10-Q 1 e10-q.txt MONRO MUFFLER BRAKE, INC. 10-Q 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 June 30, 2000. 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 July 31, 2000, 8,196,101 shares of the Registrant's Common Stock, par value $.01 per share, were outstanding. 2 MONRO MUFFLER BRAKE, INC. INDEX -----
Part I. Financial Information Page No. -------- Consolidated Balance Sheet at June 30, 2000 and March 31, 2000 3 Consolidated Statement of Income for the quarter ended June 30, 2000 and 1999 4 Consolidated Statement of Changes in Common Shareholders' Equity for the quarter ended June 30, 2000 5 Consolidated Statement of Cash Flows for the quarter ended June 30, 2000 and 1999 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
-2- 3 MONRO MUFFLER BRAKE, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, MARCH 31, 2000 2000 ---- ---- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and equivalents, including interest-bearing accounts of $1,205 at June 30, 2000 and $507 at March 31, 2000 $ 1,205 $ 507 Trade receivables 1,176 980 Inventories, at LIFO cost 40,719 39,698 Deferred income tax asset 1,415 1,415 Other current assets 5,508 5,025 --------- --------- Total current assets 50,023 47,625 --------- --------- Property, plant and equipment 204,807 202,779 Less - Accumulated depreciation and amortization (71,733) (68,904) --------- --------- Net property, plant and equipment 133,074 133,875 Other noncurrent assets 13,615 14,013 --------- --------- Total assets $ 196,712 $ 195,513 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 8,455 $ 8,455 Trade payables 14,909 11,608 Federal and state income taxes payable 2,858 718 Accrued interest 253 288 Accrued payroll, payroll taxes and other payroll benefits 4,139 3,962 Accrued insurance 2,254 1,539 Accrued restructuring costs 850 1,210 Other current liabilities 7,932 8,182 --------- --------- Total current liabilities 41,650 35,962 Long-term debt 56,175 63,639 Other long-term liabilities 799 845 Accrued long-term restructuring costs 2,243 2,487 Deferred income tax liability 3,805 3,805 --------- --------- Total liabilities 104,672 106,738 --------- --------- Commitments Shareholders' equity: Class C Convertible Preferred Stock, $1.50 par value, $.216 conversion value; 150,000 shares authorized; 91,727 shares issued and outstanding 138 138 Common Stock, $.01 par value, 15,000,000 shares authorized; 8,321,701 shares issued 83 83 Treasury Stock, 125,600 shares at June 30, 2000 and 100,100 shares at March 31, 2000, at cost (1,011) (803) Additional paid-in capital 36,004 35,978 Retained earnings 56,826 53,379 --------- --------- Total shareholders' equity 92,040 88,775 --------- --------- Total liabilities and shareholders' equity $ 196,712 $ 195,513 ========= =========
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 Monro Muffler Brake, Inc. (the "Company") with the Securities and Exchange Commission on June 29, 2000. -3- 4 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
QUARTER ENDED JUNE 30, 2000 1999 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales $ 60,693 $ 60,979 Cost of sales, including distribution and occupancy costs (a) 34,826 35,391 --------- --------- Gross profit 25,867 25,588 Operating, selling, general and administrative expenses 18,437 19,082 --------- --------- Operating income 7,430 6,506 Interest expense, net of interest income for the quarter of $42 in 2000 and $11 in 1999 (a) 1,600 1,717 Other expense, net 105 315 --------- --------- Income before provision for income taxes 5,725 4,474 Provision for income taxes 2,278 1,781 --------- --------- Net income $ 3,447 $ 2,693 ========= ========= Earnings per share: Basic $ .42 $ .32 ========= ========= Diluted $ .39 $ .30 ========= ========= Weighted average number of shares of Common Stock and Common Stock equivalents used in computing earnings per share: Basic 8,203 8,322 ========= ========= Diluted 8,882 8,977 ========= =========
(a) Costs and expenses include charges for payments under operating and capital leases with affiliated parties totaling $464 and $465 for the quarters ended June 30, 2000 and 1999, 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 29, 2000. -4- 5 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY (UNAUDITED) (DOLLARS IN THOUSANDS)
LESS: NOTE NET ADDITIONAL RECEIVABLE ADDITIONAL COMMON TREASURY PAID-IN FROM PAID-IN RETAINED STOCK STOCK CAPITAL SHAREHOLDER CAPITAL EARNINGS ----- ----- ------- ----------- ------- -------- Balance at March 31, 2000 $83 $(803) $36,370 $(392) $35,978 $53,379 Net income 3,447 Note receivable from shareholder 26 26 Purchase of treasury shares (25,500 shares) (208) --------- ---------- ----------- ------------ ------------ ---------- Balance at June 30, 2000 $83 $(1,011) $36,370 $(366) $36,004 $56,826 ========= ========== =========== ============ ============ ==========
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 29, 2000. -5- 6 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
QUARTER ENDED JUNE 30, 2000 1999 ---- ---- (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net income $ 3,447 $ 2,693 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 3,282 3,278 Gain on disposal of property, plant and equipment (53) (40) (Increase) decrease in trade receivables (196) 54 Increase in inventories (978) (1,992) (Increase) decrease in other current assets (528) 1,200 Decrease in other noncurrent assets 223 239 Increase in trade payables 3,301 2,416 Increase in accrued expenses 276 215 Increase in federal and state income taxes payable 2,140 1,745 Decrease in other long-term liabilities (704) (207) --------- --------- Total adjustments 6,763 6,908 --------- --------- Net cash provided by operating activities 10,210 9,601 --------- --------- Cash flows from investing activities: Capital expenditures (2,473) (6,020) Proceeds from the disposal of property, plant and equipment 633 349 --------- --------- Net cash used for investing activities (1,840) (5,671) --------- --------- Cash flows from financing activities: Repurchase of common stock (208) Proceeds from borrowings 24,000 19,800 Principal payments on long-term debt and capital lease obligations (31,464) (24,548) --------- --------- Net cash used for financing activities (7,672) (4,748) --------- --------- Increase (decrease) in cash 698 (818) Cash at beginning of year 507 5,599 --------- --------- Cash at June 30 $ 1,205 $ 4,781 ========= =========
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 29, 2000. -6- 7 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Stock Repurchase ------------------------- In November 1999, the Board of Directors approved a share repurchase program initially authorizing the Company to purchase up to 300,000 shares of its common stock at market prices. In May 2000, the Board of Directors approved an increase of 120,000 shares, bringing the total authorization to 420,000 shares. The amount and timing of any purchase will depend upon a number of factors, including the price and availability of the Company's shares and general market conditions. The Company's purchases of common stock are recorded as "Treasury Stock" and result in a reduction of "Shareholders' equity". At June 30, 2000, the Company had purchased 125,600 shares. Note 2 - Acquisition of Speedy Stores ------------------------------------- In September 1998, the Company completed the acquisition of 189 company-operated and 14 dealer-operated Speedy stores, all located in the United States, from SMK Speedy International Inc. of Toronto Canada. Speedy stores provide automotive repair services, specializing in undercar care, in 11 states located primarily in the northeast. The acquisition was accounted for as a purchase, and accordingly, the operating results of Speedy have been included in the Company's consolidated financial statements since the date of the acquisition. Approximately $51 million was borrowed under a new $135 million secured credit facility to pay the all-cash purchase price, with additional amounts borrowed under the facility for the closing of underperforming or redundant Speedy stores, capital expenditures at remaining Speedy stores and transaction expenses. The excess of the aggregate purchase price over the fair value of net assets acquired of approximately $9.4 million is being amortized on a straight-line basis over 20 years. In connection with the acquisition, the Company recorded a reserve for accrued restructuring costs of approximately $7.8 million. This reserve relates to costs associated with the closing of 41 poorly performing or duplicative Speedy stores, and includes charges for rent and real estate taxes (net of anticipated sublease income), the write down of assets to their fair market value, and net losses experienced by these stores through their closure date. Note 3 - 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 $162,000 and $124,000 higher at June 30, 2000 and March 31, 2000, 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 $1,205,000 at June 30, 2000 and $507,000 at March 31, 2000 include money market accounts which have maturities of three months or less. -7- 8 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Supplemental Disclosure of Cash Flow Information --------------------------------------------------------- The following transactions represent noncash investing and financing activities during the period indicated: QUARTER ENDED JUNE 30, 2000: In connection with the sale of assets, the Company reduced fixed assets by $523,000 and increased accrued long-term restructuring costs by $523,000. CASH PAID DURING THE PERIOD: 2000 1999 ---- ---- Interest, net $1,570,000 $1,446,000 Income taxes 138,000 35,000 Note 6 - 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 29, 2000. -8- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The statements contained in this Form 10-Q which are not historical facts, including (without limitation) statements made in the Management's Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements that are subject to important factors that could cause actual results to differ materially from those in the forward-looking statements, including (without limitation) product demand, the effect of economic conditions, the impact of competitive services and pricing, product development, parts supply restraints or difficulties, industry regulation, the continued availability of capital resources and financing and other risks set forth or incorporated elsewhere herein and in the Company's Securities and Exchange Commission filings. The following table sets forth income statement data of Monro Muffler Brake, Inc. ("Monro" or the "Company") expressed as a percentage of sales for the fiscal periods indicated. Quarter Ended June 30, ---------------------- 2000 1999 ------ ------ Sales .................................. 100.0% 100.0% Cost of sales, including distribution and occupancy costs ................... 57.4 58.0 ------ ------ Gross profit ........................... 42.6 42.0 Operating, selling, general and administrative expenses ............... 30.4 31.3 ------ ------ Operating income ....................... 12.2 10.7 Interest expense - net ................. 2.6 2.9 Other expense .......................... .2 .5 ------ ------ Income before provision for income taxes 9.4 7.3 Provision for income taxes ............. 3.7 2.9 ------ ------ Net income ............................. 5.7% 4.4% ====== ====== -9- 10 FIRST QUARTER ENDED JUNE 30, 2000 COMPARED TO FIRST QUARTER ENDED JUNE 30, 1999 Sales were $60.7 million for the quarter ended June 30, 2000 compared with $61.0 million in the quarter ended June 30, 1999. The sales decrease of $.3 million, or .5%, was due to a decrease in comparable store sales of .3%, and a decrease of $1.3 million related to stores closed during fiscal 2000. These decreases were partially offset by an increase in sales of new stores of approximately $1.2 million. At June 30, 2000, the Company had 512 company-operated stores compared to 517 at June 30, 1999. Gross profit for the quarter ended June 30, 2000 was $25.9 million or 42.6% of sales compared with $25.6 million or 42.0% of sales for the quarter ended June 30, 1999. The increase in gross profit as a percentage of sales is primarily attributable to a decrease in technician labor due to improved productivity and control. Additionally, outside purchases declined due to better store execution involving increased transfers between stores, as well as more effective inventory management including higher stocking levels and improved mix at the stores. Operating, selling, general and administrative expenses for the quarter ended June 30, 2000 decreased by $.6 million to $18.4 million from the quarter ended June 30, 1999, and decreased to 30.4% of sales compared to 31.3% in the same quarter of the prior year. Benefit costs have decreased as a percent of sales due to reduced costs in the areas of health care and workers compensation against relatively flat sales. Additionally, cooperative advertising income increased as a result of improved purchasing agreements with the Company's major parts suppliers. Operating income for the quarter ended June 30, 2000 of approximately $7.4 million increased 14.2% over operating income for the quarter ended June 30, 1999, and increased as a percentage of sales from 10.7% to 12.2% for the same periods. Net interest expense for the quarter ended June 30, 2000 decreased by approximately $.1 million compared to the comparable period in the prior year, and decreased from 2.9% to 2.6% as a percentage of sales for the same periods. The weighted average interest rate for the quarter ended June 30, 2000 was approximately .6% higher than the rate for the quarter ended June 30, 1999. However, the weighted average debt outstanding decreased by approximately $10.1 million, resulting in a slight decrease in expense between the two quarters. Net income for the quarter ended June 30, 2000 of $3.4 million increased 28.0% over net income for the quarter ended June 30, 1999 due to the factors discussed above. Interim Period Reporting The data included in this report are unaudited and are subject to year-end adjustments; however, in the opinion of management, all known adjustments (which consist only of normal recurring adjustments) have been made to present fairly the Company's operating results for the unaudited periods. The results for interim periods are not necessarily indicative of results to be expected for the fiscal year. CAPITAL RESOURCES AND LIQUIDITY Capital Resources In fiscal year 2001, 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, 2000, the Company spent $2.5 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. -10- 11 Liquidity Concurrent with the closing of the Speedy acquisition in September 1998, the Company obtained a new $135 million secured credit facility from a syndication of lenders led by The Chase Manhattan Bank. Approximately $55 million was borrowed under this facility to pay the all-cash purchase price, including transaction expenses of approximately $4 million. In addition, the Company refinanced approximately $35 million of indebtedness through the new credit facility, with the balance of the facility available for future working capital needs. More specifically, the new financing structure consists of a $25 million term loan (of which $20 million was outstanding at June 30, 2000), a $75 million Revolving Credit facility (of which approximately $32 million was outstanding at June 30, 2000), and synthetic lease (off-balance sheet) financing for a significant portion of the Speedy real estate, totaling $35 million (of which approximately $33 million was outstanding at June 30, 2000). The loans bear interest at the prime rate or other LIBOR-based rate options tied to the Company's financial performance. The Company must also pay a facility fee on the unused portion of the commitment. The credit facility has a five-year term. Interest only is payable monthly on the Revolving Credit and synthetic lease borrowings throughout the term. In addition to monthly interest payments, the $25 million term loan requires quarterly principal payments. Principal payments totalling $5 million have been paid through June 30, 2000. The term loan and Revolving Credit facility are secured by all accounts receivable, inventory and other personal property. The Company has also entered into a negative pledge agreement not to encumber any real property, with certain permissible exceptions. The synthetic lease is secured by the real property to which it relates. Certain of the Company's stores are financed by mortgages currently bearing interest at LIBOR plus 100 basis points. The Company has financed its office/warehouse facility via a 10 year mortgage with a current balance of $2.3 million, amortizable over 20 years, and an eight year term loan with a balance of $.3 million. Certain of the Company's long-term debt agreements require, among other things, the maintenance of specified interest and rent coverage ratios and amounts of tangible net worth. They also contain restrictions on cash dividend payments. The Company enters into interest rate hedge agreements which involve the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as an adjustment to interest expense. FINANCIAL ACCOUNTING STANDARDS On June 17, 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 2000. This statement standardizes the accounting for derivatives and hedging activities and requires that all derivatives be recognized in the statement of financial position as either assets or liabilities at fair value. Changes in the fair value of derivatives that do not meet the hedge accounting criteria are to be reported in earnings. Adoption of this standard is not expected to have a material effect on the Company's financial position, results of operations or cash flows. -11- 12 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 27 - Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2000. -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: August 10, 2000 By /s/ Robert G. Gross ---------------------------------------- Robert G. Gross President and Chief Executive Officer DATE: August 10, 2000 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. ----------- ----------- -------- 11 Statement of computation of per share earnings 15 27 Financial Data Schedule 16 -14-