Precision Auto Care, Inc. Announces Q4 Results
14 October 1998
Precision Auto Care, Inc. Announces Fourth Quarter Results and Restated Third Quarter Results of Operations and Amendment to Bank Credit Agreement
LEESBURG, Va., Oct. 14 -- Precision Auto Care, Inc.
today announced that the Company reported pro forma combined
revenues of $48.0 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 were pro forma combined revenues of $13.6 million and pro forma
combined net loss of $0.6 million, or $0.11 per share, compared to pro forma
combined revenues of $10.0 million and pro forma combined net income of
$0.00 million, or $0.00 per share, for the fourth quarter of the prior year.
These results are generally consistent with the results the Company had
estimated in its September 21, 1998 press release.
In the September 21, 1998 press release, the Company had 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 would 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 pro forma combined revenues
of $11.0 million and pro forma combined net income of $0.6 million, or
$0.11 per share, compared to pro forma combined revenues of $10.4 million and
pro forma combined net income of $0.4 million, or $0.08 per share for the same
period in the prior year. These results are slightly less than the results
the Company had estimated in its prior press release.
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.
In its previous press release, the Company stated that it was not in
compliance with covenants contained in its bank credit agreement and that the
company was in the process of seeking waivers or modifications of the
covenants from its bank lenders. These waivers and modifications have been
obtained. The Company presently has borrowed approximately $24 million under
its bank credit agreement. $14 million of this represents amounts extended
under a portion of the bank credit facility that was dedicated to funding
acquisitions (the "Acquisition Line of Credit") and $10 million represents
funds advanced under a general revolving credit portion of the credit facility
(the "Line of Credit Loan").
The Company and the bank have entered into an amendment to its credit
agreement pursuant to which amounts available under the Acquisition Line of
Credit and the Line of Credit Loan will be reduced to $10 million and
$5 million, respectively, for a total of $15 million. These reductions will
become effective on the earlier of February 1, 1999 or the execution of
certain real estate mortgage financing transactions which the Company has
initiated recently. The Company expects that these mortgage financings will
yield approximately $15 million in net cash proceeds and will require monthly
payments of interest (at an annual rate of approximately 8%) and principal
(amortized over a 20 year period). If the real estate transactions are
accomplished on such terms, the Company expects that the Acquisition Line of
Credit will have a $10 million balance and the $5 million Line of Credit Loan
will be available for general working capital purposes. Pursuant to the
amendment, amounts repaid under the Acquisition Line of Credit may not be
re-borrowed and loans extended by the bank under the Acquisition Line of
Credit and the Line of Credit Loan will mature on September 30, 1999 instead
of the November 1, 2000 date which was in effect prior to the amendment.
The terms of the amendment also require the Company to obtain $2 million
in the form of equity financing or debt financing that is subordinate to the
bank, in each case on terms acceptable to the bank, no later than October 15,
1998. Substantially all of the Company's Board of Directors have signed
pledges to provide the Company with $2 million of subordinated debt financing
in order to satisfy this requirement and the Company expects that it will
complete this financing by the October 15, 1998 deadline. The Company
presently expects that such subordinated debt will bear interest at a rate of
up to 14% and that the terms of the subordinated debt will call for increases
in the interest rate if the Company defaults on the subordinated debt or any
of the Company's senior indebtedness.
While the Company has initiated the process pursuant to which it expects
to obtain the real estate financing described above, the Company has not yet
received a commitment letter or other binding agreement with respect to such
financing and there can be no assurance that the Company will consummate real
estate financing on the terms described above. In the event that the Company
fails to consummate the real estate mortgage transactions, the Company will
need to seek alternative sources of financing and the Company has initiated a
sale/leaseback financing effort as one such alternative. Also, to the extent
that the Company realizes less than $10 million in net cash proceeds from such
financing the Company will be obligated to reduce the Acquisition Line of
Credit and the Line of Credit Loan to the required levels from other sources
and there can be no assurance that other sources will be available or the
terms on which such sources may be available.
The Company believes that the lending arrangements discussed above
combined with expected cash flow from operations will be sufficient to support
its existing operations; provided the Company obtains the subordinated debt
financing and obtains approximately $15 million in net cash proceeds from the
real estate financing transactions discussed above. If the Company fails to
obtain the subordinated debt financing or the real estate financing on the
terms described above (and is unable to arrange alternative financing in a
timely fashion), or fails to satisfy the revised financial and other covenants
set forth in the Company's bank credit facility as it has been amended, the
Company's liquidity, financial condition and results of operations could be
materially adversely affected and the Company would be in default of the bank
credit agreement.
Precision Auto Care, Inc. is the world's largest franchisor
of auto care centers, with 651 operating centers as of October 1, 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'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 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. operates, (v)
difficulties in integrating all of the businesses Precision Auto Care, Inc.
has acquired, and (vi) the risks identified in the Company's filings with the
Securities and Exchange Commission, including the Annual Report on Form 10-K
for the year ended June 30, 1998 as filed with the Commission on September 28,
1998 and as amended on October 13, 1998.
Thousands except per share amounts
Three Months Ending March 31
Actual Pro Forma
1998 1997 1998 1997
Revenue $11,003 $6,773 $11,003 $10,387
Net income 619 254 619 436
Earnings per share $0.11 $0.16 $0.11 $0.08
Shares outstanding 5,542 1,580 5,542 5,450
Three Months Ending June 30
Actual Pro Forma
1998 1997 1998 1997
Revenue $13,628 $7,015 $13,628 $9,967
Net income (loss) (612) 133 (612) 19
Earnings (loss)
per share ($0.11) $0.09 ($0.11) $0.00
Shares outstanding 6,173 1,480 6,173 5,480
Twelve Months Ending June 30
Actual Pro Forma
1998 1997 1998 1997
Revenue $41,776 $27,457 $47,975 $43,107
Net income 1,228 1,255 1,826 1,817
Earnings per share $0.28 $0.82 $0.32 $0.33
Shares outstanding 4,323 1,527 5,707 5,497