UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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 number 1-14510
PRECISION AUTO CARE, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1847851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
748 Miller Drive, S.E., Leesburg, Virginia 20175
(Address of principal executive offices)
(Zip Code)
703-777-9095
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date 5,474,435 shares of
Common Stock as of December 15, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
Precision Auto Care, Inc. ("PAC" or the "Company") was established to create an
international provider of automotive services which are offered principally as
franchise operations marketed under the "Precision" brand name. On November 12,
1997, simultaneously with the closing of its initial public offering (the
"Offering") of common stock (the "Common Stock"), PAC acquired in a series of
separate merger and exchange offer transactions, businesses engaged in (i)
franchising and operating automobile repair and maintenance service centers
("Precision Tune Auto Care"), (ii) operating self-service and automated car wash
centers ("Precision Auto Wash"), and (iii) franchising and operating fast oil
change and lubrication service centers ("Precision Lube Express"). Through the
Combinations, PAC acquired the outstanding capital stock of WE JAC Corporation
("WE JAC"), Miracle Industries, Inc. ("Miracle Industries"), Lube Ventures, Inc.
("Lube Ventures"), Rocky Mountain Ventures, Inc. ("Rocky Mountain I"), Rocky
Mountain Ventures II, Inc. ("Rocky Mountain II"), Miracle Partners, Inc.
("Miracle Partners"), and membership interests in Prema Properties, Ltd. ("Prema
Properties") Ralston Car Wash, Ltd. ("Ralston Car Wash"), and KBG, LLC ("KBG")
(each a "Constituent Company" and collectively the "Constituent Companies").
The consideration for the Combinations consisted of Common Stock. The
Combinations are accounted for under the purchase method of accounting. WE JAC
has been designated as the accounting acquirer for financial statement
presentation purposes in accordance with the Securities and Exchange Commission
("SEC") Staff Accounting Bulletin No. 97, which states that the combining
company which receives the largest portion of voting rights in the combined
corporation is presumed to be the acquirer for accounting purposes. Therefore,
the accompanying historical financial statements as of June 30, 1997 and for the
three month periods ended September 30, 1996 and 1997 that are presented as the
historical financial statements of the registrant are statements of WE JAC.
Unless the context otherwise requires, all references herein to the Company
include WE JAC and the other Constituent Companies.
Operating results for interim periods are not necessarily indicative of the
results for full years. The financial statements included herein should be read
in conjunction with the Pro Forma Combined Financial Statements of the Company
and the related notes thereto, the Financial Statements of WE JAC, Miracle
Industries, Lube Ventures, and Prema Properties, and related notes thereto, and
management's discussion and analysis of financial condition and results of
operations related thereto, all of which are included in the Company's
Registration Statement on Form S-1 (No. 333-34439), as amended (the
"Registration Statement"), filed with the SEC in connection with the Offering.
Additionally the financial statements herein should be read in conjunction with
the Financial Statements of Rocky Mountain I, Rocky Mountain II, Miracle
Partners, and Ralston Car Wash and related notes thereto, all of which are
included in the Company's Registration Statement on Form S-4 (No. 333-34449) as
amended (the "Registration Statement") filed with the SEC in conjunction with
the Combination.
2
<PAGE>
Precision Auto Care, Inc.
Balance Sheets
(In Thousands)
Pro Forma
Combined as Adjusted
for Offering and
Acquisition
September 30,
1997
(Unaudited)
-------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 238
Accounts receivable, net of allowance 5,062
Inventory 2,751
Notes receivable, current portion, net of allowance 705
Other 2,557
--------------
Total current assets 11,312
Notes receivable, noncurrent portion, net of allowance 1,346
Property, plant, and equipment, net. 14,338
Other assets:
Franchise rights and goodwill, net of accumulated amortization 29,433
Other 908
--------------
Total other assets 30,341
==============
Total assets $ 57,338
==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilites $ 7,465
Income taxes payable 687
Deferred revenue, current portion 413
--------------
Total current liabilities 8,565
Long term debt 4,064
Other 643
--------------
Total liabilities 13,273
Stockholders' equity:
Preferred stock, $.01 par; 1,000,000 shares authorized;
none outstanding
Common stock, $.01 par; 19,000,000 shares authorized;
5,474,435 issued and outstanding 55
Additional paid-in capital 41,256
Retained earnings 5,227
Treasury stock, at cost; 247,040 shares in 1997 (2,472)
--------------
Total stockholders' equity 44,065
==============
Total liabilities and stockholders' equity $ 57,338
==============
See notes to condensed consolidated finanancial statements.
1
<PAGE>
Precision Auto Care, Inc.
Statements of Operations
(In Thousands, Except Share Data)
Pro Forma Combined As Adjusted
For Combination and Offering
Three Months Ended September 30,
1996 1997
--------------------------------
Sales
Franchising
Development $ 386 $ 136
Royalty 3,549 3,795
Manufacturing & Distribution 6,185 6,781
Company Center Operations 881 952
Rentals 42 35
Other 18 21
-------------- --------------
Total Sales 11,062 11,719
Direct Cost 8,213 8,399
-------------- --------------
Contribution 2,848 3,320
General & Administrative 982 1,100
Depreciation 257 246
Amortization 339 391
-------------- --------------
Operating Income 1,270 1,582
Other Income (Expense)
Other Income (Expense) (53) 93
Interest Income (0) 55
Interest Expense (437) (115)
-------------- --------------
Total Other Income (Expense) (490) 33
Earnings Before Taxes 780 1,615
-------------- --------------
Income Taxes 392 731
-------------- --------------
Net Income $ 388 $ 884
============== ==============
Pro forma net income per share $ 0.07 $ 0.16
============== ==============
Shares used in computing pro forma
net income per share 5,496,880 5,496,880
============== ==============
See notes to condensed consolidated finanancial statements.
2
<PAGE>
Precision Auto Care, Inc.
Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
WE JAC WE JAC
June 30, September 30,
1997 1997
(Unaudited)
-------------- --------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 577 $ 564
Accounts receivable, net of allowance 4,080 4,029
Inventory 768 758
Notes receivable, current portion, net of allowance 513 685
Other 1,873 2,256
-------------- --------------
Total current assets 7,811 8,292
Notes receivable, noncurrent portion, net of allowance 1,361 1,346
Property, plant, and equipment, net. 854 832
Other assets:
Franchise rights and goodwill, net of accumulated amortization 15,879 15,833
Other 790 750
-------------- --------------
Total other assets 16,669 16,583
============== ==============
Total assets $ 26,694 $ 27,053
============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilites $ 5,203 $ 5,457
Income taxes payable 680 687
Current maturities of debt 7,228 6,960
Current maturities, revolving line-of-credit 1,529 1,589
Deferred revenue, current portion 413 413
-------------- --------------
Total current liabilities 15,053 15,106
Long term debt 622 582
Other 724 643
-------------- --------------
Total liabilities 16,400 16,331
Stockholders' equity:
Common stock, $.01 par; 2,600,000 shares authorized;
1,580,740 issued and 1,333,700 shares outstanding 16 16
Additional paid-in capital 8,408 8,408
Retained earnings 4,343 4,770
Treasury stock, at cost; 247,040 shares in 1997 (2,472) (2,472)
-------------- --------------
Total stockholders' equity 10,294 10,722
============== ==============
Total liabilities and stockholders' equity $ 26,694 $ 27,053
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Precision Auto Care, Inc.
Statement of Operations
(In Thousands)
WE JAC Only
Three Months Ended September 30,
1996 1997
--------------------------------
Sales
Franchising
Development $ 366 $ 105
Royalty 3,546 3,786
Manufacturing & Distribution 2,850 2,821
Rentals 42 35
Other 18 21
-------------- -------------
Total Sales 6,822 6,767
Direct Cost 5,010 4,730
-------------- -------------
Contribution 1,812 2,038
General & Administrative 563 805
Depreciation 45 50
Amortization 239 230
-------------- -------------
Operating Income 964 953
Other Income (Expense)
Assets held for resale (21) 16
Other Income (Expense) (21) 72
Interest Income 38 37
Interest Expense (228) (296)
-------------- -------------
Total Other Income (Expense) (232) (172)
Earnings Before Taxes 732 781
-------------- -------------
Income Taxes 336 353
-------------- -------------
Net Income $ 396 $ 428
============== =============
See notes to condensed consolidated financial statements.
4
<PAGE>
Precision Auto Care, Inc.
Statements of Cash Flow
(In Thousands)
WE JAC Only
Three Months Ended September 30,
1996 1997
---------------------------------
Operating Activities:
Net Income $ 396 $ 428
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 284 279
Disposal of property, plant and equipment 149
Deferred income taxes
Changes in operating assets and liabilities
Accounts and notes receivable (150) (106)
Inventory (25) 10
Prepaid expenses (30) (82)
Accounts payable and accrued liabilities 143 254
Income taxes payable (63) 7
Deferred revenue, net 1 (82)
Deferred cost (302)
------------------------------
Net cash provided by operating activities 705 406
Investing activities:
Purchases of property, plant and equipment (70) (28)
Purchase of franchise agreements and rights (304) (143)
Purchase of trademarks (7)
------------------------------
Net cash used in investing activities (381) (171)
Financing activities:
Issuance of common stock 9
Loan acquisition costs
Proceeds from term loan and line of credit 280 60
Proceeds from note payable 328
Repayments of long-term debt and notes payable (1,205) (308)
------------------------------
Net cash used in financing activities (588) (248)
------------------------------
Net change in cash and cash equivalents (264) (13)
Cash and cash equivalents at beginning of period 751 577
------------------------------
Cash and cash equivalents at end of period $ 487 $ 564
==============================
See notes to condensed consolidated financial statements.
<PAGE>
Notes to Financial Statements
September 30, 1997
(Unaudited)
1. Basis of Presentation
Precision Auto Care, Inc. ("PAC" or the "Company") was established to create an
international provider of automotive services which are offered principally as
franchise operations marketed under the "Precision" brand name. On November 12,
1997, PAC acquired the Constituent Companies for consideration consisting of
common stock. The closing of the Offering also occurred on that date.
For financial statement purposes, WEJAC, one of the Constituent Companies, has
been identified as the accounting acquirer. Accordingly, the historical
financial statements represent those of WEJAC prior to the Combination and the
Offering. The Combination was accounted for using the purchase method of
accounting. Allocations of the purchase price to the assets acquired and
liabilities assumed of the Constituent Companies have been initially assigned
and recorded based on the book value at the time of the Combination and may be
revised as additional information concerning the valuation of such assets and
liabilities becomes available.
The interim financial statements for the three month periods ended September 30,
1996 and 1997 are unaudited, and certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments necessary to
fairly present the financial position of the company, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
The unaudited pro forma combined financial information for the three month
periods ended September 30, 1996 and 1997 includes the results of the
Constituent Companies as if the Combinations had occurred at the beginning of
each respective three month period. The unaudited pro forma combined balance
sheet gives effect to the Combinations as if they had occurred on September 30,
1997. The pro forma combined financial information includes the effects of : (i)
the Combinations; (ii) the provision for income taxes as if the income was
subject to corporate federal and state income taxes during the periods; (iii)
repayment of debt of $18.6 million; and (iv) amortization of goodwill resulting
from the Combinations. Prior to the Combinations, the Constituent Companies were
not under common control or management; accordingly, the pro forma combined
financial information may not be indicative of or comparable to the Company's
post-Combination results of operations.
2. Summary of Significant Accounting Policies
There have been no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to Note
1 to the Financial Statements to WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, and
Ralston Car Wash, included
3
<PAGE>
in the Financial Statements contained in the Company's Registration Statements
on Forms S-1 and/or S-4.
3. Credit Facility and Long-Term Debt
On November 12, 1997, the Company received a commitment from Signet Bank for a
$20 million line of credit. $10 million of the facility may be used as a
revolving line and credit and $10 million for acquisitions and capital
expenditures. The credit agreement will require the Company to comply with
various loan covenants, which include maintenance of certain financial ratios,
restrictions on additional indebtedness and restrictions on liens, guarantees,
advances, capital expenditures, sale of assets and dividends. Interest on the
outstanding balances will be computed on either the Bank's floating and
fluctuating prime commercial lending rate or the London Interbank Offered rate
(LIBOR) plus a margin ranging from .25% to 2.00% depending on certain financial
ratios. Availability fees ranging from .25% to .30% will be payable on the
unused portion of the line of credit. The Company's subsidiaries are required to
guarantee repayment of all amounts due under the credit facility.
On November 12, 1997, proceeds from the Offering were used to prepay outstanding
long-term debt some of which was guaranteed by stockholders of the Constituent
Companies who were released from personal guarantees on that debt. The Company
simultaneously drew on the line of credit for $1.6 million to pay off any
balances remaining after application of the Offering proceeds.
4. Capital Stock
On November 12, 1997 PAC completed the Offering, which involved the sale by PAC
of 2,666,540 shares of Common stock at a price to the public of $9.00 per share.
The net proceeds to PAC from the Offering (after deducting underwriting
discounts, commissions and offering expenses) was approximately $20.1 million.
Of this amount approximately $18.6 million was used to repay debt.
5. Earnings Per Share
The computation of pro forma net income per share for the three month period
ended September 30, 1997 is based on 5,496,880 shares outstanding which includes
the following shares:
<TABLE>
<S> <C>
Issued in consideration for acquisition of Constituent companies 2,780,695
Sold pursuant to offering 2,666,540
Shares issued upon exercise of common stock warrants
simultaneously with the offering 27,200
Shares outstanding using the treasury stock method on options
and warrants 22,445
---------
5,496,880
=========
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128"), which for
the
4
<PAGE>
Company will be effective for the year ended June 30, 1998. SFAS No. 128
simplifies the standards required under the current accounting rules and
replaces the presentation of primary earnings per share and fully diluted
earnings per share with a presentation of basic earnings per share ("Basic EPS")
and diluted earnings per share ("Diluted EPS"). Basic EPS excludes dilution and
is determined by dividing net income available to common stockholders by the
weighted average of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if securities and other
contracts to issue common shares were exercised or converted into common stock.
Diluted EPS is computed similarly to fully diluted earnings per share under
current accounting rules and will be required to be disclosed.
Implementation of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share as determined under current accounting rules.
6. Income Taxes
Prior to the combinations, the stockholders of Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, and Miracle Partners elected to
be taxed under Subchapter S of the Internal Revenue Code. The members of Prema
Properties, Ralston Car Wash, and KBG elected to be taxed as Limited Liability
Companies of the Internal Revenue Code. Under these provisions, the entities
were not subject to income taxation for federal purposes. As pass through
entities the stockholders and members report their share of taxable earnings or
losses in their personal tax returns.
The Company intends to file a consolidated federal income tax return which
includes the operations of the Constituent Companies for periods commencing on
the date of the Combinations (November 12, 1997). The Constituent Companies will
be individually responsible for filing federal income tax returns based on
earnings through November 11, 1997. The provision for income taxes included in
the Pro Forma Combined Statements of Operations for the three month periods
ended September 30, 1996 and 1997 assumes the application of statutory federal
and state income tax rates and the partial non-deductibility of goodwill
amortization.
7. Commitments and Contingencies
The Company carries a broad range of insurance coverage, including general and
business liability, commercial property, workers' compensation and general
umbrella policies. In November 1997, the Company secured Directors and Officers
and Prospectus Liability insurance coverage with an aggregate limit of $5
million. The Company has not incurred significant claims or losses on any of its
insurance policies during the periods presented in the accompanying financial
statements.
At June 30, 1997, the Company has lease commitments for office space, a training
center, and a number of service center locations. These leases expire between
1997 and 2008, with renewal options in certain of the leases. Most of the
service center location leases are subleased to franchisees. Rent expense for
office space and warehouse facilities of approximately $300,000, $308,000 and
$326,000 is included in operating expenses for the years ended June 30, 1995,
1996 and 1997, respectively. Rent expense for service center locations of
approximately $465,000, $488,000 and
5
<PAGE>
$100,000 is recorded net of sublease income of $114,000, $288,000 and $912,000,
for the years ended June 30, 1995, 1996 and 1997, respectively.
The future minimum lease payments and related sublease payments for leases with
terms in excess of one year as of June 30, 1997 are as follows:
Future Minimum Sublease
Lease Payments Income Net
--------------- ------------- -----------
1998 $1,200,884 $ 820,000 $ 380,884
1999 977,895 535,000 442,895
2000 822,895 371,000 451,895
2001 730,264 353,000 377,264
2002 657,000 353,000 304,000
Thereafter 1,220,000 1,148,000 72,000
---------- ---------- ----------
$5,608,938 $3,580,000 $2,028,938
========== ========== ==========
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The following discussion should be read in conjunction with the Pro Forma
Financial Statements of the Company and related notes thereto and the Financial
Statements of WEJAC and the Constituent Companies and related notes thereto,
included in the Company's Registration Statements. Statements contained in this
discussion regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
forward looking statements are subject to numerous risks and uncertainties to
the Company, including but not limited to the risks associated with: successful
integration of the Constituent Companies, factors affecting internal growth and
management of growth, the Company's acquisition strategy and availability of
financing, the automotive industry, seasonality, quarterly fluctuations and
general economic conditions, dependence on technology and other factors
discussed in the Registration Statements.
Results of Operations-Pro Forma Combined
The pro forma combined results of operations of the Company for the periods
discussed herein are only a summation of the revenues, direct costs, general and
administrative expenses, and operating income of the Constituent Companies on a
historical basis, which include pro forma adjustments or amortization of
goodwill, interest expense eliminated on prepayment of debt and income taxes.
This data may not be comparable to and may not be indicative of the Company's
post-Combination results of operations due to a variety of factors, including:
(i) the Constituent Companies were not under common control or management and
had different tax and capital structures during the periods presented; (ii) the
Company will incur incremental costs related to its new corporate management and
costs of being a public company; (iii) the Company will use the purchase method
of accounting and establish a new basis of accounting to record
6
<PAGE>
the Combinations; (iv) the combined data does not reflect potential benefits and
cost savings the Company may realize when operating as a combined entity. Future
quarterly results may also be materially affected by the timing and magnitude of
acquisitions, integration costs, variation in product mix, and seasonality of
the automotive service industry. See "Seasonality and Quarterly
Fluctuations--Pro Forma Combined." Accordingly, the operating results for
interim periods shown or for other interim periods are not necessarily
indicative of the results that may be achieved for any subsequent interim period
or for a full fiscal year.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996-Pro Forma Combined
The following table sets forth certain selected pro forma combined financial
data as a percentage of revenues for the period indicated:
Three Months Ended September 30,
1996 % 1997 %
------------------ ---------------
Revenue $11,062 100 $11,719 100
Direct Cost 8,213 74 8,389 72
General and Administrative 982 9 1,150 9
Operating Income 1,270 11 1,582 14
Revenues. Revenues increased $657,000, or 6%, to $11.7 million for the three
months ended September 30, 1997 from $11.1 million for three months ended
September 30, 1996. This increase is primarily attributable to an increase in
royalty revenue of $246,000; an increase in manufacturing and distribution
revenue of $596,000; and an increase of car wash and lube revenues of $70,000
and is offset by a decrease in franchise development revenues of $250,000.
Direct Cost. Direct Cost increased $186,000, or 2%, to $8.4 million for the
three months ended September 30, 1997 from $8.2 million for the three months
ended September 30, 1996. This reflects an increase of $475,000 in manufacturing
and distribution costs which is offset by decreases of $165,000 in development,
$60,000 in royalty cost, and $60,000 in other costs.
General and Administrative Expenses. General and administrative expenses
increased $118,000, or 12%, to $1.1 million for the three months ended September
30, 1997 from $982,000 for the three months ended September 30, 1996. General
and administrative expenses as a percentage of revenues remained constant at 9%
for both periods.
Operating Income. Operating income increased $312,000, or 25%, to $1.6 million
for the three months ended September 30, 1997 from $1.3 million for the three
months ended September 30, 1996. As a percentage of revenue, operating income
increased to 14% from 11% primarily due to increased revenues and margins in
royalty and manufacturing.
Net income was $884,000 for the three months ended September 30, 1997, compared
with $388,000, for the three months ended September 30, 1996, an increase of
128%. Per share earnings for the three months ended September 30, 1997 were
$0.16, compared with $0.07 for the three months ended September 30, 1996, an
increase of 128%.
Earnings Ratios Excluding Goodwill
(In Thousands, except per share data)
The following table reconciles reported earnings to net income excluding
goodwill for the quarter ended September 30, 1997:
<TABLE>
<CAPTION>
Pro Forma Combined As Adjusted For Combination and Offering
Amortization
Reported Earnings of Goodwill "Tangible" Earnings
----------------- ------------ -------------------
<S> <C>
Income before income tax expense $1,615 $ 391 $2,006
Income tax expense 731 731
------------------ ------------- -------------------
Net income applicable to common stock $ 884 $ 391 $1,275
================== ============= ===================
Per common share $ 0.16 $0.07 $ 0.23
================== ============= ===================
</TABLE>
Earnings before the amortization of goodwill ("tangible" earnings) were $0.23
per share for the three months ended September 30, 1997 compared with $0.13
for the three months ended September 30, 1996, an increase of 77%.
7
<PAGE>
Seasonality and Quarterly Fluctuations - Pro Forma Combined
Seasonal changes may impact various sectors of the Company's business
differently and, accordingly, the Company's operations may be affected by
seasonal trends in certain periods. In particular, severe weather in winter
months can adversely affect the Company because such weather makes it difficult
for consumers in affected parts of the country to travel to Precision Tune Auto
Care, Precision Lube Express, and Precision Auto Wash centers and obtain
services. Severe winter weather and rainy conditions may also adversely impact
the Company's sale and installation of car wash equipment. Conversely, the
Precision Auto Wash business is favorably impacted by the normal winter weather
conditions as demand for the Company's car wash service increases substantially
in winter months.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996-WE JAC Only (Historical financial results)
The following table sets forth certain selected financial data as a percentage
of revenues for the period indicated:
Three Months Ended September 30
1996 % 1997 %
---------------- -------------------
Revenue $ 6,822 100 $ 6,767 100
Direct Cost 5,010 73 4,730 70
General and Administrative 563 8 805 12
Operating Income 1,249 18 1,233 18
Revenues. Revenues remained constant at $6.8 million for the three months ended
September 30, 1997 and for three months ended September 30, 1996. An increase in
royalty revenue of $240,000 was offset by a decrease in franchise development
revenue of $261,000.
Direct Cost. Direct Cost decreased $281,000, or 6%, to $5.0 million for the
three months ended September 30, 1997 from $4.7 million for the three month
period ended September 30, 1996. This reflects decreases of $155,000 in
development, $57,000 in royalty cost, and $60,000 in distribution.
General and Administrative Expenses. General and administrative expenses
increased $242,000, or 43%, to $805,000 for the three months ended September 30,
1997 from $563,000 for the three months ended September 30, 1996.
Operating Income. Operating income decreased $11,000 to $953,000 for the three
months ended September 30, 1997 from $964,000 for the three months ended
September 30, 1996. Operating income as a percentage of revenue remained
constant at 11%.
Net income was $428,000 for the three months ended September 30, 1997, compared
with $396,000, for the three months ended September 30, 1996, an increase of
8%.
8
<PAGE>
Liquidity and Capital Resources - WE JAC
The following table sets forth selected information from the statement of cash
flows of WEJAC:
Three months ended September 30,
1996 1997
---- ----
Net cash provided by operating activities $ 705,000 $ 406,000
Net cash used in investing activities (381,000) (171,000)
Net cash used in financing activities (588,000) (248,000)
Change in cash and cash equivalents (264,000) (13,000)
From July 1, 1997 through September 30, 1997, WEJAC generated $406,000 in net
cash from operating activities. This amount was lower than the net cash provided
by operating activities for the three months ended September 30, 1996
principally because of deferred costs associated with the Combination and
Offering. Capital expenditures were $28,000 and purchases of franchise rights
and trademarks were $143,000. Net reduction in debt was $248,000.
On November 12, 1997, the Company received a commitment from Signet Bank for a
$20 million line of credit. $10 million of the facility may be used as a
revolving line and credit and $10 million for acquisitions, capital
expenditures. The credit agreement will require the Company to comply with
various loan covenants, which include maintenance of certain financial ratios,
restrictions on additional indebtedness and restrictions on liens, guarantees,
advances, capital expenditures, sale of assets and dividends. Interest on the
outstanding balances will be computed on either the Bank's floating and
fluctuating prime commercial lending rate or the London Interbank Offered rate
(LIBOR) plus a margin ranging from .25% to 2.00% depending on certain financial
ratios. Availability fees ranging from .25% to .30% will be payable on the
unused portion of the line of credit. The Company's subsidiaries will be
required to guarantee repayment of all amounts due under the credit facility.
On November 12, 1997 PAC completed the Offering, which involved the sale by PAC
of 2,666,540 shares of Common stock at a price to the public of $9.00 per share.
The net proceeds to PAC from the Offering (after deducting underwriting
discounts, commissions and offering expenses) was approximately $20.1 million.
Of this amount $18.6 was used to prepay long-term debt. The Company
simultaneously drew on the line of credit for $1.6 million to pay off any
balances remaining after application of the Offering proceeds.
Seasonality and Quarterly Fluctuations - WE JAC
Net revenues and net income are generally higher in the first and fourth
quarters. The Company expects this seasonality to continue in the future.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to routine litigation in the
ordinary course of business, including contract, franchisee and
employment-related litigation. In the course of enforcing its rights under
existing and former franchisee agreements, the Company is subject to complaints
and letters threatening litigation concerning the interpretation and application
of these agreements, particularly in the case of defaults and terminations. None
of these routine matters, individually or in the aggregate, are believed by the
Company to be material to its business or financial condition or results of
operations.
Item 2. Changes in Securities and Use of Proceeds.
(a) Not applicable.
(b) Not applicable.
(c) As previously reported in Part II of the Company's
Registration Statement on Form S-1, in connection with the transactions which
formed a part of the Plan of Reorganization and Agreement for Share Exchange
Offers (the "Combination Agreement") dated August 27, 1997 by and among
Precision Auto Care, Inc., a Virginia corporation, WE JAC Corporation, a
Delaware corporation, Miracle Industries, Inc., an Ohio corporation, Lube
Ventures, Inc., a Delaware corporation, Miracle Partners, Inc., a Delaware
corporation, Prema Properties, Ltd., an Ohio limited liability company, Rocky
Mountain Ventures, Inc., a Colorado corporation, Rocky Mountain Ventures II,
Inc., a Colorado corporation, Ralston Car Wash, Ltd., a Colorado limited
liability company, and The Karl Byrer Group, Inc., a Colorado corporation, the
Company issued a total of 305,060 shares in transactions which were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and Rule
152 promulgated thereunder. These shares were issued in consideration for the
Company's acquisition of certain companies pursuant to the Combination
Agreement. The stock certificates representing such shares bear restrictive
legends and the five individuals who acquired such shares represented to the
Company they were acquiring the shares for investment purposes.
(d) On November 6, 1997, the Company's Registration Statement
on Form S-1 (Commission File No. 333-34439) was declared effective by the
Securities and Exchange Commission. The Registration Statement covered an
offering of 2,810,140 shares of the Company's common stock. The offering was
completed following the sale of all of the securities which were registered.
A.G. Edwards & Sons, Inc. and Ferris, Baker Watts, Incorporated acted as
co-managing underwriters for the offering. The title of the class of securities
registered was the Common Stock of the Company. 2,666,540 shares were registered
and sold by the Company. An additional 143,600 shares were registered and sold
on behalf of selling shareholders.
The aggregate offering price of the shares of common stock sold by the
Company was $23,998,860 and the aggregate offering price of the shares of common
10
<PAGE>
stock sold by the selling shareholders was $1,292,400. The Company incurred
approximately $2.2 million in expenses in connection with the issuance and
distribution of the securities registered. This amount does not include
$1,679,920 of underwriting discounts and commissions payable by the Company.
All such expenses involved direct or indirect payments to third parties and did
involve any direct or indirect payments to directors or officers (or their
associates) or to persons owning 10% or more of any class of equity securities
of the Company or to the Company's affiliates. The net offering proceeds to the
registrant after deducting the total expenses was approximately $20.1 million.
The Company did not apply any of the proceeds from the effective date
of the Securities Act registration statement to the ending date of the reporting
period covered by this Form 10-Q because the transaction closed following the
ending date of the reporting period. From the effective date of the Securities
Act registration statement to December 15, 1997, the Company has used $18.6
million of the proceeds to discharge indebtedness and $1.5 million of the
proceeds to finance the cash purchase price of its recently completed
acquisition of Worldwide Drying Systems, Inc. All of such payments were direct
or indirect payments to unaffiliated third parties. As noted in the prospectus
forming a part of the Registration Statement, certain amounts of the
indebtedness that was repaid with the net proceeds of the offering were
guaranteed by certain directors and officers of the Company. This application of
proceeds reflects the repayment of $1.3 million more of indebtedness than was
contemplated by the prospectus in lieu of the immediate payment of expenses
associated with upgrading signage and installing a "point of sale" computer
system at each Precision Auto Care center. The Company does not believe that
this is a material difference and notes that it applied the proceeds in this
manner because it will take time to install the point of sale system and signage
at each center and the Company determined it was prudent to eliminate additional
indebtedness pending the application of funds to the signage upgrades and point
of sale computer system installations in the coming months.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
11
<PAGE>
(a) Exhibits
11 Statement re: Computation of per share earnings
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during
the quarter ended September 30, 1997.
12
<PAGE>
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.
December 19, 1997 PRECISION AUTO CARE, INC.
By:
John F. Ripley
President and Chief Executive
Officer
By:
Peter J. Kendrick
Senior Vice President--Finance
and Treasurer
Precision Auto Care, Inc.
Exhibit 11-Statement Re: Computation of Per Share Earnings
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Combined As Adjusted
For Combination and Offering
Three Months Ended September 30,
1996 1997
--------------- -------------
<S> <C>
Weighted average shares outstanding
Common Stock 5,474 5,474
Weighted average shares issuable upon exercise
of common stock options, if dilutive 14 14
Common stock and common stock equivalents
issued at prices below the IPO price during
the twelve months preceding the initial
filing of the Registration Statement 8 8
------------------ ----------------
Total weighted average shares 5,497 5,497
================== ================
------------------ ----------------
Net Income $ 388 $ 884
================== ================
------------------ ----------------
Earnings Per Share $ 0.07 $ 0.16
================== ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 238,000
<SECURITIES> 0
<RECEIVABLES> 5,767,000
<ALLOWANCES> 0
<INVENTORY> 2,751,000
<CURRENT-ASSETS> 11,312,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,338,000
<CURRENT-LIABILITIES> 8,565,000
<BONDS> 4,064,000
0
0
<COMMON> 55,000
<OTHER-SE> 44,010,000
<TOTAL-LIABILITY-AND-EQUITY> 57,338,000
<SALES> 11,719,000
<TOTAL-REVENUES> 11,719,000
<CGS> 8,399,000
<TOTAL-COSTS> 10,136,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,000
<INCOME-PRETAX> 1,615,000
<INCOME-TAX> 731,000
<INCOME-CONTINUING> 884,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
