The statements contained in this Quarterly Report on 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. When used in this report, statements containing the words "believe", "anticipate", "intend", "expect", "may", "could", "plan", "continue", "should", "project", "estimate" and words of similar report constitute forward-looking statements. 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, the effect of economic conditions, product demand, dependence on and competition within the primary markets in which the our stores are located, the need for and costs associated with store renovations and other capital expenditures, 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 protection of customer and employee personal data, risks relating to litigation, risks relating to integration of acquired businesses, the availability of vendor rebates and other factors set forth or incorporated elsewhere herein and in the our other Securities and Exchange Commission filings, including the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012. Except as required by law, we do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf.

Results of Operations

The following table sets forth income statement data of Monro Muffler Brake,
Inc. expressed as a percentage of sales for the fiscal periods indicated:



                                                       Quarter Ended              Nine Months Ended
                                                      Fiscal December              Fiscal December
                                                    2012          2011           2012           2011
Sales                                                100.0 %       100.0 %         100.0 %       100.0 %

Cost of sales, including distribution and
occupancy costs                                       63.4          61.6            61.3          59.2

Gross profit                                          36.6          38.4            38.7          40.8

Operating, selling, general and administrative
expenses                                              26.7          25.5            27.9          26.4

Operating income                                       9.9          12.8            10.9          14.4

Interest expense - net                                 0.8           0.7             0.8           0.7

Other income - net                                     0.0           0.0             0.0           0.0

Income before provision for income taxes               9.1          12.1            10.1          13.7

Provision for income taxes                             3.2           4.5             3.7           5.1

Net income                                             5.9 %         7.7 %           6.4 %         8.6 %

Third Quarter and Nine Months Ended December 29, 2012 Compared to Third Quarter and Nine Months Ended December 24, 2011

Sales were $190.4 million for the quarter ended December 29, 2012 as compared with $176.7 million in the quarter ended December 24, 2011. The sales increase of $13.7 million or 7.8%, was due to an increase of $23 million related to new stores. Partially offsetting this was a comparable store sales decrease of 5.9% and a decrease in sales from closed stores amounting to $1.6 million. There were 89 selling days in the quarter ended December 29, 2012 as compared to 90 in the quarter ended December 24, 2011. Adjusting for days, comparable store sales decreased 4.9%.

Similar to transactions that occurred in previous years, during the quarter ended December 29, 2012, we completed the bulk sale of approximately $2.4 million of slower moving inventory to a barter company in exchange for barter credits. The barter transactions for the quarter ended December 29, 2012 decreased gross profit and operating expenses each by .2% of sales, as compared to the quarter ended December 24, 2011. There were $.3 million of barter transactions in the quarter ended December 24, 2011.

Sales were $536.1 million for the nine months ended December 29, 2012 as compared with $514.8 million in the nine months ended December 24, 2011. The sales increase of $21.3 million or 4.1%, was due to an increase of $56.1 million related to new stores. This was partially offset by a decrease in comparable store sales of 5.9% and a decrease in sales from closed stores amounting to $5.3 million. There were 270 selling days in the first nine months of fiscal 2013 and 271 days in the first nine months of fiscal 2012. Adjusting for days, comparable store sales decreased 5.6%.

For the nine months ended December 29, 2012 and December 24, 2011, we sold a total of $2.4 million and $3.2 million respectively, of slow moving inventory in exchange for barter credits.

At December 29, 2012, we had 918 Company-operated stores and three franchised locations as compared with 803 company-operated stores and three franchised locations at December 24, 2011. (At March 31, 2012, there were 803 Company-operated stores.) During the quarter ended December 29, 2012, we added 65 stores. No stores were closed during the quarter ended December 29, 2012. Year to date, we added 121 stores and closed six.

We believe that the decline in comparable store sales resulted mainly from the continued weak U.S. economy and the continuing impact of a mild winter in 2011, early 2012 and thus far through December 2012. With lack of consumer confidence and high unemployment, we believe that customers are continuing to defer tire purchases and service repairs, especially on higher ticket items. While it appears that some repairs and tire purchases are being deferred, most can only be deferred for a period of time due to safety issues or state inspection requirements.

Gross profit for the quarter ended December 29, 2012 was $69.6 million or 36.6% of sales as compared with $67.8 million or 38.4% of sales for the quarter ended December 24, 2011. The decrease in gross profit for the quarter ended December 29, 2012, as a percentage of sales, is due to several factors.

Distribution and occupancy costs increased as a percentage of sales from the prior year as we lost leverage on these largely fixed costs with lower overall comparable store sales.

Total material costs, including outside purchases, increased as a percentage of sales as compared to the prior year. This was primarily due to a shift in mix to the lower margin service and tire categories, the latter due in part to the acquisition of more tire stores. There was also an increase in outside purchases as our store personnel tend to reach for sales in slower economic times, performing some services they may not normally perform, requiring them to buy additional parts outside. These increases were partially offset by a decrease in oil costs as compared to the prior year, helped in part by our newly-negotiated oil pricing.

Labor costs were relatively flat as a percentage of sales as compared to the prior year.

Gross profit for the nine months ended December 29, 2012 was $207.6 million, or 38.7% of sales, as compared with $209.9 million or 40.8% of sales for the nine months ended December 24, 2011. The year-to-date decrease in gross profit as a percent of sales is due to increased material costs as described above, along with increased distribution and occupancy costs and labor costs, due to loss of leverage on lower comparable store sales.

Operating expenses for the quarter ended December 29, 2012 were $50.8 million or 26.7% of sales as compared with $45.1 million or 25.5% of sales for the quarter ended December 24, 2011. Increased operating expenses such as manager pay, advertising and supplies related to the fiscal 2013 acquired stores accounted for $4.9 million of the increase. Additionally, operating expenses were reduced last year by $1.7 million gain on the sale of seven stores in Long Island. Excluding that gain, operating expenses related to fiscal 2013 acquired stores and due diligence costs of $.8 million incurred this quarter related to the fiscal 2013 acquisitions, operating expenses are down a total of $1.7 million from the prior year third quarter. This demonstrates that on a comparable store basis, we experienced some leverage in this line through focused cost control and pay plans which appropriately adjust for performance.

For the nine months ended December 29, 2012, operating expenses increased by $13.4 million to $149.3 million from the comparable period of the prior year and were 27.9% of sales as compared to 26.4%. Accounting for the bulk of the increase were the aforementioned $1.7 million fiscal 2012 gain, $10.0 million of operating expenses related to the fiscal 2013 acquired stores and $1.5 million of due diligence costs, all totaling $13.2 million.

Operating income for the quarter ended December 29, 2012 of approximately $18.8 million decreased by 16.8% as compared to operating income of approximately $22.6 million for the quarter ended December 24, 2011, and decreased as a percentage of sales from 12.8% to 9.9%.

Operating income for the nine months ended December 29, 2012 of approximately $58.2 million decreased by 21.3% as compared to operating income of approximately $74.0 million for the nine months ended December 24, 2011, and decreased as a percentage of sales from 14.4% for the nine months ended December 24, 2011 to 10.9% for the nine months ended December 29, 2012.

Net interest expense for the quarter ended December 29, 2012 increased by $.3 million to $1.5 million and .8% as a percentage of sales, as compared to .7% for the same period in the prior year. The weighted average debt outstanding for the quarter ended December 29, 2012 increased by approximately $58.3 million as compared to the quarter ended December 24, 2011, primarily related to an increase in debt outstanding under our revolving Credit Facility agreement for the purchase of our recent acquisitions. Largely offsetting this increase was a decrease in the weighted average interest rate of approximately 370 basis points from the prior year due to a shift in the percentage of debt (revolver vs. capital leases) outstanding at a lower rate. Additionally, amortization of financing fees over the higher outstanding revolving credit balance for the quarter is causing a decrease in the weighted average interest rate.

Net interest expense for the nine months ended December 29, 2012 increased by approximately $.5 million as compared to the same period in the prior year, and increased .1% as a percentage of sales for the same periods. Weighted average debt increased by approximately $39.3 million and the weighted average interest rate decreased by approximately 270 basis points as compared to the same period of the prior year.

The effective tax rate for the quarter ended December 29, 2012 and December 24, 2011 was 35.4% and 36.9%, respectively, of pre-tax income.

The effective tax rate for the nine months ended December 29, 2012 and December 24, 2011 was 36.6% and 37.5%, respectively, of pre-tax income.

Net income for the quarter ended December 29, 2012 of $11.3 million decreased 16.9% from net income for the quarter ended December 24, 2011. Earnings per share on a diluted basis for the quarter ended December 29, 2012 of $.35 decreased 16.7%.

For the nine months ended December 29, 2012, net income of $34.4 million decreased 21.9% and diluted earnings per share of $1.07 decreased 21.9%.

Capital Resources and Liquidity

Capital Resources

Our primary capital requirements in fiscal year 2013 are for upgrading our facilities and systems, including the completion of the approximate $4.5 million expansion of our Rochester, New York office and warehouse facility which began in fiscal 2012, and the funding of our store expansion program, including potential acquisitions of existing store chains. For the nine months ended December 29, 2012, our primary capital requirements involved the funding of our fiscal year 2013 acquisitions totaling $146 million as well as the upgrading of facilities and systems and the funding of our store expansion program totaling $21.1 million. Funds for these capital expenditures were provided primarily by cash flow from operations and from our revolving credit facility.

We paid cash dividends of $12.7 million during the nine months ended December 29, 2012. In May 2012, our Board of Directors declared its intention to pay a regular quarterly cash dividend of $.10 per common share or common share equivalent beginning with the first quarter of fiscal year 2013. Our Board of Directors accelerated the record and payment date of the $.10 per share regular quarterly cash dividend for the fourth quarter such that the dividend was paid out together with the third quarter dividend in December 2012. This combined dividend of $.20 per share was payable on December 21, 2012 to shareholders of record as of December 11, 2012. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.

On December 30, 2012, we acquired 12 retail tire and automotive repair stores from Enger Auto Service Mentor, Inc. and nine retail tire and automotive repair stores from Tire King of Durham, Inc. These acquisitions were financed through our existing credit facility.

We also plan to continue to seek suitable acquisition candidates. We believe we have sufficient resources available (including cash and equivalents, net cash flow from operations and bank financing) to expand our business as currently planned for the next twelve months.

Liquidity

In June 2011, we entered into a five-year, $175 million revolving Credit Facility agreement with seven banks. The Credit Facility amended and restated, in its entirety, the Credit Facility previously entered into by Monro as of July 2005 and amended from time to time. The Credit Facility also provided an accordion feature permitting us to request an increase in availability of up to an additional $75 million.

In December 2012, the Credit Facility was amended to include the following: the committed sum was increased by $75 million to $250 million; the term was extended for another one and a half years, such that the Facility now expires in December 2017; and the $75 million accordion feature was maintained. There were no other changes in terms including those related to covenants or interest rates. There are now six banks participating in the syndication. There was $124 million outstanding at December 29, 2012. We were in compliance with all debt covenants at December 29, 2012.

Within the Credit Facility, we have a sub-facility of $40 million available for the purpose of issuing standby letters of credit. There was an outstanding letter of credit for $20 million at December 29, 2012.

The net availability under the Credit Facility at December 29, 2012 was $106 million.

Specific terms of the Credit Facility permit the payment of cash dividends not to exceed 50% of the prior year's net income, and permit mortgages and specific lease financing arrangements with other parties with certain limitations. Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions. The agreement also requires the maintenance of specified interest and rent coverage ratios.

We have financed certain store properties and equipment with capital leases, which amounted to $49 million at December 29, 2012 and are due in installments through 2042.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued new accounting guidance that revises the manner in which entities present comprehensive income in their financial statements. The guidance removed the presentation options in previously issued accounting guidance on comprehensive income, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The guidance does not change the items that must be reported in other comprehensive income. This guidance is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011. The adoption of this guidance in the first quarter of fiscal 2013 required new presentation of our Consolidated Financial Statements.

In September 2012, the Financial Accounting Standards Board issued updated guidance on the periodic testing of indefinite-lived intangible assets for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that indefinite-lived intangible assets might be impaired and whether it is necessary to perform further impairment testing required under current accounting standards. This guidance is applicable for fiscal years beginning after September 15, 2012, with early adoption permitted. As all our intangible assets have definitive lives, this guidance will have no impact on our Consolidated Financial Statements.