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, 1996.
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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 ___________
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
- ----------------------------------------- -----
(Address of principal executive offices) (Zipcode)
Registrant's telephone number, including area code 716-647-6400
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of October 31, 1996, 7,470,326 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding after giving effect to the five percent
stock dividend, paid August 5, 1996, to stockholders of record as of June 21,
1996.
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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
September 30, 1996 and March 31, 1996 3
Consolidated Statement of Income for the quarter
and six months ended September 30, 1996 and 1995 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the six months ended September 30, 1996 5
Consolidated Statement of Cash Flows for the
six months ended September 30, 1996 and 1995 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 4. Submission of Matters to a Vote of Security Holders 12
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)
SEPTEMBER 30, MARCH 31,
1996 1996
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $5,551
at September 30, 1996 and $5,280 at March 31, 1996 $ 5,551 $ 5,280
Trade receivables 978 1,230
Inventories, at LIFO cost 18,406 16,538
Federal and state income taxes receivable 0 18
Deferred income tax asset 1,275 1,275
Other current assets 2,251 2,206
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Total current assets 28,461 26,547
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Property, plant and equipment 137,942 126,248
Less - Accumulated depreciation and amortization (39,471) (35,969)
--------------- --------------
Net property, plant and equipment 98,471 90,279
Other noncurrent assets 3,108 3,229
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Total assets $130,040 $120,055
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,190 $ 3,165
Trade payables 6,822 6,897
Federal and state income taxes payable 1,122 0
Accrued expenses and other current liabilities
Accrued interest 271 345
Accrued payroll, payroll taxes and other payroll benefits 3,702 2,836
Accrued insurance 1,736 1,552
Other current liabilities 2,759 2,861
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Total current liabilities 19,602 17,656
Long-term debt 45,862 45,459
Deferred income tax liability 1,053 1,053
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Total liabilities 66,517 64,168
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Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.239 and $.251
conversion value at September 30, 1996 and March 31, 1996, respectively;
150,000 shares authorized; 91,727 shares issued and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 7,468,010
shares and 6,914,835 shares issued and outstanding at September 30, 1996
and March 31, 1996, respectively 75 69
Additional paid-in capital 22,158 17,061
Retained earnings 41,152 38,619
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Total shareholders' equity 63,523 55,887
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Total liabilities and shareholders' equity $130,040 $120,055
=============== ==============
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, 1996.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
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1996 1995 1996 1995
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(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales $ 37,799 $ 31,217 $ 75,544 $ 60,162
Cost of sales, including distribution and
occupancy costs (a) 20,291 17,004 40,957 32,869
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Gross profit 17,508 14,213 34,587 27,293
Operating, selling, general and
administrative expenses 10,386 8,528 21,031 17,391
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Operating income 7,122 5,685 13,556 9,902
Interest expense, net of interest income for
the quarter of $3 in 1996 and $12 in
1995 (a) 851 573 1,665 1,239
Other expense, net 55 5 71 134
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Income before provision for income taxes 6,216 5,107 11,820 8,529
Provision for income taxes 2,474 2,043 4,699 3,390
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Net income $ 3,742 $ 3,064 $ 7,121 $ 5,139
============= ============= ============= =============
Earnings per share $ .46 $ .38 $ .87 $ .64
============= ============= ============= =============
Weighted average number of shares of common stock
and common stock equivalents
used in computing earnings per share 8,202 8,072 8,168 8,081
============= ============= ============= =============
<FN>
(a) Amounts paid under operating and capital leases with affiliated parties
totaled $500 and $381 for the quarters ended September 30, 1996 and 1995,
respectively, and $996 and $883 for the six months ended September 30, 1996 and
1995, 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 28, 1996.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(UNAUDITED)
COMMON STOCK ADDITIONAL
------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
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(AMOUNTS IN THOUSANDS)
Balance at March 31, 1996 6,915 $69 $17,061 $38,619
Net income 7,121
Exercise of stock options 200 2 513
5% stock dividend 353 4 4,584 (4,588)
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Balance at September 30, 1996 7,468 $75 $22,158 $41,152
=========== =========== ========== ==============
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, 1996.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
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1996 1995
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(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 7,121 $ 5,139
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Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 3,958 3,182
Gain on disposal of property, plant and equipment (10) (17)
Decrease (increase) in trade receivables 252 (45)
Increase in inventories (1,868) (1,782)
(Increase) decrease in other current assets (45) 36
Increase in other noncurrent assets (21) (722)
(Decrease) increase in trade payables (75) 3,522
Increase in accrued expenses 874 114
Increase in federal and state income taxes payable 1,140 908
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Total adjustments 4,205 5,196
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Net cash provided by operating activities 11,326 10,335
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Cash flows from investing activities:
Capital expenditures (11,971) (14,141)
Proceeds from the disposal of property, plant and equipment 40 44
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Net cash used for investing activities (11,931) (14,097)
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Cash flows from financing activities:
Proceeds from the sale of common stock 515
Proceeds from borrowings 26,615 10,000
Principal payments on long-term debt and capital
lease obligations (26,254) (6,374)
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Net cash used for financing activities 876 3,626
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Increase (decrease) in cash 271 (136)
Cash at beginning of year 5,280 4,855
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Cash at September 30 $ 5,551 $ 4,719
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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, 1996.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Stock Dividend
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On January 26, 1996, the Board of Directors declared a five percent
stock dividend, paid August 5, 1996, to stockholders of record as of June 21,
1996. The consolidated financial statements, including all share information
therein, have been restated to reflect this dividend.
Additionally, in accordance with antidilution provisions of the Class C
Convertible Preferred Stock, the conversion value of the preferred stock was
restated from $.251 per share to $.239 per share.
Shares reserved for issuance to officers and key employees under
outstanding options and under the 1984, 1987 and 1989 Incentive Stock Option
Plans have also been retroactively adjusted for the five percent stock dividend.
Note 2 - Inventories
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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 $758,000 and $646,000 higher at September 30, 1996
and March 31, 1996, 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 $5,551,000 at
September 30, 1996 and $5,280,000 at March 31, 1996 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, 1996:
Capital lease obligations of $162,000 were incurred under various lease
obligations.
In connection with the termination of a capital lease, the Company
reduced debt and fixed assets by $112,000.
In connection with the declaration of a five percent stock dividend
(see Note 1), the Company increased common stock and additional paid-in capital
by $4,000 and $4,584,000, respectively, and decreased retained earnings by
$4,588,000.
SIX MONTHS ENDED SEPTEMBER 30, 1995:
In connection with the declaration of a five percent stock dividend,
the Company increased common stock and additional paid-in capital by $4,000 and
$5,998,000, respectively, and decreased retained earnings by $6,002,000.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH PAID DURING THE PERIOD:
SIX MONTHS ENDED
SEPTEMBER 30,
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1996 1995
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Interest, net $1,897,000 $1,463,000
Income taxes 3,560,000 2,482,000
Note 5 - 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, 1996.
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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, 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.
Quarter ended September 30, Six Months ended September 30,
--------------------------- ------------------------------
1996 1995 1996 1995
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Sales.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs........................... 53.7 54.5 54.2 54.6
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Gross profit................................... 46.3 45.5 45.8 45.4
Operating, selling, general and
administrative expenses....................... 27.5 27.3 27.9 28.9
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Operating income............................... 18.8 18.2 17.9 16.5
Interest expense - net......................... 2.3 1.8 2.2 2.1
Other expenses - net........................... .1 --- .1 .2
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Income before provision for income taxes. 16.4 16.4 15.6 14.2
Provision for income taxes..................... 6.5 6.6 6.2 5.7
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Net income..................................... 9.9% 9.8% 9.4% 8.5%
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SECOND QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
SECOND QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1995
Sales were $37.8 million for the quarter ended September 30, 1996
compared with $31.2 million in the quarter ended September 30, 1995. The sales
increase of $6.6 million, or 21.1%, was due to an increase in sales of
approximately $4.3 million for stores opened since the beginning of fiscal 1996,
and an increase in comparable store sales of 8.5%. Sales for the six months
ended September 30, 1996 were $75.5 million compared with $60.2 million for the
comparable period of the prior year. The sales increase of $15.4 million, or
25.6%, was due to a comparable store sales increase of 11.6% and an increase in
sales of approximately $9.1 million for stores opened since the beginning of
fiscal 1996. At September 30, 1996, the Company had 293 stores in operation
compared to 257 at September 30, 1995.
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Management believes that year-to-date sales increases were driven, in
part, by pent up demand from previously deferred repairs, combined with a number
of industry factors. These include an increase in the average age of cars, a
decrease in the number of service bays, an increase in the number of registered
vehicles, and a shift in the consumer mentality from "do-it-yourself" to
"do-it-for-me" caused by the increased complexity of cars.
Gross profit for the quarter ended September 30, 1996 was $17.5
million, or 46.3% of sales, compared with $14.2 million, or 45.5% of sales, for
the quarter ended September 30, 1995. Gross profit for the six months ended
September 30, 1996 was $34.6 million, or 45.8% of sales, compared to $27.3
million, or 45.4% of sales, for the six months ended September 30, 1995. The
increase in gross profit as a percentage of sales relates primarily to increases
in selling prices. Additionally, certain material costs were reduced as a result
of renegotiated pricing with various vendors.
Operating, selling, general and administrative expenses (OSG&A) for the
quarter ended September 30, 1996 increased by $1.9 million to $10.4 million over
the quarter ended September 30, 1995, and increased as a percentage of sales
from 27.3% to 27.5%. For the six months ended September 30, 1996, these expenses
increased by $3.6 million to $21.0 million over the comparable period in the
prior year, and were 27.9% of sales compared to 28.9% in the prior year. The
increase in total dollars expended is primarily attributable to increased store
supervision and increased store support expenses related to the Company's
expansion. For the quarter ended September 30, 1996, the increase in expense as
a percentage of sales relates principally to the reinstatement of accruals for
bonus and profit sharing programs which were eliminated in the prior year due to
decreased earnings. For the six months ended September 30, 1996, these expenses
declined as a percentage of sales largely due to management's continued focus on
discretionary spending and controlling costs.
Net interest expense for the quarter ended September 30, 1996,
increased by approximately $.3 million compared to the comparable period in the
prior year, and increased from 1.8% to 2.3% as a percentage of sales for the
same periods. Net interest expense for the six months ended September 30, 1996,
increased by approximately $.4 million compared to the comparable period in the
prior year, and rose from 2.1% to 2.2% as a percentage of sales for the same
periods. The increase in expense is largely due to an increase in the weighted
average debt outstanding for the quarter and six months ended September 30, 1996
as compared to the same periods in the prior year.
Net income for the quarter ended September 30, 1996 of approximately
$3.7 million increased 22.1% over net income for the quarter ended September 30,
1995. For the six months ended September 30, 1996, net income of approximately
$7.1 million increased 38.6% over the prior year, 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
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 six months ended September 30, 1996, the Company spent
$12.1 million for equipment and new store construction. Funds were provided
primarily by cash flow from operations. Management believes that the Company has
sufficient resources available (including cash and equivalents, net cash flow
from operations and bank financing) to expand its business as currently planned
for the next several years.
LIQUIDITY
The Company has a line of credit from a commercial bank of $7.5
million. No amounts were outstanding under this short-term borrowing facility at
September 30, 1996.
Through February 7, 1996, the Company had a real estate line of credit
of $25 million to be used for placement of mortgages. The Company had utilized
$13.2 million of the real estate line of credit for permanent mortgages as of
that date.
On February 7, 1996, the Company finalized an agreement for a $30
million revolving credit facility with two banks. The unsecured facility has a
three year term and bears interest at the prime rate or other rate options based
on company performance.
In October 1996, the Company completed the modification of 33 of its
existing mortgages, reducing the interest rates by 25 to 60 basis points each.
The Company has outstanding $5.5 million in principal amount of its
10.65% Senior Notes due 1999 (the "Senior Notes") with Massachusetts Mutual Life
Insurance Company pursuant to a Senior Note Agreement. The third of six equal
annual installments of principal in the amount of $1.8 million was paid on April
1, 1996.
During September 1995, the Company completed financing for its new
office/warehouse facility via a 10 year mortgage in the amount of $2.9 million,
amortizable over 20 years, and an eight year term loan in the amount of $.7
million.
Certain of the Company's long-term debt agreements require, among other
things, the maintenance of specified current ratios, interest and rent coverage
ratios and amounts of tangible net worth, and also contain restrictions on
dividend payments and capital expenditures.
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MONRO MUFFLER BRAKE, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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The 1996 Annual Meeting of Shareholders of the Company (the
"1996 Meeting") was held on August 7, 1996. At the 1996 Meeting, the Company's
common shareholders elected management's nominees, Burton S. August, Robert W.
August, Donald Glickman, Lionel B. Spiro and W. Gary Wood to Class 1 of the
Board of Directors, to serve until the election and qualification of their
respective successors at the 1998 Annual Meeting of Shareholders. Such nominees
for director received the following votes:
Name Votes For Votes Withheld
---- --------- --------------
Burton S. August 6,656,453 38,384
Robert W. August 6,656,542 38,295
Donald Glickman 6,689,889 4,948
Lionel B. Spiro 6,693,897 947
W. Gary Wood 6,693,897 947
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 5, 1996.
In addition, Charles J. August, Frederick M. Danziger, Lawrence
C. Day, Jack M. Gallagher and Peter J. Solomon will continue as Class 2
directors until the election and qualification of their respective successors at
the 1997 Annual Meeting of Shareholders.
Also approved by the following votes were:
(i) a proposal to ratify the re-appointment of Price Waterhouse
LLP as the independent auditors of the Company for the fiscal year ending March
31, 1997 (6,692,465 shares in favor, 868 shares against, 1,504 shares abstaining
and zero broker non-votes).
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
10 - Mortgage Modification Agreement, dated October 11,
1996 between the Company and Chase Manhattan Bank,
N.A., in connection with each of 33 mortgages for Store
Nos. 78, 86, 87, 90, 137, 140, 143, 146, 160, 162, 164,
168, 169, 172, 177, 179, 183, 184, 185, 186, 190, 191,
192, 193, 205, 207, 210, 213, 216, 226, 229, 230 and
236.
11 - Statement of Computation of Per Share Earnings.
27 - Financial Data Schedule
b. Reports on Form 8-K
The Company was not required to file reports on Form 8-K
during the quarter ended September 30, 1996.
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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: November 14, 1996 By /s/ Lawrence C. Day
-----------------------------
Lawrence C. Day
President and Chief Executive Officer
DATE: November 14, 1996 By /s/ Catherine D'Amico
-------------------------------
Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
10 Mortgage Modification Agreement, dated October 11, 1996 15
between the Company and Chase Manhattan Bank, N.A., in
connection with each of 33 mortgages for Store Nos. 78, 86,
87, 90, 137, 140, 143, 146, 160, 162, 164, 168, 169, 172,
177, 179, 183, 184, 185, 186, 190, 191, 192, 193, 205, 207,
210, 213, 216, 226, 229, 230 and 236.
11 Statement of computation of per share earnings 22
27 Financial Data Schedule 23
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