Precision Auto Care, Inc. Announces Anticipated Fourth Quarter Results
21 September 1998
Precision Auto Care, Inc. Announces Anticipated Fourth Quarter Results And Restated Third Quarter Results of Operations
LEESBURG, Va., Sept. 21 -- Precision Auto Care, Inc.
today announced that the Company expects to report pro forma
combined revenues of $48.1 million and pro forma combined net income of
$1.8 million, or $0.32 per share, for the year ended June 30, 1998, compared
to pro forma combined revenues of $43.1 million and pro forma combined net
income of $1.8 million, or $0.33 per share, for the prior year. Results for
the fourth quarter are expected to be pro forma combined revenues of
$13.6 million and pro forma combined net loss of $0.7 million, or $0.11 per
share, compared to pro forma combined revenues of $10.0 million and pro forma
combined net income of $0.0 million, or $0.00 per share, for the fourth
quarter of the prior year.
In addition, the Company announced that the manner in which it must
account for sales of certain car washes, a lube center, and fast lube
buildings negatively affected results of the fourth quarter and will result in
a restatement of its unaudited financial statements for the quarter ended
March 31, 1998. Previously reported results for the third quarter were pro
forma combined revenues of $11.8 million and pro forma combined net income of
$1.0 million, or $0.18 per share. After the restatement, the results for the
third quarter are expected to be pro forma combined revenues of $11.2 million
and pro forma combined net income of $0.7, or $0.12 per share, compared to pro
forma combined revenues of $10.4 million and pro forma combined net income of
$0.4, or $0.08 per share for the same period in the prior year.
The Company stated that the results presented herein are preliminary and
approximate, and that it expects to issue a press release on the final results
for these periods within the next several weeks. Pro forma combined results
for all periods presented include the results for the companies acquired in
the Company's November 1997 initial public offering and simultaneous merger
transaction (the "Merger").
As previously announced, the Company has established a turnkey sales
program under which completed and operating Precision Auto Care centers would
periodically be sold to franchisees. During the third and fourth quarters,
the Company sold car washes and a lube center to franchisees under this
program and recorded the related revenues of $1.5 million and gains of
$0.9 million on those sales. Because these washes and lube centers were
acquired in connection with the Merger, the manner in which the Company must
account for such sales is to reduce previously recorded goodwill rather than
record the gains into income for the period. Commencing July 1, 1998, the
Company will be able to immediately recognize revenues and gains from future
sales of car washes and lube centers acquired in connection with the Merger.
Since the Merger, the Company has been building and selling modular
buildings for fast oil change and lube centers. These buildings are sold to
customers and installed on a site, allowing them to more rapidly start
operations than with a conventional building. The timing for installation of
these buildings is dependent on several factors, including zoning, permitting,
site selection and site preparation. Eight of the buildings recorded as sales
in the third and fourth quarter were not installed during the related periods
and under its current contractual arrangements with these customers, the
Company must defer recognition of the $1.4 million of revenues and
$0.7 million of contribution from these transactions until such time as the
buildings are installed.
The Company also reported that it had been negotiating the terms of seven
acquisitions that would have added approximately 470 centers and approximately
$210 million in system-wide retail sales to the Company's existing retail
system of 654 centers and $220 million in system-wide retail sales.
(System-wide retail sales include sales of both franchised stores, a portion
of which is recognized by the Company as royalty revenue, and Company-owned
stores.) The Company had been arranging approximately $150 million of
high-yield subordinated debt and real estate financing for use in financing
such proposed acquisitions. Given the recent weakness in the high-yield
market and the potential impact of the results announced herein, the Company
will defer these acquisition and financing activities at the present time. As
a result, the Company's results of operations for the quarters ended June 30,
1998 and September 30, 1998 will be adversely impacted by a charge to earnings
of approximately $1.5 million in professional fees, deposits and other costs
relating to these transactions. Approximately $0.8 million of this charge
will apply to the quarter ended June 30, 1998 and $0.7 million will apply to
the quarter ended September 30, 1998. In addition, the Company stated that
results for the quarter ending September 30, 1998 also will be adversely
affected by expenses associated with increases in personnel and other actions
undertaken by the Company in anticipation of the completion of these
acquisitions.
The Company stated that it is not in compliance with certain of the
financial covenants contained in its bank credit agreement and the Company is
in the process of seeking waivers or modifications of these covenants from its
bank lenders. As the result of acquisitions and increased working capital
requirements, the Company has drawn substantially all of the amounts available
under its current bank credit facility. The Company requires additional
working capital financing and intends to augment amounts available under its
bank credit facility with proceeds from real estate based financing
transactions which the Company has been pursuing and which are anticipated to
be closed in October 1998. While the Company believes that it will be
successful in obtaining waivers or modifications of its bank covenants and in
closing such real-estate based financing, there can be no assurance that it
will be able to do so. In the event that the Company is unable to obtain
covenant waivers or modifications from its lender or to complete the real
estate financings on a timely basis, the Company's financial condition,
results of operations and liquidity will be adversely and materially affected.
"Looking beyond the impact of these accounting adjustments, we remain
optimistic about the Company and its future prospects," said John F. Ripley,
President and CEO of Precision Auto Care, Inc. "Same store sales, the most
widely used measure of health in a retail system, were up approximately 4%
over last year, the number of franchise sales inquiries has increased, our
franchise system and others are positively responding to our two new brands,
and our recently redesigned car wash equipment package has received an
overwhelmingly positive response in the car wash industry. I look forward to
getting these accounting adjustments behind us and focusing on further
strengthening the core business," Ripley added.
Precision Auto Care, Inc. is the world's largest franchisor
of auto care centers, with 654 operating centers as of June 30, 1998. The
Company franchises and operates Precision Tune Auto Care, Precision Auto Wash,
and Precision Lube Express centers around the world.
Cautionary Statement: The statements in this press release constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements are subject to risks and uncertainties that could cause
Precision Auto Care Inc.'s actual results, performance or achievements to
differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks and
uncertainties include, but are not limited to, (i) the risks and uncertainties
reflected and set forth in the text of this press release, (ii) the fact that
Precision Auto Care Inc. and the companies it acquired on and subsequent to
the date of its initial public offering have only recently conducted
operations as a combined company, (iii) the seasonal nature of portions of the
business, (iv) the highly competitive markets in which Precision Auto Care
Inc. operations, (v) difficulties in integrating all of the businesses
Precision Auto Care Inc. has acquired, (vi) risks associated with Precision
Auto Care Inc.'s ability to continue its strategy of growth through
acquisitions and (vii) risks associated with Company's ability to make or
effect acquisitions in the future and to successfully integrate newly-acquired
businesses into existing operations and the risks associated with such
newly-acquired businesses.