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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, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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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
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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
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As of July 30, 2001, 8,208,411 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding.
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MONRO MUFFLER BRAKE, INC.
INDEX
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Part I. Financial Information Page No.
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Consolidated Balance Sheet at
June 30, 2001 and March 31, 2001 3
Consolidated Statement of Income for the quarter
ended June 30, 2001 and 2000 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the quarter ended June 30, 2001 5
Consolidated Statement of Cash Flows for the
quarter ended June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, MARCH 31,
2001 2001
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(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $1,022
at June 30, 2001 and $751 at March 31, 2001 $ 1,022 $ 751
Trade receivables 1,333 1,161
Inventories, at LIFO cost 41,074 41,071
Deferred income tax asset 899 899
Other current assets 5,758 5,885
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Total current assets 50,086 49,767
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Property, plant and equipment 211,614 209,420
Less - Accumulated depreciation and amortization (80,541) (77,934)
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Net property, plant and equipment 131,073 131,486
Other noncurrent assets 12,373 12,586
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Total assets $ 193,532 $ 193,839
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,190 $ 10,646
Trade payables 15,885 11,148
Federal and state income taxes payable 1,459 648
Accrued interest 228 477
Accrued payroll, payroll taxes and other payroll benefits 4,901 5,150
Accrued insurance 1,438 948
Accrued restructuring costs 400 400
Other current liabilities 7,427 7,152
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Total current liabilities 39,928 36,569
Long-term debt 42,869 50,857
Other long-term liabilities 1,491 730
Accrued long-term restructuring costs 1,800 1,859
Deferred income tax liability 5,497 6,014
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Total liabilities 91,585 96,029
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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; 8,381,434
shares issued at June 30, 2001; 8,373,678 shares issued at March 31, 2001 84 84
Treasury Stock, 216,800 shares at June 30, 2001 and March 31, 2001, at cost (1,831) (1,831)
Additional paid-in capital 36,971 36,344
Other comprehensive income (343) -
Retained earnings 66,928 63,075
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Total shareholders' equity 101,947 97,810
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Total liabilities and shareholders' equity $ 193,532 $ 193,839
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These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 2001.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
QUARTER ENDED JUNE 30,
2001 2000
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(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Sales $61,393 $60,693
Cost of sales, including distribution and occupancy costs 34,238 34,826
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Gross profit 27,155 25,867
Operating, selling, general and administrative expenses 20,179 18,437
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Operating income 6,976 7,430
Interest expense, net of interest income for the quarter of $8
in 2001 and $42 in 2000 1,158 1,600
Other expense, net 190 105
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Income before provision for income taxes 5,628 5,725
Provision for income taxes 1,775 2,278
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Net income $ 3,853 $ 3,447
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Earnings per share:
Basic $ .47 $ .42
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Diluted $ .43 $ .39
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Weighted average number of shares of common Stock and Common Stock equivalents
used in computing earnings per share:
Basic 8,159 8,203
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Diluted 8,985 8,882
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These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 2001.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
LESS:
NOTE NET ACCUMULATED
ADDITIONAL RECEIVABLE ADDITIONAL OTHER
PREFERRED COMMON TREASURY PAID-IN FROM PAID-IN RETAINED COMPENSATION
STOCK STOCK STOCK CAPITAL SHAREHOLDER CAPITAL EARNINGS INCOME TOTAL
------ ------ -------- --------- --------- --------- ------- -------- --------
Balance at March 31, 2001 $138 $84 $(1,831) $36,632 $(288) $36,344 $63,075 $97,810
Other comprehensive income:
Cumulative effect at April 1, 2001 $(352) (352)
Net income 3,853 3,853
Other comprehensive income:
SFAS No. 133 adjustment for the quarter 9 9
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3,862
Exercise of stock options 82 82 82
Vesting of non-qualilfied stock 519 519 519
options
Note receivable from shareholder 26 26 26
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Balance at June 30, 2001 $138 $84 $(1,831) $37,233 $(262) $36,971 $66,928 $(343) $101,947
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These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 2001.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED JUNE 30,
2001 2000
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(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 3,853 $ 3,447
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Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 3,180 3,282
Net change in deferred income taxes (517) -
Gain on disposal of property, plant and equipment (3) (53)
Increase in trade receivables (172) (196)
Increase in inventories (3) (978)
Decrease (increase) in other current assets 127 (1,040)
Decrease in other noncurrent assets 56 223
Increase in trade payables 4,737 3,301
Increase in accrued expenses 277 575
Increase in federal and state income taxes payable 811 2,140
Increase (decrease) in other long-term liabilities 767 (491)
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Total adjustments 9,260 6,763
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Net cash provided by operating activities 13,113 10,210
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Cash flows from investing activities:
Capital expenditures (2,657) (2,473)
Proceeds from the disposal of property, plant and equipment 26 633
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Net cash used for investing activities (2,631) (1,840)
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Cash flows from financing activities:
Proceeds from borrowings 20,700 24,000
Principal payments on long-term debt and capital
lease obligations (30,993) (31,464)
Repurchase of common stock (208)
Exercise of stock options 82
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Net cash used for financing activities (10,211) (7,672)
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Increase in cash 271 698
Cash at beginning of period 751 507
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Cash at June 30 $ 1,022 $ 1,205
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These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 28, 2001.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Derivative Financial Instruments
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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. The Company
adopted this standard effective April 1, 2001. The adoption of SFAS No. 133 did
not materially affect the Company's results of operations or financial position.
The notional amount of derivative financial instruments, which
consisted solely of interest rate swaps used to minimize the risk and/or costs
associated with changes in interest rates, was approximately $42 million at June
30, 2001. At that date, swap maturities ranged from November 2002 through
October 2005. These swap contracts require the Company to pay fixed-rates of
interest ranging from 5.21% to 7.15%, and receive variable-rates of interest
based on the 30 day LIBOR rate (plus a spread of 80 basis points in the case of
the 7.15% fixed rate contract).
At June 30, 2001, the fair value of the contracts is recorded as other
comprehensive income in the Statement of Changes in Common Shareholders' Equity.
Note 2 - Stock Repurchase
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In November 1999, the Board of Directors approved a share repurchase
program initially authorizing the Company to purchase up to 300,000 shares of
its common stock at market prices. In May 2000, the Board of Directors approved
an increase of 120,000 shares, bringing the total authorization to 420,000
shares. The amount and timing of any purchase will depend upon a number of
factors, including the price and availability of the Company's shares and
general market conditions. The Company's purchases of common stock are recorded
as "Treasury Stock" and result in a reduction of "Shareholders' equity". As of
June 30, 2001, the Company had purchased 216,800 shares.
Note 3 - Inventories
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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 $77,000 and $47,000 higher at June 30, 2001 and
March 31, 2001, respectively. The FIFO value of inventory approximates the
current replacement cost.
Note 4 - Cash and Equivalents
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The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash equivalents of $1,022,000 at
June 30, 2001 and $751,000 at March 31, 2001 include money market accounts which
have maturities of three months or less.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Supplemental Disclosure of Cash Flow Information
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The following transactions represent noncash investing and financing
activities during the period indicated:
QUARTER ENDED JUNE 30, 2001:
In connection with the sale of assets, the Company reduced fixed assets
by $10,000 and decreased other current liabilities by $10,000.
QUARTER ENDED JUNE 30, 2000:
In connection with the sale of assets, the Company reduced fixed assets
by $157,000 and decreased accrued long-term restructuring costs by $157,000.
CASH PAID DURING THE PERIOD:
2001 2000
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Interest, net $1,342,000 $1,570,000
Income taxes 1,255,000 138,000
Note 6 - Reclassifications
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Certain amounts in the Consolidated Statement of Cash Flows have been
reclassified to improve reporting and maintain comparability among the periods
presented.
Note 7 - Other
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These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report on Form
10-K (File No. 0-19357), filed by the Company with the Securities and Exchange
Commission on June 28, 2001.
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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,
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2001 2000
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Sales .......................................... 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ........................... 55.8 57.4
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Gross profit ................................... 44.2 42.6
Operating, selling, general and
administrative expenses ....................... 32.8 30.4
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Operating income ............................... 11.4 12.2
Interest expense - net ......................... 1.9 2.6
Other expense .................................. .3 .2
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Income before provision for income taxes ....... 9.2 9.4
Provision for income taxes ..................... 2.9 3.7
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Net income ..................................... 6.3% 5.7%
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FIRST QUARTER ENDED JUNE 30, 2001 COMPARED TO FIRST QUARTER ENDED JUNE 30, 2000
Sales were $61.4 million for the quarter ended June 30, 2001 compared
with $60.7 million in the quarter ended June 30, 2000. The sales increase of $.7
million, or 1.2%, was due to an increase in comparable store sales of .6%, and
an increase of $.8 million related to new stores. These increases were partially
offset by a decrease in sales related to stores closed during fiscal 2001 and
2002 of approximately $.4 million. At June 30, 2001 and 2000, the Company had
512 company-operated stores. During the quarter ended June 30, 2001, the Company
opened two stores and closed one store.
Gross profit for the quarter ended June 30, 2001 was $27.2 million or
44.2% of sales compared with $25.9 million or 42.6% of sales for the quarter
ended June 30, 2000. The increase in gross profit as a percentage of sales is
primarily attributable to a decrease in technician labor due to improved
productivity and control. Productivity, as measured by sales per man-hour,
improved 6.5% over the same quarter of last year. Material costs as a percent of
sales declined as a result of a shift in mix as well as selling price increases
during the quarter. Additionally, there was better leveraging of fixed costs
with the improvement in comparable store sales.
Operating, selling, general and administrative expenses for the quarter
ended June 30, 2001 increased by $1.7 million to $20.2 million from the quarter
ended June 30, 2000, and increased to 32.8% of sales compared to 30.4% in the
same quarter of the prior year. The increase in expense was primarily caused by
the recognition of $.7 million of expense related to performance-based options
granted to the Company's Chief Executive Officer in December 1998. This accounts
for 120 basis points of the increase. The other significant item accounting for
the increase in SG&A as a percent of sales was cooperative advertising credits.
There were less credits recorded in the first quarter of this year as compared
to the same quarter last year, accounting for 50 basis points of the increase.
This is primarily a timing issue related to the signing of new agreements and
the recognition of income to offset the costs of rolling out new products.
Increased utilities this year over last caused 40 basis points of the increase.
The balance of the increase was caused by additional store support costs in
areas such as data processing (in connection with the roll out of the new POS
system), equipment maintenance, insurance, etc.
Operating income for the quarter ended June 30, 2001 of approximately
$7.0 million decreased $.5 million and 6.1% from the quarter ended June 30,
2000, and decreased as a percentage of sales from 12.2% to 11.4% for the same
periods. Without the special charge associated with the aforementioned
performance-based options, operating income for the quarter ended June 30, 2001
would have been $7.7 million, or 3.7% above the prior year quarter.
Net interest expense for the quarter ended June 30, 2001 decreased by
approximately $.4 million compared to the comparable period in the prior year,
and decreased from 2.6% to 1.9% as a percentage of sales for the same periods.
The weighted average interest rate for the quarter ended June 30, 2001 was
approximately .9% lower than the rate for the quarter ended June 30, 2000. In
addition, the weighted average debt outstanding decreased by approximately $13.2
million, resulting in a decrease in expense between the two quarters.
The effective tax rate for the quarter ended June 30, 2001 was 31.5% of
pre-tax income as compared to 39.8% for the quarter ended June 30, 2000. The
Company recorded a one-time tax benefit of $.4 million in the quarter ended June
30, 2001, which reduced the tax rate by 640 basis points from the prior year
quarter, due to a reduction in the Company's effective tax. There has been a
reduction in the Company's overall effective state income tax rate because of
the Company's growth in lower-taxing states, especially in connection with the
fiscal year 1999 Speedy acquisition. This one-time adjustment reduces the
accrual for amounts provided in prior fiscal years. Additionally, the Company
expects this state rate reduction to continue for the entire fiscal year 2002,
and accordingly, has reduced the provision for taxes from 39.8% to 38.0% of
pre-tax income for fiscal 2002.
Net income for the quarter ended June 30, 2001 of $3.9 million
increased 11.8% over net income for the quarter ended June 30, 2000, due to the
factors discussed above.
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.
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CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
In fiscal year 2002, 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, 2001, the Company
spent $2.7 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 financing structure consists of a $25
million term loan (of which $13.2 million was outstanding at June 30, 2001), a
$75 million Revolving Credit facility (of which approximately $26.3 million was
outstanding at June 30, 2001), and synthetic lease (off-balance sheet) financing
for a significant portion of the Speedy real estate, totaling $35 million (of
which approximately $32.4 million was outstanding at June 30, 2001). 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. Principal payments totalling $11.8
million have been paid through June 30, 2001.
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.
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 $2.1 million, amortizable over 20 years, and
an eight year term loan with a balance of $.2 million.
Certain of the Company's long-term debt agreements require, among other
things, the maintenance of specified interest and rent coverage ratios and
amounts of tangible net worth. They also contain 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 29, 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141 and 142 ("SFAS 141 and SFAS
142"), "Business Combinations" and "Goodwill and Other Intangible Assets",
respectively. SFAS 141 is effective immediately and SFAS 142 is effective for
fiscal years beginning after December 15, 2001. The Company plans to adopt SFAS
No. 142 effective April 1, 2002. The adoption of SFAS Nos. 141 and 142 is not
expected to materially affect the Company's results of operations or financial
position.
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MONRO MUFFLER BRAKE, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
10.04a - Amendment to the Monro Muffler Brake, Inc.
Retirement Plan
11 - Statement of Computation of Per Share
Earnings
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 2001.
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SIGNATURES
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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 14, 2001 By /s/ Robert G. Gross
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Robert G. Gross
President and Chief Executive Officer
DATE: August 14, 2001 By /s/ Catherine D'Amico
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Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
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10.04a Amendment to the Monro Muffler Brake, Inc. Retirement Plan 15
11 Statement of Computation of Per Share Earnings 16
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