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FORM 10-Q (Conformed Copy)
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, 1997.
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) (Zipcode)
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 August 7, 1997, 7,866,901 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding after giving retroactive effect to the
five percent stock dividend, payable August 4, 1997, to stockholders of record
as of June 20, 1997.
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MONRO MUFFLER BRAKE, INC.
INDEX
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Part I. Financial Information Page No.
Consolidated Balance Sheet at
June 30, 1997 and March 31, 1997 3
Consolidated Statement of Income for the quarter
ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Common
Stockholders' Equity for the quarter ended June 30, 1997 5
Consolidated Statement of Cash Flows for the
quarter ended June 30, 1997 and 1996 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,
1997 1997
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(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing
accounts of $8,022 at June 30, 1997 and $6,438
at March 31, 1997 $ 8,022 $ 6,438
Trade receivables 1,069 1,128
Inventories, at LIFO cost 21,533 20,010
Federal and state income taxes receivable 0 296
Deferred income tax asset 1,790 1,790
Other current assets 2,499 2,935
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Total current assets 34,913 32,597
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Property, plant and equipment 157,827 151,906
Less - Accumulated depreciation and amortization (44,377) (42,223)
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Net property, plant and equipment 113,450 109,683
Other noncurrent assets 3,876 3,987
========= =========
Total assets $ 152,239 $ 146,267
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,128 $ 3,128
Trade payables 11,589 8,728
Federal and state income taxes payable 1,772 0
Accrued expenses and other current liabilities
Accrued interest 285 270
Accrued payroll, payroll taxes and other
payroll benefits 4,053 4,260
Accrued insurance 2,155 2,110
Other current liabilities 3,394 4,522
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Total current liabilities 26,376 23,018
Long-term debt 54,010 54,864
Deferred income tax liability 1,760 1,760
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Total liabilities 82,146 79,642
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Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par
value, $.227 and $.239 conversion value at
June 30, 1997 and March 31, 1997, respectively;
150,000 shares authorized; 91,727 shares issued
and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares
authorized; 7,866,901 shares and 7,470,326 shares
issued and outstanding at June 30, 1997 and
March 31, 1997, respectively 79 75
Additional paid-in capital 29,256 22,190
Retained earnings 40,620 44,222
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Total shareholders' equity 70,093 66,625
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Total liabilities and shareholders' equity $ 152,239 $ 146,267
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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 27, 1997.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
QUARTER ENDED JUNE 30,
1997 1996
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(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales $40,773 $37,745
Cost of sales, including distribution
and occupancy costs (a) 22,631 20,666
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Gross profit 18,142 17,079
Operating, selling, general and administrative expenses 11,492 10,645
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Operating income 6,650 6,434
Interest expense, net of interest income for
the quarter of $22 in 1997 and $1 in 1996 (a) 868 814
Other expense, net 85 16
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Income before provision for income taxes 5,697 5,604
Provision for income taxes 2,280 2,225
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Net income $ 3,417 $ 3,379
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Earnings per share $ .40 $ .40
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Weighted average number of shares of common stock
and common stock equivalents used in computing earnings
per share 8,605 8,540
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(a) Amounts paid under operating and capital leases with affilliated parties
totalled $483 and $496 for the quarters ended June 30, 1997 and 1996,
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 27, 1997.
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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, 1997 7,470 75 $ 22,190 $ 44,222
Net income 3,417
Exercise of stock options 23 52
5% stock dividend 374 4 7014 (7,019)
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Balance at June 30, 1997 7867 79 $ 29,256 $ 40,620
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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 27, 1997.
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED
JUNE 30,
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1997 1996
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(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 3,417 $ 3,379
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Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 2,234 1,957
Loss (gain) on disposal of property, plant and equipment 14 (40)
Decrease in trade receivables 59 121
Increase in inventories (1,523) (2,317)
Decrease in other current assets 436 246
Decrease (increase) in other noncurrent assets 40 (15)
Increase in trade payables 2,861 1,065
(Decrease) increase in accrued expenses (1,276) 444
Increase in federal and state income taxes payable 2,068 1,939
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Total adjustments 4,913 3,400
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Net cash provided by operating activities 8,330 6,779
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Cash flows from investing activities:
Capital expenditures (5,938) (4,737)
Proceeds from the disposal of property, plant and equipment 3 2
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Net cash used for investing activities (5,935) (4,735)
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Cash flows from financing activities:
Proceeds from the sale of common stock 52 384
Proceeds from borrowings 15,410 11,380
Principal payments on long-term debt and capital
lease obligations (16,273) (14,421)
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Net cash used for financing activities (811) (2,657)
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Increase (decrease) in cash 1,584 (613)
Cash at beginning of year 6,438 5,280
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Cash at June 30 $ 8,022 $ 4,667
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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 27, 1997.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Stock Dividend
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On May 14, 1997, the Board of Directors declared a five percent stock
dividend, payable August 4, 1997, to stockholders of record as of June 20, 1997.
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 $.239 per share to $.227 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: New Accounting Standards
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The Company will adopt the provisions of Financial Accounting Standards
("FAS") No. 128, "Earnings Per Share" effective for financial statements issued
for periods ending after December 15, 1997; earlier application is not
permitted. FAS 128 requires dual presentation of basic and diluted EPS on the
face of the income statement and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS calculation. Basic EPS excludes the effect of common stock
equivalents and is computed by dividing income available to common shareowners
by the weighted average common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could result if securities or other
instruments to issue common stock were exercised or converted into common stock.
Proforma earnings per share computed in accordance with FAS 128 is presented
below:
Three months ended
June 30,
1997 1996
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Basic earnings per share $ 0.44 $ 0.44
Diluted earnings per share $ 0.40 $ 0.40
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 $628,000 and $544,000 higher at June 30, 1997 and
March 31, 1997, respectively. The FIFO value of inventory approximates the
current replacement cost.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $8,022,000 at
June 30, 1997 and $6,438,000 at March 31, 1997 include money market accounts
which have maturities of three months or less.
Note 5 - Supplemental Disclosure of Cash Flow Information
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The following transactions represent noncash investing and financing
activities during the periods indicated:
QUARTER ENDED JUNE 30, 1997:
In connection with the declaration of a five percent stock dividend
(see Note 1), the Company increased accrued expenses, common stock and
additional paid-in capital by $1,000, $4,000 and $7,014,000, respectively, and
decreased retained earnings by $7,019,000.
QUARTER ENDED JUNE 30, 1996:
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,
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.
CASH PAID DURING THE PERIOD:
1997 1996
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Interest, net $978,000 $981,000
Income taxes 212,000 286,000
Note 6 - 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 27, 1997.
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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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1997 1996
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Sales .............................................. 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ............................... 55.5 54.8
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Gross profit ....................................... 44.5 45.2
Operating, selling, general and
administrative expenses ........................... 28.2 28.2
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Operating income ................................... 16.3 17.0
Interest expense - net ............................. 2.1 2.1
Other expense ...................................... .2 --
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Income before provision for income taxes ........... 14.0 14.9
Provision for income taxes ......................... 5.6 5.9
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Net income ......................................... 8.4% 9.0%
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FIRST QUARTER ENDED JUNE 30, 1997 COMPARED TO
FIRST QUARTER ENDED JUNE 30, 1996.
Sales were $40.8 million for the quarter ended June 30, 1997 compared
with $37.7 million in the quarter ended June 30, 1996. The sales increase of
$3.0 million, or 8.0%, was due to an increase in sales of approximately $3.5
million relating to stores opened since the beginning of fiscal 1996, offset by
a decrease in comparable store sales of 1.0%. At June 30, 1997, the Company had
324 stores in operation compared to 284 at June 30, 1996.
Management believes that year-to-date comparable store sales
decreases were driven, in part, by the cold, wet weather during the months of
April and May, and the aftermath of a relatively mild winter which have
created a softness in the industry.
Gross profit for the quarter ended June 30, 1997 was $18.1 million or
44.5% of sales compared with $17.1 million or 45.2% of sales for the quarter
ended June 30, 1996. The decline in gross profit as a percentage of sales was
due, in part, to an increase in labor costs. During periods of slower sales when
technicians may not be fully productive, they will receive a minimum base level
wage. Additionally, distribution and occupancy costs increased as a percent of
sales for the first quarter of fiscal 1998 as compared to the first quarter of
fiscal 1997 primarily due to an increase in the number of stores against a
comparable store sales decrease.
Operating, selling, general and administrative expenses for the quarter
ended June 30, 1997 increased by $.8 million to $11.5 million over the quarter
ended June 30, 1996, and remained level at 28.2% of sales compared to the same
quarter of the prior year. The increase in total dollars expended is primarily
attributable to increased store supervision and increased store support
expenses. Although expenses increased during the first quarter of fiscal 1998 as
compared to the first quarter of fiscal 1997, these expenses remained constant
as a percent of sales primarily due to management's continued focus on
discretionary spending and controlling costs, as well as increased cooperative
advertising credits.
Operating income for the quarter ended June 30, 1997 of approximately
$6.7 million increased 3.4% over operating income for the quarter ended June 30,
1996, and decreased as a percentage of sales from 17.0% to 16.3% for the same
periods.
Net interest expense for the quarter ended June 30, 1997 increased by
approximately $.1 million compared to the comparable period in the prior year,
and remained level at 2.1% as a percentage of sales. The increase in expense is
due to an increase in the average debt outstanding during the quarter, partially
offset by a decrease in the weighted average interest rate.
Net income for the quarter ended June 30, 1997 of $3.4 million
increased 1.1% over net income for the quarter ended June 30, 1996.
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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
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, 1997, the Company spent $5.9
million for equipment and new store construction. Funds were provided 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
June 30, 1997.
Through February 7, 1996, the Company had a real estate line of credit
of $25 million to be used for placement of mortgages. This line was terminated
in fiscal 1996 at the Company's initiative and replaced by a new unsecured
Revolving Credit facility with two banks. In June 1997, the Credit Agreement was
modified to increase the amount available under the facility from $30 million to
$50 million, and extend the term to March 2000. The facility bears interest at
the prime rate or other LIBOR-based rate options tied to the Company's financial
performance.
Prior to the termination of the real estate line, the Company had
utilized $13.2 million of the real estate line of credit for permanent
mortgages.
The Company has outstanding $3.7 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 fourth of six equal
annual installments of principal in the amount of $1.8 million was paid on April
1, 1997.
The Company has financed its office/warehouse facility via a 10 year
mortgage with a current balance of $2.8 million, amortizable over 20 years, and
an eight year term loan with a balance of $.6 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 6. Exhibits and Reports on Form 8-K
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a. Exhibits
10.1 - Amendment One to Credit Agreement among
the Chase Manhattan Bank, Fleet Bank and
the Company, dated June 25, 1997.
11 - Statement of Computation of Per Share
Earnings.
27 - Financial Data Schedule.
b. Reports on Form 8-K
The Company filed a report on Form 8-K on June 10,
1997 in connection with the declaration of a 5% stock
dividend by the Company's Board of Directors on
May 14, 1997.
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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 13, 1997 By /s/ Lawrence C. Day
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Lawrence C. Day
President and Chief Executive Officer
DATE: August 13, 1997 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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10.1 Amendment One to Credit Agreement among
the Chase Manhattan Bank, Fleet Bank and the
Company, dated June 25, 1997. 15
11 Statement of computation of per share earnings. 18
27 Financial Data Schedule.
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