-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FS5+KpLgzrJfGVCN5Xojh3EskiyQDGq+Hf27qX2oNfh7eC4lnu8OiVTsqBlbk4pB 4FXNTafeMCNgXok9oxF4YQ== 0000950152-98-009348.txt : 19981202 0000950152-98-009348.hdr.sgml : 19981202 ACCESSION NUMBER: 0000950152-98-009348 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980917 ITEM INFORMATION: FILED AS OF DATE: 19981201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONRO MUFFLER BRAKE INC CENTRAL INDEX KEY: 0000876427 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 160838627 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19357 FILM NUMBER: 98762200 BUSINESS ADDRESS: STREET 1: 200 HOLLEDER PKWY CITY: ROCHESTER STATE: NY ZIP: 14615-3808 BUSINESS PHONE: 7166476400 8-K/A 1 MONRO MUFFLER BRAKE, INC. FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Date of Report (Date of Earliest Event Reported): September 17, 1998 MONRO MUFFLER BRAKE, INC. ------------------------- (Exact name of registrant as specified in its charter) Commission File Number 0-19357 New York 16-0838627 (State of incorporation) (I.R.S. Employer Identification No.) 200 Holleder Parkway, Rochester, New York 14615 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (716) 647-6400 2 MONRO MUFFLER BRAKE, INC. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired Index to Financial Statements of Speedy Division of Bloor Automotive, Inc.: Report of Independent Accountants Balance Sheets as of January 3, 1998, December 28, 1996 and December 30, 1995 Statements of Operations for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 Statements of Cash Flows for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 Notes to Financial Statements (b) Pro Forma Financial Information Introductory Paragraph Unaudited Pro Forma Combined Statement of Income for the Year Ended March 31, 1998 Unaudited Pro Forma Combined Balance Sheet as of June 30, 1998 Unaudited Pro Forma Combined Statement of Income for the quarter ended June 30, 1998 Notes to Pro Forma Combined Financial Statements (c) Exhibits None. 3 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. FINANCIAL STATEMENTS (IN THOUSANDS OF U.S. DOLLARS) December 30, 1995, December 28, 1996 and January 3, 1998 4 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS OF MONRO MUFFLER BRAKE, INC. AND THE BOARD OF DIRECTORS OF SPEEDY MUFFLER KING INC. We have audited the balance sheets of the SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. as at December 30, 1995, December 28, 1996 and January 3, 1998 and the statements of operations and cash flows for each of the years then ended. These financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Division as at December 30, 1995, December 28, 1996 and January 3, 1998 and the results of its operations and changes in cash flows for the years then ended in accordance with accounting principles generally accepted in the United States. CHARTERED ACCOUNTANTS TORONTO, CANADA MARCH 10, 1998 (EXCEPT FOR NOTES 1 AND 11, WHICH ARE AS OF APRIL 13, 1998) 5 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ---------------------------------- ASSETS CURRENT ASSETS Cash $ 42 $ 42 $ 41 Accounts receivable 246 278 311 Inventories 14,009 15,256 10,805 Prepaid expenses 1,626 1,299 1,496 Assets held for sale (Note 3) - - 4,491 Other 420 582 687 ---------------------------------- 16,343 17,457 17,831 CAPITAL ASSETS (Note 3) 51,972 53,114 41,653 OTHER ASSETS 130 130 224 ---------------------------------- $68,445 $70,701 $59,708 ================================== LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities (Note 4) $ 8,800 $ 7,938 $12,384 Current portion of capital leases (Note 5) 1,691 1,312 1,056 ---------------------------------- 10,491 9,250 13,440 OTHER LIABILITIES (Note 7) - - 1,123 OBLIGATIONS UNDER CAPITAL LEASES (Note 5) 2,364 1,441 385 ---------------------------------- 12,855 10,691 14,948 DIVISIONAL EQUITY (Note 6) 55,590 60,010 44,760 ---------------------------------- $68,445 $70,701 $59,708 ==================================
COMMITMENTS AND CONTINGENCIES (Note 10) 6 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED ------------------------------------------ DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ------------------------------------------ REVENUES $ 95,372 $ 101,724 $ 90,678 COST OF SALES, INCLUDING OCCUPANCY COSTS 58,031 61,663 61,287 ------------------------------------------ GROSS PROFIT 37,341 40,061 29,391 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 1) 39,848 39,611 38,197 RESTRUCTURING COSTS (Note 7) - - 8,200 ------------------------------------------ OPERATING INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES (Note 3) (2,507) 450 (17,006) INTEREST EXPENSE AND FINANCING COSTS 3,764 4,878 6,034 ------------------------------------------ LOSS BEFORE INCOME TAXES (6,271) (4,428) (23,040) RECOVERY OF INCOME TAXES (Notes 1 and 8) (1,989) (1,479) (3,750) ------------------------------------------ LOSS FOR THE YEAR $ (4,282) $ (2,949) $ (19,290) ==========================================
7 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED ------------------------------------------ DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ------------------------------------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Loss for the year $ (4,282) $ (2,949) $(19,290) Items not involving cash Amortization of capital assets and other 3,095 3,339 3,460 Restructuring costs - - 7,914 (Gain) loss on disposal of capital assets (268) 233 69 Deferred income taxes 874 1,144 (2,445) Interest expense on intercompany balances 983 2,444 5,824 Change in noncash working capital balances Increase in accounts receivable and other (266) (194) (138) Decrease (increase) in inventories (856) (1,247) 4,451 Decrease (increase) in prepaid expenses (43) 327 (197) Increase (decrease) in accounts payable and accruals 1,590 (862) 722 ------------------------------------------ 827 2,235 370 ------------------------------------------ INVESTING ACTIVITIES Capital asset additions (6,019) (5,427) (3,350) Proceeds on disposal of capital assets 1,960 714 3,728 Other - - (94) ------------------------------------------ (4,059) (4,713) 284 ------------------------------------------ FINANCING ACTIVITIES Repayment of capital lease obligations (787) (1,302) (1,312) Additions to divisional equity, net 4,019 3,780 657 ------------------------------------------ 3,232 2,478 (655) ------------------------------------------ DECREASE IN CASH DURING THE YEAR - - (1) CASH, BEGINNING OF YEAR 42 42 42 ------------------------------------------ CASH, END OF YEAR $ 42 $ 42 $ 41 ========================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for Interest $ 2,708 $ 2,177 $ 210 ========================================== Taxes $ 194 $ 70 $ 56 ==========================================
8 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) 1 BASIS OF PRESENTATION AND NATURE OF OPERATIONS The financial statements of the Speedy Division of Bloor Automotive, Inc. ("Bloor") include the assets and liabilities and results of operations of the business operating as the Speedy Division of Bloor (the "Division"). Bloor is a wholly-owned subsidiary of Speedy (U.S.A.) Inc., which is a wholly-owned subsidiary of Speedy Muffler King Inc. ("Speedy"), a Canadian company. The Division operates automotive specialty stores under the Speedy brand name. These stores engage in the repair and replacement of automotive mufflers and exhaust systems, shock absorbers and other ride control products, as well as brake systems and other automotive products and services primarily in the northeastern region of the United States. The financial statements include costs relating to marketing services, management, administration and other corporate expenses allocated by affiliated companies providing such services on a modified pro rata basis over the number of shops in North America. Expenses have been allocated to the Division's operations by affiliated companies of $3,735 for the year ended December 30, 1995, $3,520 for the year ended December 28, 1996 and $3,611 for the year ended January 3, 1998. The allocation to shops in this Division is weighted to account for management's assessment of the relative administrative burden of these shops. Management believes the allocation to be a reasonable method. The operations of the Division are included in the consolidated tax returns of Speedy (U.S.A.) Inc. and its affiliated companies. The consolidated current and deferred tax expense for the group has been allocated to the Division as if it were a separate taxpayer. All amounts related to income taxes are included in the Division's intercompany account with Speedy (U.S.A.) Inc. (Note 6). Pursuant to an Asset Purchase Agreement ("Agreement") dated April 13, 1998, Bloor has agreed to sell certain assets and the business of the Division to Monro Muffler Brake, Inc. ("Monro"). The Agreement excludes certain assets and liabilities of the Division, which are included in these financial statements. These financial statements have been prepared solely for inclusion by Monro in filings with the Securities Exchange Commission ("SEC") of the United States. These financial statements may not necessarily be indicative of the results that would have been attained if the Division had been operated as a separate legal entity. The fiscal year-end of the Division is the Saturday nearest to December 31. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING PRINCIPLES The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and Regulation S-X of the SEC. 9 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) INVENTORIES Inventories are carried at the lower of cost and replacement cost using the first-in, first-out method. CAPITAL ASSETS Capital assets are carried at cost. Amortization is provided for using the straight-line basis over the estimated useful lives of the related assets as follows: Buildings 10 - 25 years Equipment 3 - 12 years Leasehold improvements over the lease term, including options where applicable Certain equipment leases have been capitalized and the related assets acquired are classified on the balance sheet as capital assets. These assets are being amortized over their useful lives estimated to be between five and ten years. WARRANTY COSTS A provision for the costs associated with providing services under warranty is recorded in the financial statements. USE OF ESTIMATES Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions about reported assets and liabilities, disclosure of contingent assets and liabilities and reported amounts of revenues and expenses. Management must also make estimates and judgements about future results of operations related to specific elements of the business and operating units in assessing recoverability of assets and recorded values of liabilities. Actual results could differ from those estimates. PENSION COSTS AND OBLIGATIONS The cost of the defined contribution plan for salaried employees is determined based on the contributions required under the plan. Contributions expensed relating to the Division were $391 for the year ended December 30, 1995, $317 for the year ended December 28, 1996 and $281 for the year ended January 3, 1998. ENVIRONMENTAL REMEDIATION COSTS A provision for the costs associated with environmental remediation and site restoration costs is recorded as a charge against income when management determines that a liability exists. 10 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) 3 CAPITAL ASSETS Capital assets at cost consist of:
DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ------------------------------------- Land $20,188 $20,860 $16,035 Buildings 25,074 26,036 23,341 Equipment 17,526 18,767 18,902 Leasehold improvements 7,686 8,610 8,703 Construction in progress 1,318 1,329 1,905 ------------------------------------- 71,792 75,602 68,886 Less: Accumulated amortization Buildings 9,722 10,615 10,936 Equipment 7,606 8,886 11,079 Leasehold improvements 2,492 2,987 5,218 ------------------------------------- 19,820 22,488 27,233 ------------------------------------- Net book value $51,972 $53,114 $41,653 =====================================
Included in equipment is $5,470 (net of accumulated amortization of $1,566) at December 30, 1995, $4,778 (net of accumulated amortization of $2,224) at December 28, 1996 and $3,952 (net of accumulated amortization of $3,526) at January 3, 1998 relating to capital leases. Assets held for sale of $4,491 are owned properties of closed shops which were determined by management to be under-performing. The plan of disposal is expected to be completed by the end of 1998. Management expects to realize proceeds of at least net book value based on current sales of similar properties, appraised values, and pending offers to purchase. Operating loss before interest expense and financing costs and income taxes for the year ended January 3, 1998 includes a loss of $330 from the operations related to assets held for sale. 11 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) 4 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities include:
DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ------------------------------------ Trade payables $ 3,500 $ 2,452 $ 2,558 Compensation related 3,074 3,371 3,342 Restructuring - - 3,725 Warranty 1,431 1,431 1,431 Advertising 80 37 702 Other 715 647 626 ------------------------------------ $ 8,800 $ 7,938 $12,384 ====================================
5 OBLIGATIONS UNDER CAPITAL LEASES DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ------------------------------------ Obligations under capital leases $ 4,055 $2,753 $1,441 Less: Current portion 1,691 1,312 1,056 ------------------------------------ $ 2,364 $1,441 $ 385 ====================================
These obligations had original terms of three to five years with weighted average implicit interest of 10.6% as at December 30, 1995, 10.4% at December 28, 1996 and 9.7% at January 3, 1998. Minimum repayments on the obligations at January 3, 1998 are as follows: 1998 $ 1,134 1999 402 ------------ 1,536 Less: Imputed interest 95 ------------ $ 1,441 ============
12 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) 6 DIVISIONAL EQUITY Divisional equity is equal to total assets less total liabilities of the business and is the equivalent of a head office account in the normal concept of divisional/branch accounting.
DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ---------------------------------------- Beginning of year $ 53,996 $ 55,590 $ 60,010 Loss for the year (4,282) (2,949) (19,290) Additions to divisional equity, net 5,876 7,369 4,040 ---------------------------------------- End of year $ 55,590 $ 60,010 $ 44,760 ========================================
Included in Divisional equity is a net amount owing to affiliated companies as follows:
DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ---------------------------------------- Due from Speedy (U.S.A.) Inc. $ (6,571) $ (8,050) $(11,800) Due to Speedy (U.S.A.) Inc. 3,206 35,634 37,313 Due to Speedy Car-X Inc. 15,164 19,636 25,581 Due to Discoverer Services, Inc. 8,844 11,350 14,411 Due to Speedy Muffler King Inc. (1,414) 617 (877) Due to Speedy, Inc. 4,064 4,856 4,856 ---------------------------------------- $ 23,293 $ 64,043 $ 69,484 ========================================
Speedy Car-X Inc. is a wholly-owned subsidiary of Speedy (U.S.A.) Inc. Discoverer Services, Inc. is a wholly-owned subsidiary of Bloor. Speedy, Inc. is a wholly-owned subsidiary of Speedy. At December 30, 1995, Bloor had reducing, revolving term loans outstanding with interest rates dependent on LIBOR owing to their lenders of $32,356. The proceeds from the offering of Senior Notes (Note 10) were received, in part, by Speedy (U.S.A.) Inc. and were used to repay all of the outstanding indebtedness of its subsidiaries, including Bloor. This is reflected above in Due to Speedy (U.S.A.) Inc. Ongoing operations of the Division are dependent on the ongoing support of Speedy and its affiliates. 13 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) 7 RESTRUCTURING COSTS In the fourth quarter of fiscal 1997 and prior to the transaction outlined in Note 11, the Board of Directors of Speedy established a restructuring program to close under-performing stores, reduce personnel and enhance administrative efficiencies. Accordingly, a provision for restructuring costs of $8,200, before income taxes, has been charged to the Division's operations in the current year. A portion of the $8,200 restructuring costs relates to the operations for which Speedy entered into a sales agreement subsequent to the year-end as described in Notes 1 and 11. The components of the provision are as follows: - a write-down of capital assets of $3,066, primarily relating to leasehold improvements and equipment in leased stores to be closed; - a provision of $4,384 for estimated lease payments and operating costs for leased properties to be closed; and - severance costs and other costs incidental to the program of $750. Balances that remain unpaid at January 3, 1998 are $4,848, of which $1,123 is long-term. 8 RECOVERY OF INCOME TAXES Recovery of income taxes consists of the following:
YEAR ENDED ------------------------------------ DECEMBER 30 DECEMBER 28 JANUARY 3 1995 1996 1998 ------------------------------------ State $ 118 $ 108 $ 267 Current (2,981) (2,731) (1,572) Deferred 874 1,144 (2,445) ------------------------------------ $(1,989) $(1,479) $(3,750) =====================================
Included in the recovery of income taxes is the tax effect of a carryback of the Division's losses against taxable income of affiliated companies on the consolidated U.S. tax return of $786 for the year ended December 30, 1995, $158 for the year ended December 28, 1996 and $1,572 for the year ended January 3, 1998. Net operating losses related to the Division of $4,800 have not been utilized at January 3, 1998 in the consolidated U.S. tax return. These losses have been carried forward for tax purposes and expire in 2007. The effective tax rate differs from the statutory tax rate (approximately 40%) due to the impact of certain expenses that are not deductible for income tax purposes. 14 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) Amounts due from Speedy (U.S.A.) Inc. related to the benefits from net operating losses of the Division of $6,571 at December 30, 1995, $8,050 at December 28, 1996 and $11,800 at January 3, 1998 are included in divisional equity (Note 6). No valuation allowance is provided as it is more likely than not that the Division will realize the amounts due from Speedy (U.S.A.) Inc. The Division could be held jointly and severally liable with affiliated companies for additional taxes that may be assessed in the consolidated tax return. 9 FINANCIAL INSTRUMENTS The carrying amounts reported in the balance sheet for cash, accounts receivable and accounts payable and accrued liabilities approximate fair values due to the short maturity of those instruments. The fair value of obligations under capital leases was $3,895 at December 30, 1995, $2,601 at December 28, 1996 and $1,360 at January 3, 1998. The fair value of obligations under capital leases has been calculated by discounting future lease payments at the Division's estimated cost of borrowing. 10 COMMITMENTS AND CONTINGENCIES SUPPLY AGREEMENT Speedy and its subsidiaries, are party to a supply agreement under which the companies must purchase not less than specified percentages of its annual worldwide exhaust and ride-control requirements (measured by the cost of the products purchased) from a supplier until 2004, at competitive prices. The purchases made pursuant to this supply agreement by the Division were approximately $14,900 for the year ended December 30, 1995, $14,000 for the year ended December 28, 1996, and $8,800 for the year ended January 3, 1998. 15 SPEEDY DIVISION OF BLOOR AUTOMOTIVE, INC. NOTES TO FINANCIAL STATEMENTS ...CONTINUED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (IN THOUSANDS OF U.S. DOLLARS) OPERATING LEASE OBLIGATIONS The minimum lease payments required are as follows: 1998 $ 3,965 1999 3,748 2000 2,867 2001 2,065 2002 1,624 Thereafter 10,012 ---------- $ 24,281 ==========
Rental expense was $3,574 for the year ended December 30, 1995, $3,738 for the year ended December 28, 1996 and $4,065 for the year ended January 3, 1998. COLLATERAL ARRANGEMENTS Speedy (U.S.A.) Inc. and its subsidiaries, are party to a revolving bank facility that will mature in 2001. These companies may borrow under this facility to a maximum of a borrowing base limited to a portion of certain accounts receivable and inventory balances. Obligations are secured by the accounts receivable and inventory of the Division. The balance outstanding under this facility was $8,000 as at December 28, 1996 and $9,400 as at January 3, 1998. During 1996, Speedy (U.S.A.) Inc., Bloor, Discoverer Services, Inc. and Speedy Car-X Inc., in conjunction with Speedy, issued $125,000, 10.875% Senior Notes maturing in 2006. These companies have unconditionally guaranteed the Senior Notes issued. 11 SUBSEQUENT EVENT On April 13, 1998, Bloor entered into an agreement to sell company operated and franchised stores operating under the Speedy brand in the United States for gross proceeds of $52,000 and the assumption of $6,000 of liabilities. The sale is subject to a number of provisions and holdbacks and to the securing of financing by Monro. 16 INTRODUCTORY PARAGRAPH MONRO MUFFLER BRAKE, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS In September 1998, Monro Muffler Brake, Inc. (Monro or the Company) completed the acquisition of 189 company-operated and 14 franchised Speedy stores (acquired stores are part of Speedy Division of Bloor Automotive, Inc. ) from SMK Speedy International Inc. of Toronto Canada (Speedy). The unaudited Pro Forma Combined Balance Sheet has been presented assuming the acquisition of Speedy by Monro occurred as of June 30, 1998. The unaudited Pro Forma Combined Statements of Income for the year ended March 31, 1998 and for the three months ended June 30, 1998 have been presented assuming the acquisition was consummated as of April 1, 1997. For purposes of preparing the Pro Forma Combined Statement of Income, results from Monro's fiscal year ended March 31, 1998 have been combined with results from Speedy's fiscal year ended January 3, 1998. For purposes of preparing the Pro Forma Combined Statement of Income for the quarter ended June 30, 1998, quarterly information was derived from Speedy's quarterly statements for the three months ended July 4, 1998. As such, information relating to Speedy's Statement of Income for the quarter ended April 4, 1998 is not included in the pro forma financial information. Sales for the acquired company-operated Speedy stores for the quarter ended April 4, 1998 were approximately $19 million. The operating loss for the same period was approximately $3 million. The acquisition was accounted for as a purchase. The unaudited pro forma financial information should be read in conjunction with the historical financial statements and notes of Speedy, included elsewhere in this document, and Monro. 17 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDING MARCH 31, 1998 (DOLLARS IN THOUSANDS)
Pro forma Speedy Division ------------------------------ Monro Muffler of Bloor Acquisition Brake, Inc. Automotive, Inc. Adjustments March 31, 1998 January 3, 1998 (Note 1) Combined -------------- --------------- -------- -------- Sales $ 154,294 $ 90,678 ($ 4,115)(a) $ 240,857 Cost of sales, including distribution and occupancy costs 87,510 61,287 100 (b) 142,130 2,726 (c) (3,729)(a) (1,804)(d) (3,960)(k) ----------- ----------- ----------- ----------- Gross Profit 66,784 29,391 2,552 98,727 Operating, selling, general and administrative expenses 46,120 38,197 (1,462)(a) 86,815 3,960 (k) Restructuring costs 0 8,200 (8,200)(e) 0 ----------- ----------- ----------- ----------- Operating income (loss) before interest expense and income taxes 20,664 (17,006) 8,254 11,912 Interest expense, net 3,829 6,034 (6,034)(f) 7,094 1,405 (g) 1,860 (h) Other expenses, net 331 0 275 (i) 606 ----------- ----------- ----------- ----------- Income (loss) before provision for (recovery of) income taxes 16,504 (23,040) 10,748 4,212 Provision for (recovery of) income taxes 6,650 (3,750) (1,215)(j) 1,685 ----------- ----------- ----------- ----------- Net income (loss) $ 9,854 ($ 19,290) $ 11,963 $ 2,527 =========== =========== =========== =========== Earnings per share: Basic $ 1.19 $ 0.31 =========== =========== Diluted $ 1.09 $ 0.28 =========== =========== Weighted average number of shares of common stock and common stock equivalents used in computing earnings per share: Basic 8,256 8,256 =========== =========== Diluted 9,015 9,015 =========== ===========
(The accompanying notes are an integral part of these financial statements) 18 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY PRO FORMA COMBINED BALANCE SHEET JUNE 30, 1998 (DOLLARS IN THOUSANDS)
Pro forma Speedy Division ----------------------------- Monro Muffler of Bloor Acquisition Brake, Inc. Automotive, Inc. Adjustments June 30, 1998 July 4, 1998 (Note 2) Combined ------------- ------------ -------- -------- ASSETS Current assets: Cash and equivalents $ 75 $ 4,259 ($ 4,219)(aa) $ 115 Trade receivables, net 897 261 (261)(aa) 897 Inventories 29,078 10,530 (499)(aa) 39,109 Deferred income tax asset 1,725 1,725 Other current assets 2,986 3,044 (1,889)(aa) 4,141 ------------ ------------ ------------ --------- Total current assets 34,761 18,094 (6,868) 45,987 (1,282)(aa) (34,745)(bb) 6,700 (cc) 12,000 (dd) ------------ Property, plant & equipment, net 118,533 43,596 (17,327) 144,802 Investments 23,385 (23,385)(aa) 0 Goodwill generated in transaction 5,500 (ee) 5,500 1,813 (ff) (1,325)(aa) ------------ Other noncurrent assets 3,949 1,516 488 5,953 ------------ ------------ ------------ --------- Total assets $ 157,243 $ 86,591 ($ 41,592) $ 202,242 ============ ============ ============ ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 3,582 $ 529 $ 1,250 (ii) 5,361 Trade payables 8,646 1,469 (211)(aa) 9,904 Federal and state income taxes payable 2,175 (12,899) 12,899 (aa) 2,175 Accrued interest 178 239 (239)(aa) 178 Accrued payroll, payroll taxes and other payroll benefits 3,850 1,628 (1,628)(aa) 3,850 Accrued insurance 2,153 2,153 Other current liabilities 3,942 9,396 (6,274)(aa) 7,064 ------------ ------------ ------------ --------- Total current liabilities 24,526 362 5,797 30,685 Long-term debt 49,440 196 11,894 (gg) 61,530 Term credit facility 25,000 (hh) 23,750 (1,250)(ii) Environmental liability 3,000 (jj) 3,000 Other long term liabilities 547 110 (110)(aa) 547 Deferred income tax liability 1,881 1,964 (1,964)(aa) 1,881 ------------ ------------ ------------ --------- Total liabilities 76,394 2,632 42,367 121,393 ------------ ------------ ------------ --------- Commitments Shareholders' equity: Class C Convertible Preferred Stock, $1.50 par value and 138 138 $.227 conversion value at March 31, 1998, 150,000 shares authorized; 91,727 shares issued and outstanding Common Stock, $.01 par value, 15,000,000 shares authorized, 83 83 7,876,901 shares issued and outstanding Additional paid-in capital 36,344 36,344 Retained earnings (accumulated deficit) 44,284 (8,263) 8,263 (kk) 44,284 Net payable to affiliated companies 92,222 (92,222)(kk) 0 ------------ ------------ ------------ --------- Total shareholders' equity 80,849 83,959 (83,959) 80,849 ------------ ------------ ------------ --------- Total liabilities and shareholders' equity $ 157,243 $ 86,581 ($ 41,592) $ 202,242 ============ ============ ============ =========
(The accompanying notes are an integral part of these financial statements) 19 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY PRO FORMA COMBINED STATEMENT OF INCOME FOR THE THREE MONTHS ENDING JUNE 30, 1998 (DOLLARS IN THOUSANDS)
Pro forma Speedy Division ---------------------------- Monro Muffler of Bloor Acquisition Brake, Inc. Automotive, Inc. Adjustments June 30, 1998 July 4, 1998 (Note 3) Combined ------------- ------------ -------- -------- Sales $ 44,113 $ 22,192 ($ 131)(aa) $ 66,174 Cost of sales, including distribution and occupancy costs 24,320 14,469 25 (bb) 39,222 682 (cc) (274)(aa) ------------ ------------ ------------ -------- Gross Profit 19,793 7,723 (564) 26,952 Operating, selling, general and administrative expenses 12,389 9,404 (1,397)(aa) 20,396 ------------ ------------ ------------ -------- Operating income (loss) before interest expense and income taxes 7,404 (1,681) 833 6,556 Interest expense, net 905 1,707 (1,707)(dd) 1,721 351 (ee) 465 (ff) Other expenses, net 109 69 (gg) 178 ------------ ------------ ------------ -------- Income (loss) before provision for (recovery of) income taxes 6,390 (3,388) 1,655 4,657 Provision for (recovery of) income taxes 2,533 (509) (161)(hh) 1,863 ------------ ------------ ------------ -------- Net income (loss) $ 3,857 ($ 2,879) $ 1,816 $ 2,794 ============ ============ ============ ======== Earnings per share: Basic $ 0.46 $ 0.34 ============ ======== Diluted $ 0.43 $ 0.31 ============ ======== Weighted average number of shares of common stock and common stock equivalents used in computing earnings per share: Basic 8,306 8,306 ============ ======== Diluted 9,039 9,039 ============ ========
(The accompanying notes are an integral part of these financial statements) 20 MONRO MUFFLER BRAKE, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS Note 1. Unaudited Pro Forma Combined Statement of Operations Adjustments for the Year Ended March 31, 1998. (a) Sales and expenses relating to stores excluded from the purchase transaction. (b) Estimated net annual depreciation increase resulting from: (1) the additional capital expenditures and step-up of fixed assets to fair market value and offset by (2) decreased basis of property acquired due to operating lease financing. (c) Estimated annual rent on the operating lease entered into in connection with the acquisition. (d) Inventory write-downs associated with: (1) excluded Speedy stores and (2) anticipated store closures had the business not been sold. (e) Restructuring costs related to stores which are excluded from the purchase transaction. (f) Reduction of interest expense because the purchase transaction does not contemplate assumption of Speedy's debt. (g) Reflects estimated annual interest charged on the incremental revolving line of credit debt, the increase in rate on refinanced debt, and amortization of financing fees over five years. (h) Annual interest charged on the Chase term credit facility. (i) Amortization of goodwill on a straight-line basis over 20 years. (j) Adjustment to income taxes to reflect Monro's statutory rate of approx. 40% on pretax income. (k) Reclass of Speedy payroll benefits to reflect Monro's method of classification. Note 2. Unaudited Pro Forma Combined Balance Sheet Adjustments as of June 30, 1998 (aa) Reflects cash, trade receivables, assets held for sale, accrued payroll and accrued restructuring costs that are not part of the purchase transaction; and other items relating to stores excluded from the purchase. (bb) Reflects assets leased under operating lease entered into as part of the acquisition. The lease has a five-year initial term plus one five-year renewal option plus thirty one-year renewal options. The Company expects that the fair market value of the properties upon termination of the lease, including renewal options, will be equal to or exceed the guaranteed residual value of the property. 21 (cc) Reflects estimated one-time capital expenditures relating to new stores acquired, derived as follows:
Date processing equipment $ 810 Headquarter/warehouse additions 560 Store vehicles 2,810 Tractor trailers 610 New store equipment & refurbishment 1,910 ------- $6,700
(dd) Reflects step-up of purchased fixed assets to fair market value based on appraisals. Balance reflects the step-up of owned land and buildings as well as all buildings and leasehold improvements on properties that are land leased only. Leasehold improvements on leased buildings have not been appraised to date and remain recorded at net book value. Machinery and equipment remains recorded at net book value. In both cases, it is assumed that net book value is a reasonable approximation of fair market value. (ee) Reflects goodwill relating to the acquisition derived as follows:
Speedy net assets at July 4, 1998 $83,959 Adjusted by the following: Assets not included in purchase transaction (45,759) Liabilities not included in the purchase transaction 10,426 Stores purchased by third party and leased to Monro (34,745) Step-up of fixed assets 12,000 Estimated environmental liability at date of acquisition (3,000) ------- Adjusted net assets of Speedy (net assets acquired) $22,881 ======= Payment for purchase of acquired company-operated Speedy stores $16,239 Adjusted net assets of Speedy (net assets acquired) 22,881 ------- Net assets acquired over purchase price ($6,642) Capitalized acquisition costs 12,142 ------- Goodwill $ 5,500 =======
(ff) Reflects financing fees necessary to complete the purchase acquisition. Fees will be amortized over five years. (gg) Reflects incremental revolving line of credit used to finance purchase acquisition expenses. (hh) Reflects Chase term credit facility used to finance the acquisition, maturing five years from the closing date. (ii) Current portion of Chase term credit facility. (jj) Estimated environmental liability existing at the date of acquisition. (kk) To eliminate Speedy's historical equity accounts. 22 Note 3. Unaudited Pro Forma Combined Statement of Operations Adjustments for the Quarter Ended June 30, 1998 (aa) Sales and expenses relating to stores excluded from the purchase transaction. (bb) Estimated net quarterly depreciation increase resulting from: (1) the additional capital expenditures and step-up of fixed assets to fair market value and offset by (2) decreased basis of property acquired due to operating lease financing. (cc) Estimated quarterly rent on the operating lease obtained in connection with the acquisition. (dd) Reduction of interest expense because purchase transaction does not contemplate assumption of Speedy's debt. (ee) Reflects estimated quarterly interest charged on the incremental revolver debt, the increase in rate on refinanced debt, and amortization of financing fees over five years. (ff) Quarterly interest charged on the Chase term credit facility. (gg) Amortization of goodwill on a straight-line basis over 20 years. (hh) Adjustment to income taxes to reflect Monro's statutory rate of approx. 40% on pretax income. 23 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MONRO MUFFLER BRAKE, INC. ------------------------- (Registrant) December 1, 1998 /s/ Catherine D'Amico -------------------------------------------- Catherine D'Amico Sr. Vice President-Finance & CFO -----END PRIVACY-ENHANCED MESSAGE-----