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, 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: October 29, 1999 Class A Common Stock, par value $.02 per share
Shares Outstanding: 2,331,633
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
September 30, 1999 (unaudited) and
December 31, 1998 1
Consolidated Statements of Income (Loss)
Three Months Ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited) and Nine Months
Ended September 30, 1999 (unaudited) and
September 30, 1998 (unaudited) 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited) 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-September-99 31-December-98
_______________ ______________
Current assets:
Cash $ 5,631,868 $ 3,269,859
Accounts Receivable 2,600,803 804,740
Inventory 4,315,568 2,401,953
Prepaid charges 372,353 430,842
Income Tax Receivable 60,556 40,241
___________ ___________
Total Current assets 12,981,148 6,947,635
___________ ___________
Property, plant & equipment, net
of accumulated depreciation 33,335,215 23,292,926
___________ ___________
Other assets:
Goodwill, net of amortization 4,009,842 4,118,558
Franchise and operating rights, net
of accumlated amortization 8,475,343 8,672,665
Leasehold rights, licenses, application,
and area development costs, net of
accumulated amortization 3,572,436 3,156,011
Other assets 98,881 91,693
__________ ___________
Total other assets 16,156,502 16,038,927
__________ ___________
Total assets $62,472,865 $46,279,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 2,498,643 $ 1,675,548
Current portion of capital lease 2,467 23,631
Accounts payable 4,470,438 2,501,057
Accrued expenses 5,775,710 2,748,995
Preferred dividend payable 70,000 35,000
__________ ___________
Total current liabilities 12,817,258 6,984,231
__________ ___________
Long term debt, net of
current portion 43,253,364 32,112,596
Deferred gain 52,647 54,707
__________ ___________
Total Long Term Liabilities 43,306,011 32,167,303
__________ ___________
Redeemable preferred stock -- 2,000,000
__________ ___________
Stockholders' equity 6,349,596 5,127,954
__________ ___________
Total liabilities, equity $62,472,865 $46,279,488
=========== ===========
(1)
LUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
THREE MOS THREE MOS NINE MOS NINE MOS
ENDED ENDED ENDED ENDED
30-SEP-99 30-SEP-98 30-SEP-99 30-SEP-98
__________ _________ ___________ ___________
Net sales $23,562,506 $14,650,479 $59,942,632 $40,345,455
Cost of sales 5,454,625 3,442,815 13,457,200 9,348,765
__________ __________ ___________ ___________
Gross profit 18,107,881 11,207,664 46,485,432 30,996,690
__________ __________ ___________ ___________
Costs and expenses:
Direct 9,718,276 5,345,623 23,272,281 14,991,442
Operating 4,406,981 2,895,292 11,494,460 8,065,279
Depreciation 789,018 656,833 2,000,472 1,636,895
Selling, general, and
administrative 3,222,199 1,909,681 8,009,158 5,322,148
__________ __________ ___________ ___________
18,136,474 10,807,429 44,776,371 30,015,764
__________ __________ ___________ ___________
Income (loss) from
operations (28,593) 400,235 1,709,061 980,926
__________ __________ ___________ ___________
Other income 51,691 42,059 217,038 175,476
Interest expense (1,012,098) (745,131) (2,644,206) (1,935,558)
__________ __________ ___________ ___________
Loss before provision
for income taxes (989,000) (302,837) (718,107) (779,156)
Income tax expense (benefit) 25,000 (87,474) 25,000 (249,422)
__________ __________ ___________ ___________
Net income (loss) (1,014,000) (215,363) (743,107) (529,734)
Preferred dividend (35,000) (35,000) (105,000) (105,000)
__________ __________ ___________ ___________
Loss available
to common shareholders ($1,049,000) $(250,363) ($848,107) ($634,734)
========== ========== =========== ===========
Weighted average number of
shares outstanding-Basic 2,833,788 2,812,388 2,826,899 2,827,055
========== ========== =========== ===========
Weighted average number of
shares outstanding-Diluted 2,833,788 2,812,388 2,826,899 2,827,055
========== ========== =========== ===========
Basic income (loss)
available to common
shareholders per common
share outstanding ($0.37) ($0.09) ($0.30) ($0.22)
========== ========== =========== ===========
Diluted income (loss)
available to common
shareholders per common
share outstanding ($0.37) ($0.09) ($0.30) ($0.22)
========== ========== =========== ===========
(2)
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
(Unaudited)
30-Sep-99 30-Sep-98
___________ ___________
Cash flow from operations:
Net loss $ (743,107) $ (529,734)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization
of property and equipment 1,374,864 1,062,229
Amortization of intangible
assets and pre-operating costs 625,608 574,666
Changes in assets and liabilities (net
Of acquisitions):
Decrease(increase)in accounts
receivable (1,796,063) 1,814,353
Increase in inventories (548,914) (151,956)
Decrease(increase) in prepaid expenses 58,489 (651,207)
Decrease (increase) in income
tax receivable (20,315) 398,835
Increase in accounts payable and
accrued expenses 5,031,095 870,741
Decrease in deferred gain (2,060) --
Decrease in deferred tax liability -- (189,000)
___________ ___________
Net cash provided by operating
activities 3,979,597 3,198,927
___________ ___________
Cash flow from investing activities:
Purchase of property and equipment (5,725,004) (1,563,334)
Net increase in construction in progress (1,870,132) (343,526)
Acquisition of additional service centers (5,186,718) (13,553,077)
Increase in franchise fees, goodwill, etc. (743,183) (732,670)
___________ _____________
Net cash used in
investing activities (13,525,037) (16,192,607)
____________ ____________
Cash flows from financing activities:
Repayments of debt and obligations under
capital leases (1,121,565) (424,760)
Proceeds from borrowings 13,064,264 15,435,639
Pennzoil preferred share dividend paid (105,000) (105,000)
Issuance (purchase)of common stock 69,750 (275,120)
____________ ___________
Cash provided by financing activities 11,907,449 14,630,759
____________ ___________
Increase in cash 2,362,009 1,637,079
Cash at beginning of period 3,269,859 1,548,418
____________ ____________
Cash at end of period $ 5,631,868 $ 3,185,497
============ ============
(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 September 30, 1999 the Company had 192
centers in operation; as of December 31, 1998, 128 centers were in operation;
and as of September 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 September 30, 1999 and September 30,
1998 included herein is unaudited. However, such information reflects all
adjustments that 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.
The Company experienced a loss for the quarter of $1,014,000 due in
large part to the loss generated by the newly acquired stores in Atlanta and
Q Lubes in DMA's the Company already had a presence. The loss from these areas
account for approximately $771,000 of the total loss or $0.27 per share.
Management anticipates that it will take at least one more quarter to
stabilize the operations and to complete the introduction of all the services
provided by other regions to its customers including the introduction of
inspection services in Georgia. It is anticipated that the operations will
return to profitability in the year 2000.
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
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THIRD
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Consolidated net sales for the three months ended September 30, 1999
rose 60.8% when compared to the third quarter of 1998. The acquisition of the
additional stores noted above generated most of the increase. Without the
acquisition, sales increased 8.8% for the third quarter of 1999 in comparison
to the third quarter of 1998. Sales were lower than could otherwise be
expected in the third quarter due to two hurricanes that interrupted business
in the Company's two largest regions, Raleigh-Durham, North Carolina and
Tidewater-Richmond, Virginia. The hurricanes caused most of the stores in
these regions to close and drastically reduced business at other stores.
Consolidated net sales for the nine months ended September 30, 1999 rose 48.6%
when compared to the first nine months of 1998. Without the acquisition, sales
rose by 16% for the nine months of 1999 in comparison to the nine months of
1998.
Cost of sales decreased as a percent of sales from 23.5% to 23.1% for
the third quarter of 1998 versus the third quarter of 1999. Cost of sales
decreased for the first nine months as well, decreasing from 23.2% to 22.5%
for 1998 and 1999, respectively. The decrease in the cost of sales reflects
the Company's continued efforts to reduce costs of materials purchased, an
increase in the prices of its basic signature service oil change, and
increased sales of services that have little or no material content. Pennzoil-
Quaker State Company, the major supplier of oil for the Company, implemented a
price increase of approximately 4 cents per quart in August 1999 which
increased the Company's cost of sales but was offset by other savings and the
price increase.
Direct costs increased for the third quarter as a percent of sales from
36.5% to 41.2% for 1998 and 1999, respectively. Labor costs accounted for a
majority of this increase, representing an increase of approximately 2.7% of
sales. This increase is the result of higher labor costs at the newly
acquired service centers, including higher fixed labor charges at stores for
store management at these services centers, most of which have lower sales per
store. Other direct costs increased approximately 2.0%. This increase is the
result of start up costs associated with the newly acquired service centers.
Direct costs for the first nine months increased from 37.2% to 38.8% as a
percent of sales when compared to the prior year. This increase is the result
of start up costs associated with the newly acquired service centers. Without
the acquisition, direct costs for the first nine months of 1999 were 37.2%.
Operating costs decreased as a percent of net sales from 19.8% to 18.7%
for the third quarter of 1998 to the third quarter of 1999 and decreased from
20.0% to 19.2% for the nine months ended September 30, 1998 and 1999,
respectively. This decrease for both the three and nine-month period is the
result of lower rental and management fees as a percentage of sales for
acquired operations and increased revenue per store for other operations.
Depreciation and amortization charges increased $132,185 for the third
quarter of 1999 in comparison to the third quarter of 1998. Depreciation and
amortization increased for the nine-month period ended September 30, 1999
versus the nine-month period ended September 30, 1998 by $363,577. The
increase in depreciation and amortization expense for the three and nine-
months ending September 30, 1999 are higher due to the acquisition of the
service centers as noted above.
Selling, general and administrative (SG&A) expenses increased 68.7% or
$1,312,518 comparing the third quarter of 1999 with the third quarter of 1998.
These same expenses increased by $2,687,010 for the nine-months ended
September 30, 1999 versus the nine-months ended September 30, 1998. As a
percentage of net sales, SG&A expenses have increased from 13.0% to 13.7%
comparing the third quarter of 1999 with the third quarter of 1998 and
increased from 13.2% to 13.4% for the nine months ended September 30, 1998
compared to the nine months ended September 30, 1999. During the three-month
and nine-month period ending September 30, 1999 compared to the same periods
ending September 30, 1998, administrative costs increased as the number of
service centers have increased. Selling expenses, taken by themselves, as a
percentage of sales decreased from 4.4% to 4.1% and from 4.8% to 4.3%
comparing the three and nine-month periods ended September 30, 1999. This
decrease is the result of an increase in marketing assistance rebates
collected by the Company.
Other income increased by $9,632 comparing the third quarter of 1999
with the third quarter of 1998. The increase is the result of an increase in
interest income. An increase of $41,562 in other income is reflected for the
nine-months ended September 30, 1999 over the nine-month period ended
September 30, 1998. This increase is the result of additional interest income
and commission income for the year.
Interest expense increased by $266,967 for the three-month period ended
September 30, 1999 compared to the three months ended September 30, 1998. Due
to the increase in revenues, as a percentage of sales, interest expense
decreased from 5.1% to 4.3% of sales. Interest expense increased by $708,648
for the nine months ended September 30, 1999 compared with the nine months
ended September 30, 1998. The increase reflects additional borrowing required
by the Company for building new service centers and for the acquisition of the
73 service centers during the second quarter of 1999. A charge for dividend
payments due on the Company's redeemable preferred stock was made for all
periods.
An income tax charge of $25,000 was made for the year reflecting state
income taxes estimated to be payable. The Company has a federal net operating
loss carryforward and, therefore, has not made a federal income tax charge for
the year.
Liquidity and capital resources:
Since the end of 1998, working capital (current assets less current
liabilities) increased by $200,486. Cash flow from operations amounted to
$3,979,597. The positive cash flow resulted from the loss 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,
inventories, prepaid expense and income tax 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 third 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.
During 1999, the Company has borrowed $13,064,264 from four sources to
finance the acquisition of the 73 service centers noted above and to refurbish
and update those service centers. The financing was also used to provide funds
for service centers under construction but not completed in the third quarter,
the addition of two service centers that were built during the first nine
months of 1999, finance fee properties, and for other general corporate
purposes.
The Company borrowed funds during the first quarter of 1999 through an
agreement with Franchise Finance Corporation of America for $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 funds in the first quarter of 1999 through an
agreement with Centura Bank totaling $176,264. This loan carries an interest
rate of approximately 8.59% and is amortized over a fifteen-year period with a
balloon payment after five years. 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. This
loan carries an interest rate of approximately 9.25% and is amortized over a
15-year period. In September of 1999, the Company borrowed additional funds
through an agreement with EMAC totaling $518,000. This loan carries an
interest rate of approximately 9.5% and is amortized over a 15-year period. On
March 31, 1999, the Company entered into 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 loans were used to purchase the service centers, to make
significant improvements and refurbishments at the service centers, and for
other general corporate purposes as noted above.
As part of the asset purchase agreement to acquire the 73 Q Lube and
Jiffy Lube Centers, the Company obtained a $700,000 short-term loan from
Pennzoil-Quaker State Company. This loan carries an interest rate of
approximately 10%.
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 had 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, issue 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. As of September 30, 1999, all POS systems were upgraded
and the Company believes that there are no remaining systems that require
upgrading at this time.
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 filed a report on Form
8-K on July 29, 1999 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 15th day of November 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