<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, 1999.
---------------
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 23, 1999, 8,321,701 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding.
<PAGE> 2
MONRO MUFFLER BRAKE, INC.
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C>
Consolidated Balance Sheet at
June 30, 1999 and March 31, 1999 3
Consolidated Statement of Income for the quarter
ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the quarter ended June 30, 1999 5
Consolidated Statement of Cash Flows for the
quarter ended June 30, 1999 and 1998 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 14
Signatures 15
Exhibit Index 16
</TABLE>
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<PAGE> 3
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 1999
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $4,781
at June 30, 1999 and $5,599 at March 31, 1999 $ 4,781 $ 5,599
Trade receivables 1,237 1,291
Inventories, at LIFO cost 40,648 38,656
Federal and State income taxes receivable 0 1,090
Deferred income tax asset 1,709 1,709
Other current assets 3,802 5,002
--------- ---------
Total current assets 52,177 53,347
--------- ---------
Property, plant and equipment 200,202 194,808
Less - Accumulated depreciation and amortization (61,809) (59,021)
--------- ---------
Net property, plant and equipment 138,393 135,787
Other noncurrent assets 13,370 13,800
--------- ---------
Total assets $ 203,940 $ 202,934
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,790 $ 8,373
Trade payables 12,161 9,745
Federal and state income taxes payable 655 0
Accrued expenses and other current liabilities
Accrued interest 494 268
Accrued payroll, payroll taxes and other payroll benefits 5,974 5,269
Accrued insurance 1,711 1,700
Accrued restructuring costs 1,879 1,825
Other current liabilities 7,217 7,999
--------- ---------
Total current liabilities 37,881 35,179
Long-term debt 74,508 78,672
Other long-term liabilities 639 669
Accrued long-term restructuring costs 4,879 5,100
Deferred income tax liability 2,363 2,363
--------- ---------
Total liabilities 120,270 121,983
--------- ---------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.216 conversion value;
150,000 shares authorized; 91,727 shares issued and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 8,321,701
shares issued and outstanding at June 30, 1999 and March 31, 1999 83 83
Additional paid-in capital 35,899 35,873
Retained earnings 47,550 44,857
--------- ---------
Total shareholders' equity 83,670 80,951
--------- ---------
Total liabilities and shareholders' equity $ 203,940 $ 202,934
========= =========
</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 Monro Muffler Brake, Inc. (the "Company") with the
Securities and Exchange Commission on June 29, 1999.
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<PAGE> 4
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------
1999 1998
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales $60,979 $44,113
Cost of sales, including distribution and occupancy costs (a) 35,391 24,320
------- -------
Gross profit 25,588 19,793
Operating, selling, general and administrative expenses 19,082 12,389
------- -------
Operating income 6,506 7,404
Interest expense, net of interest income for the quarter of $10
in 1999 and $14 in 1998 (a) 1,717 905
Other expense, net 315 109
------- -------
Income before provision for income taxes 4,474 6,390
Provision for income taxes 1,781 2,533
------- -------
Net income $ 2,693 $ 3,857
======= =======
Basic earnings per share $ .32 $ .46
======= =======
Diluted earnings per share $ .30 $ .43
======= =======
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share: Basic 8,322 8,306
======= =======
Diluted 8,977 9,039
======= =======
</TABLE>
(a) Costs and expenses include charges for payments under operating and
capital leases with affiliated parties totaling $465 and $496 for the
quarters ended June 30, 1999 and 1998, 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, 1999.
-4-
<PAGE> 5
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
LESS:
NOTE NET
ADDITIONAL RECEIVABLE ADDITIONAL
COMMON STOCK PAID-IN FROM PAID-IN RETAINED
SHARES AMOUNT CAPITAL SHAREHOLDER CAPITAL EARNINGS
------ ------ ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1999 8,322 $ 83 $ 36,370 ($ 497) $ 35,873 $ 44,857
Net income 2,693
Note receivable from shareholder 26 26
----- ---- -------- ------ -------- --------
Balance at June 30, 1999 8,322 $ 83 $ 36,370 ($ 471) $ 35,899 $ 47,550
===== ==== ======== ====== ======== ========
</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, 1999.
-5-
<PAGE> 6
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,693 $ 3,857
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 3,278 2,355
Gain on disposal of property, plant and equipment (40) (19)
Decrease (increase) in trade receivables 54 (56)
Increase in inventories (1,992) (1,586)
Decrease in other current assets 1,200 1,129
Decrease (increase) in other noncurrent assets 239 (829)
Increase (decrease) in trade payables 2,416 (2,987)
Increase (decrease) in accrued expenses 215 (632)
Increase in federal and state income taxes payable 1,745 2,173
(Decrease) increase in other long-term liabilities (207) 1
-------- --------
Total adjustments 6,908 (451)
-------- --------
Net cash provided by operating activities 9,601 3,406
-------- --------
Cash flows from investing activities:
Capital expenditures (6,020) (4,429)
Proceeds from the disposal of property, plant and
equipment 349 10
-------- --------
Net cash used for investing activities (5,671) (4,419)
-------- --------
Cash flows from financing activities:
Proceeds from the sale of common stock 435
Proceeds from borrowings 19,800 10,975
Principal payments on long-term debt and capital
lease obligations (24,548) (15,637)
-------- --------
Net cash used for financing activities (4,748) (4,227)
-------- --------
Decrease in cash (818) (5,240)
Cash at beginning of year 5,599 5,315
-------- --------
Cash at June 30 $ 4,781 $ 75
======== ========
</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, 1999.
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<PAGE> 7
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Acquisition of Speedy Stores
- -------------------------------------
In September 1998, the Company completed the acquisition of 189
company-operated and 14 dealer-operated Speedy stores, all located in the United
States, from SMK Speedy International Inc. of Toronto Canada. Speedy stores
provide automotive repair services, specializing in undercar care, in 11 states
located primarily in the northeast. The acquisition was accounted for as a
purchase, and accordingly, the operating results of Speedy have been included in
the Company's consolidated financial statements since the date of the
acquisition.
Approximately $51 million was borrowed under a new $135 million secured
credit facility to pay the all-cash purchase price, with an additional $16
million to be borrowed to provide for the closing of underperforming or
redundant Speedy stores, capital expenditures at remaining Speedy stores and
transaction expenses.
The excess of the aggregate purchase price over the fair value of net
assets acquired is being amortized on a straight-line basis over 20 years.
In connection with the acquisition, the Company recorded a reserve for
accrued restructuring costs of approximately $7.8 million. This reserve relates
to costs associated with the closing of approximately 45 poorly performing or
duplicative Speedy stores, and includes charges for rent and real estate taxes
(net of anticipated sublease income), the write down of assets to their fair
market value, and net losses experienced by these stores through their closure
date.
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 $245,000 and $170,000 higher at June 30, 1999 and
March 31, 1999, 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 $4,781,000 at
June 30, 1999 and $5,599,000 at March 31, 1999 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,
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.
-7-
<PAGE> 8
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH PAID DURING THE PERIOD:
1999 1998
---- ----
Interest, net $1,446,000 $1,053,000
Income taxes 35,000 363,000
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, 1999.
-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.
Quarter Ended June 30,
----------------------
1999 1998
---- ----
Sales .................................. 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ................... 58.0 55.1
----- -----
Gross profit ........................... 42.0 44.9
Operating, selling, general and
administrative expenses ............... 31.3 28.1
----- -----
Operating income ....................... 10.7 16.8
Interest expense - net ................. 2.9 2.1
Other expense .......................... .5 .2
----- -----
Income before provision for income taxes 7.3 14.5
Provision for income taxes ............. 2.9 5.8
----- -----
Net income ............................. 4.4% 8.7%
===== =====
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<PAGE> 10
FIRST QUARTER ENDED JUNE 30, 1999 COMPARED TO
FIRST QUARTER ENDED JUNE 30, 1998
Sales were $61.0 million for the quarter ended June 30, 1999 compared
with $44.1 million in the quarter ended June 30, 1998. The sales increase of
$16.9 million, or 38.2%, was due to an increase in sales of approximately $19.1
million relating to stores opened since the beginning of fiscal 1999, including
$17.0 million from the acquired Speedy stores. This increase was partially
offset by a decrease in comparable store sales of 3.7%.
Gross profit for the quarter ended June 30, 1999 was $25.6 million or
42.0% of sales compared with $19.8 million or 44.9% of sales for the quarter
ended June 30, 1998. The reduction in gross profit as a percentage of sales is
primarily attributable to an increase in occupancy costs as a percent of sales
reflecting the impact of fixed costs (such as rent and depreciation) against a
decline in comparable store sales, and soft new store sales (including the
acquired Speedy stores). Additionally, labor costs increased over the prior
year. During periods of slower sales when technicians may not be fully
productive, they receive a minimum base-level wage which increases labor cost as
a percent of sales.
Outside purchases also increased as a percent of sales due to continued
parts proliferation and the tendency of store personnel to reach for business
outside of the normal, recurring work for which the stores stock parts.
Operating, selling, general and administrative expenses for the quarter
ended June 30, 1999 increased by $6.7 million to $19.1 million over the quarter
ended June 30, 1998, and increased to 31.3% of sales compared to 28.1% in the
same quarter of the prior year. The increase as a percent of sales is
attributable to several items. The first quarter of the prior year was
positively impacted by an unusual state rebate of workers compensation costs.
Additionally, advertising expense increased as a percent of sales. Advertising
in the major metropolitan Speedy markets is more expensive than Monro
advertising as a percent of sales. The balance of the increase is primarily due
to the impact of increased fixed costs (such as manager pay and employee
benefits) against negative comparable store sales and soft new store sales.
Management remains very encouraged by the decreases in expenses at the
acquired Speedy stores from their historical levels. The Company is on, and in
some cases, ahead of schedule in realizing its planned cost reductions at the
Speedy stores.
Operating income for the quarter ended June 30, 1999 of approximately
$6.5 million decreased 12.1% over operating income for the quarter ended June
30, 1998, and decreased as a percentage of sales from 16.8% to 10.7% for the
same periods.
Net interest expense for the quarter ended June 30, 1999 increased by
approximately $.8 million compared to the comparable period in the prior year,
and increased from 2.1% to 2.9% as a percentage of sales for the same periods.
The increase in dollars expended is due to an increase of approximately $29
million in the average debt outstanding during the quarter as compared to the
prior year quarter as well as an increase in the weighted average interest
rate.
Net income for the quarter ended June 30, 1999 of $2.7 million
decreased 30.2% over net income for the quarter ended June 30, 1998.
-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.
YEAR 2000
As the year 2000 approaches, the Company, along with other companies,
could experience potentially serious operational problems, since many computer
programs that were developed in the past may not properly recognize calendar
dates beginning with the year 2000. Further, there are embedded chips contained
within equipment that may be date sensitive.
Plans
The Company's overall plan for dealing with the Year 2000 problem
covers Information Technology ("IT") systems, non-IT systems, and third party
providers. The Company has established a dedicated Year 2000 team to lead the
Company's activities relating to its Year 2000 issues. The team regularly
updates senior management, including the Company's Chief Executive and Chief
Financial Officers, as well as the Board of Directors, as to the progress under
the Year 2000 Remediation Plan. The Company's current state of readiness with
respect to each of these elements is discussed below.
1.) All IT SYSTEMS that the Company considers to be critical at this
time have been evaluated for Year 2000 problems. In connection with this
process, the Company has developed detailed plans that establish the following
phases of work to be done for each major area:
1.) An assessment of all systems and equipment,
2.) Development of detailed workplans and timelines for remediation,
3.) Remediation/modification,
4.) Testing and validation,
5.) Acceptance and deployment,
6.) Independent validation and
7.) Contingency planning.
Although the Company has identified seven different phases of the
project, in some cases the phases are done concurrently. For example, certain
component systems may be completely tested and redeployed, while others are
still being remediated. Management of the Company believes these systems will
have been diagnosed, modified, tested and deployed by September 1, 1999.
2.) NON-IT SYSTEMS typically include embedded technology such as
microcontrollers. The Company's non-IT systems include machinery and equipment
in its buildings such as elevators, telephone equipment, HVAC, security and
alarm systems, copiers, fax machines and computerized alignment equipment. The
Company is reviewing these systems for Year 2000 compliance with third party
providers, and believes that full compliance will be achieved by September 1,
1999.
-11-
<PAGE> 12
3.) The Company uses a variety of third party providers and vendors in
the normal course of conducting its day-to-day operations. Year 2000 problems
may result in a loss of service from these providers/vendors. The Company
believes that loss of electric power, phone, banking or certain outsourced
processing services, as well as a vendor's inability to deliver product on a
timely basis, could have an immediate and critical adverse material impact on
the Company's operations. The Company is contacting each of its major third
party providers and vendors to determine if the provider/vendor is Year 2000
compliant. If a provider is not currently Year 2000 compliant, and its plans to
become Year 2000 compliant are uncertain, then the Company intends to seek other
providers/vendors.
Contingency Plans
The Company's Year 2000 plans also include the development and
implementation of contingency plans in the event of Year 2000 failures, both
within the Company and by third parties. The plans will identify the specific
actions which will be taken if a critical system or third party service provider
were not Year 2000 compliant. The Company expects to have these plans completed
by December 1, 1999 for all major systems. As discussed above with regard to
third party providers/vendors, if a provider is not currently Year 2000
compliant, and its plans to become Year 2000 compliant are uncertain, then the
Company intends to seek other providers/vendors.
Costs
The Company estimates that the total costs associated with the Year
2000 effort will be approximately $600,000, the majority of which was expensed
in fiscal 1999. The Company's Year 2000 costs have been, and are expected to be,
funded out of cash flows from operating activities.
Risks
The failure to correct for Year 2000 problems, either by the Company or
third parties, could result in significant disruptions of the Company's
operations. At this point in time, based upon the progress to date and
information received from third parties, the Company is unable to determine its
most likely worst case scenario. The Company, however, continues to monitor its
internal progress and the progress of third parties in order to efficiently
implement its contingency plans, if necessary.
CERTAIN STATEMENTS INCLUDED IN THIS DISCUSSION REGARDING YEAR 2000 COMPLIANCE
ARE FORWARD-LOOKING STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE STATEMENTS INCLUDE MANAGEMENT'S BEST ESTIMATES FOR
COMPLETION DATES FOR THE VARIOUS PHASES AND TESTING TO BE PERFORMED, COSTS TO BE
SPENT FOR COMPLIANCE, AND THE RISKS ASSOCIATED WITH NON-COMPLIANCE EITHER BY THE
COMPANY OR THIRD PARTIES. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
VARIOUS FACTORS, WHICH MAY MATERIALLY AFFECT THE COMPANY'S EFFORTS WITH YEAR
2000 COMPLIANCE. SPECIFIC FACTORS THAT MIGHT CAUSE SUCH MATERIAL DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THE AVAILABILITY AND COST OF PERSONNEL TRAINED
IN THIS AREA, WHICH COULD CAUSE A CHANGE IN THE ESTIMATED COMPLETION DATE OF A
PARTICULAR PHASE, THE ABILITY TO LOCATE AND CORRECT ALL RELEVANT SOFTWARE AND
EMBEDDED COMPONENTS, THE COMPLIANCE OF CRITICAL VENDORS, AND SIMILAR
UNCERTAINTIES. THE COMPANY'S ASSESSMENTS OF THE EFFECTS OF YEAR 2000 ON THE
COMPANY ARE BASED, IN PART, UPON INFORMATION RECEIVED FROM THIRD PARTIES, AND
THE COMPANY'S REASONABLE RELIANCE ON THAT INFORMATION. THEREFORE, THE RISK THAT
INACCURATE INFORMATION IS SUPPLIED BY THIRD PARTIES UPON WHICH THE COMPANY
REASONABLY RELIED MUST BE CONSIDERED AS A RISK FACTOR THAT MIGHT AFFECT THE
COMPANY'S YEAR 2000 EFFORTS. THE COMPANY IS ATTEMPTING TO REDUCE THE RISKS BY
UTILIZING AN ORGANIZED APPROACH, EXTENSIVE TESTING AND ALLOWANCE OF CONTINGENCY
TIME TO ADDRESS ISSUES IDENTIFIED BY TESTS. DESPITE THE COMPANY'S EFFORTS TO
ADDRESS ITS YEAR 2000 ISSUES, THERE CAN BE NO ASSURANCES THAT YEAR 2000 RELATED
FAILURES OF THE COMPANY'S SOFTWARE, OR THAT YEAR 2000 RELATED FAILURES BY THIRD
PARTIES WITH WHICH THE COMPANY INTERACTS, WILL NOT HAVE A MATERIAL ADVERSE
AFFECT ON THE COMPANY.
-12-
<PAGE> 13
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
In fiscal year 2000, 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, 1999, the Company
spent $6.0 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
Concurrent with the closing of the Speedy acquisition in September
1998, the Company obtained a new $135 million secured credit facility from a
syndication of lenders led by The Chase Manhattan Bank. Approximately $55
million was borrowed under this facility to pay the all-cash purchase price,
including transaction expenses of approximately $4 million. In addition, the
Company refinanced approximately $35 million of indebtedness through the new
credit facility, with the balance of the facility available for future working
capital needs. More specifically, the new financing structure consists of a $25
million term loan (all of which was outstanding at June 30, 1999), a $75 million
Revolving Credit facility (of which approximately $39 million was outstanding at
June 30, 1999), and synthetic lease (off-balance sheet) financing for a
significant portion of the Speedy real estate, totaling $35 million. The loans
bear interest at the prime rate or other LIBOR-based rate options tied to the
Company's financial performance. The Company must also pay a facility fee on the
unused portion of the commitment.
The credit facility has a five-year term. Interest only is payable
monthly on the Revolving Credit and synthetic lease borrowings throughout the
term. In addition to monthly interest payments, the $25 million term loan
requires quarterly principal payments beginning September 30, 1999.
The term loan and Revolving Credit Facility are secured by all accounts
receivable, inventory and other personal property. The Company has also entered
into a negative pledge agreement not to encumber any real property, with certain
permissible exceptions. The synthetic lease is secured by the real property to
which it relates.
At March 31, 1999, the Company had outstanding $1.8 million in
principal amount of its 10.65% of Senior Notes due 2000 with Massachusetts
Mutual Life Insurance Company pursuant to a Senior Note Agreement. The sixth
and final annual installment of principal of $1.8 million was paid on April 1,
1999.
Certain of the Company's stores are financed by mortgages currently
bearing interest at LIBOR plus 100 basis points.
The Company has financed its office/warehouse facility via a 10 year
mortgage with a current balance of $2.4 million, amortizable over 20 years, and
an eight year term loan with a balance of $.4 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. They also contain requirements
concerning Y2K compliance and restrictions on cash dividend payments.
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 adjustment to interest
expense.
FINANCIAL ACCOUNTING STANDARDS
On June 17, 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities" effective for fiscal years
beginning after June 15, 2000. This statement standardizes the accounting for
derivatives and hedging activities and requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities at fair value. Changes in the fair value of derivatives that do not
meet the hedge accounting criteria are to be reported in earnings. Adoption of
this standard is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
-13-
<PAGE> 14
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 was not required to file reports on Form 8-K during the quarter
ended June 30, 1999.
-14-
<PAGE> 15
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 10, 1999 By /s/ Robert G. Gross
---------------------------------------
Robert G. Gross
President and Chief Executive Officer
DATE: August 10, 1999 By /s/ Catherine D'Amico
------------------------------------------
Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
-15-
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
11 Statement of computation of per share earnings. 17
-16-
<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.
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
--------
1999 1998
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
DILUTED
- -------
EARNINGS
Net income available to common shares $2,693 $3,857
====== ======
SHARES
Weighted average number of common shares 8,322 8,306
Assuming conversion of Class C Convertible
Preferred Stock 636 636
Dilutive effect of outstanding options 19 97
------ ------
Total common and common equivalent 8,977 9,039
shares ====== ======
DILUTED EARNINGS PER SHARE $ .30 $ .43
====== ======
BASIC
- -----
EARNINGS
Net income available to common shares $2,693 $3,857
====== ======
SHARES
Weighted average number of common shares 8,322 8,306
====== ======
BASIC EARNINGS PER SHARE $ .32 $ .46
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,781
<SECURITIES> 0
<RECEIVABLES> 1,237
<ALLOWANCES> 0
<INVENTORY> 40,648
<CURRENT-ASSETS> 52,177
<PP&E> 200,202
<DEPRECIATION> 61,809
<TOTAL-ASSETS> 203,940
<CURRENT-LIABILITIES> 37,881
<BONDS> 0
0
138
<COMMON> 83
<OTHER-SE> 83,449
<TOTAL-LIABILITY-AND-EQUITY> 203,940
<SALES> 60,979
<TOTAL-REVENUES> 60,979
<CGS> 35,391
<TOTAL-COSTS> 35,391
<OTHER-EXPENSES> 19,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,717
<INCOME-PRETAX> 4,474
<INCOME-TAX> 1,781
<INCOME-CONTINUING> 2,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,693
<EPS-BASIC> .32
<EPS-DILUTED> .30
</TABLE>
