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 March 31, 1999
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: May 14, 1999
Class A Common Stock, par value $.02 per share
Shares Outstanding: 2,321,633
Class B Common (unaudited) Stock, par value $.02 per share
Shares Outstanding: 502,155
LUCOR, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 (unaudited) and
December 31, 1998 1
Unaudited Consolidated Statements of Loss
Three Months Ended March 31, 1999 and March
31, 1998 2
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and
March 31, 1998 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
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
ASSETS 31-March-99 31-December-98
_______________ ______________
Current assets:
Cash $ 4,350,708 $ 3,269,859
Accounts Receivable 1,073,833 804,740
Income Tax Receivable 96,261 40,241
Inventory 2,916,425 2,401,953
Prepaid charges 625,467 430,842
___________ ___________
Total Current assets 9,062,694 6,947,635
___________ ___________
Property, plant & equipment, net
of accumulated depreciation 24,323,472 23,292,926
___________ ___________
Other assets:
Goodwill, net of accumulated
amortization 4,081,590 4,118,558
Franchise and operating rights,
net of accumulated amortization 8,587,065 8,672,665
Leasehold rights, licenses,
application, area development
and organization costs, net
of accumulated amortization 3,116,330 3,156,011
Other assets 139,315 91,693
__________ ___________
Total other assets 15,924,300 16,038,927
__________ ___________
Total assets $49,310,466 $46,279,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,843,609 $ 1,675,548
Current portion of capital lease 16,781 23,631
Accounts payable 2,581,492 2,501,057
Accrued expenses 4,202,261 2,748,995
Preferred dividend payable 0 35,000
__________ ___________
Total current liabilities 8,644,143 6,984,231
__________ ___________
Long term debt, net of
current portion 33,727,291 32,112,596
Deferred Gain 54,020 54,707
__________ ___________
Total Long Term Liabilities 33,781,311 32,167,303
__________ ___________
Redeemable preferred stock 2,000,000 2,000,000
Stockholders' equity 4,885,012 5,127,954
__________ ___________
Total liabilities, equity $49,310,466 $46,279,488
=========== ===========
(1)
LUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(unaudited)
THREE MOS THREE MOS
ENDED ENDED
31-MAR-99 31-MAR-98
__________ _________
Net sales $14,794,700 $10,728,483
Cost of sales 3,262,580 2,521,806
__________ __________
Gross profit 11,532,120 8,206,677
__________ __________
Costs and expenses:
Direct 5,392,782 4,255,216
Operating 3,016,874 2,352,948
Depreciation and amortization 598,730 398,563
Selling, general, and
administrative 2,053,243 1,602,954
__________ __________
11,061,629 8,609,681
__________ __________
Income (loss) from operations 470,491 (403,004)
__________ __________
Other income 56,592 30,845
Interest expense (735,024) (449,158)
__________ __________
Loss before provision
for income taxes (207,941) (821,317)
Income tax benefit 0 (282,578)
__________ __________
Net loss (207,941) (538,739)
Preferred dividend ( 35,000) ( 35,000)
__________ __________
Loss available to
common shareholders ($ 242,941) ($ 573,739)
========== ==========
Weighted average number of
shares outstanding - Basic 2,823,788 2,847,888
========== ==========
Weighted average number of
shares outstanding - Diluted 2,823,788 2,847,888
========== ==========
Basic loss available to common
shareholders per common share
outstanding ($ 0.09) ($ 0.20)
========== ==========
Diluted loss available to common
Shareholders per common share
outstanding ($ 0.09) ($ 0.20)
========== ==========
(2)
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
31-Mar-99 31-Mar-98
___________ ___________
Cash flow from operations:
Net loss $ (207,941) $ (538,739)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization
of property and equipment 367,296 309,266
Amortization of intangible
assets and pre-operating costs 231,434 88,164
Changes in assets and liabilities:
Decrease(increase)in accounts
receivable (269,093) 1,275,075
Decrease (increase) in inventories (219,345) 163,763
Increase in prepaid expenses (150,733) (116,465)
Increase in income tax receivable (56,020) (327,483)
Increase in accounts payable
and accrued expenses 1,498,700 184,593
Decrease in deferred gain (687) 0
___________ ___________
Net cash provided by operating
activities 1,193,611 1,038,177
___________ ___________
Cash flow from investing activities:
Purchase of property and equipment (171,843) (269,111)
Net decrease (increase)in construction
in progress (1,225,999) 95,886
Acquisition of additional service
centers (339,019) 0
Franchise fees, goodwill, etc. (116,807) (102,478)
___________ __________
Net cash used in
investing activities (1,853,668) (275,703)
____________ ____________
Cash flows from financing activities:
Repayments of debt and obligations under
capital leases (170,358) (12,897)
Proceeds from borrowings 1,946,264 1,787,000
Pennzoil preferred share dividend paid (35,000) (35,000)
____________ ___________
Net cash provided by financing
activities 1,740,906 1,739,103
____________ ___________
Increase in cash 1,080,849 2,501,577
Cash at beginning of period 3,269,859 1,548,418
____________ ____________
Cash at end of period $ 4,350,708 $ 4,049,995
============ ============
(3)
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
Designated Market Areas (DMA'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 March 31, 1999 the
Company had 142 centers in operation; as of December 31, 1998, 128 centers
were in operation; and as of March 31, 1998 100 centers were in operation.
The financial information as of March 31, 1999 and March 31, 1998
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, 1998 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, 1998.
From February 1996 through January 1997, the Company opened up 16
facilities within Sears Automotive Service Centers, which are located at
shopping malls in five of its seven regions. Due to disappointing revenue and
profits, the Company made the decision to close many of the Sears service
centers. As a result of this decision, during the fourth quarter of 1998, the
Company took a charge of $1,383,475. The Company closed six of these service
centers during the first quarter of 1999, and closed five additional service
centers subsequent to the end of the first quarter.
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
FIRST QUARTER ENDED MARCH 31, 1999 AND MARCH 31, 1998
Consolidated net sales for the first three months of 1999 rose 37.9%
when compared to the first three months of 1998. This sales growth reflects
the increase in the number of stores operated by the Company, due to the
acquisition of twenty-three stores in the Tidewater/Richmond Virginia area. In
addition, the Company experienced a higher level of ancillary sales and a
price increase for the basic Signature Servicer and other ancillary items
which resulted in increased sales per car. The ticket average comparing the
quarter ending March 31, 1998 to March 31, 1999 increased by 11.2% for the
quarter.
Cost of sales decreased as a percent of sales from 23.5% to 22.1% for
the first three months ended March 31, 1998 versus March 31, 1999. The
decrease in the cost of sales was primarily the result of two factors. The
Company increased the price of its Signature Servicer and its sales of
ancillary products increased as a percentage of the total sales, which yield
higher margins. Discounts for the period were slightly lower than the same
period in 1998.
Direct costs decreased as a percent of sales from 39.7% for the first
quarter of 1998 to 36.5% for the first quarter of 1999. Labor costs accounted
for a majority of this decrease, representing a decrease of approximately 2.3%
of sales. Again, the increased ancillary sales and price increases were the
biggest reason for the decrease in labor costs as a percentage of sales.
Operating costs increased by $663,926 for the three months ended March
31, 1999 over the same period in 1998. The increase in operating costs
reflects increased rental costs, credit card fees, and real estate taxes
associated with an increase in the number of service centers.
Depreciation and amortization charges increased $200,167 for the first
quarter of 1999 in comparison to the first quarter of 1998. The increased
costs are reflective of increased amortization of franchise and operating
rights and leasehold rights and depreciation of furniture, fixtures, equipment
and leasehold improvements associated with the acquisition of service centers
in Virginia in April 1998.
Selling, general and administrative expenses increased 28.1% or $450,289
over the comparable three-month period of 1998. Administrative costs
increased as the number of service centers have increased. Marketing costs
increased by $111,880 when comparing the first three months of 1998 with the
first three months of 1999. Administrative staffing increased from the
previous year due to increased regional and corporate requirements associated
with supporting the twenty-three service centers in Virginia which the Company
acquired in April 1998 and the twenty service centers acquired on
March 31, 1999.
Other income increased from $30,845 to $56,592 for the first three
months. Other income increased due to larger amounts of cash invested.
Interest expense increased by $285,866 for the three-month period ended
March 31, 1999 compared to the three months ended March 31, 1998. The
increase reflects additional borrowing required by the Company associated with
the April 1998 acquisition of twenty-three service centers and additional
service centers under construction. A charge for dividend payments due on the
Company's redeemable preferred stock was made for each period.
Liquidity and capital resources:
Since the end of 1998, working capital (current assets less current
liabilities) increased by $455,147. Cash flow from operations amounted to
$1,193,611. The positive cash flow resulted from earnings after adding back
the non-cash items of depreciation and amortization and an increase in
accounts payable.
In March of 1999, the Company borrowed additional funds through an
agreement with Franchise Finance Corporation of America totaling $1,770,000.
This loan carries an interest rate of 9.5% and is amortized over a 25-year
period with a balloon payment after 20 years. These funds were used in the
construction of new service centers and other general corporate purposes. The
Company also borrowed additional funds in the first quarter of 1999 through an
agreement with Centura Bank totaling $176,264. This loan carried an interest
rate of approximately 8.59% and is amortized over a five-year period. These
funds were applied toward construction costs associated with building an
addition to the Company's headquarters in North Carolina.
On March 31, 1999, the Company entered in to an asset purchase agreement
with Q Lubes, Inc. and Jiffy Lube International to acquire 73 Q Lube and Jiffy
Lube Centers. On March 31, 1999, the Company closed on 20 "Q Lube" facilities
located in the markets of Cincinnati, Ohio, Dayton, Ohio, Lansing, Michigan
and Nashville, Tennessee where the Company currently operates a number of
Jiffy Lube service centers. The Company closed on the remaining 53 Jiffy Lube
and Q Lube service centers located in the Atlanta, Georgia area on April 30,
1999. The newly purchased "Q Lube" centers will be converted for operation as
"Jiffy Lube" service centers (See the Company's Form 8-K filed on April 14,
1999). The funds for this purchase are being obtained through a loan and
security agreement with Enterprise Mortgage Acceptance Company, LLC ("EMAC").
Funds, in addition to that required to cover the purchase price, are being
requested from EMAC in order to make significant improvements and
refurbishments at these service centers. The Company is also negotiating with
some equipment leasing companies in order to obtain financing for additional
equipment required at the Atlanta service centers so that it may provide the
full range of services provided by Lucor to its customers. The Company has not
finalized the loan agreement nor the equipment financing at this time. There
can be no assurance that the Company will be able to finalize the loan or the
equipment financing.
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. Although the Company is reviewing these
possibilities 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.
Year 2000 Review
The Company reviewed its computer systems in 1998 identifying those
systems that could be affected by the "Year 2000" issue. The "Year 2000
problem" is the result of computer programs designating the year using two
digits rather than four (98 versus 1998). As a result, in the year 2000,
computer programs could recognize 00 as 1900 instead of the year 2000. The
Company determined that some of its systems needed to be upgraded, mainly its
point of sale systems ("POS"). The cost of upgrading its systems is not
expected to have a material adverse impact on its business operations or
financial condition. It is anticipated that all system upgrades will be
complete prior to the end of the third quarter in 1999 using current internal
resources and already identified external resources. A contingency plan is
available, in case of any major problems with the implementation. The Company
can upgrade its current system to be year 2000 compliant by software available
from the supplier of its current POS. As of the end of the first quarter,
slightly more than 30% of its POS systems had been converted.
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: None
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: The Company did not file any
reports on Form 8-K for the quarter, however as noted above, the Company did
file a report on Form 8-K on April 14, 1999 reporting the acquisition of 73
Jiffy Lube service centers from Q Lube, Inc. and Jiffy Lube International,
Inc. These service centers are located in the markets of Cincinnati, Ohio,
Dayton, Ohio, Lansing, Michigan, Nashville, Tennessee and Atlanta, Georgia.
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 17th day of May 1999.
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