<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
--------------
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 No. 0-19357
-------
MONRO MUFFLER BRAKE, 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) (Zipcode)
Registrant's telephone number, including area code 716-647-6400
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 1996, 7,466,989 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding after giving retroactive effect to the
five percent stock dividend, payable August 5, 1996, to stockholders of record
as of June 21, 1996.
<PAGE> 2
MONRO MUFFLER BRAKE, INC.
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C>
Consolidated Balance Sheet at
June 30, 1996 and March 31, 1996 3
Consolidated Statement of Income for the quarter
ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Common
Stockholders' Equity for the quarter ended June 30, 1996 5
Consolidated Statement of Cash Flows for the
quarter ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
Exhibit 11 15
</TABLE>
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<PAGE> 3
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $4,667
at June 30, 1996 and $5,280 at March 31, 1996 $ 4,667 $ 5,280
Trade receivables 1,109 1,230
Inventories, at LIFO cost 18,855 16,538
Federal and state income taxes receivable 0 18
Deferred income tax asset 1,275 1,275
Other current assets 1,960 2,206
--------- ---------
Total current assets 27,866 26,547
--------- ---------
Property, plant and equipment 130,771 126,248
Less - Accumulated depreciation and amortization (37,702) (35,969)
--------- ---------
Net property, plant and equipment 93,069 90,279
Other noncurrent assets 3,179 3,229
--------- ---------
Total assets $ 124,114 $ 120,055
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,165 $ 3,165
Trade payables 7,962 6,897
Federal and state income taxes payable 1,921 0
Accrued expenses and other current liabilities
Accrued interest 273 345
Accrued payroll, payroll taxes and other payroll benefits 3,305 2,836
Accrued insurance 1,703 1,552
Other current liabilities 2,757 2,861
--------- ---------
Total current liabilities 21,086 17,656
Long-term debt 42,325 45,459
Deferred income tax liability 1,053 1,053
--------- ---------
Total liabilities 64,464 64,168
--------- ---------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.239 and $.251
conversion value at June 30, 1996 and March 31, 1996, respectively;
150,000 shares authorized; 91,727 shares issued and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 7,412,225
shares and 6,914,835 shares issued and outstanding at June 30, 1996 and
March 31, 1996, respectively 74 69
Additional paid-in capital 22,028 17,061
Retained earnings 37,410 38,619
--------- ---------
Total shareholders' equity 59,650 55,887
--------- ---------
Total liabilities and shareholders' equity $ 124,114 $ 120,055
========= =========
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 1996.
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<PAGE> 4
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
1996 1995
------- -------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales $37,745 $28,945
Cost of sales, including distribution and occupancy costs (a) 20,666 15,865
------- -------
Gross profit 17,079 13,080
Operating, selling, general and administrative expenses 10,645 8,863
------- -------
Operating income 6,434 4,217
Interest expense, net of interest income for the quarter of $1
in 1996 and $16 in 1995 (a) 814 666
Other expense, net 16 129
------- -------
Income before provision for income taxes 5,604 3,422
Provision for income taxes 2,225 1,347
------- -------
Net income $ 3,379 $ 2,075
======= =======
Earnings per share $ .42 $ .26
======= =======
Weighted average number of shares of common stock and common stock equivalents
used in computing earnings per share 8,133 8,090
======= =======
<FN>
(a) Amounts paid under operating and capital leases with affilliated parties
totalled $496 and $502 for the quarters ended June 30, 1996 and 1995,
respectively.
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 1996.
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<PAGE> 5
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Balance at March 31, 1996 6,915 $ 69 $ 17,061 $ 38,619
Net income 3,379
Exercise of stock options 144 1 383
5% stock dividend 353 4 4,584 (4,588)
-------- -------- -------- --------
Balance at June 30, 1996 7,412 $ 74 $ 22,028 $ 37,410
======== ======== ======== ========
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 1996.
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<PAGE> 6
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
--------
1996 1995
-------- -------
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,379 $ 2,075
-------- -------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 1,957 1,523
Gain on disposal of property, plant and equipment (40) (26)
Decrease (increase) in trade receivables 121 (40)
Increase in inventories (2,317) (1,726)
Decrease (increase) in other current assets 246 (58)
(Increase) decrease in other noncurrent assets (15) 4
Increase in trade payables 1,065 1,111
Increase in accrued expenses 444 50
Increase in federal and state income taxes payable 1,939 1,022
-------- -------
Total adjustments 3,400 1,860
-------- -------
Net cash provided by operating activities 6,779 3,935
-------- -------
Cash flows from investing activities:
Capital expenditures (4,737) (5,858)
Proceeds from the disposal of property, plant and equipment 2 26
-------- -------
Net cash used for investing activities (4,735) (5,832)
-------- -------
Cash flows from financing activities:
Proceeds from the sale of common stock 384
Proceeds from borrowings 11,380 4,000
Principal payments on long-term debt and capital
lease obligations (14,421) (6,042)
-------- -------
Net cash used for financing activities (2,657) (2,042)
-------- -------
Decrease in cash (613) (3,939)
Cash at beginning of year 5,280 4,855
-------- -------
Cash at June 30 $ 4,667 $ 916
======== =======
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 1996.
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<PAGE> 7
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Stock Dividend
- -----------------------
On January 26, 1996, the Board of Directors declared a five percent
stock dividend, payable August 5, 1996, to stockholders of record as of June 21,
1996. The consolidated financial statements, including all share information
therein, have been restated to reflect this dividend.
Additionally, in accordance with antidilution provisions of the Class C
Convertible Preferred Stock, the conversion value of the preferred stock was
restated from $.251 per share to $.239 per share.
Shares reserved for issuance to officers and key employees under
outstanding options and under the 1984, 1987 and 1989 Incentive Stock Option
Plans have also been retroactively adjusted for the five percent stock dividend.
Note 2 - Inventories
- --------------------
The Company's inventories consist of automotive parts and tires.
Substantially all merchandise inventories are valued under the last-in,
first-out (LIFO) method. Under the first-in, first-out (FIFO) method, these
inventories would have been $702,000 and $647,000 higher at June 30, 1996 and
March 31, 1996, respectively. The FIFO value of inventory approximates the
current replacement cost.
Note 3 - Cash and Equivalents
- -----------------------------
The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash equivalents of $4,667,000 at
June 30, 1996 and $5,280,000 at March 31, 1996 include money market accounts
which have maturities of three months or less.
Note 4 - Supplemental Disclosure of Cash Flow Information
- ---------------------------------------------------------
The following transactions represent noncash investing and financing
activities during the periods indicated:
QUARTER ENDED JUNE 30, 1996:
In connection with the termination of a capital lease, the Company
reduced debt and fixed assets by $112,000.
In connection with the declaration of a five percent stock dividend
(see Note 1), the Company increased common stock and additional paid-in capital
by $4,000 and $4,584,000, respectively, and decreased retained earnings by
$4,588,000.
QUARTER ENDED JUNE 30, 1995:
In connection with the declaration of a five percent stock dividend,
the Company increased common stock and additional paid-in capital by $4,000 and
$5,998,000, respectively, and decreased retained earnings by $6,002,000.
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<PAGE> 8
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH PAID DURING THE PERIOD:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest, net $981,000 $746,000
Income taxes 286,000 325,000
</TABLE>
Note 5 - Other
- --------------
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report on Form
10-K (File No. 0-19357), filed by the Company with the Securities and Exchange
Commission on June 28, 1996.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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.
<TABLE>
<CAPTION>
Quarter Ended June 30,
----------------------
1996 1995
---- ----
<S> <C> <C>
Sales .................................. 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ................... 54.8 54.8
------ ------
Gross profit ........................... 45.2 45.2
Operating, selling, general and
administrative expenses ............... 28.2 30.6
------ ------
Operating income ....................... 17.0 14.6
Interest expense - net ................. 2.1 2.3
Other expense .......................... -- .5
------ ------
Income before provision for income taxes 14.9 11.8
Provision for income taxes ............. 5.9 4.6
------ ------
Net income ............................. 9.0% 7.2%
====== ======
</TABLE>
FIRST QUARTER ENDED JUNE 30, 1996 COMPARED TO
FIRST QUARTER ENDED JUNE 30, 1995.
Sales were $37.7 million for the quarter ended June 30, 1996 compared
with $28.9 million in the quarter ended June 30, 1995. The sales increase of
$8.8 million, or 30.4%, was due to a comparable store sales increase of 14.9%
and an increase in sales of approximately $4.7 million relating to stores opened
since the beginning of fiscal 1995. At June 30, 1996, the Company had 284
stores in operation compared to 242 at June 30, 1995.
Management believes that year-to-date sales increases were driven, in
part, by pent up demand from previously deferred repairs, combined with a number
of industry factors. These include an increase in the average age of cars, a
decrease in the number of service bays, an increase in the number of registered
vehicles, and a shift from "do-it-yourself" to "do-it-for-me" caused by the
increased complexity of cars.
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<PAGE> 10
Gross profit for the quarter ended June 30, 1996 was $17.1 million,
compared with $13.1 million during the quarter ended June 30, 1995. Gross profit
remained constant at 45.2% of sales for both periods. Outside purchases, (i.e.
purchases by the stores of higher-cost parts outside of the Company's
centralized distribution system) increased as a percent of sales in the quarter
ended June 30, 1996 as compared to the quarter ended June 30, 1995. This is
partially due to the ever increasing number of different parts needed to service
today's vehicles. Additionally, as they had done in fiscal 1996 when business
was slower, store personnel continued to more readily accept undercar repair
work outside of the normal recurring services the stores usually provide. This
repair work often involves parts not stocked by the Company. Offsetting this
increase was a decrease in labor costs as a percent of sales because technicians
are more fully productive during periods of higher sales, and the Company pays
less in the way of a guaranteed base-level wage. Additionally, distribution and
occupancy costs declined as a percent of sales compared to the first quarter of
last year since these are primarily fixed costs, and some leveraging will occur
as sales increase.
Operating, selling, general and administrative expenses for the quarter
ended June 30, 1996 increased by $1.8 million to $10.6 million over the quarter
ended June 30, 1995, and were 28.2% of sales compared to 30.6% in the same
quarter of the prior year. The increase in total dollars expended is primarily
attributable to increased store supervision and increased store support
expenses. Although expenses increased during the first quarter of fiscal 1997 as
compared to the first quarter of fiscal 1996, these expenses declined as a
percent of sales due to management's continued focus on discretionary spending
and controlling costs.
Operating income for the quarter ended June 30, 1996 of approximately
$6.4 million increased 52.6% over operating income for the quarter ended June
30, 1995, and increased as a percentage of sales from 14.6% to 17.0% for the
same periods.
Net interest expense for the quarter ended June 30, 1996 increased by
approximately $.1 million compared to the comparable period in the prior year,
and declined from 2.3% to 2.1% as a percentage of sales for the same periods.
The increase in expense is primarily due to an increase in the average
borrowings outstanding during the quarter.
Net income for the quarter ended June 30, 1996 of $3.4 million
increased 62.8% over net income for the quarter ended June 30, 1995.
Interim Period Reporting
The data included in this report are unaudited and are subject to
year-end adjustments; 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 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 requirement has been the funding of its
new store expansion program and the upgrading of facilities and systems in
existing stores. For the quarter ended June 30, 1996, the Company spent $4.7
million for equipment and new store construction. Funds were provided by cash
flow from operations. Management believes that the Company has sufficient
resources available (including cash and equivalents and net cash flow from
operations and bank financing) to expand its business as currently planned for
the next several years.
- 10 -
<PAGE> 11
Liquidity
The Company has a line of credit from a commercial bank of $7.5
million. No amounts were outstanding under this short-term borrowing facility at
June 30, 1996.
Through February 7, 1996, the Company had a real estate line of credit
of $25 million to be used for placement of mortgages. The Company had utilized
$13.2 million of the real estate line of credit for permanent mortgages as of
that date.
On February 7, 1996, the Company finalized an agreement for a $30
million revolving credit facility with two banks. The unsecured facility has a
three year term and bears interest at the prime rate or other rate options based
on company performance.
The Company has outstanding $5.5 million in principal amount of its
10.65% Senior Notes due 1999 (the "Senior Notes") with Massachusetts Mutual Life
Insurance Company pursuant to a Senior Note Agreement. The third of six equal
annual installments of principal in the amount of $1.8 million was paid on April
1, 1996.
During September 1995, the Company completed financing for its new
office/warehouse facility via a 10 year mortgage in the amount of $2.9 million,
amortizable over 20 years, and an eight year term loan in the amount of $.7
million.
Certain of the Company's long-term debt agreements require, among other
things, the maintenance of specified current ratios, interest and rent coverage
ratios and amounts of tangible net worth, and also contain restrictions on
dividend payments and capital expenditures.
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<PAGE> 12
MONRO MUFFLER BRAKE, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
11 - Statement of Computation of Per Share Earnings.
b. Reports on Form 8-K
The Company filed a report on Form 8-K on May 30,
1996 in connection with the declaration of a 5% stock
dividend by the Company's Board of Directors on
January 26, 1996.
- 12 -
<PAGE> 13
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 MUFFLER BRAKE, INC.
DATE: August 13, 1996 By /s/ Lawrence C. Day
--------------------------------------------
Lawrence C. Day
President and Chief Executive Officer
DATE: August 13, 1996 By /s/ Catherine D'Amico
--------------------------------------------
Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
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<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
11 Statement of computation of per share earnings 15
</TABLE>
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<PAGE> 1
Exhibit 11
MONRO MUFFLER BRAKE, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Earnings per share for each period was computed by dividing net income for such
period by the weighted average number of shares of Common Stock and common stock
equivalents outstanding during such period. All share data has been restated to
reflect the 5% stock dividend payable August 5, 1996. (See Note 1).
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
--------
1996 1995
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
EARNINGS
Net income ............................... $3,379 $2,075
====== ======
SHARES
Weighted average number of common shares . 7,305 7,201
Assuming conversion of Class C Convertible
Preferred Stock ........................ 576 576
Dilutive effect of outstanding options ... 252 313
------ ------
Weighted average number of common and
common equivalent shares ............... 8,133 8,090
====== ======
EARNINGS PER SHARE ....................... $ .42 $ .26
====== ======
</TABLE>
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,667
<SECURITIES> 0
<RECEIVABLES> 1,109
<ALLOWANCES> 0
<INVENTORY> 18,855
<CURRENT-ASSETS> 27,866
<PP&E> 130,771
<DEPRECIATION> 37,702
<TOTAL-ASSETS> 124,114
<CURRENT-LIABILITIES> 21,086
<BONDS> 42,325
<COMMON> 74
0
138
<OTHER-SE> 59,438
<TOTAL-LIABILITY-AND-EQUITY> 124,114
<SALES> 37,745
<TOTAL-REVENUES> 37,745
<CGS> 20,666
<TOTAL-COSTS> 10,645
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 814
<INCOME-PRETAX> 5,604
<INCOME-TAX> 2,225
<INCOME-CONTINUING> 3,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,379
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
