UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 23, 1998
PRECISION AUTO CARE, INC.
(Exact name of registrant as specified in its charter)
Virginia 1-14510 54-1847851
(State or other jurisdiction (Commission File) (IRS Employer ID No.)
of incorporation or organization)
748 Miller Drive, S.E.
Leesburg, Virginia 20175
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 777-9095
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ITEM 5. Other Events.
A copy of the Registrant's press release dated September 21,
1998 is attached hereto as Exhibit 99 and incorporated herein by reference.
ITEM 7. Financial Statements and Exhibits.
(c) Exhibits
99 Press Release of Precision Auto Care, Inc.,
dated September 21, 1998.
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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, in Leesburg, Virginia, on September 23,
1998.
Precision Auto Care, Inc.
By:______________________________________
Arnold Janofsky
Senior Vice President, Secretary and
General Counsel
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EXHIBIT 99
Precision Auto Care, Inc. Announces Anticipated
Fourth Quarter Results And Restated Third Quarter Results of
Operations
LEESBURG, VA - September 21, 1998, Precision Auto Care, Inc. (NASDAQ: PACI)
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 million, or $0.12 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.
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.
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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.
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John F. Ripley, President and CEO of Precision Auto Care, Inc. commented:
"Looking beyond the impact of these accounting adjustments, we remain optimistic
about the Company and its future prospects," said Ripley. "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. (NASDAQ: PACI) 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.
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