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