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 29, 2002.
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 585-647-6400
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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 25, 2002, 8,506,070 shares of the Registrant's Common Stock, par
value $.01 per share, were outstanding.
MONRO MUFFLER BRAKE, INC.
INDEX
Part I. Financial Information PAGE NO.
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Consolidated Balance Sheet at
June 29, 2002 and March 30, 2002 3
Consolidated Statement of Income for the quarter
ended June 29, 2002 and June 30, 2001 4
Consolidated Statement of Changes in
Shareholders' Equity for the quarter ended
June 29, 2002 5
Consolidated Statement of Cash Flows for the
quarter ended June 29, 2002 and June 30, 2001 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
-2-
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 29, MARCH 30,
2002 2002
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $419
at June 29, 2002 and $442 at March 30, 2002 $ 419 $ 442
Trade receivables 1,630 1,226
Inventories 48,084 44,821
Deferred income tax asset 664 664
Other current assets 7,677 6,626
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Total current assets 58,474 53,779
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Property, plant and equipment 212,345 208,768
Less - Accumulated depreciation and amortization (84,343) (81,557)
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Net property, plant and equipment 128,002 127,211
Other noncurrent assets 13,422 8,309
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Total assets $199,898 $189,299
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $10,813 $10,813
Trade payables 15,924 12,739
Federal and state income taxes payable 3,567 608
Accrued interest 186 219
Accrued payroll, payroll taxes and other payroll benefits 5,676 5,326
Accrued insurance 1,827 986
Other current liabilities 8,897 8,952
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Total current liabilities 46,890 39,643
Long-term debt 30,225 34,123
Other long-term liabilities 4,066 3,078
Deferred income tax liability 2,080 2,671
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Total liabilities 83,261 79,515
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Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.216 conversion
value; 150,000 shares authorized; 65,000 shares and 91,727 shares issued
and outstanding at June 29, 2002 and March 30, 2002, respectively 97 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 8,721,130
shares issued at June 29, 2002; 8,435,324 shares issued at March 30, 2002 87 84
Treasury Stock, 216,800 shares at June 29, 2002 and March 30, 2002, at cost (1,831) (1,831)
Additional paid-in capital 40,925 37,750
Other comprehensive income (861) (666)
Retained earnings 78,220 74,309
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Total shareholders' equity 116,637 109,784
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Total liabilities and shareholders' equity $199,898 $189,299
=============== ==============
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, 2002.
-3-
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
QUARTER ENDED FISCAL JUNE
2002 2001
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(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Sales $67,908 $61,393
Cost of sales, including distribution and occupancy costs 38,013 34,238
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Gross profit 29,895 27,155
Operating, selling, general and administrative expenses 22,972 20,179
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Operating income 6,923 6,976
Interest expense, net of interest income for the quarter of $15
in 2002 and $8 in 2001 766 1,158
Other (income) expense, net (151) 190
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Income before provision for income taxes 6,308 5,628
Provision for income taxes 2,397 1,775
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Net income $3,911 $3,853
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Earnings per share:
Basic $ .47 $ .47
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Diluted $ .42 $ .43
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Weighted average number of shares of Common Stock and Common Stock equivalents
used in computing earnings per share:
Basic 8,298 8,159
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Diluted 9,389 8,985
============== ==============
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, 2002.
-4-
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
LESS:
NOTE NET ACCUMULATED
ADDITIONAL RECEIVABLE ADDITIONAL OTHER
PREFERRED COMMON TREASURY PAID-IN FROM PAID-IN RETAINED COMPREHENSIVE
STOCK STOCK STOCK CAPITAL SHAREHOLDER CAPITAL EARNINGS INCOME TOTAL
----- ----- ----- ------- ----------- ------- -------- ------ -----
Balance at March 30, 2002 $ 138 $ 84 $(1,831) $37,933 $ (183) $37,750 $74,309 $110,450
Other comprehensive income:
Cumulative effect at
March 30, 2002 $ (666) (666)
Net income 3,911 3,911
Other comprehensive income:
SFAS No. 133 adjustment
for the quarter
ended June 29. 2002 (195) (195)
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Total comprehensive income 3,716
Conversion of Class C
convertible preferred
stock into common stock (41) 3 38 38 --
Exercise of stock options 1,299 1,299 1,299
Vesting of non-qualified
stock options 1,811 1,811 1,811
Note receivable from shareholder 27 27 27
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Balance at June 29, 2002 $ 97 $ 87 $(1,831) $41,081 $ (156) $40,925 $ 78,220 $ (861) $116,637
====== ==== ======= ======= ====== ======= ========= ====== ========
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, 2002.
-5-
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED FISCAL JUNE
2002 2001
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(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 3,911 $ 3,853
----------------- -----------------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 3,162 3,180
Non-qualified stock option expense 1,603 727
Net change in deferred income taxes (504) (517)
Gain on disposal of property, plant and equipment (33) (3)
Change in assets and liabilities net of effects from purchase of Kimmel
Automotive, Inc.:
Increase in trade receivables (108) (172)
Increase in inventories (1,237) (3)
Decrease in other current assets 36 127
Decrease in other noncurrent assets 54 56
Increase in trade payables 2,151 4,737
(Decrease) increase in accrued expenses (276) 277
Increase in federal and state income taxes payable 2,917 811
(Decrease) increase in other long-term liabilities (730) 40
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Total adjustments 7,035 9,260
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Net cash provided by operating activities 10,946 13,113
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Cash flows from investing activities:
Payment for purchase of Kimmel Automotive, Inc., net
of cash acquired (6,220)
Capital expenditures (2,303) (2,657)
Proceeds from the disposal of property, plant and equipment 152 26
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Net cash used for investing activities (8,371) (2,631)
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Cash flows from financing activities:
Proceeds from borrowings 33,500 20,700
Principal payments on long-term debt and capital
lease obligations (37,397) (30,993)
Exercise of stock options 1,299 82
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Net cash used for financing activities (2,598) (10,211)
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(Decrease) increase in cash (23) 271
Cash at beginning of period 442 751
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Cash at end of period $ 419 $ 1,022
================= =================
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, 2002.
-6-
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACQUISITION OF KIMMEL AUTOMOTIVE, INC.
Effective April 1, 2002, the Company purchased all of the outstanding
common stock, as well as a portion of the preferred stock, of Kimmel Automotive,
Inc. ("Kimmel"), based in Baltimore, Maryland. Kimmel Automotive operated 34
tire and automotive repair stores in Maryland and Virginia, as well as Wholesale
and Truck Tire Divisions (including two commercial stores). The purchase price
for the assets of the company was approximately $6 million in cash, plus the
assumption of approximately $5 million of liabilities. The acquisition was
financed through the Company's existing bank credit facility.
Although the 15 Kimmel Tire and Automotive Centers in Baltimore and 19
Tread Quarters stores in Virginia are in the same general markets in which Monro
competes, Monro and Kimmel are mainly situated in non-overlapping areas. There
are no plans to close any of the Kimmel stores, which will continue to operate
under the current brand names.
In June 2002, the Company purchased the remaining non-voting preferred
stock, with a face value of $1.6 million, for approximately $.7 million.
Additionally, effective June 29, 2002, the Company sold Kimmel's Truck Tire
division, including its retread plant and two commercial stores, for
approximately $.4 million in cash and $.5 million in notes receivable. The sale
of these assets effectively reduced the net purchase price of the retail store
operations.
NOTE 2 - CHANGE IN FISCAL YEAR
During the fiscal year ended March 31, 2001, the Board of Directors of
the Company elected to change the Company's fiscal year end from March 31 to the
last Saturday in March. This change was effective with fiscal year 2002 which
began on April 1, 2001.
The following are the dates represented by each fiscal period:
"Quarter Ended Fiscal June 2002": March 31, 2002 - June 29, 2002 (13 weeks)
"Quarter Ended Fiscal June 2001": April 1, 2001 - June 30, 2001 (13 weeks)
NOTE 3 - INTANGIBLE ASSETS
For acquisitions completed on or before June 30, 2001, the excess of
the cost over the fair value of net assets of purchased businesses is recorded
as goodwill and until March 30, 2002, was amortized on a straight-line basis
over periods of 20 years or less. The cost of other acquired intangibles is
amortized on a straight-line basis over their estimated useful lives.
The Company has adopted Statement of Financial Accounting Standards No.
141 ("SFAS No. 141"), "Business Combinations". All business combinations
consummated after July 1, 2001 are accounted for in accordance with the new
pronouncement. Goodwill relating to acquisitions completed subsequent to June
30, 2001 is not amortized and is subject to impairment testing. In addition, in
accordance with Statement of Financial Accounting Standards No. 142 ("SFAS No.
142"), "Goodwill and Other Intangible Assets", effective March 31, 2002, the
Company is no longer required to amortize goodwill and certain other intangible
assets relating to acquisitions completed prior to July 1, 2001.
The Company expects to complete the transitional impairment test for
goodwill by the end of the second fiscal quarter. The Company is currently
assessing the financial impact of this provision of SFAS No. 142 on its
financial statements. However, it does not believe that this standard will have
a material impact on the Company's financial position or results of operations.
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
Effective April 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities", as amended by Statement of Financial
Accounting Standards No. 138 ("SFAS 138"),"Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS 133/138 requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether the derivative is designated as
part of a hedge transaction, and if it is, depending on the type of hedge
transaction.
-7-
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
29, 2002. 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 29, 2002, the fair value of the contracts, net of tax, is
recorded as a component of other comprehensive income in the Statement of
Changes in Shareholders' Equity.
NOTE 5 - CASH AND EQUIVALENTS
The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash equivalents of $419,000 at
June 29, 2002 and $442,000 at March 30, 2002 include money market accounts which
have maturities of three months or less.
NOTE 6 - INVENTORIES
The Company's inventories consist of automotive parts and tires.
NOTE 7 - EARNINGS PER SHARE
The computation of diluted earnings per common share for the fiscal
quarter ended June 2002 includes the effect of assumed exercise of all
outstanding options as the exercise price of these options were less than their
average market value. The computation for the fiscal quarter ended June 2001
excludes the effect of assumed exercise of approximately 400,000 stock options
as the exercise price of these options was greater than their average market
value, resulting in an anti-dilutive effect on diluted earnings per share.
NOTE 8 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following transactions represent noncash investing and financing
activities during the period indicated:
QUARTER ENDED JUNE 29, 2002:
In connection with the sale of assets, the Company reduced fixed assets
by $15,000 and decreased other current liabilities by $15,000.
In connection with recording the value of the Company's swap contracts,
other comprehensive income decreased by $861,000, other current liabilities
increased by $111,000, other long-term liabilities increased by $1,277,000 and
the deferred income tax liability was reduced by $527,000.
In connection with the acquisition of Kimmel Automotive, Inc. (Note 1),
liabilities were assumed as follows:
Fair value of assets acquired $11,000,000
Cash paid, net of cash acquired 6,000,000
-----------
Liabilities assumed $ 5,000,000
===========
Cash paid has not been reduced by proceeds from the sale of Kimmel
Truck Tire, as they were not received until the second quarter of fiscal 2003.
-8-
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
In connection with recording the value of the Company's swap contracts,
other comprehensive income decreased $343,000, other long-term liabilities
increased by $570,000 and the deferred income tax liability was reduced by
$227,000.
CASH PAID DURING THE PERIOD:
2002 2001
---- ----
Interest, net $ 682,000 $1,342,000
Income taxes $ 24,000 1,255,000
NOTE 9 - RECLASSIFICATIONS
Certain amounts in the Consolidated Statement of Cash Flows have been
reclassified to improve reporting and maintain comparability among the periods
presented.
NOTE 10 - OTHER
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report on Form
10-K (File No. 0-19357), filed by the Company with the Securities and Exchange
Commission on June 28, 2002.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The statements contained in this Form 10-Q which are not historical
facts, including (without limitation) statements made in the Management's
Discussion and Analysis of Financial Condition and Results of Operations, may
contain statements of future expectations and other forward-looking statements
that are subject to important factors that could cause actual results to differ
materially from those in the forward-looking statements, including (without
limitation) product demand, the effect of economic conditions, the impact of
competitive services and pricing, product development, parts supply restraints
or difficulties, industry regulation, the continued availability of capital
resources and financing and other risks set forth or incorporated elsewhere
herein and in the Company's Securities and Exchange Commission filings.
The following table sets forth income statement data of Monro Muffler
Brake, Inc. ("Monro" or the "Company") expressed as a percentage of sales for
the fiscal periods indicated.
QUARTER ENDED FISCAL JUNE
2002 2001
---- ----
Sales..................................................... 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs...................................... 56.0 55.8
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Gross profit.............................................. 44.0 44.2
Operating, selling, general and
administrative expenses.................................. 33.8 32.8
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Operating income........................................... 10.2 11.4
Interest expense - net..................................... 1.1 1.9
Other expense.............................................. (.2) .3
----- -----
Income before provision for income taxes................... 9.3 9.2
Provision for income taxes................................. 3.5 2.9
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Net income................................................. 5.8% 6.3%
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-10-
FIRST QUARTER ENDED JUNE 29, 2002 COMPARED TO FIRST QUARTER ENDED JUNE 30, 2001
Effective April 1, 2002, the Company purchased all of the outstanding
common stock, as well as a portion of the preferred stock, of Kimmel Automotive,
Inc. ("Kimmel") based in Baltimore, Maryland. Kimmel Automotive operates 34 tire
and automotive repair stores in Maryland and Virginia, as well as Wholesale and
Truck Tire Divisions (including two commercial stores). Effective June 29, 2002,
the Company sold the Truck Tire division. The results of operations of Kimmel
since its acquisition are included in the consolidated results of the Company
for the quarter ended June 29, 2002. The acquired operations were accretive to
earnings for the quarter ended June 29, 2002, and are expected to be accretive
for the entire fiscal year 2003.
Sales were $67.9 million for the quarter ended June 29, 2002 compared
with $61.4 million in the quarter ended June 30, 2001. The sales increase of
$6.5 million, or 10.6%, was due to an increase in sales from new stores of $6.7
million, including $6.3 from the acquired Kimmel stores. Comparable store sales
declined .1% for the quarter. However, the Company experienced increasingly
better comparable store sales as the quarter progressed, with April showing a
decrease of 4.8%, May: an increase of .3%, and June: an increase of 4.1%.
At June 29, 2002 the Company had 548 company-operated stores compared
with 512 stores at June 30, 2001. During the quarter ended June 29, 2002, the
Company acquired or opened 37 stores and closed or sold three stores.
Gross profit for the quarter ended June 29, 2002 was $29.9 million or
44.0% of sales compared with $27.2 million or 44.2% of sales for the quarter
ended June 30, 2001. The decrease in gross profit as a percentage of sales is
due to the inclusion of Kimmel in the cost of sales numbers. Due to their mix,
which is heavily weighted toward tires, their material costs, including outside
purchases, are approximately 150 basis points higher than historical Monro's.
Separately, Kimmel's gross profit was 34.4% for the quarter, and Monro's was
45.0% as compared to 44.2% last year.
On a stand-alone basis, Monro's gross profit improved by 80 basis
points over the prior year due to a reduction in material costs and technician
labor. Material costs declined due to improved vendor pricing, selling price
increases during the quarter, and a reduction in outside purchases as a result
of adding some new SKUs to inventory. Productivity, as measured by sales per
man-hour, improved 3.7% over the same quarter of last year. Since the Company
formally began tracking this statistic over the last six years, productivity has
increased every year, and since the first quarter of fiscal 1998, is up 35%.
Operating, selling, general and administrative ("OSG&A") expenses for
the quarter ended June 29, 2002 increased by $2.8 million to $23.0 million from
the quarter ended June 30, 2001, and increased to 33.8% of sales compared to
32.8% in the same quarter of the prior year. The increase in expense was
primarily caused by the recognition of approximately $1.6 million of expense
related to performance-based options granted to the Company's Chief Executive
Officer in December 1998. This non-cash charge increased OSG&A as a percent of
sales by 240 basis points. A similar, but smaller charge of $.7 million occurred
in the same quarter of last year. Without these charges in each year, OSG&A
would have been 31.5% of sales this year as compared to 31.7% of sales in the
prior year quarter.
The Company also experienced a reduction in utility costs in the first
quarter of fiscal 2003 as compared to the first quarter of fiscal 2002. Gas
prices were just beginning to decrease in the spring of last year, and there
were some large bills which were expensed in the April and early May time frame
last year.
The Company expects to see further declines in the OSG&A lines in
future quarters as it completes the consolidation of the Kimmel accounting,
human resources and other support operations into its Rochester headquarters
from Baltimore. This transition should be completed by the end of the second
quarter of this year, now that all of the Kimmel stores are on the Monro POS
system.
Operating income for the quarter ended June 29, 2002 of approximately
$6.9 million decreased approximately $.1 million and .7% from the quarter ended
June 30, 2001, and decreased as a percentage of sales from 11.4% to 10.2% for
the same period. Without the special charge associated with the aforementioned
performance-based options in the first quarters of this and last year, operating
income for the quarter ended June 29, 2002 would have been at a record $8.5
million, or 12.6% of sales, as compared to $7.7 million or 12.5% of sales for
the prior year quarter.
-11-
Net interest expense for the quarter ended June 29, 2002 decreased by
approximately $.4 million compared to the comparable period in the prior year,
and decreased from 1.9% to 1.1% as a percentage of sales for the same period.
The weighted average interest rate for the quarter ended June 29, 2002 was
approximately 1.6% lower than the rate for the quarter ended June 30, 2001. In
addition, the weighted average debt outstanding decreased by approximately $10.8
million, resulting in a decrease in expense between the two quarters.
Due to its performance for the year ended March 2002, the Company
qualified for a 25 basis point reduction in its interest rate spread over LIBOR
which should remain in effect for the remainder of FY03. This equates to an
annualized interest rate savings of approximately $70,000 at the Company's
current debt levels.
Other income increased by approximately $.3 million for the quarter
ended June 29, 2002 as compared to the prior year. The reason for the increase
is primarily due to a gain on the sale of fixed assets on Monro's books of
approximately $90,000 as compared to a loss of $40,000 last year, and a net
decrease in amortization expense of approximately $60,000. In addition, the
Kimmel Truck Tire Division earned approximately $140,000 pre-tax in the quarter,
and under the new accounting rule, Statement of Financial Accounting Standards
No. 144, its results are collapsed to one line on the income statement, recorded
here.
The effective tax rate for the quarter ended June 29, 2002 was 38% of
pre-tax income as compared to 31.5% for the quarter ended June 30, 2001. 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 state tax rate. This
reduction occurred 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.
Net income for the quarter ended June 29, 2002 of $3.9 million was
essentially flat as compared to net income for the quarter ended June 30, 2001,
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.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
In addition to the funding of the Kimmel acquisition, the Company's
primary capital requirement in fiscal 2003 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 29, 2002, the Company spent $2.3 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 $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 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 $5.7 million was outstanding at June 29, 2002), a $75 million
Revolving Credit facility (of which approximately $26.2 million was outstanding
at June 29, 2002), 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 29, 2002). 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.
-12-
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 $19.3
million have been paid through June 29, 2002.
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 $2.0 million, amortizable over 20 years, and
an eight year term loan with a balance of $.1 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
In October 2001, the FASB issued Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This standard harmonizes the
accounting for impaired assets and resolves some of the implementation issues of
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". It retains the fundamental provisions of SFAS 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale. It also retains the
basic provisions for presenting discontinued operations in the income statement
but broadens the scope to include a component of an entity rather than a segment
of a business. The Company adopted this standard effective March 31, 2002. This
pronouncement did not have a material impact on the Company's financial
position, results of operations or cash flows.
In June 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). SFAS 146 addresses the financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when it is incurred and measured
initially as fair value. The new guidance will impact the timing of recognition
and the initial measurement of the amount of liabilities the Company recognizes
in connection with exit or disposal activities initiated after December 31,
2002, the effective date of SFAS 146.
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MONRO MUFFLER BRAKE, INC.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11 - Statement of Computation of Per Share
Earnings
99.1 - Certification Pursuant to 18 U.S.C.
Section 1350
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 29, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONRO MUFFLER BRAKE, INC.
DATE: August 13, 2002 By /s/ Robert G. Gross
-------------------------------------------
Robert G. Gross
President and Chief Executive Officer
DATE: August 13, 2002 By /s/ Catherine D'Amico
-------------------------------------------
Catherine D'Amico
Executive Vice President-Finance, Treasurer
and Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
11 Statement of Computation of Per Share Earnings 17
99.1 Certification Pursuant to 18 U.S.C. Section 1350 18
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