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 December 31, 1996.
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
------------- ------------
Commission File No. 0-19357
-------
MONRO MUFFLER BRAKE, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0838627
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
200 Holleder Parkway, Rochester, New York 14615
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (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 February 10, 1997, 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.
2
MONRO MUFFLER BRAKE, INC.
INDEX
-----
Part I Financial Information Page No.
--------
Consolidated Balance Sheet at
December 31, 1996 and March 31, 1996 3
Consolidated Statement of Income for the quarter
and nine months ended December 31, 1996 and 1995 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the nine months ended December 31, 1996 5
Consolidated Statement of Cash Flows for the
nine months ended December 31, 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 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
Exhibit 10.1 15
Exhibit 11 16
-2-
3
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, MARCH 31,
1996 1996
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of
$5,264 at December 31, 1996 and $5,280 at March 31, 1996 $ 5,264 $ 5,280
Trade receivables 1,170 1,230
Inventories, at LIFO cost 18,637 16,538
Federal and state income taxes receivable 0 18
Deferred income tax asset 1,275 1,275
Other current assets 2,234 2,206
--------- ---------
Total current assets 28,580 26,547
--------- ---------
Property, plant and equipment 145,477 126,248
Less - Accumulated depreciation and amortization (41,445) (35,969)
--------- ---------
Net property, plant and equipment 104,032 90,279
Other noncurrent assets 3,019 3,229
--------- ---------
Total assets $ 135,631 $ 120,055
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,191 $ 3,165
Trade payables 5,650 6,897
Federal and state income taxes payable 793 0
Accrued expenses and other current liabilities
Accrued interest 278 345
Accrued payroll, payroll taxes and other payroll benefits 3,542 2,836
Accrued insurance 1,986 1,552
Other current liabilities 3,627 2,861
--------- ---------
Total current liabilities 19,067 17,656
Long-term debt 50,348 45,459
Deferred income tax liability 1,053 1,053
--------- ---------
Total liabilities 70,468 64,168
--------- ---------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.239 and $.251
conversion value at December 31, 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; 7,470,326
shares and 6,914,835 shares issued and outstanding at December 31, 1996
and March 31, 1996, respectively 75 69
Additional paid-in capital 22,190 17,061
Retained earnings 42,760 38,619
--------- ---------
Total shareholders' equity 65,163 55,887
--------- ---------
Total liabilities and shareholders' equity $ 135,631 $ 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.
- 3 -
4
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
------------- -----------------
DECEMBER 31, DECEMBER 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales $33,560 $28,190 $109,104 $88,352
Cost of sales, including distribution and
occupancy costs (a) 19,867 16,995 60,824 49,864
------- ------- -------- -------
Gross profit 13,693 11,195 48,280 38,488
Operating, selling, general and
administrative expenses 9,978 8,709 31,009 26,100
------- ------- -------- -------
Operating income 3,715 2,486 17,271 12,388
Interest expense, net of interest income for
the quarter of $3 in 1996 and $12 in
1995 (a) 837 544 2,502 1,783
Other expense, net 205 3 276 137
------- ------- -------- -------
Income before provision for income taxes 2,673 1,939 14,493 10,468
Provision for income taxes 1,064 745 5,763 4,135
------- ------- -------- -------
Net income $ 1,609 $ 1,194 $ 8,730 $ 6,333
======= ======= ======== =======
Earnings per share $ .20 $ .15 $ 1.07 $ .78
======= ======= ======== =======
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share 8,158 8,072 8,167 8,079
======= ======= ======== =======
(a) Amounts paid under operating and capital leases with affiliated parties
totaled $416 and $404 for the quarters ended December 31, 1996 and 1995,
respectively, and $1,412 and $1,287 for the nine months ended December 31,
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.
- 4 -
5
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Nine Months Ended December 31, 1996
(UNAUDITED)
COMMON STOCK ADDITIONAL
------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------- --------
(Amounts in thousands)
Balance at March 31, 1996 6,915 $69 $17,061 $ 38,619
Net income 8,730
Exercise of stock options 202 2 545
5% stock dividend 353 4 4,584 (4,588)
Rounding (1)
------ --- ------- --------
Balance at December 31, 1996 7,470 $75 $22,190 $ 42,760
====== === ======== ========
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.
-5-
6
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN
CASH
Cash flows from operating activities:
Net income $ 8,730 $ 6,333
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 6,036 4,949
Loss on disposal of property, plant and equipment 50 25
Decrease in trade receivables 60 198
Increase in inventories (2,099) (2,538)
(Increase) decrease in other current assets (28) 126
Increase in other noncurrent assets (3) (434)
(Decrease) increase in trade payables (1,247) 417
Increase (decrease) in accrued expenses 1,839 (9)
Increase in federal and state income taxes payable 811 129
-------- --------
Total adjustments 5,419 2,863
-------- --------
Net cash provided by operating activities 14,149 9,196
-------- --------
Cash flows from investing activities:
Capital expenditures (19,595) (19,417)
Proceeds from the disposal of property, plant and equipment 44 52
Payments for purchase of Muffler Xpress (961)
-------- --------
Net cash used for investing activities (19,551) (20,326)
-------- --------
Cash flows from financing activities:
Proceeds from the sale of common stock 547
Proceeds from borrowings 42,195 36,522
Principal payments on long-term debt and capital
lease obligations (37,356) (23,418)
-------- --------
Net cash provided by financing activities 5,386 13,104
-------- --------
(Decrease) increase in cash (16) 1,974
Cash at beginning of year 5,280 4,855
======== ========
Cash at December 31 $ 5,264 $ 6,829
======== ========
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.
- 6 -
7
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Stock Dividend
- - -----------------------
On May 2, 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 non-employee directors, officers and
key employees under outstanding options, under the 1984, 1987 and 1989 Incentive
Stock Option Plans and under the Non-Employee Directors Stock Option Plan have
also been retroactively adjusted for the five percent stock dividend.
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 $682,000 and $647,000 higher at December 31, 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 $5,264,000 at
December 31, 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:
NINE MONTHS ENDED DECEMBER 31, 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.
-7-
8
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 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.
In conjunction with the acquisition of Muffler Xpress, the Company
assumed liabilities of $77,000 and recorded a corresponding increase to
goodwill.
CASH PAID DURING THE PERIOD:
NINE MONTHS ENDED
DECEMBER 31,
-----------
1996 1995
---- ----
Interest, net $2,819,000 $2,233,000
Income taxes, net 4,952,000 4,006,000
Note 5 - Other
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report on Form
10-K (File No. 0-19357), filed by the Company with the Securities and Exchange
Commission on June 28, 1996.
-8-
9
MONRO MUFFLER BRAKE, INC.
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 December 31, Nine Months Ended December 31,
-------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Sales ..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ...................... 59.2 60.3 55.7 56.4
---- ---- ---- ----
Gross profit .............................. 40.8 39.7 44.3 43.6
Operating, selling, general and
administrative expenses .................. 29.7 30.9 28.5 29.6
---- ---- ---- ----
Operating income .......................... 11.1 8.8 15.8 14.0
Interest expense - net .................... 2.5 1.9 2.3 2.0
Other expenses - net ...................... .6 .2 .2
---- ---- ---- ----
Income before provision for income taxes .. 8.0 6.9 13.3 11.8
Provision for income taxes ................ 3.2 2.7 5.3 4.6
---- ---- ---- ----
Net income ................................ 4.8% 4.2% 8.0% 7.2%
=== === === ===
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1995.
Sales were $33.6 million for the quarter ended December 31, 1996
compared with $28.2 million for the quarter ended December 31, 1995. The sales
increase of $5.4 million, or 19.0%, was due to an increase in sales of
approximately $3.9 million relating to stores opened since the beginning of
fiscal 1996, and an increase in comparable store sales of 6.5%. Sales for the
nine months ended December 31, 1996 were $109.1 million compared with $88.4
million for the comparable period of the prior year. The sales increase of $20.7
million, or 23.5%, was due to a comparable store sales increase of 10.0% and an
increase in sales of approximately $13.0 million relating to stores opened since
the beginning of fiscal 1996. At December 31, 1996, the Company had 302 stores
in operation compared to 264 at December 31, 1995.
-9-
10
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 December 31, 1996 was $13.7 million,
or 40.8% of sales, compared with $11.2 million, or 39.7% of sales, for the
quarter ended December 31, 1995. Gross profit for the nine months ended December
31, 1996 was $48.3 million, or 44.3% of sales, compared to $38.5 million, or
43.6% of sales, for the nine months ended December 31, 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 December 31, 1996 increased by $1.3 million to $10.0 million over
the quarter ended December 31, 1995, and decreased as a percentage of sales from
30.9% to 29.7%. For the nine months ended December 31, 1996, these expenses
increased by $4.9 million to $31.0 million over the comparable period in the
prior year, and were 28.5% of sales as compared to 29.6% 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 three and nine months ended December 31, 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 December 31, 1996, increased
by approximately $.3 million compared to the comparable period in the prior
year, and increased from 1.9% to 2.5% as a percentage of sales for the same
periods. Net interest expense for the nine months ended December 31, 1996,
increased by approximately $.7 million compared to the comparable period in the
prior year, and rose from 2.0% to 2.3% 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 nine months ended December 31, 1996
as compared to the same periods in the prior year.
Net income for the quarter ended December 31, 1996 of approximately
$1.6 million increased 34.8% over net income for the quarter ended December 31,
1995. For the nine months ended December 31, 1996, net income of approximately
$8.7 million increased 37.9% 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.
-10-
11
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 shops. For the nine months ended December 31, 1996, the Company spent
$19.6 million for equipment and new store construction. Funds were provided
primarily by cash flow from operations and bank financing. Management believes
that the Company has sufficient resources available (including cash and
equivalents, 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
December 31, 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 from 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.
-11-
12
MONRO MUFFLER BRAKE, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
10.1 - Purchase Agreement between Walker Manufacturing
Company, a division of Tenneco Automotive and Monro
Muffler Brake, Inc. dated as of November 5, 1996.
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
December 31, 1996.
-12-
13
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: February 13, 1997 By /s/ Lawrence C. Day
-------------------------------------------
Lawrence C. Day
President and Chief Executive Officer
DATE: February 13, 1997 By /s/ Catherine D'Amico
-----------------------------------------
Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
-13-
14
EXHIBIT INDEX
Exhibit No. Description Page No.
- - ------------ ----------- --------
10.1 Purchase Agreement between Walker Manufacturing Company,
a division of Tenneco Automotive and Monro Muffler
Brake, Inc. dated as of November 5, 1996. 15
11 Statement of computation of per share earnings. 16
-14-