<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 SEPTEMBER 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
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MONRO MUFFLER BRAKE, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 16-0838627
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
200 HOLLEDER PARKWAY, ROCHESTER, NEW YORK 14615
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(Address of principal executive offices) (Zip code)
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 October 31, 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
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<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at
September 30, 1999 and March 31, 1999 3
Consolidated Statement of Income for the quarter
and six months ended September 30, 1999 and 1998 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the six months ended September 30, 1999 5
Consolidated Statement of Cash Flows for the
six months ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
</TABLE>
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<PAGE> 3
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $3,068 $ 3,068 $ 5,599
at September 30, 1999 and $5,599 at March 31, 1999
Trade receivables 1,340 1,291
Inventories, at LIFO cost 42,301 38,656
Federal and State income taxes receivable 0 1,090
Deferred income tax asset 1,709 1,709
Other current assets 4,141 5,002
--------- ---------
Total current assets 52,559 53,347
--------- ---------
Property, plant and equipment 202,462 194,808
Less - Accumulated depreciation and amortization (64,135) (59,021)
--------- ---------
Net property, plant and equipment 138,327 135,787
Other noncurrent assets 13,046 13,800
--------- ---------
Total assets $ 203,932 $ 202,934
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,790 $ 8,373
Trade payables 13,358 9,745
Federal and state income taxes payable 1,953 0
Accrued expenses and other current liabilities
Accrued interest 535 268
Accrued payroll, payroll taxes and other payroll benefits 5,641 5,269
Accrued insurance 1,550 1,700
Accrued restructuring costs 1,728 1,825
Other current liabilities 6,202 7,999
--------- ---------
Total current liabilities 38,757 35,179
Long-term debt 71,494 78,672
Other long-term liabilities 604 669
Accrued long-term restructuring costs 3,806 5,100
Deferred income tax liability 2,363 2,363
--------- ---------
Total liabilities 117,024 121,983
--------- ---------
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 83 83
Additional paid-in capital 35,924 35,873
Retained earnings 50,763 44,857
--------- ---------
Total shareholders' equity 86,908 80,951
--------- ---------
Total liabilities and shareholders' equity $ 203,932 $ 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 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 SIX MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
------- ------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales $60,513 $46,385 $121,492 $90,498
Cost of sales, including distribution and
occupancy costs (a) 35,356 26,770 70,747 51,090
------- ------- -------- -------
Gross profit 25,157 19,615 50,745 39,408
Operating, selling, general and
administrative expenses 17,727 14,330 36,809 26,720
------- ------- -------- -------
Operating income 7,430 5,285 13,936 12,688
Interest expense, net of interest income for
the quarter of $17 in 1999 and $8 in
1998, and year to date of $27 in 1999
and $22 in 1998 (a) 1,689 1,077 3,406 1,982
Other expense, net 400 194 715 302
------- ------- -------- -------
Income before provision for income taxes 5,341 4,014 9,815 10,404
Provision for income taxes 2,128 1,603 3,909 4,136
------- ------- -------- -------
Net income $ 3,213 $ 2,411 $ 5,906 $ 6,268
======= ======= ======== =======
Basic earnings per share $ .39 $ .29 $ .71 $ .75
======= ======= ======== =======
Diluted earnings per share $ .36 $ .27 $ .66 $ .70
======= ======= ======== =======
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share: Basic 8,322 8,317 8,322 8,311
======= ======= ======== =======
Diluted 8,975 8,987 8,976 9,013
======= ======= ======== =======
</TABLE>
(a) Amounts paid under operating and capital leases with affiliated parties
totaled $452 and $467 for the quarters ended September 30, 1999 and
1998, respectively, and $917 and $963 for the six months ended
September 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.
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<PAGE> 5
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' 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 5,906
Note receivable from shareholder 51 51
----- --- ------- ----- ------- -------
======= =======
Balance at September 30, 1999 8,322 $83 $36,370 ($446) $35,924 $50,763
===== === ======= ===== ======= =======
</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> 6
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN
CASH
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,906 $ 6,268
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 6,482 4,889
Gain on disposal of property, plant and equipment (81) (65)
Increase in trade receivables (49) (119)
Increase in inventories (3,645) (1,285)
Decrease in other current assets 934 320
Decrease (increase) in other noncurrent assets 460 (1,168)
Increase (decrease) in trade payables 3,613 (550)
(Decrease) increase in accrued expenses (1,404) 846
Increase in federal and state income taxes payable 3,043 986
(Decrease) increase in other long-term liabilities (1,386) 14
-------- --------
Total adjustments 7,967 3,868
-------- --------
Net cash provided by operating activities 13,873 10,136
-------- --------
Cash flows from investing activities:
Capital expenditures (9,677) (10,035)
Proceeds from the disposal of property, plant and equipment 1,120 65
Payment for purchase of Speedy Muffler King (21,490)
-------- --------
Net cash used for investing activities (8,557) (31,460)
-------- --------
Cash flows from financing activities:
Proceeds from the sale of common stock (option exercises) 462
Proceeds from borrowings 40,375 91,670
Principal payments on long-term debt and capital
lease obligations (48,222) (71,669)
-------- --------
Net cash (used for) provided by financing activities (7,847) 20,463
-------- --------
Decrease in cash (2,531) (861)
Cash at beginning of year 5,599 5,315
-------- --------
Cash at September 30 $ 3,068 $ 4,454
======== ========
</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 of borrowings 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 $120,000 and $170,000 higher at September 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 $3,068,000 at
September 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:
SIX MONTHS ENDED SEPTEMBER 30, 1999:
Capital lease obligations of $85,000 were incurred under various lease
obligations.
In connection with the sale of assets, the Company reduced fixed assets
by $49,000 and increased other current assets, other non-current assets and
accrued long-term restructuring costs by $73,000, $90,000 and $114,000,
respectively.
SIX MONTHS ENDED SEPTEMBER 30, 1998:
Capital lease obligations of $170,000 were incurred under various lease
obligations.
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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Interest, net $3,045,000 $2,211,000
Income taxes 866,000 3,152,000
</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 29, 1999.
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<PAGE> 9
MONRO MUFFLER BRAKE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND 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, the ability of the Company to maximize the
value of the acquired Speedy Stores, 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.
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 SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
--------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales ................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs .................... 58.4 57.7 58.2 56.4
------ ------ ------ ------
Gross profit ............................ 41.6 42.3 41.8 43.6
Operating, selling, general and
administrative expenses ................ 29.3 30.9 30.3 29.6
------ ------ ------ ------
Operating income ........................ 12.3 11.4 11.5 14.0
Interest expense - net .................. 2.8 2.3 2.8 2.2
Other expenses - net .................... .7 .4 .6 .3
------ ------ ------ ------
Income before provision for income taxes 8.8 8.7 8.1 11.5
Provision for income taxes .............. 3.5 3.5 3.2 4.6
------ ------ ------ ------
Net income .............................. 5.3% 5.2% 4.9% 6.9%
====== ====== ====== ======
</TABLE>
-9-
<PAGE> 10
SECOND QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
SECOND QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1998
Sales were $60.5 million for the quarter ended September 30, 1999
compared with $46.4 million in the quarter ended September 30, 1998. The sales
increase of $14.1 million, or 30.5%, was due to an increase in sales of
approximately $16.4 million relating to stores opened or acquired since April 1,
1998, partially offset by a comparable store sales decrease of 2.8%. Sales for
the six months ended September 30, 1999 were $121.5 million compared with $90.5
million for the comparable period of the prior year. The sales increase of $31.0
million or 34.2% was due to an increase in sales of approximately $35.7 million
relating to stores opened or acquired since April 1, 1998, partially offset by a
comparable store sales decrease of 3.2%. At September 30, 1999, the Company had
515 company-operated stores in operation (including the stores acquired from
Speedy) compared to 530 at September 30, 1998.
In an effort to further drive sales, the Company established a
commercial sales division in September 1999 to pursue what the Company believes
can be a high-volume, solid-margin, predictable source of revenue. Additionally,
in November, the Company will begin testing windshield repair and replacement
services through a joint venture operating as "Monro Auto Glass". This service
will be a customer convenience offered initially at approximately 60 locations
in conjunction with a major automotive glass repair and replacement company. The
arrangement should add incrementally to Monro's profitability through referral
fees, further build brand equity and enhance the Company's service offerings.
Gross profit for the quarter ended September 30, 1999 was $25.2 million
or 41.6% of sales compared with $19.6 million or 42.3% of sales for the quarter
ended September 30, 1998. Gross profit for the six months ended September 30,
1999 was $50.7 million, or 41.8% of sales, compared to $39.4 million or 43.6% of
sales, for the six months ended September 30, 1998. The decline in gross profit
as a percentage of sales is primarily attributable to an increase in occupancy
costs, 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.
Total material usage (including outside purchases) declined as a
percent of sales when compared to the same quarter of last year, due to the
impact of price reductions negotiated with vendors, inventory replenishment of
all Speedy Stores from Monro's central distribution facility, and mix changes
from the same quarter of last year.
Operating, selling, general and administrative expenses for the quarter
ended September 30, 1999 increased by $3.4 million to $17.7 million over the
quarter ended September 30, 1998, and were 29.3% of sales compared to 30.9% in
the same quarter of the prior year. For the six months ended September 30, 1999,
these expenses increased by $10.1 million to $36.8 million over the comparable
period of the prior year and were 30.3% of sales compared to 29.6% in the
comparable period of the prior year. The second quarter improvement in
operating, selling, general and administrative expenses as a percent of sales,
as compared to the prior year period, is due primarily to reductions in direct
store expenses, and corporate and field overhead expenses. These reductions
reflect the Company's continuing efforts to achieve planned cost savings and
improve efficiency.
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 September 30, 1999 of
approximately $7.4 million increased 40.6% over operating income for the quarter
ended September 30, 1998, and increased as a percentage of sales from 11.4% to
12.3% for the same periods. On a year to date basis, operating income increased
approximately $1.2 million or 9.8% over the same prior year period, but
decreased as a percentage of sales from 14.0% to 11.5% during this same period.
Net interest expense for the quarter ended September 30, 1999 increased
by approximately $.6 million compared to the comparable period in the prior
year, and increased from 2.3% to 2.8% as a percentage of sales for the same
period. Net interest expense for the six months ended September 30, 1999
increased by approximately $1.4 million compared to the same period in the prior
year, and increased from 2.2% to 2.8% as a percentage of sales for the same
period. The increase in dollars expended is due to an increase in the weighted
average debt outstanding for the quarter and six months ended September 30, 1999
as compared to the same periods in the previous year, as well as an increase in
the weighted average interest rate.
Net income for the quarter ended September 30, 1999 of $3.2 million
increased 33.3% from net income for the quarter ended September 30, 1998. For
the six months ended September 30, 1999 net income of $5.9 million decreased
5.8%, due to the factors discussed above.
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<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.
All IT systems, considered to be critical, have been diagnosed,
modified, tested, and deployed. Third party testing tools have been used to
validate results on internally developed software where the Company believed it
to be critical and cost beneficial, and contingency plans have been developed.
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. All
non-IT systems, considered to be critical have been tested and deemed compliant.
-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 has contacted each of its major third
party providers and vendors to determine if the provider/vendor is Year 2000
compliant. There were no instances where a major provider/vendor represented
that there would be a loss of service because of a Year 2000 problem.
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. These plans will identify the specific
actions which will be taken if a critical system or third party service provider
are not Year 2000 compliant. The Company expects to have these plans completed
by December 1, 1999 for all major systems. As discussed above, the Company has
contacted its major third party providers/vendors, and none indicated that there
would be a loss of service because of Year 2000 problems.
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.
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<PAGE> 13
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
In fiscal year 2000, the Company's primary capital requirements have
been the funding of its new store expansion program and the upgrading of
facilities and systems in existing stores. For the six months ended September
30, 1999, the Company spent approximately $9.8 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 (of which approximately $24 million was outstanding at
September 30, 1999), a $75 million Revolving Credit facility (of which
approximately $38 million was outstanding at September 30, 1999), and synthetic
lease (off-balance sheet) financing for a significant portion of the Speedy real
estate, totaling $35 million (of which approximately $34 million was outstanding
at September 30, 1999). The loans bear interest at the prime rate or 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 first
principal payment of $1.3 million was paid on 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the Company (the
"1999 Meeting") was held on August 2, 1999. At the 1999 Meeting, the Company's
common shareholders elected management's nominees, Charles J. August, Frederick
M. Danziger, Jack M. Gallagher, Robert G. Gross and Peter J. Solomon to Class 2
of the Board of Directors, to serve until the election and qualification of
their respective successors at the 2001 Annual Meeting of Shareholders. Such
nominees for director received the following votes:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
<S> <C> <C>
Charles J. August 6,562,971 14,065
Frederick M. Danziger 6,563,416 13,620
Jack M. Gallagher 6,563,416 13,620
Robert G. Gross 6,563,416 13,620
Peter J. Solomon 6,563,416 13,620
</TABLE>
As required under the Company's Certificate of Incorporation,
such election of directors and other matters were confirmed by the holders of
all 91,727 outstanding shares of the Company's Class C Convertible Preferred
Stock, par value $1.50 per share, by written consent dated as of August 2, 1999.
In addition, Burton S. August, Robert W. August, Donald
Glickman, Lionel B. Spiro and W. Gary Wood will continue as Class 1 directors
until the election and qualification of their respective successors at the 2000
Annual Meeting of Shareholders.
Also approved by the following votes were:
(i) a proposal to ratify the adoption of the Monro
Muffler Brake,Inc. 1998 Employees' Stock Option
Plan (4,756,044 shares in favor, 109,125 shares
against, 14,469 shares abstaining and zero
broker non-votes).
(ii) a proposal to ratify the amendment to the Monro
Muffler Brake, Inc. Non-Employee Directors'
Stock Option Plan to increase the number of
authorized shares (4,625,958 shares in favor,
217,760 shares against, 36,420 shares
abstaining).
(iii) a proposal to ratify the re-appointment of
PricewaterhouseCoopers LLP as the independent
auditors of the Company for the fiscal year
ending March 31, 2000 (6,556,736 shares in
favor, 8,646 shares against, 11,654 shares
abstaining and zero broker non-votes).
-14-
<PAGE> 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.01 - Amendment to Credit Agreement, dated as of May 31, 1999,
by and among the Company, The Chase Manhattan Bank, as agent,
and certain lenders party thereto.
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 September 30, 1999.
-15-
<PAGE> 16
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: November 15, 1999 By /s/ Robert G. Gross
-----------------------------------------
Robert G. Gross
President and Chief Executive Officer
DATE: November 15, 1999 By /s/ Catherine D'Amico
-----------------------------------------
Catherine D'Amico
Senior Vice President-Finance,
Treasurer and Chief Financial Officer
-16-
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.01 Amendment to Credit Agreement, dated as of
May 31, 1999, by and among the Company, The
Chase Manhattan Bank, as agent, and certain
lenders party thereto.
11 Statement of computation of per share
earnings
-17-
<PAGE> 1
Exhibit 10.01
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") effective
as of May 31, 1999 (the "EFFECTIVE DATE"), is entered into among MONRO MUFFLER
BRAKE, INC., a New York corporation (the "BORROWER"), THE CHASE MANHATTAN BANK,
a New York banking corporation (the "AGENT", and together with the other banks
listed as "LENDERS" on the signature pages hereof, collectively the "LENDERS";
individually, a "LENDER").
WHEREAS, the Borrower, the Agent and The Chase Manhattan Bank; Fleet
Bank; Manufacturers and Traders Trust Company; KeyBank, NA; HSBC Bank USA f/k/a
Marine Midland Bank; State Street Bank & Trust Co.; National City Bank and
USTrust, as Lenders previously entered into that certain Credit Agreement dated
as of September 15, 1998 (as amended or modified, the "CREDIT Agreement"); and
WHEREAS, the Borrower has requested that certain changes be made to the
negative covenants, maximum adjusted debt and minimum tangible net worth under
the Credit Agreement, among other things; and
WHEREAS, the Agent and the Lenders have agreed to such modifications,
subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the undersigned parties agree as follows:
Section 1. DEFINED TERMS. All capitalized terms used in this Amendment
but not defined in this Amendment shall have the meanings set forth in the
Credit Agreement.
Section 2. CREDIT AGREEMENT AMENDMENT.
SECTION 9.8. Section 9.8 of the Credit Agreement is hereby modified and
amended to delete such Section 9.8 in its entirety, and insert in lieu thereof
the following:
"9.8 LOANS, ADVANCES AND INVESTMENTS. Except as permitted by
SECTION 9.9 or SECTION 9.11, Borrower may not and may not
permit any Company to make any loan, advance, extension of
credit or capital contribution to, make any investment in, or
purchase or commit to purchase any stock or other securities
or evidences of Debt of, or interests in, any other Person;
provided, however, that Borrower or a Company may make an
advance to, investment in or purchase from another Person if
(1) (a) such action results in the acquisition of such Person
by Borrower or such Company, (b) such action results in the
Borrower's direct or indirect ownership of new stores, (c) the
Person being acquired is in a line of business which is
substantially the same as or complimentary to the Borrower's
principal line of business, and (d) immediately after giving
effect to such acquisition, the Companies shall be in
compliance with all covenants under ARTICLE 10 and shall not
be in Default or Potential Default under this Agreement, or
(2) such action is used to provide financial assistance to
third parties that may be purchasing or subleasing certain
facilities owned or leased by Borrower and the cumulative
principal amount of such financing is not greater than
$1,625,000 (provided that such third party loans shall be
assigned to Lenders and shall not exceed a term of three [3]
years); provided, further, that if any acquisition is in
excess of an aggregate cost to the Borrower or such Company of
more than $5,000,000, the Borrower shall provide to the
Lenders evidence of compliance with all covenants in this
Agreement prior to the consummation of such acquisition, or
(3) such action is for investments in Cash Equivalents."
Section 3. FINANCIAL COVENANTS. Section 10 of the Credit Agreement is
hereby modified and amended to delete the first table of such Section 10 in its
entirety, and insert in lieu thereof the following:
<PAGE> 2
<TABLE>
<CAPTION>
Maximum Minimum
Adjusted Debt/EBITDAR EBITDAR less Minimum Tangible
CAPEX to Interest Net Worth
Expense plus Rental
Payments
<S> <C> <C> <C>
At 12/31/98 Not greater than 5.30 to 1.0 Not less than .85 to 1.0 $70,000,000 at 12/31/98
At 3/31/99 thru 09/30/99 Not greater than 5.30 to 1.0 Not less than .85 to 1.0 $63,700,000 at 3/31/99
At 12/31/99 Not greater than 4.70 to 1.0 Not less than .85 to 1.0 $63,700,000 at 9/30/99
At 3/31/00 thru 12/31/00 Not greater than 4.25 to 1.0 Not less than 1.30 to 1.0 $73,700,000 at 3/31/00
At 3/31/01 thru 12/31/01 Not greater than 3.85 to 1.0 Not less than 1.50 to 1.0 $86,300,000 at 3/31/01
At 3/31/02 and thereafter Not greater than 3.55 to 1.0 Not less than 1.70 to 1.0 $103,700,000 at 3/31/02
</TABLE>
Section 4. WAIVER. By their execution of this Amendment, the Lenders
hereby agree to waive any prior default resulting from the calculation of the
financial covenants contained in Section 10 of the Credit Agreement and
Borrower's noncompliance with any condition, agreement, covenant or
representation set forth in Section 9.8, to the extent no default would have
occurred or be continuing after giving effect to this Amendment.
Section 5. CONDITIONS. This Amendment shall not be effective unless and
until:
(a) The Agent has received counterparts of this Amendment and such
related documentation as any Lender or its counsel shall
determine in their reasonable discretion, in form and
substance satisfactory to the Agent, duly executed and
delivered by the Borrower, the Lenders, and the Agent, as
applicable;
(b) The Agent has received payment for the account of the Lenders
of any amounts then due under the Credit Agreement;
(c) The Agent has received a certificate from the Borrower dated
as of the Effective Date stating that (i) all representations
and warranties of the Borrower set forth in the Credit
Agreement, as amended hereby, each of the other Loan Papers,
and this Amendment are true and correct in all material
respects; and (ii) no Default has occurred and is continuing;
(d) The Agent has received certified resolutions of the Borrower
approving this Amendment and the other documents executed in
connection herewith;
(e) The Agent has received a certificate of the Borrower
certifying as of the Effective Date, the names and true
signatures of persons authorized to sign this Amendment on
behalf of the Borrower; and
(f) The Borrower agrees to pay each Lender a modification fee
equal to 6.25 basis points times the outstanding commitment of
such Lender.
Section 6. EFFECT.
(a) Except as otherwise expressly modified hereby, all terms and
provisions of the Loan Papers are hereby ratified and
confirmed and shall be and shall remain in full force and
effect, enforceable in accordance with their terms. In the
event of any inconsistency between the terms of the Credit
Agreement as hereby modified and any other Loan Paper, the
terms of the Credit Agreement, as amended hereby, shall
control and such other document shall be deemed to be amended
hereby to conform to the terms of the Credit Agreement as
amended hereby. All references in any Loan Paper to the Credit
Agreement shall henceforth be deemed to refer to the Credit
Agreement as amended hereby.
<PAGE> 3
(b) Notwithstanding anything to the contrary contained herein or
implied hereby or in any other Loan Paper or in any other
action or conduct undertaken by the Borrower, the Agent or any
Lender on or before the date hereof, the agreements, covenants
and provisions contained herein shall constitute the only
evidence of the Lenders' consent to modify the terms and
provisions of the Loan Papers in the manner set forth herein.
Accordingly, no express or implied consents to any further
modifications of the Loan Papers, whether any such
modifications involve any of the matters contained in this
Amendment or otherwise, shall be inferred or implied from the
Lenders' execution of this Amendment unless evidenced by an
express written agreement executed by the Lenders and the
Agent. Further, the Lenders' and the Agent's execution of this
Amendment shall not constitute a waiver (either express or
implied) of the requirement that any further modification of
the Loan Papers shall require the express written approval of
the Lenders and the Agent as provided in the Credit Agreement,
no such approval (either express or implied) having been given
as of the date hereof.
Section 7. DEFENSES. The Borrower, by its execution hereof, hereby
declares that it knows of no set-offs, counterclaims, defenses or other causes
of action against the Agent or the Lenders arising out of the Loan Papers or
otherwise.
Section 8. LOAN PAPER. This Amendment is one of the "LOAN PAPERS"
described in the Credit Agreement and, as such, is subject to the provisions of
Article 14 of the Credit Agreement.
Section 9. FURTHER ASSURANCES. The parties hereto shall execute such
other documents, to be filed of record or otherwise, and the Borrower shall take
such actions, as may be necessary or as may be reasonably required in the
opinion of the Agent, to effect the transactions contemplated hereby.
Section 10. REPRESENTATIONS AND WARRANTIES.
(a) The Borrower hereby represents and warrants to the Lenders
that (i) it possesses all requisite power and authority to
execute, deliver and comply with the terms of this Amendment
and to effect the transactions contemplated hereby, all of
which have been duly authorized and approved by all necessary
corporate action and for which no consent of any other person
is required, and agrees to furnish the Agent with evidence of
such authorization and approval upon request; and (ii) no
event has occurred since the effective date of the Credit
Agreement which, individually or in the aggregate, could cause
a Material Adverse Event to occur, and (iii) the liens of the
Security Documents are valid and subsisting and continue to
secure the obligations under the Loan Papers.
(b) The Borrower hereby reaffirms each of the representations,
warranties, covenants and agreements contained in the Loan
Papers with the same force and effect as if each were
separately stated herein and made as of the date hereof,
except to the extent such representations or warranties relate
solely to an earlier date.
Section 11. FEES AND EXPENSES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Agent (including, without limitation,
reasonable legal fees and expenses) incurred in connection with the preparation,
negotiation and execution of this Amendment and the other documents executed in
connection herewith and to effect the transactions contemplated hereby.
Section 12. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same agreement.
Section 13. BINDING EFFECT. This Amendment shall become effective when
it shall have been executed by the Borrower and the Agent, and when the Agent
shall have, as to each Lender, either received a
<PAGE> 4
counterpart hereof executed by such Lender or been notified by such Lender that
such Lender has executed it and it thereafter shall be binding upon and inure to
the benefit of the Borrower, the Agent, and each Lender and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights or delegate its duties under this Amendment or any interest in
the Credit Agreement without the prior written consent of each Lender.
Section 14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
EXECUTED as of the Effective Date.
BORROWER:
---------
MONRO MUFFLER BRAKE, INC., a New York corporation
By:
Catherine D'Amico, Senior Vice President and
Chief Financial Officer
AGENT:
------
THE CHASE MANHATTAN BANK
By:
Philip M. Hendrix, Vice President
<PAGE> 5
LENDERS:
--------
THE CHASE MANHATTAN BANK
By:
Philip M. Hendrix, Vice President
FLEET BANK
By:
Name:
Title:
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
Name:
Title:
KEYBANK, NA
By:
Name:
Title:
HSBC BANK USA F/K/A MARINE MIDLAND BANK
By:
Name:
Title:
STATE STREET BANK & TRUST, CO.
By:
Name:
Title:
<PAGE> 6
NATIONAL CITY BANK
By:
Name:
Title:
USTRUST
By:
Name:
Title:
<PAGE> 7
EXHIBIT "A"
-----------
SCHEDULE 9.8
SUBJECT PROPERTIES
<PAGE> 8
FIRST AMENDMENT AND MODIFICATION AGREEMENT
------------------------------------------
OF RESIDUAL GUARANTY
--------------------
FIRST AMENDMENT AND MODIFICATION AGREEMENT
OF RESIDUAL GUARANTY
THIS FIRST AMENDMENT AND MODIFICATION AGREEMENT OF RESIDUAL GUARANTY,
(this "AMENDMENT") effective as of May 31, 1999 (the "EFFECTIVE DATE"), amends
and modifies the RESIDUAL GUARANTY dated as of September 15, 1998 (the
"GUARANTY") from MONRO MUFFLER BRAKE, INC., a New York corporation (the
"GUARANTOR") in favor of the lenders who are party to that certain Credit
Agreement dated effective as of September 15, 1998, by and among Brazos
Automotive Properties, L.P., a Delaware limited partnership, as the borrower
(the "BORROWER"), the several banks party thereto from time to time (the
"LENDERS"), and The Chase Manhattan Bank, as Agent for the Lenders (the
"AGENT").
WHEREAS, the Guarantor has requested that certain changes be made to
the negative covenants, maximum adjusted debt and minimum tangible net worth
provisions contained in the Guaranty, among other things; and
WHEREAS, the Lenders have agreed to such modifications, subject to the
terms and conditions hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree to amend and modify the
Guaranty as follows:
Section 1. DEFINED TERMS. All capitalized terms used in this Amendment,
but not defined in this Amendment, shall have the meanings set forth in the
Guaranty.
Section 2. AMENDMENTS TO GUARANTY.
(a) Amendment to Section 8(f). Section 8(f) of the Guaranty is hereby
deleted in its entirety and the following is inserted in lieu thereof:
"f. LOANS, ADVANCES AND INVESTMENTS. Except as permitted by
SECTION 8G. or SECTION 8I., Guarantor may not and may not
permit any Company to make any loan, advance, extension of
credit or capital contribution to, make any investment in, or
purchase or commit to purchase any stock or other securities
or evidences of Debt of, or interests in, any other Person;
provided, however, that any Company may make an advance to,
investment in or purchase from another Person if (1) (a) such
action results in the acquisition of such Person by such
Company (b) such action results in the Guarantor's direct or
indirect ownership of new stores, (c) the Person being
acquired is in a line of business which is substantially the
same as or complimentary to the Guarantor's principal line of
business, and (d) immediately after giving effect to such
acquisition, the Company shall be in compliance with all
covenants under SECTION 9 and shall not be in Default or
Potential Default under this Guaranty, or (2) such action is
used to provide financial assistance to third parties that may
be purchasing or subleasing certain facilities owned or leased
by Guarantor and the cumulative principal amount of such
financing is not greater than $1,625,000 (provided that such
third party loans shall be assigned to Lenders and shall not
exceed a term of three [3] years); provided, further, that if
any acquisition is in excess of an aggregate cost to the
Guarantor or such Company of more than $5,000,000, the
Guarantor shall provide to the Lenders evidence of compliance
with all covenants in this Guaranty prior to the consummation
of such acquisition, or (3) such action is for investments in
Cash Equivalents."
<PAGE> 9
(b) Amendment to Section 9. Section 9 of the Guaranty is hereby
modified and amended to delete the first table of such Section 9 in its
entirety, and insert in lieu thereof the following table:
<TABLE>
<CAPTION>
Maximum Minimum
Adjusted Debt/EBITDAR EBITDAR less Minimum Tangible
CAPEX to Interest Net Worth
Expense plus Rental
Payments
<S> <C> <C> <C>
At 12/31/98 Not greater than 5.30 to 1.0 Not less than .85 to 1.0 $70,000,000 at 12/31/98
At 3/31/99 thru 09/30/99 Not greater than 5.30 to 1.0 Not less than .85 to 1.0 $63,700,000 at 3/31/99
At 12/31/99 Not greater than 4.70 to 1.0 Not less than .85 to 1.0 $63,700,000 at 9/30/99
At 3/31/00 thru 12/31/00 Not greater than 4.25 to 1.0 Not less than 1.30 to $73,700,000 at 3/31/00
At 3/31/01 thru 12/31/01 Not greater than 3.85 to 1.0 Not less than 1.50 to 1.0 $86,300,000 at 3/31/01
At 3/31/02 and thereafter Not greater than 3.55 to 1.0 Not less than 1.70 to 1.0 $103,700,000 at 3/31/02
</TABLE>
Section 3. WAIVER. By their execution of this Amendment, the Lenders
hereby agree to waive any prior default resulting from the calculation of the
financial covenants contained in Section 9 of the Guaranty and Guarantor's
noncompliance with any condition, agreement, covenant or representation set
forth in Section 8(f), to the extent no default would have occurred or be
continuing after giving effect to this Amendment.
Section 4. CONDITIONS. This Amendment shall not be effective unless and
until:
(a) The Agent has received counterparts of this Amendment and such
related documentation as any Lender or its counsel shall determine in their
reasonable discretion, in form and substance satisfactory to the Agent, duly
executed and delivered by the Guarantor, the Agent and the Lenders, as
applicable;
(b) The Agent has received payment for the account of the Lenders of
any amounts then due under the Guaranty;
(c) The Agent has received a certificate from the Guarantor dated as of
the Effective Date stating that (i) all representations and warranties of the
Guarantor set forth in the Guaranty, as amended hereby, each of the other Credit
Documents, and this Amendment are true and correct in all material respects; and
(ii) no Default has occurred and is continuing;
(d) The Agent has received certified resolutions of the Guarantor
approving this Amendment and the other documents executed in connection
herewith; and
(e) The Agent has received a certificate of the Guarantor certifying as
of the Effective Date, the names and true signatures of persons authorized to
sign this Amendment on behalf of the Guarantor.
Section 5. EFFECT.
(a) Except as otherwise expressly modified hereby, all terms and
provisions of the Guaranty are hereby ratified and confirmed and shall be and
shall remain in full force and effect, enforceable in accordance with their
terms. In the event of any inconsistency between the terms of the Guaranty, as
hereby modified and any other Credit Documents, the terms of the Guaranty, as
amended hereby, shall control and such other document shall be deemed to be
amended hereby to conform to the terms of the Guaranty as amended hereby. All
references in any Credit Documents to the Guaranty shall henceforth be deemed to
refer to the Guaranty as amended hereby.
(b) Notwithstanding anything to the contrary contained herein or
implied hereby or in any other Credit Documents or in any other action or
conduct undertaken by the Guarantor, the Lenders or the Agent on or before the
date hereof, the agreements, covenants and provisions contained herein shall
constitute the only evidence of the Lenders' consent to modify the terms and
provisions of the Credit Documents in the manner set
<PAGE> 10
forth herein. Accordingly, no express or implied consents to any further
modifications of the Credit Documents, whether any such modifications involve
any of the matters contained in this Amendment or otherwise, shall be inferred
or implied from the Lenders' execution of this Amendment unless evidenced by an
express written agreement executed by the Agent and the Lenders.
Section 6. DEFENSES. The Guarantor, by its execution hereof, hereby
declares that it knows of no set-offs, counterclaims, defenses or other causes
of action against the Agent or the Lenders arising out of the Credit Documents
or otherwise.
Section 7. CREDIT DOCUMENT. This Amendment is one of the "CREDIT
DOCUMENTS" described in the Guaranty and, as such, is subject to any provisions
of the Guaranty which govern the Credit Documents.
Section 8. FURTHER ASSURANCES. The parties hereto shall execute such
other documents, to be filed of record or otherwise, and the Guarantor shall
take such actions, as may be necessary or as may be reasonably required in the
opinion of the Agent, to effect the transactions contemplated hereby.
Section 9. REAFFIRMATION. Except as modified or amended herein, all
terms and provisions of the Guaranty not altered by this Amendment remain in
full force and effect.
Section 10. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants that it possesses all requisite power and authority to
execute, deliver, and comply with the terms of this Amendment and to effect the
transactions contemplated hereby, all of which have been duly authorized and
approved by all necessary corporate action and for which no consent of any other
person is required except as set out in the Guaranty.
Section 11. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts by the different parties hereto in separate
counterparts, each of which so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same Amendment.
Section 12. BINDING EFFECT. This Amendment shall become effective when
it shall have been executed by the parties required by the Guaranty, or their
respective successors and assigns.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed to be effective as of the Effective Date.
GUARANTOR
---------
MONRO MUFFLER BRAKE, INC.,
a New York corporation
By:
Catherine D'Amico,
Senior Vice President and
Chief Financial Officer
AGENT:
------
THE CHASE MANHATTAN BANK
By:
Philip M. Hendrix, Vice President
BANKS:
------
THE CHASE MANHATTAN BANK
By:
Philip M. Hendrix, Vice President
FLEET BANK
By:
Name:
Title:
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
Name:
Title:
<PAGE> 12
KEYBANK, NA
By:
Name:
Title:
MARINE MIDLAND BANK
By:
Name:
Title:
STATE STREET BANK & TRUST CO.
By:
Name:
Title:
NATIONAL CITY BANK
By:
Name:
Title:
USTRUST
By:
Name:
Title:
<PAGE> 13
FIRST AMENDMENT AND MODIFICATION AGREEMENT
------------------------------------------
OF GUARANTY
-----------
This First Amendment and Modification Agreement of Guaranty , (this
"AMENDMENT") effective as of May 31, 1999 (the "EFFECTIVE DATE"), amends and
modifies the GUARANTY dated as of September 15, 1998 (the "Guaranty") from MONRO
MUFFLER BRAKE, INC., a New York corporation (the "GUARANTOR") in favor of BRAZOS
AUTOMOTIVE PROPERTIES, L.P., a Delaware limited partnership (the "LESSOR"),
which leases properties acquired by Lessor to Monro Leasing, LLC, a Delaware
limited liability company (the "LESSEE").
WHEREAS, the Guarantor has requested that certain changes be made to
the negative covenants, maximum adjusted debt and minimum tangible net worth
provisions contained in the Guaranty, among other things; and
WHEREAS, the Lessor has agreed to such modifications, subject to the
terms and conditions hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree to amend and modify the
Guaranty as follows:
Section 1. DEFINED TERMS. All capitalized terms used in this Amendment,
but not defined in this Amendment, shall have the meanings set forth in the
Guaranty.
Section 2. AMENDMENTS TO GUARANTY.
(a) Amendment to Section 8(f). Section 8(f) of the Guaranty is hereby
deleted in its entirety and the following is inserted in lieu thereof:
"f. LOANS, ADVANCES AND INVESTMENTS. Except as permitted by
SECTION 8G. or SECTION 8I., Guarantor may not and may not
permit any Lessee to make any loan, advance, extension of
credit or capital contribution to, make any investment in, or
purchase or commit to purchase any stock or other securities
or evidences of Debt of, or interests in, any other Person;
provided, however, that Guarantor or a Lessee may make an
advance to, investment in or purchase from another Person if
(1) (a) such action results in the acquisition of such Person
by Guarantor (b) such action results in the Guarantor's direct
or indirect ownership of new stores, (c) the Person being
acquired is in a line of business which is substantially the
same as or complimentary to the Guarantor's principal line of
business, and (d) immediately after giving effect to such
acquisition, the Guarantor shall be in compliance with all
covenants under SECTION 9 and shall not be in Default or
Potential Default under this Guaranty, or (2) such action is
used to provide financial assistance to third parties that may
be purchasing or subleasing certain facilities owned or leased
by Guarantor and the cumulative principal amount of such
financing is not greater than $1,625,000 (provided that such
third party loans shall be assigned to Lessor and shall not
exceed a term of three [3] years); provided, further, that if
any acquisition is in excess of an aggregate cost to the
Guarantor of more than $5,000,000, the Guarantor shall provide
to the Lessor evidence of compliance with all covenants in
this Guaranty prior to the consummation of such acquisition,
or (3) such action is for investments in Cash Equivalents."
<PAGE> 14
(b) Amendment to Section 9. Section 9 of the Guaranty is hereby
modified and amended to delete the first table of such Section 9 in its
entirety, and insert in lieu thereof the following table:
<TABLE>
<CAPTION>
Maximum Minimum
Adjusted Debt/EBITDAR EBITDAR less Minimum Tangible
CAPEX to Interest Net Worth
Expense plus Rental
Payments
<S> <C> <C> <C>
At 12/31/98 Not greater than 5.30 to 1.0 Not less than .85 to 1.0 $70,000,000 at 12/31/99
At 3/31/99 thru 09/30/99 Not greater than 5.30 to 1.0 Not less than .85 to 1.0 $63,700,000 at 3/31/99
At 12/31/99 Not greater than 4.70 to 1.0 Not less than .85 to 1.0 $63,700,000 at 9/30/99
At 3/31/00 thru 12/31/00 Not greater than 4.25 to 1.0 Not less than 1.30 to 1.0 $73,700,000 at 3/31/00
At 3/31/01 thru 12/31/01 Not greater than 3.85 to 1.0 Not less than 1.50 to 1.0 $86,300,000 at 3/31/01
At 3/31/02 and thereafter Not greater than 3.55 to 1.0 Not less than 1.70 to 1.0 $103,700,000 at 3/31/02
</TABLE>
Section 3. WAIVER. By its execution of this Amendment, the Lessor
hereby agrees to waive any prior default resulting from the calculation of the
financial covenants contained in Section 9 of the Guaranty and Guarantor's
noncompliance with any condition, agreement, covenant or representation set
forth in Section 8(f), to the extent no default would have occurred or be
continuing after giving effect to this Amendment.
Section 4. CONDITIONS. This Amendment shall not be effective unless and
until:
(a) The Lessor has received counterparts of this Amendment and such
related documentation as Lessor or its counsel shall determine in its reasonable
discretion, in form and substance satisfactory to the Lessor, duly executed and
delivered by the Guarantor and the Lessor, as applicable;
(b) The Lessor has received payment of any amounts then due under the
Guaranty;
(c) The Lessor has received a certificate from the Guarantor dated as
of the Effective Date stating that (i) all representations and warranties of the
Guarantor set forth in the Guaranty, as amended hereby, each of the other Lease
Documents and this Amendment are true and correct in all material respects; and
(ii) no Default has occurred and is continuing;
(d) The Lessor has received certified resolutions of the Guarantor
approving this Amendment and the other documents executed in connection
herewith; and
(e) The Lessor has received a certificate of the Guarantor certifying
as of the Effective Date, the names and true signatures of persons authorized to
sign this Amendment on behalf of the Guarantor.
Section 5. EFFECT.
(a) Except as otherwise expressly modified hereby, all terms and
provisions of the Guaranty are hereby ratified and confirmed and shall be and
shall remain in full force and effect, enforceable in accordance with their
terms. In the event of any inconsistency between the terms of the Guaranty, as
hereby modified and any other Lease Documents, the terms of the Guaranty, as
amended hereby, shall control and such other document shall be deemed to be
amended hereby to conform to the terms of the Guaranty as amended hereby. All
references in any Lease Documents to the Guaranty shall henceforth be deemed to
refer to the Guaranty as amended hereby.
(b) Notwithstanding anything to the contrary contained herein or
implied hereby or in any other Lease Documents or in any other action or conduct
undertaken by the Guarantor, the Lessor or any Lessee on or before the date
hereof, the agreements, covenants and provisions contained herein shall
constitute the only evidence of the Lessor's consent to modify the terms and
provisions of the Lease Documents in the manner set
<PAGE> 15
forth herein. Accordingly, no express or implied consents to any further
modifications of the Lease Documents, whether any such modifications involve any
of the matters contained in this Amendment or otherwise, shall be inferred or
implied from the Lessor's execution of this Amendment unless evidenced by an
express written agreement executed by the Lessor.
Section 6. DEFENSES. The Guarantor, by its execution hereof, hereby
declares that it knows of no set-offs, counterclaims, defenses or other causes
of action against the Lessor or the Lessee arising out of the Lease Documents or
otherwise.
Section 7. LEASE DOCUMENT. This Amendment is one of the "LEASE
DOCUMENTS" described in the Guaranty and, as such, is subject to any provisions
of the Guaranty which govern the Lease Documents.
Section 8. FURTHER ASSURANCES. The parties hereto shall execute such
other documents, to be filed of record or otherwise, and the Guarantor shall
take such actions, as may be necessary or as may be reasonably required in the
opinion of the Lessor, to effect the transactions contemplated hereby.
Section 9. REAFFIRMATION. Except as modified or amended herein, all
terms and provisions of the Guaranty not altered by this Amendment remain in
full force and effect.
Section 10. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants that it possesses all requisite power and authority to
execute, deliver, and comply with the terms of this Amendment and to effect the
transactions contemplated hereby, all of which have been duly authorized and
approved by all necessary corporate action and for which no consent of any other
person is required except as set out in the Guaranty.
Section 11. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts by the different parties hereto in separate
counterparts, each of which so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same Amendment.
Section 12. BINDING EFFECT. This Amendment shall become effective when
it shall have been executed by the parties required by the Guaranty, or their
respective successors and assigns.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed to be effective as of the Effective Date.
GUARANTOR
---------
MONRO MUFFLER BRAKE, INC.,
a New York corporation
By:
Catherine D'Amico,
Senior Vice President and Chief Financial Officer
LESSOR
------
BRAZOS AUTOMOTIVE PROPERTIES, L.P.,
a Delaware limited partnership
By:
BRAZOS AUTOMOTIVE PROPERTIES MANAGEMENT, INC.,
a Delaware corporation, its General Partner
By:
Gregory C. Greene, President
The undersigned Banks join in this Amendment to indicate their consent
to this Amendment, pursuant to Section 4.4 of the Consent and Agreement dated as
of September 15, 1998.
AGENT:
------
THE CHASE MANHATTAN BANK
By:
Philip M. Hendrix, Vice President
BANKS:
------
THE CHASE MANHATTAN BANK
By:
Philip M. Hendrix, Vice President
<PAGE> 17
FLEET BANK
By:
Name:
Title:
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
Name:
Title:
KEYBANK, NA
By:
Name:
Title:
MARINE MIDLAND BANK
By:
Name:
Title:
STATE STREET BANK & TRUST CO.
By:
Name:
Title:
NATIONAL CITY BANK
By:
Name:
Title:
USTRUST
By:
Name:
Title:
<PAGE> 1
MONRO MUFFLER BRAKE, INC. Exhibit 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
DILUTED
- -------
EARNINGS
Net Income $3,213 $2,411 $5,906 $6,268
====== ====== ====== ======
SHARES
Weighted average number of common shares 8,322 8,317 8,322 8,311
Assuming conversion of Class C Convertible
Preferred Stock 636 636 636 636
Dilutive effect of outstanding options 17 34 18 66
------ ------ ------ ------
Total common and common equivalent shares 8,975 8,987 8,976 9,013
====== ====== ====== ======
DILUTED EARNINGS PER SHARE $ .36 $ .27 $ .66 $ .70
====== ====== ====== ======
BASIC
- -----
EARNINGS
Net Income $3,213 $2,411 $5,906 $6,268
====== ====== ====== ======
SHARES
Weighted average number of common shares 8,322 8,317 8,322 8,311
====== ====== ====== ======
BASIC EARNINGS PER SHARE $ .39 $ .29 $ .71 $ .75
====== ====== ====== ======
</TABLE>
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,068
<SECURITIES> 0
<RECEIVABLES> 1,340
<ALLOWANCES> 0
<INVENTORY> 42,301
<CURRENT-ASSETS> 52,559
<PP&E> 202,462
<DEPRECIATION> 64,135
<TOTAL-ASSETS> 203,932
<CURRENT-LIABILITIES> 38,757
<BONDS> 0
0
138
<COMMON> 83
<OTHER-SE> 86,687
<TOTAL-LIABILITY-AND-EQUITY> 203,932
<SALES> 121,492
<TOTAL-REVENUES> 121,492
<CGS> 70,747
<TOTAL-COSTS> 70,747
<OTHER-EXPENSES> 36,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,406
<INCOME-PRETAX> 9,815
<INCOME-TAX> 3,909
<INCOME-CONTINUING> 5,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,906
<EPS-BASIC> .71
<EPS-DILUTED> .66
</TABLE>
