UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Under Section 13 or 15 (d) of the Securities and Exchange
Act of 1934
For the quarterly period ended September 30, 1997
Commission File Number: 0-25164
LUCOR, INC.
Florida 65-0195259
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
790 Pershing Road, Raleigh, NC 27608
(Address of principal executive offices) (Zip Code)
(919) 828-9511
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
reported)
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 and Exchange Act
of 1934 during the preceding twelve 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 ninety days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date: October 31, 1997 Class A Common Stock, par value $.02 per share
Shares Outstanding: 2,144,733
Class B Common Stock, par value $.02 per share
Shares Outstanding: 702,155
LUCOR, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Income
Three Months Ended September 30, 1997
and September 30, 1996 and Nine Months Ended
September 30, 1997 and September 30, 1996 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and
September 30, 1996 3
Notes to Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operation 4
PART II - Other Information
Item 1. Legal Proceedings 6
Item 2. Changes in Securities 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
Item 5. Other Information 6
Item 6. Exhibits and Reports on Form 8-K 6
1
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 30-September-97 31-December-96
_______________ ______________
Current assets:
Cash $ 1,667,407 $ 2,052,417
Accounts Receivable 421,976 491,154
Income Tax Receivable 455,400 556,364
Inventory 2,290,282 1,832,658
Prepaid charges 313,340 280,688
___________ ___________
Total Current assets 5,148,405 5,213,281
___________ ___________
Property, plant & equipment, net
of accumulated depreciation 21,959,450 22,506,488
___________ ___________
Other assets:
Goodwill, licenses, application,
area development and organization
costs, net of accumulated
amortization 4,405,492 4,543,603
Security deposits and pre-opening
expenses, net of accumulated
amortization 152,066 364,237
__________ ___________
Total other assets 4,557,558 4,907,840
__________ ___________
Total assets $31,665,413 $32,627,609
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,042,291 $ 969,893
Current portion of capital lease 24,030 22,664
Accounts payable 2,952,901 2,803,146
Accrued expenses 1,341,795 1,504,497
Preferred dividend payable 0 35,000
__________ ___________
Total current liabilities 5,361,017 5,335,200
__________ ___________
Long term debt, net of
current portion 15,437,084 15,831,727
Capital lease, net of
current portion 31,325 49,110
Deferred Taxes 423,594 423,594
__________ ___________
Total Long Term Liabilities 15,892,003 16,304,431
__________ ___________
Redeemable preferred stock 2,000,000 2,000,000
__________ ___________
Stockholders' equity 8,412,393 8,987,978
__________ ___________
Total liabilities, equity $31,665,413 $32,627,609
=========== ===========
2
LUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MOS THREE MOS NINE MOS NINE MOS
ENDED ENDED ENDED ENDED
30-SEP-97 30-SEP-96 30-SEP-97 30-SEP-96
__________ _________ ___________ ___________
Net sales $11,004,719 $10,054,582 $31,800,784 $27,365,035
Cost of sales 2,564,277 2,352,430 7,405,525 6,469,390
__________ __________ ___________ ___________
Gross profit 8,440,442 7,702,152 24,395,259 20,895,645
__________ __________ ___________ ___________
Costs and expenses:
Direct 4,373,477 3,622,898 12,173,403 10,069,171
Operating 1,996,786 2,057,736 6,329,092 5,755,386
Depreciation 507,402 431,630 1,633,414 1,185,829
Selling, general, and
administrative 1,534,034 1,549,031 4,358,873 3,969,545
__________ __________ ___________ ___________
8,411,699 7,661,295 24,494,782 20,979,931
__________ __________ ___________ ___________
Income(loss) from operations 28,743 40,857 (99,523) (84,286)
__________ __________ ___________ ___________
Other income 23,167 26,638 47,487 124,367
Interest expense (369,031) (346,352) (1,093,175) (820,511)
__________ __________ ___________ ___________
Loss before provision
for income taxes (317,121) (278,857) (1,145,211) (780,430)
Income tax benefit (117,763) (88,367) (415,875) (241,836)
__________ __________ ___________ ___________
Net loss (199,358) (190,490) (729,336) (538,594)
Preferred dividend accrued ( 35,000) ( 28,287) (105,000) (98,287)
__________ __________ ___________ ___________
Net loss available to
common shareholders ($ 234,358) ($ 218,777) ($834,336) ($636,881)
========== ========== =========== ===========
Weighted average number of
shares outstanding 2,846,888 2,800,888 2,841,888 2,430,676
========== ========== =========== ===========
Net income per common
share outstanding ($ 0.08) ($ 0.08) ($0.29) ($0.26)
========== ========== =========== ===========
3
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
30-Sep-97 30-Sep-96
___________ ___________
Cash flow from operations:
Net loss $ (729,336) $ (538,594)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Gain on sale of property
and equipment 0 (47,942)
Depreciation and amortization
of property and equipment 1,008,493 999,792
Amortization of intangible
assets and pre-operating costs 624,921 186,037
Changes in assets and liabilities:
Decrease(increase)in accounts
receivable 69,178 (467,153)
Increase in inventories (446,374) (687,673)
Increase in prepaid expenses (32,652) (254,379)
Decrease(increase) in income
tax receivable 100,964 (95,429)
Increase (decrease) in accounts
payable and accrued expenses (12,947) 1,914,125
___________ ___________
Net cash provided by operating
activities 582,247 1,008,784
___________ ___________
Cash flow from investing activities:
Purchase of property and equipment (1,378,652) (9,242,801)
Decrease in construction
in progress 962,197 445,288
Acquisition of additional service centers (56,250) (1,798,191)
Franchise fees, goodwill, etc. (274,639) (75,888)
___________ ____________
Net cash used in
investing activities (747,344) (10,671,592)
____________ ____________
Cash flows from financing activities:
Repayments of debt and obligations under
capital leases (988,664) (220,931)
Proceeds from borrowings 650,000 4,692,630
Pennzoil preferred share dividend paid (140,000) (133,287)
Proceeds from issuance of common stock 258,751 5,603,001
____________ ___________
Cash provided by (used in)
financing activities (219,913) 9,941,413
____________ ___________
Increase (decrease) in cash (385,010) 278,605
Cash at beginning of period 2,052,417 2,344,484
____________ ____________
Cash at end of period $ 1,667,407 $ 2,623,089
============ ============
4
LUCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
Lucor, Inc. and its subsidiaries have license agreements with Jiffy Lube
International, Inc. ("JLI") to operate Jiffy Lube service centers in the Areas
of Dominant Influence (ADI's) of Raleigh-Durham, North Carolina, Cincinnati,
Ohio (including northern Kentucky), Pittsburgh, Pennsylvania, Dayton, Ohio,
Toledo, Ohio, Lansing, Michigan, and Nashville, Tennessee. These service
centers provide rapid lubrication, oil changes and related services for
automobiles, light duty trucks and other vehicles. As of September 30, 1997
the Company had 100 centers in operation; as of December 31, 1996, 94 centers
were in operation; and as of September 30, 1996 84 centers were in operation.
The financial information as of September 30, 1997 and September 30, 1996
included herein is unaudited. However, such information reflects all
adjustments which are, in the opinion of Management, necessary for a fair
presentation of the results for the interim periods. Financial statement
information as of December 31, 1996 has been extracted from audited financial
statements. All of the above financial information should be read in
conjunction with the Company's annual audited financial statements (and notes
thereto) included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
Certain statements in this Form 10-Q "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward looking statements. Such factors include, among others, the
following: competition, success of operating initiative, advertising and
promotional efforts, adverse publicity, acceptance of new product offerings,
availability, locations and terms of sites for store development, changes in
business strategy or development plan, availability and terms of capital,
labor and employee benefit costs, changes in government regulation, regional
weather conditions, and other factors specifically referred to in this 10-Q.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
Consolidated net sales for the first nine months of 1997 rose 16% when
compared to the first nine months of 1996. Consolidated net sales for the
quarter ended September 30, 1997 rose 9% when compared to the third quarter of
1996. These percentage increases were less than the percentage increase in
the number of service centers. One primary factor in sales growth not keeping
pace with store growth is the percentage of new Company service centers in
operation. In the Company's experience, new service centers generally have
lower sales during their first 24 months of operation. Of the 100 stores open
as of September 30, 1997, 37 stores have been open for less than 24 months,
with 16 of these open less than 12 months. In addition, these new service
centers include 16 service centers which are located in Sears Auto Service
Centers. These Sears stores were expected to have lower revenue (at lower
operating costs) than free-standing service centers. The Company anticipates
that this will be the case even after both types of stores have been in
operation for 24 months.
5
Cost of sales decreased as a percent of sales from 23.6% to 23.3% for
the first nine months ended September 30, 1996 versus September 30, 1997. This
same ratio decreased from 23.4% for the third quarter of 1996 to 23.3% for the
third quarter of 1997. The Company has been able to obtain lower prices for
some of its major inventory items through quantity purchasing and negotiated
discounts with new vendors which is reflected in the lower cost of sales.
Management believes that the new lower prices will continue to lower cost of
sales for the entire year when compared to 1996. Direct costs rose as a
percent of sales reflecting the fixed store management costs associated with
running a store operation which, as a percent of sales, is higher during the
initial periods of a store's operation (See discussion above regarding new
stores).
Operating costs increased by $573,706 for the nine months ended
September 30, 1997 over same period in 1996 and decreased by $60,950 for the
third quarter of 1997 over the same period in 1996. The decrease in operating
expenses in the third quarter reflects a negotiated reduction in management
fees payable to CFA Management, Inc. in the third quarter amounting to
$338,000. Disregarding this reduction, operating expenses rose at a slower
rate than sales for both the quarter and year to date.
Depreciation and amortization charges increased for the period
reflecting the Company's increased capital investment for store improvements
and new store development.
Selling, general and administrative expenses (SGA) increased 10%
($389,328) over the comparable nine month period of 1996, but decreased as a
percent of sales and on a per car serviced basis. SGA decreased by 1% for the
third quarter of 1997 when compared to the third quarter of 1996 ($14,997).
Marketing costs increased by $417,080 when comparing the nine months of 1996
with 1997, which is more than the increase in total SGA. Marketing costs
decreased by $41,903 when comparing the third quarter of 1996 with 1997. The
Company has increased its marketing in conjunction with opening new stores to
increase traffic flow into its new stores when comparing the year to date.
Since the increase in marketing began as new stores were added to attract
additional customers into the new service centers, marketing expenditures have
flattened. Included in SGA in 1996 was the cost of operating duplicate
accounting departments associated with the move of the accounting department
from Boca Raton, Florida to Raleigh, North Carolina. The duplicate costs of
running the two departments were estimated to be $64,000, most of which
occurred in the second quarter of 1996.
Other income decreased from $124,367 to $47,487 for the first nine
months and from $26,638 to $23,167 for the quarter. Other income included a
gain of $47,942 in the first quarter of 1996 for the sale of the Company's
former office in Raleigh, North Carolina.
Interest expense increased by $272,664 for the nine month period ending
September 30 and increased by $22,679 for the quarter, reflecting the higher
level of borrowing to support the Company's capital expenditure program.
Provision for income taxes was negative reflecting the negative taxable
income. A charge for dividend payments due on the Company's redeemable
preferred stock was made for each period.
Beginning in February 1996 through January 1997, the Company opened up
sixteen facilities within Sears Automotive Service Centers located at shopping
malls in five of its seven regions. Although it was expected that these
operations would not have as high volume as other free standing service
centers, the operations have been a significant contributor to the Company's
losses in all but the North Carolina ADI. Losses from the Sear's operations in
all but the North Carolina Operation amounted to $660,126 for the first nine
months of 1997 without any allocation of home office selling, general and
administrative expenses. There is no obligation by the Company to continue
operations, however, the Company feels that the operations can be improved so
that each will be a contributor to the corporate profitability. No assurance
can be made that such improvement will occur.
6
Liquidity and capital resources:
Working capital, current assets less current liabilities, decreased by
$90,693 since the end of 1996. Cash flow from operations amounted to
$547,247, of which $416,455 was used in the purchase of property and equipment
(a result of a $1,378,652 increase in property and equipment offset by a
decrease of $962,197 in construction in progress). One service center,
operating under the Pennzoil name, in Lansing, Michigan was acquired during
the quarter.
Funds provided by financing activities include the placement of debt of
$650,000. One note for $400,000 is payable as interest only until February 1,
1999 at which time the entire principal is due. The note carries an interest
rate of 12%. The second note for $250,000 was provided by Pennzoil Products
Company, an affiliate of Lucor, Inc. The note is payable as interest only
with a balloon payment on July 10, 1999. The note carries an interest rate of
10%. The Company issued Class A common stock in the first quarter to two of
the Company's Directors at market price for $258,750.
The Company has nearly completed its current expansion program and
management believes that cash generated from its operations and cash on hand
will be sufficient to satisfy the Company's operating requirements for the
next twelve months. Any acquisitions or new service center sites will require
the Company to sell additional equity, debt securities, or obtain additional
credit facilities. The Company is reviewing these possibilities, however,
there can be no assurance that such financing will be available. The sales,
if any, of additional equity could result in dilution to the Company's
stockholders.
PART II - Other Information
Item 1. Legal Proceedings: The Company is involved in lawsuits and claims
arising in the normal course of business. Although the outcome of these
lawsuits and claims are uncertain, Management believes that these lawsuits and
claims are adequately covered by insurance or they will not (singly or in the
aggregate) have a material adverse affect on the Company's business, financial
condition, or operations. Those lawsuits and claims against the Company which
have not been resolved and which can be estimated and are probable to occur,
have been accounted for in the Company's financial statements.
Item 2. Changes in Securities: On February 7, 1997 the Company sold for
cash 45,000 shares of Class A common stock to two of its directors at a price
of $5.75 per share. This issuance of stock is exempt from registration under
Regulation D, Section 4(2) of the Security Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of
Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: None
7
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 14th day of November 1997.
LUCOR, INC.
/s/ Stephen P. Conway
________________________
Stephen P. Conway
Chairman, Chief Executive Officer,
and Director
/s/ Kendall A. Carr
________________________
Kendall A. Carr
Chief Financial Officer