SEVENTY-THREE SERVICE CENTERS
Statements of Assets to be Acquired and
Statements of Revenues and Direct Operating Expenses
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
To the Board of Directors and Stockholders
Lucor, Inc. and Subsidiaries
Raleigh, North Carolina
We have audited the accompanying statements of assets to be acquired of the
seventy-three Pennzoil-Quaker State Company service centers (the "Seventy-three
Service Centers") as of December 31, 1998 and 1997, and the related statements
of revenues and direct operating expenses for the years then ended. These
statements are the responsibility of Pennzoil-Quaker State Company management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
As described in Note 1, the accompanying financial statements were prepared
solely to comply with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Form 8-K of Lucor, Inc. and subsidiaries and
are not intended to be a complete presentation of the assets or results of
operations of the Seventy-three Service Centers.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets to be acquired of the Seventy-three Service
Centers at December 31, 1998 and 1997, and the revenue and direct operating
expenses for the years then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Raleigh, North Carolina
July 2, 1999
SEVENTY-THREE SERVICE CENTERS
Statements of Assets to be Acquired
April 30,
December 31, 1999
----------------------------
1998 1997 (unaudited)
------------- ----------- -------------
Inventories $ 1,195,256 990,761 1,241,685
Furniture, fixtures and equipment, net
of accumulated depreciation (note 3) 3,703,532 2,643,753 3,453,960
-------------- ------------ ------------
Total assets acquired $ 4,898,788 3,634,514 4,695,645
============== ============ ============
See accompanying notes to financial statements.
SEVENTY-THREE SERVICE CENTERS
Statements of Revenues and Direct Operating Expenses
Four months ended
Year ended April 30,
December 31, 1999 1998
---------------------------- -----------------------------
1998 1997 (unaudited) (unaudited)
------------ -------------- ------------ -------------
Net revenue $ 24,366,578 21,631,899 $ 7,442,891 7,429,180
Cost of sales 5,966,498 5,328,736 1,871,993 1,813,089
------------ ------------ ------------ ------------
Gross profit 18,400,080 16,303,163 5,570,898 5,616,091
Direct operating expenses 14,482,619 12,550,629 5,285,234 4,968,586
Depreciation 1,320,365 1,013,807 466,231 315,935
------------ ------------ ------------ ------------
Revenue in excess of direct
operating expenses $ 2,597,096 2,738,727 (180,567) 331,570
============ ============ ============ ============
See accompanying notes to financial statements.
SEVENTY-THREE SERVICE CENTERS
Notes to the Statements of Assets to be Acquired
and Statements Revenues and of Direct Operating Expenses
December 31, 1998 and 1997
(1) Basis of Presentation and Description of Business
Pennzoil-Quaker State Company ("PQSC") and Lucor, Inc. and subsidiaries
("Buyer" or "Lucor") entered into a definitive agreement (the "Agreement") on
March 31, 1999 under which the Buyer acquired certain assets of seventy-three
service centers of PQSC. The Service Centers acquired are located in the
markets of Cincinnati, Ohio, Dayton, Ohio, Lansing, Michigan, Nashville,
Tennessee, and Atlanta, Georgia. The Acquisition was consumated on April 30
, 1999. The accompanying financial statements present the assets acquired
and the revenues and direct operating expenses of the Seventy-three Service
Centers based upon the structure of the transaction as described in the
Agreements. This transaction is herein referred to as the "Acquisition."
The financial statements have been prepared to comply with the rules and
regulations of the Securities and Exchange Commission for business
combinations accounted for as a purchase and are not intended to be a
complete presentation of the financial position, results of operations and
cash flows as if the Seventy-three Service Centers had operated as a stand-
alone company. The Seventy-three Service Centers were not operated as a
stand-alone business within PQSC. Because the Seventy-three Service Centers
were not operated as a stand-alone business, the presentation does not
include certain indirect expenses of the Seventy-three Service Centers which
were incurred by PQSC. Therefore, the accompanying financial statements are
not representative of the complete financial position or results of
operations of the Seventy-three Service Centers for the periods presented.
(2) Summary of Accounting Policies
Inventories
Inventories of oil, lubricant and other automobile supplies are stated at the
lower of cost (first-in, first-out) or market.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost and depreciated for
financial reporting purposes on a straight-line basis over the estimated
useful lives of assets of three to ten years. Ordinary maintenance and
repair expenditures are charged to expense as incurred.
Income Taxes
Income taxes have not been provided in the financial statements as the
Seventy-three Service Centers are part of PQSC and income taxes were not
allocated to the individual service center level.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets to be acquired at the date of the
financial statements, and the reported amounts of revenues and direct
operating expenses during the reporting period. Actual results could differ
from those estimates.
(3) Furniture, Fixtures and Equipment
Major classifications of furniture, fixtures and equipment together with
their estimated useful lives are summarized below:
Lives
1998 1997 (years)
_____________ _____________ _________
Equipment $ 4,157,657 $ 3,267,085 3 to 10
Furniture and fixtures 1,092,847 839,621 5 to 10
Signs 960,560 497,842 5 to 10
_____________ _____________
6,211,064 4,604,548
Accumulated Depreciation (2,507,532) (1,960,795)
_____________ _____________
$ 3,703,532 $ 2,643,753
============= =============
LUCOR, INC. AND SEVENTY-THREE SERVICE CENTERS
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information combines
the historical financial information of Lucor, Inc. and subsidiaries (the
"Company") and Seventy-three Service Centers (the "Centers").
On March 31, 1999, the Company entered into an agreement with Pennzoil-Quaker
State Company ("PQSC") to acquire certain assets of 73 Jiffy Lube and Q Lube
service centers in the markets of Cincinnati, Ohio, Dayton, Ohio, Lansing,
Michigan, Nashville, Tennessee and Atlanta, Georgia, referred to herein as the
"Acquisition." The Acquisition was consumated on April 30, 1999 with a
purchase price of approximately $5,600,000. The Acquisition is being accounted
for by the Company as a purchase.
The unaudited Pro Forma Combined Consolidated Condensed Balance Sheet combines
the April 30, 1999 historical consolidated balance sheet of the Company and the
historical balance sheets of the Centers. The balance sheets are combined on a
pro forma basis as if the Acquisition had been effective as of April 30, 1999,
after giving effect to various accounting adjustments for purchase accounting
rules as well as the financing of the transaction. The Centers were not
operated as a stand-alone business within PQSC. Because the Centers were not
operated as a stand-alone business, the presentation does not include certain
indirect expenses of the Centers which were incurred by PQSC. Therefore, the
accompanying financial statements are not representative of the complete
financial position or results of operations of the Centers for the periods
presented.
The unaudited Pro Forma Combined Consolidated Condensed Statements of Income
(Loss) combines the April 30, 1999 historical results of operations of the
Company and the Centers for the four months ended April 30, 1999 and for the
fiscal year ended December 31, 1998, as if the final closing of the acquisition
had been effective on January 1, 1998, after giving effect to various
accounting adjustments.
The unaudited pro forma combined financial information has been prepared using
the assumptions set forth in the Notes to the Pro Forma Financial Information
and should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto, which have been previously filed with the
Securities and Exchange Commission in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and the Quarterly Report on Form
10-Q for the period ended March 31, 1999 and with the financial statements of
the Centers and notes thereto filed herewith.
The unaudited pro forma combined financial information is intended for
informational purposes and is not necessarily indicative of the future
financial position or future results of operations of the Company after the
aforementioned transactions in fact had occurred on such date or at the
beginning of the period indicated or to project the Company's financial
position or results of operations at any future date or for any future period.
LUCOR, INC. AND SEVENTY-THREE SERVICE CENTERS
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED BALANCE SHEET
AS OF APRIL 30, 1999
Historical Pro Forma
___________________________ _________________________________
Seventy-three
Service
Lucor Centers Adjustments Combined
____________ ______________ _________________ ____________
Assets
Current assets:
Cash and cash equivalents $ 4,162,227 $ (634,973) (a) $ 3,527,254
Accounts receivable 782,352 782,352
Income tax receivable 99,511 99,511
Inventories 2,892,471 1,241,685 (287,685) (b) 3,846,471
Prepaid expenses 669,914 669,914
_____________ ____________ _____________
Total current assets 8,606,475 1,241,685 8,925,502
Property and equipment,
net of accumulated depreciation 24,821,778 3,453,960 1,150,978 (b) 29,426,716
Intangibles, net of accumulated
amortization 15,795,444 15,795,444
_____________ ____________ _____________
Total assets $ 49,223,697 $ 4,695,645 $ 54,147,662
============= ============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,891,090 4,923,965 (a) $ 6,815,055
Current portion of capital lease 14,453 14,453
Accounts payable 4,709,154 4,709,154
Accrued expenses 2,215,853 2,215,853
_____________ _____________
Total current liabilities 8,830,550 13,754,515
Long-term debt, net of current portion 33,471,663 33,471,663
Deferred gain 53,792 53,792
_____________ _____________
Total long-term liabilities 33,525,455 33,525,455
_____________ _____________
Redeemable preferred stock 2,000,000 2,000,000
_____________ _____________
Stockholders' equity 4,867,692 4,867,692
_____________ _____________
$ 49,223,697 $ 54,147,662
============= =============
LUCOR, INC. AND SEVENTY-THREE SERVICE CENTERS
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
FOUR MONTH ENDING APRIL 30, 1999
Historical Pro Forma
___________________________ _________________________________
Seventy-three
Service
Lucor Centers Adjustments Combined
____________ ______________ _________________ ____________
Net sales $ 19,993,948 7,442,891 $ 27,436,839
Cost of sales 4,398,064 1,871,993 6,270,057
_____________ ____________ _____________
Gross profit 15,595,884 5,570,898 21,166,782
_____________ ____________ _____________
Costs and expenses:
Direct 7,340,225 5,285,234 12,625,459
Operating 4,072,726 4,072,726
Depreciation and amortization 785,195 466,231 $ 84,405 (c) 1,335,831
Selling, general and administrative 2,805,837 2,805,837
_____________ ___________ _____________
15,003,983 (180,567) 20,839,853
_____________ _____________
Income from operations 591,901 326,929
_____________ _____________
Other income 134,217 134,217
Interest expense (994,816) (166,667) (d) (1,161,483)
_____________ _____________
Income (loss) before provision
for income taxes (268,698) (700,337)
Income tax benefit -
_____________ _____________
Net income (loss) $ (268,698) $ (700,337)
============= =============
Loss available to common shareholders $ (268,698) $ (700,337)
============= =============
Weighted average number of shares
outstanding - basic and diluted 2,823,788 2,823,788
============= =============
Basic and diluted loss per common share $ (0.10) $ (0.25)
============= =============
LUCOR, INC. AND SEVENTY-THREE SERVICE CENTERS
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
YEAR ENDING DECEMBER 31, 1998
Historical Pro Forma
___________________________ _________________________________
Seventy-three
Service
Lucor Centers Adjustments Combined
____________ ______________ _________________ ____________
Net sales $ 55,307,206 $ 24,366,578 $ 79,673,784
Cost of sales 12,715,861 5,966,498 18,682,359
_____________ ______________ _____________
Gross profit 42,591,345 18,400,080 60,991,425
Costs and expenses:
Direct 20,449,478 14,482,619 34,932,097
Operating 10,981,273 10,981,273
Depreciation and amortization 2,217,366 1,320,365 $ 253,215 (c) 3,790,946
Selling, general and administrative 7,388,269 7,388,269
Impairment loss - Sears assets 1,383,475 1,383,475
_____________ ______________ _____________
42,419,861 15,802,984 58,476,060
_____________ ______________ _____________
Income from operations 171,484 2,597,096 2,515,365
_____________ ______________ _____________
Other income 205,956 205,956
Interest expense (2,664,938) (500,000) (d) (3,164,938)
_____________ _____________
Income (loss) before provision
for income taxes (2,287,498) (443,617)
Income tax benefit 173,017 173,017
_____________ _____________
Net Income (loss) (2,114,481) (270,600)
Preferred dividend (140,000) (140,000)
_____________ _____________
Loss available to common shareholders $ (2,254,481) $ (410,600)
============= =============
Weighted average number of shares
outstanding - basic and diluted 2,824,868 2,824,868
============= =============
Basic and diluted loss per common share $ (0.80) $ (0.15)
============= =============
LUCOR, INC. AND SEVENTY-THREE SERVICE CENTERS
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Reflects the borrowings obtained and cash paid in connection with the
Acquisition.
(b) Amount represents the adjustments to state inventory and furniture,
fixtures and equipment acquired at fair market
value pursuant to APB Opinion No. 16, "Business Combinations."
(c) Reflects the adjusted depreciation expense for furniture, fixtures and
equipment. These assets have been recorded at their estimated fair
market value and depreciated using the Company's depreciation methods
over their estimated useful lives.
(d) Reflects an increase in interest expense related to the debt incurred to
finance the Acquisition.