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

                                             Quarter Ended                Six Months Ended
                                           Fiscal September               Fiscal September
                                          2009           2008            2009           2008

Sales                                       100.0 %        100.0 %         100.0 %        100.0 %

Cost of sales, including
distribution and occupancy costs             56.9           58.0            56.5           57.8


Gross profit                                 43.1           42.0            43.5           42.2

Operating, selling, general and
administrative expenses                      30.1           30.7            30.3           30.6

Intangible amortization                        .1             .1              .1             .1

(Gain) loss on disposal of assets               -            (.2 )             -            (.1 )


Total operating expenses                     30.2           30.5            30.5           30.6


Operating income                             12.8           11.5            13.0           11.5

Interest expense - net                        1.1            1.3             1.3            1.3

Other income - net                            (.1 )          (.2 )             -            (.1 )


Income before provision for income
taxes                                        11.8           10.3            11.8           10.3

Provision for income taxes                    4.5            3.9             4.5            3.9


Net income                                    7.3 %          6.4 %           7.3 %          6.4 %

Second Quarter and Six Months Ended September 26, 2009 Compared To Second Quarter and Six Months Ended September 27, 2008 Sales were $136.6 million for the quarter ended September 26, 2009 as compared with $119.9 million in the quarter ended September 27, 2008. The sales increase of $16.7 million or 13.9%, was partially due to a comparable store sales increase of 7.4%. The former Craven and Valley Forge stores acquired in July 2007 and the former Broad Elm stores acquired in January 2008 are now included in comparable store sales numbers. Additionally, there was an increase of $10.0 million related to new stores, of which $8.4 million came from the former Autotire stores acquired in June 2009. Partially offsetting this was a decrease in sales from closed stores amounting to $1.9 million.

There were 76 selling days in the quarter ended September 26, 2009 and in the quarter ended September 27, 2008.
At September 26, 2009, the Company had 739 company-operated stores compared with 709 stores at September 27, 2008. During the quarter ended September 26, 2009, the Company opened four stores and closed five stores.
Sales were $264.7 million for the six months ended September 26, 2009 as compared with $240.3 million in the six months ended September 27, 2008. The sales increase of $24.4 million or 10.2%, was partially due to a comparable store sales increase of 6.8%. Additionally, there was an increase of $12.5 million related to new stores, of which $9.6 million came from the former Autotire stores acquired in June 2009. Partially offsetting this sales increase was a decrease in sales from closed stores amounting to $3.9 million. Management believes that the improvement in comparable store sales resulted from several factors, including an increase in brake sales, tire sales and maintenance services. It is management's belief that strong in store sales execution, highly effective advertising campaigns and price increases in several product categories also contributed to the sales improvement. Comparable store traffic increased over the prior year second quarter. Soft economic conditions and the related decrease in consumer spending and tightening of credit, resulting in declining automobile sales, helped to contribute to the improved sales. Management believes that consumers are keeping their cars longer and repairing them instead of trading them in for new cars. Additionally, while consumers can and often defer repairs when the economy is weak, most repairs can only be deferred for a period of time. When customers do come in to have their vehicles repaired, it is management's belief that they spend more on average because the problem with their vehicle has worsened due to additional wear. Management also believes that the recent closings of dealerships by Chrysler and General Motors will only serve to drive more business to the Company's stores as consumers look for alternative, proven, economical and more geographically convenient locations to service their automobiles.
Gross profit for the quarter ended September 26, 2009 was $58.9 million or 43.1% of sales as compared with $50.4 million or 42.0% of sales for the quarter ended September 27, 2008. The increase in gross profit for the quarter ended September 26, 2009, as a percentage of sales, is due to several factors. There was a decrease in labor costs as a percent of sales due partially to a continued shift in mix to tire sales.
Distribution and occupancy costs decreased as a percentage of sales from the prior year as the Company, with improved sales, was able to better leverage largely fixed costs.
Total material costs, including outside purchases, were flat as a percentage of sales as compared to the prior year quarter. Margin pressure, caused by a shift in mix to the lower margin categories of tires and maintenance services from the higher margin categories of brakes and exhaust, was offset by an increase in vendor rebates as compared to the prior year.
Gross profit for the six months ended September 26, 2009 was $115.3 million, or 43.5% of sales, compared with $101.3 million or 42.2% of sales for the six months ended September 27, 2008.
Operating expenses for the quarter ended September 26, 2009 were $41.3 million or 30.2% of sales compared with $36.6 million or 30.5% of sales for the quarter ended September 27, 2008. Within operating expenses, selling, general and administrative ("SG&A") expenses for the quarter ended September 26, 2009 increased by $4.4 million to $41.1 million from the quarter ended September 27, 2008, and were 30.1% of sales, compared with 30.7% for the prior year quarter. The Company gained leverage as a percentage of sales, in many of the components of SG&A, both in store direct and store support costs, because of strong comparable store sales and cost control.
For the six months ended September 26, 2009, operating expenses increased by $7.2 million to $80.8 million from the comparable period of the prior year and were 30.5% of sales compared to 30.6%.
SG&A expenses for the six months ended September 26, 2009 increased $6.7 million to $80.3 million from the comparable period of the prior year and were 30.3% of sales compared to 30.6%.

Intangible amortization for the quarter ended September 26, 2009 increased from $.1 million to $.2 million due to the acquisitions that occurred in fiscal 2010, but was flat as a percentage of sales at .1%.
Intangible amortization for the six months ended September 26, 2009 remains unchanged at $.3 million, and .1 as a percentage of sales.
Gain on disposal of assets for the quarter ended September 26, 2009 decreased $.3 million from the quarter ended September 27, 2008.
Gain on disposal of assets for the six months ended September 26, 2009 decreased $.4 million from a gain of $.3 million for the six months ended September 27, 2008, to a loss of $.1 million for the six months ended September 26, 2009. Operating income for the quarter ended September 26, 2009 of approximately $17.5 million increased by 27.3% as compared to operating income of approximately $13.8 million for the quarter ended September 27, 2008 and increased as a percentage of sales from 11.5% for the quarter ended September 27, 2008 to 12.8% for the quarter ended September 26, 2009. Operating income for the six months ended September 26, 2009 of approximately $34.5 million increased by 24.5% as compared to operating income of approximately $27.7 million for the six months ended September 27, 2008, and increased as a percentage of sales from 11.5% for the six months ended September 27, 2008 to 13.0% for the six months ended September 26, 2009. Net interest expense for the quarter ended September 26, 2009 decreased by approximately $.2 million as compared to the same period in the prior year, and decreased from 1.3% to 1.1% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended September 26, 2009 decreased by approximately $14.8 million from the quarter ended September 27, 2008, primarily related to repayment of the Company's Revolving Credit Facility agreement. However, the weighted average interest rate increased slightly by approximately 20 basis points from the prior year. This increase is due to a shift to a larger percentage of debt (capital lease vs. revolver) outstanding at a higher rate.
Net interest expense for the six months ended September 26, 2009 increased by approximately $.2 million as compared to the same period in the prior year, and remained unchanged at 1.3% as a percentage of sales for the same periods. Other income for the quarter ended September 26, 2009 decreased $.1 million from the quarter ended September 27, 2008 to $.1 million.
Other income for the six months ended September 26, 2009 decreased $.1 million as compared to the same period in the prior year.
The effective tax rate for the quarter ended September 26, 2009 and September 27, 2008 was 38.1% and 38.0%, respectively, of pre-tax income. The effective tax rate for the six months ended September 26, 2009 and September 27, 2008 was 37.9% and 37.8%, respectively, of pre-tax income. Net income for the quarter ended September 26, 2009 of $10.0 million increased 30.4% from net income for the quarter ended September 27, 2008. Earnings per share on a diluted basis for the quarter ended September 26, 2009 increased 28.9%.
For the six months ended September 26, 2009, net income of $19.4 million increased 25.5% and diluted earnings per share increased 23.4%. Interim Period Reporting
The data included in this report is unaudited; however, in the opinion of management, all known adjustments (which consist only of normal recurring adjustments) have been made to present fairly the Company's operating results and financial position for the unaudited periods. The results for interim periods are not necessarily indicative of results to be expected for the fiscal year.

Capital Resources and Liquidity
Capital Resources
The Company's primary capital requirements in fiscal 2010 are the upgrading of facilities and systems and the funding of its store expansion program, including potential acquisitions of existing store chains. For the six months ended September 26, 2009, the Company's primary capital requirements were divided between the funding of capital expenditures related to existing and greenfield stores totaling $8.2 million, and the funding of acquisitions totaling $9.4 million. Funds were provided primarily by cash flow from operations and bank financing. Management believes that the Company has sufficient resources available (including cash and equivalents, net cash flow from operations and bank financing) to expand its business as currently planned for the next several years including the Tire Warehouse acquisition. Liquidity
In July 2005, the Company entered into a five-year, $125 million Revolving Credit Facility agreement with five banks. A sixth bank was added in June 2008. Interest only is payable monthly throughout the Credit Facility's term. The facility included a provision allowing the Company to expand the amount of the overall facility to $160 million. Amendments in January 2007 and June 2008 were made to these amounts which increased the overall facility to $200 million and extended the expiration to January 2012. Currently, the committed sum is $163.3 million and the accordian feature is $36.7 million. Approximately $64.0 million was outstanding at September 26, 2009, including $15.3 million of outstanding letters of credit.
The Company has financed the land associated with its office/warehouse facility via a mortgage note payable of $.7 million due in a balloon payment in 2015. In addition, the Company has financed certain store properties and equipment with capital leases, which amount to $34.9 million and are due in installments through 2039.
The terms of the Credit Facility permit the payment of cash dividends not to exceed 25% of the preceding year's net income, and allow stock buybacks subject to the Company being able to meet its existing financial covenants. The Agreement requires the maintenance of specified interest and rent coverage ratios and amounts of net worth. It also contains restrictions on cash dividend payments. At September 26, 2009, the Company is in compliance with the applicable debt covenants, and does not foresee a risk of being out of compliance for the foreseeable future. These agreements permit mortgages and specific lease financing arrangements with other parties with certain limitations.
The Company enters into interest rate hedge agreements, which involve the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as an offsetting adjustment to interest expense. The Company entered into three $10 million interest rate swap agreements in July 2008 which expire in July 2010. The purpose of these agreements is to limit the interest rate exposure in the Company's floating rate debt. Fixed rates under these agreements range from 3.27% to 3.29%. The Company has entered into an agreement to purchase the land and building associated with 30 stores that are currently leased from the landlord for a price of $20 million. Such purchases will take place over a period of time and will be completed by December 31, 2009. As of September 26, 2009, 21 properties have been purchased at a total price of $13.4 million.
In September 2009, the Company signed a definitive asset purchase agreement to acquire 40 retail tire locations and six tire franchise locations from Tire Warehouse Central ("Tire Warehouse") for approximately $34 million. The transaction closed on October 4, 2009. The Tire Warehouse stores are located in five New England states. These stores will operate under the Tire Warehouse name. The acquisition was financed through the Company's existing bank facility. Recent Accounting Pronouncements
Fair Value Measurements
On July 1, 2008, the Company adopted new accounting guidance on fair value measurements. The new guidance defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. It was effective for the Company beginning July 1, 2008, for certain financial assets and liabilities. See Note 6, "Fair Value of Financial Instruments", for additional information regarding the Company's fair value measurements for financial assets and liabilities. The new guidance was effective for non-financial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis beginning March 29, 2009. The adoption of the new guidance, applicable to non-financial assets and liabilities, did not have a material effect on the Company's Consolidated Financial Statements.

Business Combinations and Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the Financial Accounting Standards Board issued new accounting guidance on business combinations and non-controlling interests in consolidated financial statements. The new guidance revises the method of accounting for a number of aspects of business combinations and noncontrolling interests, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activities of acquired businesses. The new guidance was effective for the Company beginning March 29, 2009. See Note 2, "Acquisitions", for further discussion. Employers' Disclosures About Postretirement Benefit Plan Assets In December 2008, the Financial Accounting Standards Board issued new accounting guidance on disclosures about employers' pension plan assets. New disclosures will include more information on investment strategies, major categories of plan assets, concentrations of risk with plan assets and valuation techniques used to measure the fair value of plan assets. This new guidance requires new disclosures only, and will have no impact on the Company's Consolidated Financial Statements. This new guidance is effective for the Company for fiscal 2011.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from potential changes in interest rates. At September 26, 2009 and March 28, 2009, approximately 62% and 47%, respectively, of the Company's long-term debt, excluding capital leases, was at fixed interest rates and therefore, the fair value is affected by changes in market interest rates. The Company's cash flow exposure on floating rate debt, which is not supported by interest rate swap agreements, would result in interest expense fluctuating approximately $.2 million based upon the Company's debt position at quarter ended September 26, 2009 and $.4 million for fiscal year ended March 28, 2009, given a 1% change in LIBOR.
The Company regularly evaluates these risks and has entered into three interest rate swap agreements, expiring in July 2010, with an aggregate notional amount of $30.0 million. These agreements limit the interest rate exposure on the Company's floating rate debt, related specifically to the Revolving Credit Facility, via the exchange of fixed and floating rate interest payments periodically over the life of the agreements without the exchange of the underlying principal amount. The fixed rates paid by the Company under these agreements range from 3.27% to 3.29%.
The Company believes the amount of risk and the use of derivative financial instruments described above are not material to the Company's financial condition or results of operations.
Item 4. Controls and Procedures

Disclosure controls and procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that the Company files or submits pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission's (SEC) rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In conjunction with the close of each fiscal quarter and under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company conducts an update, a review and an evaluation of the effectiveness of the Company's disclosure controls and procedures. It is the conclusion of the Company's Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that the Company's disclosure controls and procedures were effective. Changes in internal controls
There were no changes in the Company's internal control over financial reporting during the quarter ended September 26, 2009 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.