10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2010.

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File No. 0-19357

MONRO MUFFLER BRAKE, INC.

(Exact name of registrant as specified in its charter)

New York	16-0838627
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification #)
200 Holleder Parkway, Rochester, New York	14615
(Address of principal executive offices)	(Zip code)

585-647-6400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of July 24, 2010, 20,064,933 shares of the Registrant’s Common Stock, par value $ .01 per share, were outstanding.

MONRO MUFFLER BRAKE, INC.

INDEX

	Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet at June 26, 2010 and March 27, 2010	3
Consolidated Statement of Income for the quarters ended June 26, 2010 and June 27, 2009	4
Consolidated Statement of Changes in Shareholders’ Equity for the quarter ended June 26, 2010	5
Consolidated Statement of Cash Flows for the quarters ended June 26, 2010 and June 27, 2009	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures About Market Risk	16
Item 4. Controls and Procedures	16
Part II. Other Information
Item 1. Legal Proceedings	17
Item 1A. Risk Factors	17
Item 6. Exhibits	17
Signatures	18
Exhibit Index	19

2

MONRO MUFFLER BRAKE, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED BALANCE SHEET

	(Unaudited) June 26, 2010			March 27, 2010
	(Dollars in thousands)
Assets
Current assets:
Cash and equivalents	$	2,931		$	11,180
Trade receivables		1,969			1,922
Inventories		88,535			85,817
Deferred income tax asset		8,171			7,800
Other current assets		19,762			17,373
Total current assets		121,368			124,092
Property, plant and equipment		387,977			386,238
Less – Accumulated depreciation and amortization		(187,131	)		(183,492	)
Net property, plant and equipment		200,846			202,746
Goodwill		97,014			90,372
Intangible assets		13,889			13,888
Other non-current assets		12,487			13,045
Total assets	$	445,604		$	444,143
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	2,972		$	2,933
Trade payables		40,506			43,229
Federal and state income taxes payable		7,873			4,169
Accrued payroll, payroll taxes and other payroll benefits		14,634			16,730
Accrued insurance		15,473			15,595
Warranty reserves		5,747			5,510
Other current liabilities		9,096			11,211
Total current liabilities		96,301			99,377
Long-term debt		86,005			96,427
Accrued rent expense		6,588			6,473
Other long-term liabilities		4,623			4,551
Deferred income tax liability		666			560
Long-term income taxes payable		4,251			4,085
Total liabilities		198,434			211,473
Commitments
Shareholders’ equity:
Class C Convertible Preferred Stock, $1.50 par value, $.096 conversion value, 150,000 shares authorized; 32,500 shares issued and outstanding		49			49
Common Stock, $.01 par value, 45,000,000 shares authorized; 23,724,419 and 23,646,460 shares issued at June 26, 2010 and March 27, 2010, respectively		237			236
Treasury Stock, 3,682,429 shares at June 26, 2010 and March 27, 2010, respectively, at cost		(70,590	)		(70,590	)
Additional paid-in capital		91,371			88,377
Accumulated other comprehensive loss		(2,094	)		(2,237	)
Retained earnings		228,197			216,835
Total shareholders’ equity		247,170			232,670
Total liabilities and shareholders’ equity	$	445,604		$	444,143

The accompanying notes are an integral part of these financial statements.

3

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

	Quarter Ended Fiscal June
	2010			2009
	(Dollars in thousands, except per share data)
Sales	$	158,240		$	128,045
Cost of sales, including distribution and occupancy costs		92,241			71,636
Gross profit		65,999			56,409
Operating, selling, general and administrative expenses		43,060			39,158
Intangible amortization		296			133
Loss on disposal of assets		19			139
Total operating expenses		43,375			39,430
Operating income		22,624			16,979
Interest expense, net of interest income for the quarter of $11 in 2010 and $13 in 2009		1,471			1,897
Other income, net		(67	)		(43	)
Income before provision for income taxes		21,220			15,125
Provision for income taxes		8,009			5,714
Net income	$	13,211		$	9,411
Earnings per share:
Basic	$	.66		$	.48
Diluted	$	.63		$	.46

The accompanying notes are an integral part of these financial statements.

4

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(Dollars in thousands)

	Preferred Stock		Common Stock		Treasury Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss (3)			Retained Earnings			Total
Balance at March 27, 2010	$	49	$	236	$	(70,590	)	$	88,377	$	(2,237	)	$	216,835		$	232,670
Net income														13,211			13,211
Other comprehensive income:
Unrealized gain on derivatives contracts ($232 pre-tax)											143						143
																	13,354
Cash dividends: Preferred ($.09 per CSE) (1) (2)														(46	)		(46	)
Common ($.09 per share) (2)														(1,803	)		(1,803	)
Tax benefit from exercise of stock options									1,374								1,374
Exercise of stock options				1					988								989
Stock option compensation									632								632
Balance at June 26, 2010	$	49	$	237	$	(70,590	)	$	91,371	$	(2,094	)	$	228,197		$	247,170

(1) CSE – Common stock equivalent

(2) Represents first quarter fiscal 2011 dividend payment of $.09 paid June 18, 2010.

(3) The balance related to the derivative contracts was $(47) and $(190) at June 26, 2010 and March 27, 2010, respectively. The balance related to the pension liability was $(2,047) at both June 26, 2010 and March 27, 2010.

The accompanying notes are an integral part of these financial statements.

5

MONRO MUFFLER BRAKE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Quarter Ended Fiscal June
	2010			2009
	(Dollars in thousands) Increase (Decrease) in Cash
Cash flows from operating activities:
Net income	$	13,211		$	9,411
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		5,550			5,253
Loss on disposal of property, plant and equipment		19			139
Stock-based compensation expense		632			470
Excess tax benefits from share-based payment arrangements		(1,339	)		(177	)
Net change in deferred income taxes		(355	)		(496	)
Increase in trade receivables		(47	)		(47	)
Increase in inventories		(2,520	)		(1,555	)
Increase in other current assets		(2,390	)		(1,427	)
Decrease in noncurrent assets		558			916
Decrease in intangible assets		96
Decrease in trade payables		(2,764	)		(4,469	)
(Decrease) increase in accrued expenses		(4,210	)		1,961
Increase in federal and state income taxes payable		5,244			5,940
Increase in other long-term liabilities		206			31
Increase in long-term income taxes payable					28
Total adjustments		(1,320	)		6,567
Net cash provided by operating activities		11,891			15,978
Cash flows from investing activities:
Capital expenditures		(3,126	)		(3,963	)
Acquisitions, net of cash acquired		(7,106	)
Acquisition of Autotire, net of cash acquired					(7,358	)
Proceeds from the disposal of property, plant and equipment		38			287
Net cash used for investing activities		(10,194	)		(11,034	)
Cash flows from financing activities:
Proceeds from borrowings		49,518			40,283
Principal payments on long-term debt and capital lease obligations		(59,943	)		(43,500	)
Exercise of stock options		989			716
Excess tax benefits from share-based payment arrangements		1,339			177
Dividends to shareholders		(1,849	)		(2,594	)
Net cash used for financing activities		(9,946	)		(4,918	)
(Decrease) increase in cash		(8,249	)		26
Cash at beginning of period		11,180			3,336
Cash at end of period	$	2,931		$	3,362

The accompanying notes are an integral part of these financial statements.

6

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Condensed Consolidated Financial Statements

The consolidated balance sheet as of June 26, 2010 and March 27, 2010, the consolidated statements of income and cash flows for the quarter ended June 26, 2010 and June 27, 2009, and the consolidated statement of changes in shareholders’ equity for the quarter ended June 26, 2010, include Monro Muffler Brake, Inc. and its wholly owned subsidiary (the “Company”). These unaudited condensed consolidated financial statements have been prepared by the Company. In the opinion of management, all known adjustments (consisting of normal recurring accruals or adjustments) have been made to present the financial position, results of operations and cash flows for the unaudited periods presented.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2010. The results of operations for the interim periods being reported on herein are not necessarily indicative of the operating results for the full year.

The Company reports its results on a 52/53 week fiscal year with the fiscal year ending on the last Saturday in March of each year. The following are the dates represented by each fiscal period reported in these condensed financial statements:

“Quarter Ended Fiscal June 2010”:	March 28, 2010 – June 26, 2010 (13 weeks)
“Quarter Ended Fiscal June 2009”:	March 29, 2009 – June 27, 2009 (13 weeks)

During the fourth quarter of fiscal 2010, the Company substantially completed the purchase price allocation for the fiscal year 2010 acquisitions. Some of the amounts previously estimated changed during the measurement period. The significant changes in estimates consisted of an increase in property, plant and equipment of $2.0 million; an increase in intangible assets of $1.1 million; and an increase in long-term debt of $3.9 million. The measurement period adjustments represent updates made to the purchase price allocation based on revisions to valuation estimates in quarters subsequent to the quarter of acquisition and initial accounting. There were no significant adjustments to the Company’s Consolidated Statement of Income.

Note 2 – Acquisitions

The Company’s acquisitions are strategic moves in its plan to fill in and expand its presence in its existing and contiguous markets, and leverage fixed operating costs such as distribution and advertising.

In the first quarter of fiscal 2011, the Company added seven retail tire and automotive repair stores located in Pennsylvania and Maine through two acquisition transactions. Collectively, these stores produced approximately $11.3 million in sales annually based on unaudited pre-acquisition historical information. The total purchase price of these stores was approximately $7.1 million in cash and the assumption of certain liabilities. The acquisitions were financed through the Company’s existing bank facility. The results of operations of these acquired stores are included in the Company’s results from their respective acquisition dates.

The Company has completed its initial accounting for these acquisitions in accordance with accounting guidance on business combinations. The acquisitions resulted in goodwill related to, among other things, growth opportunities and unidentified intangible assets. All of the goodwill is expected to be deductible for tax purposes.

The Company has recorded finite-lived intangible assets at their determined fair value related to customer relationships. However, the Company has not completed its final purchase price accounting of these acquisitions due to the timing of the acquisitions. As the Company completes its final accounting for these acquisitions, there may be changes, some of which may be material, to this initial accounting.

7

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with accounting guidance on business combinations, the Company expensed all costs related to these acquisitions in the first quarter of fiscal 2011. The total costs related to these acquisitions were not material to the Consolidated Statement of Income. These costs are included in the Consolidated Statement of Income under operating, selling, general and administrative expenses.

The purchase price of the acquisitions have been preliminarily allocated to the net tangible and intangible assets acquired, with the remainder recorded as goodwill on the basis of estimated fair values, as follows:

	As of June 26, 2010
	(Dollars in thousands)
Other current assets	$	199
Intangible assets		393
Other noncurrent assets		209
Current liabilities		(344	)
Total net identifiable assets acquired	$	457
Total consideration transferred	$	7,107
Less: total net identifiable assets acquired		457
Goodwill	$	6,650

Intangible assets consist of customer lists which are being amortized over their estimated useful life of ten years.

Note 3 – Earnings Per Share

Basic earnings per common share (EPS) amounts are computed by dividing earnings after the deduction of preferred stock dividends by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding.

The following is a reconciliation of basic and diluted EPS for the respective periods:

	Quarter Ended Fiscal June
	2010		2009
	(Dollars in thousands, except per share data)
Numerator for earnings per common share calculation:
Net Income	$	13,211	$	9,411
Less: Preferred stock dividends		46		66
Income available to common stockholders	$	13,165	$	9,345
Denominator for earnings per common share calculation:
Weighted average common shares, basic		19,995		19,440
Effect of dilutive securities:
Preferred Stock		507		507
Stock options		534		489
Weighted average number of common shares, diluted		21,036		20,436
Basic Earnings per common share:	$	.66	$	.48
Diluted Earnings per common share:	$	.63	$	.46

8

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The computation of diluted EPS excludes the effect of the assumed exercise of approximately 43,000 and 137,000 stock options for the three months ended fiscal June 2010 and June 2009, respectively. Such amounts were excluded as the exercise prices of these options were greater than the average market value of the Company’s common stock for those periods, resulting in an anti-dilutive effect on diluted EPS.

Note 4 – Income Taxes

In the normal course of business, the Company provides for uncertain tax positions and the related interest and penalties, and adjusts its unrecognized tax benefits and accrued interest and penalties accordingly. The total amount of unrecognized tax benefits were $5.7 million and $5.6 million, respectively at June 26, 2010 and March 27, 2010, the majority of which, if recognized, would affect the effective tax rate. As of June 26, 2010, the Company had approximately $.6 million of interest and penalties accrued related to unrecognized tax benefits.

The Company is currently under audit by the Internal Revenue Service for the fiscal 2008 tax year, and also currently under audit by certain state tax jurisdictions for the fiscal 2001 to 2007 tax years. It is reasonably possible that the examination phase of the audit for these years may conclude in the next 12 months, and that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns may change from those recorded as liabilities for uncertain tax positions in the Company’s financial statements as June 26, 2010. However, based on the status of the examinations, it is not possible to estimate the effect of any amount of such change to previously recorded uncertain tax positions.

The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions. The Company’s fiscal 2007 through fiscal 2009 U.S. federal tax years and various state tax years remain subject to income tax examinations by tax authorities.

Note 5 – Derivative Financial Instruments

The Company reports derivatives and hedging activities in accordance with accounting guidance on disclosures about derivative instruments and hedging activities. This statement requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if it is, depending on the type of hedge transaction.

The notional amount of derivative financial instruments, which consisted solely of three interest rate swaps used to minimize the risk and/or costs associated with changes in interest rates, was $30.0 million at June 26, 2010. These swaps matured in July 2010. Fixed rates under these agreements range from 3.27% to 3.29%.

The Company manages exposure to changes in market interest rates. The Company’s use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in LIBOR swap rates, the designated benchmark interest rate being hedged on certain of the Company’s LIBOR-induced variable-rate debt. The interest rate swaps effectively fixed the Company’s interest payments on certain LIBOR-indexed variable-rate debt.

The Company reflects the current fair value of all interest rate hedge instruments in its consolidated balance sheets as a component of other current liabilities. All of the Company’s interest rate hedge instruments were designated as cash flow hedges.

The gains and losses related to the fair value of interest rate hedges are deferred in stockholders’ equity as a component of other comprehensive income or loss. These deferred gains and losses are recognized in income as a decrease or increase to interest expense in the period in which the related cash flows being hedged are recognized in expense. However, to the extent that the change in value of an interest rate hedge instrument does not perfectly offset the change in the value of the cash flows being hedged, that ineffective portion is immediately recognized in the income statement. The Company’s hedge instruments have been determined to be highly effective as of June 26, 2010.

9

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company primarily executes derivative transactions of relatively short duration with strong creditworthy counterparties. These counterparties expose the Company to credit risk in the event of non-performance. The amount of such exposure is limited to the unpaid portion of amounts due to the Company pursuant to the terms of the derivative financial instruments, if any. Although there are no collateral requirements, if a downgrade in the credit rating of these counterparties occurs, management believes that this exposure is mitigated by provisions in the derivative agreements which allow for the legal right of offset of any amounts due to the Company from the counterparties with amounts payable, if any, to the counterparties by the Company. Management considers the risk of counterparty default to be minimal.

The following table presents the Company’s derivative financial instruments measured at fair value at June 26, 2010:

Interest Rate Swaps	Notional Amount of Underlying Debt		Fixed Rate Received		Year of Transaction	Maturity	Fair Value
	(Dollars in thousands)
Swaps associated with:
1 month U.S. LIBOR	$	10,000	3.29	%	2008	2010	$	(25	)
1 month U.S. LIBOR		10,000	3.27	%	2008	2010		(25	)
1 month U.S. LIBOR		10,000	3.27	%	2008	2010		(25	)
	$	30,000					$	(75	)

The location and amounts of derivative fair values in the balance sheet as of June 26, 2010 were as follows:

	Balance Sheet Location	Fair Value
		(Dollars in thousands)
Interest rate contracts designated as hedging instruments under accounting guidance on derivative instruments and hedging activities	Other current liabilities	$	75

The effect of derivative instruments in cash flow hedge relationships on the financial statements for the three months ended June 26, 2010 and June 27, 2009 were as follows:

Derivatives in Flow Hedging Relationships	Amount of Gain or  (Loss) Recognized in Other Comprehensive Income  on Derivatives (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)	Amount of Gain or  (Loss) Reclassified From Other Comprehensive Income into Income (Effective Portion)
	2011		2010				2011			2010
	(Dollars in thousands)						(Dollars in thousands)
Interest rate contracts	$	144	$	(97	)	Interest income (expense)	$	(230	)	$	(215	)

While it is not the Company’s intention to terminate its derivative financial instruments, fair values were estimated based on quotes from financial institutions, which represented the amounts that the Company would receive or pay if the instruments were terminated at the respective balance sheet date. These fair values indicated that the termination of interest rate swaps would result in a $75,000 loss as of June 26, 2010.

Note 6 – Fair Value of Financial Instruments

The guidance on fair value measurements, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

10

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1.	Observable inputs such as quoted prices in active markets;
Level 2.	Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3.	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

a.) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

b.) Cost approach. Amount that would be required to replace the service capacity of an asset (replacement cost).

c.) Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).

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 represents the financial assets and liabilities on the consolidated balance sheet as of June 26, 2010 that were measured at fair value on a recurring basis and the valuation approach applied to each of these items.

	Significant Other  Observable Inputs (Level 2) Amount
	(Dollars in thousands)
Liabilities
Derivatives	$	75

Note 7 – Supplemental Disclosure of Cash Flow Information

The following transactions represent non-cash investing and financing activities during the periods indicated:

THREE MONTHS ENDED JUNE 26, 2010:

In connection with the fiscal 2011 acquisitions (Note 2), liabilities were assumed as follows:

Fair value of assets acquired	$	800,000
Goodwill acquired		6,650,000
Cash paid, net of cash acquired		(7,106,000	)
Liabilities assumed	$	344,000

In connection with the accounting for income tax benefits related to the exercise of stock options, the Company decreased current liabilities and increased paid-in capital by $1,374,000.

11

MONRO MUFFLER BRAKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED JUNE 27, 2009:

In connection with the Autotire Acquisition (Note 2), liabilities were assumed as follows:

Fair value of assets acquired	$	9,703,000
Goodwill acquired		5,033,000
Cash paid, net of cash acquired		(7,358,000	)
Liabilities assumed	$	7,378,000

In connection with the recording of capital leases, the Company increased both fixed assets and long-term debt by $2,094,000.

In connection with the accounting for income tax benefits related to the exercise of stock options, the Company decreased current liabilities and increased paid-in capital by $563,000.

Note 8 – Cash Dividend

In April 2010, the Company’s Board of Directors declared its intention to pay a regular quarterly cash dividend during fiscal 2011 of $.09 per common share or common share equivalent to be paid beginning with the first quarter of fiscal 2011. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, compliance with charter and contractual restrictions, and such other factors as the Board of Directors deems relevant.

12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The statements contained in this Form 10-Q that are not historical facts, including (without limitation) statements made in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed. These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which the Company’s stores are located, the need for and costs associated with store renovations and other capital expenditures, the effect of economic conditions, the impact of competitive services and pricing, product development, parts supply restraints or difficulties, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, risks relating to integration of acquired businesses, the availability of vendor rebates and other factors set forth or incorporated elsewhere herein and in the Company’s other Securities and Exchange Commission filings. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

The following table sets forth income statement data of Monro Muffler Brake, Inc. (“Monro” or the “Company”) expressed as a percentage of sales for the fiscal periods indicated:

	Quarter Ended Fiscal June
	2010		2009
Sales	100.0	%	100.0	%
Cost of sales, including distribution and occupancy costs	58.3		55.9
Gross profit	41.7		44.1
Operating, selling, general and administrative expenses	27.2		30.6
Intangible amortization	.2		.1
Loss on disposal of assets	0		.1
Total operating expenses	27.4		30.8
Operating income	14.3		13.3
Interest expense – net	.9		1.5
Other income – net	0		0
Income before provision for income taxes	13.4		11.8
Provision for income taxes	5.1		4.5
Net income	8.3	%	7.3	%

First Quarter Ended June 26, 2010 Compared To First Quarter Ended June 27, 2009

Sales were $158.2 million for the quarter ended June 26, 2010 as compared with $128.0 million in the quarter ended June 27, 2009. The sales increase of $30.2 million or 23.6%, was partially due to a comparable store sales increase of 5.1%. Additionally, there was an increase of $24.6 million related to new stores, of which $21.7 million came from the FY 2010 Acquisitions. Partially offsetting this was a decrease in sales from closed stores amounting to $1.2 million. There were 90 selling days in the quarter ended June 26, 2010 and in the quarter ended June 27, 2009.

The Company has slightly modified its methodology for calculating the number of selling days in each month and quarter.

13

Previously, in computing its comparable store sales percentage increases (adjusted for days), the Company did not include Sundays or open holidays in the number of selling days, but included all sales in each comparable period. This was because only a small number of stores were open Sundays, and some were not open holidays. Also, these days were generally much shorter selling days. Now that over 50% of the Company’s stores are open Sundays, almost all stores are open holidays, and the selling days are longer, the Company concluded that counting Sundays and open holidays as selling days is now appropriate. Accordingly, selling days now include each day other than Easter, Thanksgiving and Christmas. This change was made beginning in fiscal year 2011 (April 2010) and retroactively applied to prior months and quarters. There is no impact on reported actual comparable store sales increases for any prior periods. Nor will the change impact calculated comparable store sales increases in future periods. However, this change may result in a change in the calculated comparable store sales percent increase in certain prior periods when adjusted for days.

For the fiscal year 2010 fiscal quarters and full year, the results were as follows:

	Reported Comparable  Store Sales Increase		Originally Reported Comparable Store Sales Increase, Adjusted For Days		Restated Comparable Store Sales Increase, Adjusted For Days
Q1 FY10	6.2	%	6.2	%	7.4	%(1)
Q2 FY10	7.4	%	7.4	%	7.4	%
Q3 FY10	7.2	%	7.2	%	7.2	%
Q4 FY10	8.0	%	8.0	%	6.8	%(2)
Full year FY10	7.2	%	7.2	%	7.2	%

(1) This adjustment for days relates to the fact that the Easter holiday fell in April 2009, reducing the number of selling days as compared to the prior year quarter.

(2) This adjustment for days relates to the fact that the Company was open for business for the first time on New Year’s Day on January 1, 2010, increasing the number of selling days as compared to the prior year quarter.

At June 26, 2010, the Company had 785 company-operated stores and three franchised locations compared with 740 stores at June 27, 2009. During the quarter ended June 26, 2010, the Company added eight stores.

Management believes that the improvement in comparable store sales resulted from several factors, including an increase in sales across all product categories. It is management’s belief that strong in-store sales execution, highly effective advertising campaigns and price increases in several product categories also contributed to the sales improvement. Comparable store traffic as well as average ticket increased over the prior year first quarter. Soft economic conditions and the related decrease in consumer spending and tightening of credit, resulting in declining automobile sales (as compared to historical levels), helped to contribute to the improved sales. Management believes that consumers are keeping their cars longer and repairing them instead of trading them in for new cars. Additionally, while consumers can and often defer repairs when the economy is weak, most repairs can only be deferred for a period of time. When customers do come in to have their vehicles repaired, it is management’s belief that they spend more on average because the problem with their vehicle has worsened due to additional wear.

Management also believes that the recent closings of dealerships by Chrysler and General Motors are driving more business to the Company’s stores as consumers look for alternative, proven, economical and more geographically convenient locations to service their automobiles.

Gross profit for the quarter ended June 26, 2010 was $66.0 million or 41.7% of sales as compared with $56.4 million or 44.1% of sales for the quarter ended June 27, 2009. The decrease in gross profit for the quarter ended June 26, 2010, as a percentage of sales, is due to several factors.

Total material costs, including outside purchases, increased as a percentage of sales as compared to the prior year. The fiscal year 2010 and fiscal year 2011 acquisitions, all but one of which were tire stores, have resulted in a more pronounced shift in mix to the lower margin tire category, causing a fair amount of margin pressure. Approximately two thirds of the gross margin deterioration was attributable to these acquired tire stores. Tire and oil cost increases also contributed to the decline in margin. Partially offsetting these factors were selling price increases across the chain.

There was also a decrease in labor costs as a percent of sales due primarily to a continued shift in mix to tire sales and improved labor productivity, helping to improve gross profit. Additionally, distribution and occupancy costs decreased as a percentage of sales from the prior year as the Company, with improved sales, was able to better leverage these largely fixed costs.

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The Company expects the decline in gross margin versus the prior year quarters to be most pronounced in its first and second quarters of fiscal year 2011, since it did not own the Tire Warehouse stores, whose mix is almost 100% tires, until its third fiscal quarter last year. Management expects gross margin for the third and fourth quarters to begin to flatten out as compared to the same quarters of fiscal 2010, and operating profit to be approximately 100 basis points better.

Operating expenses for the quarter ended June 26, 2010 were $43.4 million or 27.4% of sales as compared with $39.4 million or 30.8% of sales for the quarter ended June 27, 2009. Within operating expenses, selling, general and administrative (“SG&A”) expenses for the quarter ended June 26, 2010 increased by $3.9 million to $43.1 million from the quarter ended June 27, 2009, and decreased as a percentage of sales from 30.6% to 27.2%. The increase in dollars is directly attributed to the acquired stores’ operating expenses. The decrease in percentage of sales is due to improved sales which have allowed the Company to leverage largely fixed costs, as well as a continued focus on cost control.

Operating income for the quarter ended June 26, 2010 of approximately $22.6 million increased by 33.2% as compared to operating income of approximately $17.0 million for the quarter ended June 27, 2009, and increased as a percentage of sales from 13.3% to 14.3%.

Net interest expense for the quarter ended June 26, 2010 decreased by approximately $.4 million as compared to the same period in the prior year, and decreased from 1.5% to .9% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 26, 2010 decreased by approximately $10.6 million as compared to the quarter ended June 27, 2009, primarily related to repayments made on the Company’s Revolving Credit Facility agreement. In addition, the weighted average interest rate decreased by approximately 100 basis points from the prior year.

The effective tax rate for the quarter ended June 26, 2010 and June 27, 2009 was 37.7% and 37.8%, respectively, of pre-tax income.

Net income for the quarter ended June 26, 2010 of $13.2 million increased 40.4% from net income for the quarter ended June 27, 2009. Earnings per share on a diluted basis for the quarter ended June 26, 2010 increased 37.0%.

Capital Resources and Liquidity

Capital Resources

The Company’s primary capital requirements in fiscal year 2011 are the upgrading of facilities and systems and the funding of its store expansion program, including potential acquisitions of existing store chains. For the three months ended June 26, 2010, the Company’s primary capital requirements were divided between the funding of capital expenditures related to existing and greenfield stores totaling $3.1 million, and the funding of acquisitions totaling $7.1 million. Funds were provided primarily by cash flow from operations and bank financing.

The Company paid dividends of $1.8 million during the three months ended June 26, 2010. In April 2010, the Company’s Board of Directors declared its intention to pay a regular quarterly cash dividend of $.09 per common share or common share equivalent beginning with the first quarter of fiscal year 2011.

Management believes that the Company has sufficient resources available (including cash and equivalents, net cash flow from operations and bank financing) to expand its business as currently planned for the next several years.

Liquidity

In July 2005, the Company entered into a five-year, $125 million Revolving Credit Facility agreement with five banks. A sixth bank was added in June 2008. Interest only is payable monthly throughout the Credit Facility’s term. The facility included a provision allowing the Company to expand the amount of the overall facility to $160 million. Amendments in January 2007 and June 2008 were made to these amounts which increased the overall facility to $200 million and extended the expiration to January 2012. Currently, the committed sum is $163.3 million and the accordian feature is $36.7 million. Approximately $59.2 million was outstanding at June 26, 2010, including $16.8 million of outstanding letters of credit.

The Company has financed certain store properties and equipment with capital leases, which amount to $46.0 million and are due in installments through 2039.

15

The terms of the Credit Facility permit the payment of cash dividends not to exceed 25% of the preceding year’s net income, and allow stock buybacks subject to the Company being able to meet its existing financial covenants. The Agreement requires the maintenance of specified interest and rent coverage ratios and amounts of net worth. It also contains restrictions on cash dividend payments. At June 26, 2010, the Company is in compliance with the applicable debt covenants, and does not see a risk of being out of compliance for the foreseeable future. These agreements permit mortgages and specific lease financing arrangements with other parties with certain limitations.

The Company enters into interest rate hedge agreements, which involve the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as an offsetting adjustment to interest expense. The Company entered into three $10 million interest rate swap agreements in July 2008 which expired in July 2010.

The purpose of these agreements was to limit the interest rate exposure in the Company’s floating rate debt. Fixed rates under these agreements ranged from 3.27% to 3.29%.

Recent Accounting Pronouncements

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2010 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from potential changes in interest rates. At June 26, 2010 and March 27, 2010, approximately 71% and 58%, respectively, of the Company’s long-term debt, excluding capital leases, was at fixed interest rates and therefore, the fair value is affected by changes in market interest rates. The Company’s cash flow exposure on floating rate debt, which is not supported by interest rate swap agreements, would result in interest expense fluctuating approximately $.1 million based upon the Company’s debt position at the quarter ended June 26, 2010 and $.2 million for fiscal year ended March 27, 2010, given a 1% change in LIBOR.

The Company regularly evaluates these risks and had entered into three interest rate swap agreements, which expired in July 2010, with an aggregate notional amount of $30.0 million. These agreements limited the interest rate exposure on the Company’s floating rate debt, related specifically to the Revolving Credit Facility, via the exchange of fixed and floating rate interest payments periodically over the life of the agreements without the exchange of the underlying principal amount. The fixed rates paid by the Company under these agreements range from 3.27% to 3.29%.

The Company believes the amount of risk and the use of derivative financial instruments described above are not material to the Company’s financial condition or results of operations.

Item 4. Controls and Procedures

Disclosure controls and procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that the Company files or submits pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In conjunction with the close of each fiscal quarter and under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company conducts an update, a review and an evaluation of the effectiveness of the Company’s disclosure controls and procedures. It is the conclusion of the Company’s Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that the Company’s disclosure controls and procedures were effective.

Changes in internal controls

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 26, 2010 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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MONRO MUFFLER BRAKE, INC.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not a party or subject to any legal proceedings other than certain claims and lawsuits that arise in the normal course of its business. The Company does not believe that such claims or lawsuits, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.

Item 1A. Risk Factors

There have been no changes to the risk factors described in the Company’s previously filed Annual Report on Form 10-K for the fiscal year ended March 27, 2010.

Item 6. Exhibits

a. Exhibits

31.1	–	Certification of Robert G. Gross pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
31.2	–	Certification of Catherine D’Amico pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
32.1	–	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002

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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 thereunto duly authorized.

		MONRO MUFFLER BRAKE, INC.
DATE: August 2, 2010	By	/s/ Robert G. Gross
		Robert G. Gross
		Chief Executive Officer and Chairman of the Board
DATE: August 2, 2010
	By	/s/ Catherine D’Amico
		Catherine D’Amico
		Executive Vice President-Finance, Treasurer and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description	Page No.
31.1	Certification of Robert G. Gross pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	20
31.2	Certification of Catherine D’Amico pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	21
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	22

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert G. Gross, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Monro Muffler Brake, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2010

/s/ Robert G. Gross

Robert G. Gross

Chief Executive Officer and Chairman of the Board

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EX-31.2

Exhibit 31.2

CERTIFICATION

I, Catherine D’Amico, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Monro Muffler Brake, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2010

/s/ Catherine D’Amico

Catherine D’Amico

Executive Vice President – Finance and Chief Financial Officer

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

Pursuant to, and solely for purposes of, 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), each of the undersigned hereby certifies in the capacity and on the date indicated below that:

1. The Quarterly Report of Monro Muffler Brake, Inc. (“Monro”) on Form 10-Q for the period ended June 26, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Monro.

/s/ Robert G. Gross	Dated: August 2, 2010
Robert G. Gross
Chief Executive Officer and Chairman of the Board
/s/ Catherine D’Amico	Dated: August 2, 2010
Catherine D’Amico
Executive Vice President – Finance and Chief Financial Officer

22