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 June 30, 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: July 31, 1999 Class A Common Stock, par value $.02 per share
Shares Outstanding: 2,337,133
Class B Common 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
June 30, 1999 and December 31, 1998 1
Consolidated Statements of Income (Loss)
Three Months Ended June 30, 1999 and June 30,
1998 and Six Months Ended June 30, 1999 and
June 30, 1998 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and
June 30, 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 30-June-99 31-December-98
_______________ ______________
Current assets:
Cash $ 6,895,239 $ 3,269,859
Accounts Receivable 3,566,586 804,740
Inventory 4,108,042 2,401,953
Prepaid charges 982,964 430,842
Income Tax Receivable 111,511 40,241
___________ ___________
Total Current assets 15,664,342 6,947,635
___________ ___________
Property, plant & equipment, net
of accumulated depreciation 30,853,275 23,292,926
___________ ___________
Other assets:
Goodwill, net of amortization 4,045,706 4,118,558
Franchise and operating rights, net
of accumlated amortization 8,542,376 8,672,665
Leasehold rights, licenses, application,
and area development costs, net of
accumulated amortization 3,457,441 3,156,011
Other assets 97,721 91,693
__________ ___________
Total other assets 16,143,244 16,038,927
__________ ___________
Total assets $62,660,861 $46,279,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,764,813 $ 1,675,548
Current portion of capital lease 7,355 23,631
Accounts payable 4,145,617 2,501,057
Accrued expenses 6,248,469 2,748,995
Preferred dividend payable 35,000 35,000
__________ ___________
Total current liabilities 12,201,254 6,984,231
__________ ___________
Long term debt, net of
current portion 43,077,426 32,112,596
Deferred gain 53,334 54,707
__________ ___________
Total Long Term Liabilities 43,130,760 32,167,303
__________ ___________
Redeemable preferred stock 2,000,000 2,000,000
__________ ___________
Stockholders' equity 5,328,847 5,127,954
__________ ___________
Total liabilities, equity $62,660,861 $46,279,488
=========== ===========
(1)
LUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
THREE MOS THREE MOS SIX MOS SIX MOS
ENDED ENDED ENDED ENDED
30-JUN-99 30-JUN-98 30-JUN-99 30-JUN-98
__________ _________ ___________ ___________
Net sales $21,585,426 $14,966,493 $36,380,126 $25,694,976
Cost of sales 4,739,995 3,384,144 8,002,575 5,905,950
__________ __________ ___________ ___________
Gross profit 16,845,431 11,582,349 28,377,551 19,789,026
__________ __________ ___________ ___________
Costs and expenses:
Direct 8,161,223 5,390,603 13,554,005 9,645,819
Operating 4,070,605 2,817,039 7,087,479 5,169,987
Depreciation 612,724 618,754 1,211,454 1,017,317
Selling, general, and
administrative 2,733,716 1,809,513 4,786,959 3,412,467
__________ __________ ___________ ___________
15,578,268 10,635,909 26,639,897 19,245,590
__________ __________ ___________ ___________
Income(loss) from operations 1,267,163 946,440 1,737,654 543,436
__________ __________ ___________ ___________
Other income 108,755 30,845 165,347 133,417
Interest expense (897,084) (449,158) (1,632,108) (1,190,427)
__________ __________ ___________ ___________
Income(loss) before provision
for income taxes 478,834 528,127 270,893 (513,574)
Income tax expense (benefit) -- 108,708 -- (173,870)
__________ __________ ___________ ___________
Net income (loss) 478,834 419,419 270,893 (339,704)
Preferred dividend ( 35,000) ( 35,000) (70,000) (70,000)
__________ __________ ___________ ___________
Net income (loss) available
to common shareholders $ 443,834 $ 384,419 $200,893 ($409,704)
========== ========== =========== ===========
Weighted average number of
shares outstanding-Basic 2,823,788 2,847,888 2,823,788 2,834,388
========== ========== =========== ===========
Weighted average number of
shares outstanding-Diluted 2,823,788 2,847,888 2,823,788 2,834,388
========== ========== =========== ===========
Basic income (loss)
available to common
shareholders per common
share outstanding $ 0.157 $ 0.135 $0.071 ($0.145)
========== ========== =========== ===========
Diluted income (loss)
available to common
shareholders per common
share outstanding $ 0.157 $ 0.135 $0.071 ($0.145)
========== ========== =========== ===========
(2)
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
30-Jun-99 30-Jun-98
___________ ___________
Cash flow from operations:
Net income (loss) $ 270,893 $ (339,704)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization
of property and equipment 798,465 690,422
Amortization of intangible
assets and pre-operating costs 412,989 326,895
Changes in assets and liabilities:
Decrease(increase)in accounts
receivable (2,761,846) 1,810,713
Decrease(increase) in inventories (341,388) 70,177
Increase in prepaid expenses (552,122) (283,201)
Increase in income tax receivable (71,270) (35,275)
Increase in accounts payable and
accrued expenses 5,144,034 1,040,789
Decrease in deferred gain (1,373) --
Decrease in deferred tax liability -- (189,000)
___________ ___________
Net cash provided by operating
activities 2,898,382 3,091,816
___________ ___________
Cash flow from investing activities:
Purchase of property and equipment (2,666,665) (969,186)
Net decrease (increase) in construction
in progress (1,870,132) 46,080
Acquisition of additional service centers (5,186,718) (13,553,077)
Franchise fees, goodwill, etc. (517,306) (676,270)
___________ ____________
Net cash used in
investing activities (10,240,821) (15,152,453)
____________ ____________
Cash flows from financing activities:
Repayments of debt and obligations under
capital leases (808,445) (190,384)
Proceeds from borrowings 11,846,264 15,187,127
Pennzoil preferred share dividend paid (70,000) (70,000)
Repurchase of common stock -- (275,000)
____________ ___________
Cash provided by financing activities 10,967,819 14,651,743
____________ ___________
Increase in cash 3,625,380 2,591,106
Cash at beginning of period 3,269,859 1,548,418
____________ ____________
Cash at end of period $ 6,895,239 $ 4,139,524
============ ============
(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, Nashville, Tennessee, Richmond/Tidewater,
Virginia and Atlanta, Georgia. These service centers provide rapid
lubrication, oil changes and related services for automobiles, light duty
trucks and other vehicles. As of June 30, 1999 the Company had 190 centers in
operation; as of December 31, 1998, 128 centers were in operation; and as of
June 30, 1998 125 centers were in operation.
As reported in the Company's 8-K dated April 14, 1999, the Company
acquired 73 Jiffy Lube service centers subsidiaries of Pennzoil-Quaker State
Company. These service centers are located in the markets of Cincinnati,
Ohio, Dayton, Ohio, Lansing, Michigan, Nashville, Tennessee and Atlanta,
Georgia.
The financial information as of June 30, 1999 and June 30, 1999
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 during the second quarter of 1999.
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
SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SECOND QUARTER
AND SIX MONTHS ENDED JUNE 30, 1998
Consolidated net sales for the three months ended June 30, 1999 rose
44% compared to the second quarter of 1998. The acquisition of the additional
stores noted above generated most of the increase. Without the acquisition,
sales increased 7% for the second quarter of 1999 in comparison to the second
quarter of 1998. Consolidated net sales for the six months ended June 30, 1999
rose 42% when compared to the first six months of 1998. Without the
acquisition sales rose by 20% for the first six months of 1999 in comparison
to the first six months of 1998. Same store sales increased by 5% for the
quarter.
Cost of sales decreased as a percent of sales from 22.6% to 22.0% for
the second quarter of 1998 versus the second quarter of 1999. Cost of sales
decreased for the first six months as well, decreasing from 23% to 22% for
1998 and 1999, respectively. The decrease in the cost of sales reflects the
Company's continued efforts to reduce costs of materials purchased and
increased sales of items that have little or no material content.
Direct costs increased for the second quarter as a percent of sales
from 36.0% to 37.8% for 1998 and 1999, respectively. Labor costs accounted for
a majority of this increase, representing an increase of approximately 1.2% of
sales. This has resulted from higher labor costs at the newly acquired
companies. Direct costs for the first six months decreased slightly from
37.5% to 37.3% as a percent of sales when compared to the prior year. Higher
volume at the service centers helped to reduce the direct labor required as a
percent of sales by spreading the fixed nature of some of these costs over the
higher volume.
Operating costs increased as a percent of net sales from 18.8% to 18.9%
for the second quarter of 1998 to the second quarter of 1999 and decreased
from 20.1% to 19.5% for the six months ended June 30, 1998 and 1999,
respectively. During the second quarter of 1998, the Company received refund
and dividend checks for workers' compensation insurance which lowered
operating costs by 0.6% for the year and 1.0% for the quarter. Adjusting for
this refund, operating costs decreased as a percentage of net sales for the
three-month and six-month period ending June 30, 1999 as compared to June 30,
1998. The decrease as a percent of net sales during the three-month and six-
month period comparing 1999 to 1998 reflects the higher volumes at the service
centers which lowers the cost as a percent of net sales due to the fixed
nature of some of these costs.
Depreciation and amortization charges decreased $6,030 for the second
quarter of 1999 in comparison to the second quarter of 1998. The lower costs
comparing second quarter charges reflects a change in accounting for pre-
opening costs from capitalizing and amortizing such costs in 1998 to
to expensing them as incurred in 1999. Depreciation and amortization increased
for the six-month period ended June 30, 1999 versus the six-month period ended
June 30, 1998 by $194,137. The depreciation and amortization expense for the
six-months ending June 30, 1999 are higher due to the acquisition of the
service centers as noted above.
Selling, general and administrative (SG&A) expenses increased 51.1% or
$924,203 comparing the second quarter of 1999 with the second quarter of 1998.
These same expenses increased by $1,374,492 for the six months ended June 30,
1999 versus the six months ended June 30, 1998. During the three-month and
six-month period ending June 30, 1999 compared to the same periods ending June
30, 1998, administrative costs increased as the number of service centers have
increased. Marketing costs increased by $263,654 when comparing the second
quarter of 1998 with the second quarter of 1999 and $486,318 when comparing
year to date totals for 1999 to 1998. 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 the second quarter of 1998 and the 73 service centers
acquired in the second quarter of 1999. As a percentage of net sales, SG&A
expenses have increased from 12.1% to 12.7% comparing the second quarter of
1999 with the second quarter of 1998 and decreased from 13.3% to 13.2% for the
six months ended June 30,1998 compared to the six months ended June 30, 1999.
The increase, as a percent of sales, resulted from increased marketing for
the quarter as compared to the prior year.
Other income increased by $77,910 comparing the second quarter of 1999
with the second quarter of 1998. An increase of $31,930 in other income is
reflected for the six-months ended June 30, 1999 over the six-month period
ended June 30, 1998. Increases are the result of increased commission income.
Interest expense increased by $447,926 for the three-month period ended
June 30, 1999 compared to the three months ended June 30, 1998. Interest
expense increased by $441,681 for the six months ended June 30, 1999 compared
with the six months ended June 30, 1998. The increase reflects additional
borrowing required by the Company for building new service centers and for the
acquisition of the 93 service centers acquired since April 1998. A charge for
dividend payments due on the Company's redeemable preferred stock was made for
all periods.
No income tax benefit or charge has been made for the year. The
Company a net operating loss carryforward which it will use to offset current
income and does not expect to have an income tax charge.
Liquidity and capital resources:
Since the end of 1998, working capital (current assets less current
liabilities) increased by $3,499,684. Cash flow from operations amounted to
$2,898,382. The positive cash flow resulted from earnings after income tax
adding back the non-cash items of depreciation and amortization, plus an
increase in accounts payable offset by an increase in accounts receivable.
Increases in accounts receivable reflect a portion of a loan from Enterprise
Mortgage Acceptance Company, LLC held in escrow. Escrow funds will be used to
refurbish and update service centers and to provide funds for additional
service centers under construction but not completed in the second quarter.
Accounts payable and accrued expenses increased from year-end due to the
increase in the number of stores and costs associated with new service
centers under construction.
The Company borrowed $11,846,264 to finance the acquisition of the 73
service centers noted above, to be used to refurbish and update service
centers and to provide funds for additional service centers under construction
but not completed in the second quarter, the addition of two service centers
that were built during the first six months of 1999, and for other general
corporate purposes.
The Company borrowed additional funds through an agreement with
Franchise Finance Corporation of America totaling $2,600,000. 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 as noted above. 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.
In June of 1999, the Company borrowed funds through an agreement with
Enterprise Mortgage Acceptance Company, LLC (EMAC) totaling $9,070,000. On
March 31, 1999, the Company entered in to an asset purchase agreement with
subsidiaries of Pennzoil-Quaker State Company to acquire 73 Q Lube and Jiffy
Lube Centers (See the Company's Form 8-K filed on April 14, 1999). The funds
from the EMAC loan were used to purchase the service centers and are being
used to make significant improvements and refurbishments at these service
centers, and other general corporate purposes as noted above. This loan carries
an interest rate of approximately 9.25% and is amortized over a 15 year period.
On July 26, 1999, the Company negotiated a waiver of the redemption
rights on its Series A Preferred Stock held by Pennzoil-Quaker State Company.
This waiver will have the affect of reclassifying the Preferred Stock into
stockholders' equity. See Form 8-K filed on July 29, 1999 for more details.
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 August 1, 1999, only 12 of its
190 stores had not 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:
The annual meeting of Lucor, Inc. was held on June 23, 1999. At that meeting
all of the Company's directors were re-elected with the indicated number of
shares voted:
In Favor
Stephen P. Conway 2,660,047
Jerry B. Conway 2,660,047
D. Fredrico Fazio 2,660,047
Anthony J. Beisler 2,660,047
Richard L. Rubin 2,660,047
R. Lewis Stanford 2,660,047
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: The Company filed a report on Form
8-K on April 14, 1999, reporting the acquisition of 73 Jiffy Lube service
centers from subsidiaries of Pennzoil-Quaker State Company. An amendment to
the Form 8-K was filed on June 11, 1999 and July 14, 1999. On July 26, 1999,
the Company filed a report on Form 8-K reporting that the Company has
negotiated a waiver of the redemption rights on its Series A Preferred Stock
held by Pennzoil-Quaker State Company.
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 13th day of August 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