-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWuqCy6kFPN8eqIlcbx+fZsV1UbLzrC67r11cOO6ClmJS1dRQagv/8ixIx7SN3gx /dIBJnzliUFObcp6OwbIcQ== 0000950152-03-007575.txt : 20030812 0000950152-03-007575.hdr.sgml : 20030812 20030812155459 ACCESSION NUMBER: 0000950152-03-007575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030628 FILED AS OF DATE: 20030812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONRO MUFFLER BRAKE INC CENTRAL INDEX KEY: 0000876427 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 160838627 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19357 FILM NUMBER: 03837633 BUSINESS ADDRESS: STREET 1: 200 HOLLEDER PKWY CITY: ROCHESTER STATE: NY ZIP: 14615-3808 BUSINESS PHONE: 7166476400 10-Q 1 l02565ae10vq.txt MONRO MUFFLER BRAKE, INC. 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 28, 2003. 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 585-647-6400 - -------------------------------------------------------------------------------- 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 --------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --------- As of July 26, 2003, 8,641,186 shares of the Registrant's Common Stock, par value $ .01 per share, were outstanding. MONRO MUFFLER BRAKE, INC. INDEX
Part I. Financial Information Page No. -------- Item 1. Financial Statements Consolidated Balance Sheet at June 28, 2003 and March 29, 2003 3 Consolidated Statement of Income for the quarters ended June 28, 2003 and June 29, 2002 4 Consolidated Statement of Changes in Shareholders' Equity for the quarter ended June 28, 2003 5 Consolidated Statement of Cash Flows for the quarters ended June 28, 2003 and June 29, 2002 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 4. Controls and Procedures 15 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit Index 18
2 MONRO MUFFLER BRAKE, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 28, MARCH 29, 2003 2003 --------- --------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and equivalents, including interest-bearing accounts of $322 at June 28, 2003 $ 391 $ 69 Trade receivables 2,220 1,902 Inventories 53,061 51,256 Deferred income tax asset 1,661 1,661 Other current assets 9,243 8,989 --------- --------- Total current assets 66,576 63,877 --------- --------- Property, plant and equipment 251,931 222,278 Less - Accumulated depreciation and amortization (92,535) (90,130) --------- --------- Net property, plant and equipment 159,396 132,148 Intangible assets and other noncurrent assets 11,000 11,175 --------- --------- Total assets $ 236,972 $ 207,200 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 625 $ 625 Trade payables 19,402 16,955 Federal and state income taxes payable 4,633 1,593 Accrued interest 119 44 Accrued payroll, payroll taxes and other payroll benefits 7,011 7,968 Accrued insurance 2,397 1,857 Other current liabilities 11,242 12,955 --------- --------- Total current liabilities 45,429 41,997 Long-term debt 54,663 36,183 Other long-term liabilities 4,155 3,500 Deferred income tax liability 1,258 1,128 --------- --------- Total liabilities 105,505 82,808 --------- --------- Commitments Shareholders' equity: Class C Convertible Preferred Stock, $1.50 par value, $.216 conversion value; 150,000 shares authorized; 65,000 shares issued and outstanding 97 97 Common Stock, $.01 par value, 15,000,000 shares authorized; 8,853,914 shares issued at June 28, 2003; 8,785,860 shares issued at March 29, 2003 89 88 Treasury Stock, 216,800 shares at June 28, 2003 and March 29, 2003, at cost (1,831) (1,831) Additional paid-in capital 43,097 42,178 Note receivable from shareholder (52) (78) Accumulated other comprehensive income (649) (859) Retained earnings 90,716 84,797 --------- --------- Total shareholders' equity 131,467 124,392 --------- --------- Total liabilities and shareholders' equity $ 236,972 $ 207,200 ========= =========
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 July 1, 2003. 3 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
QUARTER ENDED FISCAL JUNE 2003 2002 -------- -------- RESTATED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales $ 73,643 $ 67,908 Cost of sales, including distribution and occupancy costs 41,408 38,013 -------- -------- Gross profit 32,235 29,895 Operating, selling, general and administrative expenses 22,051 22,900 -------- -------- Operating income 10,184 6,995 Interest expense, net of interest income for the quarter of $13 in 2003 and $15 in 2002 593 766 Other expense (income), net 44 (151) -------- -------- Income before provision for income taxes 9,547 6,380 Provision for income taxes 3,628 2,424 -------- -------- Net income $ 5,919 $ 3,956 ======== ======== Earnings per share: Basic $ .69 $ .48 ======== ======== Diluted $ .62 $ .42 ======== ======== Weighted average number of common shares outstanding used in computing earnings per share Basic 8,593 8,298 ======== ======== Diluted 9,587 9,389 ======== ========
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 July 1, 2003. 4 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (DOLLARS IN THOUSANDS)
NOTE ACCUMULATED ADDITIONAL RECEIVABLE OTHER PREFERRED COMMON TREASURY PAID-IN FROM COMPREHENSIVE RETAINED STOCK STOCK STOCK CAPITAL SHAREHOLDER INCOME EARNINGS TOTAL ----- ----- ----- ------- ----------- ------ -------- ----- Balance at March 29, 2003 $97 $88 $(1,831) $42,178 $(78) $(859) $84,797 $124,392 Net income 5,919 5,919 Other comprehensive income: SFAS No. 133 adjustment for the three months ended June 28, 2003 210 210 --------- Total comprehensive income 6,129 Exercise of stock options 1 919 920 Note receivable from shareholder 26 26 ---------- ----- -------- ----------- ------------ ------------ --------- --------- Balance at June 28, 2003 $97 $89 $(1,831) $43,097 $(52) $(649) $90,716 $131,467 ========== ===== ======== =========== ============ ============ ========= =========
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 July 1, 2003. 5 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
QUARTER ENDED FISCAL JUNE 2003 2002 -------- -------- RESTATED (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net income $ 5,919 $ 3,956 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 3,109 3,162 Non-qualified stock option expense 1,603 Net change in deferred income taxes 1 (477) Loss (gain) on disposal of property, plant and equipment 22 (33) Change in assets and liabilities, net of effects from acquisitions: Increase in trade receivables (318) (108) Increase in inventories (1,805) (1,237) Increase in other current assets (254) (42) Decrease in intangible assets and other noncurrent assets 114 160 Increase in trade payables 2,447 2,151 Decrease in accrued expenses (1,722) (276) Increase in federal and state income taxes payable 3,040 2,917 Increase (decrease) in other long-term liabilities 706 (830) -------- -------- Total adjustments 5,340 6,990 -------- -------- Net cash provided by operating activities 11,259 10,946 -------- -------- Cash flows from investing activities: Payment for purchase of Kimmel Automotive, Inc., net of cash acquired (6,220) Capital expenditures (2,987) (2,303) Payment for purchase of Brazos Automotive Properties, L.P. (935) Proceeds from the disposal of property, plant and equipment 144 152 -------- -------- Net cash used for investing activities (3,778) (8,371) -------- -------- Cash flows from financing activities: Proceeds from borrowings 32,100 33,500 Principal payments on long-term debt and capital lease obligations (40,179) (37,397) Exercise of stock options 920 1,299 -------- -------- Net cash used for financing activities (7,159) (2,598) -------- -------- Increase (decrease) in cash 322 (23) Cash at beginning of period 69 442 -------- -------- Cash at end of period $ 391 $ 419 ======== ========
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 July 1, 2003. 6 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Condensed Consolidated Financial Statements - ---------------------------------------------------- The consolidated balance sheet as of June 28, 2003, the consolidated statements of income for the thirteen week periods ended June 28, 2003 and June 29, 2002 and the consolidated statements of cash flows for the thirteen week periods ended June 28, 2003 and June 29, 2002 include Monro Muffler Brake, Inc. and its wholly owned subsidiaries (the "Company"). These financial statements have been prepared by the Company and are unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows as of and for the quarter ended June 28, 2003, and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2003. The results of operations for the thirteen week period ended June 28, 2003 are not necessarily indicative of the operating results for the full year. The Company reports its results on a 52/53 week fiscal year with the fiscal year ending on the last Saturday in March of each year. The following are the dates represented by each fiscal period reported in these condensed financial statements: "Quarter Ended Fiscal June 2003": March 29, 2003 - June 28, 2003 (13 weeks) "Quarter Ended Fiscal June 2002": March 31, 2002 - June 29, 2002 (13 weeks)
Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current year's presentation. RESTATEMENT During fiscal years 1999 to 2001, the Company sublet or sold a total of 14 closed store properties to Icon International, a barter company. In connection with the preparation of the Company's consolidated financial statements for fiscal 2003, the Company revised the original accounting for these barter transactions and the resulting barter credits. Accordingly, the Company's financial statements as of June 2002 reflect a cumulative $2.4 million reduction to retained earnings, after related income taxes of $1.6 million, to record the impairment charge related to the store closures in fiscal 1998 through 2000. Further, operating, selling, general and administrative expenses for the fiscal quarter ended June 2002 were reduced by $72,000, resulting in an increase in net income of $45,000 (no change to diluted earnings per share for the quarter) from that previously reported to $3,956,000 or $.42 per diluted share, related to the recognition of barter credits utilized by the Company during that quarter. In addition, in the fourth quarter of fiscal 2003 the Company revised its original accounting for the restructuring reserve that was established in connection with its acquisition of 189 company-operated and 14 franchised Speedy stores in fiscal 1999. The revision recorded the operating results of 41 stores it closed in fiscal 1999 and 2000 in connection with that acquisition, and certain other costs, in its fiscal 1999 and 2000 income statements instead of providing for these costs in the restructuring reserve as originally recorded. Accordingly, the Company's financial statements reflect a cumulative $.8 million reduction of retained earnings at June 2002, after related income taxes of $.5 million. There was no impact on the Company's reported net income for the quarter ended June 2002 from this revision. 7 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's financial statements as of and for the quarter ended June 2002 reflect adjustments to the following items in connection with the accounting revisions discussed above.
QUARTER ENDED FISCAL JUNE, -------------------------- 2002 2002 -------- -------- AS PREVIOUSLY AS FINANCIAL STATEMENT CAPTION REPORTED RESTATED -------- -------- (Dollars in thousands, except for per share amounts) CONSOLIDATED STATEMENT OF INCOME Operating, selling, general and administrative expenses $ 22,972 $ 22,900 Operating income 6,923 6,995 Income before provision for income taxes 6,308 6,380 Provision for income taxes 2,397 2,424 Net income 3,911 3,956 Earnings per share - basic $ 0.47 $ 0.48 Earnings per share - diluted $ 0.42 $ 0.42 CONSOLIDATED BALANCE SHEET Other current assets $ 7,677 $ 7,212 Total current assets 58,474 58,070 Property, plant and equipment 212,345 211,410 Accumulated depreciation and amortization (84,343) (83,835) Net property, plant and equipment 128,002 127,575 Intangible assets and other non-current assets 13,422 10,783 Total assets 199,898 196,428 Other current liabilities 8,897 10,067 Total current liabilities 46,890 48,059 Other long-term liabilities 4,066 4,701 Deferred income tax liability 2,080 Total liabilities 83,261 82,986 Retained earnings 78,220 75,025 Total shareholders' equity 116,637 113,442 Total liabilities and shareholders' equity 199,898 196,428 CONSOLIDATED STATEMENT OF CASH FLOWS Net change in deferred income taxes $ (504) $ (477) Increase (decrease) in other current assets 36 (42) Decrease in other noncurrent assets 54 160 Decrease in accrued expenses (276) (276) Decrease in other long-term liabilities (730) (830) Total adjustments 7,035 6,990
Note 2 - Buyout of Synthetic Lease Properties - --------------------------------------------- On June 27, 2003, the Company purchased the land and buildings under its existing synthetic lease facility through the acquisition of the general and limited partnership interests in Brazos Automotive Properties, L.P. ("BAP"), for approximately $935,000 in cash (the "Lease Buyout"). The Lease Buyout was financed through the Company's existing credit facility. BAP holds the title 8 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS related to 86 properties leased, under an operating lease, to a subsidiary of the Company and used in the conduct of the Company's auto service business. BAP is also the debtor on a $26.6 million loan related to these properties. BAP, which became a wholly owned subsidiary of the Company as a result of the Lease Buyout, was established in 1998 for the purpose of acquiring certain properties and leasing them to the Company. As a wholly owned subsidiary of the Company, BAP has been consolidated into the Company's balance sheet at June 28, 2003. Accordingly, land and buildings at fair value of approximately $27.5 million have been reflected on the Company's balance sheet. Additionally, long-term debt of $26.6 million has also been reflected. The debt is non-amortizing and is due in September 2006. The Company estimates that annual depreciation expense related to the assets acquired in the Lease Buyout will be approximately $500,000. These depreciation charges will commence in the Company's second quarter of its fiscal year 2004. The purchase of the general partnership interest was completed through the purchase of 100% of the outstanding common stock of Brazos Automotive Properties Management, Inc., the general partner of BAP, from Brazos River Leasing, L. P. The limited partnership interest was acquired from Heller Financial, Inc., a subsidiary of G.E. Capital, the holder of that interest. Note 3 - Derivative Financial Instruments - ----------------------------------------- Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended by Statement of Financial Accounting Standards No. 138 ("SFAS 138"),"Accounting for Certain Derivative Instruments and Certain Hedging Activities" requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if it is, depending on the type of hedge transaction. The notional amount of derivative financial instruments, which consisted solely of interest rate swaps used to minimize the risk and/or costs associated with changes in interest rates, was approximately $36 million at June 28, 2003. At that date, swap maturities ranged from August 2003 through October 2005. These swap contracts require the Company to pay fixed-rates of interest ranging from 5.21% to 7.15%, and receive variable-rates of interest based on the 30 day LIBOR rate (plus a spread of 80 basis points in the case of the 7.15% fixed rate contract). At June 29, 2003, the fair value of the contracts, net of tax, is recorded as a component of accumulated other comprehensive income in the Statement of Changes in Shareholders' Equity. Note 4 - Cash and Equivalents - ----------------------------- The Company's policy is to invest cash in excess of operating requirements in income producing investments. Cash equivalents at June 28, 2003 include money market accounts of $322,000 which have maturities of three months or less. Note 5 - Inventories - -------------------- The Company's inventories consist of automotive parts and tires, which are valued using the first-in, first-out method. Note 6 - Earnings Per Share - --------------------------- The computations of diluted earnings per share for the quarters ended fiscal June 2003 and 2002 include the effect of assumed exercise of all outstanding stock options as the exercise prices of these options were less than the average market price of the Company's common stock for those periods. Note 7 - Stock-based compensation - --------------------------------- As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", the Company measures stock-based compensation cost for stock options as the excess of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. The Company's policy generally is to grant stock options at fair market value at the date of grant. 9 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SFAS 123, as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123", requires disclosure of pro forma net income and pro forma net income per share as if the fair value-based method had been applied in measuring compensation cost for the stock-based awards granted subsequent to fiscal year 1995. Reported and pro forma net income and earnings per share amounts are set forth below:
QUARTER ENDED FISCAL JUNE 2003 2002 ---- ---- RESTATED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net income, as reported $5,919 $3,956 Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects (150) (115) ----------------- -------------- Pro forma net income $5,769 $3,841 ================= ============== Earnings per share: Basic-as reported $ .69 $ .48 ================= ============== Basic-pro forma $ .67 $ .46 ================= ============== Diluted-as reported $ .62 $ .42 ================= ============== Diluted-pro forma $ .61 $ .41 ================= ==============
The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option-pricing model based on the following weighted average assumptions: QUARTER ENDED FISCAL JUNE 2003 2002 ---- ---- Risk free interest rate 3.74% 5.14% Expected life 9 years 9 years Expected volatility 29.7% 29.6% Expected dividend yield 0% 0%
Forfeitures are recognized as they occur. Stock options which vested in the first quarter of fiscal 2003 include 100,000 performance-based options, earned by the Company's CEO, in accordance with the terms of his employment contract. The Company recorded compensation expense of $1.6 million in its first quarter of fiscal 2003 related to the vesting of these stock options. Note 8 - Guarantees - ------------------- In November 2002, the Financial Accounting Standards Board ("FASB") published Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. In that regard, the Company provides an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to sales. Warranty expense for the quarter ended June 28, 2003 and for the prior year comparable period was not material. Also, warranty reserves are not material to the Company's financial position. 10 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Acquisition of Kimmel Automotive, Inc. - ----------------------------------------------- Effective April 1, 2002, the Company purchased all of the outstanding common stock, as well as a portion of the preferred stock, of Kimmel Automotive, Inc. ("Kimmel"), based in Baltimore, Maryland. Kimmel Automotive operated 34 tire and automotive repair stores in Maryland and Virginia, as well as Wholesale and Truck Tire Divisions (including two commercial stores). The purchase price for Kimmel was approximately $6 million in cash, plus the assumption of approximately $4 million of liabilities. The acquisition was financed through the Company's existing bank credit facility. In June 2002, the Company purchased the remaining preferred stock of Kimmel, with a face value of $1.6 million, for approximately $.7 million. The $.7 million is included in the liabilities assumed in the purchase of Kimmel. Additionally, effective June 29, 2002, the Company sold Kimmel's Truck Tire division, including its retread plant and two commercial stores, for approximately $.4 million in cash and $.5 million in notes receivable. The sale of these assets effectively reduced the net purchase price of the retail store operations. Note 10 - Supplemental Disclosure of Cash Flow Information - ---------------------------------------------------------- The following transactions represent noncash investing and financing activities during the periods indicated: QUARTER ENDED JUNE 28, 2003: In connection with recording the value of the Company's swap contracts, other comprehensive income increased by $210,000, other current liabilities decreased by $334,000, other long-term liabilities decreased by $5,000 and the deferred income tax liability was increased by $129,000. In connection with the purchase of Brazos Automotive Properties, L.P. in June 2003 (see Note 2), the Company paid $935,000 as follows:
Fair value of assets purchased $ 27,494,000 Long-term debt assumed 26,559,000 ------------- Cash paid, net of expenses $ 935,000 =============
QUARTER ENDED JUNE 29, 2002: In connection with the sale of assets, the Company reduced fixed assets by $15,000 and decreased other current liabilities by $15,000. In connection with recording the value of the Company's swap contracts, other comprehensive income decreased by $861,000, other current liabilities increased by $111,000, other long-term liabilities increased by $1,277,000 and the deferred income tax liability was reduced by $527,000. In connection with the acquisition of Kimmel Automotive, Inc., liabilities were assumed as follows (see Note 9):
Fair value of assets acquired $ 10,200,000 Cash paid, net of cash acquired 5,900,000 ------------ Liabilities assumed $ 4,300,000 ============
Cash paid has not been reduced by proceeds from the sale of Kimmel Truck Tire, as they were not received until the second quarter of fiscal 2003. CASH PAID DURING THE PERIOD:
2003 2002 ---- ---- Interest, net $374,000 $682,000 Income taxes 589,000 24,000
11 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 that 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 made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed. These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which the Company's stores are located, the need for and costs associated with store renovations and other capital expenditures, the effect of economic conditions, the impact of competitive services and pricing, product development, parts supply restraints or difficulties, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, risks relating to integration of acquired businesses and other factors set forth or incorporated elsewhere herein and in the Company's other Securities and Exchange Commission filings. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. The effect of the revisions of the accounting for barter credits and restructuring reserve on the quarter ended June 2002 was to decrease operating, selling, general and administrative expenses by $72,000 and increase the previously reported net income by $45,000 (no impact on diluted earnings per share). See footnote 1 to the condensed consolidated financial statements in Item 1 of this filing for further description of the accounting revisions and the financial statement lines that were restated for the quarter ended June 2002. 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 FISCAL JUNE ------------------------- 2003 2002 ----- ----- RESTATED Sales .................................. 100.0% 100.0% Cost of sales, including distribution and occupancy costs ................... 56.2 56.0 ----- ----- Gross profit ........................... 43.8 44.0 Operating, selling, general and administrative expenses ............... 29.9 33.7 ----- ----- Operating income ....................... 13.9 10.3 Interest expense - net ................. .8 1.1 Other expense .......................... .1 (.2) ----- ----- Income before provision for income taxes 13.0 9.4 Provision for income taxes ............. 4.9 3.6 ----- ----- Net income ............................. 8.1% 5.8% ===== =====
12 FIRST QUARTER ENDED JUNE 28, 2003 COMPARED TO FIRST QUARTER ENDED JUNE 29, 2002 Sales were $73.6 million for the quarter ended June 28, 2003 as compared with $67.9 million in the quarter ended June 29, 2002. The sales increase of $5.7 million, or 8.4%, was due to an increase of $1.9 million related to new stores and a comparable store sales increase of 5.9%. Kimmel stores are included in the comparable store sales numbers because they have been open one full fiscal year. At June 28, 2003 the Company had 561 company-operated stores compared with 548 stores at June 29, 2002. During the quarter ended June 28, 2003, the Company opened two stores and closed one. Gross profit for the quarter ended June 28, 2003 was $32.2 million or 43.8% of sales as compared with $29.9 million or 44.0% of sales for the quarter ended June 29, 2002. The decrease in gross profit for the quarter ended June 28, 2003, as a percentage of sales, is due to an increase in total material costs caused by a shift in mix to the scheduled maintenance and tire categories which have higher material costs than brakes and exhaust. Technician labor, as a percent of sales, was relatively consistent between the two quarters. However, productivity, as measured by sales per man-hour, improved 2.4% over the same quarter of last year. Since the Company formally began tracking this statistic over the last seven years, productivity has increased every year, and since the first quarter of fiscal 1998, is up 38%. Occupancy costs are also included in the Company's cost of sales line, and as a percent of sales, they declined as compared to the same quarter of last year. With strong positive comparable store sales, the Company was able to leverage those costs. Operating, selling, general and administrative ("SG&A") expenses for the quarter ended June 28, 2003 decreased by $.8 million to $22.1 million from the quarter ended June 29, 2002, and were 29.9% of sales as compared to 33.7% in the prior year quarter. The decrease in SG&A expense as a percentage of sales is due primarily to the fact that the Company recognized approximately $1.6 million of expense in the prior year quarter related to the vesting of performance-based stock options awarded to the Company's Chief Executive Officer when he joined the Company in January 1999, increasing SG&A by 240 basis points. This expense did not recur in the quarter ended June 28, 2003. Insurance expense declined in the current year quarter as compared to the prior year, primarily related to a difference in the timing of the recognition of expense. Additionally, there was a decrease in advertising expense due to reduced expenditures, as well as an increase in cooperative advertising credits from vendors. These larger decreases were partially offset by increases in benefits expense, as well as increased manager pay due to raises and higher commissions and bonuses on improved store performance. Operating income for the quarter ended June 28, 2003 of approximately $10.2 million increased 45.6% as compared to operating income for the quarter ended June 29, 2002, and increased as a percentage of sales from 10.3% to 13.9% for the same periods. Net interest expense for the quarter ended June 28, 2003 decreased by approximately $.2 million as compared to the same period in the prior year, and decreased from 1.1% to .8% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 28, 2003 decreased by approximately $13.0 million, resulting in a decrease in expense between the two quarters. This decrease was slightly offset by an increase in the weighted average interest rate for the current year quarter of approximately 50 basis points as compared to the prior year. This situation occurred due to the Company's continuing paydown of lower rate revolver debt, while higher rate capitalized leases remain because they are amortized over a longer term. Other expense increased by approximately $.2 million for the three months ended June 28, 2003 versus the prior year comparable period. The reason for the increase is primarily due to the fact that the Kimmel Truck Tire Division earned approximately $140,000 on a pre-tax basis in the first quarter of fiscal 2003, and under Statement of Financial Accounting Standards No. 144, its results are reported on the other income line on the income statement. The Kimmel Truck Tire Division was sold effective June 29, 2002. The effective tax rate for the quarters ended June 28, 2003 and June 29, 2002 was 38% of pre-tax income. 13 Net income for the quarter ended June 28, 2003 of $5.9 million increased 49.6% from net income for the quarter ended June 29, 2002. Earnings per share on a diluted basis for the quarter ended June 28, 2003 increased 47.6%. 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 and financial position 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 requirements in fiscal 2004 are the upgrading of facilities and systems in existing stores and the funding of its store expansion program, including potential acquisitions of existing store chains. For the three months ended June 28, 2003, the Company spent $3.0 million principally for equipment, as well as $.9 million for the acquisition of Brazos Automotive Properties, L.P. (see Note 2). Funds were provided primarily by cash flow from operations. Management believes that the Company has sufficient resources available (including cash and equivalents, net cash flow from operations and bank financing) to expand its business as currently planned for the next several years. Liquidity In March 2003, the Company renewed its credit facility agreement. The amended financing arrangement consists of an $83.5 million Revolving Credit facility (of which approximately $22.8 million was outstanding at June 28, 2003), and synthetic lease financing totaling $26.5 million (all of which was outstanding at June 28, 2003). The loans bear interest at the prime rate or other LIBOR-based rate options tied to the Company's financial performance. Interest only is payable monthly on the Revolving Credit and synthetic lease borrowings throughout the term. The Company must also pay a facility fee on the unused portion of the commitment. The Revolving Credit portion of the facility has a three-year term expiring in September 2006. On June 27, 2003, the Company purchased the entity holding title to the properties and debt under the synthetic lease and, accordingly, consolidated both the assets and debt related to such lease on its balance sheet at June 28, 2003. In accordance with the Company's credit facility agreement, the synthetic lease was converted to a three year, non-amortizing revolving credit loan, also expiring in September 2006. The loan bears interest at the same rate as the Company's Revolving Credit facility. The credit facility is secured by most of the Company's assets, with certain permissible exceptions. The Company has financed its office/warehouse facility via a 10 year mortgage with a current balance of $1.8 million, amortizable over 20 years, and a mortgage note payable of $.7 million due in a balloon payment in 2015. In addition, the Company has financed certain store properties and equipment with capital leases, which amount to $3.3 million and are due in installments through 2018. 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 In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments as liabilities because they embody obligations of the issuer. Provisions of this standard are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements," while other provisions revise that definition to include certain obligations that a reporting entity can or must settle through issuance of its own equity shares. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of this statement to have a significant impact on its consolidated financial statements. 14 In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and hedging activities, resulting primarily from decisions made by the FASB's Derivatives Implementation Group following the issuance of SFAS 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and is effective for hedging relationships designated after June 30, 2003. The Company is in the process of analyzing the impact of the adoption of this statement on its consolidated financial statements. Item 4. Controls and Procedures ----------------------- Disclosure controls and procedures The Company has established and currently maintains controls and other procedures designed to ensure that material information required to be disclosed in its reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission. In conjunction with the close of each fiscal quarter, the Company conducts an update and a review and evaluation of the effectiveness of the Company's disclosure controls and procedures. It is the opinion of the Company's principal executive officer and principal financial officer, based upon an evaluation completed as of the end of the fiscal quarter that the Company's disclosure controls and procedures are sufficiently effective to ensure that any material information relating to the Company is recorded, processed, summarized and reported to its principal officers to allow timely decisions regarding required disclosures. Changes in internal controls There were no significant changes in the Company's internal accounting processes and control procedures during the quarter. 15 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. 31.1 - Certification of Robert G. Gross pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 31.2 - Certification of Catherine D'Amico pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b. Reports on Form 8-K The Company filed a Form 8-K on April 3, 2003 to furnish its press release announcing selected operating results estimates for fiscal year ended March 29, 2003. An exhibit containing the Company's press release was attached. The Company filed a Form 8-K on May 29, 2003 to furnish its press release announcing the Company's unaudited operating results for fiscal year ended March 29, 2003. An exhibit containing the Company's press release was attached. The Company filed a Form 8-K on June 6, 2003 to furnish its press release announcing the Company's audited operating results for fiscal year ended March 29, 2003. An exhibit containing the Company's press release was attached. 16 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 12, 2003 By /s/ Robert G. Gross --------------------------------------------- Robert G. Gross President and Chief Executive Officer DATE: August 12, 2003 By /s/ Catherine D'Amico --------------------------------------------- Catherine D'Amico Executive Vice President-Finance, Treasurer and Chief Financial Officer 17 EXHIBIT INDEX
Exhibit No. Description Page No. ----------- ----------- -------- 11 Statement of computation of per share earnings 19 31.1 Certification of Robert G. Gross pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 20 31.2 Certification of Catherine D'Amico pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 21 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 22
18 EX-11 3 l02565aexv11.txt EX-11 STATEMENT OF COMPUTATION OF PER SHARE EARNGS MONRO MUFFLER BRAKE, INC. Exhibit 11 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS Earnings per share for each period was computed by dividing net income for such period by the appropriate weighted average number of common shares outstanding during such period.
QUARTER ENDED FISCAL JUNE 2003 2002 ---- ---- RESTATED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) DILUTED - ------- EARNINGS Net income available to common shares $5,919 $3,956 =========== ============ SHARES Weighted average number of common shares 8,810 8,515 Treasury Stock (217) (217) Assuming conversion of Class C Convertible Preferred Stock 451 599 Dilutive effect of outstanding options 543 492 ----------- ------------ Weighted average common shares outstanding - assuming dilution 9,587 9,389 =========== ============ DILUTED EARNINGS PER SHARE $ .62 $ .42 =========== ============ BASIC - ----- EARNINGS Net income available to common shares $5,919 $3,956 =========== ============ SHARES Weighted average number of common shares - basic 8,593 8,298 =========== ============ BASIC EARNINGS PER SHARE $ .69 $ .48 =========== ============
19 EX-31.1 4 l02565aexv31w1.txt EX-31.1 CERTIFICATION OF ROBERT GROSS Exhibit 31.1 CERTIFICATIONS I, Robert G. Gross, President and Chief Executive Officer, certify that: 1. I have reviewed this Form 10-Q of Monro Muffler Brake, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: August 12, 2003 /s/ Robert G. Gross ------------------------------------- Robert G. Gross President and Chief Executive Officer 20 EX-31.2 5 l02565aexv31w2.txt EX-31.2 CERTIFICATION OF CATHERINE D'AMICO Exhibit 31.2 CERTIFICATIONS I, Catherine D'Amico, Executive Vice President - Finance and Chief Financial Officer, certify that: 1. I have reviewed this Form 10-Q of Monro Muffler Brake, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: August 12, 2003 /s/ Catherine D'Amico -------------------------------------- Catherine D'Amico Executive Vice President - Finance and Chief Financial Officer 21 EX-32.1 6 l02565aexv32w1.txt EX-32.1 CERTIFICATION PURSUANT TO SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) Pursuant to, and solely for purposes of, 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), each of the undersigned hereby certifies in the capacity and on the date indicated below that: 1. The Quarterly Report of Monro Muffler Brake, Inc. ("Monro") on Form 10-Q for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Monro. /s/ Robert G. Gross Dated: August 12, 2003 -------------------------------------------- Robert G. Gross Chief Executive Officer /s/ Catherine D'Amico Dated: August 12, 2003 -------------------------------------------- Catherine D'Amico Chief Financial Officer 22 -----END PRIVACY-ENHANCED MESSAGE-----