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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997.
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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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 716-647-6400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of February 1, 1998, 7,866,901 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 4, 1997.
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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
December 31, 1997 and March 31, 1997 3
Consolidated Statement of Income for the quarter
and nine months ended December 31, 1997 and 1996 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the nine months ended
December 31, 1997 5
Consolidated Statement of Cash Flows for the
nine months ended December 31, 1997 and 1996 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 13
Signatures 14
Exhibit Index 15
Exhibit 11 16
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MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, MARCH 31,
1997 1997
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $6,855 at $ 6,855 $ 6,438
December 31, 1997 and $6,438 at March 31, 1997
Trade receivables 740 1,128
Inventories, at LIFO cost 27,485 20,010
Federal and state income taxes receivable 0 296
Deferred income tax asset 1,790 1,790
Other current assets 1,734 2,935
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Total current assets 38,604 32,597
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Property, plant and equipment 163,893 151,906
Less - Accumulated depreciation and amortization (48,142) (42,223)
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Net property, plant and equipment 115,751 109,683
Other noncurrent assets 3,712 3,987
========= =========
Total assets $ 158,067 $ 146,267
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,128 $ 3,128
Trade payables 9,663 8,728
Federal and state income taxes payable 901 0
Accrued expenses and other current liabilities
Accrued interest 321 270
Accrued payroll, payroll taxes and other payroll benefits 3,227 4,260
Accrued insurance 2,369 2,110
Other current liabilities 4,163 4,522
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Total current liabilities 23,772 23,018
Long-term debt 57,389 54,864
Deferred income tax liability 1,760 1,760
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Total liabilities 82,921 79,642
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Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.227 and $.239
conversion value at December 31, 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 December 31, 1997 79 75
and March 31, 1997, respectively
Additional paid-in capital 29,257 22,190
Retained earnings 45,672 44,222
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Total shareholders' equity 75,146 66,625
========= =========
Total liabilities and shareholders' equity $ 158,067 $ 146,267
========= =========
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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Sales $ 36,336 $ 33,560 $118,649 $109,104
Cost of sales, including distribution and
occupancy costs (a) 20,996 19,867 66,858 60,824
-------- -------- -------- --------
Gross profit 15,340 13,693 51,791 48,280
Operating, selling, general and
administrative expenses 11,409 9,978 34,637 31,009
-------- -------- -------- --------
Operating income 3,931 3,715 17,154 17,271
Interest expense, net of interest income for
the quarter of $21 in 1997 and $1 in
1996 (a) 1,005 837 2,775 2,502
Other expense, net 95 205 266 276
-------- -------- -------- --------
Income before provision for income taxes 2,831 2,673 14,113 14,493
Provision for income taxes 1,131 1,064 5,644 5,763
-------- -------- -------- --------
Net income $ 1,700 $ 1,609 $ 8,469 $ 8,730
======== ======== ======== ========
Basic earnings per share $ .22 $ .21 $ 1.08 $ 1.12
======== ======== ======== ========
Diluted earnings per share $ .20 $ .19 $ .99 $ 1.02
======== ======== ======== ========
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share: Basic 7,867 7,843 7,861 7,782
======== ======== ======== ========
Diluted 8,557 8,569 8,590 8,576
======== ======== ======== ========
<FN>
(a) Amounts paid under operating and capital leases with affiliated parties
totaled $417 and $416 for the quarters ended December 31, 1997 and 1996,
respectively, and $1,374 and $1,412 for the nine months ended December 31, 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 SHAREHOLDERS' EQUITY
Nine Months Ended December 31, 1997
(UNAUDITED)
COMMON STOCK ADDITIONAL
------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------- --------
(Amounts in thousands)
Balance at March 31, 1997 7,470 $ 75 $ 22,190 $ 44,222
Net income 8,469
Exercise of stock options 23 52
5% stock dividend 374 4 7,015 (7,019)
-------- -------- -------- --------
Balance at December 31, 1997 7,867 $ 79 $ 29,257 $ 45,672
======== ======== ======== ========
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)
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
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(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 8,469 $ 8,730
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Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 6,921 6,036
Loss on disposal of property, plant and equipment 36 50
Decrease in trade receivables 388 60
Increase in inventories (7,475) (2,099)
Decrease (increase) in other current assets 1,201 (28)
Decrease (increase) in other noncurrent assets 67 (3)
Increase (decrease) in trade payables 935 (1,247)
(Decrease) increase in accrued expenses (1,082) 1,839
Increase in federal and state income taxes payable 1,197 811
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Total adjustments 2,188 5,419
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Net cash provided by operating activities 10,657 14,149
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Cash flows from investing activities:
Capital expenditures (18,792) (19,595)
Proceeds from the disposal of property, plant and equipment 6,228 44
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Net cash used for investing activities (12,564) (19,551)
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Cash flows from financing activities:
Proceeds from the sale of common stock 52 547
Proceeds from borrowings 47,631 42,195
Principal payments on long-term debt and capital
lease obligations (45,359) (37,356)
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Net cash provided by financing activities 2,324 5,386
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Increase (decrease) in cash 417 (16)
Cash at beginning of year 6,438 5,280
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Cash at December 31 $ 6,855 $ 5,264
======== ========
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, paid 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 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 - New Accounting Standards
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The Company adopted the provisions of Financial Accounting Standards
("FAS") No. 128, "Earnings Per Share" effective for financial statements issued
for periods ended after December 15, 1997; earlier application was 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.
See Exhibit 11.
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 $496,000 and $544,000 higher at December 31,
1997 and March 31, 1997, respectively. The FIFO value of inventory approximates
the current replacement cost.
Note 4- Cash and Equivalents
- ----------------------------
The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash equivalents of $6,855,000 at
December 31, 1997 and $6,438,000 at March 31, 1997 include money market accounts
which have maturities of three months or less.
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Supplemental Disclosure of Cash Flow Information
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The following transactions represent noncash investing and financing
activities during the periods indicated:
NINE MONTHS ENDED DECEMBER 31, 1997:
Capital lease obligations of $236,000 were incurred under various
lease obligations.
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 $7,015,000, respectively, and decreased retained earnings
by $7,019,000.
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,
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:
NINE MONTHS ENDED
DECEMBER 31,
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1997 1996
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Interest, net $3,041,000 $2,819,000
Income taxes, net 4,448,000 4,952,000
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MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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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 December 31, Nine Months Ended December 31,
-------------------------- ------------------------------
1997 1996 1997 1996
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Sales ................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs ................................. 57.8 59.2 56.3 55.7
----- ----- ----- -----
Gross profit ......................................... 42.2 40.8 43.7 44.3
Operating, selling, general and
administrative expenses ............................. 31.4 29.7 29.2 28.5
----- ----- ----- -----
Operating income ..................................... 10.8 11.1 14.5 15.8
Interest expense - net ............................... 2.8 2.5 2.4 2.3
Other expenses - net ................................. .2 .6 .2 .2
----- ----- ----- -----
Income before provision for income taxes ............. 7.8 8.0 11.9 13.3
Provision for income taxes ........................... 3.1 3.2 4.8 5.3
----- ----- ----- -----
Net income ........................................... 4.7% 4.8% 7.1% 8.0%
===== ===== ===== =====
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1996.
Sales were $36.3 million for the quarter ended December 31, 1997
compared with $33.6 million for the quarter ended December 31, 1996. The sales
increase of $2.8 million, or 8.3%, was due to an increase in sales of
approximately $3.2 million relating to stores opened since the beginning of
fiscal 1997, partially offset by a decrease in comparable store sales of 1.4%.
Sales for the nine months ended December 31, 1997 were $118.6 million compared
with $109.1 million for the same period of the prior year. The sales
increase of $9.5 million, or 8.7%, was due to an increase in sales of
approximately $10.4 million relating to stores opened since the beginning of
fiscal 1997, partially offset by a decrease in comparable store sales of .8%. At
December 31, 1997, the Company had 341 stores in operation compared to 302 at
December 31, 1996.
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Gross profit for the quarter ended December 31, 1997 was $15.3
million, or 42.2% of sales, compared with $13.7 million, or 40.8% of sales, for
the quarter ended December 31, 1996. The increase in gross profit as a percent
of sales was primarily attributable to a decrease in purchases at the store
level of certain higher-cost parts ("Outside Purchases"). This was
accomplished through a combination of increasing the average inventory in the
stores and improving the mix of parts. This decrease occurs in a quarter which
historically has higher Outside Purchases. During periods of slower sales, store
personnel will more readily accept repair work outside of the normal recurring
services the store usually provides. Gross profit for the nine months ended
December 31, 1997 was $51.8 million, or 43.7% of sales, compared to $48.3
million, or 44.3% of sales, for the nine months ended December 31, 1996. The
decline in gross profit as a percentage of sales was due, in large 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.
Operating, selling, general and administrative expenses (OSG&A) for
the quarter ended December 31, 1997 increased by $1.4 million to $11.4 million
over the quarter ended December 31, 1996, and increased as a percentage of sales
from 29.7% to 31.4%. For the nine months ended December 31, 1997, these expenses
increased by $3.6 million to $34.6 million over the comparable period in the
prior year, and were 29.2% of sales as compared to 28.5% in the prior year. The
increase in total dollars expended is primarily attributable to the increase in
the number of stores and store-related operating costs such as advertising,
supervision and utilities, against slightly negative comparable store sales.
These increases were partially offset by a reduction in bonus and profit sharing
expense.
Net interest expense for the quarter ended December 31, 1997,
increased by approximately $167,000 compared to the same period in the prior
year, and increased from 2.5% to 2.8% as a percentage of sales for the same
periods. Net interest expense for the nine months ended December 31, 1997,
increased by $273,000 compared to the comparable period in the prior year, and
rose from 2.3% to 2.4% 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, 1997 as compared
to the same periods in the previous year, partially offset by decreases in the
weighted average interest rates for each period.
Net income for the quarter ended December 31, 1997 of approximately
$1.7 million increased 5.7% over net income for the quarter ended December 31,
1996. For the nine months ended December 31, 1997, net income of approximately
$8.5 million decreased 3.0%, 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 shops. For the nine months ended December 31, 1997, the Company spent
$18.8 million for equipment and new store construction. Funds were provided
primarily by cash flow from operations, a sale/leaseback transaction 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, 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 $2.6 million, amortizable over 20 years, and
an eight year term loan with a balance of $.5 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.
In December 1997, the Company completed a sale/leaseback transaction
involving 10 of its store locations. Proceeds from the sale totaled $6.1
million.
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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.
b. Reports on Form 8-K - The Company was not required to file reports
on Form 8-K during the quarter ended December 31, 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: February 11, 1998 By /s/ Lawrence C. Day
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Lawrence C. Day
President and Chief Executive Officer
DATE: February 11, 1998 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.
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11 Statement of Computation of Per Share Earnings. 16
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