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 June 29, 2019.
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-19357
____________________________________________________________
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 #) |
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 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 July 26, 2019, 33,224,179 shares of the registrant's common stock, par value $0.01 per share, were outstanding.
MONRO, INC.
INDEX
MONRO, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MONRO, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 29, | March 30, | |||||
2019 | 2019 | |||||
(Dollars in thousands) | ||||||
Assets | ||||||
Current assets: | ||||||
Cash and equivalents | $ | 8,513 | $ | 6,214 | ||
Trade receivables | 17,380 | 14,617 | ||||
Federal and state income taxes receivable | — | 5,586 | ||||
Inventories | 173,655 | 171,038 | ||||
Other current assets | 46,733 | 42,452 | ||||
Total current assets | 246,281 | 239,907 | ||||
Property, plant and equipment | 647,015 | 640,421 | ||||
Less - Accumulated depreciation and amortization | (335,997) | (327,869) | ||||
Net property, plant and equipment | 311,018 | 312,552 | ||||
Finance lease and financing obligation assets, net | 142,066 | 128,029 | ||||
Operating lease assets, net | 201,401 | — | ||||
Goodwill | 626,108 | 565,503 | ||||
Intangible assets | 32,085 | 51,107 | ||||
Other non-current assets | 13,779 | 13,024 | ||||
Long-term deferred income tax assets | 5,716 | 2,166 | ||||
Total assets | $ | 1,578,454 | $ | 1,312,288 | ||
Liabilities and Shareholders' Equity | ||||||
Current liabilities: | ||||||
Current portion of long-term debt, finance leases and financing obligations | $ | 25,745 | $ | 22,229 | ||
Current portion of operating lease liabilities | 28,804 | — | ||||
Trade payables | 104,828 | 103,602 | ||||
Federal and state income taxes payable | 3,191 | — | ||||
Accrued payroll, payroll taxes and other payroll benefits | 26,054 | 20,231 | ||||
Accrued insurance | 39,574 | 38,742 | ||||
Deferred revenue | 13,163 | 12,059 | ||||
Other current liabilities | 22,438 | 21,584 | ||||
Total current liabilities | 263,797 | 218,447 | ||||
Long-term debt | 160,000 | 137,682 | ||||
Long-term finance leases and financing obligations | 260,818 | 238,089 | ||||
Long-term operating lease liabilities | 160,163 | — | ||||
Accrued rent expense | — | 4,053 | ||||
Other long-term liabilities | 11,308 | 12,724 | ||||
Long-term deferred income tax liabilities | 1,738 | — | ||||
Long-term income taxes payable | 2,042 | 1,783 | ||||
Total liabilities | 859,866 | 612,778 | ||||
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 | ||||
Common Stock, $0.01 par value, 65,000,000 shares authorized; 39,581,865 and 39,510,932 shares issued at June 29, 2019 and March 30, 2019, respectively | 396 | 395 | ||||
Treasury Stock, 6,359,871 shares at June 29, 2019 and March 30, 2019, at cost | (108,729) | (108,729) | ||||
Additional paid-in capital | 224,742 | 220,173 | ||||
Accumulated other comprehensive loss | (4,625) | (4,536) | ||||
Retained earnings | 606,771 | 592,174 | ||||
Total shareholders' equity | 718,588 | 699,510 | ||||
Total liabilities and shareholders' equity | $ | 1,578,454 | $ | 1,312,288 | ||
The accompanying notes are an integral part of these financial statements.
MONRO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Quarter Ended | ||||||
Fiscal June | ||||||
2019 | 2018 | |||||
(Dollars in thousands, except per share data) | ||||||
Sales | $ | 317,063 | $ | 295,811 | ||
Cost of sales, including distribution and occupancy costs | 188,916 | 178,573 | ||||
Gross profit | 128,147 | 117,238 | ||||
Operating, selling, general and administrative expenses | 91,776 | 84,166 | ||||
Operating income | 36,371 | 33,072 | ||||
Interest expense, net of interest income | 7,157 | 6,580 | ||||
Other income, net | (175) | (227) | ||||
Income before provision for income taxes | 29,389 | 26,719 | ||||
Provision for income taxes | 6,783 | 6,075 | ||||
Net income | 22,606 | 20,644 | ||||
Other comprehensive loss, net of tax: | ||||||
Changes in pension, net of tax benefit | (89) | (77) | ||||
Comprehensive income | $ | 22,517 | $ | 20,567 | ||
Earnings per common share: | ||||||
Basic | $ | 0.68 | $ | 0.63 | ||
Diluted | $ | 0.67 | $ | 0.62 | ||
Weighted average number of common shares outstanding | ||||||
Basic | 33,183 | 32,853 | ||||
Diluted | 33,964 | 33,457 | ||||
The accompanying notes are an integral part of these financial statements.
MONRO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars and shares in thousands)
Class C Convertible | Common Stock | Treasury Stock | Additional | Accumulated | Retained | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Earnings | Total | ||||||||||||||||||
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 | (582) | (582) | |||||||||||||||||||||||||
Adjusted balance | 22 | 33 | 39,511 | 395 | 6,360 | (108,729) | 220,173 | (4,536) | 591,592 | 698,928 | |||||||||||||||||
Net income | 22,606 | 22,606 | |||||||||||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||||||
Pension liability adjustment | (89) | (89) | |||||||||||||||||||||||||
Cash dividends (1): Preferred | (112) | (112) | |||||||||||||||||||||||||
Common | (7,305) | (7,305) | |||||||||||||||||||||||||
Dividend payable | (10) | (10) | |||||||||||||||||||||||||
Activity related to equity- based plans | 71 | 1 | 3,644 | 3,645 | |||||||||||||||||||||||
Stock-based compensation | 925 | 925 | |||||||||||||||||||||||||
Balance at June 29, 2019 | 22 | $ | 33 | 39,582 | $ | 396 | 6,360 | $ | (108,729) | $ | 224,742 | $ | (4,625) | $ | 606,771 | $ | 718,588 | ||||||||||
Balance at March 31, 2018 | 22 | $ | 33 | 39,166 | $ | 392 | 6,330 | $ | (106,563) | $ | 199,576 | $ | (4,248) | $ | 539,286 | $ | 628,476 | ||||||||||
Net income | 20,644 | 20,644 | |||||||||||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||||||
Pension liability adjustment | (77) | (77) | |||||||||||||||||||||||||
Cash dividends (1): Preferred | (102) | (102) | |||||||||||||||||||||||||
Common | (6,572) | (6,572) | |||||||||||||||||||||||||
Dividend payable | (12) | (12) | |||||||||||||||||||||||||
Activity related to equity- based plans | 38 | — | 8 | (445) | 1,223 | 778 | |||||||||||||||||||||
Stock-based compensation | 1,084 | 1,084 | |||||||||||||||||||||||||
Balance at June 30, 2018 | 22 | $ | 33 | 39,204 | $ | 392 | 6,338 | $ | (107,008) | $ | 201,883 | $ | (4,325) | $ | 553,244 | $ | 644,219 | ||||||||||
(1)First quarter fiscal year dividend payment of $0.22 and $0.20 per common share or common share equivalent paid on June 17, 2019 and June 14, 2018, respectively.
The accompanying notes are an integral part of these financial statements.
MONRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended | ||||||
Fiscal June | ||||||
2019 | 2018 | |||||
(Dollars in thousands) | ||||||
Increase (Decrease) in Cash | ||||||
Cash flows from operating activities: | ||||||
Net income | $ | 22,606 | $ | 20,644 | ||
Adjustments to reconcile net income to net cash provided by operating activities - | ||||||
Depreciation and amortization | 14,839 | 13,227 | ||||
Loss on disposal of assets | 122 | 397 | ||||
Stock-based compensation expense | 925 | 1,084 | ||||
Net change in deferred income taxes | 2,223 | 2,082 | ||||
Change in operating assets and liabilities (excluding acquisitions): | ||||||
Trade receivables | (2,763) | (3,562) | ||||
Inventories | 51 | 2,275 | ||||
Other current assets | (3,966) | (1,465) | ||||
Other non-current assets | 6,573 | 887 | ||||
Trade payables | 1,226 | 6,115 | ||||
Accrued expenses | 14,250 | 5,756 | ||||
Federal and state income taxes payable | 5,586 | 3,457 | ||||
Other long-term liabilities | (6,903) | (924) | ||||
Long-term income taxes payable | 3,450 | 198 | ||||
Total adjustments | 35,613 | 29,527 | ||||
Net cash provided by operating activities | 58,219 | 50,171 | ||||
Cash flows from investing activities: | ||||||
Capital expenditures | (13,996) | (11,440) | ||||
Acquisitions, net of cash acquired | (54,720) | (27,518) | ||||
Proceeds from the disposal of assets | 103 | 303 | ||||
Other | 34 | — | ||||
Net cash used for investing activities | (68,579) | (38,655) | ||||
Cash flows from financing activities: | ||||||
Proceeds from borrowings | 119,603 | 108,668 | ||||
Principal payments on long-term debt, finance leases and financing obligations | (103,257) | (103,535) | ||||
Exercise of stock options | 3,730 | 778 | ||||
Dividends paid | (7,417) | (6,674) | ||||
Net cash provided by (used for) financing activities | 12,659 | (763) | ||||
Increase in cash | 2,299 | 10,753 | ||||
Cash at beginning of period | 6,214 | 1,909 | ||||
Cash at end of period | $ | 8,513 | $ | 12,662 | ||
The accompanying notes are an integral part of these financial statements.
Note 1 – Condensed Consolidated Financial Statements
The consolidated balance sheets as of June 29, 2019 and March 30, 2019, the consolidated statements of comprehensive income for the quarters ended June 29, 2019 and June 30, 2018, the consolidated statements of changes in shareholders’ equity for the quarters ended June 29, 2019 and June 30, 2018 and the consolidated statements of cash flows for the quarters ended June 29, 2019 and June 30, 2018, include financial information for Monro, Inc. and its wholly-owned subsidiaries, Monro Service Corporation; Car-X, LLC; MNRO Holdings, LLC and MNRO Service Holdings, LLC (collectively, “Monro,” “we,” “us,” “our,” the “Company”). These unaudited, condensed consolidated financial statements have been prepared by Monro. We believe all known adjustments (consisting of normal recurring accruals or adjustments) have been made to fairly state the financial position, results of operations and cash flows for the unaudited periods presented.
Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the 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 June 2019” | March 31, 2019 – June 29, 2019 (13 weeks) |
“Quarter Ended Fiscal June 2018” | April 1, 2018 – June 30, 2018 (13 weeks) |
Fiscal 2020, ending March 28, 2020, is a 52 week year.
Monro’s operations are organized and managed in one operating segment. The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale locations. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting.
Recent Accounting Pronouncements
In February 2016, the FASB issued new accounting guidance related to leases. This guidance establishes a right of use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases 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.
The adoption of this guidance resulted in a $165.3 million increase to total assets 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 line to the Finance lease and financing obligation assets, net line of our Consolidated Balance Sheet. See Note 8 for additional lease disclosures.
In June 2018, 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.
In August 2018, the 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 is permitted. We are currently evaluating the potential impact of the adoption of this guidance 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 currently with eight 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 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 over LIBOR 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.
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.
Note 2 – Acquisitions
Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in existing and contiguous markets, expand in to new markets and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this footnote include acquisitions of five or more locations as well as acquisitions of one to four locations that are part of our greenfield store growth strategy.
Subsequent Events
Subsequent to June 29, 2019, we signed definitive asset purchase agreements to complete the acquisition of eight retail tire and automotive repair stores located in Louisiana. These transactions are expected to close during the second quarter of fiscal 2020 and are expected to be financed through our existing credit facility.
Fiscal 2020
During the first quarter of fiscal 2020, we acquired the following businesses for an aggregate purchase price of $54.5 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 June 23, 2019, we acquired two 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 one 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.
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 quarter ended June 29, 2019. The total costs related to completed acquisitions were $0.5 million for the quarter ended June 29, 2019. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales for the fiscal 2020 acquired entities for the quarter ended June 29, 2019 totaled $7.1 million for the period from acquisition date through June 29, 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 identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates. The consideration transferred and net identifiable liabilities assumed were recorded as goodwill. The preliminary allocation of the aggregate purchase price as of June 29, 2019 was as follows:
As of | |||
(Dollars in | |||
Inventories | $ | 2,856 | |
Other current assets | 300 | ||
Property, plant and equipment |
| 456 | |
Finance lease and financing obligation assets, net | 17,977 | ||
Operating lease assets, net | 18,757 | ||
Intangible assets |
| 1,523 | |
Other non-current assets | 103 | ||
Long-term deferred income tax assets |
| 4,223 | |
Total assets acquired |
| 46,195 | |
Current portion of long-term debt, finance leases and financing obligations | 2,445 | ||
Current portion of operating lease liabilities | 1,684 | ||
Deferred revenue | 1,047 | ||
Other current liabilities |
| 214 | |
Long-term finance leases and financing obligations |
| 30,720 | |
Long-term operating lease liabilities | 15,688 | ||
Other long-term liabilities |
| 1,155 | |
Total liabilities assumed |
| 52,953 | |
Total net identifiable liabilities assumed |
| $ | (6,758) |
Total consideration transferred |
| $ | 54,505 |
Less: total net identifiable liabilities assumed |
| (6,758) | |
Goodwill |
| $ | 61,263 |
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
As of | ||||||
Dollars in | Weighted | |||||
Customer lists | $ | 1,523 | 7 years | |||
Fiscal 2019
During the first quarter of fiscal 2019, we acquired the following businesses for an aggregate purchase price of $27.2 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 May 13, 2018, we acquired 12 retail/commercial tire and automotive repair stores and one retread facility located in Tennessee, as well as four 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 four retail tire and automotive repair stores located in Minnesota from Liberty Auto Group, Inc. These stores operate under the Car-X name.
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to customer lists, favorable leases and a trade name.
We expensed all costs related to acquisitions in the quarter ended June 30, 2018. The total costs related to completed acquisitions were $0.2 million for the quarter ended June 30, 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 ended June 30, 2018 totaled $5.4 million for the period from acquisition date through June 30, 2018.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the remainder recorded as goodwill as follows:
As of | |||
(Dollars in | |||
Trade receivables | $ | 1,674 | |
Inventories | 7,594 | ||
Other current assets | 192 | ||
Property, plant and equipment | 2,342 | ||
Finance lease and financing obligation assets, net | 2,893 | ||
Intangible assets | 6,812 | ||
Long-term deferred income tax assets | 1,051 | ||
Total assets acquired | 22,558 | ||
Current portion of long-term debt, finance leases and financing obligations | 557 | ||
Deferred revenue | 115 | ||
Other current liabilities | 419 | ||
Long-term finance leases and financing obligations | 6,320 | ||
Other long-term liabilities | 274 | ||
Total liabilities assumed | 7,685 | ||
Total net identifiable assets acquired | $ | 14,873 | |
Total consideration transferred | $ | 27,167 | |
Less: total net identifiable assets acquired | 14,873 | ||
Goodwill | $ | 12,294 | |
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
As of | ||||||
Dollars in | Weighted | |||||
Customer lists | $ | 5,247 | 13 years | |||
Favorable leases | 1,165 | 10 years | ||||
Trade name | 400 | 2 years | ||||
Total | $ | 6,812 | 12 years | |||
As a result of the updated purchase price allocations for the entities acquired during the fiscal year ended March 30, 2019, 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 of $0.3 million; an increase in other current assets of $0.1 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 $0.7 million.
The measurement period adjustments were not material to the Consolidated Statement of Comprehensive Income for the quarter ended June 29, 2019.
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 acquisitions which closed subsequent to June 30, 2018 and the fiscal 2020 acquisitions, and expect to complete the valuations no later than the first anniversary date of the respective acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.
Note 3 – Earnings per Common Share
Basic earnings per common share amounts are computed by dividing income available to common shareholders, after deducting preferred stock dividends, by the average number of common shares outstanding. Diluted earnings per common share amounts assume the issuance of common stock for all potentially dilutive equivalent securities outstanding.
The following is a reconciliation of basic and diluted earnings per common share for the respective periods:
Quarter Ended | ||||||
Fiscal June | ||||||
2019 | 2018 | |||||
(Amounts in thousands, | ||||||
except per share data) | ||||||
Numerator for earnings per common share calculation: | ||||||
Net income | $ | 22,606 | $ | 20,644 | ||
Less: Preferred stock dividends | (112) | (102) | ||||
Income available to common shareholders | $ | 22,494 | $ | 20,542 | ||
Denominator for earnings per common share calculation: | ||||||
Weighted average common shares, basic | 33,183 | 32,853 | ||||
Effect of dilutive securities: | ||||||
Preferred stock | 510 | 510 | ||||
Stock options | 231 | 68 | ||||
Restricted stock | 40 | 26 | ||||
Weighted average common shares, diluted | 33,964 | 33,457 | ||||
Basic earnings per common share: | $ | 0.68 | $ | 0.63 | ||
Diluted earnings per common share: | $ | 0.67 | $ | 0.62 | ||
The computation of diluted earnings per common share excludes the effect of the assumed exercise of approximately 59,000 and 486,000 stock options for the quarters ended June 29, 2019 and June 30, 2018, 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 – Income Taxes
In the normal course of business, we provide for uncertain tax positions and the related interest and penalties, and adjust our unrecognized tax benefits and accrued interest and penalties accordingly. The total amount of unrecognized tax benefits was $6.7 million and $6.4 million at June 29, 2019 and March 30, 2019, respectively, the majority of which, if recognized, would affect our effective tax rate. Additionally, we have accrued interest and penalties related to unrecognized tax benefits of approximately $0.4 million as of June 29, 2019 and March 30, 2019.
We file U.S. federal income tax returns and income tax returns in various state jurisdictions. Our fiscal 2018 U.S. federal tax year and various state tax years remain subject to income tax examinations by tax authorities.
Note 5 – Fair Value
Long-term debt had a carrying amount that approximates a fair value of $160.0 million as of June 29, 2019, as compared to a carrying amount and a fair value of $137.7 million as of March 30, 2019. The fair value of long-term debt was estimated based on discounted cash flow analyses using either quoted market prices for the same or similar issues, or the current interest rates offered to Monro for debt with similar maturities.
Note 6 – Cash Dividend
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. We paid dividends of $7.4 million during the quarter ended June 29, 2019. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.
Note 7 – Revenues
Automotive undercar repair, 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, 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 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 June 29, 2019 and March 30, 2019 were $19.0 million and $17.2 million, respectively, of which $13.2 million and $12.1 million, respectively, are reported in Deferred revenue and $5.8 million and $5.1 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 to June 29, 2019:
Dollars in | |||
thousands | |||
Balance at March 30, 2019 | $ | 17,150 | |
Deferral of revenue | 4,496 | ||
Deferral of revenue from acquisitions | 1,909 | ||
Recognition of revenue | (4,598) | ||
Balance at June 29, 2019 | $ | 18,957 | |
We expect to recognize $10.9 million of deferred revenue related to road hazard warranty agreements in the remainder of fiscal 2020, $6.5 million of such deferred revenue during our fiscal year ending March 27, 2021, and $1.6 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.)
The following table summarizes disaggregated revenue by product group:
Quarter Ended | ||||||
Fiscal June | ||||||
2019 | 2018 | |||||
(Dollars in thousands) | ||||||
Revenues: | ||||||
Brakes | $ | 46,776 | $ | 42,748 | ||
Exhaust | 6,953 | 7,076 | ||||
Steering | 26,232 | 25,059 | ||||
Tires | 154,065 | 141,103 | ||||
Maintenance | 82,174 | 79,010 | ||||
Other | 863 | 815 | ||||
Total | $ | 317,063 | $ | 295,811 | ||
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.
Our leases have remaining lease terms of less than one year to approximately 39 years. Most of our leases include one or more options to extend the lease, for periods ranging from one year to 69 years or more. If it is reasonably certain that an option to extend will be exercised, that option is considered in the lease term at inception. 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 June 29, 2019, net assets of $4.6 million and liabilities of $7.7 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 | |||
Fiscal June | |||
2019 | |||
(Dollars in thousands) | |||
Operating lease cost | $ | 9,228 | |
Finance lease/financing obligations cost: | |||
Amortization of assets | 4,247 | ||
Interest on liabilities | 5,278 | ||
Short term and variable lease cost | 565 | ||
Sublease income | (33) | ||
Total lease cost | $ | 19,285 | |
Supplemental cash flow information related to leases was as follows:
Quarter Ended | |||
Fiscal June | |||
2019 | |||
(Dollars in thousands) | |||
Cash paid for amounts included in measurement of lease obligations: | |||
Operating cash flows from operating leases | $ | 8,669 | |
Operating cash flows from finance leases/financing obligations | 5,268 | ||
Financing cash flows from finance leases/financing obligations | 5,942 | ||
Assets obtained in exchange for operating lease obligations | 6,730 | ||
Assets obtained in exchange for finance lease obligations | 6,220 | ||
The following table summarizes weighted average remaining lease term and discount rates:
Operating | Finance | |||||||
Weighted average remaining lease term, in years | 9.4 | 10.1 | ||||||
Weighted average discount rate | 3.67 | % | 10.31 | % | ||||
Future maturities of our lease liabilities, excluding subleases, as of June 29, 2019 are as follows:
Operating | Finance | |||||
(Dollars in thousands) | ||||||
Remainder 2020 | $ | 26,526 | $ | 34,894 | ||
2021 | 33,404 | 46,962 | ||||
2022 | 29,922 | 46,679 | ||||
2023 | 25,652 | 46,456 | ||||
2024 | 20,594 | 39,749 | ||||
Thereafter | 90,251 | 211,637 | ||||
Total undiscounted lease obligations | $ | 226,349 | $ | 426,377 | ||
Less: imputed interest | (37,382) | (139,834) | ||||
Net lease obligation | $ | 188,967 | $ | 286,543 | ||
Total lease payments include $68 million related to options to extend operating leases that are reasonably certain of being exercised, include $106 million related to options to extend finance leases that are reasonably certain of being exercised and exclude $15 million of legally binding lease payments for leases signed but not yet commenced as of June 29, 2019.
The aggregate minimum annual lease rentals at March 30, 2019 for the remaining contractual term of non-cancelable leases were as follows:
Operating | Finance | |||||
(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 | ||||
Note 9 – Subsequent Events
See Note 2 for a discussion of acquisitions subsequent to June 29, 2019.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including (without limitation) statements made in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words “anticipates,” ���believes,” “contemplates,” “expects,” “see,” “could,” “may,” “estimate,” “appear,” “intend,” “plans,” “potential,” “strategy” and variations thereof and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed. These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which Monro’s stores are located, the need for and costs associated with store renovations and other capital expenditures, the effect of economic conditions, seasonality, the impact of weather conditions 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 or proposed tariffs, 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 our Annual Report on Form 10-K for the fiscal year ended March 30, 2019. Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. References to fiscal 2020 and fiscal 2019 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal years ending March 28, 2020 and March 30, 2019, respectively.
Results of Operations
The following table sets forth income statement data of Monro expressed as a percentage of sales for the fiscal periods indicated:
Quarter Ended | ||||||
Fiscal June | ||||||
2019 | 2018 | |||||
Sales | 100.0 | % | 100.0 | % | ||
Cost of sales, including distribution and occupancy costs | 59.6 | 60.4 | ||||
Gross profit | 40.4 | 39.6 | ||||
Operating, selling, general and administrative expenses | 28.9 | 28.5 | ||||
Operating income | 11.5 | 11.2 | ||||
Interest expense - net | 2.3 | 2.2 | ||||
Other income - net | (0.1) | (0.1) | ||||
Income before provision for income taxes | 9.3 | 9.0 | ||||
Provision for income taxes | 2.1 | 2.1 | ||||
Net income | 7.1 | % | 7.0 | % | ||
First Quarter Ended June 29, 2019 as Compared to First Quarter Ended June 30, 2018
Sales were $317.1 million for the quarter ended June 29, 2019 as compared with $295.8 million for the quarter ended June 30, 2018. The sales increase of $21.3 million, or 7.2%, was due to an increase of $19.6 million related to new stores, of which $16.6 million came from the fiscal 2020 and fiscal 2019 acquisitions. Additionally, comparable store sales increased by 0.8%. Partially offsetting this was a decrease in sales from closed stores amounting to $0.7 million. There were 90 selling days in the quarter ended June 29, 2019 and in the quarter ended June 30, 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.
At June 29, 2019, we had 1,251 Company-operated stores in operation and 98 franchised locations as compared with 1,164 Company-operated stores in operation and 98 franchised locations at June 30, 2018. At March 30, 2019, we had 1,197 Company-operated stores in operation and 98 franchised locations. During the quarter ended June 29, 2019, we added 55 Company-operated stores and closed one store.
Comparable store brakes, alignment and tires category sales for the quarter ended June 29, 2019 increased by approximately 6%, 2% and 1%, respectively, from the prior year quarter. However, maintenance services and front end/shocks category sales for the quarter ended June 29, 2019 decreased by approximately 2% and 1%, respectively, on a comparable store basis as compared to the same period in the prior year. Comparable store sales were impacted by higher average ticket from improved in-store execution, offset by lower traffic.
Gross profit for the quarter ended June 29, 2019 was $128.1 million or 40.4% of sales as compared with $117.2 million or 39.6% of sales for the quarter ended June 30, 2018. The increase in gross profit for the quarter ended June 29, 2019, as a percentage of sales, was due primarily to a decrease in material costs which decreased as a percentage of sales as compared to the prior year quarter, as well as a decrease in labor costs as a percentage of sales from the prior year quarter due to a continued focus on our store staffing optimization initiative. We were able to decrease material costs as a percentage of sales by increasing attachment sales related to the improved in-store execution on the conversion of higher-value service package offerings that were launched during the first quarter of fiscal 2019.
At our retail tire and automotive repair locations, we provide a broad range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment. We also provide other products and services, including tires and routine maintenance services, including state inspections. In recent years, including fiscal 2019, we acquired certain tire and automotive repair locations that also serve commercial customers and sell tires to customers for resale. These locations conduct tire and automotive repair activities that are similar to our retail locations, other than with respect to the lower gross margin sales mix resulting from the sale of commercial tires and the lower gross margin of the wholesale locations. The lower gross margin at our wholesale locations is due primarily to the higher mix of tires sold and the fact that those tire sales do not include installation or other tire related services that are more common at other locations. During the quarter ended June 29, 2019, there was an increase in consolidated revenue from the prior year quarter of approximately $4.5 million due to a full quarter of increased sales from commercial and wholesale locations acquired in fiscal 2019. Additionally, due to the impact of a full quarter of the sales mix from our commercial and wholesale locations acquired in fiscal 2019, our consolidated gross margin for the quarter ended June 29, 2019 was reduced by approximately 50 basis points from the prior year quarter.
Distribution and occupancy costs decreased as a percentage of sales as compared to the prior year, as we gained leverage on these largely fixed costs with higher overall comparable store sales.
On a comparable store basis, gross profit for the quarter ended June 29, 2019 increased by approximately 140 basis points as compared to the prior year quarter.
Operating expenses for the quarter ended June 29, 2019 were $91.8 million or 28.9% of sales as compared to $84.2 million or 28.5% of sales for the quarter ended June 30, 2018. The increase of $7.6 million in operating expenses from the comparable period of the prior year is primarily due to increased expenses for 87 net new stores.
Operating income for the quarter ended June 29, 2019 of approximately $36.4 million increased by 10.0% as compared to operating income of approximately $33.1 million for the quarter ended June 30, 2018, and increased as a percentage of sales from 11.2% to 11.5% for the reasons described above.
Net interest expense for the quarter ended June 29, 2019 increased by approximately $0.6 million as compared to the same period in the prior year, and increased from 2.2% to 2.3% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 29, 2019 increased by approximately $18.4 million as compared to the quarter ended June 30, 2018. This increase is primarily related to an increase in finance lease debt recorded in connection with the fiscal 2019 and fiscal 2020 acquisitions and greenfield expansion, as well as an increase in the weighted average interest rate for the quarter ended June 29, 2019 of approximately 30 basis points as compared to the first quarter of the prior year. The increase in the weighted average interest rate for the quarter ended June 29, 2019 was due to higher interest expense associated with finance leases.
The effective income tax rate for the quarter ended June 29, 2019 and June 30, 2018 was 23.1% and 22.7%, respectively, of pre-tax income.
Net income for the quarter ended June 29, 2019 of $22.6 million increased 9.5% from net income for the quarter ended June 30, 2018. Earnings per common share on a diluted basis for the quarter ended June 29, 2019 of $0.67, including $0.01 per common share in incremental costs related to increased acquisition activity, increased 8.1% as compared to diluted earnings per common share of $0.62 for the quarter ended June 30, 2018, which included $0.02 per common share of non-recurring costs related to Monro.Forward initiatives and investments.
Capital Resources and Liquidity
Capital Resources
Our primary capital requirements in fiscal 2020 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the quarter ended June 29, 2019, we spent approximately $68.7 million on these items. Capital requirements were met primarily by cash flow from operations and from our revolving credit facility.
In May 2019, our Board of Directors declared its intention to pay a regular quarterly cash dividend of $0.22 per common share or common share equivalent beginning with the first quarter of fiscal 2020. We paid dividends of $7.4 million during the quarter ended June 29, 2019. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on Monro’s financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.
Additionally, we have signed definitive asset purchase agreements to complete the acquisition of eight retail tire and automotive repair stores located in Louisiana. These transactions are expected to close during the second quarter of fiscal 2020 and are expected to be financed through our existing credit facility.
We plan to continue to seek suitable acquisition candidates. We believe we have sufficient resources available (including cash flow from operations and bank financing) to expand our business as currently planned for the next twelve months.
Liquidity
In April 2019, we entered into a new five-year $600 million revolving credit facility agreement currently with eight 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 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 $160.0 million outstanding under the Credit Facility at June 29, 2019.
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 over LIBOR annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was a $33.6 million outstanding letter of credit at June 29, 2019.
The net availability under the Credit Facility at June 29, 2019 was $406.4 million.
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 June 29, 2019.
In addition, we have financed certain store properties with finance leases/financing obligations, which amounted to $286.6 million at June 29, 2019 and are due in installments through May 2049.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1 of the Company’s Condensed Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our Condensed Consolidated Financial Statements as of June 29, 2019 and the expected impact on the Consolidated Financial Statements for future periods.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from potential changes in interest rates. As of June 29, 2019, approximately 0.01% of our debt financing, excluding finance leases and financing obligations, was at fixed interest rates and, therefore, the fair value of such debt financing is affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately $1.6 million based upon our debt position at June 29, 2019 and approximately $1.4 million for the fiscal year ended March 30, 2019, respectively, given a change in LIBOR of 100 basis points.
Debt financing had a carrying amount that approximates a fair value of $160.0 million as of June 29, 2019, as compared to a carrying amount and a fair value of $137.7 million as of March 30, 2019.
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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In conjunction with the close of each fiscal quarter and under the supervision of our Chief Executive Officer (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 Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that our disclosure controls and procedures were effective.
Changes in internal controls over financial reporting
There were no changes in our internal control over financial reporting during the quarter ended June 29, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 6. Exhibits
Exhibit Index
31.1 – Certification of Brett T. Ponton pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
101.CAL - XBRL Taxonomy Extension Calculation Linkbase
101.INS - XBRL Instance Document
101.LAB - XBRL Taxonomy Extension Label Linkbase
101.PRE - XBRL Taxonomy Extension Presentation Linkbase
101.SCH - XBRL Taxonomy Extension Schema Linkbase
101.DEF - XBRL Taxonomy Extension Definition Linkbase
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. | ||
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DATE: August 8, 2019 | By: | /s/ Brett T. Ponton | |
Brett T. Ponton | |||
Chief Executive Officer and President | |||
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DATE: August 8, 2019 | 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) | |||
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