The accompanying notes are an integral part of these financial statements.
32
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N
OTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Background
Monro Muffler Brake, Inc. and its wholly owned subsidiar
ies
, Monro Service Corporation
and Car-X, LLC
(together, “Monro”,
the “Company”,
“we”, “us”, or “our”), are engaged principally in providing automotive undercar repair and tire
sales and
services in the United States. Monro had
1,
118
Company-operated stores,
1
14
franchised location
s
,
five
wholesale locations,
two
retread facilities
and
14
dealer-operated automotive repair centers located in
2
7
states as of March
2
5
, 201
7.
Monro’s operations are organized and managed in
one
operating segment
.
The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale
locations
. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting.
Accounting estimates
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with such principles requires the use of estimates by management during the reporting period. Actual results could differ from those estimates.
Fiscal year
Monro reports its results on a 52/53 week fiscal year ending on the last Saturday of March of each year. The following are the dates represented by each fiscal period:
“Year ended Fiscal March 201
7
”: March
27
, 201
6
– March
25
, 201
7
(52 weeks)
“Year ended Fiscal March 201
6
”: March
29
, 201
5
– March
26
, 201
6
(52 weeks)
“Year ended Fiscal March 201
5
”: March
30
, 201
4
– March 2
8
, 201
5
(52 weeks)
Consolidation
The Consolidated Financial Statements include Monro Muffler Brake, Inc. and its wholly owned subsidiar
ies
, Monro Service Corporation
and Car-X, LLC
, after the elimination of intercompany transactions and balances.
Revenue recognition
Sales are recorded upon completion of automotive undercar repair
, tire delivery
and tire services provided to customers. The following was Monro’s sales mix for fiscal 201
7
, 201
6
and 201
5
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
Brakes
|
|
13
|
%
|
|
15
|
%
|
|
15
|
%
|
Exhaust
|
|
2
|
|
|
3
|
|
|
3
|
|
Steering
|
|
9
|
|
|
10
|
|
|
10
|
|
Tires
|
|
49
|
|
|
45
|
|
|
44
|
|
Maintenance
|
|
27
|
|
|
27
|
|
|
28
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Revenue from the sale of tire road hazard warranty agreements is recognized on a straight-line basis over the contract period or other method when costs are not incurred ratably.
Under various arrangements, we receive from certain tire vendors a delivery commission and reimbursement for the cost of the tire that we may deliver to customers on behalf of the tire vendor. The commission we earn from these transactions is as an agent and the net amount retained is recorded as sales.
Cash equivalents
We consider all highly liquid instruments with original maturities of three months or less to be cash equivalents.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Inventories
Our inventories consist of automotive parts and tires. Inventories are valued at the lower of cost or
net realizable
value using the first-in, first-out (FIFO) method.
Barter credits
We value barter credits at the fair market value of the inventory exchanged, as determined by reference to price lists for buying groups and jobber pricing. We use these credits primarily to pay vendors for purchases (mainly inventory vendors for the purchase of parts
, oil
and tires) or to purchase other goods or services from the barter company such as advertising.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is provided on a straight-line basis. Buildings and improvements related to owned locations are depreciated over lives varying from
10
to
39
years; machinery, fixtures and equipment over lives varying from
3
to
15
years; and vehicles over lives varying from
4
to
10
years. Computer hardware and software is depreciated over lives varying from
3
to
7
years. Buildings and improvements related to leased locations are depreciated over the shorter of the asset’s useful life or the reasonably assured lease term, as defined in the accounting guidance on leases. When property is sold or retired, the cost and accumulated depreciation are eliminated from the accounts and a gain or loss is recorded in the Consolidated Statements of Comprehensive Income. Expenditures for maintenance and repairs are expensed as incurred. (See Note 4.)
Long-lived assets
We evaluate the ability to recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to the extent the carrying value exceeds the fair value. In addition, we report assets to be disposed of at the lower of the carrying amount or the fair market value
less costs to sell
.
Store opening and closing costs
New store opening costs are charged to expense in the fiscal year when incurred. When we close a store, the estimated unrecoverable costs, including the remaining lease obligation net of sublease income, if any, are charged to expense.
Leases
Financing Obligations –
We are involved in the construction of leased stores. In some cases, we are respons
ible for construction cost over
runs or non-standard tenant improvements. As a result of this involvement, we are deemed the “owner” for accounting purposes during the construction period, requiring us to capitalize the construction costs on our Consolidated Balance Sheet. Upon completion of the project, we perform a sale-leaseback analysis pursuant to guidance on accounting for leases to determine if we can remove the assets from our Consolidated Balance Sheet. For some of these leases, we are considered to have “continuing involvement”, which precludes us from derecognizing the assets from our Consolidated Balance Sheet when construction is complete (“failed sale-leaseback”). In conjunction with these leases, we capitalize the construction costs on our Consolidated Balance Sheet and also record financing obligations representing payments owed to the landlord. We do not report rent expense for the properties which are owned for accounting purposes. Rather, rental payments under the lease are recognized as a reduction of the financing obligation and as interest expense.
S
ince we often assume leases in acquisition transactions, the accounting for a seller who was involved in the construction of leased stores passes to us.
Additionally, we may incu
r other financing obligations in
connection with the accounting for acquisitions.
Capital Leases –
Some of our property is held under capital leases. These assets are included in property, plant and equipment and depreciated over the term of the lease. We do not report rent expense for capital leases. Rather, rental payments under the lease are recognized as a reduction of the capital lease obligation and interest expense.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Operating Leases –
All other leases are considered operating leases. Rent expense, including rent escalations, is recognized on a straight-line basis over the reasonably assured lease term, as defined in the accounting guidance on leases. Generally, the lease term is the base lease term plus certain renewal option periods for which renewal is reasonably assured.
Goodwill and intangible assets
We have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. The carrying value of goodwill is subject to annual impairment reviews in accordance with accounting guidance on goodwill, which we typically perform in the third quarter of the fiscal year. Impairment reviews may also be triggered by any significant events or changes in circumstances affecting our business.
We have
one
reporting unit which encompasses all operations including new acquisi
tions.
The goodwill impairment test consists of a t
wo-step process, if necessary.
We perform a qualitative assessment to determine if it is more likely than not that the fair value is less than t
he carrying value of goodwill.
The qualitative assessment includes a review of business changes, economic outlook, financial trends and forecasts, growth rates, industry data, market capitalization and other relevant qualitative factors. If the qualitative factors are triggered, we
perform the two-step process.
The first step is to compare the fair value of our
reporting unit
to the book
value of our reporting unit
.
If the fair value is less than its carrying value, the second step of the impairment test must be performed in order to determine the amount of
impairment loss, if any.
The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed th
e carrying amount of goodwill.
Intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses and are amortized over their estimated useful lives. All intangibles and other long-lived assets are reviewed when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. No such indicators were present in
fiscal
201
7
, 201
6
or 201
5
.
A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in our cash flow models, but may also negatively impact other assumptions used in our analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, as discussed above, in accordance with accounting guidance, we are required to ensure that assumptions used to determine fair value in our analyses are consistent with the assumptions a hypothetical market participant would use. As a result, the cost of capital and/or discount rates used in our analyses may increase or decrease based on market conditions and trends, regardless of whether our actual cost of capital has changed. Therefore, we may recognize an impairment of an intangible asset or assets even though realized actual cash flows are approximately equal to or greater than its previously forecasted amounts.
As a result of our annual qualitative assessment performed in the third quarter of fiscal 201
7
, there were
no
impairments. There have been no triggering events during the fourth quarter of fiscal 201
7
.
Self-insurance reserves
We are largely self-insured with respect to workers’ compensation, general liability and employee medical claims. In order to reduce our risk and better manage our overall loss exposure, we purchase stop-loss insurance that covers individual claims in excess of the deductible amounts
, and caps total losses in a fiscal year
. We maintain an accrual for the estimated cost to settle open claims as well as an estimate of the cost of claims that have been incurred but not reported. These estimates take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce, and general economic factors. These accruals are reviewed on a quarterly basis, or more frequently if factors dictate a more frequent review is warranted. For more complex reserve calculations, such as workers’ compensation, we use the services of an actuary on an annual basis to assist in determining the required reserve for open claims.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Warranty
We provide an accrual for estimated future warranty costs for parts that we install based upon the historical relationship of warranty costs to sales. Warranty expense related to all product warranties at and for the years ended March 201
7
, 201
6
and 201
5
was not material to our financial position or results of operations. See additional discussion of tire road hazard warranty agreements under the “Revenue recognition” section of this footnote.
Comprehensive income
As it relates to Monro, comprehensive income is defined as net earnings as adjusted for pension liability adjustments and is reported net of related taxes in the Consolidated Statements of Comprehensive Income and in the Consolidated Statements of Changes in Shareholders’ Equity.
Income taxes
Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using tax rates based on currently enacted rules and legislation and anticipated rates that will be in effect when the differences are expected to reverse. The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Monro recognizes a tax benefit from an uncertain tax position in the financial statements only when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority's administrative practices and precedents. (See Note 7.)
Treasury stock
Treasury stock is accounted for using the par value method.
During the year ended March 26, 2016, Monro’s Chief Executive Officer surrendered
32,000
shares of Monro’s Common Stock at fair market value to pay the exercise price
and the related taxes
on the exercise of
89,000
stock options. Additionally, Monro’s Executive Chairman surrendered
100,000
shares of Common Stock at fair market value to pay the exercise price and to satisfy tax withholding obligations on the exercise of
150,000
stock options.
During the year ended March 28, 2015, Monro’s Chief Executive Officer surrendered
77,000
shares of Monro’s Common Stock at fair market value to pay the exercise price on the exercise of
113,000
stock options.
There was no activity for the Chief Executive Officer
or Executive Chairman
during the year ended March 2
5
, 201
7
.
Stock-based compensation
We measure compensation cost arising from the grant of share-based payments to an employee at fair value, and recognize such cost in income over the period during which the employee is required to provide service in exchange for the award, usually the vesting period. Forfeitures are estimated on the grant date and revised in subsequent periods if actual forfeitures differ from those estimates.
We recognize compensation expense related to stock options using the straight-line approach. Option awards generally vest equally over the service period established in the award, typically
four
years. We estimate fair value using the Black-Scholes valuation model. Assumptions used to estimate the compensation expense are determined as follows:
|
·
|
|
Expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees;
|
|
·
|
|
Expected volatility is measured using historical changes in the market price of Monro’s Common Stock;
|
|
·
|
|
Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards;
|
|
·
|
|
Forfeitures are based substantially on the history of cancellations of similar awards granted by Monro in prior years; and
|
|
·
|
|
Dividend yield is based on historical experience and expected future changes.
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
The weighted average fair value of options granted during fiscal 201
7
, 201
6
and 201
5
was
$1
2.17
,
$1
3.10
and
$
1
1.27
,
respectively. The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
1.20
|
%
|
|
1.25
|
%
|
|
1.23
|
%
|
Expected life, in years
|
|
4
|
|
|
4
|
|
|
4
|
|
Expected volatility
|
|
25.9
|
%
|
|
27.2
|
%
|
|
27.7
|
%
|
Expected dividend yield
|
|
1.10
|
%
|
|
0.96
|
%
|
|
0.99
|
%
|
Total stock-based compensation expense included in cost of sales and selling, general and administrative expenses in Monro’s Consolidated Statements of Comprehensive Income for the
fiscal
years ended March 2
5
, 201
7
, March 2
6
, 201
6
and March
2
8
, 201
5
was
$2.
5
million,
$2.8
million and
$3.
3
million, respectively. The related income tax benefit was
$1.
0
million,
$1.
0
million and
$1.
2
m
illion, respectively.
Earnings per share
Basic earnings per share
are
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
are
calculated by dividing net income by the weighted average number of shares of Common Stock and equivalents outstanding during the year. Common Stock equivalents represent shares issuable upon the assumed exercise of stock options. (See Note 10.)
Advertising
We expense the production costs of advertising the first time the advertising takes place, except for direct response advertising which is capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of coupons for Monro’s services. The capitalized costs of this advertising are amortized over the period of the coupon’s validity, which is typically
two
months.
Prepaid advertising at March 2
5
, 201
7
and March 2
6
, 201
6
, and advertising expen
se for the
fiscal
years ended March 2017
, 201
6
and 201
5
,
were not material to these financial statements.
Vendor rebates and cooperative advertising credits
We account for vendor rebates and cooperative advertising credits as a reduction of the cost of products purchased, except where the rebate or credit is a reimbursement of costs incurred to sell the vendor’s product, in which case it is offset against the costs incurred.
Guarantees
At the time we issue a guarantee, we recognize an initial liability for the fair value, or market value, of the obligation we assume under that guarantee. Monro has guaranteed certain lease payments, primarily related to franchisees, amounting to
$
7.5
million. This amount represents the maximum potential amount of future payments under the guarantees as of March 2
5
, 201
7
. The leases are guaranteed through April 2020. In the event of default by the franchise owner, Monro generally retains the right to assume the lease of the related store, enabling Monro to re-franchise the location or to operate that location as a Company-operated store. As of March 2
5
, 201
7
, we have recorded a liability of
$.
6
million related to anticipated defaults under the foregoing leases.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for the reporting of revenue from contracts with customers. This guidance provides guidelines a company will apply to determine the measurement of revenue and timing of when it is recognized.
Additional guidance has subsequently been issued to amend or clarify the reporting of revenue from contracts with customers. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. While the evaluation of the impact of the new revenue recognition guidance on our Consolidated Financial Statements has not yet been fully determined, we anticipate the provisions to primarily impact the deferral of revenue generated by the sale of an extended warranty. Generally, in relation to these provisions, the new guidance will require the transaction price of an arrangement including an extended warranty to be allocated based on the relative standalone selling prices of the extended warranty and the original service/product rather than the contract price of the extended warranty. Therefore, the allocation may impact the amount of revenue deferred.
We are required to adopt this guidance utilizing one of two methods: retrospective restatement for each reporting period presented at time of adoption, or a modified retrospective approach with the cumulative effect of initially applying this guidance recognized at the date of initial application. We intend to elect an adoption methodology after we have fully evaluated the impact on our Consolidated Financial Statements, however, we
do not expect this change to have a material impact on our Consolidated Financial Statements. We are currently preparing to implement changes to our accounting policies, systems and controls to support the new revenue recognition and disclosure requirements.
In A
ugust 2014
,
the FASB issued new accounting guidance for the disclosure of an entity’s ability to continue as a going concern. This guidance establishes specific guidelines to an entity’s management on their responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern. This guidance is effective for fiscal years ending after December 15, 2016, and interim periods thereafter. We have adopted this guidance during the fourth quarter of fiscal 2017 and we have evaluated the Company’s ability to continue as a going concern as well as the need for related footnote disclosure. We have concluded no disclosure is necessary regarding the Company’s ability to continue as a going concern.
In February 2016, the FASB
issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted.
Approximately
50%
of our store leases and all of our land leases are currently not recorded on our balance sheet. Recording ROU assets and liabilities for these leases is expected to have a material impact on our balance sheet. We are currently evaluating the impact that recording ROU assets and liabilities will have on our statements of comprehensive income and the financial statement impact that the standard will have on leases which are currently recorded on our balance sheet.
In March 2016, the FASB issued new accounting guidance intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. This guidance is effective for fiscal years and interim periods within those years begin
ning after December 15, 2016.
Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
In August 2016, the FASB issued new accounting guidance related to cash flow classification. This guidance clarifies and provides specific guidance on eight cash flow classification issues that are not addressed by current GAAP and thereby reduce the current diversity in practice. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
In January 2017, the FASB issued new accounting guidance which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. This guidance provides a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. This screen requires that when substantially all of the fair value of the assets is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance provides a framework to evaluate whether both an input and a substantive process are present to be considered a business. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted for certain transactions. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
In January 2017,
the
FASB issued new accounting guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required the determination of an implied fair value of goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This guidance is not expected to have an impact on our Consolidated Financial Statements.
In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. This guidance requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are to be presented separately from the service cost component and outside of any subtotal of income from operations. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and should be applied retrospectively. Early adoption is permitted as of the beginning of an annual period for which financial statements have not yet been issued. This guidance is not expected to have an impact on our Consolidated Financial Statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected
to have a material effect on Monro’s
Consolidated Financial Statements.
NOTE 2 – ACQUISITIONS
Monro
’s acquisitions
are strategic moves in our plan to
fill in and expand
our
presence in
our
existing and contiguous markets, and leverage fixed operating costs such as distribution
,
advertising
and administration
.
Acquisitions in this footnote include acquisitions of five or more locations as well as acquisitions of one to four locations that are part of the Company’s greenfield store growth strategy.
Subsequent Events
We have signed definitive asset purchase agreements to complete the acquisition of
five
retail tire and automotive repair stores located within our existing markets through
four
additional acquisitions. These transactions are expected to close during the first quarter of fiscal 2018. The acquisitions are expected to be financed through our existing credit facility.
On April 2
3
, 2017, we acquired
one
retail tire and automotive repair store located in Florida from Collier Automotive Group, Inc. The store operates under The Tire Choice name. The acquisition was financed through our existing credit facility.
Fiscal 2017
During fiscal 2017, we acquired the following businesses for an aggregate purchase price of $141.8 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in Monro’s financial results from the respective acquisition dates.
|
·
|
|
On
February 26, 2017
, we acquired
16
retail tire and automotive repair stores located in Illinois and Iowa from Nona, Inc., a Car-X franchisee. These stores operate under the Car-X name.
|
|
·
|
|
On
February 5, 2017
, we acquired
two
retail tire and automotive repair stores located in North Carolina and Virginia from Thrifty Tire of Roxboro, LLC. These stores operate under the Mr. Tire name.
|
|
·
|
|
On
October 16, 2016
, we acquired
one
retail tire and automotive repair store located in Rhode Island from Hamel Tire Center, Inc. This store operates under the Monro name.
|
|
·
|
|
On
October 2, 2016
, we acquired
three
retail tire and automotive repair stores located in Ohio from Parkway D/C Enterprises, Inc. These stores operate under the Mr. Tire name.
|
|
·
|
|
On
September 19, 2016
, we acquired
one
retail tire and automotive repair store located in Florida from Florida Tire Service, LLC. This store will operate under The Tire Choice name.
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
|
·
|
|
On
September 18, 2016
, we acquired
two
retail tire and automotive repair stores located in Michigan from Davco Development Company and Ricketts, Inc. These stores operate under the Monro name.
|
|
·
|
|
On
September 11, 2016
, we acquired
26
retail tire and automotive repair stores and
one
retread facility located in North Carolina, as well as
four
wholesale locations
in North Carolina, South Carolina and Tennessee
, from Clark Tire & Auto, Inc. These stores operate under the Mr. Tire name. The wholesale locations and retread facility operate under the Tires Now name.
|
|
·
|
|
On
July 18, 2016
, we acquired
one
retail tire and automotive repair store located in Indiana from NTI, LLC. This store operates under the Car-X name.
|
|
·
|
|
On
July 17, 2016
, we acquired
one
retail tire and automotive repair store located in Georgia from Kwik-Fit Tire & Service. This store operates under the Mr. Tire name.
|
|
·
|
|
On
July 10, 2016
, we acquired
four
retail tire and automotive repair stores located in Minnesota from Task Holdings, Inc. and Autopar, Inc. These stores operate under the Car-X name.
|
|
·
|
|
On
June 26, 2016
, we acquired
one
retail tire and automotive repair store located in Michigan from Harlow Tire Company. This store operates under the Monro name.
|
|
·
|
|
On
June 19, 2016
, we acquired
two
retail tire and automotive repair stores located in New Hampshire from Express Tire Centers, LLC. These stores operate under the Tire Warehouse name.
|
|
·
|
|
On
May 8, 2016
, we acquired
one
retail tire and automotive repair store located in Florida from Pioneer Tire Pros. This store operates under The Tire Choice name.
|
|
·
|
|
On
May 1, 2016
, we acquired
29
retail tire and automotive repair stores and
one
retread facility located in Florida from McGee Tire Stores, Inc. These stores will operate primarily under The Tire Choice name. The retread facility operates under the McGee Tire name.
|
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, and unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to customer relationships, favorable leases and trade names.
We expensed all costs related to acquisitions during fiscal 2017. The total costs related to completed acquisitions were
$1.0
million for the year ended March 25, 2017. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales and net loss for the fiscal 2017 acquired
locations
totaled
$104.9
million and approximately (
$1.0
) million, respectively, for the period from acquisition date through March 25, 2017.
The net loss includes an allocation of certain traditional corporate related items, including vendor rebates, interest expense and income taxes.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuation data and estimates. The excess of the net purchase price over the net tangible and intangible assets acquired was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of March 25, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
As of Acquisition Date
|
|
|
(Dollars in thousands)
|
Cash and equivalents
|
|
$
|
15
|
Trade receivables
|
|
|
6,977
|
Inventories
|
|
|
18,432
|
Other current assets
|
|
|
416
|
Property, plant and equipment
|
|
|
31,993
|
Intangible assets
|
|
|
21,394
|
Other non-current assets
|
|
|
208
|
Long-term deferred income tax assets
|
|
|
9,334
|
Total assets acquired
|
|
|
88,769
|
Warranty reserves
|
|
|
491
|
Other current liabilities
|
|
|
3,970
|
Long-term capital leases and financing obligations
|
|
|
41,011
|
Other long-term liabilities
|
|
|
1,141
|
Total liabilities assumed
|
|
|
46,613
|
Total net identifiable assets acquired
|
|
$
|
42,156
|
Total consideration transferred
|
|
$
|
141,807
|
Less: total net identifiable assets acquired
|
|
|
42,156
|
Goodwill
|
|
$
|
99,651
|
The total consideration of $141.8 million is comprised of
$141.7
million in cash, and a
$.1
million payable to a seller. The payable is being paid via equal annual payments through September 2019.
The following are the intangible assets acquired and their respective fair values and weighted average useful lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Acquisition Date
|
|
|
|
|
|
Weighted
|
|
|
Dollars
|
|
Average
|
|
|
in thousands
|
|
Useful Life
|
Customer lists
|
|
$
|
11,999
|
|
13 years
|
Favorable leases
|
|
|
6,440
|
|
14 years
|
Trade names
|
|
|
2,955
|
|
17 years
|
Total
|
|
$
|
21,394
|
|
14 years
|
We continue to refine the valuation data and estimates related to inventory, road hazard warranty, intangible assets, real estate and real property leases for the fiscal 2017 acquisitions and expect to complete the valuations no later than the first anniversary date of the respective acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.
Fiscal 2016
During fiscal 2016, we acquired the following businesses for an aggregate purchase price of
$51.1
million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in Monro’s financial results from the respective acquisition dates.
|
·
|
|
During fiscal 2016, we acquired
three
retail tire and automotive repair stores located in Illinois and Indiana from
two
former Car-X franchisees. These stores operate under the Car-X name.
|
|
·
|
|
On
January
31, 2016
, we acquired
one
retail tire and automotive repair store located in Georgia from Marietta Tire & Service, Inc. This store operates under the Mr. Tire name.
|
|
·
|
|
On
December
13, 2015
, we acquired
four
retail tire and automotive repair stores located in Wisconsin from McMar, Inc., a former Car-X franchisee. These stores operate under the Car-X name.
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
|
·
|
|
On
December
13, 2015
, we acquired
one
retail tire and automotive repair store located in Florida from Host Tires of Lakeland, Inc. This store operates under The Tire Choice name.
|
|
·
|
|
On
August
16, 2015
, we acquired
27
retail tire and automotive repair stores located in New York and Pennsylvania from Kost Tire. These stores operate under the Mr. Tire name.
|
|
·
|
|
On
July
12, 2015
, we acquired
four
retail tire and automotive repair stores located in Massachusetts from Windsor Tire Co., Inc. These stores operate under the Monro Brake & Tire name.
|
|
·
|
|
On
April 25, 2015
, we acquired the Car-X Brand, as well as the franchise rights for
146
auto service centers from Car-X Associates Corp., a subsidiary of Tuffy Associates Corp. At the time of acquisition, the Car-X stores were owned and operated by
32
independent Car-X franchisees in Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri, Ohio,
Tennessee
, Texas and Wisconsin. The franchise locations operate under the Car-X name. Monro operates as the franchisor through a standard royalty agreement, while Car-X remains a separate and independent brand and business through Car-X, LLC, Monro’s wholly-owned subsidiary, with franchise operations based in Illinois.
|
These
acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, and unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to franchise agreements
, trade name,
favorable leases
and customer relationships
.
We expensed all costs related to acquisitions during fiscal 2016. The total costs related to completed acquisitions were
$.7
million for the year ended March 26, 2016. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales, including franchise royalty income, and net income for the fiscal 2016 acquired
locations
totaled
$24.8
million and approximately
$1.4
million, respectively, for the period from acquisition date through March 26, 2016.
Net income includes an allocation of certain traditional corporate related items, including vendor rebates, interest expense and income taxes.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We finalized the purchase accounting relative to the fiscal 2016 acquisitions during fiscal 2017. As a result of the final purchase price allocations, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates recorded in fiscal 2017 include an increase in trade receivables of
$.1
million; an increase in property, plant and equipment of
$2.6
million; an increase in intangible assets of
$.4
million; an increase in long-term deferred income tax assets of
$1.4
million; an increase in other current liabilities of
$.6
million; an increase in long-term capital leases and financing obligations of
$5.8
million; and an increase in total other liabilities of
$.1
million. The measurement period adjustments resulted in an increase to goodwill of
$2.0
million.
These adjustments were not material to the Consolidated Statements of Comprehensive Income for the fiscal years ended March 25, 2017 and March 26, 2016.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
We
have recorded the identifiable assets acquired and liabilities assumed at their values as of their respective acquisition dates (including any measurement prior adjustments), with th
e remainder recorded as good
will as follows:
|
|
|
|
|
|
|
|
|
|
As of Acquisition Date
|
|
|
(Dollars in thousands)
|
Trade receivables
|
|
$
|
377
|
Inventories
|
|
|
916
|
Other current assets
|
|
|
502
|
Property, plant and equipment
|
|
|
13,785
|
Intangible assets
|
|
|
11,678
|
Other non-current assets
|
|
|
25
|
Long-term deferred income tax assets
|
|
|
6,902
|
Total assets acquired
|
|
|
34,185
|
Warranty reserves
|
|
|
184
|
Other current liabilities
|
|
|
2,202
|
Long-term capital leases and financing obligations
|
|
|
27,975
|
Other long-term liabilities
|
|
|
885
|
Total liabilities assumed
|
|
|
31,246
|
Total net identifiable assets acquired
|
|
$
|
2,939
|
Total consideration transferred
|
|
$
|
51,139
|
Less: total net identifiable assets acquired
|
|
|
2,939
|
Goodwill
|
|
$
|
48,200
|
The total consideration of $51.1 million is comprised of
$45.1
million in cash, and a
$6.0
million payable to a seller. The payable is being liquidated via equal monthly payments through August 2022.
The following are the intangible assets acquired and their respective fair values and weighted average useful lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Acquisition Date
|
|
|
|
|
|
Weighted
|
|
|
Dollars
|
|
Average
|
|
|
in thousands
|
|
Useful Life
|
Franchise agreements
|
|
$
|
7,100
|
|
13 years
|
Trade name
|
|
|
2,000
|
|
15 years
|
Favorable leases
|
|
|
1,889
|
|
13 years
|
Customer lists
|
|
|
689
|
|
7 years
|
Total
|
|
$
|
11,678
|
|
13 years
|
NOTE 3 – OTHER CURRENT ASSETS
The composition of other current assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
|
(Dollars in thousands)
|
Vendor rebates receivable
|
|
$
|
14,327
|
|
$
|
11,984
|
Other
|
|
|
18,312
|
|
|
16,690
|
|
|
$
|
32,639
|
|
$
|
28,674
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25, 2017
|
|
March 26, 2016
|
|
|
|
|
|
Assets Under
|
|
|
|
|
|
|
|
Assets Under
|
|
|
|
|
|
|
|
|
Capital Lease/
|
|
|
|
|
|
|
|
Capital Lease/
|
|
|
|
|
|
Assets
|
|
Financing
|
|
|
|
|
Assets
|
|
Financing
|
|
|
|
|
|
Owned
|
|
Obligations
|
|
Total
|
|
Owned
|
|
Obligations
|
|
Total
|
|
|
(Dollars in thousands)
|
Land
|
|
$
|
83,675
|
|
|
|
|
$
|
83,675
|
|
$
|
80,195
|
|
|
|
|
$
|
80,195
|
Buildings and improvements
|
|
|
223,566
|
|
$
|
147,786
|
|
|
371,352
|
|
|
212,421
|
|
$
|
112,969
|
|
|
325,390
|
Equipment, signage and fixtures
|
|
|
225,977
|
|
|
|
|
|
225,977
|
|
|
208,204
|
|
|
|
|
|
208,204
|
Vehicles
|
|
|
28,831
|
|
|
|
|
|
28,831
|
|
|
23,608
|
|
|
|
|
|
23,608
|
Construction-in-progress
|
|
|
3,164
|
|
|
|
|
|
3,164
|
|
|
2,539
|
|
|
|
|
|
2,539
|
|
|
|
565,213
|
|
|
147,786
|
|
|
712,999
|
|
|
526,967
|
|
|
112,969
|
|
|
639,936
|
Less - Accumulated
depreciation and amortization
|
|
|
282,196
|
|
|
36,169
|
|
|
318,365
|
|
|
258,516
|
|
|
29,838
|
|
|
288,354
|
|
|
$
|
283,017
|
|
$
|
111,617
|
|
$
|
394,634
|
|
$
|
268,451
|
|
$
|
83,131
|
|
$
|
351,582
|
Depreciation expense totaled
$3
9.5
million,
$3
6.0
million and
$32.1
million for the fiscal years ended March 201
7
, 201
6
and 201
5
, respectively.
Amortization expense recorded under capital leases and financing obligations and included in depreciation expense above totaled
$
9
.5
million,
$7.5
million and
$5.
7
million for the fiscal years ended March 201
7
, 201
6
and 201
5
, respectively.
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill during fiscal 201
7
and 201
6
were as follows:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Balance at March 28, 2015
|
|
$
|
349,088
|
Fiscal 2016 acquisitions
|
|
|
46,247
|
Adjustments to fiscal 2015 purchase accounting
|
|
|
4,326
|
Other adjustments
|
|
|
471
|
Balance at March 26, 2016
|
|
|
400,132
|
Fiscal 2017 acquisitions
|
|
|
99,651
|
Adjustments to fiscal 2016 purchase accounting
|
|
|
1,953
|
Balance at March 25, 2017
|
|
$
|
501,736
|
In fiscal 2016, the other adjustments relate to
an immaterial correction of an out of period error related to
the lease liability for a
fiscal
2013 acquisition.
The composition of other intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
(Dollars in thousands)
|
Customer lists
|
|
$
|
34,489
|
|
$
|
16,372
|
|
$
|
22,490
|
|
$
|
13,283
|
Favorable leases
|
|
|
25,378
|
|
|
7,764
|
|
|
18,418
|
|
|
5,996
|
Trade names
|
|
|
20,852
|
|
|
8,358
|
|
|
18,002
|
|
|
6,960
|
Franchise agreements
|
|
|
7,220
|
|
|
1,167
|
|
|
7,320
|
|
|
487
|
Other intangible assets
|
|
|
540
|
|
|
530
|
|
|
540
|
|
|
524
|
Total intangible assets
|
|
$
|
88,479
|
|
$
|
34,191
|
|
$
|
66,770
|
|
$
|
27,250
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Monro’s intangible assets are being amortized over their estimated useful lives. The weighted average useful lives of Monro’s intangible assets are approximately
10
years for customer lists,
14
years for favorable leases
,
14
years for trade names,
1
3
years for franchise agreements
and
five
years for other intangible assets.
Amortization of intangible assets, excluding amortization of favorable leases included in rent expense, during fiscal 201
7
, 201
6
and 201
5
totaled
$
5.1
million,
$3.
8
million and
$
3.
6
million, respectively.
Estimated future amortization of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists/
|
|
|
|
|
|
Trade names/
|
|
|
|
|
|
Franchise agreements/
|
|
Favorable
|
Year Ending Fiscal March
|
|
Other
|
|
Leases
|
|
|
(Dollars in thousands)
|
2018
|
|
$
|
5,397
|
|
$
|
1,887
|
2019
|
|
|
4,804
|
|
|
1,823
|
2020
|
|
|
3,845
|
|
|
1,774
|
2021
|
|
|
3,183
|
|
|
1,707
|
2022
|
|
|
2,891
|
|
|
1,590
|
NOTE 6 – LONG-TERM DEBT, CAPITAL LEASES AND FINANCING OBLIGATIONS
Long-term debt, capital leases and financing obligations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
|
|
March 26,
|
|
|
2017
|
|
2016
|
|
|
(Dollars in thousands)
|
Revolving Credit Facility, LIBOR-based (a)
|
|
$
|
182,297
|
|
$
|
103,315
|
Note payable, non-interest bearing, due in equal installments through September 2019
|
|
|
60
|
|
|
—
|
Less – Current portion of long-term debt
|
|
|
(20)
|
|
|
—
|
Long-term debt
|
|
$
|
182,337
|
|
$
|
103,315
|
Obligations under capital leases and financing obligations at various
interest rates, due in installments through May 2045
|
|
$
|
228,444
|
|
$
|
176,974
|
Less – Current portion of capital leases and financing obligations
|
|
|
(15,278)
|
|
|
(11,244)
|
Long-term capital leases and financing obligations
|
|
$
|
213,166
|
|
$
|
165,730
|
_________________
|
(a)
|
|
The London Interbank Offered
Rate
(LIBOR) at March 2
5, 2017
was
.
98
%
.
|
In January
2016, we entered into a new
five
-year
$600
million Revolving Credit Facility agreement with
nine
banks (the “Credit Facility”).
The Credit Facility replaced our previous revolving credit facility, as amended, which would have expired in December 2017.
Interest only is payable monthly throughout the Credit Facility’s term. The Credit Facility increase
d
our borrowing capacity from our prior financing agreement by
$350
million to $600 million
,
and includes an accordion feature permitting us to request an increase in availability of up to an additional
$100
million, an increase of
$25
million from our prior
revolving credit facility
. The expanded facility bears interest at
75
to
175
basis points over LIBOR. The Credit Facility requires fees payable quarterly throughout the term between
.15%
and
.35
%
of the amount of the average net availability under the Credit Facility during the preceding quarter. There was
$1
82.
3
million outstanding under the Credit Facility at March 2
5
, 201
7
. We were in compliance with all debt covenants as of March 2
5, 2017
.
At March 2
5
, 201
7
and March 2
6
, 201
6
, the interest rate
spread paid by the Company
was
100
basis points over LIBOR.
Within the Credit Facility, we have a sub-facility of
$8
0
million for the purpose of issuing standby letters of credit. The line requires fees aggregating
87.5
to
187.5
basis points over LIBOR
annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was
$
2
6.5
million in an outstanding letter of credit at March 2
5, 2017
.
The net availability under the Credit Facility at March 2
5, 2017
was
$391.2
million.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Specific terms of the Credit Facility permit the payment of cash dividends not to exceed
50%
of the prior year’s net income, and permit mortgages and specific lease financing arrangements with other parties with certain limitations.
Other specific terms and the maintenance of specified ratios are generally consistent with our prior financing agreement.
Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with c
ertain permissible exceptions.
Long-term debt had a carrying amount and a fair value of
$1
82.4
million as of
March 2
5
, 201
7
, as compared to a carrying amount and a fair value of
$1
03.3
million as of
March 2
6
, 20
1
6
. The fair value of long-term debt was estimated based on discounted cash flow analyses using either quoted market prices for the same or similar issues, or the current interest rates offered to Monro for debt with similar maturities.
In addition, we have financed certain store properties with capital leases/financing obligations, which amount to
$228.4
million and a
re due in installments through
May
2045
.
We also have a $.1 million payable to
the
seller
of an acquired business
at March 25, 2017, due in equal installments through September 2019
.
Aggregate debt maturities over the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases/
|
|
|
|
|
|
|
|
|
Financing Obligations
|
|
|
|
|
|
|
|
|
Aggregate
|
|
Imputed
|
|
All Other
|
|
|
|
Year Ending Fiscal March
|
|
Amount
|
|
Interest
|
|
Debt
|
|
Total
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
30,960
|
|
$
|
(15,682)
|
|
$
|
20
|
|
$
|
15,298
|
2019
|
|
|
31,487
|
|
|
(14,961)
|
|
|
20
|
|
|
16,546
|
2020
|
|
|
31,503
|
|
|
(13,908)
|
|
|
20
|
|
|
17,615
|
2021
|
|
|
32,173
|
|
|
(12,683)
|
|
|
182,297
|
|
|
201,787
|
2022
|
|
|
31,513
|
|
|
(11,293)
|
|
|
|
|
|
20,220
|
NOTE 7 – INCOME TAXES
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
(Dollars in thousands)
|
Current -
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
22,040
|
|
$
|
29,202
|
|
$
|
28,262
|
State
|
|
|
2,422
|
|
|
2,825
|
|
|
2,956
|
|
|
|
24,462
|
|
|
32,027
|
|
|
31,218
|
Deferred -
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
10,120
|
|
|
6,216
|
|
|
6,194
|
State
|
|
|
1,136
|
|
|
373
|
|
|
144
|
|
|
|
11,256
|
|
|
6,589
|
|
|
6,338
|
Total
|
|
$
|
35,718
|
|
$
|
38,616
|
|
$
|
37,556
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Deferred tax (liabilities) assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
|
|
March 26,
|
|
|
2017
|
|
2016
|
|
|
(Dollars in thousands)
|
Goodwill
|
|
$
|
(39,715)
|
|
$
|
(31,075)
|
Other
|
|
|
(968)
|
|
|
(266)
|
Total deferred tax liabilities
|
|
|
(40,683)
|
|
|
(31,341)
|
Property and equipment
|
|
|
36,980
|
|
|
28,085
|
Insurance reserves
|
|
|
11,075
|
|
|
11,626
|
Warranty and other reserves
|
|
|
4,810
|
|
|
4,671
|
Stock options
|
|
|
2,509
|
|
|
3,040
|
Other
|
|
|
9,354
|
|
|
9,274
|
Total deferred tax assets
|
|
|
64,728
|
|
|
56,696
|
Net deferred tax assets
|
|
$
|
24,045
|
|
$
|
25,355
|
We have
$4.
4
million of state net operating loss carryforwards available as of March 2
5
, 201
7
. The carryforwards expire in varying amounts through
203
7
. Based on all available evidence, we have determined that it is more likely than not that sufficient taxable income of the appropriate character within the carryforward period will exist for the realization of the tax benefits on existing state net operating loss carryforwards.
We believe it is more likely than not that all other future tax benefits will be realized as a result of current and future income.
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
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
(Dollars in thousands)
|
Federal income tax based on
statutory tax rate applied
to income before taxes
|
|
$
|
34,035
|
|
35.0
|
|
$
|
36,897
|
|
35.0
|
|
$
|
34,774
|
|
35.0
|
State income tax, net of
federal income tax benefit
|
|
|
2,700
|
|
2.8
|
|
|
2,306
|
|
2.2
|
|
|
2,170
|
|
2.2
|
Other
|
|
|
(1,017)
|
|
(1.1)
|
|
|
(587)
|
|
(0.6)
|
|
|
612
|
|
0.6
|
|
|
$
|
35,718
|
|
36.7
|
|
$
|
38,616
|
|
36.6
|
|
$
|
37,556
|
|
37.8
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
The following is a rollforward of Monro’s liability for income taxes associated with unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
Balance at March 29, 2014
|
|
$
|
5,900
|
Tax positions related to current year:
|
|
|
|
Additions
|
|
|
2,066
|
Reductions
|
|
|
|
Tax positions related to prior years:
|
|
|
|
Additions
|
|
|
164
|
Reductions
|
|
|
33
|
Settlements
|
|
|
|
Lapses in statutes of limitations
|
|
|
(668)
|
Balance at March 28, 2015
|
|
|
7,495
|
Tax positions related to current year:
|
|
|
|
Additions
|
|
|
1,116
|
Reductions
|
|
|
|
Tax positions related to prior years:
|
|
|
|
Additions
|
|
|
|
Reductions
|
|
|
(922)
|
Settlements
|
|
|
|
Lapses in statutes of limitations
|
|
|
(760)
|
Balance at March 26, 2016
|
|
|
6,929
|
Tax positions related to current year:
|
|
|
|
Additions
|
|
|
981
|
Reductions
|
|
|
|
Tax positions related to prior years:
|
|
|
|
Additions
|
|
|
66
|
Reductions
|
|
|
(352)
|
Settlements
|
|
|
|
Lapses in statutes of limitations
|
|
|
(732)
|
Balance at March 25, 2017
|
|
$
|
6,892
|
The total amount of unrecognized tax benefits was
$6.9
million at March 2
5
, 201
7
, the majority of which, if recognized, would affect the effective tax rate.
In the normal course of business, Monro provides for uncertain tax positions and the related interest and penalties, and adjusts its unrecognized tax benefits and accrued interest and penalties accordingly.
During the year ended March 28, 2015, we recognized interest and penalties of approximately
$.1
million
in income tax expense
.
Additionally, we had approximately
$.
4
million of interest and penalties associated with uncertain tax benefits accrued as of March 2
5
, 201
7
and March 2
6
, 201
6
.
We file U.S. federal income tax returns and income tax returns in various state jurisdictions.
Monro’s fiscal
201
4
through
201
6
U.S. federal tax years and various state tax years remain subject to income tax examinations by tax authorities.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
NOTE 8 – STOCK OWNERSHIP
A summary of the changes in the number of shares of Common Stock, Class C preferred stock and treasury stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C
|
|
|
|
|
Common
|
|
Convertible
|
|
|
|
|
Stock
|
|
Preferred
|
|
Treasury
|
|
|
Shares
|
|
Stock Shares
|
|
Stock
|
|
|
Issued
|
|
Issued
|
|
Shares
|
Balance at March 29, 2014
|
|
37,567,902
|
|
32,500
|
|
6,076,951
|
Stock options exercised
|
|
439,635
|
|
|
|
103,538
|
Balance at March 28, 2015
|
|
38,007,537
|
|
32,500
|
|
6,180,489
|
Stock options exercised
|
|
549,141
|
|
|
|
136,163
|
Balance at March 26, 2016
|
|
38,556,678
|
|
32,500
|
|
6,316,652
|
Conversion of preferred shares
|
|
250,212
|
|
(10,698)
|
|
|
Stock options exercised
|
|
205,299
|
|
|
|
5,765
|
Balance at March 25, 2017
|
|
39,012,189
|
|
21,802
|
|
6,322,417
|
Holders of at least
60%
of the Class C preferred stock must approve any action authorized by the holders of Common Stock. In addition, there are certain restrictions on the transferability of shares of Class C preferred stock. In the event of a liquidation, dissolution or winding-up of Monro, the holders of the Class C preferred stock would be entitled to receive
$1.50
per share out of the assets of Monro before any amount would be paid to holders of Common Stock. The conversion value of the Class C convertible preferred stock was
$.064
per share at March 2
5
, 201
7
and March 2
6
, 201
6
.
NOTE 9 – SHARE BASED COMPENSATION
Monro currently grants stock option awards under the 2007 Incentive Stock Option Plan (the “2007 Plan”). The 2007 Plan was authorized by the Board of Directors in June 2007, initially reserving
873,000
shares (as retroactively adjusted for stock splits) of Common Stock for issuance to eligible employees and all non-employee directors. The 2007 Plan was approved by shareholders in August 2007. Prior to fiscal 2008, Monro had options outstanding under
three other stock option plans:
the 1994 Non-Employee Directors Stock Option Plan (the “1994 Plan”) (which was approved by shareholders in August 1995); the 1998 Incentive Stock Option Plan (the “1998 Plan”) (which was approved by shareholders in August 1999); and the 2003 Non-Employee Directors Stock Option Plan (the “2003 Plan”) (which was approved by shareholders in August 2003), collectively the “Prior Plans”
.
Upon shareholder approval of the 2007 Plan, all shares of Common Stock available for award under the 1998 and 2003 Plans were transferred to, and made available for award under the 2007 Plan. The 1994 Plan had no options available for grant upon adoption of the 2007 Plan. No further option grants may be made under the Prior Plans, although outstanding awards under the Prior Plans will remain outstanding in accordance with the terms of those plans and the stock option agreements entered into under those plans.
The 1994 Plan had a total of
675,345
common shares authorized for issuance; the 1998 Plan had a total of
4,016,250
shares authorized for issuance; and the 2003 Plan had a total of
315,000
shares authorized for issuance (all as retroactively adjusted for stock splits). Upon authorization of the 2007 Plan by shareholders,
628,620
shares (as retroactively adjusted for stock splits) were transferred from the 1998 and 2003 Plans into the 2007 Plan, bringing the total authorized shares to
1,501,620
(as retroactively adjusted for stock splits). In addition, in May 2013 and 2010, the Compensation Committee of the Board of Directors authorized an additional
2,000,000
and
1,500,000
shares (as retroactively adjusted for stock splits), respectively, of common stock for grant under the 2007 Plan, which were approved by shareholders in August 2013 and August 2010, respectively. At March 2
5
, 201
7, there were
a total of
5,001,62
0
shares authorized for grant under the 2007 Plan (as retroactively adjusted for stock splits), including the shares transferred from the 1998 and 2003 Plans.
Generally, employee options vest
over a
four
year period
, and have a duration of
six
to
ten
years. Outstanding options are exercisable for various periods through March 202
3
.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
A summary of changes in outstanding stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
Options
|
|
|
Price
|
|
Outstanding
|
At March 29, 2014
|
|
$
|
31.58
|
|
1,773,401
|
Granted
|
|
$
|
52.73
|
|
211,225
|
Exercised
|
|
$
|
31.98
|
|
(439,635)
|
Canceled
|
|
$
|
43.04
|
|
(26,661)
|
At March 28, 2015
|
|
$
|
34.21
|
|
1,518,330
|
Granted
|
|
$
|
62.28
|
|
243,410
|
Exercised
|
|
$
|
29.59
|
|
(549,141)
|
Canceled
|
|
$
|
50.69
|
|
(23,808)
|
At March 26, 2016
|
|
$
|
41.75
|
|
1,188,791
|
Granted
|
|
$
|
62.01
|
|
232,560
|
Exercised
|
|
$
|
31.61
|
|
(485,660)
|
Canceled
|
|
$
|
61.20
|
|
(39,347)
|
At March 25, 2017
|
|
$
|
51.67
|
|
896,344
|
The total shares exercisable at
March 2
5
, 201
7
,
March 2
6
, 201
6
and
March 2
8
, 201
5
w
ere
563,109
,
789,422
and
1,
098,601
, respectively.
The weighted average exercise price of all shares exercis
able
at March
2
5, 2017
was
$46.61
.
There were
1,
549,716
shares available for grant at March 2
5, 2017
.
The weighted average contractual term of all options outstanding at
March 2
5, 2017
and
March 2
6, 2016
was
3.
1
years and
3.0
years, respectively. The aggregate intrinsic value of all options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) outstanding at
March 2
5, 2017
and
March 2
6, 2016
was
$4.9
million and
$3
3
.2
million, respectively.
The weighted average contractual term of all options exercisable at
March 2
5, 2017
and
March 2
6, 2016
was
2.
4
years and
2.
5
years, respectively. The aggregate intrinsic value of all options exercisable at
March 2
5, 2017
and
March 2
6, 2016
was
$
4.8
million and
$26.0
million, respectively.
A summary of the status of and changes in nonvested stock options granted is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant-Date
|
|
|
|
|
Fair Value
|
|
|
Options
|
|
(per Option)
|
Non-vested at March 29, 2014
|
|
612,829
|
|
$
|
8.88
|
Granted
|
|
211,225
|
|
$
|
11.27
|
Vested
|
|
(382,197)
|
|
$
|
9.22
|
Canceled
|
|
(22,128)
|
|
$
|
10.37
|
Non-vested at March 28, 2015
|
|
419,729
|
|
$
|
9.70
|
Granted
|
|
243,410
|
|
$
|
13.10
|
Vested
|
|
(242,841)
|
|
$
|
10.38
|
Canceled
|
|
(20,929)
|
|
$
|
10.18
|
Non-vested at March 26, 2016
|
|
399,369
|
|
$
|
11.26
|
Granted
|
|
232,560
|
|
$
|
12.17
|
Vested
|
|
(266,112)
|
|
$
|
10.48
|
Canceled
|
|
(32,582)
|
|
$
|
12.79
|
Non-vested at March 25, 2017
|
|
333,235
|
|
$
|
12.37
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
The following table summarizes information about stock options outstanding at March 2
5, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
Average
|
|
Shares
|
|
Average
|
Range of
|
|
Shares
|
|
Remaining
|
|
Exercise
|
|
Under
|
|
Exercise
|
Exercise Prices
|
|
Under Option
|
|
Life
|
|
Price
|
|
Option
|
|
Price
|
$11.76
-
$44.49
|
|
269,881
|
|
1.36
|
|
$
|
34.36
|
|
255,924
|
|
$
|
33.83
|
$44.50
-
$57.25
|
|
241,393
|
|
3.28
|
|
$
|
53.45
|
|
122,843
|
|
$
|
52.05
|
$57.26
-
$62.53
|
|
219,635
|
|
4.23
|
|
$
|
60.13
|
|
108,217
|
|
$
|
59.03
|
$62.54
-
$75.76
|
|
165,435
|
|
4.24
|
|
$
|
66.10
|
|
76,125
|
|
$
|
63.18
|
During the fiscal years ended
March 2
5, 2017,
March 2
6, 2016 and March 2
8, 2015
, the fair value of awards vested under Monro’s stock plans was
$2.
8
million,
$2.5
million and
$3.
5
million, respectively.
The aggregate intrinsic value is based on Monro’s closing stock price of
$52.15
,
$6
9.68
and
$
6
4.96
as of the last trading day of the periods ended
March 25, 2017, March 26, 2016 and
March 28, 2015
, respectively. The aggregate intrinsic value of options exercised during the fiscal years ended
March 25, 2017, March 26, 2016 and
March 28, 2015
was
$
13
.3
million,
$22
.3
million and
$10.3
million, respe
ctively. As of March 2
5, 2017
,
there was
$
3.
2
million
of unrecognized compensation expense related to non-vested fixed stock options that is expected to be recognized over a weighted average period of approximately
t
hree
years
.
Cash received from option exercises under all stock option plans was
$3.5
million,
$8.
6
million and
$8.7
million for the fiscal years ended
March 25, 2017,
March 26
, 2016 and
March 28, 2015
, respectively. The actual tax benefit realized for the tax deductions from option
exercises was
$3.5
million,
$6.7
million and
$
2.2
million for
the fiscal years ended
March 25, 2017,
March 26, 2016
and
March 28, 2015
, respectively.
Monro issues new shares of Common Stock upon the exercise of stock options.
NOTE 10 – EARNINGS PER COMMON SHARE
The following is a reconciliation of basic and diluted earnings per common share for the respective years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
(Amounts in thousands, except per share data)
|
Numerator for earnings per common share calculation:
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
61,526
|
|
$
|
66,805
|
|
$
|
61,799
|
Less: Preferred stock dividends
|
|
|
(447)
|
|
|
(456)
|
|
|
(395)
|
Income available to common stockholders
|
|
$
|
61,079
|
|
$
|
66,349
|
|
$
|
61,404
|
Denominator for earnings per common share calculation:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, basic
|
|
|
32,413
|
|
|
32,026
|
|
|
31,605
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
675
|
|
|
760
|
|
|
760
|
Stock options
|
|
|
213
|
|
|
567
|
|
|
579
|
Weighted average common shares, diluted
|
|
|
33,301
|
|
|
33,353
|
|
|
32,944
|
Basic earnings per common share:
|
|
$
|
1.88
|
|
$
|
2.07
|
|
$
|
1.94
|
Diluted earnings per common share:
|
|
$
|
1.85
|
|
$
|
2.00
|
|
$
|
1.88
|
The computation of diluted earnings per common share for fiscal
2017,
201
6
and
201
5
excludes the effect of assumed exercise of approximately
304
,0
00
,
1
71
,000
and
1
45
,000
of stock options, respectively, as the exercise price of these options was greater than the average market value of Monro’s Common Stock for those periods, resulting in an anti-dilutive effect on diluted earnings per share.
NOTE 11 – OPERATING LEASES AND OTHER COMMITMENTS
We lease
various
facilities under noncancellable lease agreements which expire a
t various dates through fiscal
204
1
. 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.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
In recent years, we have entered into agreements for the sale/leaseback of certain stores. Realized gains are deferred and are credited to income as rent expense adjustments over the lease terms. We have lease renewal options under the real estate agreements at projected future fair market values.
Future minimum payments required under noncancellable leases (including closed stores) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less -
|
|
|
|
|
|
|
|
|
Sublease
|
|
|
|
Year Ending Fiscal March
|
|
Leases
|
|
Income
|
|
Net
|
|
|
(Dollars in thousands)
|
2018
|
|
$
|
35,668
|
|
$
|
(91)
|
|
$
|
35,577
|
2019
|
|
|
29,188
|
|
|
(68)
|
|
|
29,120
|
2020
|
|
|
23,081
|
|
|
(73)
|
|
|
23,008
|
2021
|
|
|
18,362
|
|
|
(74)
|
|
|
18,288
|
2022
|
|
|
13,280
|
|
|
(78)
|
|
|
13,202
|
Thereafter
|
|
|
35,281
|
|
|
(306)
|
|
|
34,975
|
Total
|
|
$
|
154,860
|
|
$
|
(690)
|
|
$
|
154,170
|
Rent expense under operating leases, net of sublease income, totaled
$3
8,628
,
0
00
,
$3
6,717,
000
and
$3
5,848,
000
in
fiscal 201
7
, 201
6
and 201
5
, respectively, including contingent rentals of
$
46
,0
00
,
$59
,000
and
$
44
,000
in each respective fiscal year. Sublease income totaled
$1
30
,0
00
,
$1
49
,000
and
$161
,000
, respectively, in
fiscal 201
7
, 201
6
and 201
5
.
We enter into contracts with parts and tire suppliers, certain of which require us to buy (at market
competitive
prices) up to
100%
of our annual purchases of specific products. The agreements expire at various dates. We believe these agreements provide us with high quality, branded merchandise at preferred pricing, along with strong marketing and training support.
NOTE 12 – EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
We sponsor a noncontributory defined benefit pension plan for Monro employees and the former Kimmel Automotive, Inc. employees. In fiscal 2005, the previously separate Monro and Kimmel pension plans were merged. The merged plan provides benefits to certain full-time employees who were employed with Monro and with Kimmel prior to April 2, 1998 and May 15, 2001, respectively.
Effective as of those dates, each company’s Board of Directors approved plan amendments whereby the benefits of each of the defined benefit plans would be frozen and the plans would be closed to new participants. Prior to these amendments, coverage under the plans began after employees completed
one
year of service and
attained
age
21
. Benefits under both plans, and now the merged plan, are based primarily on years of service and employees’ pay near retirement. The funding policy for Monro’s merged plan is consistent with the funding requirements of Federal law and regulations. The measurement date used to determine the pension plan measurements disclosed herein is March 31 for both 201
7
and 201
6
.
The
funded/(
underfunded
)
status of Monro’s defined benefit plan is recognized as
an other
non-current asset/other
long-term l
iability
in
the Consolidated Balance Sheets as of
March 25, 2017 and
March 26, 2016
, respectively.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
The
funded/(
under
funded
)
status of the plan is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal March
|
|
|
2017
|
|
2016
|
|
|
(Dollars in thousands)
|
Change in Plan Assets:
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
19,465
|
|
$
|
20,241
|
Actual return on plan assets
|
|
|
2,309
|
|
|
(95)
|
Benefits paid
|
|
|
(1,072)
|
|
|
(681)
|
Fair value of plan assets at end of year
|
|
|
20,702
|
|
|
19,465
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
|
21,373
|
|
|
22,160
|
Interest cost
|
|
|
806
|
|
|
803
|
Actuarial gain
|
|
|
(702)
|
|
|
(909)
|
Benefits paid
|
|
|
(1,072)
|
|
|
(681)
|
Benefit obligation at end of year
|
|
|
20,405
|
|
|
21,373
|
Funded/(underfunded) status of plan
|
|
$
|
297
|
|
$
|
(1,908)
|
The projected and accumulated benefit obligations were equivalent at
March 31 for both 201
7
and
201
6
.
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Fiscal March
|
|
|
2017
|
|
2016
|
|
|
(Dollars in thousands)
|
Unamortized transition obligation
|
|
$
|
0
|
|
$
|
0
|
Unamortized prior service cost
|
|
|
0
|
|
|
0
|
Unamortized net loss
|
|
|
5,117
|
|
|
7,320
|
Total
|
|
$
|
5,117
|
|
$
|
7,320
|
Changes in plan assets and benefit obligations recognized in other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Fiscal March
|
|
|
2017
|
|
2016
|
|
|
(Dollars in thousands)
|
Net transition obligation
|
|
$
|
0
|
|
$
|
0
|
Prior service cost
|
|
|
0
|
|
|
0
|
Net actuarial income
|
|
|
2,203
|
|
|
73
|
Total
|
|
$
|
2,203
|
|
$
|
73
|
Pension (income)
expense
included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
(Dollars in thousands)
|
Interest cost on projected benefit obligation
|
|
$
|
806
|
|
$
|
803
|
|
$
|
832
|
Expected return on plan assets
|
|
|
(1,332)
|
|
|
(1,389)
|
|
|
(1,388)
|
Amortization of unrecognized actuarial loss
|
|
|
524
|
|
|
648
|
|
|
300
|
Net pension (income) expense
|
|
$
|
(2)
|
|
$
|
62
|
|
$
|
(256)
|
The weighted-average assumptions used to determine benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Fiscal March
|
|
|
2017
|
|
2016
|
Discount rate
|
|
3.98
|
%
|
|
3.83
|
%
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
The weighted-average assumptions used to determine net periodic pension costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
|
3.83
|
%
|
|
3.69
|
%
|
|
4.42
|
%
|
Expected long-term return on assets
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
The expected long-term rate of return on plan assets is established based upon assumptions related to historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.
The investment strategy of the plan is to conservatively manage the assets in order to meet the plan’s long-term obligations while maintaining sufficient liquidity to pay current benefits. This is achieved by holding equity investments while investing a portion of assets in long duration bonds to match the long-term nature of the liabilities. Monro’s general target allocation for the plan is
40%
fixed income and
60%
equity securities.
Monro’s asset allocations, by asset category, are as follows at the end of each year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
|
|
March 26,
|
|
|
2017
|
|
2016
|
Cash and cash equivalents
|
|
1.7
|
%
|
|
3.4
|
%
|
Fixed income
|
|
39.7
|
%
|
|
36.8
|
%
|
Equity securities
|
|
58.6
|
%
|
|
59.8
|
%
|
Total
|
|
100.0
|
%
|
|
100.0
|
%
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The following table provides fair value measurement information for Monro’s major categories of defined benefit plan assets at
March 2
5, 2017 and M
arch 2
6, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 25, 2017 Using
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Total
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(Dollars in thousands)
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
|
$
|
8,296
|
|
$
|
7,984
|
|
$
|
312
|
|
|
|
International companies
|
|
|
3,839
|
|
|
3,839
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate bonds
|
|
|
7,902
|
|
|
|
|
|
7,902
|
|
|
|
International bonds
|
|
|
317
|
|
|
|
|
|
317
|
|
|
|
Cash equivalents
|
|
|
348
|
|
|
|
|
|
348
|
|
|
|
Total
|
|
$
|
20,702
|
|
$
|
11,823
|
|
$
|
8,879
|
|
|
|
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 26, 2016 Using
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(Dollars in thousands)
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
|
$
|
7,800
|
|
$
|
7,623
|
|
$
|
177
|
|
|
|
International companies
|
|
|
3,850
|
|
|
3,850
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate bonds
|
|
|
6,788
|
|
|
|
|
|
6,788
|
|
|
|
U.S. Treasury bill
|
|
|
374
|
|
|
374
|
|
|
|
|
|
|
Cash equivalents
|
|
|
653
|
|
|
|
|
|
653
|
|
|
|
Total
|
|
$
|
19,465
|
|
$
|
11,847
|
|
$
|
7,618
|
|
|
|
There are no required or expected contributions in fiscal 201
8
to the plan.
The following pension benefit payments are expected to be paid:
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Fiscal March
|
|
|
(Dollars in thousands)
|
2018
|
|
$
|
895
|
2019
|
|
|
929
|
2020
|
|
|
968
|
2021
|
|
|
1,026
|
2022
|
|
|
1,084
|
2023 - 2027
|
|
|
5,843
|
We have a 401(k)/Profit Sharing Plan that covers full-time employees who meet the age and service requirements of the plan. The 401(k) salary deferral option was added to the plan during fiscal 2000. The first employee deferral occurred in March 2000. We make matching contributions consistent with the provisions of the plan. Charges to expense for our matchi
ng contributions for fiscal 201
7
, 201
6
and 201
5
amo
unted to approximately
$828
,000
,
$731
,000
and
$6
55
,000
, respectively. We may also make annual profit sharing contributions to the plan at the discretion of Monro’s Compensation Committee.
We have a deferred compensation plan (the “Deferred Compensation Plan”) to provide an opportunity for additional tax-deferred savings to a select group of management or highly compensated employees. The Deferred Compensation Plan permits participants to defer all or any portion of the compensation that would otherwise be payable to them for the calendar year. In addition, Monro will credit to the participants’ accounts such amounts as would have been contributed to Monro’s 401(k)/Profit Sharing Plan but for the limitations that are imposed under the Internal Revenue Code based upon the participants’ status as highly compensated employees. We may also make such additional discretionary allocations as are determined by the Compensation Committee. The Deferred Compensation Plan is an unfunded arrangement and the participants or their beneficiaries have an unsecured claim against the general assets of Monro to the extent of their Deferred Compensation Plan benefits. We maintain accounts to reflect the amounts owed to each participant. At least annually, the accounts are credited with earnings or losses calculated on the basis of an interest rate or other formula as determined by Monro’s Compensation Committee. The total liability recorded in our financial statements at
March 2
5, 2017
and March 2
6, 2016
related to the Deferred Compensation Plan was
$2,106
,000
and
$1,
921
,000
, respectively.
Monro's management bonus plan provides for the payment of annual cash bonus awards to participating employees, as selected by our Board of Directors, based primarily on Monro's attaining pre-tax income targets established by our Board of Directors. During the years ended
March 25, 2017,
March 26, 2016
and
March 28,
201
5,
we recorded charges to expense of
$463
,000,
$2,124
,000
and
$1,0
92
,000
, respectively.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
NOTE 13 – RELATED PARTY TRANSACTIONS
We are
currently a party to leases for certain f
acilities where the lessor is a former
officer of
Monro
or
a
family member
of such
former
officer
,
or such
former
officer or family member ha
s
an interest in entities that are lessors.
Six
leases were assumed in March 2004 in connection with the Mr. Tire Acquisition
, as well as
one
additional lease entered into during the year ended March 26, 2016. In March 2015, Monro purchased the property and building of
one
of these leased locations from this same
former
officer of Monro and a family member of such
former
officer for approximately
$1.0
million.
The payments under such operating and capital leases amounte
d to
$7
54
,000
,
$71
1
,000
and
$7
17
,000
for the
fiscal
years ended March
201
7
,
201
6
and
201
5
, respectively. These payments are comparable to rents paid to u
nrelated parties.
No amounts were payable at
March 25, 2017 or
March 26, 2016.
No related party leases
exist, other than
these
six
leases
, and
no
new leases are contemplated.
For many years, we had
a
consulting
agreement with an investment banking firm associated with a principal shareholder/director of
Monro
to provide financial
advice. In recent years, the agreement provided
for an annual fee of $300,000, plus reimbursem
ent of out-of-pocket expenses. Under this agreement,
we
incurred fees of
$225,000
and
$300,000
during the years ended March
26, 2016 and March 28, 2015, respectively.
No
amount
was
payable at
March 26, 2016.
Approximately half of all payments made to the investment banking firm under the
consulting
agreement
were
paid to another principal shareholder/director of
Monro
.
In addition, this investment banking firm, from time to time, has provided other investment banking services to us for additional fees. During fiscal year 2016, with approval by the independent members of the Board of Directors (excluding the Director associated with this firm), we paid additional fees of
$1,0
0
0,000
to this firm in connection with financial and strategic advisory services that were provided related to
three
unsuccessful acquisitions. In connection with making this payment, we negotiated that the aforementioned consulting agreement would end.
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 2
5, 2017
In connection with the fiscal 2017 acquisitions and fiscal 2016 acquisition measurement period adjustments (see Note 2), liabilities were assumed as follows:
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
93,316,000
|
Goodwill
|
|
|
101,604,000
|
Cash paid, net of cash acquired
|
|
|
(142,567,000)
|
Amounts payable to seller
|
|
|
740,000
|
Liabilities assumed
|
|
$
|
53,093,000
|
In connection with the accounting for capital leases and financing obligations, we increased both property, plant and equipment and
capital
leases and financing obligations by
$14,243,000
.
Year ended March 2
6, 2016
In connection with the fiscal 201
6
acquisitions
and fiscal 2015 acquisition
measurement period adjustments
(see Note 2), liabilities were assumed as follows:
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
35,335,000
|
Goodwill
|
|
|
50,573,000
|
Cash paid, net of cash acquired
|
|
|
(49,018,000)
|
Amounts payable to seller
|
|
|
(1,626,000)
|
Liabilities assumed
|
|
$
|
35,264,000
|
In connection with the accounting for capital leases and financing obligations, we increased both property, plant and equipment and
capital
leases and financing obligations by
$13,265,000
.
Table of Contents
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
Year ended March 2
8
, 201
5
In connection with the fiscal 201
5
acquisitions, liabilities were assumed as follows:
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
62,184,000
|
Goodwill
|
|
|
79,316,000
|
Gain on bargain purchase
|
|
|
(386,000)
|
Cash paid, net of cash acquired
|
|
|
(84,403,000)
|
Amounts payable to seller
|
|
|
(3,507,000)
|
Liabilities assumed
|
|
$
|
53,204,000
|
In connection with the accounting for capital leases and financing obligations, we increased both
property
, plant and equipment and capital leases and financing obligations by
$11,599,000
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Fiscal March
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
(Dollars in thousands)
|
Cash paid during the year:
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
20,970
|
|
$
|
15,687
|
|
$
|
11,119
|
Income taxes, net
|
|
$
|
24,778
|
|
$
|
25,322
|
|
$
|
26,141
|
NOTE 1
5
–
LITIGATION
We are
currently a party to various claims and legal proceedings incidental to the conduct of
our
business. If management believes that a loss arising from any of these matters is probable and can reasonably be estimated,
we
will record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur and may include monetary damages. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which
any such
ruling occurs, or in future periods. However, based on currently available information, management believes that the ultimate outcome of
any of
these matters, individually and in the aggregate, will not have a material adverse effect on
our
financial position
,
results of operations
or cash flow
s
.
NOTE 1
6
– SUBSEQUENT EVENTS
In May 201
7
, Monro’s Board of Directors declared a regular quarterly cash dividend of
$.
18
per common share or common share equivalent to be paid to shareholders of record as of
June
2
, 201
7
. The dividend will be paid on
June
12
, 201
7
.
S
ee Note 2 for a discussion of
acquisition
s
subsequent to March 2
5
, 201
7
.