based on considerations of store
profitability, competition, strategic factors and other
considerations. Closing a store could subject us to costs
including the write-down of leasehold improvements, equipment,
furniture and fixtures. In addition, we could remain liable for
future lease obligations.
We
rely on an adequate supply of skilled field
personnel.
In order to continue to provide high quality services, we
require an adequate supply of skilled field managers and
technicians. Trained and experienced automotive field personnel
are in high demand, and may be in short supply in some areas. We
cannot assure that we will be able to attract, motivate and
maintain an adequate skilled workforce necessary to operate our
existing and future stores efficiently, or that labor expenses
will not increase as a result of a shortage in the supply of
skilled field personnel, thereby adversely impacting our
financial performance. While the automotive repair industry
generally operates with high field employee turnover, any
material increases in employee turnover rates in our stores or
any widespread employee dissatisfaction could also have a
material adverse effect on our business, financial condition and
results of operations.
If we
are unable to generate sufficient cash flows from our
operations, our liquidity will suffer and we may be unable to
satisfy our obligations.
We currently rely on cash flow from operations and our revolving
credit facility to fund our business. Amounts outstanding on the
revolving credit facility are reported as debt on our balance
sheet. While we believe that we have the ability to sufficiently
fund our planned operations and capital expenditures for the
foreseeable future, the risks to our business could result in
circumstances that would materially affect our liquidity. For
example, cash flows from our operations could be affected by
changes in consumer spending habits, the failure to maintain
favorable vendor payment terms or our inability to successfully
implement sales growth initiatives, among other factors. We may
be unsuccessful in securing alternative financing when needed on
terms that we consider acceptable.
In addition, a significant increase in our leverage could have
important consequences to an investment in our common stock,
including the following risks:
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our ability to obtain additional financing for working capital,
capital expenditures, store renovations, acquisitions or general
corporate purposes may be impaired in the future;
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12
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our failure to comply with the financial and other restrictive
covenants governing our debt, which, among other things, require
us to maintain a minimum net worth, comply with certain
financial ratios and limit our ability to incur additional debt
and sell assets, could result in an event of default that, if
not cured or waived, could have a material adverse effect on our
business, financial condition and results of operations; and
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our exposure to certain financial market risks, including
fluctuations in interest rates associated with bank borrowings
could become more significant.
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If we do not perform in accordance with our debt covenants, the
institutions providing the funds have the option to withdraw
their funding support. We cannot assure that we will remain in
compliance with our debt covenants in the future. In addition,
our current financing agreement expires in July 2010, and we
cannot assure that we will be able to refinance our existing
credit facility when it expires.
We
depend on the services of key executives.
Our senior executives are important to our success because they
have been instrumental in setting our strategic direction,
operating our business, identifying, recruiting and training key
personnel, identifying expansion opportunities and arranging
necessary financing. Losing the services of any of these
individuals could adversely affect our business until a suitable
replacement could be found. It may be difficult to replace them
quickly with executives of equal experience and capabilities.
Although we have employment agreements with selected executives,
we could not prevent them from terminating their employment with
us. Other executives are not bound by employment agreements with
us.
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Item 1B.
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Unresolved
Staff Comments
|
None.
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
Technology Park, in Rochester, New York.
In connection with the Speedy Acquisition in September 1998, the
Company financed most of the real estate formerly owned by SMK
Speedy International Inc. via a synthetic lease (off-balance
sheet) agreement, which was subsequently refinanced as a
revolving credit loan. (See additional discussion under
Capital Resources and Liquidity). Of the total
number of Company-operated Acquired Speedy locations, 18
buildings on land-leased sites and 68 parcels of land and
buildings on formerly owned locations were leased under this
arrangement. In June 2003, the Company purchased the general and
limited partnership interests in Brazos Automotive Properties,
L.P. (BAP), the entity holding title to these
properties, and, accordingly, has consolidated the related
assets and debt in its financial statements from June 2004. (See
also Note 2 to the financial statements.)
Of Monros 625 Company-operated stores at March 25,
2006, 190 were owned, 301 were leased and for 134, 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, approximately 52% of the
operating leases (226 stores) expire after 2016. Certain of
the leases provide for contingent rental payments if a
percentage of annual gross sales exceeds the base fixed rental
amount. The highest contingent percentage rent of any lease is
6.75%, and no such lease has adversely affected profitability of
the store subject thereto. An officer of the Company or members
of his family are the lessors, or have interests in entities
that are the lessors, with respect to six of the leases. No
related party leases, other than the six assumed as part of the
Mr. Tire acquisition in March 2004, have been entered into,
and no new related party leases are contemplated.
As of March 25, 2006, there was $.7 million
outstanding under a mortgage held by the City of Rochester,
New York, secured by the land on which the headquarters
office and warehouse is located.
13
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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.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2006.
PART II
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Item 5.
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Market
for the Companys 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 Companys last two fiscal years, the range of high and
low sales prices on the NASDAQ National Market System for the
Common Stock:
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Fiscal 2006
|
|
|
Fiscal 2005
|
|
Quarter Ended
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High
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|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
June
|
|
$
|
29.79
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|
|
$
|
24.52
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|
|
$
|
26.45
|
|
|
$
|
22.62
|
|
September
|
|
|
31.77
|
|
|
|
25.47
|
|
|
|
25.00
|
|
|
|
18.78
|
|
December
|
|
|
32.63
|
|
|
|
25.94
|
|
|
|
27.00
|
|
|
|
20.53
|
|
March
|
|
|
40.58
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|
|
|
29.47
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|
|
|
29.64
|
|
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|
23.25
|
|
HOLDERS
At May 23, 2006, the Companys Common Stock was held
by approximately 3,200 shareholders of record or through nominee
or street name accounts with brokers.
DIVIDENDS
On September 16, 2003, the Companys Board of
Directors declared a
three-for-two
stock split in the form of a 50% stock dividend payable to
shareholders of record on October 21, 2003. Information
regarding the number of shares of Common Stock outstanding and
market prices of the Common Stock, as set forth in this
Form 10-K,
reflect the impact of this stock split.
In May 2005, the Companys Board of Directors declared its
intention to pay a regular quarterly cash dividend during fiscal
2006 of $.05 per share to be paid beginning with the first
quarter of fiscal 2006. In May 2006, the Companys Board of
Directors declared its intention to pay a regular quarterly cash
dividend during fiscal 2007 of $.07 per share to be paid
beginning with the first quarter of 2007. However, the
declaration of and any determination as to the payment of future
dividends will be at the discretion of the Board of Directors
and will depend on the Companys financial condition,
results of operations, capital requirements, compliance with
charter and contractual restrictions, and such other factors as
the Board of Directors deems relevant. The terms of the
Companys Credit Facility permit the payment of cash
dividends not to exceed 25% of the preceding years net
income. See additional dividend disclosure in Note 16 to
the consolidated financial statements.
14
|
|
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 25, 2006. The financial data and certain operating
data have been derived from the Companys audited financial
statements. This data should be read in conjunction with the
financial statements and related notes included under
Item 8 of this report and in conjunction with other
financial information included elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Amounts in thousands, except
per share data)
|
|
|
Income Statement
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
368,727
|
|
|
$
|
337,409
|
|
|
$
|
279,457
|
|
|
$
|
258,026
|
|
|
$
|
224,853
|
|
Cost of sales, including
distribution and occupancy costs
|
|
|
220,915
|
|
|
|
200,616
|
|
|
|
165,412
|
|
|
|
153,073
|
|
|
|
133,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
147,812
|
|
|
|
136,793
|
|
|
|
114,045
|
|
|
|
104,953
|
|
|
|
91,168
|
|
Operating, selling, general and
administrative expenses
|
|
|
108,030
|
|
|
|
102,379
|
|
|
|
84,708
|
|
|
|
81,040
|
|
|
|
69,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
39,782
|
|
|
|
34,414
|
|
|
|
29,337
|
|
|
|
23,913
|
|
|
|
21,564
|
|
Interest expense, net
|
|
|
3,478
|
|
|
|
2,549
|
|
|
|
2,613
|
|
|
|
2,601
|
|
|
|
3,731
|
|
Other (income) expense, net
|
|
|
(502
|
)
|
|
|
463
|
|
|
|
48
|
|
|
|
(211
|
)
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
36,806
|
|
|
|
31,402
|
|
|
|
26,676
|
|
|
|
21,523
|
|
|
|
17,029
|
|
Provision for income taxes
|
|
|
14,140
|
|
|
|
11,733
|
|
|
|
10,136
|
|
|
|
8,179
|
|
|
|
6,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,666
|
|
|
$
|
19,669
|
|
|
$
|
16,540
|
|
|
$
|
13,344
|
|
|
$
|
10,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share Basic(a)
|
|
$
|
1.67
|
|
|
$
|
1.50
|
|
|
$
|
1.28
|
|
|
$
|
1.05
|
|
|
$
|
.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted(a)
|
|
$
|
1.51
|
|
|
$
|
1.35
|
|
|
$
|
1.15
|
|
|
$
|
.95
|
|
|
$
|
.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common
Stock and
equivalents Basic(b)
|
|
|
13,531
|
|
|
|
13,102
|
|
|
|
12,954
|
|
|
|
12,699
|
|
|
|
12,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted(b)
|
|
|
15,022
|
|
|
|
14,562
|
|
|
|
14,400
|
|
|
|
14,105
|
|
|
|
13,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share or
common share equivalent
|
|
$
|
.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating
Data(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9.3
|
%
|
|
|
20.7
|
%
|
|
|
8.3
|
%
|
|
|
14.8
|
%
|
|
|
0.9
|
%
|
Comparable store(d)
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
4.7
|
%
|
|
|
2.9
|
%
|
|
|
0.3
|
%
|
Stores open at beginning of year
|
|
|
626
|
|
|
|
595
|
|
|
|
560
|
|
|
|
514
|
|
|
|
511
|
|
Stores open at end of year
|
|
|
625
|
|
|
|
626
|
|
|
|
595
|
|
|
|
560
|
|
|
|
514
|
|
Capital expenditures(e)
|
|
$
|
16,005
|
|
|
$
|
18,586
|
|
|
$
|
14,327
|
|
|
$
|
14,822
|
|
|
$
|
8,615
|
|
Balance Sheet Data (at period
end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
$
|
30,737
|
|
|
$
|
27,158
|
|
|
$
|
29,611
|
|
|
$
|
22,630
|
|
|
$
|
13,185
|
|
Total assets
|
|
|
300,860
|
|
|
|
284,985
|
|
|
|
259,343
|
|
|
|
206,984
|
|
|
|
186,334
|
|
Long-term debt
|
|
|
46,327
|
|
|
|
55,438
|
|
|
|
68,763
|
|
|
|
36,183
|
|
|
|
34,123
|
|
Shareholders equity
|
|
|
192,990
|
|
|
|
167,489
|
|
|
|
138,993
|
|
|
|
120,051
|
|
|
|
102,587
|
|
|
|
|
(a) |
|
See Note 10 for calculation of basic and diluted earnings per
share. |
|
(b) |
|
Adjusted in fiscal years
2002-2003
for the effect of the Companys October 2003
three-for-two
stock split. See Note 1 to the financial statements. |
|
(c) |
|
Includes Company-operated stores only no dealer
locations. |
|
(d) |
|
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. |
|
(e) |
|
Amount does not include the funding of the purchase price
related to the Kimmel or Frasier Acquisitions in fiscal year
2003, the Mr. Tire Acquisition in fiscal 2004 or the Rice
and Henderson Acquisitions in fiscal 2005. |
15
|
|
Item 7.
|
Managements
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 Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales, including
distribution and occupancy costs
|
|
|
59.9
|
|
|
|
59.5
|
|
|
|
59.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
40.1
|
|
|
|
40.5
|
|
|
|
40.8
|
|
Operating, selling, general and
administrative expenses
|
|
|
29.3
|
|
|
|
30.3
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10.8
|
|
|
|
10.2
|
|
|
|
10.5
|
|
Interest expense, net
|
|
|
.9
|
|
|
|
.8
|
|
|
|
.9
|
|
Other (income) expense, net
|
|
|
(.1
|
)
|
|
|
.1
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
10.0
|
|
|
|
9.3
|
|
|
|
9.5
|
|
Provision for income taxes
|
|
|
3.8
|
|
|
|
3.5
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6.2
|
%
|
|
|
5.8
|
%
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FORWARD-LOOKING
STATEMENTS
The statements contained in this Annual Report on
Form 10-K
that are not historical facts, including (without limitation)
statements made in this Item and in
Item 1 Business, may contain
statements of future expectations and other forward-looking
statements made pursuant to the Safe Harbor provisions of the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to risks, uncertainties
and other important factors that could cause actual results to
differ materially from those expressed. These factors include,
but are not necessarily limited to, product demand, dependence
on and competition within the primary markets in which the
Companys stores are located, the need for and costs
associated with store renovations and other capital
expenditures, the effect of economic conditions, the impact of
competitive services and pricing, product development, parts
supply restraints or difficulties, industry regulation, risks
relating to leverage and debt service (including sensitivity to
fluctuations in interest rates), continued availability of
capital resources and financing, risks relating to integration
of acquired businesses, the risks set forth in
Item 1A Risk Factors and other
factors set forth or incorporated elsewhere herein and in the
Companys other SEC 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.
RECENT
DEVELOPMENTS
Effective March 24, 2006, the Compensation Committee of the
Board of Directors approved the accelerated vesting of all
220,000 stock options held by the Companys employees.
The Companys executive officers and certain senior level
managers have agreed that they will hold the shares related to
the accelerated vesting at least through the original vesting
date of the corresponding options, other than with respect to
sales of such shares necessary to pay withholding taxes incurred
as a result of the exercise of such options. Except for the
accelerated vesting, all other material terms and conditions of
the previously granted awards remain unchanged.
The decision to accelerate the vesting of these stock options
was made to reduce non-cash compensation expense that would
otherwise have been recorded in future periods following the
Companys adoption of Statement of Financial Accounting
Standards No. 123R (SFAS 123R),
Share-Based Payment, which became effective for the
Company on March 26, 2006. The accelerated vesting resulted
in a one-time non-cash stock-based compensation charge of
approximately $272,000, or $.02 per diluted share, in the
fourth quarter of fiscal 2006. As a result of the vesting
acceleration, the Company expects it will eliminate the
recognition of approximately $900,000 to $1,000,000 of non-cash
expense over the next four years, beginning March 26, 2006,
with more than half of the expense reduction attributable to
fiscal 2007.
16
On April 29, 2006, the Company acquired substantially all
of the assets of ProCare for $14.7 million in cash. The
Company acquired 75 ProCare locations that offer automotive
maintenance and repair services. The stores are located in eight
metropolitan areas throughout Ohio and Pennsylvania. The Company
will convert 31 of the acquired ProCare stores to tire stores
which will operate under the Mr. Tire brand. The remaining
stores will operate as service stores under the Monro brand.
CRITICAL
ACCOUNTING POLICIES
The Company believes that the accounting policies listed below
are those that are most critical to the portrayal of the
Companys financial condition and results of operations,
and that required managements most difficult, subjective
and complex judgments in estimating the effect of inherent
uncertainties. This section should be read in conjunction with
Note 1 to the consolidated financial statements which
includes other significant accounting policies.
Inventory
The Company evaluates whether inventory is stated at the lower
of cost or market based on historical experience with the
carrying value and life of inventory. The assumptions used in
this evaluation are based on current market conditions and the
Company believes inventory is stated at the lower of cost or
market in the consolidated financial statements. In addition,
historically the Company has been able to return excess items to
vendors for credit or sell such inventory to wholesalers. Future
changes by vendors in their policies or willingness to accept
returns of excess inventory could require a revision in the
estimates.
Carrying
Values of Goodwill and Long-Lived Assets
Goodwill represents the amount paid in consideration for an
acquisition in excess of the net assets acquired. In accordance
with Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, the Company does not amortize goodwill for
acquisitions made after June 30, 2001. The Company conducts
tests for impairment of goodwill annually, typically during the
third quarter of the fiscal year, or more frequently if
circumstances indicate that the asset might be impaired. These
impairment tests include management estimates of future cash
flows that are dependent upon subjective assumptions regarding
future operating results including growth rates, discount rates,
capital requirements and other factors that impact the estimated
fair value. An impairment loss is recognized to the extent that
an assets carrying amount exceeds its fair value.
The Company evaluates the carrying values of its long-lived
assets to be held and used in the business by reviewing
undiscounted cash flows by operating unit. Such evaluations are
performed whenever events and circumstances indicate that the
carrying amount of an asset may not be recoverable. In such
instances, the carrying values are adjusted for the differences
between the fair values and the carrying values. Additionally,
in the case of fixed assets related to locations that will be
closed or sold, the Company shortens the depreciable life of the
related assets to coincide with the planned sale or closing date.
Self-Insurance
Reserves
The Company is largely self-insured with respect to workers
compensation, general liability and employee medical claims. In
order to reduce its risk and better manage its overall loss
exposure, the Company purchases stop-loss insurance that covers
individual claims in excess of the deductible amounts. The
Company maintains an accrual for the estimated cost to settle
open claims as well as an estimate of the cost of claims that
have been incurred but not reported. These estimates take into
consideration the historical average claim volume, the average
cost for settled claims, current trends in claim costs, changes
in the Companys business and workforce, and general
economic factors. These accruals are reviewed on a quarterly
basis, or more frequently if factors dictate a more frequent
review is warranted.
17
Warranty
The Company provides an accrual for estimated future warranty
costs based upon the historical relationship of warranty costs
to sales, except for tire road hazard warranties which are
accounted for in accordance with Financial Accounting Standards
Board (FASB) Technical
Bulletin 90-1.
The warranty reserve and warranty expense related to all product
warranties at and for the fiscal years ended March 2006, 2005
and 2004 were not material to the Companys financial
position or results of operations.
RESULTS
OF OPERATIONS
Fiscal
2006 as Compared to Fiscal 2005
Sales for fiscal 2006 increased $31.3 million, or 9.3% to
$368.7 million as compared to $337.4 million in fiscal
2005. The increase was due to an increase of approximately
$26.6 million from stores added since March 27, 2004,
and a comparable store sales increase of 1.7%. The Company also
sold some slower moving inventory for approximately
$4.1 million to ICON International, a barter company. There
were 308 selling days in fiscal year 2006 compared to 307
selling days in fiscal year 2005. Adjusting for days, comparable
store sales increased 1.4%.
The bulk sale of inventory to ICON was an important transaction
for the Company. The sale will help to improve inventory turns,
which becomes a higher priority as interest rates continue to
rise, and in light of the accounting rules of Emerging Issues
Task Force Issue
No. 02-16
(EITF 02-16),
Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor, which require that
vendor rebates be recognized as inventory turns. As new vendor
agreements fall under these rules, inventory turns have a more
direct impact on cost of goods sold and gross profit than in the
past.
During the year, 10 stores were added and 11 were closed. At
March 25, 2006, the Company had 625 stores in operation.
Management believes that the improvement in sales resulted from
several factors, including an increase in tire sales and
scheduled maintenance services. Price increases in several
product categories also contributed to the sales improvement.
While comparable store traffic declined slightly, average ticket
increased. Management believes that soft economic conditions
resulted in consumers deferring repairs to their vehicles.
However, most repairs can only be deferred for a period of time.
When customers did come in to have their vehicles repaired, they
spent more on average, most likely because the problem with
their vehicle had worsened due to additional wear.
The Company introduced Scheduled Maintenance
services in all of its stores late in fiscal 2001. These
services are required by vehicle manufacturers to comply with
warranty schedules, and are offered by Monro in a more
convenient and cost competitive fashion than auto dealers
typically provide. Management believes that these services,
which are offered both in bundled packages and
individually, will continue to contribute positively to
comparable store sales in future years, and have helped to
mitigate the decline in exhaust which negatively impacted recent
fiscal years. The exhaust decline resulted primarily from
manufacturers use of non-corrosive stainless steel exhaust
systems on most new cars beginning in the mid-1980s and
completed in the mid-1990s.
Additionally, the Company continued to reward store employees
with pay programs focused on high customer service scores.
Management believes that, in spite of the sluggish economic
environment, it is continuing to build the trust of its
customers, through quality, integrity and fair pricing, and is
gaining an advantage over some of its competitors.
Gross profit for fiscal 2006 was $147.8 million or 40.1% of
sales, as compared with $136.8 million or 40.5% of sales
for fiscal 2005. The decrease in gross profit as a percentage of
sales is primarily attributable to an increase in material costs
due to a shift in mix to the lower margin categories of tires
and maintenance services. On a consolidated basis, tires
represented 22.5% of sales in fiscal 2006 as compared to 20.2%
of sales in fiscal 2005. Maintenance services increased from
26.8% of sales to 28.4% of sales, while the core services of
brakes, exhaust and steering all decreased as a percent of sales
from the prior year.
The Company also experienced cost increases in oil and tires.
Additionally, the bulk sale of inventory to ICON was at a lower
margin than Monros typical sales, although there were no
labor costs, and accounted for a slight decrease in gross margin.
18
However, price increases, as well as the recognition of vendor
rebates against cost of goods in concert with inventory turns in
accordance with
EITF 02-16,
helped to partially offset the aforementioned margin pressures.
Partially offsetting these increases were decreases in
technician labor and occupancy costs, which are included in cost
of sales. Technician labor costs decreased due to better
operational control and improved productivity. Additionally, the
increase in tire sales, which carry lower labor costs as
compared to other service categories, helped to decrease labor
costs as a percent of sales in fiscal 2006 as compared to fiscal
2005.
Distribution and occupancy costs as a percentage of sales in
fiscal 2006 also decreased as compared to fiscal 2005, as the
Company, with improved sales, was able to leverage these largely
fixed costs.
Operating, selling, general and administrative expenses for
fiscal 2006 increased by $5.7 million to
$108.0 million, but decreased as a percentage of sales to
29.3% compared to 30.3% in 2005. The decrease is partially due
to the leveraging of fixed costs against sales, including the
bulk inventory sale. Additionally, the Company experienced lower
costs in health and other insurance as a percent of sales. It
also reduced advertising expense as a percent of sales from
fiscal 2005.
Operating income in fiscal 2006 of $39.8 million, or 10.8%
of sales, increased by $5.4 million from the fiscal 2005
level of $34.4 million, due to the factors discussed above.
Interest expense, net of interest income, increased as a percent
of sales from .8% in fiscal 2005 to .9% in fiscal 2006. The
weighted average debt outstanding for the year ended
March 25, 2006 decreased by approximately $6.4 million
from fiscal 2005. However, offsetting this decrease was an
increase in the weighted average interest rate for the year
ended March 25, 2006 of 260 basis points from the year
ended March 26, 2005, resulting in an increase in expense
between the two years.
Other income, net, for fiscal 2006 was $.5 million,
consisting of $1.4 million in gains on sale of fixed assets
and miscellaneous income, partially offset by $.9 million
of amortization expense. In fiscal 2005, the Company reported
other expense, net, of $.5 million, consisting of
amortization expense of $.8 million offset by gains on sale
of fixed assets and miscellaneous income of $.3 million.
The Companys effective tax rate was 38.4% and 37.4% of
pre-tax income in fiscal 2006 and 2005, respectively.
Net income for fiscal 2006 increased by $3.0 million, or
15.2%, to $22.7 million as compared to $19.7 million
in fiscal 2005, due to the factors discussed.
Fiscal
2005 as Compared to Fiscal 2004
Sales for fiscal 2005 increased $58.0 million, or 20.7% to
$337.4 million as compared to $279.5 million in fiscal
2004. The increase was due to an increase of approximately
$54.0 million from stores added since March 29, 2003,
of which the acquired Mr. Tire stores accounted for
$45.7 million. Comparable store sales increased 2.0%. There
were 307 selling days in fiscal year 2005 compared to 306
selling days in fiscal year 2004. Adjusting for days, comparable
store sales increased 1.7%.
During the year, 35 stores were added and four were closed. At
March 26, 2005, the Company had 626 stores in operation.
Management believes that the improvement in sales resulted from
several factors aimed at driving store traffic, including an
increase in the number of oil changes performed and an increase
in scheduled maintenance services. Price increases in several
product categories also contributed to the sales improvement.
Gross profit for fiscal 2005 was $136.8 million or 40.5% of
sales, as compared with $114.0 million or 40.8% of sales
for fiscal 2004. The decrease in gross profit as a percentage of
sales is primarily attributable to an increase in material costs
due to a shift in mix to the lower margin categories of tires
and maintenance services. Included in the maintenance categories
are oil changes which increased approximately 12% on a
comparable store basis over the prior year. The Company promoted
oil changes to drive traffic during the year, by slightly
lowering the selling price in the second half of fiscal 2005,
while experiencing an increase in the cost of oil. This had the
effect of lowering margin in the maintenance category as
compared to the prior year. Additionally, transmission and
coolant flushes
19
increased in fiscal 2005 over 2004 on a comparable store basis,
partially due to increased emphasis by management and increased
selling prices.
However, price increases, as well as the recognition of vendor
rebates against cost of goods in concert with inventory turns in
accordance with
EITF 02-16,
helped to partially offset the aforementioned margin pressures.
Partially offsetting these increases were decreases in
technician labor and occupancy costs, which are included in cost
of sales. Technician labor costs decreased due to better
operational control and improved productivity. Additionally, the
increase in tire sales, which carry lower labor costs as
compared to other service categories, helped to decrease labor
costs as a percent of sales in fiscal 2005 as compared to fiscal
2004.
Distribution and occupancy costs as a percentage of sales in
fiscal 2005 also decreased as compared to fiscal 2004, as the
Company, with improved sales, was able to leverage these largely
fixed costs.
Without Mr. Tires results, gross profit increased
from 40.9% last year to 41.3% this year, partially due to a
reduction in total material costs, as well as through increased
leveraging of distribution and occupancy costs.
The improvement in material costs apart from the acquired
Mr. Tire stores was due primarily to a reduction in outside
purchases. The Company has continued to add inventory to its
stores and warehouses in fiscal 2005 in a concerted effort to
reduce outbuys.
Operating, selling, general and administrative expenses for
fiscal 2005 increased by $17.7 million to
$102.4 million and, as a percentage of sales, remained flat
as compared to fiscal 2004. The increase in expenditures is
primarily due to the store direct costs associated with 35 new
stores, as well as increased store manager wages to improve the
quality and retention of this highly important position for the
Company, increased insurance costs, increased expense to comply
with Sarbanes-Oxley requirements and increased utility costs.
Operating income in fiscal 2005 of $34.4 million, or 10.2%
of sales, increased by $5.1 million from the fiscal 2004
level of $29.3 million, due to the factors discussed above.
Interest expense, net of interest income, decreased as a percent
of sales from .9% in fiscal 2004 to .8% in fiscal 2005. The
weighted average debt outstanding for the year ended
March 26, 2005 increased by approximately $7.4 million
from fiscal 2004. Largely offsetting this increase was a
decrease in the weighted average interest rate for the year
ended March 26, 2005 of approximately .9% from the rate of
5.5% for the year ended March 27, 2004, resulting in a
slight decrease in expense between the two years.
Other expense, net, for fiscal 2005 was $.5 million,
consisting of $.8 million in amortization expense partially
offset by $.3 million of gains on sale of fixed assets and
miscellaneous income. In fiscal 2004, the Company reported other
expense, net, of $.1 million, consisting of amortization
expense of $.3 million offset by gains on sale of fixed
assets and miscellaneous income of $.2 million.
The Companys effective tax rate was 37.4% and 38% of
pre-tax income in fiscal 2005 and 2004, respectively.
Net income for fiscal 2005 increased by $3.1 million, or
18.9%, to $19.7 million as compared to $16.5 million
in fiscal 2004, due to the factors discussed.
CAPITAL
RESOURCES AND LIQUIDITY
Capital
Resources
The Companys primary capital requirements for fiscal 2006
were the upgrading of facilities and systems and the funding of
its store expansion program. The Company spent
$16.0 million, principally for equipment and leasehold
improvements. It also spent $2.0 million and
$5.0 million, respectively, for the investments in and loan
to R&S Parts and Service, Inc. In fiscal 2005, the
Companys primary capital requirements were divided among
the funding of the Henderson and Rice Acquisitions for
$4.5 million, the Companys store expansion program
and the upgrading of facilities and systems in existing stores,
totaling $18.6 million.
In both fiscal years 2006 and 2005, these capital requirements
were primarily met by cash flow from operations.
20
In fiscal 2007, the Company intends to open approximately 15 new
stores, of which eight are expected to be stores located within
BJs Wholesale Clubs. Total capital required to open a new
store ranges, on average (based upon the last five fiscal
years openings excluding the acquired
stores and BJs locations), from $300,000 to $1,000,000
depending on whether the store is leased, owned or land leased.
Total capital required to open a store within a BJs
Wholesale Club is substantially less than for a greenfield store.
The Company also plans to continue to seek suitable acquisition
candidates. Management believes that the Company has sufficient
resources available (including cash flow from operations and
bank financing) to expand its business as currently planned for
the next several years.
Contractual
Obligations
Payments due by period under long-term debt, other financing
instruments and commitments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
Within 2 to
|
|
|
Within 4 to
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Long-term debt
|
|
|
35,196
|
|
|
|
18
|
|
|
|
18
|
|
|
|
34,500
|
|
|
|
660
|
|
Capital lease commitments
|
|
|
11,656
|
|
|
|
507
|
|
|
|
1,356
|
|
|
|
1,517
|
|
|
|
8,276
|
|
Operating lease commitments
|
|
|
81,456
|
|
|
|
19,124
|
|
|
|
31,320
|
|
|
|
17,440
|
|
|
|
13,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
128,308
|
|
|
|
19,649
|
|
|
|
32,694
|
|
|
|
53,457
|
|
|
|
22,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2003, the Company renewed its existing credit facility
agreement. The amended financing arrangement consisted of an
$83.4 million Revolving Credit facility and a
non-amortizing
credit loan (formerly synthetic lease financing) totaling
$26.6 million.
In July 2005, the Company amended its existing credit terms by
entering into a five-year, $125 million Revolving Credit
Facility agreement (the Credit Facility) with five
banks in the lending syndicate that provided the Companys
prior financing arrangement. Interest only is payable monthly
throughout the Credit Facilitys term. The Credit Facility
increases the Companys current borrowing capacity by
$15 million to $125 million and includes a provision
allowing the Company to expand the amount of the overall
facility to $160 million, subject to existing or new
lender(s) commitments at that time. The terms of the Credit
Facility immediately reduced the spread the Company pays on
LIBOR-based borrowings by 50 basis points and permit the
payment of cash dividends not to exceed 25% of the preceding
years net income. Additionally, the amended Credit
Facility is not secured by the Companys real property,
although the Company has entered into an agreement not to
encumber its real property, with certain permissible exceptions.
Other terms of the Credit Facility are generally consistent with
the Companys prior financing agreement.
Within the aforementioned $125 million Revolving Credit
facility, the Company has available a sub-facility of
$20 million for the purpose of issuing standby letters of
credit. The line requires fees aggregating .63% annually of the
face amount of each standby letter of credit, payable quarterly
in arrears. There were $11 million in outstanding letters
of credit under this line at March 25, 2006.
In addition, the Company has financed certain store properties
and vehicles with capital leases, which amount to
$11.7 million and are due in installments through 2023.
During fiscal 1995, the Company purchased 12.7 acres of
land for $.7 million from the City of Rochester,
New York, on which its office/warehouse facility is
located. The City has provided financing for 100% of the cost of
the land via a
20-year
non-interest bearing mortgage, all due and payable in 2015.
To finance its office/warehouse building, the Company obtained
permanent mortgage financing in fiscal 1996 consisting of a
10-year
mortgage for $2.9 million and an eight-year term loan in
the amount of $.7 million. In October 2005, the Company
paid the remaining $1.5 million outstanding on the mortgage
for the headquarters office/warehouse building.
Certain of the Companys long-term debt agreements require,
among other things, the maintenance of specified interest and
rent coverage ratios and amounts of net worth. They also contain
restrictions on dividend
21
payments. The Company is in compliance with these requirements
at March 25, 2006. These agreements permit mortgages and
specific lease financing arrangements with other parties with
certain limitations.
From time to time, 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 offsetting adjustment to interest expense.
Currently the Company has no hedge agreements. The most recent
hedge agreement expired in October 2005.
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
See Recent Accounting Pronouncements in Note 1
to the consolidated financial statements for a discussion of the
impact of recently issued accounting standards on the
Companys consolidated financial statements as of
March 25, 2006, for the year then ended, as well as the
expected impact on the Companys consolidated financial
statements for future periods.
|
|
Item 7a.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
The Company is exposed to market risk from potential changes in
interest rates. At year end March 2006 and 2005, approximately
2% of the Companys long-term debt, excluding capital
leases, was at fixed interest rates and therefore, the fair
value is affected by changes in market interest rates. The
Companys cash flow exposure on floating rate debt, which
is not supported by interest rate swap agreements, would result
in interest expense fluctuating approximately $.3 million
based upon the Companys debt position at fiscal year ended
March 25, 2006 and $.5 million for fiscal year ended
March 26, 2005, given a 1% change in LIBOR.
The Company regularly evaluates these risks and has in the past
entered and may in the future enter into interest rate swap
agreements, all of which prior agreements had expired before
March 2006. The Company believes the amount of risk and the use
of derivative financial instruments described above are not
material to the Companys financial condition or results of
operations.
Long-term debt, including current portion, had a carrying amount
of $35.2 million and a fair value of $34.9 million as
of March 25, 2006, as compared to a carrying amount of
$48.2 million and a fair value of $47.9 million as of
March 26, 2005.
22
Item 8.
Financial Statements and Supplementary Data
|
|
|
|
|
|
|
Page
|
|
|
|
|
24
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
56
|
|
23
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Monro Muffler
Brake, Inc.:
We have completed an integrated audit of Monro Muffler Brake,
Inc.s 2006 and 2005 consolidated financial statements and
of its internal control over financial reporting as of
March 25, 2006, and an audit of its 2004 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Our opinions, based on our audits, are presented below.
Consolidated
Financial Statements
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Monro Muffler Brake, Inc. and its
subsidiaries at March 25, 2006 and March 26, 2005, and
the results of their operations and their cash flows for each of
the three years in the period ended March 25, 2006 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys 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 the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
Internal
Control over Financial Reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control Over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of March 25, 2006 based on criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material
respects, based on those criteria. Furthermore, in our opinion,
the Company maintained, in all material respects, effective
internal control over financial reporting as of March 25,
2006, based on criteria established in Internal
Control Integrated Framework issued by the
COSO. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express
opinions on managements assessment and on the
effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable
24
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Rochester, New York
June 8, 2006
25
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
March 25,
|
|
|
March 26,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
3,780
|
|
|
$
|
888
|
|
Trade receivables
|
|
|
1,726
|
|
|
|
2,162
|
|
Inventories
|
|
|
61,427
|
|
|
|
59,753
|
|
Deferred income tax asset
|
|
|
1,133
|
|
|
|
798
|
|
Other current assets
|
|
|
13,507
|
|
|
|
13,918
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
81,573
|
|
|
|
77,519
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
291,789
|
|
|
|
279,561
|
|
Less Accumulated
depreciation and amortization
|
|
|
(128,164
|
)
|
|
|
(115,252
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
163,625
|
|
|
|
164,309
|
|
Goodwill
|
|
|
37,766
|
|
|
|
37,218
|
|
Intangible assets and other
non-current assets
|
|
|
17,896
|
|
|
|
5,939
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
300,860
|
|
|
$
|
284,985
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
525
|
|
|
$
|
1,928
|
|
Trade payables
|
|
|
23,755
|
|
|
|
23,791
|
|
Federal and state income taxes
payable
|
|
|
1,937
|
|
|
|
682
|
|
Accrued payroll, payroll taxes and
other payroll benefits
|
|
|
10,255
|
|
|
|
8,736
|
|
Accrued insurance
|
|
|
3,999
|
|
|
|
4,622
|
|
Other current liabilities
|
|
|
10,365
|
|
|
|
10,602
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
50,836
|
|
|
|
50,361
|
|
Long-term debt
|
|
|
46,327
|
|
|
|
55,438
|
|
Accrued rent expense
|
|
|
7,362
|
|
|
|
7,829
|
|
Other long-term liabilities
|
|
|
3,269
|
|
|
|
3,332
|
|
Deferred income tax liability
|
|
|
76
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
107,870
|
|
|
|
117,496
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Class C Convertible Preferred
Stock, $1.50 par value, $.144 conversion value at
March 25, 2006 and March 26, 2005, 150,000 shares
authorized; 65,000 shares issued and outstanding
|
|
|
97
|
|
|
|
97
|
|
Common Stock, $.01 par value,
20,000,000 shares authorized; 13,976,630 and
13,702,455 shares issued at March 25, 2006 and
March 26, 2005, respectively
|
|
|
140
|
|
|
|
137
|
|
Treasury Stock, 331,628 and
325,200 shares at March 25, 2006 and March 26,
2005, respectively, at cost
|
|
|
(2,056
|
)
|
|
|
(1,831
|
)
|
Additional paid-in capital
|
|
|
57,661
|
|
|
|
52,484
|
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
(17
|
)
|
Retained earnings
|
|
|
137,148
|
|
|
|
116,619
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
192,990
|
|
|
|
167,489
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
300,860
|
|
|
$
|
284,985
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
26
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share data)
|
|
|
Sales
|
|
$
|
368,727
|
|
|
$
|
337,409
|
|
|
$
|
279,457
|
|
Cost of sales, including
distribution and occupancy costs
|
|
|
220,915
|
|
|
|
200,616
|
|
|
|
165,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
147,812
|
|
|
|
136,793
|
|
|
|
114,045
|
|
Operating, selling, general and
administrative expenses
|
|
|
108,030
|
|
|
|
102,379
|
|
|
|
84,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
39,782
|
|
|
|
34,414
|
|
|
|
29,337
|
|
Interest expense, net of interest
income of $65 in 2006, $50 in 2005 and $52 in 2004
|
|
|
3,478
|
|
|
|
2,549
|
|
|
|
2,613
|
|
Other (income) expense, net
|
|
|
(502
|
)
|
|
|
463
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
36,806
|
|
|
|
31,402
|
|
|
|
26,676
|
|
Provision for income taxes
|
|
|
14,140
|
|
|
|
11,733
|
|
|
|
10,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,666
|
|
|
$
|
19,669
|
|
|
$
|
16,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.67
|
|
|
$
|
1.50
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.51
|
|
|
$
|
1.35
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,531
|
|
|
|
13,102
|
|
|
|
12,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,022
|
|
|
|
14,562
|
|
|
|
14,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
27
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
From
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Shareholder
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Balance at March 29,
2003
|
|
$
|
97
|
|
|
$
|
88
|
|
|
$
|
(1,831
|
)
|
|
$
|
42,178
|
|
|
$
|
(78
|
)
|
|
$
|
80,456
|
|
|
$
|
(859
|
)
|
|
$
|
120,051
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,540
|
|
|
|
|
|
|
|
16,540
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAS 133 adjustment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
397
|
|
Minimum pension liability
adjustment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,986
|
|
Tax benefit from exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
Exercise of stock options
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,211
|
|
Shares issued in connection with
three-for-two
stock split
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
(2
|
)
|
Note receivable from shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Issuance of warrants in connection
with the acquisition of Mr. Tire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 27,
2004
|
|
|
97
|
|
|
|
133
|
|
|
|
(1,831
|
)
|
|
|
44,057
|
|
|
|
0
|
|
|
|
96,950
|
|
|
|
(413
|
)
|
|
|
138,993
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,669
|
|
|
|
|
|
|
|
19,669
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAS 133 adjustment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
58
|
|
Minimum pension liability
adjustment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,065
|
|
Tax benefit from exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644
|
|
Issuance of stock: payment for
acquisition
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
6,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,432
|
|
Exercise of stock options
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 26,
2005
|
|
|
97
|
|
|
|
137
|
|
|
|
(1,831
|
)
|
|
|
52,484
|
|
|
|
0
|
|
|
|
116,619
|
|
|
|
(17
|
)
|
|
|
167,489
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,666
|
|
|
|
|
|
|
|
22,666
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAS 133 adjustment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,683
|
|
Cash Dividends: Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
(102
|
)
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,035
|
)
|
|
|
|
|
|
|
(2,035
|
)
|
Tax benefit from exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
711
|
|
Exercise of warrants
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,233
|
|
Exercise of stock options
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
1,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,919
|
|
Stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 25,
2006
|
|
$
|
97
|
|
|
$
|
140
|
|
|
$
|
(2,056
|
)
|
|
$
|
57,661
|
|
|
$
|
0
|
|
|
$
|
137,148
|
|
|
$
|
0
|
|
|
$
|
192,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Components of comprehensive income are reported net of related
taxes of $11, $242 and $273 in fiscal years 2006, 2005 and 2004,
respectively. |
The accompanying notes are an integral part of these financial
statements.
28
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
|
Increase (Decrease) in
Cash
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,666
|
|
|
$
|
19,669
|
|
|
$
|
16,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net
income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17,776
|
|
|
|
15,724
|
|
|
|
14,001
|
|
Stock-based compensation expense
|
|
|
297
|
|
|
|
|
|
|
|
|
|
Net change in deferred income taxes
|
|
|
(806
|
)
|
|
|
1,939
|
|
|
|
1,957
|
|
(Gain) loss on disposal of
property, plant and equipment
|
|
|
(959
|
)
|
|
|
197
|
|
|
|
(48
|
)
|
Decrease (increase) in trade
receivables
|
|
|
436
|
|
|
|
(187
|
)
|
|
|
(73
|
)
|
(Increase) decrease in inventories
|
|
|
(4,592
|
)
|
|
|
(4,870
|
)
|
|
|
840
|
|
Decrease (increase) in other
current assets
|
|
|
1,660
|
|
|
|
(3,368
|
)
|
|
|
(1,299
|
)
|
(Increase) decrease in other
noncurrent assets
|
|
|
(2,377
|
)
|
|
|
(531
|
)
|
|
|
791
|
|
(Decrease) increase in trade
payables
|
|
|
(141
|
)
|
|
|
7,087
|
|
|
|
(251
|
)
|
Increase (decrease) in accrued
expenses
|
|
|
641
|
|
|
|
2,178
|
|
|
|
(804
|
)
|
Increase (decrease) in income
taxes payable
|
|
|
1,966
|
|
|
|
281
|
|
|
|
(189
|
)
|
(Decrease) increase in other
long-term liabilities
|
|
|
(335
|
)
|
|
|
(478
|
)
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
13,566
|
|
|
|
17,972
|
|
|
|
16,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
36,232
|
|
|
|
37,641
|
|
|
|
32,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(16,005
|
)
|
|
|
(18,586
|
)
|
|
|
(14,327
|
)
|
Payment for purchase of Brazos
Automotive Properties, L.P.
|
|
|
|
|
|
|
|
|
|
|
(947
|
)
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(4,539
|
)
|
|
|
(25,506
|
)
|
Proceeds from the disposal of
property, plant and equipment
|
|
|
3,015
|
|
|
|
1,986
|
|
|
|
2,212
|
|
Debtor-in-possession
financing to ProCare
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
Deposit on acquisition of ProCare
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
Loan to R&S Parts and
Services, Inc.
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
Investment in R&S Parts and
Services, Inc.
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing
activities
|
|
|
(21,590
|
)
|
|
|
(21,139
|
)
|
|
|
(38,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
205,305
|
|
|
|
122,514
|
|
|
|
175,280
|
|
Principal payments on long-term
debt and capital lease obligations
|
|
|
(218,845
|
)
|
|
|
(141,016
|
)
|
|
|
(169,306
|
)
|
Payment of fractional shares
related to stock split
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Purchase of common stock
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,919
|
|
|
|
1,355
|
|
|
|
1,211
|
|
Exercise of warrants
|
|
|
2,233
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(2,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided for
financing activities
|
|
|
(11,750
|
)
|
|
|
(17,147
|
)
|
|
|
7,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
2,892
|
|
|
|
(645
|
)
|
|
|
1,464
|
|
Cash at beginning of year
|
|
|
888
|
|
|
|
1,533
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
3,780
|
|
|
$
|
888
|
|
|
$
|
1,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
29
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTE 1 SIGNIFICANT
ACCOUNTING POLICIES
Background
Monro Muffler Brake, Inc. and its wholly owned subsidiaries,
Monro Service Corporation and Monro Leasing, LLC (the
Company), is engaged principally in providing
automotive undercar repair services in the United States. The
Company had 625 Company-operated stores and 16 dealer-operated
automotive repair centers located primarily in the northeast
region of the United States as of March 25, 2006. The
Companys operations are organized and managed in one
operating segment.
Accounting
estimates
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in
conformity with such principles requires the use of estimates by
management during the reporting period. Actual results could
differ from those estimates.
Fiscal
year
The Company reports its results on a 52/53 week fiscal year
ending on the last Saturday of March of each year. The following
are the dates represented by each fiscal period:
Year ended Fiscal March 2006: March 27,
2005 March 25, 2006 (52 weeks)
Year ended Fiscal March 2005: March 28,
2004 March 26, 2005 (52 weeks)
Year ended Fiscal March 2004: March 30,
2003 March 27, 2004 (52 weeks)
Consolidation
The consolidated financial statements include the Company and
its wholly owned subsidiaries, Monro Service Corporation and
Monro Leasing, LLC, after the elimination of intercompany
transactions and balances.
Revenue
recognition
Sales are recorded upon completion of automotive undercar repair
and tire services provided to customers. The following was the
Companys sales mix for fiscal 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
Brakes
|
|
|
24
|
%
|
|
|
26
|
%
|
Exhaust
|
|
|
11
|
|
|
|
13
|
|
Steering
|
|
|
14
|
|
|
|
14
|
|
Tires
|
|
|
23
|
|
|
|
20
|
|
Maintenance
|
|
|
28
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Sales of tire road hazard warranties are accounted for in
accordance with Financial Accounting Standards Board
(FASB) Technical
Bulletin 90-1,
Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts. Revenue from the sale of
these agreements is recognized on a straight-line basis over the
contract period or other method where costs are not incurred
ratably.
30
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
equivalents
The Company considers all highly liquid instruments with
original maturities of three months or less to be cash
equivalents.
Inventories
The Companys inventories consist of automotive parts and
tires. Inventories are valued at the lower of cost or market
value using the
first-in,
first-out (FIFO) method.
Barter
credits
The Company accounts for the receipt of barter credits in
accordance with Emerging Issues Task Force (EITF)
Issue
No. 93-11,
Accounting for Barter Transactions.
Property,
plant and equipment
Property, plant and equipment are stated at cost. Depreciation
of property, plant and equipment is provided on the
straight-line basis. Buildings and improvements related to owned
locations are depreciated over lives varying from 10 to
39 years; machinery, fixtures and equipment over lives
varying from 5 to 15 years; and vehicles over lives varying
from 3 to 8 years. Computer software is depreciated over
lives varying from 3 to 7 years. Buildings and improvements
related to leased locations are depreciated over the shorter of
the assets useful life or the reasonably assured lease
term, as defined in Statement of Financial Accounting Standards
No. 98 (SFAS 98), Accounting for
Leases. When property is sold or retired, the cost and
accumulated depreciation are eliminated from the accounts and a
gain or loss is recorded in the Statement of Income.
Expenditures for maintenance and repairs are expensed as
incurred.
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 (See Note 4).
Long-lived
assets
The Company accounts for impaired long-lived assets in
accordance with Statement of Financial Accounting Standards
No. 144 (SFAS 144), Accounting for
the Impairment or Disposal of Long-Lived Assets. This
standard prescribes the method for asset impairment evaluation
for long-lived assets and certain identifiable intangibles that
are either held and used or to be disposed of. The Company
evaluates the ability to recover long-lived assets whenever
events or circumstances indicate that the carrying value of the
asset may not be recoverable. In the event assets are impaired,
losses are recognized to the extent the carrying value exceeds
the fair value. In addition, the Company reports assets to be
disposed of at the lower of the carrying amount or the fair
market value less selling costs.
Store
opening and closing costs
New store opening costs are charged to expense in the fiscal
year when incurred. When the Company closes a store, the
estimated unrecoverable costs, including the remaining lease
obligation net of sublease income, if any, are charged to
expense.
Leases
The Company recognizes rent expense, including rent escalations,
on a straight-line basis over the reasonably assured lease term,
as defined in SFAS 98. Generally, the lease term is the
base lease term plus certain renewal option periods for which
renewal is reasonably assured.
31
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and intangible assets
The Company has adopted Statement of Financial Accounting
Standards No. 141 (SFAS 141),
Business Combinations. All business combinations
consummated on or after July 1, 2001 are accounted for in
accordance with that pronouncement. In addition, in accordance
with Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, effective March 31, 2002, the Company no
longer amortizes goodwill.
The value of intangibles, such as customer lists and trade
names, is determined during the initial purchase accounting for
acquisitions via the use of experts, or by the Company applying
similar methodologies on smaller acquisitions. The Company
analyzes goodwill and other intangible assets for impairment on
an annual basis as well as when events and circumstances
indicate that an impairment may have occurred. Certain factors
that may occur and indicate that an impairment exists include,
but are not limited to, operating results that are lower than
expected and adverse industry or market economic trends. The
impairment testing requires management to estimate the fair
value of the assets or reporting unit and record an impairment
loss for the excess of the carrying value over the fair value.
The estimate of fair value of intangible assets is generally
determined on the basis of discounted future cash flows
supplemented by the market approach. In estimating the fair
value, management must make assumptions and projections
regarding such items as future cash flows, future revenues,
future earnings and other factors. The assumptions used in the
estimates of fair value are generally consistent with past
performance and are also consistent with the projections and
assumptions that are used in current operating plans. Such
assumptions are subject to change as a result of changing
economic and competitive conditions. If these estimates or their
related assumptions change in the future, the Company may be
required to record an impairment loss for these assets.
Warranty
The Company provides an accrual for estimated future warranty
costs based upon the historical relationship of warranty costs
to sales. The warranty reserve and warranty expense related to
all product warranties at and for the fiscal years ended March
2006, 2005 and 2004 were not material to the Companys
financial position or results of operations.
Derivative
financial instruments
The Company reports derivatives and hedging activities in
accordance with Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, as amended.
This statement requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction, and if
it is, depending on the type of hedge transaction.
Comprehensive
income
Comprehensive income is reported in accordance with Statement of
Financial Accounting Standards No. 130
(SFAS 130), Reporting Comprehensive
Income. As it relates to the Company, comprehensive income
is defined as net earnings as adjusted for minimum pension
liability and SFAS 133 adjustment to equity, and is
reported net of related taxes in the Statement of Changes in
Shareholders Equity.
Income
taxes
The Company accounts for income taxes using the liability method
in accordance with Statement of Financial Accounting Standards
No. 109. The liability method provides that deferred tax
assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and
liabilities and are measured using
32
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
tax rates based on currently enacted rules and legislation and
anticipated rates that will be in effect when the differences
are expected to reverse.
Treasury
Stock
The Companys purchases of common stock are recorded as
Treasury Stock and result in a reduction of
Shareholders Equity.
Stock-based
compensation
The Company applies the
intrinsic-value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of
APB Opinion No. 25, issued in March 2000, to account
for its fixed-plan stock options. Under this method,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the
exercise price. The Companys policy generally is to grant
stock options at fair market value at the date of grant.
Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based
Compensation, established accounting and disclosure
requirements using a
fair-value-based
method of accounting for stock-based employee compensation
plans. As allowed by SFAS 123, the Company has elected to
continue to apply the
intrinsic-value-based
method of accounting described above, and has adopted only the
disclosure requirements of SFAS 123.
Effective March 24, 2006, the Board of Directors approved
the accelerated vesting of all 220,000 stock options held by the
Companys employees. Except for the accelerated vesting,
all other material terms and conditions of the previously
granted awards remain unchanged.
The decision to accelerate the vesting of these stock options
was made to reduce non-cash compensation expense that would
otherwise have been recorded in future periods following the
Companys adoption of Statement of Financial Accounting
Standards No. 123R (SFAS 123R),
Share-Based Payment, which became effective for the
Company on March 26, 2006. The accelerated vesting resulted
in a one-time non-cash stock-based compensation charge of
approximately $272,000, or $.02 per diluted share, in the
fourth quarter of fiscal 2006. As a result of the vesting
acceleration, the Company expects it will eliminate the
recognition of approximately $900,000 to $1,000,000 of non-cash
expense over the next four years, beginning March 26, 2006,
with more than half of the expense reduction attributable to
fiscal 2007.
Option awards granted subsequent to the Boards action are
not included in the acceleration and will vest equally over the
service period established in the award, typically four years.
33
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net income if the
fair-value-based
method had been applied to all outstanding and unvested awards
in each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share data)
|
|
|
Net income, as reported
|
|
$
|
22,666
|
|
|
$
|
19,669
|
|
|
$
|
16,540
|
|
Add: Total stock-based employee
compensation expense recorded in accordance with APB 25,
net of tax effect
|
|
|
272
|
|
|
|
|
|
|
|
|
|
Deduct: Total stock-based employee
compensation expense determined under fair-value-based method
for all awards, net of tax effect
|
|
|
(1,489
|
)
|
|
|
(1,059
|
)
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
21,449
|
|
|
$
|
18,610
|
|
|
$
|
15,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
1.67
|
|
|
$
|
1.50
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
1.58
|
|
|
$
|
1.42
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as
reported
|
|
$
|
1.51
|
|
|
$
|
1.35
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
1.42
|
|
|
$
|
1.28
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted during fiscal
2006, 2005 and 2004 was $5.15, $11.06 and $10.91, respectively.
The fair values of the options granted were estimated on the
date of their grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Risk free interest rate
|
|
|
4.14%
|
|
|
|
4.53%
|
|
|
|
3.86%
|
|
Expected life
|
|
|
6 years
|
|
|
|
9 years
|
|
|
|
9 years
|
|
Expected volatility
|
|
|
28.4%
|
|
|
|
28.7%
|
|
|
|
29.2%
|
|
Expected dividend yield
|
|
|
4.51%
|
|
|
|
0%
|
|
|
|
0%
|
|
Forfeitures are recognized as they occur.
Stock
split effected in the form of stock dividend
On September 16, 2003, the Companys Board of
Directors declared a
three-for-two
stock split in the form of a 50% stock dividend payable to
shareholders of record on October 21, 2003.
Earnings
per share
Earnings per share for all periods have been calculated in
accordance with Statement of Financial Accounting Standards
No. 128 (SFAS 128), Earnings Per
Share. Basic earnings per share is calculated by dividing
net income less preferred stock dividends by the weighted
average number of shares of Common Stock outstanding during the
year. Diluted earnings per share is calculated by dividing net
income by the weighted average number of shares of Common Stock
and equivalents outstanding during the year. Common Stock
equivalents represent shares issuable upon assumed exercise of
stock options and stock purchase warrants. (See Note 10.)
34
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys services. The capitalized costs of this
advertising are amortized over the period of the coupons
validity, which ranges from six weeks to one year.
Prepaid advertising at fiscal year end March 2006 and 2005, and
advertising expense for the fiscal years ended March 2006, 2005
and 2004, were not material to these financial statements.
Vendor
Rebates and Cooperative Advertising Credits
In accordance with Emerging Issues Task Force Issue
No. 02-16
(EITF 02-16),
Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor, for vendor
agreements entered into or modified after December 31,
2002, the Company accounts for vendor rebates and cooperative
advertising credits as a reduction of the cost of products
purchased, except where the rebate or credit is a reimbursement
of costs incurred to sell the vendors product, in which
case it is offset against the costs incurred. Vendor rebates and
credits associated with vendor agreements entered into prior to
December 31, 2002 are recognized as cooperative advertising
income as earned and are classified as a reduction of selling,
general and administrative expenses.
Pension
Expense
The Company reports all information on its pension plan benefits
in accordance with Statement of Financial Accounting Standards
No. 132 (SFAS 132), Employers
Disclosure about Pensions and Other Postretirement Benefits
(revised 2003).
Guarantees
In accordance with FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, at the time the
Company issues a guarantee, it recognizes an initial liability
for the fair value, or market value, of the obligations it
assumes under that guarantee.
Reclassifications
Certain amounts in these financial statements have been
reclassified to maintain comparability among the periods
presented.
Recent
accounting pronouncements
In December 2004, the FASB issued SFAS 123R, which requires
that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in the
financial statements based on the estimated fair value of the
awards on the grant date (with limited exceptions). That cost
will be recognized over the period during which an employee is
required to provide service in exchange for the award or the
requisite service period (usually the vesting period).
SFAS 123R is effective for public entities as of the
beginning of the first annual reporting period that begins after
June 15, 2005 (the Companys fiscal year 2007). The
Company discloses the pro forma impact of expensing stock
options in accordance with SFAS 123, as originally issued,
in Note 1 to the consolidated financial statements.
The Company intends to adopt SFAS 123R beginning with the
first quarter of fiscal 2007 using the modified
prospective method under which compensation cost is
recognized in the financial statements beginning with the
effective date, based on the requirements of SFAS 123R for
all share-based payments granted after that date, and based on
the requirements of SFAS 123 for all unvested awards
granted prior to the effective date of SFAS 123R. In
35
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the fourth quarter of fiscal 2006, the Board of Directors
approved the accelerated vesting of all unvested stock options
previously awarded to employees. As a result, the pro forma
impact to net income and net income per share under
SFAS 123s fair value method of accounting as
reflected in Note 1 to the consolidated financial
statements is not indicative of future annual expense to be
recognized under SFAS 123R. To the extent that the Company
grants stock options in the future, the associated expense for
these awards under the provisions of SFAS 123R may have a
material impact on the Companys consolidated financial
statements. Based upon anticipated levels of share-based awards,
the Company estimates this impact to be approximately
$.3 million or $.02 per diluted share for fiscal 2007.
See Notes 1 and 9 to the consolidated financial statements
for further information on the Companys stock-based
compensation plans.
In November 2004, the FASB issued Statement of Financial
Accounting Standards No. 151 (SFAS 151),
Inventory Costs, which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage) by requiring these items
to be recognized as current-period charges. SFAS 151 is
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005, with earlier application
permitted. The Company does not believe the adoption of
SFAS 151 will have a material impact on its financial
statements. In March 2005, the FASB issued FASB Interpretation
No. 47, (FIN 47), Accounting for
Conditional Asset Retirement Obligations. FIN 47
clarifies that the term conditional asset retirement
obligation as used in FASB No. 143, Accounting
for Asset Retirement Obligations, refers to a legal
obligation to perform an asset retirement activity in which the
timing
and/or
method of settlement are conditional on a future event that may
or may not be within the control of the Company. In addition,
FIN 47 clarifies when a company would have sufficient
information to reasonably estimate the fair value of an asset
retirement obligation.
The Company adopted FIN 47 during the fourth quarter of
fiscal 2006. FIN 47 requires that conditional asset
retirement obligations, legal obligations to perform an asset
retirement activity in which the timing and/ (or) method of
settlement are conditional on a future event, be reported, along
with associated capitalized asset retirement costs, at their
fair values. Upon initial application, FIN 47 requires
recognition of (1) a liability, adjusted for cumulative
accretion from the date the obligation was incurred until the
date of adoption of FIN 47, for existing asset retirement
obligations; (2) an asset retirement cost capitalized as an
increase to the carrying amount of the associated long-lived
asset; and (3) accumulated depreciation on the capitalized
asset retirement cost. The adoption of FIN 47 was not
material to the Companys financial statements.
In February 2006, the FASB issued Statement of Financial
Accounting Standards No. 155 (SFAS 155),
Accounting for Certain Hybrid Financial Instruments
(an amendment of FASB Statements No. 133 and 140). This
Statement permits fair value measurement for any hybrid
financial instrument that contains an embedded derivative that
otherwise would require bifurcation. SFAS No. 155 is
effective for all financial instruments acquired, issued, or
subject to a remeasurement event occurring after the beginning
of an entitys first fiscal year that begins after
September 15, 2006 (fiscal year 2008 for the Company).
Additionally, the fair value may also be applied upon adoption
of this Statement for hybrid financial instruments that had been
bifurcated under previous accounting guidance prior to the
adoption of this Statement. The Company does not believe the
adoption of SFAS 155 will have a material impact on the
financial statements.
NOTE 2 ACQUISITIONS
Subsequent
Event
On April 29, 2006, the Company acquired substantially all
of the assets of ProCare Automotive Service Solutions LLC
(ProCare) for $14.7 million in cash. The
Company acquired 75 ProCare locations that offer automotive
maintenance and repair services. The stores are located in eight
metropolitan areas throughout Ohio and Pennsylvania. The Company
will convert 31 of the acquired ProCare stores to tire stores
which will operate under the Mr. Tire brand. The remaining
stores will operate as service stores under the Monro brand.
36
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fiscal
2006
On November 1, 2005, the Company acquired a 13 percent
stake in R&S Parts and Service, Inc. (R&S),
a privately owned automotive aftermarket parts and service
chain, for $2.0 million from GDJ Retail LLC. As part of the
transaction, the Company also funded R&S $5.0 million
under a secured subordinated debt agreement that has a five-year
term and carries an 8 percent interest rate. The Company is
accounting for this investment on the cost method. At
March 25, 2006, the Companys investment is recorded
within Other non-current assets on the Balance Sheet.
R&S operates 100 retail stores under the name of Strauss
Discount Auto (Strauss) that provide automotive
parts and accessories, 69 of which also have service bays that
offer a full range of aftermarket services. The stores generated
approximately $170 million in annual sales in their fiscal
year ended December 2005, and are located throughout New York,
New Jersey and Philadelphia. The Company also has the option to
purchase the remaining 87 percent stake in Strauss on or
before September 30, 2006, for an additional
$12.0 million in cash and $1.0 million of Monro stock.
Fiscal
2005
Rice
Tire and Henderson Holdings
Effective October 17, 2004, the Company acquired five
retail tire and automotive repair stores located in and around
Frederick, Maryland from Donald B. Rice Tire Co., Inc. (the
Rice Tire Acquisition) and on March 6, 2005,
the Company acquired 10 retail tire and automotive repair stores
located in southern Maryland from Henderson Holdings, Inc. (the
Henderson Acquisition). These stores produce
approximately $19 million in sales annually. The Company
operates 14 of these retail locations under the Mr. Tire
brand name and one under the Tread Quarters brand name. The
Company purchased all of the operating assets of these stores,
including fixed assets and certain inventory, and assumed
certain liabilities, including obligations pursuant to the real
property leases for certain of the retail store locations. The
total purchase price of these stores was approximately
$11.6 million which was funded through $5.1 million in
cash and the assumption of liabilities and the issuance of
240,206 shares of the Companys common stock, which
was valued at $6.5 million. In addition, the Company
recorded buildings and capital lease obligations in the amount
of approximately $6.2 million in connection with new leases
with the seller of Henderson Holdings for nine of the properties
acquired, and $.9 million in connection with a Rice Tire
lease. The results of operation of these stores are included in
the Companys income statement from their respective dates
of acquisition.
Fiscal
2004
Mr. Tire
Effective March 1, 2004, the Company acquired 36 tire and
automotive repair locations in the Baltimore, Maryland and
Arlington, Virginia areas from Mr. Tire, Inc. (the
Seller) and its sole shareholder, Atlantic
Automotive Corp. (Atlantic) (the Mr. Tire
Acquisition). The acquired locations included 26 leased
retail stores and 10 kiosks which operated in Atlantic
automotive dealerships. The kiosks have since been closed. The
Company operates the stores under the Mr. Tire brand name.
The purchase price amounted to approximately $29 million
and was paid in $25.5 million of cash, including
transaction costs, $3 million in assumed liabilities and
$.4 million in warrants to purchase 100,000 shares of
the Companys common stock. The operating results of the
acquired Mr. Tire locations are included in the
Companys financial statements from March 1, 2004.
Unaudited pro forma results of operations for the fiscal years
ended March 27, 2004 and March 29, 2003, as if the
Mr. Tire Acquisition had occurred at the beginning of the
Companys fiscal year ended March 2003, are presented
below. The pro forma results include estimates and assumptions
which management believes are reasonable, including adjustments
to reflect amortization of acquired intangible assets,
depreciation based on the adjustment to the fair market value of
property acquired, interest on acquisition debt, and related
income tax effects.
37
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the results
which would have occurred if the Mr. Tire Acquisition had
been in effect on the dates indicated, or which may result in
the future.
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
|
|
|
|
March
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands,
|
|
|
|
except for per share
amounts)
|
|
|
Sales
|
|
$
|
325,000
|
|
|
$
|
302,000
|
|
Net income
|
|
$
|
7,048
|
|
|
$
|
13,651
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.32
|
|
|
$
|
1.07
|
|
Diluted
|
|
$
|
1.18
|
|
|
$
|
.97
|
|
The strike price of the warrant shares of $22.33 per share
exceeded the Companys average stock price in fiscal 2003
and 2004. Accordingly, the related shares were excluded from
weighted average shares used to compute pro forma earnings per
share. The warrants were exercised prior to their expiration on
March 1, 2006.
Buyout
of synthetic lease properties
On June 27, 2003, the Company purchased the land and
buildings under its existing synthetic lease facility through
the acquisition of the general and limited partnership interests
in Brazos Automotive Properties, L.P. (BAP), for
approximately $.9 million in cash (the Lease
Buyout). The Lease Buyout was financed through the
Companys existing credit facility. BAP held the title
related to 86 properties leased, under an operating lease, to a
subsidiary of the Company and used in the conduct of the
Companys auto service business. BAP was also the debtor on
a $26.6 million loan related to these properties. BAP,
which became a wholly owned subsidiary of the Company as a
result of the Lease Buyout, was established in 1998 for the
purpose of acquiring certain properties and leasing them to the
Company.
As a result of this Lease Buyout, land and buildings, at their
fair value of approximately $27.5 million, including
acquisition costs, were reflected on the Companys balance
sheet. Additionally, long-term debt of $26.6 million was
also reflected.
Subsequent to this transaction, payments on the lease, which
were reported as rent prior to the Lease Buyout, are reported as
interest expense. Rent expense related to the synthetic lease
properties in fiscal 2004 (through June 2003) was
$.4 million and interest expense in fiscal 2004 was
$.8 million. Also, in fiscal 2004, the Company recorded
depreciation expense related to the assets acquired in the Lease
Buyout of approximately $.4 million. These depreciation
charges commenced in the Companys second quarter of its
fiscal year 2004 after the Lease Buyout.
38
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 3 OTHER
CURRENT ASSETS
The composition of other current assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
Prepaid pension asset
|
|
$
|
4,885
|
|
|
$
|
4,880
|
|
Other receivables
|
|
|
971
|
|
|
|
435
|
|
Vendor rebates receivables
|
|
|
2,771
|
|
|
|
4,230
|
|
Prepaid real estate taxes
|
|
|
1,452
|
|
|
|
1,393
|
|
Prepaid rent
|
|
|
71
|
|
|
|
926
|
|
Debtor-in-possession
financing due from ProCare
|
|
|
905
|
|
|
|
|
|
Other
|
|
|
2,452
|
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,507
|
|
|
$
|
13,918
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 PROPERTY,
PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25, 2006
|
|
|
March 26, 2005
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Under
|
|
|
|
|
|
|
|
|
Under
|
|
|
|
|
|
|
Assets
|
|
|
Capital
|
|
|
|
|
|
Assets
|
|
|
Capital
|
|
|
|
|
|
|
Owned
|
|
|
Lease
|
|
|
Total
|
|
|
Owned
|
|
|
Lease
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Land
|
|
$
|
40,542
|
|
|
|
|
|
|
$
|
40,542
|
|
|
$
|
40,900
|
|
|
|
|
|
|
$
|
40,900
|
|
Buildings and improvements
|
|
|
122,541
|
|
|
$
|
13,450
|
|
|
|
135,991
|
|
|
|
120,060
|
|
|
$
|
10,682
|
|
|
|
130,742
|
|
Equipment, signage and fixtures
|
|
|
102,252
|
|
|
|
|
|
|
|
102,252
|
|
|
|
95,744
|
|
|
|
|
|
|
|
95,744
|
|
Vehicles
|
|
|
11,181
|
|
|
|
80
|
|
|
|
11,261
|
|
|
|
11,085
|
|
|
|
165
|
|
|
|
11,250
|
|
Construction-in-progress
|
|
|
1,743
|
|
|
|
|
|
|
|
1,743
|
|
|
|
925
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278,259
|
|
|
|
13,530
|
|
|
|
291,789
|
|
|
|
268,714
|
|
|
|
10,847
|
|
|
|
279,561
|
|
Less Accumulated
depreciation and amortization
|
|
|
124,583
|
|
|
|
3,581
|
|
|
|
128,164
|
|
|
|
112,110
|
|
|
|
3,142
|
|
|
|
115,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
153,676
|
|
|
$
|
9,949
|
|
|
$
|
163,625
|
|
|
$
|
156,604
|
|
|
$
|
7,705
|
|
|
$
|
164,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest costs aggregated $36,000 in fiscal 2006 and
$13,000 in fiscal 2005.
Amortization expense recorded under capital leases totaled
$868,000, $332,000, and $365,000 for the fiscal years ended
March 2006, 2005 and 2004, respectively.
39
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 5 GOODWILL
AND INTANGIBLE ASSETS
The changes in goodwill during fiscal 2005 and 2006 were as
follows:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at March 27, 2004
|
|
$
|
27,447
|
|
Acquisition
|
|
|
7,961
|
|
Other adjustments
|
|
|
1,810
|
|
|
|
|
|
|
Balance at March 26, 2005
|
|
|
37,218
|
|
Other adjustments
|
|
|
548
|
|
|
|
|
|
|
Balance at March 25, 2006
|
|
$
|
37,766
|
|
|
|
|
|
|
In fiscal 2005, approximately $7.8 million of the goodwill
acquired relates to the Rice and Henderson Acquisitions (see
Note 2) and the remainder to the purchase of a store
unrelated to these acquisitions. The goodwill from the
acquisitions completed in fiscal 2005 is deductible for income
tax purposes.
The other goodwill adjustments recorded in fiscal 2006 resulted
from the finalization of the valuation of tangible and
intangible assets acquired, the impact of purchase price
adjustments provided for in the related purchase agreements, and
completion of purchase accounting procedures, related to the
Henderson and Rice acquisitions.
The other goodwill adjustments recorded in fiscal 2005 relate to
the adjustment of deferred tax and other accounts for
acquisitions completed prior to fiscal 2005 and the elimination
of the $400,000 intangible asset related to the Mr. Tire
kiosk agreement recorded in fiscal 2004 in connection with the
Mr. Tire Acquisition. These kiosk locations were closed in
fiscal 2005.
The Company performed its required annual impairment test of
goodwill during the third quarter of fiscal 2006. No impairment
loss resulted from that annual impairment test.
Other intangible assets and other non-current assets consist of
the following at March 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25, 2006
|
|
|
March 26, 2005
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
(Dollars in thousands)
|
|
|
Customer list
|
|
$
|
3,611
|
|
|
$
|
424
|
|
|
$
|
3,611
|
|
|
$
|
183
|
|
Trade name
|
|
|
2,260
|
|
|
|
1,586
|
|
|
|
2,260
|
|
|
|
966
|
|
Other intangible assets
|
|
|
436
|
|
|
|
273
|
|
|
|
420
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
6,307
|
|
|
|
2,283
|
|
|
|
6,291
|
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barter Receivable
|
|
|
4,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Receivable from R&S
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in R&S
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
|
2,322
|
|
|
|
|
|
|
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
13,872
|
|
|
|
|
|
|
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets and
non-current assets
|
|
$
|
20,179
|
|
|
$
|
2,283
|
|
|
$
|
7,293
|
|
|
$
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys intangible assets are being amortized over
their estimated useful lives. The weighted average useful lives
of the Companys intangible assets are 15 years for
customer list, four years for trade names and eight years for
other intangible assets.
40
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization of intangible assets during fiscal 2006 and 2005
totaled $925,000 and $761,000, respectively.
Substantially all intangible assets are tax deductible, except
for the amortization of the Tread Quarters trade name
($1 million assigned value).
Estimated future amortization of intangible assets is as follows:
|
|
|
|
|
Year Ending Fiscal
March,
|
|
(Dollars in thousands)
|
|
|
2007
|
|
$
|
897
|
|
2008
|
|
|
386
|
|
2009
|
|
|
246
|
|
2010
|
|
|
243
|
|
2011
|
|
|
243
|
|
Thereafter
|
|
|
2,009
|
|
|
|
|
|
|
|
|
$
|
4,024
|
|
|
|
|
|
|
NOTE 6 LONG-TERM
DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 25,
|
|
|
March 26,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revolving Credit Facility,
LIBOR-based(a)
|
|
$
|
34,500
|
|
|
$
|
19,374
|
|
Revolving Credit Loan,
LIBOR-based(a)
|
|
|
|
|
|
|
26,558
|
|
Mortgage Note Payable, LIBOR
plus .8%, secured by warehouse and office building, due in
installments through 2006(a)
|
|
|
|
|
|
|
1,569
|
|
Mortgage Note Payable,
non-interest bearing, secured by warehouse and office land, due
in one installment in 2015
|
|
|
660
|
|
|
|
660
|
|
Obligations under capital leases
at various interest rates, secured by store properties and
certain equipment, due in installments through 2023
|
|
|
11,656
|
|
|
|
9,153
|
|
Note payable, 7.75%, partially
secured by store equipment, due in installments through 2008
|
|
|
36
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,852
|
|
|
|
57,366
|
|
Less Current
portion
|
|
|
525
|
|
|
|
1,928
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,327
|
|
|
$
|
55,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The prime rate at March 25, 2006 was 7.5%. The London
Interbank Offered Rate (LIBOR) at March 25, 2006 was 4.82%. |
In March 2003, the Company renewed its existing credit facility
agreement. The amended financing arrangement consisted of an
$83.4 million Revolving Credit facility and a
non-amortizing
credit loan (formerly synthetic lease financing) totaling
$26.6 million.
In July 2005, the Company amended its existing credit terms by
entering into a five-year, $125 million Revolving Credit
Facility agreement (the Credit Facility) with five
banks in the lending syndicate that provided the Companys
prior financing arrangement. Interest only is payable monthly
throughout the Credit Facilitys term. The Credit Facility
increases the Companys current borrowing capacity by
$15 million to $125 million and includes a provision
allowing the Company to expand the amount of the overall
facility to $160 million, subject to existing or new
lender(s) commitments at that time. The terms of the Credit
Facility immediately reduced the spread
41
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company pays on LIBOR-based borrowings by 50 basis
points and permit the payment of cash dividends not to exceed
25% of the preceding years net income. Additionally, the
amended Credit Facility is not secured by the Companys
real property, although the Company has entered into an
agreement not to encumber its real property, with certain
permissible exceptions. Other terms of the Credit Facility are
generally consistent with the Companys prior financing
agreement.
Within the aforementioned $125 million Revolving Credit
facility, the Company has available a sub-facility of
$20 million for the purpose of issuing standby letters of
credit. The line requires fees aggregating .63% annually of the
face amount of each standby letter of credit, payable quarterly
in arrears. There were $11 million in outstanding letters
of credit under this line at March 25, 2006.
In addition, the Company has financed certain store properties
and vehicles with capital leases, which amount to
$11.7 million and are due in installments through 2023.
During fiscal 1995, the Company purchased 12.7 acres of
land for $.7 million from the City of Rochester, New York,
on which its office/warehouse facility is located. The City has
provided financing for 100% of the cost of the land via a
20-year
non-interest bearing mortgage, all due and payable in 2015.
To finance its office/warehouse building, the Company obtained
permanent mortgage financing in fiscal 1996 consisting of a
10-year
mortgage for $2.9 million and an eight-year term loan in
the amount of $.7 million. In October 2005, the Company
paid the remaining $1.5 million outstanding on the mortgage
for the headquarters office/warehouse building.
Certain of the Companys long-term debt agreements require,
among other things, the maintenance of specified interest and
rent coverage ratios and amounts of net worth. They also contain
restrictions on dividend payments. The Company is in compliance
with these requirements at March 25, 2006. These agreements
permit mortgages and specific lease financing arrangements with
other parties with certain limitations.
From time to time, 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 offsetting adjustment to interest expense.
Currently the Company has no hedge agreements. The most recent
hedge agreement expired in October 2005.
Aggregate debt maturities over the next five years and
thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
Imputed
|
|
|
All Other
|
|
|
|
|
Year Ending Fiscal
March
|
|
Amount
|
|
|
Interest
|
|
|
Debt
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
2007
|
|
$
|
2,175
|
|
|
$
|
(1,668
|
)
|
|
$
|
18
|
|
|
$
|
525
|
|
2008
|
|
|
2,213
|
|
|
|
(1,577
|
)
|
|
|
18
|
|
|
|
654
|
|
2009
|
|
|
2,183
|
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
720
|
|
2010
|
|
|
2,138
|
|
|
|
(1,324
|
)
|
|
|
|
|
|
|
814
|
|
2011
|
|
|
1,872
|
|
|
|
(1,169
|
)
|
|
|
34,500
|
|
|
|
35,203
|
|
Thereafter
|
|
|
15,501
|
|
|
|
(7,225
|
)
|
|
|
660
|
|
|
|
8,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 7 FAIR
VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25, 2006
|
|
|
March 26, 2005
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Amount
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current
portion and excluding capital leases
|
|
|
|
|
|
$
|
35,196
|
|
|
$
|
34,921
|
|
|
|
|
|
|
$
|
48,213
|
|
|
$
|
47,932
|
|
Derivative
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,524
|
|
|
$
|
(28
|
)
|
|
$
|
(28
|
)
|
|
|
|
(a) |
|
This agreement is intended to manage exposure to interest rate
risks associated with long-term debt. |
The fair value of cash and cash equivalents, accounts receivable
and accounts payable approximated book value at March 25,
2006 and March 26, 2005 because their maturity is generally
less than one year in duration. The fair value of long-term debt
was estimated based on discounted cash flow analyses using
either quoted market prices for the same or similar issues, or
the current interest rates offered to the Company for debt with
similar maturities.
Fair values for derivative financial instruments were estimated
in 2005, based on market rates or quotes from brokers, which
represented the amounts that the Company would receive or pay if
the instruments were terminated at March 26, 2005. These
fair values indicated that the termination of interest rate
swaps would have resulted in a $28,000 loss as of March 26,
2005.
NOTE 8 INCOME
TAXES
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Currently payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,754
|
|
|
$
|
9,076
|
|
|
$
|
7,180
|
|
State
|
|
|
1,192
|
|
|
|
937
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,946
|
|
|
|
10,013
|
|
|
|
7,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(695
|
)
|
|
|
1,414
|
|
|
|
1,830
|
|
State
|
|
|
(111
|
)
|
|
|
306
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(806
|
)
|
|
|
1,720
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,140
|
|
|
$
|
11,733
|
|
|
$
|
10,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred tax (liabilities) assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Property and equipment
|
|
$
|
(4,183
|
)
|
|
$
|
(5,835
|
)
|
|
$
|
(5,822
|
)
|
Pension
|
|
|
(1,924
|
)
|
|
|
(1,969
|
)
|
|
|
(634
|
)
|
Goodwill
|
|
|
(1,036
|
)
|
|
|
(251
|
)
|
|
|
|
|
Prepaid expenses
|
|
|
(731
|
)
|
|
|
(684
|
)
|
|
|
(711
|
)
|
Other
|
|
|
(104
|
)
|
|
|
(362
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(7,978
|
)
|
|
|
(9,101
|
)
|
|
|
(7,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
2,961
|
|
|
|
3,122
|
|
|
|
2,648
|
|
Warranty and other reserves
|
|
|
1,560
|
|
|
|
2,253
|
|
|
|
3,426
|
|
Insurance reserves
|
|
|
1,480
|
|
|
|
1,576
|
|
|
|
1,150
|
|
Stock options
|
|
|
932
|
|
|
|
932
|
|
|
|
923
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,169
|
|
Other
|
|
|
2,102
|
|
|
|
1,480
|
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
9,035
|
|
|
|
9,363
|
|
|
|
10,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
1,057
|
|
|
$
|
262
|
|
|
$
|
3,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has $.7 million of state net operating loss
carryforwards available as of March 25, 2006. The
carryforwards expire in varying amounts from 2007 through 2022.
The Company believes it is more likely than not that future tax
benefits will be realized as a result of current and future
income. Accordingly, it has not provided a valuation allowance
against its deferred tax assets.
A reconciliation between the U.S. Federal statutory tax
rate and the effective tax rate reflected in the accompanying
financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Federal income tax based on
statutory tax rate applied to income before taxes
|
|
$
|
12,882
|
|
|
|
35.0
|
|
|
$
|
10,991
|
|
|
|
35.0
|
|
|
$
|
9,336
|
|
|
|
35.0
|
|
State income tax, net of federal
income tax benefit
|
|
|
703
|
|
|
|
1.9
|
|
|
|
804
|
|
|
|
2.6
|
|
|
|
705
|
|
|
|
2.6
|
|
Other
|
|
|
555
|
|
|
|
1.5
|
|
|
|
(62
|
)
|
|
|
(.2
|
)
|
|
|
95
|
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,140
|
|
|
|
38.4
|
|
|
$
|
11,733
|
|
|
|
37.4
|
|
|
$
|
10,136
|
|
|
|
38.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Treasury
|
|
|
|
Stock Shares
|
|
|
Stock Shares
|
|
|
Stock
|
|
|
|
Issued
|
|
|
Issued
|
|
|
Shares
|
|
|
Balance at March 29, 2003
|
|
|
8,785,860
|
|
|
|
65,000
|
|
|
|
216,800
|
|
Shares issued in connection with
three-for-two
stock split
|
|
|
4,433,151
|
|
|
|
|
|
|
|
108,400
|
|
Stock options exercised
|
|
|
96,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 27, 2004
|
|
|
13,315,253
|
|
|
|
65,000
|
|
|
|
325,200
|
|
Shares issued in connection with
Henderson Acquisition
|
|
|
240,206
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
146,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 26, 2005
|
|
|
13,702,455
|
|
|
|
65,000
|
|
|
|
325,200
|
|
Shares issued in connection with
warrants exercised
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
174,175
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
6,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 25, 2006
|
|
|
13,976,630
|
|
|
|
65,000
|
|
|
|
331,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2003, the Board of Directors authorized an
amendment to the Companys Restated Certificate of
Incorporation to increase the number of authorized shares of
Common Stock from 15,000,000 to 20,000,000. This amendment was
approved by the Companys shareholders in December 2003.
Additionally, the Board authorized a
three-for-two
stock split that was paid in October 2003 to shareholders of
record as of October 21, 2003. All share amounts herein
have been adjusted for this stock split.
In connection with the March 2005 Henderson Acquisition, the
Company issued 240,206 shares of Common Stock to the
seller. (See Note 2).
Holders of at least 60% of the Class C preferred stock must
approve any action authorized by the holders of common stock. In
addition, there are certain restrictions on the transferability
of shares of Class C preferred stock. In the event of a
liquidation, dissolution or
winding-up
of the Company, the holders of the Class C preferred stock
would be entitled to receive $1.50 per share out of the
assets of the Company before any amount would be paid to holders
of common stock. The conversion value of the Class C
convertible preferred stock is $.144 per share at
March 25, 2006.
Under the 1984 and 1987 Incentive Stock Option Plans,
1,091,508 shares (as retroactively adjusted for stock
dividends and the stock split) of common stock were reserved for
issuance to officers and key employees. The 1989 Incentive Stock
Option Plan authorized an additional 1,126,558 shares (as
retroactively adjusted for stock dividends and the stock split)
for issuance.
In November 1998, the Board of Directors authorized the 1998
Incentive Stock Option Plan, reserving 1,125,000 shares (as
retroactively adjusted for the stock split) of common stock for
issuance to officers and key employees. The Plan was approved by
shareholders in August 1999.
In May 2003, the Board of Directors authorized an additional
300,000 shares (as retroactively adjusted for the stock
split) for issuance under the 1998 Plan, which was approved by
shareholders in August 2003. In June 2005, the Compensation
Committee of the Board of Directors (the Compensation
Committee) authorized an additional 360,000 shares,
which were approved by shareholders in August 2005.
45
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Generally, options vest within the first five years of their
term, and have duration of ten years. See Note 1 for a
discussion of the fiscal 2006 acceleration of vesting of all
unvested stock options. Outstanding options are exercisable for
various periods through January 2016.
A summary of changes in outstanding stock options (as
retroactively adjusted for stock dividends and the stock split)
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Available
|
|
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
For Grant
|
|
|
At March 29, 2003
|
|
$
|
7.55
|
|
|
|
1,356,923
|
|
|
|
1,029,731
|
|
|
|
252,480
|
|
Authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Granted
|
|
$
|
15.64
|
|
|
|
173,363
|
|
|
|
|
|
|
|
(173,363
|
)
|
Became exercisable
|
|
|
|
|
|
|
|
|
|
|
107,759
|
|
|
|
|
|
Exercised
|
|
$
|
8.84
|
|
|
|
(122,800
|
)
|
|
|
(122,800
|
)
|
|
|
|
|
Canceled
|
|
$
|
12.38
|
|
|
|
(35,128
|
)
|
|
|
(2,711
|
)
|
|
|
35,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 27, 2004
|
|
$
|
8.32
|
|
|
|
1,372,358
|
|
|
|
1,011,979
|
|
|
|
414,204
|
|
Granted
|
|
$
|
23.67
|
|
|
|
108,213
|
|
|
|
|
|
|
|
(108,213
|
)
|
Became exercisable
|
|
|
|
|
|
|
|
|
|
|
133,421
|
|
|
|
|
|
Exercised
|
|
$
|
9.43
|
|
|
|
(92,288
|
)
|
|
|
(92,288
|
)
|
|
|
|
|
Canceled
|
|
$
|
15.42
|
|
|
|
(38,863
|
)
|
|
|
(4,889
|
)
|
|
|
38,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 26, 2005
|
|
$
|
9.26
|
|
|
|
1,349,420
|
|
|
|
1,048,223
|
|
|
|
344,749
|
|
Authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360,000
|
|
Granted
|
|
$
|
26.09
|
|
|
|
305,400
|
|
|
|
|
|
|
|
(305,400
|
)
|
Became exercisable
|
|
|
|
|
|
|
|
|
|
|
576,133
|
|
|
|
|
|
Exercised
|
|
$
|
10.67
|
|
|
|
(135,762
|
)
|
|
|
(135,762
|
)
|
|
|
|
|
Canceled
|
|
$
|
18.25
|
|
|
|
(39,983
|
)
|
|
|
(9,519
|
)
|
|
|
39,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 25, 2006
|
|
$
|
12.37
|
|
|
|
1,479,075
|
|
|
|
1,479,075
|
|
|
|
439,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about fixed stock
options outstanding at March 25, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
Shares
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Shares
|
|
|
Exercise
|
|
Exercise Prices
|
|
Under Option
|
|
|
Life
|
|
|
Price
|
|
|
Under Option
|
|
|
Price
|
|
|
$ 5.21 - $ 7.00
|
|
|
700,175
|
|
|
|
2.78
|
|
|
|
5.25
|
|
|
|
700,175
|
|
|
|
5.25
|
|
$ 7.01 - $15.00
|
|
|
383,960
|
|
|
|
6.00
|
|
|
|
11.95
|
|
|
|
383,960
|
|
|
|
11.95
|
|
$15.01 - $25.00
|
|
|
98,146
|
|
|
|
8.07
|
|
|
|
23.35
|
|
|
|
98,146
|
|
|
|
23.35
|
|
$25.01 - $33.93
|
|
|
296,794
|
|
|
|
9.15
|
|
|
|
26.08
|
|
|
|
296,794
|
|
|
|
26.08
|
|
In August 1994, the Board of Directors authorized a non-employee
directors stock option plan which was approved by
shareholders in August 1995. The Plan initially reserved
100,278 shares of common stock (as retroactively adjusted
for stock dividends and the stock split), and provides for
(i) the grant to each non-employee director as of
August 1, 1994 of an option to purchase 4,559 shares
of the Companys common stock (as retroactively adjusted
for stock dividends and the stock split) and (ii) the
annual grant to each non-employee director of an option to
purchase 4,559 shares (as retroactively adjusted for stock
dividends and the stock split) on the date of the annual meeting
of shareholders beginning in 1995. The options expire ten years
from the date of grant and an exercise price equal to the fair
market value of the Companys common stock on the date of
grant. Options issued to directors generally vest immediately
upon issuance.
46
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 1997 and May 1999, the Board of Directors authorized an
additional 102,375 and 97,500 shares, respectively (both
amounts as retroactively adjusted for stock dividends and the
stock split) for issuance under the Plan. These amounts were
approved by shareholders in August 1997 and August 1999,
respectively.
In May 2003, the Board of Directors authorized the 2003
Non-Employee Directors Stock Option Plan, reserving
90,000 shares (as retroactively adjusted for the stock
split) of common stock for issuance to outside directors, which
was approved by shareholders in August 2003. The provisions of
the Plan are similar to the 1994 Non-Employee Directors
Stock Option Plan, except that options expire five years from
the date of grant.
In June 2005, the Compensation Committee authorized an
additional 50,000 shares, which were approved by
shareholders in August 2005.
A summary of changes in these stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
|
Option Price
|
|
|
|
|
|
|
|
|
for
|
|
|
|
Per Share
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Grant
|
|
|
At March 29,
2003
|
|
$
|
8.93
|
|
|
|
241,589
|
|
|
|
241,589
|
|
|
|
22,096
|
|
Authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
Exercised
|
|
$
|
9.75
|
|
|
|
(13,676
|
)
|
|
|
(13,676
|
)
|
|
|
|
|
Granted
|
|
$
|
20.19
|
|
|
|
31,910
|
|
|
|
31,910
|
|
|
|
(31,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 27,
2004
|
|
$
|
10.27
|
|
|
|
259,823
|
|
|
|
259,823
|
|
|
|
80,186
|
|
Authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$
|
8.83
|
|
|
|
(54,700
|
)
|
|
|
(54,700
|
)
|
|
|
|
|
Granted
|
|
$
|
22.86
|
|
|
|
31,913
|
|
|
|
31,913
|
|
|
|
(31,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 26,
2005
|
|
$
|
12.30
|
|
|
|
237,036
|
|
|
|
237,036
|
|
|
|
48,273
|
|
Authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Exercised
|
|
$
|
12.27
|
|
|
|
(35,178
|
)
|
|
|
(35,178
|
)
|
|
|
|
|
Granted
|
|
$
|
28.14
|
|
|
|
31,913
|
|
|
|
31,913
|
|
|
|
(31,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 25,
2006
|
|
$
|
14.47
|
|
|
|
233,771
|
|
|
|
233,771
|
|
|
|
66,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10 EARNINGS
PER COMMON SHARE
The following is a reconciliation of basic and diluted earnings
per common share for the respective years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share data)
|
|
|
Numerator for earnings per
common share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
22,666
|
|
|
$
|
19,669
|
|
|
$
|
16,540
|
|
Less: Preferred stock dividends
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders
|
|
$
|
22,564
|
|
|
$
|
19,669
|
|
|
$
|
16,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per
common share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares,
basic
|
|
|
13,531
|
|
|
|
13,102
|
|
|
|
12,954
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
676
|
|
|
|
676
|
|
|
|
676
|
|
Stock options and warrants
|
|
|
815
|
|
|
|
784
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares,
diluted
|
|
|
15,022
|
|
|
|
14,562
|
|
|
|
14,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share:
|
|
$
|
1.67
|
|
|
$
|
1.50
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share:
|
|
$
|
1.51
|
|
|
$
|
1.35
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted earnings per common share for fiscal
years 2006, 2005 and 2004 excludes the effect of assumed
exercise of approximately 2,000, 56,000, and 108,000,
respectively, of stock options and warrants, as the exercise
price of these options and warrants was greater than the average
market value of the Companys Common Stock for those
periods, resulting in an anti-dilutive effect on diluted
earnings per share.
NOTE 11 OPERATING
LEASES AND OTHER COMMITMENTS
The Company leases retail facilities under noncancellable lease
agreements which expire at various dates through fiscal year
2026. In addition to stated minimum payments, certain real
estate leases have provisions for contingent rentals when retail
sales exceed specified levels. Generally, the leases provide for
renewal for various periods at stipulated rates. Most of the
facilities leases require payment of property taxes,
insurance and maintenance costs in addition to rental payments,
and several provide an option to purchase the property at the
end of the lease term.
In recent years, the Company has entered into agreements for the
sale/leaseback of certain stores and into agreements for the
sale/leaseback of store equipment. The Company has lease renewal
options under the real estate agreements at projected future
fair market values and has both purchase and renewal options
under the equipment lease agreements. Realized gains are
deferred and are credited to income as rent expense adjustments
over the lease terms.
48
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum payments required under noncancellable leases are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
|
Sublease
|
|
|
|
|
Year Ending Fiscal
March
|
|
Leases
|
|
|
Income
|
|
|
Net
|
|
|
|
(Dollars in thousands)
|
|
|
2007
|
|
$
|
19,124
|
|
|
$
|
(722
|
)
|
|
$
|
18,402
|
|
2008
|
|
|
17,244
|
|
|
|
(622
|
)
|
|
|
16,622
|
|
2009
|
|
|
14,076
|
|
|
|
(488
|
)
|
|
|
13,588
|
|
2010
|
|
|
10,879
|
|
|
|
(288
|
)
|
|
|
10,591
|
|
2011
|
|
|
6,561
|
|
|
|
(138
|
)
|
|
|
6,423
|
|
Thereafter
|
|
|
13,572
|
|
|
|
(463
|
)
|
|
|
13,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,456
|
|
|
$
|
(2,721
|
)
|
|
$
|
78,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense under operating leases, net of sublease income,
totaled $18,505,000, $18,514,000, and $16,905,000 in fiscal
2006, 2005 and 2004, respectively, including contingent rentals
of $323,000, $316,000, and $277,000 in each respective fiscal
year. Sublease income totaled $367,000, $311,000, and $339,000,
respectively, in fiscal 2006, 2005 and 2004. As described in
Note 2, rent expense is lower in fiscal 2004 primarily due
to the June 2003 buyout of properties under the Companys
former synthetic lease agreement. In fiscal 2005, the addition
of the recently acquired Mr. Tire, Rice and Henderson
stores contributed to the increased rent expense.
The Company has entered into various contracts with parts and
tire suppliers, certain of which require the Company to buy up
to 100% of its annual purchases of specific products including
brakes, exhaust, oil and ride control at market prices. The
agreements expire at various dates through March 2010. The
Company believes these agreements provide it with high quality,
branded merchandise at preferred pricing, along with strong
marketing and training support.
The Company amended its employment agreement (the CEO
Agreement) in May 2005 with Robert G. Gross, its President
and Chief Executive Officer. The CEO Agreement, which provides
for a base salary plus a bonus, subject to the discretion of the
Compensation Committee, has a term ending December 31,
2007. The CEO Agreement also provided for a special retention
bonus of $250,000 payable annually which began on
January 1, 2003 and ended in 2006. The CEO Agreement
includes a covenant against competition with the Company for two
years after termination. The CEO Agreement provides the
executive with a minimum of one years salary and certain
additional rights in the event of a termination without cause
(as defined therein), or a termination in the event of change in
control (as defined therein).
The Company amended its employment agreement effective
May 19, 2005, with Catherine DAmico, its Executive
Vice President and Chief Financial Officer, and, in July 2005,
entered into an employment agreement with Joseph Tomarchio Jr.,
its President of the Tire Group, effective May 19, 2005.
The agreements each provide a base salary to be reviewed
annually, plus a bonus, based upon the Companys
achievement of performance targets set by the Compensation
Committee. Ms. DAmicos and
Mr. Tomarchios agreements both expire on
June 30, 2008. The agreements include a covenant against
competition with the Company for up to two years after
termination. The agreements provide Ms. DAmico and
Mr. Tomarchio with a minimum of one years salary and
certain additional rights in the event of a termination without
cause (as defined therein), or a termination in the event of a
change in control (as defined therein).
NOTE 12 EMPLOYEE
RETIREMENT AND PROFIT SHARING PLANS
The Company sponsors a noncontributory defined benefit pension
plan for Monro employees and the former Kimmel Automotive, Inc.
employees. In fiscal 2005, the previously separate Monro and
Kimmel pension plans were merged. The plan provides benefits to
certain full-time employees who were employed with Monro and
with Kimmel prior to April 2, 1998 and May 15, 2001,
respectively. Effective as of those dates, each companys
Board of
49
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Directors approved plan amendments whereby the benefits of each
of the defined benefit plans would be frozen and the plans would
be closed to new participants. Prior to these amendments,
coverage under the plans began after employees completed one
year of service and attainment of age 21. Benefits under
both plans, and now the merged plans, are based primarily on
years of service and employees pay near retirement. The
funding policy for the Companys merged plan is consistent
with the funding requirements of Federal law and regulations.
The measurement date used to determine the pension plan
measurements disclosed herein is March 31 for both 2006 and
2005.
The funded status of each plan is set forth below:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Fiscal March
|
|
|
|
2006
|
|
|
2005
|
|
|
Change in Plan
Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year
|
|
$
|
12,824
|
|
|
$
|
10,342
|
|
Actual return on plan assets
|
|
|
1,403
|
|
|
|
490
|
|
Employer contribution
|
|
|
97
|
|
|
|
2,650
|
|
Actuarial loss
|
|
|
|
|
|
|
(105
|
)
|
Benefits paid
|
|
|
(641
|
)
|
|
|
(553
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
|
13,683
|
|
|
|
12,824
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit
Obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of
year
|
|
|
12,421
|
|
|
|
10,636
|
|
Interest cost
|
|
|
702
|
|
|
|
630
|
|
Actuarial loss
|
|
|
217
|
|
|
|
1,708
|
|
Benefits paid
|
|
|
(641
|
)
|
|
|
(553
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
12,699
|
|
|
|
12,421
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
|
984
|
|
|
|
403
|
|
Unrecognized net loss
|
|
|
3,901
|
|
|
|
4,477
|
|
|
|
|
|
|
|
|
|
|
Pension asset at year end
|
|
$
|
4,885
|
|
|
$
|
4,880
|
|
|
|
|
|
|
|
|
|
|
The projected and accumulated benefit obligations were
equivalent at March 31, 2006 and March 31, 2005.
Pension cost included the following components:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Fiscal March
|
|
|
|
2006
|
|
|
2005
|
|
|
Interest cost on projected benefit
obligation
|
|
$
|
702
|
|
|
$
|
630
|
|
Expected return on plan assets
|
|
|
(994
|
)
|
|
|
(814
|
)
|
Amortization of unrecognized
actuarial loss
|
|
|
383
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
|
$
|
91
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
The decrease in the additional minimum liability, before income
tax effect, included in accumulated other comprehensive income
is $545 for fiscal 2005.
50
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted-average assumptions used to determine benefit
obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Fiscal March
|
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
5.75%
|
|
|
|
5.75%
|
|
Expected long-term return on assets
|
|
|
8.00%
|
|
|
|
8.00%
|
|
The weighted-average assumptions used to determine net periodic
pension costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Fiscal March
|
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
5.75%
|
|
|
|
5.75%
|
|
Expected long-term return on assets
|
|
|
8.00%
|
|
|
|
8.00%
|
|
The expected long-term rate of return on plan assets is
established based upon assumptions related to historical returns
and the future expectations for returns for each asset class, as
well as the target asset allocation of the pension portfolio.
The investment strategy of the plan is to conservatively manage
the assets in order to meet the plans long-term
obligations while maintaining sufficient liquidity to pay
current benefits. This is achieved by holding equity investments
while investing a portion of assets in long duration bonds to
match the long-term nature of the liabilities. Going forward,
the Companys general target allocation for the plan is 50%
fixed income and 50% equity securities.
The Companys weighted average asset allocations, by asset
category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Fiscal March
|
|
|
|
2006
|
|
|
2005
|
|
|
Cash and cash equivalents
|
|
|
5.4
|
%
|
|
|
3.9
|
%
|
Fixed income
|
|
|
47.4
|
%
|
|
|
72.1
|
%
|
Equity securities
|
|
|
47.2
|
%
|
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
There are no required contributions in fiscal 2007 to the plan.
The Company expects the plans will pay benefits in the amount of
approximately $500,000 for each of the next five fiscal years,
and approximately $2,900,000 in aggregate for the five fiscal
years thereafter.
The Company has a 401(K)/Profit Sharing Plan that covers
full-time employees who meet the age and service requirements of
the plan. The 401(K) salary deferral option was added to the
plan during fiscal 2000. The first employee deferral occurred in
March 2000. The Company makes matching contributions consistent
with the provisions of the plan. The Companys matching
contributions for fiscal 2006, 2005, and 2004 amounted to
approximately $592,000, $551,000, and $480,000, respectively.
The Company may also make annual profit sharing contributions to
the plan at the discretion of the Compensation Committee.
The Company has a deferred compensation plan (the Deferred
Compensation Plan) to provide an opportunity for
additional tax-deferred savings to a select group of management
or highly compensated employees. The Deferred Compensation Plan
permits participants to defer all or any portion of the
compensation that would otherwise be payable to them for the
calendar year. In addition, the Company will credit to the
participants accounts such amounts as would have been
contributed to the Companys 401(K)/Profit Sharing Plan but
for the limitations that are imposed under the Internal Revenue
Code based upon the participants status as highly
51
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensated employees. The Company may also make such additional
discretionary allocations as are determined by the Compensation
Committee. No amounts credited under the Deferred Compensation
Plan are funded and the Company maintains accounts to reflect
the amounts owed to each participant. At least annually, the
accounts are credited with earnings or losses calculated on the
basis of an interest rate or other formula as determined by the
Compensation Committee. The total liability recorded in the
Companys financial statements at March 25, 2006
related to the Deferred Compensation Plan was $318,000.
The Companys 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
Companys attaining pre-tax income targets established by
the Board of Directors. Charges to expense applicable to the
management bonus plan totaled $1,167,000, $352,000, and
$1,246,000 for the fiscal years ended March 2006, 2005, and
2004, respectively.
NOTE 13 RELATED
PARTY TRANSACTIONS
In December 1998, the Company loaned $523,000 to its
newly-appointed Chief Executive Officer to purchase
75,000 shares of the Companys common stock at the
then fair market value. (This loan was made subsequent to the
Executives purchase of 25,000 shares using his own
funds.) The loan matured on December 1, 2003 in accordance
with the provisions of the CEO Agreement. All principal and
interest due under the loan were forgiven in accordance with the
CEO Agreement, based upon the CEOs continued employment
with the Company. The Company reported amounts forgiven on this
loan as compensation expense.
The Company is currently a party to leases for certain
facilities where the lessor is an officer of the Company, and in
previous years, from (a) officers and directors of the
Company, (b) partnerships in which such persons had
interests or (c) trusts of which members of their families
were beneficiaries. Payments under such operating and capital
leases amounted to $573,000, $2,190,000 and $1,694,000 for the
fiscal years ended March 2006, 2005 and 2004, respectively. The
increase in payments under related party leases in fiscal 2005
was related to the six new leases assumed in March 2004 in
connection with the Mr. Tire Acquisition. Amounts payable
under these lease agreements totaled $40,000 at March 26,
2005. No amounts were payable at March 25, 2006. No related
party leases, other than the six assumed as part of the
Mr. Tire Acquisition in March 2004, have been entered into,
and no new leases are contemplated.
The Company has a management agreement with an investment
banking firm associated with a principal shareholder/director of
the Company to provide financial advice. The agreement provides
for an annual fee of $300,000 (the fee was increased effective
July 2003, such increase having been approved by the
Compensation Committee), plus reimbursement of
out-of-pocket
expenses. During fiscal 2006, 2005 and 2004, the Company
incurred fees of $300,000, $300,000, and $265,000, respectively,
under this agreement. In addition, this investment banking firm,
from time to time, provides additional investment banking
services to the Company for customary fees. Approximately half
of all payments made to the investment banking firm under the
management agreement are paid to another principal
shareholder/director of the Company.
NOTE 14 SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
The following transactions represent non-cash investing and
financing activities during the periods indicated:
Year
ended March 25, 2006
In connection with the disposal of assets, the Company reduced
both fixed assets and other long-term liabilities by $147,000.
In connection with the recording of capital leases, the Company
increased fixed assets by $3,068,000 and increased long-term
debt by $3,068,000.
52
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the twelve months ended March 25, 2006 the Company
recorded purchase accounting adjustments for the Rice Tire
acquisition that increased goodwill by $506,000 and reduced
fixed assets by $506,000.
In connection with recording the value of the Companys
interest rate swap contracts, other comprehensive income
increased by $17,000, other long-term liabilities decreased by
$28,000 and the deferred income tax liability was increased by
$11,000.
In connection with the accounting for income tax benefits
related to the exercise of stock options, the Company reduced
current liabilities and increased paid-in capital by $711,000.
Year
ended March 26, 2005
In connection with the disposal of assets, the Company reduced
both fixed assets and other current liabilities by $266,000.
In connection with the recording of capital leases, the Company
increased both fixed assets and long-term debt by $350,000.
In connection with recording the value of the Companys
interest rate swap contracts, other comprehensive income
increased by $58,000, other long-term liabilities decreased by
$92,000 and the deferred income tax liability was increased by
$34,000.
In fiscal 2005, the Company eliminated its minimum liability
related to its defined benefit pension plan, which decreased
current liabilities and deferred tax assets by $545,000 and
$207,000, respectively, and increased other comprehensive income
by $338,000.
In connection with the accounting for income tax benefits
related to the exercise of stock options, the Company decreased
current liabilities and increased additional paid-in capital by
$644,000.
During the twelve months ended March 2005, the Company recorded
purchase accounting adjustments for the Mr. Tire
acquisition that increased goodwill by $836,000 and reduced
deferred income tax assets and other acquired intangible assets
by the same amount.
In connection with the Rice and Henderson Acquisitions
(Note 2), liabilities were assumed as follows:
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
11,635,000
|
|
Common stock issued
|
|
|
(6,500,000
|
)
|
Cash paid, net of cash acquired
|
|
|
(4,539,000
|
)
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
596,000
|
|
|
|
|
|
|
In addition, the Company recorded buildings and capital lease
obligations of approximately $6 million for nine new
capital leases entered into in connection with the fiscal 2005
acquisitions.
Year
ended March 27, 2004
In connection with the disposal of assets, the Company reduced
both fixed assets and other long-term liabilities by $831,000.
In connection with recording the value of the Companys
interest rate swap contracts, other comprehensive income
increased by $397,000, other current liabilities decreased by
$575,000, other long-term liabilities decreased by $65,000 and
the deferred income tax liability was increased by $243,000.
53
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In fiscal 2004, the Company recorded a minimum liability related
to its defined benefit pension plan that decreased current
liabilities and deferred tax assets by $79,000 and $30,000,
respectively, and increased other comprehensive income by
$49,000.
In connection with the accounting for the income tax benefits
related to the exercise of stock options, the Company decreased
deferred tax assets by $80,000, decreased current liabilities by
$359,000 and increased additional paid-in capital by $279,000.
In connection with the forgiveness of a loan to the
Companys Chief Executive Officer, the Company recognized
$78,000 of compensation expense and decreased the note
receivable from shareholder by the same amount.
In connection with the acquisition of Brazos Automotive
Properties, L.P., the Company paid $947,000 (Note 2), as
follows:
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
27,506,000
|
|
Cash paid, net of cash acquired
|
|
|
(947,000
|
)
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
26,559,000
|
|
|
|
|
|
|
In connection with the acquisition of Mr. Tire
(Note 2), liabilities were assumed as follows:
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
28,527,000
|
|
Cash paid, net of cash acquired
|
|
|
(25,506,000
|
)
|
Value of stock purchase warrants
issued
|
|
|
(390,000
|
)
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
2,631,000
|
|
|
|
|
|
|
Interest
and Income Taxes paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal
March
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Cash paid during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
3,373
|
|
|
$
|
2,265
|
|
|
$
|
1,974
|
|
Income taxes
|
|
$
|
12,977
|
|
|
$
|
10,375
|
|
|
$
|
8,369
|
|
NOTE 15 LITIGATION
The Company and its subsidiaries are involved in legal
proceedings, claims and litigation arising in the ordinary
course of business. In managements opinion, the outcome of
such current legal proceedings is not expected to have a
material effect on future operating results or on the
Companys consolidated financial position.
NOTE 16 CASH
DIVIDEND
In May 2005, October 2005 and January 2006, the Companys
Board of Directors declared a regular quarterly cash dividend of
$.05 per common share or common share equivalent to be paid
to shareholders. The dividend amounted to $102,000 for preferred
shareholders and $2,035,000 for common shareholders. The
declaration of and any determination as to the payment of future
dividends will be at the discretion of the Board of Directors
and will depend on the Companys financial condition,
results of operations, capital requirements, compliance with
charter and contractual restrictions, and such other factors as
the Board of Directors deems relevant.
54
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 17 SUBSEQUENT
EVENTS
In May 2006, the Companys Board of Directors declared a
regular quarterly cash dividend of $.07 per common share or
common share equivalent to be paid to shareholders of record on
July 18, 2006. The dividend will be paid on July 28,
2006.
See Note 2 for a discussion of the ProCare acquisition
which closed on April 29, 2006.
55
MONRO
MUFFLER BRAKE, INC. AND SUBSIDIARIES
The following table sets forth consolidated statement of income
data by quarter for the fiscal years ended March 2006 and 2005.
Individual line items summed by quarters may not agree to the
annual amounts reported due to rounding.(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
June
|
|
|
Sept.
|
|
|
Dec.
|
|
|
March
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands, except
per share data)
|
|
|
Sales
|
|
$
|
94,625
|
|
|
$
|
95,641
|
|
|
$
|
90,188
|
|
|
$
|
88,273
|
|
Cost of sales
|
|
|
53,922
|
|
|
|
55,897
|
|
|
|
55,300
|
|
|
|
55,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
40,703
|
|
|
|
39,744
|
|
|
|
34,888
|
|
|
|
32,477
|
|
Operating, selling, general and
administrative expenses
|
|
|
26,901
|
|
|
|
26,777
|
|
|
|
27,463
|
|
|
|
26,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,802
|
|
|
|
12,967
|
|
|
|
7,425
|
|
|
|
5,589
|
|
Interest expense, net
|
|
|
882
|
|
|
|
810
|
|
|
|
845
|
|
|
|
941
|
|
Other expense (income), net
|
|
|
425
|
|
|
|
(122
|
)
|
|
|
30
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
12,495
|
|
|
|
12,279
|
|
|
|
6,550
|
|
|
|
5,482
|
|
Provision for income taxes
|
|
|
4,748
|
|
|
|
4,666
|
|
|
|
2,489
|
|
|
|
2,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,747
|
|
|
$
|
7,613
|
|
|
$
|
4,061
|
|
|
$
|
3,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.58
|
|
|
$
|
.56
|
|
|
$
|
.30
|
|
|
$
|
.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(a)
|
|
$
|
.52
|
|
|
$
|
.51
|
|
|
$
|
.27
|
|
|
$
|
.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,395
|
|
|
|
13,523
|
|
|
|
13,583
|
|
|
|
13,626
|
|
Diluted
|
|
|
14,866
|
|
|
|
14,986
|
|
|
|
15,038
|
|
|
|
15,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
|
|
|
Sept.
|
|
|
Dec.
|
|
|
March
|
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
|
(Amounts in thousands, except
per share data)
|
|
|
Sales
|
|
$
|
87,347
|
|
|
$
|
88,421
|
|
|
$
|
80,522
|
|
|
$
|
81,119
|
|
Cost of sales
|
|
|
50,322
|
|
|
|
51,545
|
|
|
|
48,898
|
|
|
|
49,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
37,025
|
|
|
|
36,876
|
|
|
|
31,624
|
|
|
|
31,267
|
|
Operating, selling, general and
administrative expenses
|
|
|
25,283
|
|
|
|
25,571
|
|
|
|
25,371
|
|
|
|
26,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11,742
|
|
|
|
11,305
|
|
|
|
6,253
|
|
|
|
5,114
|
|
Interest expense, net
|
|
|
585
|
|
|
|
588
|
|
|
|
638
|
|
|
|
738
|
|
Other expense (income), net
|
|
|
121
|
|
|
|
171
|
|
|
|
(61
|
)
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
11,036
|
|
|
|
10,546
|
|
|
|
5,676
|
|
|
|
4,144
|
|
Provision for income taxes
|
|
|
4,194
|
|
|
|
4,008
|
|
|
|
2,157
|
|
|
|
1,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,842
|
|
|
$
|
6,538
|
|
|
$
|
3,519
|
|
|
$
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.53
|
|
|
$
|
.50
|
|
|
$
|
.27
|
|
|
$
|
.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(a)
|
|
$
|
.47
|
|
|
$
|
.45
|
|
|
$
|
.24
|
|
|
$
|
.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,007
|
|
|
|
13,103
|
|
|
|
13,120
|
|
|
|
13,181
|
|
Diluted
|
|
|
14,520
|
|
|
|
14,515
|
|
|
|
14,554
|
|
|
|
14,663
|
|
|
|
|
(a) |
|
Earnings per share for each period was computed by dividing net
income by the weighted average number of shares of Common Stock
and Common Stock Equivalents outstanding during the respective
quarters. |
|
(b) |
|
There were no material, extraordinary, unusual or infrequently
occurring items recognized in any quarter shown. |
56
Item 9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of disclosure controls and procedures
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in reports that the Company files or submits pursuant to the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Security and Exchange Commissions (SEC) rules and forms,
and that such information is accumulated and communicated to the
Companys management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
In conjunction with the close of each fiscal quarter and under
the supervision of the Chief Executive Officer and Chief
Financial Officer, the Company conducts an evaluation of the
effectiveness of the Companys disclosure controls and
procedures. It is the conclusion of the Companys Chief
Executive Officer and Chief Financial Officer, based upon an
evaluation completed as of the end of the most recent fiscal
quarter reported on herein, and subject to the limitations
discussed below, that the Companys disclosure controls and
procedures were sufficiently effective in ensuring that any
material information relating to the Company was recorded,
processed, summarized and reported to its principal officers to
allow timely decisions regarding required disclosures.
Managements
Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting. The
Companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the
United States of America.
The Companys internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a
material effect on the financial statements.
Management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management
concluded that the Companys internal control over
financial reporting was effective as of March 25, 2006, the
end of our fiscal year. Management has reviewed the results of
its assessment with the Audit Committee of the Board of
Directors. Managements assessment of the effectiveness of
the Companys internal control over financial reporting as
of March 25, 2006 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
Inherent
Limitations on Effectiveness of Controls
The Companys management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that its
disclosure controls and procedures or its internal control over
financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. The
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that misstatements due
to error or fraud will not occur or that all control issues and
instances of
57
fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with policies or
procedures.
Changes
in Internal Controls over Financial Reporting
There were no changes in the Companys internal control
over financial reporting during the quarter ended March 25,
2006 that materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
PART III
Item 10. Directors
and Executive Officers of the Company
Information concerning the directors and executive officers of
the Company is incorporated herein by reference to the section
captioned Election of Directors and Executive
Officers, respectively, in the Proxy Statement.
Information concerning required Section 16(a) disclosure is
incorporated herein by reference to the section captioned
Compliance with Section 16(a) of the Exchange
Act in the Proxy Statement.
The Companys directors and executive officers are subject
to the provisions of the Companys Code of Ethics for
Management Employees, Officers and Directors (the
Code), which is available in the Investor
Information section of the Companys web site,
www.monro.com. Changes to the Code and any waivers are
also posted on the Companys web site in the Investor
Information section.
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Item 11.
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Executive
Compensation
|
Information concerning executive compensation is incorporated
herein by reference to the section captioned Executive
Compensation in the Proxy Statement.
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information concerning the Companys shares authorized for
issuance under its equity compensation plans at March 25,
2006 and security ownership of certain beneficial owners and
management is incorporated herein by reference to the sections
captioned Security Ownership of Principal Shareholders,
Directors and Executive Officers and Equity
Compensation Plan Information in the Proxy Statement.
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Item 13.
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Certain
Relationships and Related Transactions
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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.
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Item 14.
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Principal
Accounting Fees and Services
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Information concerning the Companys principal accounting
fees and services is incorporated herein by reference to the
section captioned Approval of Independent
Accountants in the Proxy Statement.
58
PART IV
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Item 15.
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Exhibits,
Financial Statement Schedules
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Financial
Statements
Reference is made to Item 8 of Part II hereof.
Financial
Statement Schedules
Schedules have been omitted because they are inapplicable, not
required, the information is included elsewhere in the Financial
Statements or the notes thereto or is immaterial. Specific to
warranty reserves and related activity, as stated in the
Financial Statements, these amounts are immaterial.
Exhibits
Reference is made to the Index to Exhibits accompanying this
Form 10-K
as filed with the Securities and Exchange Commission. The
Company will furnish to any shareholder, upon written request,
any exhibit listed in such Index to Exhibits upon payment by
such shareholder of the Companys reasonable expenses in
furnishing any such exhibit.
59
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)
Robert G. Gross
President and Chief Executive Officer
Date: June 8, 2006
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 8, 2006.
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Signature
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Title
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/s/ Catherine
DAmico
Catherine
DAmico
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Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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/s/ Richard
A. Berenson*
Richard
A. Berenson
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Director
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/s/ Frederick
M. Danziger*
Frederick
M. Danziger
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Director
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/s/ Donald
Glickman*
Donald
Glickman
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Director
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/s/ Robert
E. Mellor*
Robert
E. Mellor
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Director
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/s/ Peter
J. Solomon*
Peter
J. Solomon
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Director
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/s/ Lionel
B. Spiro*
Lionel
B. Spiro
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Director
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/s/ Francis
R. Strawbridge*
Francis
R. Strawbridge
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Director
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Robert G. Gross
Chief Executive Officer,
Director and as
Attorney-in-Fact
60
INDEX
TO EXHIBITS
The following is a list of all exhibits filed herewith or
incorporated by reference herein:
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Exhibit No.
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Document
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2
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.01*
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Stock Purchase Agreement, dated
June 27, 2003, between the Company and Brazos River
Leasing, L.P. (August 2003
Form 8-K/A,
Exhibit 2.1)
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2
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.02*
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Agreement to Purchase Limited
Partnership Interest, dated June 27, 2003, between the
Company and Heller Financial, Inc. (August 2003
Form 8-K/A,
Exhibit 2.2)
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2
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.03*
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Asset Purchase Agreement, dated as
of February 9, 2004, among the Company, Mr. Tire, Inc.
and Atlantic Automotive Corp. (March 2004
Form 8-K,
Exhibit 10.1)
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2
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.04*
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First Amendment to Asset Purchase
Agreement, dated as of March 1, 2004, among the Company,
Mr. Tire, Inc. and Atlantic Automotive Corp. (March 2004
Form 8-K,
Exhibit 10.02)
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2
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.05*
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Second Amendment to Asset Purchase
Agreement, dated as of April 13, 2004, among the Company,
Mr. Tire, Inc. and Atlantic Automotive Corp. (2004
Form 10-K,
Exhibit No. 2.05)
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3
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.01*
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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)
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3
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.01a*
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Certificate of Change of the
Certificate of Incorporation of the Company, dated
January 26, 1996. (August 2004
Form S-3,
Exhibit 4.1(b))
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3
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.01b*
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Certificate of Amendment to
Restated Certificate of Incorporation, dated April 15,
2004. (August 2004
Form S-3,
Exhibit No. 4.1(c))
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3
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.02*
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Restated By-Laws of the Company,
dated July 23, 1991. (Amendment No. 1,
Exhibit No. 3.04)
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10
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.02*
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1994 Non-Employee Directors
Stock Option Plan. (March 2001
Form S-8,
Exhibit No. 4.1)**
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10
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.02a*
|
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Amendment, dated as of
May 12, 1997, to the 1994 Non-Employee Directors
Stock Option Plan. (March 2001
Form S-8,
Exhibit No. 4.2)**
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10
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.02b*
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Amendment, dated as of
May 18, 1999, to the 1994 Non-Employee Directors
Stock Option Plan. (March 2001
Form S-8,
Exhibit No. 4.3)**
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10
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.02c*
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Amendment, dated as of
August 2, 1999, to the 1994 Non-Employee Directors
Stock Option Plan. (2002
Form 10-K,
Exhibit No. 10.02c)**
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10
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.02d*
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Amendment, dated as of
June 12, 2002, to the 1994 Non-Employee Directors
Stock Option Plan. (2002
Form 10-K,
Exhibit No. 10.02d)**
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10
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.03*
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1989 Employees Incentive
Stock Option Plan, as amended through December 23, 1992.
(December 1992
Form S-8,
Exhibit No. 4.3)**
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10
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.03a*
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Amendment, dated as of
January 25, 1994, to the 1989 Employees Incentive
Stock Option Plan. (1994
Form 10-K,
Exhibit No. 10.03a and March 2001
Form S-8,
Exhibit No. 4.2)**
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10
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.03b*
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Amendment, dated as of
May 17, 1995, to the 1989 Employees Incentive Stock
Option Plan. (1995
Form 10-K,
Exhibit No. 10.03b and March 2001
Form S-8,
Exhibit No. 4.3) **
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10
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.03c*
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Amendment, dated as of
May 12, 1997, to the 1989 Employees Incentive Stock
Option Plan. (1997
Form 10-K,
Exhibit No. 10.03c and March 2001
Form S-8,
Exhibit No. 4.4)**
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10
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.03d*
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Amendment, dated as of
January 29, 1998, to the 1989 Employees Incentive
Stock Option Plan. (1998
Form 10-K,
Exhibit No. 10.03d)**
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10
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.04*
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Retirement Plan of the Company, as
amended and restated effective as of April 1, 1989.
(September 1993
Form 10-Q,
Exhibit No. 10)**
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10
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.04a*
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Amendment, dated as of
August 2, 1999, to the Retirement Plan of the Company, as
amended and restated effective as of April 1, 1989. (June
2001
Form 10-Q,
Exhibit No. 10.04a)**
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10
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.05*
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|
Profit Sharing Plan, amended and
restated as of April 1, 1993. (1995
Form 10-K,
Exhibit No. 10.05) **
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10
|
.05a*
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Amendment, dated as of
March 1, 2000, to the Profit Sharing Plan. (June 2001
Form S-8,
Exhibit No. 4)**
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10
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.06*
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Second Amended and Restated
Employment Agreement, dated November 14, 2002, by and
between the Company and Robert G. Gross. (2003
Form 10-K,
Exhibit No. 10.06)**
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10
|
.06a *
|
|
Amendment to Second Amended and
Restated Employment Agreement, dated June 8, 2005. (June
2005 8-K,
Exhibit No. 10.1)**
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10
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.07*
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Employment Agreement, dated
July 13, 2005 and effective May 19, 2005, by and
between the Company and Joseph Tomarchio, Jr. (July 2005
Form 8-K,
Exhibit No. 10.1)**
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Exhibit No.
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|
Document
|
|
|
10
|
.08*
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1998 Employee Stock Option Plan,
effective November 18, 1998. (December 1998
Form 10-Q,
Exhibit No. 10.3 and March 2001
Form S-8,
Exhibit No. 4)**
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|
|
10
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.08a*
|
|
Amendment, dated May 20,
2003, to the 1998 Employee Stock Option Plan. (2004
Form 10-K,
Exhibit No. 10.08a)**
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|
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|
10
|
.08b*
|
|
Amendment, dated June 8,
2005, to the 1998 Employee Stock Option Plan. (April 2006
Form S-8
for the 1998 Plan, Exhibit No. 4.2)**
|
|
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|
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|
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10
|
.09*
|
|
Kimmel Automotive, Inc. Pension
Plan, as amended and restated effective January 1, 1989,
adopted December 29, 1994. (2003
Form 10-K,
Exhibit No. 10.09)**
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|
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|
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|
10
|
.09a*
|
|
First amendment, dated
January 1, 1989, to the Kimmel Automotive, Inc. Pension
Plan. (2003
Form 10-K,
Exhibit No. 10.09a)**
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|
|
|
|
10
|
.09b*
|
|
Second amendment, dated
January 1, 1989, to the Kimmel Automotive Pension Plan.
(2003
Form 10-K,
Exhibit No. 10.09b)**
|
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|
|
|
|
10
|
.09c*
|
|
Third amendment, dated May 2001,
to the Kimmel Automotive, Inc. Pension Plan. (2003
Form 10-K,
Exhibit No. 10.09c)**
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|
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|
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|
|
10
|
.10*
|
|
2003 Non-Employee Directors
Stock Option Plan, effective August 5, 2003. (2004
Form 10-K,
Exhibit No. 10.10)**
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|
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|
|
|
|
|
|
|
10
|
.10a*
|
|
Amendment, dated June 8,
2005, to the 2003 Non-Employee Directors Stock Option
Plan. (April 2006
Form S-8
for the 2003 Plan, Exhibit No. 4.1)**
|
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10
|
.11*
|
|
Credit Agreement, dated as of
July 13, 2005, by and among the Company, Charter One Bank,
N.A., as Administrative Agent, and certain lenders party
thereto. (June 2005
Form 10-Q,
Exhibit No. 10.1)
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10
|
.12*
|
|
Security Agreement, dated as of
July 13, 2005, by and among the Company, Monro Service
Corporation, Monro Leasing, LLC and Charter One Bank, N.A., as
Administrative Agent for the lenders party to the Credit
Agreement. (June 2005
Form 10-Q,
Exhibit No. 10.2)
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10
|
.13*
|
|
Guaranty, dated as of
July 13, 2005, of Monro Service Corporation. (June 2005
Form 10-Q,
Exhibit No. 10.3)
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10
|
.14*
|
|
Guaranty, dated as of
July 13, 2005, of Monro Leasing, LLC. (June 2005
Form 10-Q,
Exhibit 10.4)
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10
|
.15*
|
|
Negative Pledge Agreement, dated
as of July 13, 2005, by and among the Company, Monro
Service Corporation, Monro Leasing, LLC and Charter One Bank,
N.A., as Administrative Agent for the lenders party to the
Credit Agreement. (June 2005
Form 10-Q,
Exhibit No. 10.5)
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10
|
.18*
|
|
Resale Restriction Agreement by
and between the Company and each of its executive officers and
certain senior-level managers, effective as of March 24,
2006. (March 2006
Form 8-K/A,
Exhibit No. 10.1)
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|
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10
|
.62*
|
|
Mortgage Agreement, dated
September 28, 1994, between the Company and the City of
Rochester, New York. (1995
Form 10-K,
Exhibit No. 10.60)
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|
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10
|
.63*
|
|
Lease Agreement, dated
October 11, 1994, between the Company and the City of
Rochester, New York. (1995
Form 10-K,
Exhibit No. 10.61)
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|
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|
|
10
|
.66*
|
|
Amendment to Lease Agreement,
dated September 19, 1995, between the Company and the
County of Monroe Industrial Development Agency. (September 1995
Form 10-Q,
Exhibit No. 10.00)
|
|
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|
|
|
|
|
|
|
|
|
10
|
.68*
|
|
Amended and Restated Employment
Agreement, dated February 6, 2006 and effective as of
May 19, 2005, between the Company and Catherine
DAmico. (February 2006
Form 8-K,
Exhibit No. 10.1)**
|
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|
|
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|
|
|
|
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|
|
10
|
.70*
|
|
Purchase Agreement between Walker
Manufacturing Company, a division of Tenneco Automotive, and the
Company, dated as of June 29, 1999. (2000
Form 10-K,
Exhibit No. 10.70)
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|
|
|
|
|
|
|
10
|
.71*
|
|
Asset Purchase Agreement by and
among Speedy Muffler King Inc., Bloor Automotive Inc., Speedy
Car-X Inc., Speedy (U.S.A.) Inc., Speedy Holding Corp. and the
Company, dated as of April 13, 1998. (April 1998
Form 8-K,
Exhibit No. 10.1)
|
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|
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|
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10
|
.71a*
|
|
Amendment No. 2 to the Asset
Purchase Agreement by and among Speedy Muffler King Inc., Bloor
Automotive Inc., Speedy Car-X Inc., Speedy (U.S.A.) Inc., Speedy
Holding Corp. and the Company, dated August 31, 1998.
(September 1998
Form 8-K,
Exhibit No. 10.1)
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|
|
10
|
.72*
|
|
Form of
Agreement Purchase Agreement and Escrow
Instructions between Realty Income
Corporation buyer and the
Company seller, dated November 12, 1997.
(1998
Form 10-K,
Exhibit No. 10.70)
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|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.73*
|
|
Purchase Agreement and
Escrow Instructions between Realty Income
Corporation buyer and the
Company seller, dated March 31, 1999.
(1999
Form 10-K,
Exhibit No. 10.73)
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10
|
.73a*
|
|
Amendment to Purchase
Agreement and Escrow Instructions between Realty Income
Corporation buyer and the
Company seller, dated May 6, 1999, with
respect to Store Nos. 372 and 368. (1999
Form 10-K,
Exhibit No. 10.73a)
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10
|
.75*
|
|
Supply Agreement between the
Company and The Valvoline Company, a division of Ashland Inc.,
effective November 1, 2002. (December 2002
Form 10-Q,
Exhibit No. 10.79)
|
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10
|
.75a*
|
|
Automotive Filter Sales Agreement
between the Company and The Valvoline Company, a division of
Ashland Inc., dated November 1, 2002. (December 2002
Form 10-Q,
Exhibit No. 10.80)
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10
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.76*
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Tenneco Automotive Ride Control
Products Supply Agreement between Tenneco Automotive Operating
Company Inc. and Monro Service Corporation, effective
July 1, 2001. (2002
Form 10-K,
Exhibit No. 10.76)
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10
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.77*
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Management Incentive Compensation
Plan, effective as of June 1, 2002. (2002
Form 10-K,
Exhibit No. 10.77)**
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10
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.78*
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Merchandising Agreement between
the Company and Morse Automotive Corporation, dated
September 1, 2002. (September 2002
Form 10-Q,
Exhibit No. 10.78)
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10
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.79*
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Agreement, dated January 1,
1998, between F&J Properties, Inc. and Mr. Tire, Inc.,
as
predecessor-in-interest
to the Company, effective January 1, 1998, with respect to
Store No. 750. (2004
Form 10-K,
Exhibit No. 10.79)
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10
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.79a*
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Assignment and Assumption of
Lease, dated March 1, 2004, between Mr. Tire, Inc. and
the Company, with respect to Store No. 750. (2004
Form 10-K,
Exhibit No. 10.79a)
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10
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.79b*
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Landlords Consent and
Estoppel Certificate, dated as of February 27, 2004, by
F&J Properties, Inc., with respect to Store No. 750.
(2004
Form 10-K,
Exhibit No. 10.79b)
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10
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.80*
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Agreement, dated January 1,
1997, between The Three Marquees and Mr. Tire, Inc., as
predecessor-in-interest
to the Company,with respect to Store No. 753. (2004
Form 10-K,
Exhibit No. 10.80)
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10
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.80a*
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Assignment and Assumption of
Lease, dated March 1, 2004, between Mr. Tire, Inc. and
the Company, with respect to Store No. 753. (2004
Form 10-K,
Exhibit No. 10.80a)
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10
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.80b*
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Landlords Consent and
Estoppel Certificate, dated as of February 27, 2004, by The
Three Marquees, with respect to Store No. 753. (2004
Form 10-K,
Exhibit No. 10.80b)
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10
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.80c
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Renewal Letter, dated
March 6, 2006, from the Company to The Three Marquees, with
respect to Store No. 753
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10
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.81*
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Agreement, dated April 1,
1998, between 425 Manchester Road, LLC and Mr. Tire, Inc.,
as
predecessor-in-interest
to the Company, with respect to Store No. 754. (2004
Form 10-K,
Exhibit No. 10.81)
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10
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.81a*
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Assignment and Assumption of
Lease, dated March 1, 2004, between Mr. Tire, Inc. and
the Company, with respect to Store No. 754. (2004
Form 10-K,
Exhibit No. 10.81a)
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10
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.81b*
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Landlords Consent and
Estoppel Certificate, dated as of February 27, 2004, by 425
Manchester Road, LLC, with respect to Store No. 754. (2004
Form 10-K,
Exhibit No. 10.81b)
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10
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.82*
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Agreement, dated January 1,
1997, between The Three Marquees and Mr. Tire, Inc. as
predecessor-in-interest
to the Company, with respect to Store No. 756. (2004
Form 10-K,
Exhibit No. 10.82)
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10
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.82a*
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Assignment and Assumption of
Lease, dated March 1, 2004, between Mr. Tire, Inc. and
the Company, with respect to Store No. 756. (2004
Form 10-K,
Exhibit No. 10.82a)
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10
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.82b*
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Landlords Consent and
Estoppel Certificate, dated as of February 27, 2004, by The
Three Marquees, with respect to Store No. 756. (2004
Form 10-K,
Exhibit No. 10.82b)
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10
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.82c
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Renewal Letter, dated
March 6, 2006, from the Company to The Three Marquees, with
respect to Store 756.
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10
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.83*
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Agreement, dated January 1,
1997, between The Three Marquees and Mr. Tire, Inc., as
predecessor-in-interest
to the Company, with respect to Store No. 758. (2004
Form 10-K,
Exhibit No. 10.83)
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Exhibit No.
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Document
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10
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.83a*
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Assignment and Assumption of
Lease, dated March 1, 2004, between Mr. Tire, Inc. and
the Company, with respect to Store No. 758. (2004
Form 10-K,
Exhibit No. 10.83a)
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10
|
.83b*
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Landlords Consent and
Estoppel Certificate, dated as of February 27, 2004, by The
Three Marquees, with respect to Store No. 758. (2004
Form 10-K,
Exhibit No. 10.83b)
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10
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.83c
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Renewal Letter, dated
March 6, 2006, from the Company to The Three Marquees, with
respect to Store No. 758.
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10
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.84*
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Agreement, dated September 2,
1999, between LPR Associates and Mr. Tire, Inc., as
predecessor-in-interest
to the Company, with respect to Store No. 765. (2004
Form 10-K,
Exhibit No. 10.84)
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10
|
.84a*
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Assignment and Assumption of
Lease, dated March 1, 2004, between Mr. Tire, Inc. and
the Company, with respect to Store No. 765. (2004
Form 10-K,
Exhibit No. 10.84a)
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10
|
.84b*
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Landlords Consent and
Estoppel Certificate, dated as of February 27, 2004, by LPR
Associates, with respect to Store No. 765. (2004
Form 10-K,
Exhibit No. 10.84b)
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10
|
.85*
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Monro Muffler Brake, Inc. Warrant
to Purchase Common Stock, dated March 1, 2004, between the
Company and Atlantic Automotive Corp. (2004
Form 10-K,
Exhibit No. 10.85)
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10
|
.86*
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Supply Agreement by and between
the Company and Wagner Brake, a division of Federal-Mogul
Corporation, dated as of November 2, 2004 and effective as
of February 1, 2005. (December 2004
Form 10-Q,
Exhibit No. 10.86)
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21
|
.01
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Subsidiaries of the Company.
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23
|
.01
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Consent of PricewaterhouseCoopers
LLP.
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24
|
.01
|
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Powers of Attorney.
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31
|
.1
|
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Certification of Robert G. Gross,
President and Chief Executive Officer.
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31
|
.2
|
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Certification of Catherine
DAmico, Vice President Finance and Chief Financial
Officer.
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32
|
.1
|
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Certification Pursuant to 18
U.S.C. Section 1350 (Section 906 of the Sarbanes Oxley Act of
2002).
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** |
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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. |
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* |
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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
Companys 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 Companys Annual
Report on
Form 10-K
for the fiscal year ended March 31, 1992 (1992
Form 10-K); (4) the
Companys Registration Statement on
Form S-8,
filed with the Securities and Exchange Commission on
December 24, 1992 (December 1992
Form S-8); (5) the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 1993
(September 1993
Form 10-Q); (6) the
Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 1994 (1994
Form 10-K); (7) the
Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 1995 (1995
Form 10-K); (8) the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 1995
(September 1995
Form 10-Q); (9) the
Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 1996
(September 1996
Form 10-Q);
(10) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 1997 (1997
Form 10-K);
(11) the Companys Current Report on
Form 8-K
filed on April 28, 1998 (April 1998
Form 8-K);
(12) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 31, 1998
(December 1998
Form 10-Q);
(13) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 1998 (1998
Form 10-K);
(14) the Companys Current Report on
Form 8-K
filed on September 23, 1998 (September 1998
Form 8-K);
(15) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 1998
(September 1998
Form 10-Q);
(16) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 1999 (1999
Form 10-K);
(17) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 1999
(September 1999
Form 10-Q);
(18) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2000 (2000
Form 10-K);
(19) the Companys Registration Statement on
Form S-8,
filed with the Securities and Exchange Commission on
April 7, 2000 (April 2000
Form S-8);
(20) the Companys Registration Statements on
Forms S-8,
filed with the Securities and Exchange Commission on
March 22, 2001 (each a March 2001
Form S-8);
(21) the Companys Registration Statement on
Form S-8, |
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filed with the Securities and Exchange Commission on
June 26, 2001 (June 2001
Form S-8);
(22) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended June 30, 2001 (June 2001
Form 10-Q);
(23) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 30, 2002 (2002
Form 10-K);
(24) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 28, 2002
(September 2002
Form 10-Q);
(25) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 28, 2002
(December 2002
Form 10-Q);
(26) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 28, 2003 (2003
Form 10-K);
(27) the Companys Current Report on
Form 8-K/A,
filed on August 12, 2003 to amend and restate the Current
Report on
Form 8-K,
filed July 14, 2003 (August 2003
Form 8-K/A);
(28) the Companys Current Report on
Form 8-K
filed on March 12, 2004 (March 2004
Form 8-K);
(29) the Companys Registration Statement on
Form S-3
(Registration
No. 333-118176),
filed with the Securities and Exchange Commission on
August 12, 2004 (August 2004
Form S-3);
(30) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 25, 2004
(December 2004
Form 10-Q);
(31) the Companys Annual Report on
Form 10-K
for the fiscal year ended March 27, 2004 (2004
Form 10-K);
(32) the Companys Current Report on
Form 8-K,
filed June 8, 2005 (June 2005
Form 8-K);
(33) the Companys Current Report on
Form 8-K,
filed July 14, 2005 (July 2005
Form 8-K);
(34) the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended June 25, 2005 (June 2005
Form 10-Q);
(35) the Companys Current Report on
Form 8-K,
filed February 7, 2006 (February 2006
Form 8-K);
(36) the Companys Current Report on
Form 8-K,
filed March 31, 2006 (March 2006
Form 8-K/A);
(37) the Companys Registration Statement on
Form S-8
(Registration
No. 333-133044)
filed with the Securities and Exchange Commission on
April 6, 2006 (April 2006
Form S-8
for 2003 Plan); (38) the Companys Registration
Statement on
Form S-8
(Registration
No. 333-133045)
filed with the Securities and Exchange Commission on
April 6, 2006 (April 2006
Form S-8
for 1998 Plan). The appropriate document and exhibit
number are indicated in parentheses. |