UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

____________________________________________________________

(Mark One)

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

For the quarterly period ended ~~December 28, 2019.~~September 26, 2020.

¨ 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

____________________________________________________________

MONRO, INC.

(Exact name of registrant as specified in its charter)

____________________________________________________________


New York	16-0838627
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

200 Holleder Parkway, Rochester, New York	14615
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (585) 647-6400

_________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

MNRO

The Nasdaq Stock Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨ 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 x No

As of ~~January 24,~~October 23, 2020, ~~33,283,751~~33,307,406 shares of the registrant's common stock, $0.01 par value ~~$0.01~~ per share, were outstanding.

Table of Contents

MONRO, INC.

INDEX


Part I. Financial Information	Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets ~~as of December 28, 2019 and March 30, 2019~~	3
Consolidated Statements of Comprehensive Income ~~for the quarters and nine months ended December 28, 2019 and December 29, 2018~~	4
Consolidated Statements of Changes in Shareholders’ Equity ~~for the quarters and nine months ended December 28, 2019 and December 29, 2018~~	5
Consolidated Statements of Cash Flows ~~for the nine months ended December 28, 2019 and December 29, 2018~~	6
Notes to Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1713
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2120
Item 4. Controls and Procedures	2120
Part II. Other Information
Item 1. Legal Proceedings	2221
Item 1A. Risk Factors	21
Item 6. Exhibits	22
Signatures	23

‎

Table of Contents

MONRO, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MONRO, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	December 28,		March 30,		September 26,		March 28,
	2019		2019		2020		2020
	(Dollars in thousands)				(Dollars in thousands)
Assets
Current assets:
Cash and equivalents	$	8,826	$	6,214	$	81,453	$	345,476
Trade receivables		16,973		14,617		14,022		14,510
Federal and state income taxes receivable		1,652		5,586		6,688		8,056
Inventories		179,171		171,038		167,739		187,441
Other current assets		45,883		42,452		45,632		40,537
Total current assets		252,505		239,907		315,534		596,020
Property, plant and equipment		676,071		640,421		696,570		682,932
Less - Accumulated depreciation and amortization		(349,798)		(327,869)		(368,308)		(354,295)
Net property, plant and equipment		326,273		312,552		328,262		328,637
Finance lease and financing obligation assets, net		193,900		128,029		272,179		196,575
Operating lease assets, net		211,573		—		202,866		199,729
Goodwill		673,569		565,503		671,831		671,843
Intangible assets, net		30,916		51,107		27,681		29,781
Other non-current assets		18,436		13,024		19,199		20,688
Long-term deferred income tax assets		5,041		2,166		5,930		6,184
Total assets	$	1,712,213	$	1,312,288	$	1,843,482	$	2,049,457
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt, finance leases and financing obligations	$	31,084	$	22,229
Current portion of finance leases and financing obligations					$	35,713	$	32,257
Current portion of operating lease liabilities		30,534		—		29,960		30,181
Trade payables		115,512		103,602		127,615		99,504
Accrued payroll, payroll taxes and other payroll benefits		20,692		20,231		12,373		14,429
Accrued insurance		39,234		38,742		46,484		43,387
Deferred revenue		13,635		12,059		11,837		13,129
Other current liabilities		22,037		21,584		34,333		22,049
Total current liabilities		272,728		218,447		298,315		254,936
Long-term debt		196,985		137,682		231,300		566,400
Long-term finance leases and financing obligations		298,888		238,089		364,598		298,373
Long-term operating lease liabilities		176,583		—		178,368		170,954
Accrued rent expense		—		4,053
Other long-term liabilities		10,824		12,724		21,495		12,873
Long-term deferred income tax liabilities		7,258		—		11,558		10,069
Long-term income taxes payable		2,355		1,783		1,481		1,412
Total liabilities		965,621		612,778		1,107,115		1,315,017
Commitments and contingencies
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $0.064 conversion value, ‎150,000 shares authorized; 21,802 shares issued and outstanding		33		33		33		33
Common Stock, $0.01 par value, 65,000,000 shares authorized; 39,639,544 and ‎39,510,932 shares issued at December 28, 2019 and March 30, 2019, respectively		396		395
Treasury Stock, 6,359,871 shares at December 28, 2019 and March 30, 2019, at cost		(108,729)		(108,729)
Common Stock, $0.01 par value, 65,000,000 shares authorized; 39,667,277 and ‎39,644,228 shares issued at September 26, 2020 and March 28, 2020, respectively						397		396
Treasury Stock, 6,359,871 shares, at cost						(108,729)		(108,729)
Additional paid-in capital		228,617		220,173		231,095		229,774
Accumulated other comprehensive loss		(4,802)		(4,536)		(7,229)		(6,889)
Retained earnings		631,077		592,174		620,800		619,855
Total shareholders' equity		746,592		699,510		736,367		734,440
Total liabilities and shareholders' equity	$	1,712,213	$	1,312,288	$	1,843,482	$	2,049,457

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

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MONRO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Quarter Ended				Nine Months Ended				Quarter Ended				Six Months Ended
	Fiscal December				Fiscal December				September 26,		September 28,		September 26,		September 28,
	2019		2018		2019		2018		2020		2019		2020		2019
	(Dollars in thousands, ‎except per share data)								(Dollars in thousands, ‎except per share data)
Sales	$	329,281	$	310,110	$	970,458	$	913,027	$	288,587	$	324,113	$	535,646	$	641,177
Cost of sales, including distribution and occupancy costs		204,929		192,144		595,886		557,876		184,061		202,040		343,666		390,957
Gross profit		124,352		117,966		374,572		355,151		104,526		122,073		191,980		250,220
Operating, selling, general and administrative expenses		92,781		87,256		273,273		256,862		80,101		88,716		156,154		180,493
Operating income		31,571		30,710		101,299		98,289		24,425		33,357		35,826		69,727
Interest expense, net of interest income		6,983		6,797		21,100		20,180		7,322		6,961		14,707		14,117
Other income, net		(274)		(321)		(655)		(809)
Income before provision for income taxes		24,862		24,234		80,854		78,918
Other income, net of other loss										(77)		(207)		(68)		(382)
Income before income taxes										17,180		26,603		21,187		55,992
Provision for income taxes		5,982		3,703		19,054		15,982		4,334		6,289		5,354		13,072
Net income		18,880		20,531		61,800		62,936	$	12,846	$	20,314	$	15,833	$	42,920
Other comprehensive loss, net of tax:
Other comprehensive loss:
Changes in pension, net of tax benefit		(89)		(76)		(266)		(227)		(170)		(88)		(340)		(177)
Other comprehensive loss										(170)		(88)		(340)		(177)
Comprehensive income	$	18,791	$	20,455	$	61,534	$	62,709	$	12,676	$	20,226	$	15,493	$	42,743
Earnings per common share:
Basic	$	0.56	$	0.62	$	1.85	$	1.90	$	0.38	$	0.61	$	0.47	$	1.29
Diluted	$	0.56	$	0.61	$	1.82	$	1.87	$	0.38	$	0.60	$	0.47	$	1.26
Weighted average number of common shares outstanding ‎ used in computing earnings per share:
Basic		33,274		33,032		33,234		32,932		33,297		33,244		33,291		33,214
Diluted		33,973		33,766		33,971		33,605		33,849		33,979		33,851		33,971

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

‎

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MONRO, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)

(Dollars and shares in thousands)



		Class C Convertible ‎Preferred Stock			Common Stock			Treasury Stock			Additional ‎Paid-in		Accumulated ‎Other ‎Comprehensive		Retained					Class C Convertible ‎Preferred Stock			Common Stock			Treasury Stock			Additional ‎Paid-in		Accumulated ‎Other ‎Comprehensive		Retained
		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Earnings		Total			Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Earnings		Total
Balance at September 29, 2018		22	$	33	39,300	$	393	6,345	$	(107,523)	$	206,533	$	(4,399)	$	568,304	$	663,341
Net income																20,531		20,531
Other comprehensive loss:
Pension liability adjustment ‎ ($100) pre-tax														(76)				(76)
Cash dividends ⁽¹⁾:	Preferred															(102)		(102)
	Common															(6,620)		(6,620)
Dividend payable																(12)		(12)
Activity related to equity-based plans					159		2	15		(1,206)		9,191						7,987
Stock-based compensation												1,085						1,085
Balance at December 29, 2018		22	$	33	39,459	$	395	6,360	$	(108,729)	$	216,809	$	(4,475)	$	582,101	$	686,134

Balance at September 28, 2019		22	$	33	39,628	$	396	6,360	$	(108,729)	$	226,948	$	(4,713)	$	619,641	$	733,576
Balance at June 29, 2019																			Balance at June 29, 2019	22	$	33	39,582	$	396	6,360	$	(108,729)	$	224,742	$	(4,625)	$	606,771	$	718,588
Net income	Net income															18,880		18,880	Net income															20,314		20,314
Other comprehensive loss:	Other comprehensive loss:																		Other comprehensive loss:
Pension liability adjustment ‎ ($118) pre-tax	Pension liability adjustment ‎ ($118) pre-tax													(89)				(89)	Pension liability adjustment ‎ ($118) pre-tax													(88)				(88)
Cash dividends ⁽¹⁾:	Preferred															(112)		(112)	Preferred															(112)		(112)
	Common															(7,321)		(7,321)	Common															(7,319)		(7,319)
Dividend payable	Dividend payable															(11)		(11)	Dividend payable															(13)		(13)
Activity related to equity-based plans	Activity related to equity-based plans				12		—					701						701	Activity related to equity-based plans				46							1,244						1,244
Stock-based compensation	Stock-based compensation											968						968	Stock-based compensation											962						962
Balance at December 28, 2019		22	$	33	39,640	$	396	6,360	$	(108,729)	$	228,617	$	(4,802)	$	631,077	$	746,592
Balance at September 28, 2019																			Balance at September 28, 2019	22	$	33	39,628	$	396	6,360	$	(108,729)	$	226,948	$	(4,713)	$	619,641	$	733,576


Balance at March 31, 2018		22	$	33	39,166	$	392	6,330	$	(106,563)	$	199,576	$	(4,248)	$	539,286	$	628,476
Balance at June 27, 2020																			Balance at June 27, 2020	22	$	33	39,646	$	396	6,360	$	(108,729)	$	230,683	$	(7,059)	$	615,396	$	730,720
Net income	Net income															62,936		62,936	Net income															12,846		12,846
Other comprehensive loss:	Other comprehensive loss:																		Other comprehensive loss:
Pension liability adjustment ‎ ($302) pre-tax														(227)				(227)
Pension liability adjustment ‎ ($226) pre-tax																			Pension liability adjustment ‎ ($226) pre-tax													(170)				(170)
Cash dividends ⁽¹⁾:	Preferred															(306)		(306)	Preferred															(112)		(112)
	Common															(19,778)		(19,778)	Common															(7,328)		(7,328)
Dividend payable	Dividend payable															(37)		(37)	Dividend payable															(2)		(2)
Activity related to equity-based plans	Activity related to equity-based plans				293		3	30		(2,166)		14,083						11,920	Activity related to equity-based plans				21		1					(199)						(198)
Stock-based compensation	Stock-based compensation											3,150						3,150	Stock-based compensation											611						611
Balance at December 29, 2018		22	$	33	39,459	$	395	6,360	$	(108,729)	$	216,809	$	(4,475)	$	582,101	$	686,134
Balance at September 26, 2020																			Balance at September 26, 2020	22	$	33	39,667	$	397	6,360	$	(108,729)	$	231,095	$	(7,229)	$	620,800	$	736,367


Balance at March 30, 2019	Balance at March 30, 2019	22	$	33	39,511	$	395	6,360	$	(108,729)	$	220,173	$	(4,536)	$	592,174	$	699,510	Balance at March 30, 2019	22	$	33	39,511	$	395	6,360	$	(108,729)	$	220,173	$	(4,536)	$	592,174	$	699,510
Accounting change - cumulative effect	Accounting change - cumulative effect															(582)		(582)	Accounting change - cumulative effect															(582)		(582)
Adjusted balance	Adjusted balance	22		33	39,511		395	6,360		(108,729)		220,173		(4,536)		591,592		698,928	Adjusted balance	22		33	39,511		395	6,360		(108,729)		220,173		(4,536)		591,592		698,928
Net income	Net income															61,800		61,800	Net income															42,920		42,920
Other comprehensive loss:	Other comprehensive loss:																		Other comprehensive loss:
Pension liability adjustment ‎ ($353) pre-tax														(266)				(266)
Pension liability adjustment ‎ ($235) pre-tax																			Pension liability adjustment ‎ ($235) pre-tax													(177)				(177)
Cash dividends ⁽¹⁾:	Preferred															(337)		(337)	Preferred															(224)		(224)
	Common															(21,944)		(21,944)	Common															(14,624)		(14,624)
Dividend payable	Dividend payable															(34)		(34)	Dividend payable															(23)		(23)
Activity related to equity-based plans	Activity related to equity-based plans				129		1					5,589						5,590	Activity related to equity-based plans				117		1					4,888						4,889
Stock-based compensation	Stock-based compensation											2,855						2,855	Stock-based compensation											1,887						1,887
Balance at December 28, 2019		22	$	33	39,640	$	396	6,360	$	(108,729)	$	228,617	$	(4,802)	$	631,077	$	746,592
Balance at September 28, 2019																			Balance at September 28, 2019	22	$	33	39,628	$	396	6,360	$	(108,729)	$	226,948	$	(4,713)	$	619,641	$	733,576

Balance at March 28, 2020																			Balance at March 28, 2020	22	$	33	39,645	$	396	6,360	$	(108,729)	$	229,774	$	(6,889)	$	619,855	$	734,440
Net income																			Net income															15,833		15,833
Other comprehensive loss:																			Other comprehensive loss:
Pension liability adjustment ‎ ($453) pre-tax																			Pension liability adjustment ‎ ($453) pre-tax													(340)				(340)
Cash dividends ⁽¹⁾:																			Preferred															(224)		(224)
																			Common															(14,651)		(14,651)
Dividend payable																			Dividend payable															(13)		(13)
Activity related to equity-based plans																			Activity related to equity-based plans				22		1					(194)						(193)
Stock-based compensation																			Stock-based compensation											1,515						1,515
Balance at September 26, 2020																			Balance at September 26, 2020	22	$	33	39,667	$	397	6,360	$	(108,729)	$	231,095	$	(7,229)	$	620,800	$	736,367

(1)First and second quarter fiscal year 2021 dividend payments of $0.22 per common share or common share equivalent paid on June 22, 2020 and ~~third~~September 8, 2020. First and second quarter fiscal year 2020 dividend payments of $0.22 per common share or common share equivalent paid on June 17, 2019 and September 9, 2019 and December 24, 2019, respectively. First, second and third quarter fiscal year 2019 dividend payments of $0.20 per common share or common share equivalent paid on June 14, 2018, September 6, 2018 and December 21, 2018, respectively.2019.

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

‎

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MONRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended				Six Months Ended
	Fiscal December				September 26,		September 28,
	2019		2018		2020		2019
	(Dollars in thousands)				(Dollars in thousands)
	Increase (Decrease) in Cash				Increase (Decrease) in Cash
Cash flows from operating activities:
Net income	$	61,800	$	62,936	$	15,833	$	42,920
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		47,329		41,035		37,877		30,328
Gain on disposal of assets		(840)		(314)
Stock-based compensation expense		2,855		3,150		1,515		1,887
Loss (gain) on disposal of assets						109		(1,287)
Impairment of long-lived assets						99		78
Net change in deferred income taxes		7,426		10,707		1,856		4,796
Change in operating assets and liabilities (excluding acquisitions):
Trade receivables		(2,356)		(1,777)		488		(2,386)
Inventories		(3,768)		2,225		19,879		2,860
Other current assets		(447)		772		(5,095)		(7,644)
Other non-current assets		18,097		1		17,323		10,383
Trade payables		11,918		10,598		28,111		4,488
Accrued expenses		1,097		1,596		12,055		4,216
Federal and state income taxes payable		3,934		(1,091)		1,368		3,794
Other long-term liabilities		(22,954)		(1,767)		(5,792)		(14,838)
Long-term income taxes payable		572		536		69		502
Total adjustments		62,863		65,671		109,862		37,177
Net cash provided by operating activities		124,663		128,607		125,695		80,097
Cash flows from investing activities:
Capital expenditures		(42,226)		(30,763)		(23,644)		(23,755)
Acquisitions, net of cash acquired		(104,254)		(46,052)		(400)		(65,020)
Proceeds from the disposal of assets		426		492		68		124
Other		587		281		388		294
Net cash used for investing activities		(145,467)		(76,042)		(23,588)		(88,357)
Cash flows from financing activities:
Proceeds from borrowings		356,779		313,875		—		226,628
Principal payments on long-term debt, finance leases and financing obligations		(317,039)		(356,834)		(350,391)		(207,772)
Exercise of stock options		5,957		12,148		10		5,256
Dividends paid		(22,281)		(20,084)		(14,875)		(14,848)
Net cash provided by (used for) financing activities		23,416		(50,895)
Increase in cash		2,612		1,670
Deferred financing costs						(874)		(1,168)
Net cash (used for) provided by financing activities						(366,130)		8,096
Decrease in cash						(264,023)		(164)
Cash at beginning of period		6,214		1,909		345,476		6,214
Cash at end of period	$	8,826	$	3,579	$	81,453	$	6,050
Supplemental information:
Leased assets obtained in exchange for finance lease liabilities					$	90,052	$	26,858
Leased assets obtained in exchange for operating lease liabilities						17,857		6,601

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

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Note~~NOTE 1 – ~~Condensed Consolidated Financial Statements~~DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

~~The consolidated balance sheets as~~Description of December 28, 2019 and March 30, 2019, the consolidated statements of comprehensive income and changes in shareholders’ equity for the quarters and nine months ended December 28, 2019 and December 29, 2018 and the consolidated statements of cash flows for the nine months ended December 28, 2019 and December 29, 2018, include financial information for Business

Monro, Inc. and its ~~wholly-owned~~wholly owned operating subsidiaries, Monro Service ~~Corporation;~~Corporation, Car-X, ~~LLC;~~LLC, MNRO Holdings, LLC and MNRO Service Holdings, LLC ~~(collectively, “Monro,” “we,” “us,” “our,”~~(together, “Monro”, the “Company”~~). These unaudited, condensed consolidated financial statements have been prepared by Monro. We believe all known adjustments (consisting of normal recurring accruals~~, “we”, “us”, or ~~adjustments) have been made to fairly state the financial position, results of operations~~“our”), are engaged principally in providing automotive undercar repair 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 acceptedtire sales and services 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 fiscal year ended March 30, 2019.

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 December 2019”~~	~~September 29, 2019 – December 28, 2019 (13 weeks)~~
~~“Quarter Ended Fiscal December 2018”~~	~~September 30, 2018 – December 29, 2018 (13 weeks)~~
~~“Nine Months Ended Fiscal December 2019”~~	~~March 31, 2019 – December 28, 2019 (39 weeks)~~
~~“Nine Months Ended Fiscal December 2018”~~	~~April 1, 2018 – December 29, 2018 (39 weeks)~~

~~Fiscal 2020, ending March 28, 2020, is a 52 week year.~~States.

Monro’s operations are organized and managed in 1one 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.

~~Recent Accounting Pronouncements~~

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to leases. This guidance establishes a right~~Basis 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 are 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. We adopted this standard as of March 31, 2019 using the modified retrospective approach and elected the optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. In addition, we elected the package of practical expedients permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification and provided relief from reviewing existing contracts to determine if they contain leases. We did not elect to use hindsight in determining the lease term.Presentation

The ~~adoption of this guidance resulted~~accompanying unaudited, condensed consolidated financial statements (“Consolidated Financial Statements”) have been prepared in ~~a $165.3 million increase to total assets~~accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and a $165.9 million increase to total liabilities as of March 31, 2019. The Company recognized $186.9 million of operating lease ROU assets, $174.4 million of operating lease obligations, and a $0.7 million finance lease asset and liability related to embedded leases. The difference between the operating lease ROU assets and operating lease liabilities primarily represents the existing favorable lease intangibles of $19.6 million and unfavorable lease intangibles and deferred rent accruals of $7.2 million resulting from historical operating lease accounting. These were reclassified as operating ROU assets upon adoption. In addition, we recognized $8.4 million and $16.6 million of finance lease assets and liabilities, respectively, and removed $11.1 million and $18.6 million of assets and liabilities related to financial obligations connected with the construction of leased stores that are no longer considered a failed sale leaseback. As a result of using the modified retrospective approach, the adoption resulted in a cumulative-effect adjustment to retained earnings, net of tax, of approximately $0.6 million. The adoption of this guidance did not have a material impact to our Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. At adoption, we reclassified prior year capital lease and financing obligation assets from the Net property, plant and equipment lineinstructions to the ~~Finance lease~~Quarterly Report on Form 10-Q and ~~financing obligation assets, net line~~Article 10 of ~~our~~Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The Consolidated ~~Balance Sheet. See Note 8~~Financial Statements include the consolidated accounts of the Company with all intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for ~~additional lease disclosures.~~a fair statement of the results for the interim period. The Consolidated Financial Statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020 (“fiscal 2020”). Operating results and cash flows for the quarter and six months ended September 26, 2020 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending March 27, 2021 (“fiscal 2021”).

7Fiscal Year

~~Table~~We report our results on a 52/53 week fiscal year with the fiscal year ending on the last Saturday in March of ~~Contents~~

~~MONRO, INC.~~each year. The following are the dates represented by each fiscal period reported in the Consolidated Financial Statements:

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~



“Quarter Ended Fiscal September 2020”	June 28, 2020 – September 26, 2020 (13 weeks)
“Quarter Ended Fiscal September 2019”	June 30, 2019 – September 28, 2019 (13 weeks)
“Six Months Ended Fiscal September 2020”	March 29, 2020 – September 26, 2020 (26 weeks)
“Six Months Ended Fiscal September 2019”	March 31, 2019 – September 28, 2019 (26 weeks)

~~In June 2018,~~Fiscal 2021 is a 52 week year.

Reclassifications

Certain amounts in these financial statements have been reclassified to maintain comparability among the FASB issued new accounting guidance that amends the accounting for nonemployee share-based awards. Under the new guidance, the existing guidance related to the accounting for employee share-based awards will apply to nonemployee share-based transactions, with certain exceptions. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption was permitted. We adopted this guidance during the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.presented.

Recent Accounting Pronouncements

In August 2018, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued new accounting guidance which eliminates, adds and modifies certain disclosure requirements for fair value measurements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption iswas permitted. We ~~are currently evaluating~~adopted this guidance during the ~~potential impact~~first quarter of ~~the~~fiscal 2021. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

In December 2019, the FASB issued new accounting guidance intended to simplify the accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification Topic 740 Income Taxes and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020. Early adoption is permitted. ~~We are currently evaluating the potential impact of the~~The adoption of this guidance is not expected to have a material 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 our Consolidated Financial Statements.

~~Financing~~

In April 2019, we entered into a new five year $600 million revolving credit facility agreement with 8 banks (the “Credit Facility”). The Credit Facility amended and restated our previous revolving credit facility which would have expired in January 2021. Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $250 million. The Credit Facility bears interest at 75 to 200 basis points over LIBOR (or replacement index) or at the prime rate, depending on the type of borrowing and the rates then in effect. The Credit Facility requires fees payable quarterly throughout the term between 0.125% and 0.35% of the amount of the average net availability under the Credit Facility during the preceding quarter.

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 212.5 basis points annually of the face amount of each standby letter of credit, payable quarterly in arrears.

Specific terms of the Credit Facility permit the payment of cash dividends (with certain limitations), 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 December 28, 2019.~~

~~Commitments and Contingencies~~

As of the date of this report, other than changes related to adoption of the new lease accounting standard as described in Note 8 to the Consolidated Financial Statements, there were no material changes to our commitments and contingencies outside those related to business acquisitions since March 30, 2019, as reported in our Form 10-K.

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Note~~NOTE 2 – ~~Acquisitions~~IMPACT OF THE COVID-19 PANDEMIC

In response to the unprecedented and rapid spread of COVID-19 (coronavirus), many U.S. state governments, in states in which we operate, have taken preventative or protective actions, such as issuing stay-at-home restrictions and social distancing measures. State and local governments have ordered temporary closures of some businesses and numerous other businesses have temporarily closed voluntarily. Further, individuals’ ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of certain businesses. Substantially all Company-operated retail stores operated under a reduced schedule throughout the quarter to match lower demand.

NOTE 3 – ACQUISITIONS

Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in our existing and contiguous markets, expand into new markets and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this footnote include acquisitions of 5 or more locations as well as acquisitions of 1 to 4 locations that are part of our greenfield store growth strategy.

Subsequent Events

Subsequent to September 26, 2020, we signed a definitive asset purchase agreement to complete the acquisition of 17 retail tire and automotive repair stores located in California from Fred Allen Enterprises, Inc. This transaction is expected to close during the third quarter of fiscal 2021 and is expected to be financed through our Credit Facility. Prior to this acquisition, our acquisition activity during the first six months of fiscal 2021 was paused due to the impact of the COVID-19 pandemic.

Fiscal 2020

During the first ~~nine~~six months of fiscal 2020, we acquired the following businesses for an aggregate purchase price of ~~$103.6~~$64.1 million. The acquisitions were financed through our Credit ~~Facility and our prior credit facility.~~Facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.

On November 17, 2019, we acquired 18 retail tire and automotive repair stores located in Nevada and Idaho from Nevada Tire Holdings, LLC and Idaho Tire Holdings, LLC. (NaN retail tire and automotive repair store is expected to open during the fourth quarter of fiscal 2020.) These stores will operate under the Tire Choice name.

~~On October 27, 2019, we acquired 6 retail tire and automotive repair stores located in California from S & S Unlimited, Inc. These stores will operate under the Tire Choice name.~~

~~On October 27, 2019, we acquired 3 retail tire and automotive repair stores located in California from Lloyd’s Tire Service, Inc. These stores will operate under the Tire Choice name.~~

On August 25, 2019, we acquired 1 retail tire and automotive repair store located in Louisiana from Atlas Tire Center, Inc. This store operates under the Tire Choice name.

On August 25, 2019, we acquired 2 retail tire and automotive repair stores located in Louisiana from LRZ3 Auto, LLC. These stores operate under the Tire Choice name.

On August 25, 2019, we acquired 1 retail tire and automotive repair store located in Louisiana from ~~T-Boy's~~T-Boy’s Tire and Automotive, LLC. This store operates under the Tire Choice name.

On August 25, 2019, we acquired 2 retail tire and automotive repair stores located in Louisiana from Twin Tire & Auto Care, Inc. These stores operate under the Tire Choice name.

On August 25, 2019, we acquired 1 retail tire and automotive repair store located in Louisiana from Twin Tire & Auto Care Team, Inc. This store operates under the Tire Choice name.

On August 25, 2019, we acquired 1 retail tire and automotive repair store located in Louisiana from ~~Scotty's~~Scotty’s Tire & Automotive, Inc. This store operates under the Tire Choice name.

On June 23, 2019, we acquired 2 retail tire and automotive repair stores located in California from BAW LLC. These stores operate under the Tire Choice name.

On May 19, 2019, we acquired 40 retail tire and automotive repair stores and 1 distribution center located in California from Certified Tire & Service Centers, Inc. These stores operate under the Tire Choice name.

On March 31, 2019, we acquired 12 retail tire and automotive repair stores located in Louisiana from Allied Discount Tire & Brake, Inc. These stores operate under the Tire Choice name.

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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 customer lists.

We expensed all costs related to acquisitions in the ~~nine~~six months ended ~~December~~September 28, 2019. The total costs related to completed acquisitions were ~~$0.4~~$0.3 million and ~~$1.2~~$0.8 million for the quarter and ~~nine~~six months ended ~~December~~September 28, 2019, respectively. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Sales for the fiscal 2020 acquired entities for the quarter and ~~nine~~six months ended ~~December~~September 28, 2019 totaled ~~$18.5~~$13.2 million and ~~$38.7~~$20.2 million, respectively, for the period from acquisition date through ~~December~~September 28, 2019.

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~~We have recorded the identifiable assets acquired and liabilities assumed ~~were based on preliminary valuations and estimates. The~~at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the consideration transferred and net identifiable liabilities assumed ~~were~~ recorded as ~~goodwill. The preliminary allocation of the aggregate purchase price as of December 28, 2019, with respect to the acquisitions during the nine months ended December 28, 2019, was~~goodwill as follows:



	As of ‎Acquisition ‎Date
	(Dollars in ‎thousands)
Inventories	$	~~4,374~~2,952
Other current assets		~~706~~448
Property, plant and equipment		~~2,299~~1,779
Finance lease and financing obligation assets, net		~~29,127~~18,962
Operating lease assets, net		~~42,680~~26,339
Intangible assets		~~2,847~~1,822
Other non-current assets		~~304~~106
Long-term deferred income tax assets		~~3,174~~3,723
Total assets acquired		~~85,511~~56,131
Current portion of ~~long-term debt,~~ finance leases and financing obligations		~~2,672~~1,820
Current portion of operating lease liabilities		~~4,416~~2,894
Deferred revenue		~~1,545~~1,120
Other current liabilities		~~361~~215
Long-term finance leases and financing obligations		~~36,225~~24,311
Long-term operating lease liabilities		~~43,668~~28,201
Other long-term liabilities		~~1,658~~1,231
Total liabilities assumed		~~90,545~~59,792
Total net identifiable liabilities assumed	$	~~(5,034)~~(3,661)
Total consideration transferred	$	~~103,639~~64,121
Less: total net identifiable liabilities assumed		~~(5,034)~~(3,661)
Goodwill	$	~~108,673~~67,782

The following are the intangible assets acquired and their respective fair ~~values~~value and weighted average useful ~~lives:~~

~~Fiscal 2019~~

During the first nine months of fiscal 2019, we acquired the following businesses for an aggregate purchase price of $45.5 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 December 9, 2018, we acquired 2 retail tire and automotive repair stores located in Virginia from Colony Tire Corporation. These stores operate under the Mr. Tire name.~~

~~On November 4, 2018, we acquired 5 retail tire and automotive repair stores located in Ohio from Jeff Pohlman Tire & Auto Service, Inc. These stores operate under the Car-X and Mr. Tire names.~~

~~On October 14, 2018, we acquired 1 retail tire and automotive repair store located in Illinois from Quality Tire and Auto, Inc. This store operates under the Car-X name.~~

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~On September 23, 2018, we acquired 1 retail tire and automotive repair store located in South Carolina from Walton’s Automotive, LLC. This store operates under the Treadquarters name.~~

~~On September 16, 2018, we acquired 1 retail tire and automotive repair store located in Illinois from C&R Auto Service, Inc. This store operates under the Car-X name.~~

~~On September 9, 2018, we acquired 4 retail tire and automotive repair stores in Arkansas and Tennessee from Steele-Guiltner, Inc. These stores operate under the Car-X name.~~

~~On July 15, 2018, we acquired 1 retail tire and automotive repair store located in Pennsylvania from Mayfair Tire & Service Center, Inc. This store operates under the Mr. Tire name.~~

~~On July 8, 2018, we acquired 8 retail tire and automotive repair stores in Missouri from Sawyer Tire, Inc. These stores operate under the Car-X name.~~

On May 13, 2018, we acquired 12 retail/commercial tire and automotive repair stores and 1 retread facility located in Tennessee, as well as 4 wholesale locations in North Carolina, Tennessee and Virginia, from Free Service Tire Company, Incorporated. These locations operate under the Free Service Tire name.

~~On April 1, 2018, we acquired 4 retail tire and automotive repair stores located in Minnesota from Liberty Auto Group, Inc. These stores operate under the Car-X name.~~

We expensed all costs related to acquisitions in the nine months ended December 29, 2018. The total costs related to completed acquisitions were $0.1 million and $0.4 million for the quarter and nine months ended December 29, 2018. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Sales for the fiscal 2019 acquired entities for the quarter and nine months ended December 29, 2018 totaled $14.7 million and $33.4 million, respectively, for the period from acquisition date through December 29, 2018.

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

We have recorded the identifiable assets acquired and liabilities assumed, with respect to the acquisitions during the nine months ended December 29, 2018, 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~~ ‎~~Acquisition~~ ‎~~Date~~
	~~(Dollars in~~ ‎~~thousands)~~
~~Trade receivables~~	$	~~1,674~~
~~Inventories~~		~~8,280~~
~~Other current assets~~		~~252~~
~~Property, plant and equipment~~		~~8,203~~
~~Finance lease and financing obligation assets, net~~		~~4,422~~
~~Intangible assets~~		~~7,646~~
~~Other non-current assets~~		10
~~Long-term deferred income tax assets~~		~~1,568~~
~~Total assets acquired~~		~~32,055~~
~~Current portion of long-term debt, finance leases and financing obligations~~		~~1,046~~
~~Deferred revenue~~		~~342~~
~~Other current liabilities~~		~~501~~
~~Long-term finance leases and financing obligations~~		~~9,018~~
~~Other long-term liabilities~~		~~546~~
~~Total liabilities assumed~~		~~11,453~~
~~Total net identifiable assets acquired~~	$	~~20,602~~
~~Total consideration transferred~~	$	~~45,487~~
~~Less: total net identifiable assets acquired~~		~~20,602~~
~~Goodwill~~	$	~~24,885~~

~~The following are the intangible assets acquired and their respective fair values and weighted average useful lives:~~life:



	As of ‎Acquisition Date
	Dollars in ‎thousands		Weighted ‎Average ‎Useful Life
Customer lists	$	~~5,697~~1,822		~~13 years~~
~~Favorable leases~~		~~1,549~~		~~10 years~~
~~Trade name~~		~~400~~		~~2 years~~
~~Total~~	$	~~7,646~~		127 years

As a result of the updated purchase price allocations for the entities acquired during the fiscal year ended March ~~30, 2019,~~28, 2020, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments resulted from 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~~

Table of $0.3 million; an increase in property, plant and equipment of $0.1 million; a decrease in finance lease and financing obligation assets, net of $0.8 million; a decrease in intangible assets of $0.3 million; a decrease in long-term deferred income tax assets of $0.3 million; an increase in current portion of long-term debt, finance leases and financing obligations of $0.2 million and a decrease in long-term finance leases and financing obligations of $2.4 million. The measurement period adjustments resulted in a decrease of goodwill of $0.6 million.Contents

The measurement period adjustments were not material to the Consolidated ~~Statement~~Balance Sheet as of September 26, 2020 and the Consolidated Statements of Comprehensive Income for the quarter and ~~nine~~six months ended ~~December 28, 2019.~~September 26, 2020.

We continue to refine the valuation data and estimates primarily related to inventory, warranty reserves, intangible assets ~~real estate,~~ and real property leases for fiscal ~~2019~~2020 acquisitions which closed subsequent to ~~December 29, 2018 and the fiscal 2020 acquisitions,~~September 28, 2019, 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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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Note 3~~

NOTE 4 – ~~Earnings per Common Share~~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 weighted average number of shares of common ~~shares~~stock outstanding. Diluted earnings per common share amounts ~~assume~~are calculated by dividing net income by the ~~issuance~~weighted average number of shares of common stock ~~for all potentially dilutive equivalent securities~~and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed exercise of common stock options outstanding.

~~The following is a~~A reconciliation of basic and diluted earnings per common share for the ~~respective periods:~~quarters and six months ended September are as follows:



	Quarter Ended				Nine Months Ended				Quarter Ended				Six Months Ended
	Fiscal December				Fiscal December				September 26,		September 28,		September 26,		September 28,
	2019		2018		2019		2018		2020		2019		2020		2019
	(Amounts in thousands,								(Amounts in thousands,
	except per share data)								except per share data)
Numerator for earnings per common share calculation:
Net income	$	18,880	$	20,531	$	61,800	$	62,936	$	12,846	$	20,314	$	15,833	$	42,920
Less: Preferred stock dividends		(112)		(102)		(337)		(306)		(112)		(112)		(224)		(224)
Income available to common shareholders	$	18,768	$	20,429	$	61,463	$	62,630	$	12,734	$	20,202	$	15,609	$	42,696
Denominator for earnings per common share calculation:
Weighted average common shares, basic		33,274		33,032		33,234		32,932		33,297		33,244		33,291		33,214
Effect of dilutive securities:
Preferred stock		510		510		510		510		510		510		510		510
Stock options		165		195		196		134		26		196		28		213
Restricted stock		24		29		31		29		16		29		22		34
Weighted average common shares, diluted		33,973		33,766		33,971		33,605		33,849		33,979		33,851		33,971
Basic earnings per common share:	$	0.56	$	0.62	$	1.85	$	1.90	$	0.38	$	0.61	$	0.47	$	1.29
Diluted earnings per common share:	$	0.56	$	0.61	$	1.82	$	1.87	$	0.38	$	0.60	$	0.47	$	1.26

The computation of diluted earnings per common share excludes the effect of the assumed exercise of approximately ~~177,000~~548,000 and ~~169,000~~533,000 stock options for the quarter and ~~nine~~six months ended ~~December 28, 2019,~~September 26, 2020, respectively, and ~~120,000~~164,000 and ~~274,000~~125,000 stock options for the quarter and ~~nine~~six months ended ~~December 29, 2018,~~September 28, 2019, respectively. Such amounts were excluded as the exercise price of these stock options was 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~~NOTE 5 – ~~Income Taxes~~INCOME TAXES

~~Our~~For the quarter and six months ended September 26, 2020, our effective income tax rate was ~~24.1%~~25.2% and ~~15.3%~~25.3%, respectively, compared to 23.6% and 23.3% for the ~~quarters~~quarter and six months ended ~~December~~September 28, 2019, ~~and December 29, 2018,~~ respectively, ~~and 23.6% and 20.3% for the nine months ended December 28, 2019 and December 29, 2018, respectively. The effective income~~as discrete items, primarily related to employee stock-based compensation, resulted in a larger tax rate ~~for the periods ended December 29, 2018 included a discrete income tax~~ benefit ~~of $2.0 million as a result of the Internal Revenue Service’s examination of our fiscal 2016 and fiscal 2017 tax years. This income tax benefit was recorded primarily due to the difference~~ in the federal statutory income tax rate of 35% that applies to the refund amounts resulting from an application for a retroactive accounting method change that was accepted by the Internal Revenue Service as compared to the federal statutory income tax rate of 21% for which deferred tax accounting applies. Additional discrete items recognized during each respective period are insignificant.prior year periods.

~~Note 5~~NOTE 6 – ~~Fair Value~~FAIR VALUE

Long-term debt had a carrying amount that approximates a fair value of ~~$197.0~~$231.3 million as of ~~December 28, 2019,~~September 26, 2020, as compared to a carrying amount and a fair value of ~~$137.7~~$566.4 million as of March ~~30, 2019.~~28, 2020. The carrying value of our debt approximated its fair value due to the variable interest nature 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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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Note 6 – Cash Dividend~~debt.

In May 2019, our Board of Directors declared its intention to pay a regular quarterly cash dividend during fiscal 2020 of $0.22 per common share or common share equivalent beginning with the first quarter of fiscal 2020. NOTE 7 – CASH DIVIDEND

We paid dividends of ~~$22.3~~$14.9 million during the ~~nine~~six months ended ~~December 28, 2019.~~September 26, 2020. 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~~Credit Facility restrictions, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to

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$38.5 million in the aggregate for the period from June 30, 2020 to June 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended. For additional information regarding our Credit Facility, see Note 9.

~~Note 7~~NOTE 8 – ~~Revenues~~REVENUES

Automotive undercar repair and tire sales and ~~tire~~ services represent the vast majority of our revenues. We also earn revenue from the sale of tire road hazard warranty agreements as well as commissions earned from the delivery of tires on behalf of certain tire vendors.

Revenue from automotive undercar repair and tire sales and ~~tire~~ services is recognized at the time the customers take possession of their vehicle or merchandise. For sales to certain customers that are financed through the offering of credit on account, payment terms are established for customers based on our pre-established credit requirements. Payment terms vary depending on the customer and generally range from 15 to 45 days. Based on the nature of receivables, no significant financing components exist. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns based on current sales levels and our historical return experience. Such amounts are immaterial to our Consolidated Financial Statements.

Revenue from the sale of tire road hazard warranty agreements (included in the Tires product group in the second table below) is initially deferred and is recognized over the contract period as costs are expected to be incurred in performing such services, typically 21 to 36 months. The amounts recorded for deferred revenue balances at ~~December 28, 2019~~September 26, 2020 and March ~~30, 2019~~28, 2020 were ~~$19.5~~$16.3 million and ~~$17.2~~$18.5 million, respectively, of which ~~$13.6~~$11.8 million and ~~$12.1~~$13.1 million, respectively, are reported in Deferred revenue and ~~$5.9~~$4.5 million and ~~$5.1~~$5.4 million, respectively, are reported in Other long-term liabilities in our Consolidated Balance Sheets.

The following table summarizes deferred revenue related to road hazard warranty agreements from March ~~30, 2019~~28, 2020 to September 26~~December 28, 2019~~, 2020:



	Dollars in
	thousands
Balance at March ~~30, 2019~~28, 2020	$	~~17,150~~18,506
Deferral of revenue		~~13,711~~6,908
Deferral of revenue from acquisitions		~~2,823~~—
Recognition of revenue		~~(14,168)~~(9,123)
Balance at ~~December 28, 2019~~September 26, 2020	$	~~19,516~~16,291

We expect to recognize ~~$4.4~~$7.2 million of deferred revenue related to road hazard warranty agreements in the remainder of fiscal ~~2020, $11.0~~2021, $7.2 million of ~~such~~ deferred revenue during our fiscal year ending March ~~27, 2021,~~26, 2022, and ~~$4.1~~$1.9 million of ~~such~~ deferred revenue thereafter.

Under various arrangements, we receive from certain tire vendors a delivery commission and reimbursement for the cost of the tire that we may deliver to customers on behalf of the tire vendor. The commission we earn from these transactions is as an agent and the net amount retained is recorded as sales. (Included in the Tires product group in the following table.)

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The following table summarizes disaggregated revenue by product group:

Quarter Ended
Nine Months Ended
Fiscal December
Fiscal December
2019
2018
2019
2018
(Dollars in thousands)
Revenues:
Brakes
$
38,261
$
37,549
$
131,575
$
124,677
Exhaust
6,256
7,128
20,317
22,751
Steering
24,987
23,223
77,397
71,894
Tires
179,086
167,984
491,956
459,236
Maintenance
79,889
73,430
246,704
232,062
Other
802
796
2,509
2,407
Total
$
329,281
$
310,110
$
970,458
$
913,027

~~Note 8 – Leasing~~

We enter into lease agreements for certain retail stores, warehouses, distribution centers, office space and land as well as service contracts that are considered leases. We determine if an arrangement is or contains a lease at inception. We record ROU assets and lease obligations for our finance and operating leases, which are initially based on the discounted future minimum lease payments over the term of the lease. As the rate implicit in our leases is not easily determinable, our applicable incremental borrowing rate is used in calculating the present value of the lease payments. We estimate our incremental borrowing rate considering the market rates of our outstanding collateralized borrowings and comparisons to comparable borrowings of similar terms.

Lease term is defined as the non-cancelable period of the lease plus any options to extend the lease when it is reasonably certain that it will be exercised. Our leases have remaining lease terms of less than one year to approximately 38 years. Most of our leases include one or more options to extend the lease, for periods ranging from one year to 30 years or more. For leases with an initial term of 12 months or less, no ROU assets or lease obligations are recorded on the balance sheet and we recognize short-term lease expense for these leases on a straight-line basis over the lease term.

Certain of our lease agreements include rental payments based on a percentage of retail sales over specified levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. For the majority of all classes of underlying assets, we have elected to separate lease from non-lease components. We have elected to combine lease and non-lease components for certain classes of equipment. We sublease excess space to third parties.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expense. Interest expense for finance leases is recognized using the effective interest method. Variable payments, short-term rentals and payments associated with non-lease components are expensed as incurred.

Historical failed sale leasebacks that were assumed through acquisitions and do not qualify for sale leaseback accounting continue to be accounted for as financing obligations. As of December 28, 2019, net assets of $4.6 million and liabilities of $7.6 million due to failed sale leaseback arrangements were included with finance lease assets and liabilities, respectively, on the Consolidated Balance Sheet.

~~The components of operating and finance lease cost were as follows:~~

Quarter Ended
Nine Months Ended
Fiscal December
Fiscal December
2019
2019
(Dollars in thousands)
Operating lease cost
$
9,861
$
28,812
Finance lease/financing obligations cost:
Amortization of assets
5,568
14,750
Interest on liabilities
5,354
15,945
Short term and variable lease cost
558
1,643
Sublease income
(32)
(98)
Total lease cost
$
21,309
$
61,052



	Quarter Ended				Six Months Ended
	September 26,		September 28,		September 26,		September 28,
	2020		2019		2020		2019
	(Dollars in thousands)
Revenues:
Brakes	$	35,489	$	46,538	$	64,053	$	93,314
Exhaust		5,710		7,108		10,142		14,061
Steering		21,565		26,178		40,033		52,410
Tires		154,505		158,805		291,775		312,870
Maintenance		70,486		84,641		128,106		166,815
Other		832		843		1,537		1,707
Total	$	288,587	$	324,113	$	535,646	$	641,177

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~~MONRO, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Supplemental cash flow information related to leases was as follows:~~


	~~Nine Months Ended~~
	~~Fiscal December~~
	~~2019~~
	~~(Dollars in thousands)~~
~~Cash paid for amounts included in measurement of lease obligations:~~
~~Operating cash flows from operating leases~~	$	~~27,507~~
~~Operating cash flows from finance leases/financing obligations~~		~~15,925~~
~~Financing cash flows from finance leases/financing obligations~~		~~19,512~~

~~Net assets obtained in exchange for operating lease obligations~~		~~5,871~~
~~Net assets obtained in exchange for finance lease obligations~~		~~54,286~~

~~The following table summarizes weighted average remaining lease term and discount rates:~~

Operating
‎Leases
Finance
‎ Leases and
‎ Financing
‎Obligations
Weighted average remaining lease term, in years
9.4
10.0
Weighted average discount rate
3.53
%
9.05
%

~~Future maturities of our lease liabilities, excluding subleases, as of December 28, 2019 are as follows:~~

Operating
‎Leases
Finance
‎ Leases and
‎ Financing
‎Obligations
(Dollars in thousands)
Remainder 2020
$
9,447
$
12,928
2021
36,553
52,126
2022
33,155
51,956
2023
29,170
51,999
2024
24,648
45,601
Thereafter
113,167
251,798
Total undiscounted lease obligations
$
246,140
$
466,408
Less: imputed interest
(39,023)
(136,436)
Net lease obligation
$
207,117
$
329,972

Total lease payments include $80 million related to options to extend operating leases that are reasonably certain of being exercised, include $119 million related to options to extend finance leases that are reasonably certain of being exercised and exclude $16 million of legally binding lease payments for leases signed but not yet commenced as of December 28, 2019.

~~The aggregate minimum annual lease rentals at March 30, 2019 for the remaining contractual term of non-cancelable leases were as follows:~~

Operating
‎Leases
Finance
‎ Leases and
‎ Financing
‎Obligations
(Dollars in thousands)
2020
$
33,225
$
43,034
2021
28,819
43,791
2022
23,552
43,459
2023
17,949
42,981
2024
11,488
37,733
Thereafter
33,614
191,366
Total minimum rentals before sublease income
$
148,647
$
402,364
Less: minimum sublease rentals
(488)
—
Total minimum rentals
$
148,159
$
402,364
Less: imputed interest
(142,086)
Present value of minimum lease payments
$
260,278

1611

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NOTE 9 – LONG-TERM DEBT

In April 2019, we entered into a new five year $600 million revolving credit facility agreement with 8 banks (the “Credit Facility”). Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $250 million.

On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement through the first quarter of fiscal 2022 to provide us with additional flexibility to operate our business. The First Amendment will permanently amend the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75%. For the period from June 30, 2020 to June 30, 2021, the minimum interest rate spread charged on borrowings will be 225 basis points over LIBOR. Additionally, during the same period, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate and the acquisition of stores or other businesses up to $100 million in the aggregate are permitted if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect.

In order to enhance our liquidity position during the COVID-19 pandemic, we took a precautionary measure and borrowed $350 million available to us under our Credit Facility in March 2020. We subsequently repaid $335 million of these borrowings during the six months ended September 26, 2020. The net availability under the Credit Facility was $335.1 million at September 26, 2020.

We were in compliance with all debt covenants at September 26, 2020.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Payments due by period under long-term debt, other financing instruments and commitments are as follows:



			Within		2 to		4 to		After
	Total		1 Year		3 Years		5 Years		5 Years
	(Dollars in thousands)
Principal payments on long-term debt	$	231,300		—		—	$	231,300		—
Finance lease commitments/financing obligations ^(a)		517,489	$	53,518	$	106,833		99,356	$	257,782
Operating lease commitments ^(a)		239,906		35,511		64,754		52,754		86,887
Accrued rent		3,235		2,993		209		16		17
Other liabilities		1,533		800		733		—		—
Total	$	993,463	$	92,822	$	172,529	$	383,426	$	344,686

_______________

(a)Operating and finance lease commitments represent future undiscounted lease payments and include $59.1 million and $108.1 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised.

During fiscal 2021, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the third and fourth quarters of fiscal 2021 and the first and second quarters of fiscal 2022. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the rent deferrals as accrued liabilities. The accrued rent reflected in the table above includes $2.0 million related to rent deferrals and $1.2 million due to timing of other lease related expenses. We will continue to recognize expense during the deferral periods.

In addition, during fiscal 2021, we negotiated rent reductions with certain landlords on approximately 23% of our lease contracts in exchange for extending our current lease term. As these agreements represent substantive changes to our contractual obligations, the leases were remeasured. As a result, finance lease and financing obligation assets, net and finance leases and financing obligations were increased by $66.5 million and $62.8 million, respectively, and operating lease assets, net and operating lease liabilities were increased by $16.4 million and $20.2 million, respectively. The negotiated terms were generally consistent with terms of normal renewal agreements.

We believe that we can fulfill our commitments utilizing our cash flow from operations and, if necessary, cash on hand and/or bank financing.

As of the date of this report, there were no material changes to our contingencies since March 28, 2020, as reported in our Form 10-K for the fiscal year ended March 28, 2020.

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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 this 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,” “potential,” “strategy,” “will” 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 duration and impact of the COVID-19 pandemic and its impact on our customers, executive officers and employees, the effect of economic conditions, seasonality, the impact of weather conditions and natural disasters, the impact of competitive services and pricing, parts supply restraints or difficulties, our dependence on vendors, including foreign vendors, changes in U.S. or foreign trade policies, including the impacts of tariffs on products imported from China, 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 technologies, 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 this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March ~~30, 2019.~~28, 2020. Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking ~~statement~~statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. References to fiscal ~~2020~~2021 and fiscal ~~2019~~2020 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal years ending March 27, 2021 and March 28, 2020, respectively.

Impact of the COVID-19 Pandemic

As a result, demand for automotive undercar repair and tire sales and services declined at a rapid pace and has remained below normal levels, which has had an unprecedented and materially adverse impact on our results of operations and business operations. Although demand improved during the quarter ended September 26, 2020, we experienced a significant decline in store traffic throughout the quarter, as compared to the prior year, due to the COVID-19 pandemic. During the quarter, comparable store sales decreased 11.4% from the same period in the prior year. (We define comparable store sales as sales for stores that have been opened or acquired at least one fiscal year prior to March 29, 2020.) Substantially all Company-operated retail stores operated under a reduced schedule throughout the quarter to match lower demand. We continue to address the ongoing business challenges and shifting economic dynamics as the COVID-19 pandemic has continued to evolve.

Given the uncertainties surrounding the impacts of the COVID-19 pandemic on our future financial condition, results of operations and cash flows, we have taken a number of actions in response to prevailing uncertain market conditions. In order to enhance our liquidity position, we took a precautionary measure and borrowed $350 million available to us under our credit facility in March 2020. We subsequently repaid $335 million of these borrowings during the six months ended September 26, 2020, of which $95 million was repaid during the quarter. To improve our liquidity, we continued to take the following measures during the quarter ended September 26, 2020 as we did in the first quarter of fiscal 2021 to reduce costs and improve cash flows: (i) reduced store hours and store labor to align with reduced demand across our store locations; (ii) undertook significant reductions in operating expenses across the Company, including non-store compensation expense through the continued furlough of or other reduction to certain members of our non-store workforce; and (iii) negotiated rent deferrals for a significant number of our stores, as well as other rent reductions. Although acquisition activity was paused during the first six months of fiscal 2021, we continued to evaluate potential acquisition candidates that we believe would fit our growth strategy while maintaining financial discipline, and subsequent to September 26, 2020, we signed a definitive asset purchase agreement to complete the acquisition of 17 retail tire and automotive repair stores located in California.

As the COVID-19 pandemic has continued to evolve, our priority has been and continues to be, the health and safety of our employees and customers. To protect our employees and customers, we have implemented strict cleaning and sanitation measures. In addition, we have provided face masks and other protective equipment, including sneeze guards installed at each sales counter, necessary to ensure the safety our employees and customers. We have also implemented various measures intended to reduce the spread of COVID-19 among our non-store workforce including working from home and encouraging employees to adhere to

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prevention measures recommended by the Centers for Disease Control and the World Health Organization. Since our non-store workforce is able to work remotely using various technology tools, we are able to maintain our operations and internal controls over financial reporting and disclosures.

Despite the challenges, some positive signs have begun to emerge. Since the low point during April 2020, we have experienced continued improvement in sales driven by increases in store traffic. However, there can be no assurance as to the time required to fully recover operations and sales to pre-pandemic levels or if we will reach those levels again.

With continued sales improvement to date, we have resumed our rebrand and reimage initiatives during the quarter ended September 26, 2020 and have substantially completed the transformation of approximately 40 stores.

Current Trends

Our Company-operated stores have experienced a steady improvement in sales to date since the low point of sales during April 2020. The following table presents fiscal monthly information about our comparable store sales trends. There is no assurance that these trends will continue.



	Fiscal Month Ended
	April		May		June		July		August		September		October
Comparable store sales % (year-over-year decline)	(41)	%	(24)	%	(14)	%	(12)	%	(13)	%	(8)	%	(12)	%

As we move through this transition and anticipate sales trends to improve, we expect to incur some labor inefficiencies as we adjust to new operating models and federal and local health and safety protocols with a goal to remain as efficient as possible while still offering safe and high quality service to our customers. Those labor inefficiencies may include difficulty in hiring employees required to maintain store staffing levels needed to meet demand. We will also incur additional costs and investments in supplies necessary to keep our teams and customers safe, such as face masks, hand sanitizer and cleaning supplies, which are all expected to be ongoing costs for the duration of the COVID-19 pandemic and recovery period.

Given the unpredictable nature of this situation, we cannot estimate with certainty the long-term impacts of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows.

As of October 30, ~~2019, respectively.~~2020, we had approximately $46 million in cash on hand. During the month of October 2020, we have paid down an additional $41 million in borrowings from our five-year $600 million revolving credit facility with eight banks (the “Credit Facility”). We believe we have sufficient liquidity available from operating cash flow and, if necessary, cash on hand and/or bank financing to support our operations for at least the next 12 months.

Non-GAAP Financial Measures

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures, such as adjusted net income and adjusted diluted earnings per common share (“EPS”) not derived in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash ~~flows.~~flows, and may not be comparable to similarly titled non-GAAP financial measures used by other companies. We have included ~~a reconciliation~~reconciliations of the non-GAAP financial measures used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to their most directly comparable GAAP measures in the section titled “Reconciliation of Non-GAAP Financial Measures” below.

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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				Six Months Ended
	September 26,		September 28,		September 26,		September 28,
	2020		2019		2020		2019
Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales, including distribution and occupancy costs	63.8		62.3		64.2		61.0
Gross profit	36.2		37.7		35.8		39.0
Operating, selling, general and administrative expenses	27.8		27.4		29.2		28.2
Operating income	8.5		10.3		6.7		10.9
Interest expense, net of interest income	2.5		2.1		2.7		2.2
Other income, net of other loss	—		(0.1)		—		(0.1)
Income before income taxes	6.0		8.2		4.0		8.7
Provision for income taxes	1.5		1.9		1.0		2.0
Net income	4.5	%	6.3	%	3.0	%	6.7	%

Quarter Ended
Nine Months Ended
Fiscal December
Fiscal December
2019
2018
2019
2018
Sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales, including distribution and occupancy costs
62.2
62.0
61.4
61.1
Gross profit
37.8
38.0
38.6
38.9
Operating, selling, general and administrative expenses
28.2
28.1
28.2
28.1
Operating income
9.6
9.9
10.4
10.8
Interest expense - net
2.1
2.2
2.2
2.2
Other income - net
(0.1)
(0.1)
(0.1)
(0.1)
Income before provision for income taxes
7.6
7.8
8.3
8.7
Provision for income taxes
1.9
1.2
1.9
1.8
Net income
5.7
%
6.6
%
6.4
%
6.9
%

17The table may not subtract down by +/- 0.1% due to rounding as percentages are calculated based on unrounded numbers.

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~~Third~~Second Quarter and ~~Nine~~Six Months Ended ~~December 28, 2019~~September 26, 2020 as Compared to ~~Third~~Second Quarter and ~~Nine~~Six Months Ended ~~December 29, 2018~~September 28, 2019

Sales were ~~$329.3~~$288.6 million for the quarter ended ~~December 28, 2019~~September 26, 2020 as compared with ~~$310.1~~$324.1 million for the quarter ended ~~December 29, 2018.~~September 28, 2019. The sales ~~increase~~decrease of ~~$19.2~~$35.5 million, or ~~6.2%~~11.0%, was due to ~~an increase of $22.7 million related to new stores, of which $20.7 million came from the fiscal 2020 and fiscal 2019 acquisitions. Partially offsetting this was~~ a decrease in comparable store sales for the quarter ended ~~December 28, 2019~~September 26, 2020 of ~~0.9%~~11.4% as compared to the same period in the prior year. Additionally, there was a decrease in sales from closed stores amounting to ~~$0.8~~$6.5 million in the quarter. There were 89 selling days in the quarter ended December 28, 2019 and in the quarter ended December 29, 2018. We define comparable store sales as sales for stores that have been open or acquired at least one fiscal year prior to March 31, 2019.

~~Sales were $970.5 million for the nine months ended December 28, 2019 as compared with $913.0 million for the nine months ended December 29, 2018. The sales increase of $57.5 million, or 6.3%,~~Partially offsetting these decreases was ~~due to~~ an increase of ~~$59.9~~$9.4 million related to new stores, of which ~~$51.4~~$8.4 million came from ~~the~~ fiscal 2020 acquisitions. There were 91 selling days in the quarter ended September 26, 2020 and ~~fiscal 2019 acquisitions. Partially offsetting this~~in the quarter ended September 28, 2019.

Sales were $535.6 million for the six months ended September 26, 2020 as compared with $641.2 million for the six months ended September 28, 2019. The sales decrease of $105.5 million, or 16.5%, was due to a decrease in comparable store sales for the six months ended September 26, 2020 of 18.7% as compared to the same period in the prior year. Additionally, there was a decrease in sales from closed stores amounting to ~~$2.2~~$9.3 million. Partially offsetting these decreases was an increase of $22.1 million ~~in the period. Additionally, comparable store sales for the nine months ended December 28, 2019 decreased by 0.1% as compared~~related to ~~the same period in the prior year.~~new stores, of which $19.4 million came from fiscal 2020 acquisitions. There were ~~270~~181 selling days in the ~~nine~~six months ended ~~December 28, 2019~~September 26, 2020 and in the ~~nine~~six months ended ~~December 29, 2018.~~

~~Barter sales of slower moving inventory totaled approximately $4.0 million and $3.7 million for the nine months ended December~~September 28, ~~2019 and December 29, 2018, respectively. There were no barter sales in the third quarter of fiscal 2020 and fiscal~~ 2019.

At ~~December 28, 2019,~~September 26, 2020, we had ~~1,289~~1,242 Company-operated stores in operation and 9997 franchised locations as compared with ~~1,186~~1,262 Company-operated stores in operation and 9998 franchised locations at ~~December 29, 2018.~~September 28, 2019. At March ~~30, 2019,~~28, 2020, we had ~~1,197~~1,283 Company-operated stores in operation and 98 franchised locations. During the quarter ended ~~December 28, 2019,~~September 26, 2020, we added 27one Company-operated store and closed six stores, of which five stores have been closed temporarily as a result of damage sustained during Hurricane Laura in Louisiana and Tropical Storm Isaias in the Northeast. During the six months ended September 26, 2020, we have added one Company-operated store and closed 42 stores. Additionally, one franchised location was ~~opened~~closed during the ~~quarter and nine~~six months ended ~~December 28, 2019. Year-to-date, we have added 95 Company-operated stores and closed three stores.~~September 26, 2020.

Comparable store brakes and ~~alignment~~tires category sales for the quarter ended ~~December 28, 2019 both~~September 26, 2020 decreased by approximately 24% and 3%, respectively, from the prior year quarter. Additionally, ~~tires~~alignment and ~~front end/shocks~~exhaust category sales for the quarter ended ~~December 28, 2019 both~~September 26, 2020 each decreased by approximately 1%16% on a comparable store basis as compared to the same period in the prior year. Comparable store maintenance services and front end/shocks category sales for the quarter ended ~~December 28, 2019 were relatively flat~~September 26, 2020 each decreased by approximately 19% from the prior year quarter. Comparable store sales were impacted by ~~lower~~a decline in store traffic resulting from ~~milder winter weather conditions~~the impact of the ongoing COVID-19 pandemic in ~~certain of~~ our markets, partially offset by higher average ~~ticket from improved in-store execution.~~ticket.

Gross profit for the quarter ended ~~December 28, 2019~~September 26, 2020 was ~~$124.4~~$104.5 million or ~~37.8%~~36.2% of sales as compared with ~~$118.0~~$122.1 million or ~~38.0%~~37.7% of sales for the quarter ended ~~December 29, 2018.~~September 28, 2019. The decrease in gross profit for the quarter ended ~~December 28, 2019,~~September 26, 2020, as a percentage of sales, was partially due ~~primarily~~ to an increase in distribution and occupancy costs, as a percentage of ~~sales, as~~sales. Although we were able to reduce these largely fixed costs through rent concessions from landlords, we lost leverage on these ~~largely fixed~~ costs with lower overall comparable store sales. The decrease in gross profit for the quarter, as a percentage of sales, ~~as well as~~was also partially due to an increase in material costs, as a percentage of sales, as a result of a shift in sales mix to tires. However, during the quarter, we expanded our gross profit per tire from the prior year quarter with the ongoing rollout of our tire category management tool. Partially offsetting these increases was a decrease in technician labor costs, which ~~increased~~decreased from the prior year quarter as a percentage of sales, due to ~~technician staffing levels and wage inflation. Largely offsetting these increases was a decrease in material costs~~improved labor productivity as a ~~percentage~~result of ~~sales as compared to the prior year quarter.~~

Gross profit for the nine months ended December 28, 2019 was $374.6 million or 38.6% of sales as compared with $355.2 million or 38.9% of sales for the nine months ended December 29, 2018. The year-to-date decrease, as a percentage of sales, was due primarily to an increase inour store staffing optimization initiatives, including our cloud based labor costs, as well as distribution and occupancy costs, which both increased as a percentage of sales, partially offset by a decrease in material costs as a percentage of sales, when compared to the same period of the prior year.

Operating expenses for the quarter ended December 28, 2019 were $92.8 million or 28.2% of sales as compared to $87.3 million or 28.1% of sales for the quarter ended December 29, 2018. The increase of $5.5 million in operating expenses from the comparable period of the prior year is primarily due to increased expenses for 103 net new stores.

For the nine months ended December 28, 2019, operating expenses increased by $16.4 million to $273.3 million from the comparable period of the prior year and were 28.2% of sales as compared to 28.1% of sales for the nine months ended December 29, 2018. The increase is primarily due to increased expenses for new stores.

Operating income for the quarter ended December 28, 2019 of approximately $31.6 million increased by 2.8% as compared to operating income of approximately $30.7 million for the quarter ended December 29, 2018, and decreased as a percentage of sales from 9.9% to 9.6% for the reasons described above.

scheduling tool.

1815

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Gross profit for the six months ended September 26, 2020 was $192.0 million or 35.8% of sales as compared with $250.2 million or 39.0% of sales for the six months ended September 28, 2019. For the six months ended September 26, 2020, the increase in distribution and occupancy costs, as a percentage of sales, due to lost leverage on these largely fixed costs against lower overall comparable store sales, as well as the increase in material costs, as a percentage of sales, resulting from a shift in sales mix to tires were partially offset by a decrease in technician labor costs, which decreased as a percentage of sales, due to our store staffing optimization initiatives, when compared to the same period in the prior year.

Operating expenses for the quarter ended September 26, 2020 were $80.1 million or 27.8% of sales as compared to $88.7 million or 27.4% of sales for the quarter ended September 28, 2019. The decrease of $8.6 million in operating expenses from the comparable period of the prior year is primarily due to decreased expenses as a result of focused cost reductions, including actively managing our store management staffing levels to match demand and realigned marketing spend toward digital channels. The decrease in operating expenses from the comparable period of the prior year also reflect lower expenses from a net reduction of 20 stores compared to the prior year period. We lost leverage on these cost reductions with lower overall comparable stores sales, which resulted in the increase in operating expenses, as a percentage of sales, from the prior year quarter.

For the six months ended September 26, 2020, operating expenses decreased by $24.3 million to $156.2 million from the comparable period of the prior year and were 29.2% of sales as compared to 28.2% of sales for the six months ended September 28, 2019. The decrease is primarily due to decreased expenses as a result of focused cost reductions and reflects lower expenses from closed stores. Partially offsetting these decreases was an increase in store closure costs of $2.5 million.

Operating income for the ~~nine months~~quarter ended ~~December 28, 2019~~September 26, 2020 of approximately ~~$101.3~~$24.4 million ~~increased~~decreased by ~~3.1%~~26.8% as compared to operating income of approximately ~~$98.3~~$33.4 million for the ~~nine months~~quarter ended ~~December 29, 2018,~~September 28, 2019, and decreased as a percentage of sales from ~~10.8%~~10.3% to ~~10.4%~~8.5% for the reasons described above.

Operating income for the six months ended September 26, 2020 of approximately $35.8 million decreased by 48.6% as compared to operating income of approximately $69.7 million for the six months ended September 28, 2019, and decreased as a percentage of sales from 10.9% to 6.7% for the reasons described above.

Net interest expense for the quarter ended ~~December 28, 2019~~September 26, 2020 increased by approximately ~~$0.2~~$0.4 million as compared to the same period in the prior year, and ~~decreased~~increased from ~~2.2%~~2.1% to ~~2.1%~~2.5% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended ~~December 28, 2019~~September 26, 2020 increased by approximately ~~$112~~$237 million as compared to the quarter ended ~~December 29, 2018.~~September 28, 2019. This increase is ~~primarily~~partially related to an increase in debt outstanding under our Credit Facility that was borrowed in response to the COVID-19 pandemic in late fiscal 2020. We paid down approximately $95 million of our debt outstanding during the second quarter ended September 26, 2020, in addition to the $240 million we paid back in the first quarter. The remaining increase in weighted average debt is due to an increase in finance lease debt recorded in connection with the fiscal 2020 ~~and fiscal 2019~~ acquisitions and greenfield expansion, ~~as well as an increase in debt outstanding under our existing credit facility to fund the purchase of our acquisitions.~~along with renegotiated leases. Partially offsetting ~~this increase~~these increases was a decrease in the weighted average interest rate of approximately ~~140~~190 basis points from the prior year quarter due primarily to ~~lower~~a decrease in borrowing rates associated with new ~~leases, as well as a decrease in the LIBOR and prime rates from the prior year quarter.~~leases.

Net interest expense for the ~~nine~~six months ended ~~December 28, 2019~~September 26, 2020 increased by approximately ~~$0.9~~$0.6 million as compared to the same period in the prior year, and ~~remained at~~increased from 2.2% to 2.7% as a percentage of sales for the same periods. Weighted average debt outstanding increased by approximately ~~$57~~$363 million and the weighted average interest rate decreased by approximately 60280 basis points as compared to the same period of the prior year.

Income before income taxes for the quarter ended ~~December 28, 2019~~September 26, 2020 of approximately ~~$24.9~~$17.2 million ~~increased~~decreased by ~~2.6%~~35.4% as compared to income before income taxes of approximately ~~$24.2~~$26.6 million for the quarter ended ~~December 29, 2018,~~September 28, 2019, and decreased as a percentage of sales from ~~7.8%~~8.2% to ~~7.6%~~6.0% for the reasons described above.

Income before income taxes for the ~~nine~~six months ended ~~December 28, 2019~~September 26, 2020 of approximately ~~$80.9~~$21.2 million ~~increased~~decreased by ~~2.5%~~62.2% as compared to income before income taxes of approximately ~~$78.9~~$56.0 million for the ~~nine~~six months ended ~~December 29, 2018,~~September 28, 2019, and decreased as a percentage of sales from 8.7% to ~~8.3%~~4.0% for the reasons described above.

~~The~~For the quarter ended September 26, 2020, our effective income tax rate was ~~24.1% and 15.3%~~25.2% compared to 23.6% for the ~~quarters~~quarter ended ~~December~~September 28, 2019, ~~and December 29, 2018, respectively, and 23.6% and 20.3% for~~as discrete items, primarily related to employee stock-based compensation, resulted in a larger tax rate benefit in the ~~nine~~prior year period.

For the six months ended ~~December 28, 2019 and December 29, 2018, respectively. The~~September 26, 2020, our effective income tax rate was 25.3% compared to 23.3% for the ~~periods~~six months ended ~~December 29, 2018 included~~September 28, 2019, as discrete items, primarily related to employee stock-based compensation, resulted in a ~~discrete income~~larger tax rate benefit ~~of $2.0 million as a result of the Internal Revenue Service’s examination of our fiscal 2016 and fiscal 2017 tax years. This income tax benefit was recorded primarily due to the difference~~ in the ~~federal statutory income tax rate~~prior year period.

Table of 35% that applies to the refund amounts resulting from an application for a retroactive accounting method change that was accepted by the Internal Revenue Service as compared to the federal statutory income tax rate of 21% for which deferred accounting applies. Additional discrete items recognized during each respective period are insignificant.Contents

Net income for the quarter ended ~~December 28, 2019~~September 26, 2020 of ~~$18.9~~$12.8 million decreased ~~8.0%~~36.8% from net income of $20.3 million for the quarter ended ~~December 29, 2018.~~September 28, 2019. Adjusted net income (a non-GAAP financial measure) was $13.3 million and $21.1 million for the quarters ended September 26, 2020 and September 28, 2019, respectively. Diluted EPS for the quarter ended ~~December 28, 2019~~September 26, 2020 of ~~$0.56~~$0.38 decreased ~~8.2%~~36.7% as compared to diluted EPS of ~~$0.61~~$0.60 for the quarter ended ~~December 29, 2018.~~September 28, 2019. Adjusted diluted EPS (a non-GAAP financial measure) was ~~$0.60~~$0.39 and ~~$0.57~~$0.62 for the quarters ended ~~December~~September 26, 2020 and September 28, 2019, ~~and December 29, 2018,~~ respectively. Please refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a discussion of ~~this~~these non-GAAP financial ~~measure~~measures, adjusted net income and ~~a reconciliation~~adjusted diluted EPS, and the reconciliations to ~~its~~their most comparable GAAP ~~measure,~~measures, net income and diluted ~~EPS.~~EPS, respectively.

For the ~~nine~~six months ended ~~December 28, 2019,~~September 26, 2020, net income of ~~$61.8~~$15.8 million decreased ~~1.8%~~63.1% from net income of $42.9 million for the ~~nine~~six months ended ~~December 29, 2018.~~ September 28, 2019. Adjusted net income (a non-GAAP financial measure) was $18.4 million and $44.5 million for the six months ended September 26, 2020 and September 28, 2019, respectively. Diluted EPS for the ~~nine~~six months ended ~~December 28, 2019~~September 26, 2020 of ~~$1.82~~$0.47 decreased ~~2.7%~~62.7% as compared to diluted EPS of ~~$1.87~~$1.26 for the ~~nine~~six months ended ~~December 29, 2018.~~September 28, 2019. Adjusted diluted EPS (a non-GAAP financial measure) was ~~$1.91~~$0.54 and ~~$1.88~~$1.31 for the ~~nine~~six months ended ~~December~~September 26, 2020 and September 28, 2019, ~~and December 29, 2018,~~ respectively. Please refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a discussion of ~~this~~these non-GAAP financial ~~measure~~measures, adjusted net income and ~~a reconciliation~~adjusted diluted EPS, and the reconciliations to ~~its~~their most comparable GAAP ~~measure,~~measures, net income and diluted ~~EPS.~~EPS, respectively.

Reconciliation of Non-GAAP Financial Measures

In addition to reporting net income and diluted EPS, which ~~is a~~are GAAP ~~measure,~~measures, this Form 10-Q includes adjusted net income and adjusted diluted EPS, which ~~is a~~are non-GAAP financial ~~measure. The Company has~~measures. We have included ~~a reconciliation~~reconciliations to adjusted net income and adjusted diluted EPS from ~~its~~our most directly comparable GAAP ~~measure,~~measures, net income and diluted EPS, below. Management views ~~this~~these non-GAAP financial ~~measure~~measures as ~~an indicator~~indicators to better assess comparability between periods because management believes ~~this~~these non-GAAP financial ~~measure reflects~~measures reflect the core business operations while excluding certain non-recurring items and items related to store closings as well as Monro.Forward or acquisition initiatives.

~~This~~These non-GAAP financial ~~measure is~~measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, ~~its~~their most directly comparable GAAP ~~measure. This~~measures. These non-GAAP financial ~~measure~~measures may be different from similarly titled non-GAAP financial measures used by other companies.

Adjusted net income is summarized as follows:



Reconciliation of Adjusted Net Income
	Quarter Ended				Six Months Ended
	September 26,		September 28,		September 26,		September 28,
	2020		2019		2020		2019
	(Dollars in thousands)
Net income	$	12,846	$	20,314	$	15,833	$	42,920
Store impairment charge		99		—		99		—
Store closing costs		(17)		—		2,510		—
Monro.Forward initiative costs		248		769		430		1,307
Acquisition due diligence and integration costs		22		287		39		769
Management transition costs		257		—		257		—
Provision for income taxes on adjustments		(141)		(263)		(782)		(518)
Adjusted net income	$	13,314	$	21,107	$	18,386	$	44,478

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Adjusted diluted EPS is summarized as follows:



Reconciliation of Adjusted Diluted EPS
	Quarter Ended				Six Months Ended
	September 26,		September 28,		September 26,		September 28,
	2020		2019		2020		2019
Diluted EPS	$	0.38	$	0.60	$	0.47	$	1.26
Store impairment charge ^(a)		—		—		—		—
Store closing costs^(a)		—		—		0.06		—
Monro.Forward initiative costs		0.01		0.02		0.01		0.03
Acquisition due diligence and integration costs ^(a)		—		0.01		—		0.02
Management transition costs		0.01		—		0.01		—
Adjusted diluted EPS	$	0.39	$	0.62	$	0.54	$	1.31

_____________

(a)For the quarter ended September 26, 2020, the store impairment charge, as well as store closing and acquisition due diligence and integration costs are each minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS. These items may also be minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS for the six months ended September 26, 2020.

Reconciliation of Adjusted Diluted EPS
Quarter Ended
Nine Months Ended
Fiscal December
Fiscal December
2019
2018
2019
2018
Diluted EPS
$
0.56
$
0.61
$
1.82
$
1.87
Monro.Forward initiative costs
0.03
0.01
0.06
0.05
Acquisition due diligence and integration costs
0.01
—
0.03
0.01
Corporate and field management realignment costs
—
0.01
—
0.01
One-time income tax benefit
—
(0.06)
—
(0.06)
Adjusted diluted EPS
$
0.60
$
0.57
$
1.91
$
1.88

~~Adjusted net income~~The calculation of the impact of non-GAAP adjustments on diluted earnings per share is ~~summarized as follows:~~performed on each line independently. The table may not add down by +/- $0.01 due to rounding.

The adjustments to diluted EPS reflect adjusted effective tax rates of 23.2% and 23.4% for the quarter and six months ended September 26, 2020, respectively, and 25.0% for each of the quarter and six months ended September 28, 2019. These adjusted effective tax rates exclude the income tax impacts from share-based compensation. See adjustments from the Reconciliation of Adjusted Net Income table above for pre-tax amounts.

Supplemental Reconciliation of Adjusted Net Income
Quarter Ended
Nine Months Ended
Fiscal December
Fiscal December
2019
2018
2019
2018
(Dollars in thousands)
Net income
$
18,880
$
20,531
$
61,800
$
62,936
Monro.Forward initiative costs
1,378
387
2,685
2,202
Acquisition due diligence and integration costs
435
102
1,204
430
Corporate and field management realignment costs
—
350
—
350
Provision for income taxes on adjustments
(435)
(200)
(953)
(713)
One-time income tax benefit
—
(2,050)
—
(2,050)
Adjusted net income
$
20,258
$
19,120
$
64,736
$
63,155

Capital Resources, Commitments and Liquidity

Capital Resources

Our primary capital requirements in fiscal ~~2020~~2021 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the ~~nine~~six months ended ~~December 28, 2019,~~September 26, 2020, we spent approximately ~~$146.5~~$24.0 million on these ~~items.~~items, of which approximately $16.1 million was related to our Monro.Forward initiatives, including our store technology infrastructure upgrade project completed in the first quarter of fiscal 2021. Capital requirements were met primarily by cash flow from operations and from cash on hand. While we suspended all capital expenditures related to our ~~existing credit facility.~~

~~In May 2019, our Board of Directors declared its intention to pay a regular quarterly cash dividend~~store rebrand and reimage initiatives during ~~fiscal 2020 of $0.22 per common share or common share equivalent beginning with~~ the first quarter of fiscal ~~2020.~~ 2021, we resumed this program in the second quarter of fiscal 2021.

We paid dividends of ~~$22.3~~$14.9 million during the ~~nine~~six months ended ~~December 28, 2019.~~September 26, 2020. 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~~our financial condition, results of operations, capital requirements, compliance with charter and ~~credit facility~~ restrictions under the Credit Facility, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate for the period from June 30, 2020 to June 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended.

~~We plan~~Additionally, we have signed a definitive asset purchase agreement to ~~continue~~complete the acquisition of 17 retail tire and automotive repair stores located in California. This transaction is expected to ~~seek suitable~~close during the third quarter of fiscal 2021 and is expected to be financed through our Credit Facility.

Because acquisitions remain a pillar of our growth strategy, we are continuing to evaluate potential acquisition ~~candidates.~~candidates that we believe would fit our growth strategy while maintaining financial discipline. We believe we have sufficient resources available (including cash flow from operations and, if necessary, cash on hand and/or bank financing) to expand our business as currently planned for the next twelve months.

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Commitments

Payments due by period under long-term debt, other financing instruments and commitments are as follows:



			Within		2 to		4 to		After
	Total		1 Year		3 Years		5 Years		5 Years
	(Dollars in thousands)
Principal payments on long-term debt	$	231,300		—		—	$	231,300		—
Finance lease commitments/financing obligations ^(a)		517,489	$	53,518	$	106,833		99,356	$	257,782
Operating lease commitments ^(a)		239,906		35,511		64,754		52,754		86,887
Accrued rent		3,235		2,993		209		16		17
Other liabilities		1,533		800		733		—		—
Total	$	993,463	$	92,822	$	172,529	$	383,426	$	344,686

_______________

During fiscal 2021, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the third and fourth quarters of fiscal 2021 and the first and second quarters of fiscal 2022. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the Financial Accounting Standards Board in April 2020, we have elected to treat the rent deferrals as accrued liabilities. The accrued rent reflected in the table above includes $2.0 million related to rent deferrals and $1.2 million due to timing of other lease related expenses.

Liquidity

In April 2019, we entered into a new five-year $600 million revolving ~~credit facility agreement~~Credit Facility with eight banks ~~(the “Credit Facility”). The Credit Facility amended and restated our previous revolving credit facility which would have expired~~that will expire in ~~January 2021.~~April 2024. Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $250 million. The Credit Facility bears interest at 75 to 200 basis points over LIBOR (or replacement index) or at the prime rate, depending on the type of borrowing and the rates then in effect. The Credit Facility requires fees payable quarterly throughout the term between 0.125% and 0.35% of the amount of the average net availability under the Credit Facility during the preceding quarter. There was ~~$197.0~~$231.3 million outstanding under the Credit Facility at ~~December 28, 2019.~~September 26, 2020.

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September 26, 2020.

The net availability under the Credit Facility at ~~December 28, 2019~~September 26, 2020 was ~~$369.4~~$335.1 million.

~~Specific terms of the Credit Facility permit the payment of cash dividends (with certain limitations), and permit mortgages~~Mortgages and specific lease financing arrangements with other parties (with certain limitations). are permitted under the Credit Facility. 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.

On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement to provide us with additional flexibility to operate our business through the first quarter of fiscal 2022. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect.

Specifically, from June 11, 2020 to June 26, 2021, the First Amendment (1) eliminates the covenant for us to maintain an interest coverage ratio above 1.55x; (2) requires us to maintain liquidity of $275 million as of the end of each fiscal month; and (3) adjusts the ratio of maximum adjusted debt to EBITDAR. The ratio of maximum adjusted debt to EBITDAR will vary by quarter as follows: (a) 5.50x in the first quarter of fiscal 2021; (b) 6.00x in the second quarter of fiscal 2021; (c) 6.25x in the third quarter of

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fiscal 2021; (d) 5.50x in the fourth quarter of fiscal 2021; (e) 5.00x in the first quarter of fiscal 2022; and (f) thereafter, returning to 4.75x.

For the period from June 30, 2020 to June 30, 2021, we are permitted under the First Amendment to acquire stores or other businesses up to $100 million in the aggregate, as long as, on a pro forma basis after taking the acquisition into account, we would comply with the financial covenants and other restrictions in the First Amendment. In addition, from June 30, 2020 to June 30, 2021, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate, if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility.

The First Amendment will permanently amend the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75% and also added two levels of interest rate pricing applicable during the covenant relief period in the event the ratio of adjusted debt to EBITDAR is higher than 5.00x. During the covenant relief period, the minimum interest rate spread charged on borrowings will be 225 basis points over LIBOR.

We were in compliance with all debt covenants at ~~December 28, 2019.~~September 26, 2020.

We believe that we can fulfill our commitments and working capital needs utilizing our cash flow from operations and, if necessary, cash on hand and/or bank financing for at least the next 12 months and the foreseeable future.

In addition, we have financed certain store properties with finance leases/financing obligations, which amounted to ~~$330.0~~$400.3 million at ~~December 28, 2019~~September 26, 2020 and are due in installments through March 2049.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 1 to our Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our Consolidated Financial Statements as of ~~December 28, 2019~~September 26, 2020 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 ~~December 28, 2019,~~September 26, 2020, excluding finance leases and financing obligations, we had no debt financing at fixed interest rates, of which the fair value would be affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately ~~$2.0~~$2.3 million based upon our debt position at ~~December 28, 2019~~September 26, 2020 and approximately ~~$1.4~~$5.7 million ~~for the fiscal year ended~~based upon our debt position at March ~~30, 2019,~~28, 2020, respectively, given a change in LIBOR of 100 basis points.

Debt financing had a carrying amount that approximates a fair value of ~~$197.0~~$231.3 million as of ~~December 28, 2019,~~September 26, 2020, as compared to a carrying amount and a fair value of ~~$137.7~~$566.4 million as of March ~~30, 2019.~~28, 2020.

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, as amended, 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 interim 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 interim Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal 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 interim 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 ~~December 28, 2019~~September 26, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

‎

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MONRO, INC.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

Except as stated below, there have been no material changes from the risk factors previously disclosed in Part I – Item 1A of the Company’s Form 10-K for the fiscal year ended March 28, 2020.

Matters related to the COVID-19 pandemic have and will continue to significantly and adversely impact our business, financial position, results of operations and cash flows.

The spread of COVID-19 has created a global public health crisis that has resulted in widespread volatility and deteriorations in household, business, economic and market conditions. We have experienced negative impacts to demand for our products and services from the COVID-19 pandemic, which has and will continue to adversely affect our results of operations, and we are continuing to experience significant disruption to our normal business operations and may experience further disruption to our planned implementation of certain strategic initiatives.

Our business will continue to be affected by the broader economic effects from the COVID-19 pandemic and related regulatory and individual actions, including customer demand for our products and services. Because more people in the United States are working from home, those workers will likely drive less often, and are less likely to require our services or will require our services less often. If this trend continues, we may see a permanent decline in demand for our services. Although travel by car may replace air travel as the preferred means of transportation because of fear of the spread of COVID-19, the recessionary economic environment resulting from the COVID-19 pandemic may reduce levels of leisure travel, which would reduce the demand for our products and services. We anticipate disruption to the demand for our products and services throughout the course of the pandemic. For example, in the first six months of fiscal 2021, we experienced significant declines in comparable store sales compared to the first six months of fiscal 2020 due to lower store traffic and reduced store hours as a result of our, individuals’, and governmental responses to the COVID-19 pandemic. Additionally, our growth strategy was impacted by the pandemic, as we paused all store acquisition, rebrand, and reimage initiatives during the first quarter of fiscal 2021 in order to focus our efforts on determining the full impact of the COVID-19 pandemic on our business. While we resumed our rebrand and reimaging initiatives during the quarter ended September 26, 2020 and resumed our acquisition activity after the quarter-end, given the continuing uncertainty during the pandemic, there can be no assurance we will be able to continue these initiatives.

While we have so far been able to source required products at reasonable cost, the pandemic may also affect our supply chain in ways that are beyond our control. We may also incur costs or experience further disruption to comply with new or changing regulations in response to the pandemic.

In addition, our continuing response to the pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value, increase vulnerability to information technology or cybersecurity related risks as certain of our employees work remotely and otherwise continue to disrupt our business operations. For example, we have and expect to continue to incur additional costs and investments in supplies necessary to keep our employees and customers safe, such as face masks, hand sanitizer and cleaning supplies. We expect to encounter labor inefficiencies as we adjust to new protocols and operating models to adapt to operating during the pandemic while experiencing what we believe will be an increase in sales activity from the first six months of fiscal 2021. Those labor inefficiencies may include difficulty in hiring employees if enhanced unemployment benefits are signed into law. As our employees return to more normalized store hours, there will also be increased risks to the health and safety of our employees and customers, particularly if there were to be one or more clusters of COVID-19 cases occurring at any of our stores or our corporate headquarters. We may also be subject to enhanced legal risks, including potential litigation related to the COVID-19 pandemic.

The overall magnitude of the COVID-19 pandemic, including the extent of its direct and indirect impact on our business, financial position, results of operations or liquidity is inherently uncertain due to the fluidity of the situation. Further, the ultimate impact of the COVID-19 pandemic depends on many factors that are not within our control, including, but not limited to: governmental, business and individuals' actions that have been and continue to be taken in response to the COVID-19 pandemic; the severity and duration of outbreaks of the virus; the impact of the COVID-19 pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic

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growth; and the pace of recovery, particularly in our markets, when the COVID-19 pandemic subsides.

We are unable to estimate the impact of the COVID-19 pandemic with certainty on our business and operations at this time. The pandemic could cause us to experience impairment of our goodwill and other financial assets, further reduce demand for our products and services and other adverse impacts on our financial position, results of operations and cash flows. Sustained adverse effects may also prevent us from satisfying financial covenants in our credit agreement or result in downgrades in our credit ratings.

Item 6. Exhibits


		Exhibit Index

		10.69 – Letter Agreement, effective September 30, 2019, between the Company and Rob Rajkowski, incorporated by reference to Exhibit 10.69 to the Company’s Quarterly Report on Form 10-Q filed on November 7, 2019

		31.1 – Certification of ~~Brett T. Ponton~~Robert E. Mellor 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 – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 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
		101.CAL - XBRL Taxonomy Extension Calculation Linkbase
		104 - Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

‎

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MONRO, INC.

DATE: ~~February 6,~~November 5, 2020	By:	/s/ ~~Brett T. Ponton~~Robert E. Mellor
		~~Brett T. Ponton~~Robert E. Mellor
		Interim Chief Executive Officer ~~and President~~ ‎(Principal Executive Officer)

DATE: ~~February 6,~~November 5, 2020	By:	/s/ Brian J. D’Ambrosia
		Brian J. D’Ambrosia
		Executive Vice President-Finance, Chief Financial Officer and
		Treasurer (Principal Financial Officer and Principal Accounting Officer)


	Operating ‎Leases			Finance ‎ Leases and ‎ Financing ‎Obligations
Weighted average remaining lease term, in years		9.4			10.0
Weighted average discount rate		3.53	%		9.05	%

~~As of~~
‎~~Acquisition Date~~

~~Dollars in~~
‎~~thousands~~

~~Weighted~~
‎~~Average~~
‎~~Useful Life~~

~~Customer lists~~

~~7 years~~