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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 2017.
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 Number: 0-19357
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MONRO MUFFLER BRAKE, INC.
(Exact name of registrant as specified in its charter)
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New York |
16-0838627 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification #) |
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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)
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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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
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Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company |
☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of July 21, 2017, 32,724,124 shares of the registrant's common stock, par value $ .01 per share, were outstanding.
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MONRO MUFFLER BRAKE, INC.
2
MONRO MUFFLER BRAKE, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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June 24, |
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March 25, |
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2017 |
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2017 |
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(Dollars in thousands) |
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Assets |
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Current assets: |
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Cash and equivalents |
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$ |
6,553 |
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$ |
8,995 |
Trade receivables |
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12,399 |
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11,465 |
Federal and state income taxes receivable |
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— |
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3,527 |
Inventories |
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146,107 |
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142,604 |
Other current assets |
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35,888 |
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32,639 |
Total current assets |
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200,947 |
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199,230 |
Property, plant and equipment |
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725,781 |
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712,999 |
Less - Accumulated depreciation and amortization |
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(326,422) |
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(318,365) |
Net property, plant and equipment |
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399,359 |
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394,634 |
Goodwill |
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506,359 |
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501,736 |
Intangible assets |
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51,820 |
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54,288 |
Other non-current assets |
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10,820 |
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11,331 |
Long-term deferred income tax assets |
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22,365 |
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24,045 |
Total assets |
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$ |
1,191,670 |
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$ |
1,185,264 |
Liabilities and Shareholders' Equity |
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Current liabilities: |
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Current portion of long-term debt, capital leases and financing obligations |
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$ |
15,588 |
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$ |
15,298 |
Trade payables |
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91,605 |
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79,492 |
Federal and state income taxes payable |
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4,383 |
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— |
Accrued payroll, payroll taxes and other payroll benefits |
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18,606 |
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24,979 |
Accrued insurance |
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37,427 |
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35,325 |
Warranty reserves |
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11,097 |
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10,843 |
Other current liabilities |
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19,160 |
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19,956 |
Total current liabilities |
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197,866 |
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185,893 |
Long-term debt |
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157,997 |
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182,337 |
Long-term capital leases and financing obligations |
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219,162 |
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213,166 |
Accrued rent expense |
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5,026 |
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5,037 |
Other long-term liabilities |
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15,003 |
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15,137 |
Long-term income taxes payable |
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2,668 |
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2,440 |
Total liabilities |
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597,722 |
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604,010 |
Commitments and contingencies |
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Shareholders' equity: |
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Class C Convertible Preferred Stock, $1.50 par value, $.064 conversion value, 150,000 shares authorized; 21,802 shares issued and outstanding |
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33 |
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33 |
Common Stock, $.01 par value, 65,000,000 shares authorized; 39,045,366 and 39,012,189 shares issued at June 24, 2017 and March 25, 2017, respectively |
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390 |
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390 |
Treasury Stock, 6,322,417 shares, at cost |
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(106,212) |
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(106,212) |
Additional paid-in capital |
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192,694 |
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191,553 |
Accumulated other comprehensive loss |
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(3,211) |
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(3,161) |
Retained earnings |
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510,254 |
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498,651 |
Total shareholders' equity |
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593,948 |
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581,254 |
Total liabilities and shareholders' equity |
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$ |
1,191,670 |
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$ |
1,185,264 |
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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Quarter Ended |
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Fiscal June |
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2017 |
2016 |
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(Dollars in thousands, |
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except per share data) |
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Sales |
$ |
278,491 |
$ |
235,290 | ||
Cost of sales, including distribution and occupancy costs |
165,607 | 137,222 | ||||
Gross profit |
112,884 | 98,068 | ||||
Operating, selling, general and administrative expenses |
79,135 | 66,773 | ||||
Operating income |
33,749 | 31,295 | ||||
Interest expense, net of interest income |
5,742 | 4,485 | ||||
Other income, net |
(11) | (154) | ||||
Income before provision for income taxes |
28,018 | 26,964 | ||||
Provision for income taxes |
10,433 | 10,209 | ||||
Net income |
17,585 | 16,755 | ||||
Other comprehensive loss, net of tax: |
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Changes in pension, net of tax benefit |
(50) | (81) | ||||
Comprehensive income |
$ |
17,535 |
$ |
16,674 | ||
Earnings per share: |
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Basic |
$ |
.53 |
$ |
.52 |
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Diluted |
$ |
.53 |
$ |
.50 |
The accompanying notes are an integral part of these financial statements.
4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars and shares in thousands)
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Preferred Stock |
Common Stock |
Treasury Stock |
Additional |
Accumulated |
Retained |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Loss |
Earnings |
Total |
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Balance at March 25, 2017 |
22 |
$ |
33 | 39,012 |
$ |
390 | 6,322 |
$ |
(106,212) |
$ |
191,553 |
$ |
(3,161) |
$ |
498,651 |
$ |
581,254 | ||||||||||
Net income |
17,585 | 17,585 | |||||||||||||||||||||||||
Other comprehensive loss: |
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Pension liability adjustment ($80) pre-tax |
(50) | (50) | |||||||||||||||||||||||||
Cash dividends (1): Preferred |
(92) | (92) | |||||||||||||||||||||||||
Common |
(5,890) | (5,890) | |||||||||||||||||||||||||
Exercise of stock options |
33 |
— |
653 | 653 | |||||||||||||||||||||||
Stock-based compensation |
488 | 488 | |||||||||||||||||||||||||
Balance at June 24, 2017 |
22 |
$ |
33 | 39,045 |
$ |
390 | 6,322 |
$ |
(106,212) |
$ |
192,694 |
$ |
(3,211) |
$ |
510,254 |
$ |
593,948 |
(1) |
First quarter fiscal year 2018 dividend payment of $.18 per common share or common share equivalent paid on June 12, 2017. |
The accompanying notes are an integral part of these financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended |
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Fiscal June |
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2017 |
2016 |
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(Dollars in thousands) |
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Increase (Decrease) in Cash |
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Cash flows from operating activities: |
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Net income |
$ |
17,585 |
$ |
16,755 | ||
Adjustments to reconcile net income to net cash provided by operating activities - |
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Depreciation and amortization |
11,839 | 10,813 | ||||
(Gain) loss on disposal of assets |
(121) | 147 | ||||
Stock-based compensation expense |
488 | 642 | ||||
Net change in deferred income taxes |
2,190 | 2,768 | ||||
Change in operating assets and liabilities (excluding acquisitions): |
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Trade receivables |
(896) | (223) | ||||
Inventories |
(3,300) | (1,813) | ||||
Other current assets |
(2,398) | 1,403 | ||||
Other non-current assets |
997 | 672 | ||||
Trade payables |
12,113 | (10,011) | ||||
Accrued expenses |
(5,149) | (6,426) | ||||
Federal and state income taxes payable |
7,910 | 7,054 | ||||
Other long-term liabilities |
(45) | (342) | ||||
Long-term income taxes payable |
228 | 270 | ||||
Total adjustments |
23,856 | 4,954 | ||||
Net cash provided by operating activities |
41,441 | 21,709 | ||||
Cash flows from investing activities: |
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Capital expenditures |
(6,736) | (8,202) | ||||
Acquisitions, net of cash acquired |
(3,971) | (47,361) | ||||
Proceeds from the disposal of assets |
93 | 79 | ||||
Net cash used for investing activities |
(10,614) | (55,484) | ||||
Cash flows from financing activities: |
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Proceeds from borrowings |
80,310 | 132,635 | ||||
Principal payments on long-term debt, capital leases |
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and financing obligations |
(108,250) | (98,142) | ||||
Exercise of stock options |
653 | 1,639 | ||||
Dividends paid |
(5,982) | (5,618) | ||||
Net cash (used for) provided by financing activities |
(33,269) | 30,514 | ||||
Decrease in cash |
(2,442) | (3,261) | ||||
Cash at beginning of period |
8,995 | 7,985 | ||||
Cash at end of period |
$ |
6,553 |
$ |
4,724 |
The accompanying notes are an integral part of these financial statements.
6
Note 1 – Condensed Consolidated Financial Statements
The consolidated balance sheets as of June 24, 2017 and March 25, 2017, the consolidated statements of comprehensive income and cash flows for the quarters ended June 24, 2017 and June 25, 2016, and the consolidated statement of changes in shareholders’ equity for the quarter ended June 24, 2017, include financial information for Monro Muffler Brake, Inc. and its wholly-owned subsidiaries, Monro Service Corporation and Car-X, LLC (collectively, “Monro”, “we”, “us”, “our”). These unaudited, condensed consolidated financial statements have been prepared by Monro. We believe all known adjustments (consisting of normal recurring accruals or adjustments) have been made to fairly state the financial position, results of operations and cash flows for the unaudited periods presented.
Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 25, 2017.
We report our 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 2017” |
March 26, 2017 – June 24, 2017 (13 weeks) |
“Quarter Ended Fiscal June 2016” |
March 27, 2016 – June 25, 2016 (13 weeks) |
Fiscal year 2018, ending March 31, 2018, is a 53 week year.
Monro’s operations are organized and managed in one operating segment. The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale locations. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting.
Revisions
We have evaluated the principal vs. agent accounting guidance in assessing the appropriate presentation for certain transactions primarily related to our fiscal 2017 acquisitions. We have determined agent accounting is appropriate for such transactions and therefore concluded that amounts previously presented on a gross basis should have been recorded on a net basis. Accordingly, we have revised amounts previously recorded in connection with these transactions during the first quarter of fiscal 2017. The revisions resulted in a reduction of sales and cost of sales by equal amounts of $1.6 million and did not impact gross profit as previously reported.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for the reporting of revenue from contracts with customers. This guidance provides guidelines a company will apply to determine the measurement of revenue and timing of when it is recognized. Additional guidance has subsequently been issued to amend or clarify the reporting of revenue from contracts with customers. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. While the evaluation of the impact of the new revenue recognition guidance on our Consolidated Financial Statements has not yet been fully determined, we anticipate the provisions to primarily impact the deferral of revenue generated by the sale of an extended warranty. Generally, in relation to these provisions, the new guidance will require the transaction price of an arrangement including an extended warranty to be allocated based on the relative standalone selling prices of the extended warranty and the original service/product rather than the contract price of the extended warranty. Therefore, the allocation may impact the amount of revenue deferred. We are required to adopt this guidance utilizing one of two methods: retrospective restatement for each reporting period presented at time of adoption, or a modified retrospective approach with the cumulative effect of initially applying this guidance recognized at the date of initial application. We intend to elect an adoption methodology after we have fully evaluated the impact on our Consolidated Financial Statements. However, we do not expect this change to have a material impact on our Consolidated Financial Statements. We are currently preparing to implement changes to our accounting policies, systems and controls to support the new revenue recognition and disclosure requirements.
7
In February 2016, the FASB issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. Approximately 50% of our store leases and all of our land leases are currently not recorded on our balance sheet. Recording ROU assets and liabilities for these leases is expected to have a material impact on our balance sheet. We are currently evaluating the impact that recording ROU assets and liabilities will have on our Consolidated Statement of Comprehensive Income and the financial statement impact that the standard will have on leases which are currently recorded on our Consolidated Balance Sheet.
In March 2016, the FASB issued new accounting guidance intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016. We have adopted this guidance during the first quarter of fiscal 2018. Amendments to this guidance related to accounting for excess tax benefits have been adopted prospectively and had an immaterial impact on the Consolidated Statement of Comprehensive Income for the quarter ended June 24, 2017. Excess tax benefits related to share-based payments are now included in operating cash flows rather than financing cash flows. This change has been applied prospectively in accordance with the guidance and prior periods have not been adjusted. We have previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows. Therefore, there is no change related to this requirement. The amendments allow for a one-time accounting policy election to either account for forfeitures as they occur or continue to estimate forfeitures as required by current guidance. We have elected to continue estimating forfeitures through applying a forfeiture rate.
In August 2016, the FASB issued new accounting guidance related to cash flow classification. This guidance clarifies and provides specific guidance on eight cash flow classification issues that are not addressed by current GAAP and thereby reduce the current diversity in practice. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
In January 2017, the FASB issued new accounting guidance which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. This guidance provides a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. This screen requires that when substantially all of the fair value of the assets is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance provides a framework to evaluate whether both an input and a substantive process are present to be considered a business. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted for certain transactions. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements.
In January 2017, the FASB issued new accounting guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required the determination of an implied fair value of goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This guidance is not expected to have an impact on our Consolidated Financial Statements.
In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. This guidance requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are to be presented separately from the service cost component and outside of any subtotal of income from operations. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and should be applied retrospectively. Early adoption is permitted as of the beginning of an annual period for which financial statements have not yet been issued. This guidance is not expected to have an impact on our Consolidated Financial Statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected to have a material effect on Monro’s Consolidated Financial Statements.
8
Guarantees
At the time we issue a guarantee, we recognize an initial liability for the fair value, or market value, of the obligation we assume under that guarantee. Monro has guaranteed certain lease payments, primarily related to franchisees, amounting to $6.6 million. This amount represents the maximum potential amount of future payments under the guarantees as of June 24, 2017. The leases are guaranteed through April 2020. In the event of default by the franchise owner, Monro generally retains the right to assume the lease of the related store, enabling Monro to re-franchise the location or to operate that location as a Company-operated store. We have recorded a liability related to anticipated defaults under the foregoing leases of $.6 million as of June 24, 2017 and March 25, 2017.
Note 2 – Acquisitions
Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in existing and contiguous markets, and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this footnote include acquisitions of five or more locations as well as acquisitions of one to four locations that are part of the Company’s greenfield store growth strategy.
Subsequent Events
We have signed a definitive asset purchase agreement to complete the acquisition of eight retail tire and automotive repair stores located in Illinois and Indiana from a Car-X franchisee. These stores will continue to operate under the Car-X brand. This transaction is expected to close during the second quarter of fiscal 2018 and is expected to be financed through our existing credit facility.
On July 30, 2017, we acquired 13 retail tire and automotive repair stores in Michigan, 12 of which were operating as Speedy Auto Service and Tire dealer locations, from UVR, Inc. One of the acquired stores was not opened by Monro. These stores operate under the Monro name. The acquisition was financed through our existing credit facility.
On July 9, 2017, we acquired one retail tire and automotive repair store located in North Carolina from Norman Young Tires, Inc. This store operates under the Treadquarters name. The acquisition was financed through our existing credit facility.
On June 25, 2017, we acquired one retail tire and automotive repair store located in Illinois from D&S Pulaski, LLC. This store operates under the Car-X name. The acquisition was financed through our existing credit facility.
Fiscal 2018
During the first quarter of fiscal 2018, we acquired the following businesses for an aggregate purchase price of $3.7 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.
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On June 11, 2017, we acquired two retail tire and automotive repair stores located in Minnesota and Wisconsin from J & R Diversified, Inc. These stores operate under the Car-X name. |
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On June 11, 2017, we acquired one retail tire and automotive repair store located in Ohio from Michael N. McGroarty, Inc. This store operates under the Mr. Tire name. |
· |
On June 2, 2017, we acquired one retail tire and automotive repair store located in Connecticut from Tires Plus LLC. This store operates under the Monro name. |
· |
On May 21, 2017, we acquired one retail tire and automotive repair store located in Ohio from Bob Sumerel Tire Co., Inc. This store operates under the Mr. Tire name. |
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On April 23, 2017, we acquired one retail tire and automotive repair store located in Florida from Collier Automotive Group, Inc. This store operates under The Tire Choice name. |
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to favorable leases and customer lists.
9
We expensed all costs related to acquisitions in the quarter ended June 24, 2017. The total costs related to completed acquisitions were immaterial for the quarter ended June 24, 2017. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales for the fiscal 2018 acquired entities for the quarter ended June 24, 2017 totaled $.5 million for the period from acquisition date through June 24, 2017.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates. The excess of the net purchase price over net liabilities assumed was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of June 24, 2017 was as follows:
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As of |
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(Dollars in |
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Inventories |
$ |
198 | |
Other current assets |
36 | ||
Property, plant and equipment |
1,278 | ||
Intangible assets |
433 | ||
Other non-current assets |
7 | ||
Long-term deferred income tax assets |
609 | ||
Total assets acquired |
2,561 | ||
Other current liabilities |
258 | ||
Long-term capital leases and financing obligations |
2,483 | ||
Total liabilities assumed |
2,741 | ||
Total net identifiable liabilities assumed |
$ |
(180) | |
Total consideration transferred |
$ |
3,739 | |
Less: total net identifiable liabilities assumed |
(180) | ||
Goodwill |
$ |
3,919 |
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
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As of |
|||||
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Dollars in |
Weighted |
||||
Favorable leases |
$ |
270 |
10 years |
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Customer lists |
163 |
7 years |
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Total |
$ |
433 |
9 years |
Fiscal 2017
During the first quarter of fiscal 2017, we acquired the following businesses for an aggregate purchase price of $47.9 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.
· |
On June 19, 2016, we acquired two retail tire and automotive repair stores located in New Hampshire from Express Tire Centers, LLC. These stores operate under the Tire Warehouse name. |
· |
On May 8, 2016, we acquired one retail tire and automotive repair store located in Florida from Pioneer Tire Pros. This store operates under The Tire Choice name. |
· |
On May 1, 2016, we acquired 29 retail tire and automotive repair stores and one retread facility located in Florida from McGee Tire Stores, Inc. These stores will operate primarily under The Tire Choice name. The retread facility operates under the McGee Tire name. |
10
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to favorable leases, customer lists and a trade name.
We expensed all costs related to acquisitions in the quarter ended June 25, 2016. The total costs related to completed acquisitions were immaterial for the quarter ended June 25, 2016. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales for the fiscal 2017 acquired entities for the quarter ended June 25, 2016 totaled $7.8 million for the period from acquisition date through June 25, 2016.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the remainder recorded as goodwill as follows:
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
(Dollars in |
|
Trade receivables |
|
$ |
1,616 |
Inventories |
|
|
3,714 |
Other current assets |
|
|
242 |
Property, plant and equipment |
|
|
9,612 |
Intangible assets |
|
|
6,731 |
Other non-current assets |
|
|
151 |
Long-term deferred income tax assets |
|
|
3,453 |
Total assets acquired |
|
|
25,519 |
Warranty reserves |
|
|
187 |
Other current liabilities |
|
|
958 |
Long-term capital leases and financing obligations |
|
|
15,086 |
Other long-term liabilities |
|
|
763 |
Total liabilities assumed |
|
|
16,994 |
Total net identifiable assets acquired |
|
$ |
8,525 |
Total consideration transferred |
|
$ |
47,858 |
Less: total net identifiable assets acquired |
|
|
8,525 |
Goodwill |
|
$ |
39,333 |
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
|
||||||
|
As of |
|||||
|
Dollars in |
Weighted |
||||
Favorable leases |
$ |
3,450 |
16 years |
|||
Customer lists |
2,981 |
12 years |
||||
Trade name |
300 |
2 years |
||||
Total |
$ |
6,731 |
13 years |
As a result of the updated purchase price allocations, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates include a decrease in inventories of $.1 million; an increase in property, plant and equipment of $1.3 million; a decrease in intangible assets of $1.1 million; a decrease in long-term deferred income tax assets of $.1 million; an increase in other current liabilities of $.6 million and an increase in long-term capital leases and financing obligations of $.1 million. The measurement period adjustments resulted in an increase to goodwill of $.7 million.
11
These measurement period adjustments were not material to the Consolidated Statement of Comprehensive Income for the quarter ended June 24, 2017.
We continue to refine the valuation data and estimates primarily related to inventory, road hazard warranty, intangible assets, real estate, and real property leases for fiscal 2017 acquisitions which closed subsequent to June 25, 2016 and the fiscal 2018 acquisitions, and expect to complete the valuations no later than the first anniversary date of the respective acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.
Note 3 – Earnings Per Common Share
Basic earnings per common share amounts are computed by dividing income available to common shareholders, after deducting preferred stock dividends, by the average number of common shares outstanding. Diluted earnings per common share amounts assume the issuance of common stock for all potentially dilutive equivalent securities outstanding.
The following is a reconciliation of basic and diluted earnings per common share for the respective periods:
Quarter Ended |
||||||
Fiscal June |
||||||
2017 |
2016 |
|||||
(Dollars in thousands, |
||||||
except per share data) |
||||||
Numerator for earnings per common share calculation: |
||||||
Net income |
$ |
17,585 |
$ |
16,755 | ||
Preferred stock dividends |
(92) | (129) | ||||
Income available to common stockholders |
$ |
17,493 |
$ |
16,626 | ||
Denominator for earnings per common share calculation: |
||||||
Weighted average common shares, basic |
32,704 | 32,258 | ||||
Effect of dilutive securities: |
||||||
Preferred stock |
510 | 760 | ||||
Stock options |
78 | 309 | ||||
Weighted average number of common shares, diluted |
33,292 | 33,327 | ||||
Basic earnings per common share: |
$ |
.53 |
$ |
.52 |
||
Diluted earnings per common share: |
$ |
.53 |
$ |
.50 |
The computation of diluted earnings per common share excludes the effect of the assumed exercise of approximately 655,000 and 229,000 stock options for the three months ended fiscal June 24, 2017 and June 25, 2016, respectively. Such amounts were excluded as the exercise prices of these stock options were greater than the average market value of our common stock for those periods, resulting in an anti-dilutive effect on diluted earnings per common share.
Note 4 – Income Taxes
In the normal course of business, we provide for uncertain tax positions and the related interest and penalties, and adjust our unrecognized tax benefits and accrued interest and penalties accordingly. The total amounts of unrecognized tax benefits were $7.1 million and $6.9 million at June 24, 2017 and March 25, 2017, respectively, the majority of which, if recognized, would affect our effective tax rate. Additionally, we have accrued interest and penalties related to unrecognized tax benefits of approximately $.5 million and $.4 million as of June 24, 2017 and March 25, 2017, respectively.
We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Our fiscal 2014 through fiscal 2016 U.S. federal tax years and various state tax years remain subject to income tax examinations by tax authorities.
Note 5 – Fair Value
Long-term debt had a carrying amount and a fair value of $158.0 million as of June 24, 2017, as compared to a carrying amount and a fair value of $182.4 million as of March 25, 2017. The fair value of long-term debt was estimated based on discounted cash flow analyses using either quoted market prices for the same or similar issues, or the current interest rates offered to Monro for debt with similar maturities.
12
Note 6 – Supplemental Disclosure of Cash Flow Information
The following represents non-cash investing and financing activities during the periods indicated:
Three Months Ended June 24, 2017:
In connection with the fiscal 2018 acquisitions and fiscal 2017 acquisition measurement period adjustments (see Note 2), liabilities were assumed as follows:
|
(Dollars in thousands) |
||
Fair value of assets acquired |
$ |
2,559 | |
Goodwill acquired |
4,623 | ||
Cash paid, net of cash acquired |
(3,971) | ||
Amount payable to seller |
207 | ||
Liabilities assumed |
$ |
3,418 |
Three Months Ended June 25, 2016:
In connection with the fiscal 2017 acquisitions and fiscal 2016 acquisition measurement period adjustments, liabilities were assumed as follows:
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Fair value of assets acquired |
|
$ |
27,093 |
Goodwill acquired |
|
|
38,340 |
Cash paid, net of cash acquired |
|
|
(47,366) |
Amount payable to seller |
|
|
206 |
Liabilities assumed |
|
$ |
18,273 |
Note 7 – Cash Dividend
In May 2017, our Board of Directors declared its intention to pay a regular quarterly cash dividend during fiscal year 2018 of $.18 per common share or common share equivalent beginning with the first quarter of fiscal year 2018. 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 our financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.
Note 8 – Subsequent Events
See Note 2 for a discussion of acquisitions subsequent to June 24, 2017.
On June 28, 2017, John W. Van Heel resigned as President of Monro, effective as of August 1, 2017. In addition, Mr. Van Heel’s employment as Chief Executive Officer of Monro will end on October 1, 2017 upon the expiration of his existing employment agreement and, in connection therewith, on June 28, 2017, Mr. Van Heel also tendered his resignation as a member of the Board of Directors (the “Board”), effective as of October 1, 2017. Also on June 28, 2017, the Board appointed Brett Ponton to serve as President of Monro, effective as of August 1, 2017, and as Chief Executive Officer of Monro, effective as of October 2, 2017.
On June 27, 2017, Robert G. Gross informed Monro of his intention to not stand for re-election to the Board when his current term expires at Monro’s 2017 Annual Meeting of Shareholders, and tendered his resignation as Executive Chairman of Monro, effective immediately.
In light of Mr. Gross’s resignation as Executive Chairman, on June 28, 2017, the Board elected Robert E. Mellor to serve as an independent Chairman of the Board, effective immediately.
On June 27, 2017, Elizabeth A. Wolszon tendered her resignation as a member of the Board, effective as of June 26, 2017. Also, on June 27, 2017, James R. Wilen tendered his resignation as a member of the Board, effective immediately.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The statements contained in this Quarterly Report on 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. When used in this Quarterly Report on Form 10-Q, the words “anticipates”, “believes”, “contemplates”, “expects”, “see”, “could”, “may”, “estimate”, “appear”, “intend”, “plans” and variations thereof and similar expressions, are intended to identify forward-looking statements. 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 Monro’s stores are located, the need for and costs associated with store renovations and other capital expenditures, the effect of economic conditions, seasonality, the impact of weather conditions, the impact of competitive services and pricing, parts supply restraints or difficulties, our dependence on vendors, including foreign vendors, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, advances in automotive technology, disruption or unauthorized access to our computer systems, risks relating to protection of customer and employee personal data, business interruptions, risks relating to litigation, risks relating to integration of acquired businesses, including goodwill impairment and the risks set forth in our Annual Report on Form 10-K for the fiscal year ended March 25, 2017. Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. References to fiscal 2018 and fiscal 2017 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal years ended March 31, 2018 and March 25, 2017, respectively.
Results of Operations
The following table sets forth income statement data of Monro expressed as a percentage of sales for the fiscal periods indicated:
|
||||||
|
Quarter Ended |
|||||
Fiscal June |
||||||
2017 |
2016 |
|||||
Sales |
100.0 |
% |
100.0 |
% |
||
Cost of sales, including distribution and occupancy costs |
59.5 | 58.3 | ||||
Gross profit |
40.5 | 41.7 | ||||
Operating, selling, general and administrative expenses |
28.4 | 28.4 | ||||
Operating income |
12.1 | 13.3 | ||||
Interest expense, net of interest income |
2.1 | 1.9 | ||||
Other income, net |
— |
(0.1) | ||||
Income before provision for income taxes |
10.1 | 11.5 | ||||
Provision for income taxes |
3.7 | 4.3 | ||||
Net income |
6.3 |
% |
7.1 |
% |
First Quarter Ended June 24, 2017 Compared to First Quarter Ended June 25, 2016
Sales were $278.5 million for the quarter ended June 24, 2017 as compared with $235.3 million for the quarter ended June 25, 2016. The sales increase of $43.2 million, or 18.4%, was due to an increase of $41.5 million related to new stores, of which $34.8 million came from the fiscal 2017 acquisitions. Additionally, comparable store sales increased by 1.4%. Partially offsetting this was a decrease in sales from closed stores amounting to $1.3 million. There were 90 selling days in the quarter ended June 24, 2017 and in the quarter ended June 25, 2016.
At June 24, 2017, we had 1,119 Company-operated stores and 114 franchised locations as compared with 1,064 Company-operated stores and 134 franchised locations at June 25, 2016. At March 25, 2017, we had 1,118 Company-operated stores and 114 franchised locations. During the quarter ended June 24, 2017, we added seven Company-operated stores and closed six stores.
Comparable store sales increased approximately 6% for brakes, approximately 3% for front end/shocks, were flat for tires and maintenance services and decreased approximately 2% for alignments. Comparable store sales were impacted by higher average ticket, partially offset by lower traffic.
14
Gross profit for the quarter ended June 24, 2017 was $112.9 million or 40.5% of sales as compared with $98.1 million or 41.7% of sales for the quarter ended June 25, 2016. The decrease in gross profit for the quarter ended June 24, 2017, as a percentage of sales, was primarily due to a shift in sales mix related to recent acquisitions, including the recently acquired commercial and wholesale tire locations.
At our retail tire and automotive repair locations, we provide a broad range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment. We also provide other products and services, including tires and routine maintenance services, including state inspections. During fiscal 2017, we acquired certain tire and automotive repair locations that also serve commercial customers and sell tires to customers for resale. These locations conduct tire and automotive repair activities that are similar to our retail locations, other than with respect to the sales mix resulting from the sale of commercial tires as well as the gross margin of the wholesale locations being lower primarily due to the higher mix of tires sold and the fact that those tire sales do not include installation or other tire related services that are more common at other locations. In the aggregate, the commercial and wholesale locations had consolidated revenue of approximately $24.3 million and $2.4 million for the quarters ended June 24, 2017 and June 25, 2016, respectively. Additionally, due to the sales mix from our commercial and wholesale locations, our consolidated gross margin for the quarter ended June 24, 2017 was reduced by approximately 230 basis points, as compared to a reduction in consolidated gross margin of approximately 20 basis points for the prior year quarter.
On a comparable store basis, gross profit for the quarter ended June 24, 2017 increased approximately 110 basis points, as a percentage of sales, from the prior year quarter due primarily to lower material costs as a percentage of sales.
On a consolidated basis, labor costs for the quarter ended June 24, 2017 decreased, as a percentage of sales, as compared to the prior year quarter due to the sales mix shift from recent acquisitions. Distribution and occupancy costs decreased moderately as a percentage of sales from the prior year as we gained leverage on these largely fixed costs with higher overall sales.
Operating expenses for the quarter ended June 24, 2017 were $79.1 million or 28.4% of sales as compared with $66.8 million or 28.4% of sales for the quarter ended June 25, 2016. The increase of $12.3 million is primarily due to increased expenses for new stores, and fees related to the management transition. On a comparable store basis, excluding management transition costs, total operating expenses increased approximately $2.9 million, primarily due to increases in performance-based manager pay and advertising.
Operating income for the quarter ended June 24, 2017 of approximately $33.7 million increased by 7.8% as compared to operating income of approximately $31.3 million for the quarter ended June 25, 2016, and decreased as a percentage of sales from 13.3% to 12.1% for the reasons described above.
Net interest expense for the quarter ended June 24, 2017 increased by approximately $1.3 million as compared to the same period in the prior year, and increased from 1.9% to 2.1% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 24, 2017 increased by approximately $69 million as compared to the quarter ended June 25, 2016. This increase is due to an increase in debt outstanding under our existing credit facility agreement, as well as an increase in capital lease debt recorded, in connection with the fiscal 2017 and fiscal 2018 acquisitions and greenfield expansion. The weighted average interest rate for the quarter ended June 24, 2017 increased by approximately 30 basis points as compared to the first quarter of the prior year, largely due to an increase in capital lease interest, as well as an increase in the LIBOR and prime rates from the same period of the prior year.
The effective income tax rate for the quarter ended June 24, 2017 and June 25, 2016 was 37.2% and 37.9%, respectively, of pre-tax income.
Net income for the quarter ended June 24, 2017 of $17.6 million increased 5.0% from net income for the quarter ended June 25, 2016. Earnings per share on a diluted basis for the quarter ended June 24, 2017 of $.53 increased 6.0%.
Capital Resources and Liquidity
Capital Resources
Our primary capital requirements in fiscal 2018 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the three months ended June 24, 2017, we spent approximately $10.7 million on these items. Capital requirements were met primarily by cash flow from operations and from our revolving credit facility.
15
In May 2017, our Board of Directors declared its intention to pay a regular quarterly cash dividend of $.18 per common share or common share equivalent beginning with the first quarter of fiscal 2018. We paid dividends of $6.0 million during the three months ended June 24, 2017. 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 Monro’s financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.
Additionally, we have signed a definitive asset purchase agreement to acquire eight retail tire and automotive repair stores located in Illinois and Indiana from a Car-X franchisee. This transaction is expected to close during the second quarter of fiscal 2018 and is expected to be financed through our existing credit facility.
The acquisitions subsequent to June 24, 2017 were financed through our existing credit facility.
We plan to continue to seek suitable acquisition candidates. We believe we have sufficient resources available (including cash flow from operations and bank financing) to expand our business as currently planned for the next twelve months.
Liquidity
In January 2016, we entered into a new five-year $600 million revolving credit facility agreement with nine banks (the “Credit Facility”). The Credit Facility replaced our previous revolving credit facility, as amended, which would have expired in December 2017. Interest only is payable monthly throughout the Credit Facility’s term. The Credit Facility increased our current borrowing capacity from our prior financing agreement by $350 million to $600 million, and includes an accordion feature permitting us to request an increase in availability of up to an additional $100 million, an increase of $25 million from our prior revolving credit facility. The expanded facility bears interest at 75 to 175 basis points over LIBOR. The Credit Facility requires fees payable quarterly throughout the term between .15% and .35% of the amount of the average net availability under the Credit Facility during the preceding quarter. There was $157.9 million outstanding under the Credit Facility at June 24, 2017.
Within the Credit Facility, we have a sub-facility of $80 million available for the purpose of issuing standby letters of credit. The line requires fees aggregating 87.5 to 187.5 basis points over LIBOR annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was $29.4 million in an outstanding letter of credit at June 24, 2017.
The net availability under the Credit Facility at June 24, 2017 was $412.7 million.
Specific terms of the Credit Facility permit the payment of cash dividends not to exceed 50% of the prior year’s net income, and permit mortgages and specific lease financing arrangements with other parties with certain limitations. Other specific terms and the maintenance of specified ratios are generally consistent with our prior financing agreement. Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions. We were in compliance with all debt covenants at June 24, 2017.
In addition, we have financed certain store properties with capital leases/financing obligations, which amounted to $234.7 million at June 24, 2017 and are due in installments through May 2045.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1 of the Company’s Condensed Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our Condensed Consolidated Financial Statements as of June 24, 2017 and the expected impact on the Consolidated Financial Statements for future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from potential changes in interest rates. As of June 24, 2017, approximately .07% of our debt financing, excluding capital leases and financing obligations, was at fixed interest rates and, therefore, the fair value of such debt financing is affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately $1.6 million based upon our debt position at June 24, 2017 and $1.8 million for the fiscal year ended March 25, 2017, given a 1% change in LIBOR.
Debt financing had a carrying amount and a fair value of $158.0 million as of June 24, 2017, as compared to a carrying amount and a fair value of $182.4 million as of March 25, 2017.
16
Item 4. Controls and Procedures
Disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit to the Securities and Exchange Commission 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 rules and forms, and that such information is accumulated and communicated to our management, including our 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 our Chief Executive Officer and Chief Financial Officer, we conduct an update, a review and an evaluation of the effectiveness of our disclosure controls and procedures. It is the conclusion of our 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 our disclosure controls and procedures were effective.
Changes in internal controls over financial reporting
There were no changes in our internal control over financial reporting during the quarter ended June 24, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
17
PART II – OTHER INFORMATION
We are not a party or subject to any legal proceedings other than certain claims and lawsuits that arise in the normal course of our business. We do not believe that such claims or lawsuits, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
Exhibits
31.1 – Certification of John W. Van Heel pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
101.CAL - XBRL Taxonomy Extension Calculation Linkbase
101.INS - XBRL Instance Document
101.LAB - XBRL Taxonomy Extension Label Linkbase
101.PRE - XBRL Taxonomy Extension Presentation Linkbase
101.SCH - XBRL Taxonomy Extension Schema Linkbase
101.DEF - XBRL Taxonomy Extension Definition Linkbase
______________________
* Management contract or compensatory plan or arrangement required to be filed pursuant to Rule 601(b)(10)(iii)(A) of Regulation S-K under the Securities Exchange Act of 1934.
** Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 of the Securities Exchange Act of 1934.
18
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 3, 2017 |
|
By: |
/s/ John W. Van Heel |
|
|
|
John W. Van Heel |
|
|
|
Chief Executive Officer |
|
|
|
|
DATE: August 3, 2017 |
|
By: |
/s/ Brian J. D’Ambrosia |
|
|
|
Brian J. D’Ambrosia |
|
|
|
Senior Vice President-Finance, Treasurer and |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
19
|
|
|
Exhibit No. |
Description |
|
|
||
|
||
|
||
31.1 |
Certification of John W. Van Heel pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
Certification of Brian J. D’Ambrosia pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
|
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase |
|
101.INS |
XBRL Instance Document |
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase |
|
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase |
|
101.SCH |
XBRL Taxonomy Extension Schema Linkbase |
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase |
|
______________________
* Management contract or compensatory plan or arrangement required to be filed pursuant to Rule 601(b)(10)(iii)(A) of Regulation S-K under the Securities Exchange Act of 1934.
** Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 of the Securities Exchange Act of 1934.
20
Exhibit 10.70
EMPLOYMENT AGREEMENT, entered into on June 28, 2017 and effective as of August 1, 2017 (the “Effective Date”), between Monro Muffler Brake, Inc. (the “Company”) and Brett Ponton (the “Executive”).
WHEREAS, the Company and the Executive wish for the Executive to be employed by the Company upon the terms and conditions as set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Employment and Duties.
1.1 Employment by the Company. The Company hereby agrees to employ the Executive for the Term (as herein defined), to render exclusive and full-time services in the capacity of President of the Company (effective as of the Effective Date) and Chief Executive Officer (“CEO”) of the Company (effective as of October 2, 2017), subject to the control and direction of the Company’s Board of Directors (the “Board”). With the approval of the Board (which shall not be unreasonably withheld or delayed), the Executive may (A) serve on the board of directors (or similar body) of one company that does not compete with the Company where such service would not otherwise violate his obligations hereunder, and (B) serve on the board of directors (or similar body) of one or more charitable entities; provided that such activities do not either individually or in the aggregate interfere in any material respect with the performance of his duties and responsibilities hereunder. During the Term, the Executive will be nominated as a director on the Board.
1.2 Duties/Authority. The Executive shall have responsibility for the conduct of the business and fiscal affairs of the Company and the general supervision of and control over the assets, business interests, and agents of the Company, in each case subject to the control and direction of the Board. The Executive’s duties hereunder shall be consistent with the duties, responsibilities, and authority generally incident to the positions of CEO or President and such other reasonably related duties as may be assigned to him from time to time by the Board consistent with his role as a senior executive.
1.3 Principal Place of Employment. The Executive’s principal place of employment shall be at the Company’s headquarters in Rochester, New York, subject to customary travel.
2. Term of Employment. The “Term” of this Agreement shall commence on the Effective Date and end on the third anniversary of the Effective Date (the “Initial Term”), unless sooner terminated as provided herein. Unless earlier terminated, the Term shall automatically renew (each a “Renewal Term”) at the end of the Initial Term and on each anniversary thereafter for a period of one (1) year unless either party shall give written notice of intent not to extend the then-current Term to the other party not later than ninety (90) days prior to the end of then-current Term. References herein to the Term shall mean the period of the Executive’s employment during the Initial Term and any Renewal Term.
1
3. Compensation.
3.1 Salary. As consideration for services rendered, the Company shall pay the Executive during the Term a salary of $550,000 per annum (the “Base Salary”), payable not less frequently than monthly in accordance with the Company’s payroll practices. The Executive’s Base Salary will be reviewed annually by the Compensation Committee of the Board (the “Committee”) and may be increased (but not decreased without the Executive’s written consent) to reflect the Executive’s performance and responsibilities.
3.2 Annual Bonus. Pursuant to the Monro Muffler Brake, Inc. Management Incentive Compensation Plan (as such plan may be amended or replaced from time to time, the “Bonus Plan”), the Company shall pay the Executive, as soon as practicable and within 120 days of its fiscal year-end, a cash bonus in respect of each prior fiscal year during the Term (beginning with the fiscal year ending in March 2018, and prorated for such year based on the time employed hereunder during such year), of 90% of Base Salary if the Company achieves its threshold performance levels and 100% of Base Salary if the Company achieves target level of performance set by the Committee with respect to such year, increased up to a maximum of 150% of Base Salary pursuant to the terms of the Bonus Plan’s matrix /formula in effect for such year if the Company exceeds such performance targets as determined by the Committee (the “Annual Bonus”). The Committee will consult with the Executive in respect of the setting of performance goals, matrices, metrics and thresholds with respect to each fiscal year during the Term. If this Agreement terminates other than at the end of a fiscal year and if the Executive is entitled to a pro rata bonus for such partial year pursuant to Section 5 hereof, such pro rata bonus shall be equal to the bonus the Executive would have received under the Bonus Plan, based on the Company’s actual performance during such fiscal year, had he been employed by the Company for the entire fiscal year, multiplied by a fraction, the numerator of which shall be the number of days during such fiscal year he was so employed and the denominator of which shall be the number of days in such fiscal year (the “Pro Rata Bonus”). The Executive may be entitled to the Annual Bonus for the year prior to the year in which the Executive is terminated, to the extent not yet paid (the “Preceding Bonus”). The Executive shall be entitled to receive the Preceding Bonus and/or the Pro Rata Bonus, as applicable: (i) at the same time the annual bonuses for the same periods are paid to other senior-level executives of the Company; and (ii) only to the extent the Company’s Board or any Committee designated by the Board determines to pay such bonus to the executive-level employees of the Company pursuant to achievement of performance under the Bonus Plan. The Annual Bonus shall, in all respects, be subject to the terms of the Bonus Plan, except that Annual Bonuses will be paid in cash and no Annual Bonuses will be deferred absent the Executive’s prior written consent.
3.3 Signing Bonus. On or promptly following the Effective Date, the Company shall pay the Executive a cash signing bonus of $600,000 (the “Signing Bonus”). If the Executive’s employment is terminated by the Company for Cause or the Executive resigns other than for Good Reason, in either case within one (1) year following the Effective Date, the Executive shall promptly repay to the Company the product of (A) the Signing Bonus and (B) a fraction, the numerator of which is (x) 12 minus (y) the number of complete months from the Effective Date through the date of termination, and the denominator of which is 12.
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3.4 Equity Awards.
(A) Standard Option Grant. Effective as of the Effective Date, the Company shall grant Executive a nonqualified stock option to purchase 300,000 shares of the Company’s Common Stock (the “Option”) under the terms of the 2007 Stock Incentive Plan (the “Plan”). The Option shall be subject to the Company’s standard form of nonqualified option grant agreement and shall have an exercise price per share equal to the fair market value of one share of the Company’s Common Stock on the Effective Date, as determined in accordance with the Plan, and shall have a six-year term. Subject to the Executive’s continued employment with the Company, except as provided below or in the Plan in connection with a Change in Control, the Option shall vest and become exercisable with respect to the shares of Common Stock in accordance with the following schedule:
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Vesting Date |
Amount |
||
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1st Anniversary of the Date of the Award |
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33-1/3% |
|
|
|
|
|
|
|
2nd Anniversary of the Date of the Award |
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66-2/3% |
|
|
|
|
|
|
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2 years and 11 months following the Date of the Award |
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100% |
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(B) Special Option Grant. Effective as of the Effective Date, the Company shall grant Executive a nonqualified stock option to purchase 100,000 shares of the Company’s Common Stock (the “Special Option”) under the terms of the Plan. The Special Option shall be subject to the Company’s standard form of nonqualified option grant agreement but shall have an exercise price of $65 per share, and shall have a six-year term. Subject to the Executive’s continued employment with the Company, except as provided below or in the Plan with respect to a Change in Control, the Special Option shall vest and become exercisable only if the closing price of the Company’s Common Stock is $65 or higher for 45 consecutive trading days.
(C) Restricted Stock Unit Grant. Effective as of the Effective Date, the Company shall grant Executive restricted stock units with respect to 30,000 shares of the Company’s Common Stock (the “RSUs”) under the terms of the Plan. The RSUs shall be subject to the Company’s standard form of restricted stock unit grant agreement. The RSUs shall have dividend equivalent rights. Subject to the Executive’s continued employment with the Company, except as provided below or in the Plan with respect to a Change in Control, the RSUs shall vest in accordance with the following schedule:
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Vesting Date |
Portion of |
||
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1st Anniversary of the Date of the Award |
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33-1/3% |
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|
|
|
|
|
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2nd Anniversary of the Date of the Award |
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66-2/3% |
|
|
|
|
|
|
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2 years and 11 months following the Date of the Award |
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100% |
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(D) Each of the Option, Special Option, and RSUs (collectively, together with any other equity grants made to the Executive, the “Equity Awards”) will permit (i) broker assisted cashless/net exercise, as applicable, and (ii) net withholding for taxes to the maximum extent permitted by law.
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3.5 Participation in Employee Benefit Plans. The Executive shall be permitted during the Term, if and to the extent eligible, to participate in any group life, hospitalization or disability insurance plan, health program, or any pension plan or similar pension or welfare benefit, fringe, benefit plan, or perquisite arrangement of the Company, which is available generally to other senior executives of the Company.
3.6 Expenses. Subject to such policies generally applicable to senior executives of the Company, as may from time to time be established by the Board, the Company shall pay or reimburse the Executive for all reasonable expenses (including travel expenses) actually incurred or paid by the Executive during the Term in the performance of the Executive’s services under this Agreement (“Expenses”) upon presentation of expense statements or vouchers or such other supporting information as it may require. In addition, (i) the Company shall provide the Executive temporary housing in the Rochester, New York area for up to one (1) year following the Effective Date and shall pay reasonable commuting expenses for Executive for up to one year (or, if earlier, until he relocates his primary residence to the Rochester, New York area), and (ii) the Company shall reimburse the Executive for the reasonable costs of moving his household goods to the Rochester, New York area, which reimbursements under (i) and (ii) shall be on a tax neutral basis to the Executive. The Company shall also, promptly following presentation of an invoice, reimburse the Executive (or directly pay) for up to $25,000 of attorneys’ fees and costs incurred by the Executive in connection with the negotiation and drafting of this Agreement.
3.7 Vacation. The Executive shall be entitled to four (4) weeks’ vacation per year, but in no event less any other senior executive.
3.8 Additional Benefits. The Executive shall be entitled to the use of an automobile comparable to that provided to other senior executives in connection with the rendering of services to the Company pursuant to this Agreement, together with reimbursement for all gas, maintenance, insurance and repairs required by reason of his use of such vehicle.
3.9 Controlling Document. To the extent there is any inconsistency between the terms of this Agreement and the terms of any plan or program under which compensation or benefits are provided hereunder, this Agreement shall control. Otherwise, the Executive shall be subject to the terms, conditions and provisions of the Company’s plans and programs, as applicable.
3.10 Indemnification/Insurance. To the maximum extent permitted by applicable law, the Company agrees to indemnify, defend and hold the Executive harmless, to the maximum extent permitted by law against any and all losses, judgments, liabilities, claims, fines and amounts paid in settlement of, and expenses (including attorneys’ fees and expenses) incurred by him in connection with any claim in connection with or arising out of the Executive’s service as an officer or director to the Company or any of its subsidiaries or affiliates (and the service at the request of the Company as a director, officer, member, employee, or agent of another corporation or a partnership, joint venture, trust, or other enterprise), and the defense of any action or proceeding (or any appeal therefrom) in which he is a party by reason of the fact that the Executive is or was an officer or director of the Company, but in all events excluding the Executive’s fraud or intentional misconduct. The Company agrees to advance all of the Executive’s reasonable attorneys’ fees, costs and expenses of independent counsel selected by and representing the Executive in connection with any such action or proceeding, provided that such selection shall be subject to the Company’s written consent (which shall not be
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unreasonably withheld). The Executive shall promptly repay any such advance if there is a final determination by a court that the Executive was not entitled to indemnification in connection therewith. Without limiting the foregoing, the Company agrees that it shall maintain directors’ and officers’ and errors and omissions liability insurance, which insurance shall cover the Executive during the Term and following the termination thereof for any or no reason for a period of not less than six (6) years, on the same basis as such coverage is provided to the Company’s directors and other executive officers.
4. Termination or Removal from Duties.
4.1 Termination Upon Death. This Agreement shall terminate automatically upon the Executive’s death.
4.2 Removal from Position Upon Disability. If during the Term, as a result of Disability, the Executive is unable to perform the essential functions of his job with or without reasonable accommodation, the Company, by written notice to the Executive, shall have the right to remove him from his position. The Executive’s status as an inactive employee of the Company shall continue after such removal for the period of time that his Disability continues. However, the Company shall have no obligation to reinstate or otherwise continue the Executive’s employment if he should recover from his Disability and any such termination shall not constitute a termination without Cause or without Good Reason (as herein defined). For purposes hereof, “Disability” shall mean that the Executive either (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s accident and health plan. The existence of a Disability shall be determined by a reputable, licensed physician selected by the Company in good faith, whose determination shall be final and binding on the parties.
4.3 Termination for Cause. The Company may at any time, by written notice to the Executive, terminate the Executive’s employment hereunder for Cause. For purposes hereof, the term “Cause” shall mean: (A) Executive’s conviction of or pleading guilty or no contest to a felony; (B) failure or refusal of the Executive in any material respect (i) to perform the duties of his employment or to follow the lawful and proper directives of the Board (other than during periods of illness or permitted leave), provided such duties or directives are consistent with this Agreement and such duties or directives have been given to the Executive in writing, or (ii) to comply with the reasonable and material written policies or regulations of the Company (so long as same are not inconsistent with this Agreement) as may be established from time to time for employees generally and provided or made available to the Executive in advance, if such failure or refusal under either clause (i) or clause (ii) continues uncured for a period of 15 days after written notice thereof, specifying the nature of such failure or refusal and requesting that it be cured, is given by the Company to the Executive; (C) any willful or intentional act of the Executive committed for the purpose, or having the reasonably foreseeable effect, of materially injuring the Company, its business or reputation or of improperly or unlawfully converting for the Executive’s own personal benefit any material property of the Company (provided, however, that no act or omission, on the Executive’s part shall be considered “willful or intentional” if
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done at the direction of counsel for the Company (or upon a written or electronic determination of such counsel as to the permissibility of such action or omission) or unless done or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company); or (D) any material violation or material breach of the provisions of Section 7 of this Agreement. For the avoidance of doubt, the Company’s failure to attain operating or other goals shall not be grounds for a termination for “Cause”. In order to constitute Cause, the Company must deliver written notice to the Executive of the grounds purporting to constitute Cause within forty-five (45) days of the Board first becoming aware of such grounds, and Cause shall only exist if a majority of the Board (excluding the Executive) has formally resolved, after a hearing at which Executive (together with counsel) is permitted to present, that the Executive’s actions or omissions constitute Cause hereunder.
4.4 Termination without Cause. During the Term, the Company may terminate the Executive’s employment without Cause at any time.
4.5 Termination with or without Good Reason. With forty-five (45) days prior written notice to the Company (which will be provided by the Executive, if at all, within forty-five (45) days of the occurrence of the grounds purporting to constitute Good Reason (or if later, the Executive’s actual knowledge of such purported grounds), this Agreement and the Executive’s employment hereunder may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” means: (i) the Company’s material breach of this Agreement or any other arrangement to which the Company is a party with the Executive; (ii) the Board requiring the Executive to act, or omit to act, in a way that the Executive reasonably believes is illegal; (iii) a material diminution in the Executive’s Base Salary or target Annual Bonus, (iv) the Company’s failure to pay amounts or benefits when due; or (v) a material diminution in the Executive’s responsibilities, duties, authorities, including reporting structure, or adverse change in the Executive’s position(s) (provided that it shall not constitute Good Reason if the Executive is nominated to serve (or, as applicable, continue) on the Board if the Company’s shareholders reject such nomination); provided, however, that a termination by the Executive for Good Reason pursuant to (i) through and including (v) shall be effective only if, within 15 days following the delivery of written notice of a termination for Good Reason by Executive to the Company, the Company has failed to cure the circumstances giving rise to the Good Reason. The written notice of termination for Good Reason must specify in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, if applicable.
Any resignation pursuant to the terms of this Section shall not constitute a breach of this Agreement by either party.
5. Rights and Obligations of the Company and the Executive Upon Termination, or Removal. Other provisions of this Agreement notwithstanding, upon the occurrence of an event described in Section 4, the Executive shall be paid the “Accrued Obligations” (as defined below) and the parties shall have the following rights and obligations:
5.1 Death. If the Executive’s employment is terminated by reason of the Executive’s death, the Company shall pay the Executive’s estate, in one lump sum amount, one year’s Base Salary (as in effect as of the date of termination, disregarding any reductions), payable as soon as practicable and no later than the last day of the calendar year of the Executive’s death (or if later,
6
the fifteenth (15th) day of the third month following such death); plus (B) any Preceding and/or Pro Rata Bonus to which the Executive is entitled, which shall be paid in accordance with Section 3.2 (without duplication for any Accrued Amounts). Further, the unvested portion of the Equity Awards (other than the Special Option) will vest on a prorated basis based on a fraction the numerator of which is the number of days during the applicable vesting period in which such termination occurs (or if none, the applicable grant date) that the Executive was employed by the Company and the denominator of which is the number of days in the applicable vesting period (“Pro Rata Vesting”).
5.2 Disability.
(A) If the Executive is removed from his position because of a Disability, the Executive, for the period of time during which his Disability continues, may continue to participate in certain of the employee benefit plans in which he participated immediately prior to his removal. These benefits would include participation in, as applicable and to the extent defined in the Company’s applicable plans, group life, medical/dental and disability insurance plans, each at the same ratio of employer/employee contribution as applicable to the Executive immediately prior to his removal; and, thereafter, at the same ratio of employer/employee contribution as then-applicable to other executive-level employees in the Company. In addition, the Executive shall be entitled to compensation and benefits accrued through the date of his removal from his duties, including any amounts payable to the Executive under any Company profit sharing or other employee benefit plan up to the date of removal. For avoidance of doubt, the payment of any bonus to which the Executive may be entitled for the period of time up to the date of his removal pursuant to Section 4.2 hereof, would be paid pursuant to Section 5.2(B)(ii), below. However, the Executive’s rights to bonuses and fringe benefits accruing after his removal, if any, shall cease upon such removal; provided, however, that nothing contained in this Agreement is intended to limit or otherwise restrict the availability of any benefits to the Executive required to be provided pursuant to Section 4980B of the Code or under employee benefit plans of the Company.
(B) The Executive shall be entitled to payments equal to: (i) the lesser of (a) one year’s Base Salary (as in effect as of the date of removal, disregarding any reductions), or (b) the amount of Base Salary that would have been payable to the Executive from the date of removal through the scheduled expiration of the Initial Term or then Renewal Term of the Agreement, either (a) or (b) payable as continued payment of Base Salary (payable in accordance with the Company’s payroll practice) for the lesser of one year or through the scheduled expiration of the Initial Term or then Renewal; plus (ii) any Preceding and/or Pro Rata Bonus to which the Executive is entitled which shall be paid in accordance with Section 3.2. Further, the Executive will receive Pro Rata Vesting.
5.3 Termination for Cause or without Good Reason. If the Executive’s employment shall be terminated (A) by the Company for Cause, or (B) by the Executive without Good Reason, the Company shall pay the Executive his Base Salary through the date of termination at the rate then in effect and shall reimburse the Executive for any Expenses incurred but not yet paid and shall have no further obligations to the Executive under this Agreement (other than the Accrued Obligations, which shall remain payable).
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5.4 Termination without Cause, with Good Reason or by the Company at the end of the Term. If the Executive’s employment is terminated (A) by the Company without Cause, (B) by the Executive with Good Reason, or (C) due to nonextension of the Term by the Company pursuant to Section 2, the Company shall pay (unless otherwise noted, in the normal course) to the Executive or provide the following amounts or benefits:
(i) to the extent not yet paid, the Executive’s Base Salary through the date of termination at the rate in effect on the date of termination;
(ii) two years’ Base Salary (as in effect as of the date of such termination or resignation, disregarding any reductions), payable as continued payment of Base Salary (payable in accordance with the Company’s payroll practices);
(iii) payment of the Preceding (to the extent unpaid) and/or Pro Rata Bonus to which the Executive is entitled, which shall be paid in accordance with Section 3.2;
(iv) payment of 100% of the Executive’s COBRA premiums for eighteen (18) months for the Executive and his beneficiaries (or such lesser time that the Executive and/or his beneficiaries remain eligible for COBRA coverage) (the “COBRA Period”), and
(v) any and all stock options (excluding the Special Option), the RSUs, and any Equity Award that have been granted to the Executive (that have neither expired nor been previously exercised by the Executive) through the termination date shall be deemed fully vested on such termination date and, in respect of any stock options, immediately exercisable for a period of one (1) year following such date (but, in no case, beyond each such option’s specified expiration date), all in accordance with the other terms of any such plan or grant.
All payments to be provided to the Executive under this Section 5.4 (other than the Accrued Obligations) shall be subject to the Executive’s (x) compliance with the restrictions in Section 7 and (y) the Executive’s and the Company’s execution, within sixty (60) days of the Executive’s termination, of a general release and waiver of claims against the Company, its officers, directors, employees and agents, from any and all liability arising from the Executive’s employment relationship with the Company (which release will include an agreement between both parties not to disparage the other but no other Executive covenants beyond those contained herein) and applicable carveouts for applicable claims that survive termination (including, without limitation, claims in respect of indemnification, contribution, D&O insurance, E&O insurance, equity rights in respect of the Equity Award (or shares acquired thereunder), rights to enforce the employment agreement (and the severance obligations thereunder, etc.)) that is not revoked and that is reasonably acceptable to the Company (the “Release Condition”). Any payments payable during such sixty (60) day period (other than Accrued Obligations) shall accrue and be payable on the first payroll following such period subject to the effectiveness of such Release Condition, except where, following such effectiveness of such Release Condition, such earlier payment may be paid without violating Section 409A (as defined below).
“Accrued Obligations” means (i) without duplication, the Base Salary accrued but unpaid through the date of termination, (ii) reimbursement, as soon as possible and in all events within sixty (60) days following submission by the Executive to the Company of appropriate supporting documentation for any unreimbursed business expenses incurred by the Executive in accordance with Company policy, prior to the date of termination of the Executive’s employment; and (iii)
8
vested employee benefits, if any, as to which the Executive may be entitled under the employee benefit plans (within the meaning of Section 3(3) of the Employee Retirement Income Security Act, as amended) or other compensatory or benefit arrangements of the Company for which the Executive is eligible or participating (other than severance plans). Unless otherwise provided in this Agreement, the Company shall pay the Accrued Obligations to the Executive as soon as practicable within fifteen (15) days following termination, or such earlier date as may be required by law (other than any benefits, which shall be paid or provided in accordance with the terms of the applicable plan).
The Executive shall be under no obligation to seek other employment or to otherwise mitigate the obligations of the Company under this Agreement, and there shall be no offset against amounts or benefits payable by the Company to the Executive without the express written consent of the Executive.
6. Change in Control.
6.1 In the event of the occurrence of a Change in Control of the Company, the Executive shall remain employed by the Company, pursuant to the terms and conditions of this Agreement. If, within two (2) years after the Change in Control, (A) the Executive’s employment is terminated without Cause, (B) the Term ends due nonextension of the Term by the Company pursuant to Section 2, or (C) the Executive resigns for Good Reason (which for this purpose will also include) (each, a “Qualifying CIC Termination”):
(i) a material diminution in his duties as set forth in Section 1.2 of this Agreement (to include no longer acting as chief executive officer or president of the “parent company”); or
(ii) in the case of the sale of the Company, the Executive is not offered a comparable position (as chief executive officer or president of the “parent company”) by the buyer.
6.2 Upon a termination such Qualifying CIC Termination, the Executive will, in addition to the Accrued Obligations, receive in one lump sum amount, unless otherwise noted:
(A) to the extent not yet paid, the Executive’s Base Salary through the date of termination at the rate in effect on the date of termination;
(B) two years’ Base Salary (as in effect as of the date of such termination or resignation, disregarding any reductions), payable as a lump sum as soon as practicable following termination but in no event later than the sixtieth (60th) day following such termination;
(C) payment of any unpaid Preceding Bonus as soon as practicable but within fifteen (15) days following such termination;
(D) an Annual Bonus based on actual performance through the date of termination on a prorated basis (determined by multiplying the Annual Bonus as if the Executive had been employed for the entire fiscal year multiplied by a fraction, the numerator of which shall be the number of days during such fiscal year he was so employed and the denominator of
9
which shall be the number of days in such fiscal year), which shall be paid as soon as practicable following termination but in no event later than March 15th of the calendar year following the year of such termination;
(D) payment of 100% of the Executive’s COBRA premiums for the COBRA Period for the Executive and his beneficiaries; and
(E) any and all stock options (excluding the Special Option), the RSUs, and any Equity Award that have been granted to the Executive (that have neither expired nor been previously exercised by the Executive) through the termination date shall be deemed fully vested on such termination date and, in respect of any stock options, immediately exercisable for a period of one (1) year following such date (but, in no case, beyond each such option’s specified expiration date), all in accordance with the other terms of any such plan or grant.
All payments to be provided to the Executive under this Section shall be subject to the Executive’s (x) compliance with the restrictions in Section 7 to the extent described in Section 7.5 and (y) satisfaction of the Release Condition. Any payments payable during the Release Condition’s sixty (60) day period (other than Accrued Obligations) shall accrue and be payable on the first payroll following such period subject to the effectiveness of such Release Condition, except where, following such effectiveness of such Release Condition, such earlier payment may be paid without violating Section 409A.
6.3 For purposes of this Agreement, a “Change in Control” shall mean any of the following: (A) any person who is not an “affiliate” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of the Company as of the date of this Agreement becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of the then outstanding securities of the Company except pursuant to a public offering of securities of the Company; (B) the sale of the Company substantially as an entity (whether by sale of stock, sale of assets, merger, consolidation, or otherwise) to a person who is not an affiliate of the Company as of the date of this Agreement; or (C) there occurs a merger, consolidation or other reorganization of the Company with a person who is not an affiliate of the Company as of the date of this Agreement, and in which shareholders of the Company immediately preceding the merger hold less than 50% (the voting and consent rights of Class C Preferred Stock shall be disregarded in this calculation) of the combined voting power for the election of directors of the Company immediately following the merger; provided, however, that Change in Control for this purpose satisfies the payment event requirements of Section 409A. For purposes of this Section 6.3, the term “person” shall include a legal entity, as well as an individual. A Change in Control shall not be deemed to occur because of the sale or conversion of any or all of Class C Preferred Stock of the Company unless there is a simultaneous change described in clauses (A), (B) or (C) of the preceding sentence.
6.4 The Executive shall be under no obligation to seek other employment or to otherwise mitigate the obligations of the Company under this Agreement, and there shall be no offset against amounts or benefits payable by the Company to the Executive without the express written consent of the Executive.
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7. Confidentiality and Covenant against Competition.
7.1 Non-Disclosure. The Executive shall forever hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be public knowledge (other than as a result of a breach of this Section 7.1 by the Executive). The Executive shall not, without the prior written consent of the Company or except as required by law or in a judicial or administrative proceeding with subpoena powers, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. Nothing in this Agreement prohibits the Executive from reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures, that are protected under the whistleblower provisions of federal law or regulation (or similar state laws) or receipt of awards thereunder. The Executive will not need the prior authorization of the Board to make any such reports or disclosures and the Executive will not be required to notify the Company that the Executive has made such reports or disclosures.
7.2 Non-Competition. The Executive will not, during the period of the Executive’s employment with the Company, and for a period of two years thereafter, directly or indirectly, (a) engage in (as a principal, partner, director, officer, stockholder (except as permitted below), agent, employee, consultant or otherwise); or (b) be financially interested in, any entity materially engaged in the business of the Company. Nothing contained herein shall prevent the Executive from owning beneficially or of record not more than five percent (5%) of the outstanding equity securities of any entity whose equity securities are registered under the Securities Act of 1933, as amended, or are listed for trading on any recognizable United States or foreign stock exchange or market. The “business of the Company” shall be defined as the automotive repair/maintenance services, as well as the sale and service of tires and tire related accessories. “Materially engaged” means annual revenue from the business of the Company exceeding ten percent (10%) of the entity’s total annual revenue.
7.3 Non-Solicitation of Employees. The Executive will not, during the period of the Executive’s employment with the Company, and for a period of one year after the termination of the Executive’s employment with the Company for any reason, directly or indirectly, recruit, solicit or otherwise induce or attempt to induce any employee of the Company to leave the employment of the Company, nor knowingly hire any such employee at any enterprise with which the Executive is then affiliated. This Section 7.3 shall not apply to general advertisements to hire employees not directed at individuals described herein or employees terminated by the Company without “cause.”
7.4 Enforceability of Provisions. If any restriction set forth in this Section 7 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable, it being understood and agreed that by the execution of this Agreement, the parties hereto regard the restrictions herein as reasonable and compatible with their respective rights.
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7.5 Remedy for Breach. The Executive hereby acknowledges that the provisions of this Section 7 are reasonable and necessary for the protection of the Company and its respective subsidiaries and affiliates. In addition, the Executive further acknowledges that the Company and its respective subsidiaries and affiliates will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Company may be entitled, the Company will be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining the Executive from an actual or threatened breach of such covenants. In addition, and without limiting the Company’s other remedies, in the event that Executive has committed any material breach of such covenants in this Section 7, the Company will have no obligation to pay any of the amounts that remain payable by the Company in Sections 5 and 6 of this Agreement.
7.6 Public Statements. The Company shall not, and shall direct its officers and directors not to, issue any press release or similar documents regarding the Executive’s employment or termination of employment without the Executive’s prior written consent (which shall not be unreasonably withheld).
8. Executive’s Representations. The Executive represents that he is not precluded from performing this employment by reason of a pre-existing contractual restriction or physical or mental disability. Upon any breach or inaccuracy of the foregoing, the terms and benefits of this Agreement shall be null and void. The Executive shall indemnify and hold harmless the Company from and against any and all claims, liabilities, damages and reasonable costs of defense and investigation arising out of any breach or inaccuracy in any of the foregoing representations. The parties acknowledge and agree that the Executive has provided the Company with his employment agreement with his prior employer for purposes of enforcement thereof, and the Company acknowledges and agrees that the Executive’s service hereunder is not a breach thereof.
9. Other Provisions.
9.1 Withholdings. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
9.2 Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, telecopied, or sent by certified, registered or express mail, postage prepaid, to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given when so delivered personally, telecopied or if mailed, two days after the date of mailing, as follows:
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(a) |
if to the Company, to it at: |
Monro Muffler Brake, Inc.
200 Holleder Parkway
Rochester, New York 14615
Attention: Chief Financial Officer
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with a copy to:
Monro Muffler Brake, Inc.
200 Holleder Parkway
Rochester, New York 14615
Attention: General Counsel
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(b) |
if to the Executive, at the address noted in the Company’s payroll records. |
9.3 Entire Agreement. This Agreement, together with the Bonus Plan and the Plan and agreements evidencing the Option, the Special Option and the RSUs, contains the entire understanding of the Company and the Executive with respect to the subject matter hereof.
9.4 Waivers and Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.
9.5 Governing Law; Jurisdiction; Arbitration. This Agreement shall be governed by and construed and enforced in accordance with and subject to, the laws of the State of New York applicable to agreements made and to be performed entirely within such state. All disputes relating to this Agreement, the Equity Award, the Bonus Plan or the Plan, including the Agreement’s enforceability, other than requests for injunctive or other equitable relief with respect to Section 7 hereof (where any such dispute shall be held in the courts of New York and the United States District Courts for New York), shall be resolved by final and binding arbitration before a panel of three arbitrators appointed by the Judicial Arbitration and Mediation Service (JAMS), with the arbitration to be held in New York, New York, and the costs of which are borne equally by the Company and the Executive. In the event of any such litigation or arbitral proceeding, the losing party (as determined by the court or the arbitrator, as applicable) shall reimburse the prevailing party upon entry of a final award resolving the subject of the dispute for all reasonable legal expenses incurred.
9.6 Assignment. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors. This Agreement is personal to the Executive and shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, provided, that the Company will remain liable for liabilities hereunder in the event that such succession is accomplished other than through a transfer in an arms-length transaction to unrelated third parties. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
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9.7 Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
9.8 Severability. If any term, provision, covenant or restriction of this Agreement, or any part thereof, is held by a court of competent jurisdiction of any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
9.9 Section 280G. In the event that the Executive becomes entitled to any payments or benefits under this Agreement and any portion of such payments or benefits, when combined with any other payments or benefits provided to Executive (including, without limiting the generality of the foregoing, by reason of the exercise or vesting of any stock options or the receipt or vesting of any other equity awards), which in the absence of this Section 9.9 would be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then the amount payable to the Executive under this Agreement shall, either (A) be reduced to the largest amount or greatest right such that none of the amounts payable to the Executive under this Agreement and any other payments or benefits received or to be received by Executive as a result of, or in connection with, an event constituting a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company (within the meaning of Section 280G(b)(2)(A) of the Code) or the termination of employment shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code or (B) be made in full, with Executive bearing full responsibility for any Excise Tax liability, whichever of (A) or (B) provides the Executive with a larger net after-tax amount. The Company shall cooperate in good faith with the Executive in making such determination, including but not limited to providing the Executive with an estimate of any parachute payments as soon as reasonably practicable prior to an event constituting a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company (within the meaning of Section 280G(b)(2)(A) of the Code). Any reduction pursuant to this Section 9.9 shall be made in a manner compliant with Section 409A of the Code. This Section 9.9 shall apply in lieu of any provision applicable to the Executive under any other agreement or arrangement (including the Plan) with respect to Section 4999 of the Code. All determinations with respect to this Section 9.9 shall be made by an independent nationally recognized certified public accounting firm reasonably acceptable to the Executive at the Company’s sole expense. The after tax amount shall be calculated, as applicable, using the maximum marginal income tax rates for each year in which the payment is payable to the Executive (based upon the rates in effect for such year as set forth in the Code at the relevant time).
9.10 Section 409A. The compensation and benefits provided under this Agreement are intended to qualify for an exemption from or to comply with the requirements of Section 409A of the Code and the treasury regulations and other official guidance issued thereunder (collectively, “Section 409A”), so as to prevent the inclusion in gross income of any compensation or benefits accrued hereunder in a taxable year prior to the taxable year or years in which such amount would otherwise be actually distributed or made available to the Executive, and this Agreement shall be administered and interpreted consistent with such intention. For purposes of Sections 4, 5 and 6 of this Agreement, “removal,” “termination of the Executive’s
14
employment” and words of similar import mean a “separation from service” with the Company as defined by Section 409A. The reimbursement or payment of taxable expenses contemplated hereunder to the Executive shall be made no later than the end of the year following the year in which the expense was incurred, and the expenses reimbursed in one year shall not affect the expenses eligible for reimbursement in any other year. Where the sixty (60) day period for the Executive to execute and not revoke a general release and waiver begins in one calendar year and ends in the following calendar year, payment shall be made no sooner than the first day of the following calendar year, unless such sooner payment would not result in a violation of Section 409A. Each payment shall be a payment in a series of separate payments for all purposes under Section 409A. If the Executive is a “specified employee” within the meaning of Section 409A at the time of his “separation from service” within the meaning of Section 409A, then any payment otherwise required to be made to him under this Agreement on account of his separation from service, to the extent such payment (after taking in to account all exclusions applicable to such payment under Section 409A) is properly treated as deferred compensation subject to Section 409A, shall not be made until the first business day after (i) the expiration of six months from the date of the Executive’s separation from service, or (ii) if earlier, the date of the Executive’s death (the “Delayed Payment Date”) and, on the Delayed Payment Date, there shall be paid to the Executive or, if the Executive has died, to the Executive’s estate, in a single cash lump sum, an amount equal to aggregate amount of the payments delayed pursuant to the preceding clause.
9.11 Counterparts. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on June 28, 2017.
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MONRO MUFFLER BRAKE, INC. |
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By: |
/s/ Brian J. D’Ambrosia |
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Brian J. D’Ambrosia |
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Senior Vice President- Finance and |
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Chief Financial Officer and Treasurer |
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/s/ Brett Ponton |
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Brett Ponton |
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Exhibit 10.71
AGREEMENT entered into on June 23, 2017 (the “Agreement Date”) and effective as of October 2, 2017 (the “Effective Date”), between Monro Muffler Brake, Inc. (the “Company”) and John W. Van Heel (the “Advisor”).
WHEREAS, between the Agreement Date and the Effective Date, the Company and Advisor expect that the scope of Advisor’s duties to the Company will be reduced as his successor begins to assume such duties (the “Transition”).
WHEREAS, the Company and the Advisor (1) agree that the Company shall make a lump sum payment to the Advisor on October 2, 2017; and (2) wish for the Advisor to continue to provide services to the Company upon the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Lump Sum Payment. The Company hereby agrees to pay Advisor the sum of $275,000 on October 2, 2017, subject to normal withholdings, in recognition of services rendered by Advisor to the Company prior to the Agreement Date.
2.Services. The Company hereby agrees that, during the Term (as herein defined), Advisor shall render part-time services in the capacity of advisor to the Company, making himself reasonably available to the Company’s Chief Executive Officer (“CEO”) to assist in the CEO transition. While Advisor will not maintain office hours, he will accommodate reasonable inquiries, phone calls and periodic internal or vendor meetings, in each case subject to the control and direction of the CEO and which shall relate to providing information, insights and input consistent with his role as an executive of the Company. Advisor’s commitment under this agreement will not exceed four days per month.
3.Term. The term of this Agreement, during which Advisor shall provide the services contemplated within section 2, shall commence on the Effective Date and end on March 31, 2018 (the “Term”); provided, however, that the Company may terminate the services provided in section 2 of this Agreement upon Advisor commencing full time employment with another company. The Company may not terminate Advisor’s employment without “Cause” (as defined in the Employment Agreement) prior to the Effective Date.
4.Compensation and Benefits. Advisor’s only compensation and benefits for his service to the Company contemplated by Section 2 during the Term shall be as follows:
4.1 Compensation. As consideration for services rendered as described in section 2, the Company shall pay the Advisor a monthly amount of $33,333 or a pro-rata amount for any partial month.
4.2 Participation in Benefit Plans. The Advisor shall be permitted during the Term, if and to the extent eligible, to participate in any group life, hospitalization or disability
1
insurance plan, health program, or any pension plan or similar benefit plan of the Company, which is available generally to senior employees of the Company. Notwithstanding the foregoing, in no event shall the Company be required to self-insure the Advisor nor shall the Company be required to provide any coverage to the Advisor that would result in the imposition of an excise tax, or similar penalty, on the Company.
4.3 Controlling Document. Subject to Section 6.2 hereof, to the extent there is any inconsistency between the terms of this Agreement and the terms of any plan or program under which compensation or benefits are provided hereunder, this Agreement shall control. Otherwise, the Advisor shall be subject to the terms, conditions and provisions of the Company’s plans and programs, as applicable.
5.1 Non-Disclosure. The Advisor shall forever hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Advisor during his employment by the Company or any of its affiliated companies and which shall not be public knowledge (other than as a result of a breach of this Section 5.1 by the Advisor). The Advisor shall not, without the prior written consent of the Company or except as required by law or in a judicial or administrative proceeding with subpoena powers, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it.
5.2 Remedy for Breach. The Advisor hereby acknowledges that the provisions of this Section 5 are reasonable and necessary for the protection of the Company and its respective subsidiaries and affiliates. In addition, the Advisor further acknowledges that the Company and its respective subsidiaries and affiliates will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, the Advisor agrees that, in addition to any other relief to which the Company may be entitled, the Company will be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining the Advisor from an actual or threatened breach of such covenants.
6.Advisor’s Representations and Affirmations.
6.1 Representations. The Advisor represents that he is not precluded from performing these services by reason of a pre-existing contractual restriction or physical or mental disability. Upon any breach or inaccuracy of the foregoing, the terms and benefits of this Agreement shall be null and void. The Advisor shall indemnify and hold harmless the Company from and against any and all claims, liabilities, damages and reasonable costs of defense and investigation arising out of any breach or inaccuracy in any of the foregoing representations.
6.2 Affirmations. With respect to that certain Employment Agreement by and between Advisor and the Company, dated August 7, 2012 (the “Employment Agreement”), Advisor affirms the following:
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(a) In no event shall Advisor have “Good Reason” to terminate his employment pursuant to the Employment Agreement as a result of the Transition; and
(b) The covenants under Section 7 of the Employment Agreement shall survive the expiration of such Employment Agreement and continue in accordance with their terms.
7.1 Withholdings. The Company will withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld for any other employee pursuant to any applicable law or regulation.
7.2 Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, telecopied, or sent by certified, registered or express mail, postage prepaid, to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given when so delivered personally, telecopied or if mailed, two days after the date of mailing, as follows:
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(a) |
if to the Company, to it at: |
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Monro Muffler Brake, Inc. |
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200 Holleder Parkway |
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Rochester, New York 14615 |
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Attention: Chief Executive Officer |
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with a copy to: |
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Monro Muffler Brake, Inc. |
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200 Holleder Parkway |
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Rochester, New York 14615 |
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Attention: General Counsel |
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(b) |
if to the Advisor, to him at: |
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9 Foxboro Lane |
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Fairport, New York 14450 |
7.3 Entire Agreement. This Agreement contains the entire understanding of the Company and the Advisor with respect to the subject matter hereof.
7.4 Waivers and Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right,
3
power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.
7.5 Governing Law; Jurisdiction. This Agreement shall be governed by and construed and enforced in accordance with and subject to, the laws of the State of New York applicable to agreements made and to be performed entirely within such state. The courts of New York and the United States District Courts for New York shall have jurisdiction over the parties with respect to any dispute or controversy between them arising under or in connection with this Agreement.
7.6 Assignment. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors. This Agreement is personal to the Advisor and shall not be assignable by Advisor otherwise than by will or the laws of descent and distribution. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
7.7 Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
7.8 Severability. If any term, provision, covenant or restriction of this Agreement, or any part thereof, is held by a court of competent jurisdiction of any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties have executed this Agreement on June 23, 2017.
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MONRO MUFFLER BRAKE, INC. |
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By: |
/s/ Robert Mellor |
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Robert Mellor, Lead Independent Director |
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/s/ John W. Van Heel |
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John W. Van Heel |
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4
Exhibit 10.72
Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Such portions are designated “***”.
THIS SUPPLY AGREEMENT (“Agreement”), is made and entered into as of the 28th day of June, 2017, and made effective as of June 1, 2017, by and between Valvoline LLC, a Delaware limited liability company, with a mailing address of 100 Valvoline Way, Lexington, KY 40509 (“Supplier”), and Monro Service Corporation (“Customer” and, together with the Supplier, the “Parties”)), a Delaware corporation, with a mailing address of 200 Holleder Parkway, Rochester, NY 14615.
In consideration of the mutual promises set forth in this Agreement, and other good, valuable and sufficient consideration, the receipt and adequacy of which are hereby acknowledged, Supplier hereby agrees to sell and deliver, and Customer hereby agrees to purchase, receive and pay for, the Valvoline® products described below for use at the locations identified on Schedule A, attached hereto and incorporated herein by reference on the following terms and conditions:
1. |
TERM. The term of this Agreement (the “Term”) begins on June 1, 2017 (the “Effective Date”) and expires, unless sooner terminated under this Agreement, thirty-eight (38) months after the Effective Date (the “Expiration Date”). |
2. |
SUPPLY AGREEMENT. From time to time as directed by Customer, Supplier shall supply Products (defined below) to certain locations operated by Monro Muffler Brake, Inc. the “Company”), as the parent company of Customer, as such locations are set forth on Schedule A (“Customer Locations”). Schedule A may be updated from time to time during the Term as follows: |
(i) For a location to be added as a Customer Location, Customer will provide notice to Supplier of such new location. Supplier shall consent to such location being added to Schedule A (such consent not to be unreasonably withheld, delayed or conditioned) by selling and delivering Products (defined below) to such location (such consent shall amend Schedule A to include such location as a “Customer Location”).
(ii) During the Term, Customer may cease operations at a particular Customer Location. Customer shall be permitted to remove such Customer Location from Schedule A upon notice to Supplier.
(iii) Should Customer acquire any additional business and/or locations during the Term, then such new businesses and/or location shall be added as Customer Locations upon the expiration of any supply agreement in place with the existing business and/or location on the date of Customer’s acquisition of same for any products that compete with the Products (as defined herein). Customer shall not exercise any renewal options contained in any such supply agreements following the date of Customer’s acquisition of the relevant business and/or locations.
During the Term, Supplier shall sell and deliver, and Customer shall purchase, pay and provide safe access for the delivery from Supplier (or its authorized distributor) at the Customer Locations, VALVOLINE® products set forth on Schedule B attached hereto and incorporated by reference (“Products”). It is understood and agreed that, during the Term, Customer shall purchase all of its requirements in the various Product categories (lubes, non-lubes and service chemicals) and sub-categories (premium and non-premium) from Supplier for the Customer Locations, but excluding ***, provided, that, Customer shall make all reasonable best efforts to sell the Products during the Term and shall not advertise, promote, or in any other way market competitive products.
With respect to Customer’s requirement to purchase chemical kit services from Supplier, such requirement shall be reviewed in accordance with Schedule F attached hereto and incorporated herein by reference. To help support the mutually desired growth in chemical kit services, Customer will (a) permit its employees to complete Valvoline’s online training modules during its employees’ work hours for the appropriate services, as provided by Supplier; and (b) display point of sale materials, where appropriate and as provided by Supplier, to support and help sell the services. Such point of sale materials shall be paid for using Development Funds (defined below). Customer shall promote and reasonably support Supplier-sponsored programs, as such programs shall be reasonably developed with, and agreed to by, Customer (eg. Stickerbucks, incentive trips, etc. paid
using the Development Funds provided for in Schedule E), ***. Any failure of a parent, affiliate or subsidiary of Customer to adhere to the obligations contained in this Agreement that would otherwise qualify as a material default under Section 14 hereof, may be pursued by Supplier as a material default by Customer.
3. |
Price. |
(a) |
As of the Effective Date of this Agreement, Customer shall begin paying to Supplier the applicable “Invoice Price” for the Products, as outlined in Schedule B attached hereto (the “Invoice Prices”). |
(b) |
Thereafter, price adjustments to the Invoice Prices shall follow the guidelines established on Schedule C. |
(c) |
Customer is responsible for payment of all applicable taxes, fees and other government-imposed charges, whether or not included in such prices. If compliance with law prevents Supplier from charging or Customer from paying the price provided in this Agreement, any resulting failure to perform shall be excused pursuant to Section 26 hereof. Each delivery hereunder shall be considered a separate sale. |
4. |
Payment Terms. Customer will initiate payment for the undisputed portion of each Invoice Amount on a ***. |
5. |
PROMOTIONAL SUPPORT AND DEVELOPMENT FUNDS. Promotional support and Development Funds to be provided by Supplier pursuant to this Agreement are described in the attached Schedule E hereto and incorporated herein by reference. |
6. |
FREIGHT. Supplier agrees to deliver the Products to the Customer’s warehouse destinations as may be agreed to in writing in advance by the parties hereto, freight prepaid, FOB the Customer’s receipt address for regular stock orders meeting prepaid shipment minimums. Freight will be prepaid on orders of *** units or more. For orders less than *** units, freight will be added to the bottom of the invoice. Supplier agrees to allow the Customer to transport orders from the Supplier’s designated shipping/receiving point. If Customer shall transport from Supplier, Supplier will issue a credit to the Customer equaling the prevailing freight charge of Supplier’s preferred motor carrier. |
7. |
Order Fulfillment. Except for events of force majeure contemplated herein, all orders will be shipped within five (5) working days from receipt of order where the applicable distributor’s normal delivery schedule allows for the same; provided, that, in some instances, a distributor may take up to ten (10) working days from receipt of order to ship such order, consistent with past business practices between Supplier and Customer for drum and bulk packaged products. |
8. |
SUPPLIER PRODUCT WARRANTIES. Supplier shall provide an engine guarantee and VPS engine guarantee consistent with those outlined in Schedule D; provided, that, the engine guarantee and VPS engine guarantee are subject to change from time-to-time by Supplier in its sole discretion, but any such changes shall be consistent with those applied across the engine guarantee and VPS engine guarantee programs to all of Supplier’s customers. If the Supplier discontinues an applicable warranty or materially alters the warranties provided, Supplier will honor such warranty, as set forth on Schedule D, for the remainder of the Term. |
9. |
PRODUCT CATALOGS. Supplier agrees to provide complete and accurate lubricant specifications catalog information to Customer. All electronic data must be supplied in the then-current format specified by the Automotive Aftermarket Industry Association (“AAIA”). |
(a) |
Electronic information shall be provided at least semi-annually, and provided in its entirety; |
(b) |
Electronic information shall provide the correct Supplier part information for the specific vehicle application as well as Supplier’s chosen manufacturer’s part information, without regard to Customer’s decision to stock such part; and |
(c) |
Supplier shall provide, upon release of same, a quantity of each catalog, specification guide or other such media, in an amount sufficient to supply each location operated or managed by Customer. |
(d) |
Supplier will reimburse Customer for the cost of an electronic subscription to ***.
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Failure to provide catalog information as outlined above will result in Customer obtaining the electronic information and/or print catalog editions in a manner most expeditious and beneficial to Customer. Supplier agrees to reimburse Customer for any and all costs associated with having to obtain catalog information from alternate source(s), ***.
10. |
PRICING ON NEW PRODUCTS. In the event Supplier introduces new products (“New Products”) to its product line during the Term of this Agreement, based upon changes to formulation, product engineering or similar events occur, as mandated for continued certification of product by American Petroleum Institute (“API”) or International Lubricants Standardization and Approval Committee Supplier agrees that CUSTOMER’s pricing on the New Products will be subject to the same discounts and credits to Supplier’s standard invoice pricing on the New Products as provided for in this Agreement. |
11. |
Consideration. Customer has given, and Supplier has received and accepted, adequate, good, and valuable consideration for this Agreement. Customer’s adequate, good, and valuable consideration includes the mutual covenants, obligations, and promises herein and the following (which separately and together have enabled Supplier to execute and deliver this Agreement and have assisted and will assist Supplier’s performance of its obligations under this Agreement): (1) Customer, one of the U.S.’s largest providers of automotive under-car repair and tire services, has at great length discussed and upon reasonable request during the Term will discuss its business needs with Supplier for the purpose of enabling Supplier to make compelling business proposals to Customer; (2) Customer has entered into negotiations with Supplier that are expected to culminate in the execution and delivery of this Agreement, which Customer advises gives Supplier certain advantages over other suppliers of automotive lubricants; (3) Customer has provided and upon reasonable request during the Term will provide information to Supplier about Customer’s operations; (4) in this Agreement, Customer agrees to purchase a minimum quantity of ***; and (5) in this Agreement, Customer agrees with Supplier to negotiate in good faith to determine the price for products not listed on Price List that Customer purchases from Supplier, if any. Supplier has bargained for and will receive material benefits, interests, rights and value from Customer through such consideration and that Supplier is not entitled to and would not have received such benefits, interests, rights and value absent this Agreement. This Agreement is legally binding; and Supplier will not, directly or indirectly, plead or otherwise assert in any manner in any litigation, arbitration, mediation, or other dispute-resolution proceeding that this Agreement is invalid, void, voidable, revocable, terminable, or otherwise unenforceable for lack of or insufficiency of consideration; and by this Agreement irrevocably waives and will be estopped from pleading or asserting, directly or indirectly, any cause of action, claim, defense, right, or prayer for relief to such effect. Each of Supplier’s waivers in this Section 11 is reasonable and made with Supplier’s full knowledge of its significance and consequences. |
12. |
Representations and Warranties. Customer and Supplier each represents and warrants to the other that (i) it has the right, power and authority to grant the rights provided in this Agreement and to perform its obligations under this Agreement, and (ii) its execution, delivery, and performance of this Agreement have been duly authorized and will not violate any other agreement, restriction, or law to which it is a party or by which it is bound. |
13. |
NOTICE. Notices under this Agreement are sufficient if given by nationally recognized overnight courier service, certified mail (return receipt requested) or personal delivery to the other party at the address below, provided, that either party may change the mailing address or other information provided for it by written notice given in accordance with this Section 10: |
Customer:
Monro Service Corporation
Attn: Vice President – Merchandising and Logistics
200 Holleder Parkway
Rochester, NY 14615
With copy to:
Monro Muffler Brake, Inc.
Attn: Vice President – General Counsel
200 Holleder Parkway
Rochester, NY 14615
Supplier:
Valvoline LLC
100 Valvoline Way
Lexington, KY 40509
Attn: Dean Doza
With copy to:
Valvoline LLC
100 Valvoline Way
Lexington, KY 40509
Attn: Legal Department
14. |
TERMINATION; REMEDIES. This Agreement may be terminated only by mutual consent of the parties in writing prior to the expiration hereof or by either the Supplier or Customer, as applicable, without cost or penalty if any one or more of the following events occur during the term of this Agreement: |
(a.) |
by either of the Parties if the other party materially defaults in the performance of or breaches any provision of this Agreement and does not cure the same within thirty (30) days after receipt of written notice of such default or breach; |
(b.) |
by either party if any payment due by the other party is unpaid when due and remains unresolved for thirty (30) days after written notice to the default party by the non-defaulting party; |
(c.) |
by either of the Parties if, with respect to the other party, any proceeding in bankruptcy is filed, or any order for relief in bankruptcy is issued, by or against such party, or if a receiver for such party or its premises is appointed in any suit or proceeding brought by or against party, or if there is an assignment by such party for the benefit of that party’s creditor(s); |
(d.) |
by Customer, if Supplier is acquired, either directly or indirectly, through the sale of assets, merger, or otherwise by a direct competitor of Customer; |
(e.) |
by Supplier, if the Customer is acquired, either directly or indirectly, through the sale of assets, merger, or otherwise by a direct competitor of Supplier; or |
(f.) |
by Customer, in the event that a change of control of Supplier shall result in a party, person or corporate entity controlling a majority share of Supplier and such party, person or corporate entity shall be a citizen of, or based in, a country which is, or becomes, listed on the United States of America’s Department of State’s Office of Defense Trade Control’s Embargo Reference Chart. |
Upon the early termination of this Agreement under the terms of this Section (the “Early Termination”), all amounts due and owing to either party, including, but not limited to any credits to Customer calculated in accordance with Section 5 hereof and Schedules B and C attached hereto, shall be calculated and paid or issued, as the case may be, pro rata to the effective date of such Early Termination. Nothing contained herein shall be deemed to limit or otherwise restrict any right, power, or remedy of either party. All rights, powers, and remedies shall be cumulative and concurrent and the exercise of one or more rights, powers or remedies existing under this Agreement or now or hereafter existing at law or in equity, shall not preclude the subsequent exercise by either party of any other right, power or remedy.
15. |
ETHICAL BUSINESS PRACTICE. Customer and Supplier, respectively, acknowledge that each of its employees is required to maintain the highest standards of honesty, integrity and trustworthiness. In particular, reference is made to the “Monro Muffler Brake, Inc. Code of Ethics,” which may be found online at http://www.monro.com/Corporate/Corporate-Governance and which applies to all employees of Customer. As such, both Parties affirm that they will conduct themselves, with respect to this Agreement, in accordance with these standards.
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16. |
Relationship of the Parties. The relationship of Supplier and its employees, agents, and contractors to Customer is at all times that of independent contractors, and Supplier will not represent Customer as Customer’s agent, employee, or partner in any manner. Supplier has no authority to enter into any contract or incur any expense or obligation in Customer’s name. |
17. |
CONFIDENTIALITY. |
a. |
Confidential Information. “Confidential Information” means any information, whether disclosed in oral, written, visual, electronic or other form, which any party discloses or observes in connection with any other parties performance under this Agreement that relates to business plans, strategies, forecasts or analyses; financial information; employee, customer or vendor information; software (including all documentation and code), hardware or system designs, architectures or protocols; specifications for the Products or other products; Supplier and Customer purchasing, logistics, sales, marketing and other business processes; or the terms of this agreement. |
b. |
Each party shall use Confidential Information and reproduce materials containing Confidential Information only as necessary to perform its obligations under this Agreement. Each party shall restrict disclosure of Confidential Information to its personnel who have a need to know such information to perform its obligations under the Agreement and who have first agreed to be bound by the terms of this Section. Each party is liable for an unauthorized disclosure or use of Confidential Information by any of its current or former personnel. Within ten (10) days after receiving a written request, a party shall destroy or return (as instructed) any materials containing Confidential Information. |
c. |
Exceptions to Confidential Treatment. The obligations under this Section do not apply to Confidential Information that a party can demonstrate: |
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is or becomes publicly available without its breach of this Agreement; |
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is independently developed by it without using Confidential Information; or |
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is received by it from a third party that does not have an obligation of confidentiality to the other party ; or |
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iv. |
is properly and lawfully known to the receiving party prior to the effective date of this Agreement without an obligation of confidentiality to the other party. |
A party may disclose Confidential Information to the extent that, in the reasonable opinion of its legal counsel, it is legally required to be disclosed. A party shall notify the other party in a reasonable time prior to disclosure and allow the other party a reasonable opportunity to seek appropriate protective measures
18. |
No Waiver. This Agreement’s terms, covenants and conditions may be waived only by a written instrument signed by the party waiving compliance. Any party’s failure at any time to require performance of any provision shall, in no manner, affect that party’s right to enforce that or any other provision at a later date. No waiver of any condition or breach of any provision, term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or to be construed as a further or continuing waiver of that or any other condition or of the breach of that or that provision, term or covenant of this Agreement. |
19. |
ENTIRETY OF CONTRACT. This writing is intended by the Parties as the final, complete and exclusive statement of the terms, conditions and specifications of their agreement and is intended to supersede all previous oral or written agreements and understandings between the parties relating to its specific subject matter. No employee or agent of Supplier has authority to make any statement, representation, promise or agreement not contained in this Agreement. No prior stipulation, agreement, understanding or course of dealing between the parties or their agents with respect to the subject matter of this Agreement shall be valid or enforceable unless embodied in this Agreement. No amendment, modification or waiver of any provision of this Agreement shall be valid or enforceable unless in writing and signed by all parties to this Agreement. This Agreement shall supersede, and shall not be modified or amended in any way by the terms of, any purchase order which may be issued by Customer for the purchase of product hereunder. |
20. |
SEVERABILITY. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, the application of such provision to any other person or
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circumstance and the remainder of this Agreement will not be affected thereby and will remain in full effect.
21. |
Survival. All obligations of Customer and Supplier that expressly or by their nature survive the expiration or termination of this Agreement, including the obligation of either party to pay any amounts accrued hereunder, will continue in full force and effect beyond the expiration or termination of this Agreement and until they are satisfied or by their nature expire. |
22. |
INDEMNIFICATION. To the fullest extent permitted by law, Supplier shall defend, indemnify and hold Customer, its parent, subsidiaries, related entities and their respective officers, directors and employees harmless from and against any and all claims, suits, damages, losses, liabilities, fines, penalties, costs or expenses (including reasonable attorney’s fees) arising from or related to (i) Supplier’s negligence, gross negligence or willful misconduct in the performance of its duties and obligations hereunder, or (ii) any violation of applicable law by Supplier or its products and services. |
To the fullest extent permitted by law, Customer shall defend, indemnify and hold Supplier, its parent, subsidiaries, related entities and their respective officers, directors and employees harmless from and against any and all claims, suits, damages, losses, liabilities, fines, penalties, costs or expenses (including reasonable attorney’s fees) arising from or related to (i) Customer’s negligence, gross negligence or willful misconduct in the performance of its duties and obligations hereunder, or (ii) any violation of applicable law by Customer or its products and services.
23. |
INSURANCE. Supplier shall procure and maintain at its sole expense throughout the term of this Agreement, the following minimum levels of insurance coverages: |
a. Commercial General Liability Insurance: including Broad Form Property Damage, and Personal Injury with a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) general aggregate.
b. Worker’s Compensation: including One Million Dollars ($1,000,000) Employers Liability coverage.
With respect to Commercial General Liability, “Monro Muffler Brake, Inc. and its past, present, and future subsidiaries” shall be named as additional insureds. Evidence of the required coverages shall be provided in the form of an acceptable certificate of insurance to Customer.
Customer shall procure and maintain at its sole expense throughout the term of this Agreement, the following minimum levels of insurance coverages:
a. Commercial General Liability Insurance: including Broad Form Property Damage, and Personal Injury with a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) general aggregate.
b. Worker’s Compensation: including One Million Dollars ($1,000,000) Employers Liability coverage.
With respect to Commercial General Liability, “Valvoline LLC and its past, present, and future subsidiaries” shall be named as additional insureds. Evidence of the required coverages shall be provided in the form of an acceptable certificate of insurance to Supplier.
24. |
GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED AND ACCEPTED AND SHALL BE DEEMED TO HAVE BEEN MADE AT ROCHESTER, NEW YORK. Any dispute, claim or controversy arising out of or related to this Agreement (or any of the Agreements attached hereto as schedules) or breach, termination or validity thereof, may be, by mutual consent of the Parties, settled by arbitration conducted expeditiously in accordance with the commercial Arbitration Rules of the American Arbitration Association (“AAA”). Within ten (10) business days of the filing of arbitration, the Parties shall select a sole independent and impartial arbitrator in accordance with such Rules. If the Parties mutually agree to arbitration, but are unable to agree upon an arbitrator within such period, the AAA will appoint an arbitrator on the eleventh (11th) day, which arbitrator shall be experienced in
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commercial matters. The arbitrator will issue findings of fact and conclusions of law to support his/her opinion and is not empowered to award damages in excess of compensatory damages. The place of arbitration shall be Rochester, New York. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Notwithstanding any of the foregoing, either party may seek remedy through the courts, including, without limitation, injunctive relief, prior and without prejudice to arbitration in accordance with this provision. THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL BE INTERPRETED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES HEREBY WAIVE ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING DIRECTLY OR INDIRECTLY HEREUNDER.
Notwithstanding anything contained in this Agreement, neither party shall be liable in any arbitration, litigation or other proceeding for anything other than actual, compensatory damages.
25. |
PRODUCT IDENTIFICATION. Supplier shall have the right at any time to change or discontinue use of any trademark, service mark, grade designation, trade dress, trade name or other indication of source of origin (“Marks”) under which the Products are sold and shall give 120 day written notice of any such change or discontinuation to Customer. Supplier shall also have a right at any time to change or discontinue a product so long as 120 day written notice is given to the Customer. If, however, the Supplier fails to provide a reasonable and/or similar replacement product, the Customer shall have the right to terminate this Agreement. Customer shall use its best efforts to maintain the quality, good name and reputation of Supplier and the Products. Only the Products shall be stored or sold using any equipment or container which bears the Marks. Supplier grants to Customer a license to use the Marks only to identify the Products, and store and advertise the Products. Customer shall not alter in composition, co-mingle with products from other sources, or otherwise adulterate the Products. Customer shall not bring or cause to be brought any proceedings, either administrative or judicial in nature, contesting Supplier’s ownership of rights to, or registration of Marks. |
26. |
FORCE MAJEURE. The parties to this Agreement shall not be responsible for any delay or failure to perform under this Agreement (other than to make payments when due hereunder) if delayed or prevented from performing by act of God; transportation difficulty; strike or other industrial disturbance; any law, regulation, ruling, order or action of any governmental authority; any allocation or shortage of product, as determined by Supplier in its sole discretion; or any other cause or causes beyond such party’s reasonable control whether similar or dissimilar to those stated above. It is specifically acknowledged that any amount of Product that Supplier fails to provide to Customer pursuant to the terms of this Section will be credited toward this Agreement. |
27. |
COMPLIANCE WITH LAWS/TAXES. Customer shall, at its own expense, (i) comply with all applicable laws, regulations, rulings and orders, including without limitation those relating to taxation, workers’ compensation, and environmental protection; and (ii) obtain all necessary licenses and permits for the purchase and sale of the Products. |
28. |
SUPPLIER’S RIGHT TO INSPECT. Supplier, or its authorized agents, shall have the right, but not the obligation to inspect Customer’s premises, sample, monitor or test any motor oil, grease or filter offered for sale, and to inspect or test any tank, line, pump, dispenser, or other operating equipment, including without limitation equipment owned by Customer, used at Customer’s premises bearing the Marks, or being represented to contain the Products, at any time during Customer’s business hours. At least seventy-two (72) hours prior to any such inspection, Supplier shall provide Customer with a written notice of such inspection and shall permit Customer to have management present during such inspection. |
29. |
TIME OF THE ESSENCE. In performing all obligations under this Agreement, time is of the essence. The failure of any party hereto to exercise any right such party may have with respect to breach of any provision of this Agreement shall not impair or be deemed a waiver of such party’s rights with respect to any continuing or subsequent breach of the same or any other provision of this Agreement. |
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first written above.
Monro Service Corporation |
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Valvoline LLC |
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By: |
/s/ Jeffrey Campbell |
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By: |
/s/ Samuel J. Mitchell, Jr. |
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Print Name: |
Jeffrey Campbell |
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Print Name: |
Samuel J. Mitchell, Jr. |
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Title: |
President |
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Title: |
CEO |
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Witness: |
/s/ Roxanne Pyles |
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Witness: |
/s/ Lynn G. Purdom |
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CERTIFICATION
I, John W. Van Heel, 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 15d-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 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 3, 2017
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/s/ John W. Van Heel |
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John W. Van Heel |
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Chief Executive Officer |
CERTIFICATION
I, Brian J. D’Ambrosia, 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 15d-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 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 3, 2017
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/s/ Brian J. D’Ambrosia |
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Brian J. D’Ambrosia |
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Senior Vice President – Finance, Treasurer and |
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Chief Financial Officer |
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 24, 2017 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/ John W. Van Heel |
Dated: August 3, 2017 |
John W. Van Heel |
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Chief Executive Officer |
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/s/ Brian J. D’Ambrosia |
Dated: August 3, 2017 |
Brian J. D’Ambrosia |
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Senior Vice President – Finance, Treasurer and |
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Chief Financial Officer |
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Document and Entity Information - shares |
3 Months Ended | |
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Jun. 24, 2017 |
Jul. 21, 2017 |
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Document And Entity Information [Abstract] | ||
Entity Registrant Name | MONRO MUFFLER BRAKE INC | |
Entity Central Index Key | 0000876427 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 24, 2017 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Current Fiscal Year End Date | --03-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock Shares Outstanding | 32,724,124 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 24, 2017 |
Mar. 25, 2017 |
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Consolidated Balance Sheets [Abstract] | ||
Class C convertible preferred stock par value | $ 1.50 | $ 1.50 |
Class C convertible preferred stock, conversion value | $ 0.064 | $ 0.064 |
Class C convertible preferred stock shares authorized | 150,000 | 150,000 |
Class C convertible preferred stock shares issued | 21,802 | 21,802 |
Class C convertible preferred stock shares outstanding | 21,802 | 21,802 |
Common stock par value | $ 0.01 | $ 0.01 |
Common stock shares authorized | 65,000,000 | 65,000,000 |
Common stock shares issued | 39,045,366 | 39,012,189 |
Treasury stock shares | 6,322,417 | 6,322,417 |
Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
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Jun. 24, 2017 |
Jun. 25, 2016 |
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Consolidated Statements Of Comprehensive Income [Abstract] | ||
Sales | $ 278,491 | $ 235,290 |
Cost of sales, including distribution and occupancy costs | 165,607 | 137,222 |
Gross profit | 112,884 | 98,068 |
Operating, selling, general and administrative expenses | 79,135 | 66,773 |
Operating income | 33,749 | 31,295 |
Interest expense, net of interest income | 5,742 | 4,485 |
Other income, net | (11) | (154) |
Income before provision for income taxes | 28,018 | 26,964 |
Provision for income taxes | 10,433 | 10,209 |
Net income | 17,585 | 16,755 |
Other comprehensive loss, net of tax: | ||
Changes in pension, net of tax benefit | (50) | (81) |
Comprehensive income | $ 17,535 | $ 16,674 |
Earnings per share: | ||
Basic | $ 0.53 | $ 0.52 |
Diluted | $ 0.53 | $ 0.50 |
Consolidated Statement Of Changes in Shareholders' Equity - 3 months ended Jun. 24, 2017 - USD ($) $ in Thousands |
Class C Convertible Preferred Stock [Member] |
Common Stock [Member] |
Treasury Stock [Member] |
Additional Paid-in Capital [Member] |
Accumulated Other Comprehensive Loss [Member] |
Retained Earnings [Member] |
Total |
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Balance beginning at Mar. 25, 2017 | $ 33 | $ 390 | $ (106,212) | $ 191,553 | $ (3,161) | $ 498,651 | $ 581,254 | |||
Beginning balance, preferred shares at Mar. 25, 2017 | 21,802 | 21,802 | ||||||||
Beginning balance, common shares at Mar. 25, 2017 | 39,012,000 | 6,322,000 | ||||||||
Net income | 17,585 | $ 17,585 | ||||||||
Other comprehensive loss: | ||||||||||
Pension liability adjustment ($80) pre-tax | (50) | (50) | ||||||||
Cash Dividends: | ||||||||||
Preferred dividends | [1] | (92) | (92) | |||||||
Common dividends | [1] | (5,890) | (5,890) | |||||||
Exercise of stock options | 653 | 653 | ||||||||
Exercise of stock options, shares | 33,000 | |||||||||
Stock-based compensation | 488 | 488 | ||||||||
Balance ending at Jun. 24, 2017 | $ 33 | $ 390 | $ (106,212) | $ 192,694 | $ (3,211) | $ 510,254 | $ 593,948 | |||
Ending balance, preferred shares at Jun. 24, 2017 | 21,802 | 21,802 | ||||||||
Ending balance, common shares at Jun. 24, 2017 | 39,045,000 | 6,322,000 | ||||||||
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Consolidated Statement Of Changes in Shareholders' Equity (Parenthetical) $ in Thousands |
3 Months Ended |
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Jun. 24, 2017
USD ($)
$ / shares
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Consolidated Statement of Changes in Shareholders' Equity [Abstract] | |
Common stock cash dividends per share | $ / shares | $ 0.18 |
Pension liability adjustment - pre-tax | $ | $ (80) |
Condensed Consolidated Financial Statements |
3 Months Ended | ||||||
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Jun. 24, 2017 | |||||||
Condensed Consolidated Financial Statements [Abstract] | |||||||
Condensed Consolidated Financial Statements | Note 1 – Condensed Consolidated Financial Statements The consolidated balance sheets as of June 24, 2017 and March 25, 2017, the consolidated statements of comprehensive income and cash flows for the quarters ended June 24, 2017 and June 25, 2016, and the consolidated statement of changes in shareholders’ equity for the quarter ended June 24, 2017, include financial information for Monro Muffler Brake, Inc. and its wholly-owned subsidiaries, Monro Service Corporation and Car-X, LLC (collectively, “Monro”, “we”, “us”, “our”). These unaudited, condensed consolidated financial statements have been prepared by Monro. We believe all known adjustments (consisting of normal recurring accruals or adjustments) have been made to fairly state the financial position, results of operations and cash flows for the unaudited periods presented. Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 25, 2017. We report our 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:
Fiscal year 2018, ending March 31, 2018, is a 53 week year. Monro’s operations are organized and managed in one operating segment. The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale locations. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting. Revisions We have evaluated the principal vs. agent accounting guidance in assessing the appropriate presentation for certain transactions primarily related to our fiscal 2017 acquisitions. We have determined agent accounting is appropriate for such transactions and therefore concluded that amounts previously presented on a gross basis should have been recorded on a net basis. Accordingly, we have revised amounts previously recorded in connection with these transactions during the first quarter of fiscal 2017. The revisions resulted in a reduction of sales and cost of sales by equal amounts of $1.6 million and did not impact gross profit as previously reported. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for the reporting of revenue from contracts with customers. This guidance provides guidelines a company will apply to determine the measurement of revenue and timing of when it is recognized. Additional guidance has subsequently been issued to amend or clarify the reporting of revenue from contracts with customers. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. While the evaluation of the impact of the new revenue recognition guidance on our Consolidated Financial Statements has not yet been fully determined, we anticipate the provisions to primarily impact the deferral of revenue generated by the sale of an extended warranty. Generally, in relation to these provisions, the new guidance will require the transaction price of an arrangement including an extended warranty to be allocated based on the relative standalone selling prices of the extended warranty and the original service/product rather than the contract price of the extended warranty. Therefore, the allocation may impact the amount of revenue deferred. We are required to adopt this guidance utilizing one of two methods: retrospective restatement for each reporting period presented at time of adoption, or a modified retrospective approach with the cumulative effect of initially applying this guidance recognized at the date of initial application. We intend to elect an adoption methodology after we have fully evaluated the impact on our Consolidated Financial Statements. However, we do not expect this change to have a material impact on our Consolidated Financial Statements. We are currently preparing to implement changes to our accounting policies, systems and controls to support the new revenue recognition and disclosure requirements. In February 2016, the FASB issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. Approximately 50% of our store leases and all of our land leases are currently not recorded on our balance sheet. Recording ROU assets and liabilities for these leases is expected to have a material impact on our balance sheet. We are currently evaluating the impact that recording ROU assets and liabilities will have on our Consolidated Statement of Comprehensive Income and the financial statement impact that the standard will have on leases which are currently recorded on our Consolidated Balance Sheet. In March 2016, the FASB issued new accounting guidance intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016. We have adopted this guidance during the first quarter of fiscal 2018. Amendments to this guidance related to accounting for excess tax benefits have been adopted prospectively and had an immaterial impact on the Consolidated Statement of Comprehensive Income for the quarter ended June 24, 2017. Excess tax benefits related to share-based payments are now included in operating cash flows rather than financing cash flows. This change has been applied prospectively in accordance with the guidance and prior periods have not been adjusted. We have previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows. Therefore, there is no change related to this requirement. The amendments allow for a one-time accounting policy election to either account for forfeitures as they occur or continue to estimate forfeitures as required by current guidance. We have elected to continue estimating forfeitures through applying a forfeiture rate. In August 2016, the FASB issued new accounting guidance related to cash flow classification. This guidance clarifies and provides specific guidance on eight cash flow classification issues that are not addressed by current GAAP and thereby reduce the current diversity in practice. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements. In January 2017, the FASB issued new accounting guidance which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. This guidance provides a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. This screen requires that when substantially all of the fair value of the assets is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance provides a framework to evaluate whether both an input and a substantive process are present to be considered a business. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted for certain transactions. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements. In January 2017, the FASB issued new accounting guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required the determination of an implied fair value of goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This guidance is not expected to have an impact on our Consolidated Financial Statements. In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. This guidance requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are to be presented separately from the service cost component and outside of any subtotal of income from operations. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and should be applied retrospectively. Early adoption is permitted as of the beginning of an annual period for which financial statements have not yet been issued. This guidance is not expected to have an impact on our Consolidated Financial Statements. Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected to have a material effect on Monro’s Consolidated Financial Statements.
Guarantees At the time we issue a guarantee, we recognize an initial liability for the fair value, or market value, of the obligation we assume under that guarantee. Monro has guaranteed certain lease payments, primarily related to franchisees, amounting to $6.6 million. This amount represents the maximum potential amount of future payments under the guarantees as of June 24, 2017. The leases are guaranteed through April 2020. In the event of default by the franchise owner, Monro generally retains the right to assume the lease of the related store, enabling Monro to re-franchise the location or to operate that location as a Company-operated store. We have recorded a liability related to anticipated defaults under the foregoing leases of $.6 million as of June 24, 2017 and March 25, 2017.
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Acquisitions |
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Acquisitions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | Note 2 – Acquisitions Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in existing and contiguous markets, and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this footnote include acquisitions of five or more locations as well as acquisitions of one to four locations that are part of the Company’s greenfield store growth strategy. Subsequent Events We have signed a definitive asset purchase agreement to complete the acquisition of eight retail tire and automotive repair stores located in Illinois and Indiana from a Car-X franchisee. These stores will continue to operate under the Car-X brand. This transaction is expected to close during the second quarter of fiscal 2018 and is expected to be financed through our existing credit facility. On July 30, 2017, we acquired 13 retail tire and automotive repair stores in Michigan, 12 of which were operating as Speedy Auto Service and Tire dealer locations, from UVR, Inc. One of the acquired stores was not opened by Monro. These stores operate under the Monro name. The acquisition was financed through our existing credit facility. On July 9, 2017, we acquired one retail tire and automotive repair store located in North Carolina from Norman Young Tires, Inc. This store operates under the Treadquarters name. The acquisition was financed through our existing credit facility. On June 25, 2017, we acquired one retail tire and automotive repair store located in Illinois from D&S Pulaski, LLC. This store operates under the Car-X name. The acquisition was financed through our existing credit facility. Fiscal 2018 During the first quarter of fiscal 2018, we acquired the following businesses for an aggregate purchase price of $3.7 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to favorable leases and customer lists. We expensed all costs related to acquisitions in the quarter ended June 24, 2017. The total costs related to completed acquisitions were immaterial for the quarter ended June 24, 2017. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses. Sales for the fiscal 2018 acquired entities for the quarter ended June 24, 2017 totaled $.5 million for the period from acquisition date through June 24, 2017. Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro. The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates. The excess of the net purchase price over net liabilities assumed was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of June 24, 2017 was as follows:
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
Fiscal 2017 During the first quarter of fiscal 2017, we acquired the following businesses for an aggregate purchase price of $47.9 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to favorable leases, customer lists and a trade name. We expensed all costs related to acquisitions in the quarter ended June 25, 2016. The total costs related to completed acquisitions were immaterial for the quarter ended June 25, 2016. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses. Sales for the fiscal 2017 acquired entities for the quarter ended June 25, 2016 totaled $7.8 million for the period from acquisition date through June 25, 2016. Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro. We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the remainder recorded as goodwill as follows:
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
As a result of the updated purchase price allocations, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates include a decrease in inventories of $.1 million; an increase in property, plant and equipment of $1.3 million; a decrease in intangible assets of $1.1 million; a decrease in long-term deferred income tax assets of $.1 million; an increase in other current liabilities of $.6 million and an increase in long-term capital leases and financing obligations of $.1 million. The measurement period adjustments resulted in an increase to goodwill of $.7 million. These measurement period adjustments were not material to the Consolidated Statement of Comprehensive Income for the quarter ended June 24, 2017. We continue to refine the valuation data and estimates primarily related to inventory, road hazard warranty, intangible assets, real estate, and real property leases for fiscal 2017 acquisitions which closed subsequent to June 25, 2016 and the fiscal 2018 acquisitions, and expect to complete the valuations no later than the first anniversary date of the respective acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.
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Earnings Per Common Share |
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Earnings Per Common Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Common Share | Note 3 – Earnings Per Common Share Basic earnings per common share amounts are computed by dividing income available to common shareholders, after deducting preferred stock dividends, by the average number of common shares outstanding. Diluted earnings per common share amounts assume the issuance of common stock for all potentially dilutive equivalent securities outstanding. The following is a reconciliation of basic and diluted earnings per common share for the respective periods:
The computation of diluted earnings per common share excludes the effect of the assumed exercise of approximately 655,000 and 229,000 stock options for the three months ended fiscal June 24, 2017 and June 25, 2016, respectively. Such amounts were excluded as the exercise prices of these stock options were greater than the average market value of our common stock for those periods, resulting in an anti-dilutive effect on diluted earnings per common share.
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Income Taxes |
3 Months Ended |
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Jun. 24, 2017 | |
Income Taxes [Abstract] | |
Income Taxes | Note 4 – Income Taxes In the normal course of business, we provide for uncertain tax positions and the related interest and penalties, and adjust our unrecognized tax benefits and accrued interest and penalties accordingly. The total amounts of unrecognized tax benefits were $7.1 million and $6.9 million at June 24, 2017 and March 25, 2017, respectively, the majority of which, if recognized, would affect our effective tax rate. Additionally, we have accrued interest and penalties related to unrecognized tax benefits of approximately $.5 million and $.4 million as of June 24, 2017 and March 25, 2017, respectively. We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Our fiscal 2014 through fiscal 2016 U.S. federal tax years and various state tax years remain subject to income tax examinations by tax authorities.
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Fair Value |
3 Months Ended |
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Jun. 24, 2017 | |
Fair Value [Abstract] | |
Fair Value | Note 5 – Fair Value Long-term debt had a carrying amount and a fair value of $158.0 million as of June 24, 2017, as compared to a carrying amount and a fair value of $182.4 million as of March 25, 2017. The fair value of long-term debt was estimated based on discounted cash flow analyses using either quoted market prices for the same or similar issues, or the current interest rates offered to Monro for debt with similar maturities.
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Supplemental Disclosure of Cash Flow Information |
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Supplemental Disclosure of Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Disclosure of Cash Flow Information | Note 6 – Supplemental Disclosure of Cash Flow Information The following represents non-cash investing and financing activities during the periods indicated: Three Months Ended June 24, 2017: In connection with the fiscal 2018 acquisitions and fiscal 2017 acquisition measurement period adjustments (see Note 2), liabilities were assumed as follows:
Three Months Ended June 25, 2016: In connection with the fiscal 2017 acquisitions and fiscal 2016 acquisition measurement period adjustments, liabilities were assumed as follows:
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Cash Dividend |
3 Months Ended |
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Jun. 24, 2017 | |
Cash Dividend [Abstract] | |
Cash Dividend | Note 7 – Cash Dividend In May 2017, our Board of Directors declared its intention to pay a regular quarterly cash dividend during fiscal year 2018 of $.18 per common share or common share equivalent beginning with the first quarter of fiscal year 2018. 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 our financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.
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Subsequent Events |
3 Months Ended |
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Jun. 24, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 8 – Subsequent Events See Note 2 for a discussion of acquisitions subsequent to June 24, 2017. On June 28, 2017, John W. Van Heel resigned as President of Monro, effective as of August 1, 2017. In addition, Mr. Van Heel’s employment as Chief Executive Officer of Monro will end on October 1, 2017 upon the expiration of his existing employment agreement and, in connection therewith, on June 28, 2017, Mr. Van Heel also tendered his resignation as a member of the Board of Directors (the “Board”), effective as of October 1, 2017. Also on June 28, 2017, the Board appointed Brett Ponton to serve as President of Monro, effective as of August 1, 2017, and as Chief Executive Officer of Monro, effective as of October 2, 2017. On June 27, 2017, Robert G. Gross informed Monro of his intention to not stand for re-election to the Board when his current term expires at Monro’s 2017 Annual Meeting of Shareholders, and tendered his resignation as Executive Chairman of Monro, effective immediately. In light of Mr. Gross’s resignation as Executive Chairman, on June 28, 2017, the Board elected Robert E. Mellor to serve as an independent Chairman of the Board, effective immediately. On June 27, 2017, Elizabeth A. Wolszon tendered her resignation as a member of the Board, effective as of June 26, 2017. Also, on June 27, 2017, James R. Wilen tendered his resignation as a member of the Board, effective immediately.
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Condensed Consolidated Financial Statements (Policy) |
3 Months Ended |
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Jun. 24, 2017 | |
Condensed Consolidated Financial Statements [Abstract] | |
Revisions And Reclassifications | Revisions We have evaluated the principal vs. agent accounting guidance in assessing the appropriate presentation for certain transactions primarily related to our fiscal 2017 acquisitions. We have determined agent accounting is appropriate for such transactions and therefore concluded that amounts previously presented on a gross basis should have been recorded on a net basis. Accordingly, we have revised amounts previously recorded in connection with these transactions during the first quarter of fiscal 2017. The revisions resulted in a reduction of sales and cost of sales by equal amounts of $1.6 million and did not impact gross profit as previously reported.
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for the reporting of revenue from contracts with customers. This guidance provides guidelines a company will apply to determine the measurement of revenue and timing of when it is recognized. Additional guidance has subsequently been issued to amend or clarify the reporting of revenue from contracts with customers. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. While the evaluation of the impact of the new revenue recognition guidance on our Consolidated Financial Statements has not yet been fully determined, we anticipate the provisions to primarily impact the deferral of revenue generated by the sale of an extended warranty. Generally, in relation to these provisions, the new guidance will require the transaction price of an arrangement including an extended warranty to be allocated based on the relative standalone selling prices of the extended warranty and the original service/product rather than the contract price of the extended warranty. Therefore, the allocation may impact the amount of revenue deferred. We are required to adopt this guidance utilizing one of two methods: retrospective restatement for each reporting period presented at time of adoption, or a modified retrospective approach with the cumulative effect of initially applying this guidance recognized at the date of initial application. We intend to elect an adoption methodology after we have fully evaluated the impact on our Consolidated Financial Statements. However, we do not expect this change to have a material impact on our Consolidated Financial Statements. We are currently preparing to implement changes to our accounting policies, systems and controls to support the new revenue recognition and disclosure requirements. In February 2016, the FASB issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. Approximately 50% of our store leases and all of our land leases are currently not recorded on our balance sheet. Recording ROU assets and liabilities for these leases is expected to have a material impact on our balance sheet. We are currently evaluating the impact that recording ROU assets and liabilities will have on our Consolidated Statement of Comprehensive Income and the financial statement impact that the standard will have on leases which are currently recorded on our Consolidated Balance Sheet. In March 2016, the FASB issued new accounting guidance intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016. We have adopted this guidance during the first quarter of fiscal 2018. Amendments to this guidance related to accounting for excess tax benefits have been adopted prospectively and had an immaterial impact on the Consolidated Statement of Comprehensive Income for the quarter ended June 24, 2017. Excess tax benefits related to share-based payments are now included in operating cash flows rather than financing cash flows. This change has been applied prospectively in accordance with the guidance and prior periods have not been adjusted. We have previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows. Therefore, there is no change related to this requirement. The amendments allow for a one-time accounting policy election to either account for forfeitures as they occur or continue to estimate forfeitures as required by current guidance. We have elected to continue estimating forfeitures through applying a forfeiture rate. In August 2016, the FASB issued new accounting guidance related to cash flow classification. This guidance clarifies and provides specific guidance on eight cash flow classification issues that are not addressed by current GAAP and thereby reduce the current diversity in practice. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements. In January 2017, the FASB issued new accounting guidance which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. This guidance provides a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. This screen requires that when substantially all of the fair value of the assets is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance provides a framework to evaluate whether both an input and a substantive process are present to be considered a business. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted for certain transactions. We are currently evaluating the potential impact of the adoption of this guidance on our Consolidated Financial Statements. In January 2017, the FASB issued new accounting guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which required the determination of an implied fair value of goodwill. Under this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This guidance is not expected to have an impact on our Consolidated Financial Statements. In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. This guidance requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are to be presented separately from the service cost component and outside of any subtotal of income from operations. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017, and should be applied retrospectively. Early adoption is permitted as of the beginning of an annual period for which financial statements have not yet been issued. This guidance is not expected to have an impact on our Consolidated Financial Statements. Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected to have a material effect on Monro’s Consolidated Financial Statements.
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Guarantees | Guarantees At the time we issue a guarantee, we recognize an initial liability for the fair value, or market value, of the obligation we assume under that guarantee. Monro has guaranteed certain lease payments, primarily related to franchisees, amounting to $6.6 million. This amount represents the maximum potential amount of future payments under the guarantees as of June 24, 2017. The leases are guaranteed through April 2020. In the event of default by the franchise owner, Monro generally retains the right to assume the lease of the related store, enabling Monro to re-franchise the location or to operate that location as a Company-operated store. We have recorded a liability related to anticipated defaults under the foregoing leases of $.6 million as of June 24, 2017 and March 25, 2017.
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Acquisitions (Tables) |
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Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Purchase Price Allocation |
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Schedule Of Intangible Assets Acquired |
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Schedule Of Purchase Price Allocation |
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Schedule Of Intangible Assets Acquired |
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Earnings Per Common Share (Tables) |
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Earnings Per Common Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation Of Basic And Diluted Earnings Per Share |
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Supplemental Disclosure of Cash Flow Information (Tables) |
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Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||
Liabilities on acquisitions assumed |
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Fiscal 2017 And 2016 Adjustments [Member] | |||||||||||||||||||||||||||||||||
Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||
Liabilities on acquisitions assumed |
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Condensed Consolidated Financial Statements (Details) - USD ($) $ in Millions |
3 Months Ended | ||
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Jun. 25, 2016 |
Jun. 24, 2017 |
Mar. 25, 2017 |
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Financial Statement [Line Items] | |||
Liability for anticipated lease defaults | $ 0.6 | $ 0.6 | |
Sales [Member] | |||
Financial Statement [Line Items] | |||
Reclassification adjustment | $ (1.6) | ||
Cost of Sales [Member] | |||
Financial Statement [Line Items] | |||
Reclassification adjustment | $ (1.6) | ||
Property Lease Guarantee [Member] | Maximum [Member] | |||
Financial Statement [Line Items] | |||
Maximum potential guarantee payments | $ 6.6 |
Earnings Per Common Share (Narrative) (Details) - shares |
3 Months Ended | |
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Jun. 24, 2017 |
Jun. 25, 2016 |
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Earnings Per Common Share [Abstract] | ||
Antidilutive securities excluded from computation of earnings per share | 655,000 | 229,000 |
Earnings Per Common Share (Reconciliation Of Basic And Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | ||||
---|---|---|---|---|---|
Jun. 24, 2017 |
Jun. 25, 2016 |
||||
Numerator for earnings per common share calculation: | |||||
Net income | $ 17,585 | $ 16,755 | |||
Preferred stock dividends | (92) | [1] | (129) | ||
Income available to common stockholders | $ 17,493 | $ 16,626 | |||
Denominator for earnings per common share calculation: | |||||
Weighted average common shares, basic | 32,704 | 32,258 | |||
Effect of dilutive securities: | |||||
Preferred stock | 510 | 760 | |||
Stock options | 78 | 309 | |||
Weighted average number of common shares, diluted | 33,292 | 33,327 | |||
Basic earnings per common share: | $ 0.53 | $ 0.52 | |||
Diluted earnings per common share: | $ 0.53 | $ 0.50 | |||
|
Income Taxes (Narrative) (Details) - USD ($) $ in Millions |
Jun. 24, 2017 |
Mar. 25, 2017 |
---|---|---|
Income Taxes [Abstract] | ||
Unrecognized tax benefits | $ 7.1 | $ 6.9 |
Interest and penalties accrued related to unrecognized tax benefits | $ 0.5 | $ 0.4 |
Fair Value (Details) - USD ($) $ in Millions |
Jun. 24, 2017 |
Mar. 25, 2017 |
---|---|---|
Fair Value [Abstract] | ||
Carrying amount of long-term debt ( including current portion) | $ 158.0 | $ 182.4 |
Fair value of long-term debt (including current portion) | $ 158.0 | $ 182.4 |
Supplemental Disclosure of Cash Flow Information (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Jun. 24, 2017 |
Jun. 25, 2016 |
Mar. 25, 2017 |
|
Business Acquisition [Line Items] | |||
Goodwill acquired | $ 506,359 | $ 501,736 | |
Cash paid, net of cash acquired | (3,971) | $ (47,361) | |
Fiscal 2018 and 2017 Adjustments [Member] | |||
Business Acquisition [Line Items] | |||
Fair value of assets acquired | 2,559 | ||
Goodwill acquired | 4,623 | ||
Cash paid, net of cash acquired | (3,971) | ||
Amounts payable to sellers | 207 | ||
Liabilities assumed | $ 3,418 | ||
Fiscal 2017 And 2016 Adjustments [Member] | |||
Business Acquisition [Line Items] | |||
Fair value of assets acquired | 27,093 | ||
Goodwill acquired | 38,340 | ||
Cash paid, net of cash acquired | (47,366) | ||
Amounts payable to sellers | 206 | ||
Liabilities assumed | $ 18,273 |
Cash Dividend (Details) |
1 Months Ended |
---|---|
May 31, 2017
$ / shares
| |
Cash Dividend [Abstract] | |
Common stock cash dividends per share declared | $ 0.18 |
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