<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, 1998.
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 August 3, 1998, 8,311,512 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding after giving retroactive effect to the
five percent stock dividend paid June 18, 1998, to stockholders of record as of
June 8, 1998.
<PAGE> 2
MONRO MUFFLER BRAKE, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information PAGE NO.
<S> <C>
Consolidated Balance Sheet at
June 30, 1998 and March 31, 1998 3
Consolidated Statement of Income for the quarter
ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Common
Stockholders' Equity for the quarter ended June 30, 1998 5
Consolidated Statement of Cash Flows for the
quarter ended June 30, 1998 and 1997 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
</TABLE>
- 2 -
<PAGE> 3
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $75
at June 30, 1998 and $5,315 at March 31, 1998 $ 75 $ 5,315
Trade receivables 897 841
Inventories, at LIFO cost 29,078 27,492
Deferred income tax asset 1,725 1,725
Other current assets 2,986 4,115
------------ ------------
Total current assets 34,761 39,488
------------ ------------
Property, plant and equipment 170,041 165,839
Less - Accumulated depreciation and amortization (51,508) (49,429)
------------ ------------
Net property, plant and equipment 118,533 116,410
Other noncurrent assets 3,949 3,190
------------ ------------
Total assets $ 157,243 $ 159,088
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,582 $ 3,582
Trade payables 8,646 11,633
Federal and state income taxes payable 2,175 2
Accrued expenses and other current liabilities
Accrued interest 178 233
Accrued payroll, payroll taxes and other payroll benefits 3,850 3,764
Accrued insurance 2,153 2,441
Other current liabilities 3,942 4,316
------------ ------------
Total current liabilities 24,526 25,971
Long-term debt 49,440 54,102
Other long-term liabilities 547 576
Deferred income tax liability 1,881 1,881
------------ ------------
Total liabilities 76,394 82,530
------------ ------------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.216 and $.227
conversion value at June 30, 1998 and March 31, 1998, respectively;
150,000 shares authorized; 91,727 shares issued and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 8,311,512
shares and 7,876,901 shares issued and outstanding at June 30, 1998 and
March 31, 1998, respectively 83 79
Additional paid-in capital 36,344 29,284
Retained earnings 44,284 47,057
------------ ------------
Total shareholders' equity 80,849 76,558
------------ ------------
Total liabilities and shareholders' equity $ 157,243 $ 159,088
============ ============
</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 29, 1998.
- 3 -
<PAGE> 4
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
1998 1997
---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales $ 44,113 $ 40,773
Cost of sales, including distribution and occupancy costs (a) 24,320 22,631
---------------- --------------
Gross profit 19,793 18,142
Operating, selling, general and administrative expenses 12,389 11,492
---------------- --------------
Operating income 7,404 6,650
Interest expense, net of interest income for the quarter of $14
in 1998 and $22 in 1997 (a) 905 868
Other expense, net 109 85
---------------- --------------
Income before provision for income taxes 6,390 5,697
Provision for income taxes 2,533 2,280
---------------- --------------
Net income $ 3,857 $ 3,417
================ ==============
Basic earnings per share $ .46 $ .41
================ ==============
Diluted earnings per share $ .43 $ .38
================ ==============
Weighted average number of shares of common stock and common stock equivalents
used in computing earnings
per share: Basic 8,306 8,242
================ ==============
Diluted 9,039 9,036
================ ==============
</TABLE>
(a) Amounts paid under operating and capital leases with affiliated parties
totalled $496 and $483 for the quarters ended June 30, 1998 and 1997,
respectively.
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 29, 1998.
- 4 -
<PAGE> 5
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
(Amounts in thousands)
<S> <C> <C> <C> <C>
Balance at March 31, 1998 7,877 $ 79 $ 29,284 $ 47,057
Net income 3,857
Exercise of stock options 39 436
5% stock dividend 396 4 6,624 (6,629)
Rounding (1)
----------- ----------- ---------- --------------
Balance at June 30, 1998 8,312 $ 83 $ 36,344 $ 44,284
=========== =========== ========== ==============
</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 29, 1998.
- 5 -
<PAGE> 6
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,857 $ 3,417
---------------- ---------------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 2,355 2,234
(Gain) loss on disposal of property, plant and equipment (19) 14
(Increase) decrease in trade receivables (56) 59
Increase in inventories (1,586) (1,523)
Decrease in other current assets 1,129 436
(Increase) decrease in other noncurrent assets (829) 40
(Decrease) increase in trade payables (2,987) 2,861
Decrease in accrued expenses (632) (1,276)
Increase in federal and state income taxes payable 2,173 2,068
Increase in other long term liabilities 1 7
---------------- ---------------
Total adjustments (451) 4,920
---------------- ---------------
Net cash provided by operating activities 3,406 8,337
---------------- ---------------
Cash flows from investing activities:
Capital expenditures (4,429) (5,938)
Proceeds from the disposal of property, plant and equipment 10 3
---------------- ---------------
Net cash used for investing activities (4,419) (5,935)
---------------- ---------------
Cash flows from financing activities:
Proceeds from the sale of common stock 435 52
Proceeds from borrowings 10,975 15,410
Principal payments on long-term debt and capital
lease obligations (15,637) (16,280)
--------------- ---------------
Net cash used for financing activities (4,227) (818)
---------------- ---------------
(Decrease) increase in cash (5,240) 1,584
Cash at beginning of year 5,315 6,438
---------------- ---------------
Cash at June 30 $ 75 $ 8,022
================ ===============
</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 29, 1998.
- 6 -
<PAGE> 7
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Stock Dividend
- -----------------------
On May 13, 1998, the Board of Directors declared a five percent stock
dividend, payable June 18, 1998, to stockholders of record as of June 8, 1998.
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 $.227 per share to $.216 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 $426,000 higher at June 30, 1998 and March 31, 1998.
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 $75,000 at
June 30, 1998 and $5,315,000 at March 31, 1998 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, 1998
In connection with the declaration of a five percent stock dividend
(see Note 1), the Company increased accrued expenses, common stock and
additional paid-in capital by $1,000, $4,000 and $6,624,000, respectively, and
decreased retained earnings by $6,629,000.
QUARTER ENDED JUNE 30, 1997:
In connection with the declaration of a five percent stock dividend,
the Company increased accrued expenses, common stock and additional paid-in
capital by $1,000, $4,000 and $7,014,000, respectively, and decreased retained
earnings by $7,019,000.
-7-
<PAGE> 8
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH PAID DURING THE PERIOD:
1998 1997
---- ----
Interest, net $1,053,000 $978,000
Income taxes 363,000 212,000
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 29, 1998.
- 8 -
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The statements contained in this Form 10-Q which 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
that are subject to important factors that could cause actual results to differ
materially from those in the forward-looking statements, including (without
limitation) product demand, the effect of economic conditions, the impact of
competitive services and pricing, product development, parts supply restraints
or difficulties, industry regulation, the continued availability of capital
resources and financing and other risks set forth or incorporated elsewhere
herein and in the Company's Securities and Exchange Commission filings.
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,
1998 1997
<S> <C> <C>
Sales .................................. 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ................... 55.1 55.5
------------ ------------
Gross profit ........................... 44.9 44.5
Operating, selling, general and
administrative expenses ............... 28.1 28.2
------------ ------------
Operating income ....................... 16.8 16.3
Interest expense - net ................. 2.1 2.1
Other expense .......................... .2 .2
------------ ------------
Income before provision for income taxes 14.5 14.0
Provision for income taxes ............. 5.8 5.6
------------ ------------
Net income ............................. 8.7% 8.4%
============ ============
</TABLE>
- 9 -
<PAGE> 10
FIRST QUARTER ENDED JUNE 30, 1998 COMPARED TO
FIRST QUARTER ENDED JUNE 30, 1997.
Sales were $44.1 million for the quarter ended June 30, 1998 compared
with $40.8 million in the quarter ended June 30, 1997 The sales increase of $3.3
million, or 8.2%, was due to an increase in sales of approximately $3.6 million
relating to stores opened since the beginning of fiscal 1997. Comparable store
sales were even with last year.
Gross profit for the quarter ended June 30, 1998 was $19.8 million or
44.9% of sales compared with $18.1 million or 44.5% of sales for the quarter
ended June 30, 1997. The increase in gross profit as a percentage of sales was
primarily attributable to a decrease in purchases at the store level of certain
higher-cost parts ("Outside Purchases"). This was accomplished through a
combination of increasing the average inventory in the stores and refining the
mix of parts carried. This improvement was partially offset by an increase in
distribution and occupancy costs as a percent of sales for the first quarter of
fiscal 1999 as compared to the first quarter of fiscal 1998, primarily due to an
increase in the number of stores against flat comparable store sales.
Operating, selling, general and administrative expenses for the quarter
ended June 30, 1998 increased by $.9 million to $12.4 million over the quarter
ended June 30, 1997, and decreased to 28.1% of sales compared to 28.2% 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
1999 as compared to the first quarter of fiscal 1998, these expenses decreased
as a percent of sales primarily due to management's continued focus on
discretionary spending and controlling costs, as well as insurance rate
reductions including favorable workers compensation results in certain states.
Operating income for the quarter ended June 30, 1998 of approximately
$7.4 million increased 11.3% over operating income for the quarter ended June
30, 1997, and increased as a percentage of sales from 16.3% to 16.8% for the
same periods.
Net interest expense for the quarter ended June 30, 1998 increased by
approximately $37,000 compared to the comparable period in the prior year, and
remained level at 2.1% as a percentage of sales. The increase in dollars
expended is due to an increase in the average debt outstanding during the
quarter, as well as a decrease in the amount of construction period interest
income recorded between the two quarters due to decreased construction activity.
This was largely offset by a decrease in the weighted average interest rate.
Net income for the quarter ended June 30, 1998 of $3.9 million
increased 12.9% over net income for the quarter ended June 30, 1997.
-10-
<PAGE> 11
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, 1998, the Company spent $4.4
million for equipment and new store construction. Funds were provided primarily
by cash flow from operations. 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.
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, 1998.
Through February 7, 1996, the Company had a real estate line of credit
of $25 million to be used for placement of mortgages. This line was terminated
in fiscal 1996 at the Company's initiative and replaced by a new unsecured
Revolving Credit facility with two banks. In June 1997, the Credit Agreement was
modified to increase the amount available under the facility from $30 million to
$50 million, and extend the term to March 2000. The facility bears interest at
the prime rate or other LIBOR-based rate options tied to the Company's financial
performance.
Prior to the termination of the real estate line, the Company had
utilized $13.2 million of the real estate line of credit for permanent
mortgages.
The Company has outstanding $1.8 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 fifth of six equal
annual installments of principal in the amount of $1.8 million was paid on April
1, 1998.
The Company has financed its office/warehouse facility via a 10 year
mortgage with a current balance of $2.6 million, amortizable over 20 years, and
an eight year term loan with a balance of $.5 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.
- 11 -
<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 April 28, 1998 in
connection with the execution of a definitive asset purchase
agreement with Speedy Muffler King Inc., Bloor Automotive
Inc. and Speedy Car-X Inc. for the purchase of certain assets
in the United States for an aggregate purchase price of $52
million.
The Company filed a report on Form 8-K on May 26, 1998 in
connection with the declaration of a 5% stock dividend by the
Company's Board of Directors on May 13, 1998.
- 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 18, 1998 By /s/ Jack M. Gallagher
------------------------------------------
Jack M. Gallagher
President and Chief Executive Officer
DATE: August 18, 1998 By /s/ Catherine D'Amico
------------------------------------------
Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
- 13 -
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
11 Statement of computation of per share earnings. 15
- 14 -
<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 paid June 18, 1998. (See Note 1).
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
1998 1997
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
DILUTED
- -------
EARNINGS
<S> <C> <C>
Net income available to common shares $ 3,857 $ 3,417
============= ============
SHARES
Weighted average number of common shares 8,306 8,242
Assuming conversion of Class C Convertible
Preferred Stock 636 636
Dilutive effect of outstanding options 97 159
------------- ------------
Total common and common equivalent shares 9,039 9,037
============= ============
DILUTED EARNINGS PER SHARE $ .43 $ .38
============= ============
BASIC
- -----
EARNINGS
Net income available to common shares $3,857 $3,417
============= ============
SHARES
Weighted average number of common shares 8,306 8,242
============= ============
BASIC EARNINGS PER SHARE $ .46 $ .41
============= ============
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 897
<ALLOWANCES> 0
<INVENTORY> 29,078
<CURRENT-ASSETS> 34,761
<PP&E> 170,041
<DEPRECIATION> 51,508
<TOTAL-ASSETS> 157,243
<CURRENT-LIABILITIES> 24,526
<BONDS> 0
0
138
<COMMON> 83
<OTHER-SE> 80,628
<TOTAL-LIABILITY-AND-EQUITY> 157,243
<SALES> 44,113
<TOTAL-REVENUES> 44,113
<CGS> 24,320
<TOTAL-COSTS> 24,320
<OTHER-EXPENSES> 12,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 905
<INCOME-PRETAX> 6,390
<INCOME-TAX> 2,533
<INCOME-CONTINUING> 3,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,857
<EPS-PRIMARY> .46
<EPS-DILUTED> .43
</TABLE>
