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, 1998
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, 1998 Class A Common Stock, par value $.02 per share
Shares Outstanding: 2,315,633
Class B Common Stock, par value $.02 per share
Shares Outstanding: 502,155
<PAGE>
LUCOR, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1998 (unaudited) and
December 31, 1997 1
Unaudited Consolidated Statements of Income
Three Months Ended September 30, 1998 and
September 30, 1977 and Nine Months Ended
September 30, 1998 and September 30, 1997 2
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and
September 30, 1997 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 7
Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
<TABLE>
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 30-September-98 31-December-97
(Unaudited)
_______________ ______________
Current assets:
<S> <C> <C>
Cash $ 3,185,497 $ 1,548,418
Accounts receivable 505,521 2,267,809
Income tax receivable 43,985 466,523
Inventory 2,715,138 2,138,180
Prepaid charges 888,154 193,444
___________ ___________
Total current assets 7,338,295 6,614,374
___________ ___________
Property, plant & equipment, net
of accumulated depreciation 25,278,800 21,839,319
___________ ___________
Other assets:
Licenses, application, area
development and organization
costs, franchise and operating
rights, goodwill, and other
intangible assets, net of
accumulated amortization 15,337,065 4,679,531
Security deposits and pre-opening
expenses, net of accumulated
amortization 106,575 87,056
__________ ___________
Total other assets 15,443,640 4,766,587
__________ ___________
Total assets $48,060,735 $33,220,280
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,590,849 $ 305,578
Current portion of capital lease 27,059 25,478
Accounts payable 3,557,910 2,949,018
Accrued expenses 1,746,611 1,442,682
Preferred dividend payable 0 35,000
__________ ___________
Total current liabilities 6,922,429 4,757,756
__________ ___________
Long term debt, net of
current portion 32,387,673 18,642,480
Capital lease, net of
current portion 2,468 23,634
Deferred taxes - 189,000
__________ ___________
Total long term liabilities 32,390,141 18,855,114
__________ ___________
Redeemable preferred stock 2,000,000 2,000,000
__________ ___________
Stockholders' equity 6,748,165 7,607,410
__________ ___________
Total liabilities, equity $48,060,735 $33,220,280
=========== ===========
(1)
</TABLE>
<PAGE>
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MOS THREE MOS NINE MOS NINE MOS
ENDED ENDED ENDED ENDED
30-SEP-98 30-SEP-97 30-SEP-98 30-SEP-97
__________ _________ ___________ ___________
<S> <C> <C> <C> <C>
Net sales $14,650,479 $11,004,719 $40,345,455 $31,800,784
Cost of sales 3,442,815 2,564,277 9,348,765 7,405,525
__________ __________ ___________ ___________
Gross profit 11,207,664 8,440,442 30,996,690 24,395,259
__________ __________ ___________ ___________
Costs and expenses:
Direct 5,345,623 4,373,477 14,991,442 12,173,403
Operating 2,895,292 2,334,786 8,065,279 6,667,092
Depreciation 582,761 507,402 1,562,823 1,633,414
Selling, general, and
administrative 1,909,681 1,534,034 5,322,148 4,358,873
__________ __________ ___________ ___________
10,733,357 8,749,699 29,941,692 24,832,782
__________ __________ ___________ ___________
Income(loss) from operations 474,307 (309,257) 1,054,998 (437,523)
__________ __________ ___________ ___________
Other income 42,059 23,167 175,476 47,487
Interest expense (745,131) (369,031) (1,935,558) (1,093,175)
__________ __________ ___________ ___________
Loss before provision
for income taxes (228,765) (655,121) (705,084) (1,483,211)
Income tax expense (benefit) (63,771) (117,764) (225,719) (415,876)
__________ __________ ___________ ___________
Net loss (164,994) (537,357) (479,365) (1,067,335)
Preferred dividend ( 35,000) ( 35,000) (105,000) (105,000)
__________ __________ ___________ ___________
Net loss available
to common shareholders ($ 199,994) ($ 572,357) ($ 584,365) ($1,172,335)
========== ========== =========== ===========
Weighted average number of
shares outstanding 2,812,388 2,846,888 2,827,055 2,841,888
========== ========== =========== ===========
Net loss per
common share outstanding ($ 0.07) ($ 0.20) ($0.21) ($0.41)
========== ========== =========== ===========
(2)
</TABLE>
<PAGE>
<TABLE>
LUCOR, INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
30-Sep-98 30-Sep-97
___________ ___________
<S> <C> <C>
Cash flow from operations:
Net loss $ (479,365) $(1,067,335)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization
of property and equipment 1,062,229 1,008,493
Amortization of intangible
assets and pre-operating costs 500,594 624,921
Management fee recorded as
contribution to capital - 338,000
Changes in assets and liabilities:
Decrease in accounts
receivable 1,814,353 69,178
Increase in inventories (151,956) (446,374)
Increase in prepaid expenses (651,207) (32,652)
Decrease in income
tax receivable 422,538 100,964
Increase (decrease) in accounts
payable and accrued expenses 870,741 (12,948)
Decrease in deferred tax liability (189,000) 0
___________ ___________
Net cash provided by operating
activities 3,198,927 582,247
___________ ___________
Cash flow from investing activities:
Purchase of property and equipment (1,563,334) (1,378,652)
Decrease (increase) in construction
in progress (343,526) 962,197
Acquisition of additional service centers (13,553,077) (56,250)
Franchise fees, goodwill, etc. (732,670) (274,639)
___________ __________
Net cash used in
investing activities (16,192,607) (747,344)
____________ ____________
Cash flows from financing activities:
Repayments of debt and obligations under
capital leases (424,760) (988,664)
Proceeds from borrowings 15,435,639 650,000
Pennzoil preferred share dividend paid (105,000) (140,000)
Proceeds (receipts) from issuance/
repurchase of common stock (275,120) 258,751
____________ ___________
Cash provided by (used in)
financing activities 14,630,759 (219,913)
____________ ___________
Increase (decrease) in cash 1,637,079 (385,010)
Cash at beginning of period 1,548,418 2,052,417
____________ ____________
Cash at end of period $ 3,185,497 $ 1,667,407
============ ============
(3)
</TABLE>
<PAGE>
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, and Richmond/Tidewater,
Virginia. These service centers provide rapid lubrication, oil changes and
related services for automobiles, light duty trucks and other vehicles. As of
September 30, 1998 the Company had 125 centers in operation and as of December
31, 1997 and September 30, 1997 100 centers were in operation.
The financial information as of September 30, 1998 and September 30, 1997
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, 1997 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, 1997.
Management is currently reviewing the allocation of the purchase price on
the acquisition of the twenty three service centers in the Richmond/Tidewater
region that occurred on April 1, 1998. It expects to adjust the allocation of
costs that are currently assigned to goodwill to other identifiable intangible
assets. It is not anticipated that any reallocation will have a material
affect on the financial presentation of the purchase nor on the post-
acquisition operating results including the amortization expense resulting
from goodwill and other intangible assets. It is anticipated that the changes
will result in lower goodwill and allocation of this reduction to other
intangible assets such as franchise and operating rights.
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, 1998 COMPARED TO THIRD
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
Consolidated net sales for the three months ended September 30, 1998
rose 33% when compared to the third quarter of 1997. The acquisition of twenty
three stores in the Richmond/Tidewater area on April 1, 1998, contributed to
most of the increase in sales. Without the acquisition, sales increased 2% for
the third quarter of 1998 in comparison to the third quarter of 1997.
Consolidated net sales for the nine months ended September 30, 1998 rose 27%
when compared to the first nine months of 1997. Without the acquisition on
April 1, 1998, sales rose by 5% for the first nine months of 1998 in
comparison to the first nine months of 1997. 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, Virginia. The hurricanes caused several of its
stores to close and business was drastically reduced at other stores.
Management estimates that between $200,000 and $250,000 in sales were lost due
to the hurricanes. Discounts, due mainly to higher couponing, increased from
9.2% of gross sales for the third quarter of 1997 to 10.2% for the third
quarter of 1998. The Company began test marketing batteries beginning in
April 1998. Results from the testing are very positive. Battery sales in the
test stores selling batteries for the entire quarter represented 1.5% of all
sales at these stores for the third quarter of 1998.
<PAGE>
Cost of sales increased as a percent of sales from 23.3% to 23.5% for
the third quarter of 1997 versus the third quarter of 1998. The slight
increase in the cost of goods percentage in the third quarter is mainly due to
the higher discounts on products and services sold. Cost of sales decreased
for the first nine months, decreasing from 23.3% to 23.2% for 1997 and 1998,
respectively. The relatively stable cost of sales percentage reflects the
fruition of the Company's efforts to reduce costs of products purchased.
These efforts began in 1996 and are reflected in the drop in the cost of sales
from that period.
Direct costs declined for the third quarter as a percent of sales from
39.7% to 36.5% for 1997 and 1998, respectively. Direct costs for the first
nine months decreased as well from 38.3% in 1997 to 37.2% in 1998. Higher
sales volume at the service centers in the third quarter helped reduce direct
labor, as a percent of sales, due mainly to some labor costs which are fixed
by their nature. Additionally, direct costs for the newly acquired service
centers are lower due to the higher per service center car counts at these
service centers.
Operating costs decreased as a percent of net sales from 21.2% to 19.8%
for the third quarter of 1997 compared to the third quarter of 1998 and from
21.0% to 20.0% for the nine months ended September 30, 1997 and 1998,
respectively. This decrease reflects higher sales at the service centers
which lowers operating costs as a percent of net sales due to the fixed nature
of some of these costs. In addition, the Company received refund and dividend
checks for Workers' Compensation insurance in the second quarter which lowered
operating costs for the year in comparison to the prior year. The Company
also re-negotiated its contract for waste oil removal and currently receives a
small payment per gallon for waste oil recycled in most of its regions.
Depreciation and amortization charges increased $75,359 for the third
quarter of 1998 in comparison to the third quarter of 1997. However, for the
nine month period ended September 30, 1998 these costs show an overall decline
of $70,591 from the same period in 1997. The lower costs on a year to date
basis reflect lower amortization of pre-opening costs which are lower due to
fewer new service centers built during the previous six months (pre-opening
costs are amortized over a six month period). The depreciation and
amortization expense for the third quarter are higher due to the acquisition
of the twenty three service centers noted above.
Selling, general and administrative (SG&A) expenses increased 24.5% or
$375,647 comparing the third quarter of 1998 with the third quarter of 1997.
These same expenses increased by 22.1% or $963,275 for the nine months ended
September 30, 1998 versus the nine months ended September 30, 1997. This
increase reflects the additional expenses required to staff for the additional
regions acquired. As a percent of net sales, SG&A expenses have decreased
from 13.7% to 13.2% for the first nine months of 1997 versus the first nine
months of 1998.
<PAGE>
Other income increased by $18,892 comparing the third quarter of 1998
with the third quarter of 1997, reflecting additional interest income and
commission income for the quarter. An increase of $127,989 in other income
is reflected for the nine months ended September 30, 1998 over the nine month
period ended September 30, 1997 due to higher interest income and commission
income.
Interest expense increased by $376,100 for the three month period ended
September 30, 1998 compared to the three months ended September 30, 1997.
Interest expense increased by $842,383 for the nine months ended September 30,
1998 compared with the nine months ended September 30, 1997. The increase
reflects additional borrowing required by the Company for its new service
centers and for the acquisition of the twenty three service centers discussed
earlier. Provision for an income tax benefit reflects the Company's net loss.
A charge for dividend payments due on the Company's redeemable preferred
stock was made for all periods.
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 eight regions. Losses at the Sears operations
were a major contributor to the overall losses of the Company in 1997. The
Management of the Company remains focused on making these operations
profitable. Cash flow from these operations improved for the first nine
months of 1998. This improvement over 1997 is reflective of the efforts by
Management to make these centers profitable which includes an agreement made
with Jiffy Lube International and Sears in November 1997 which provided cash
incentives for use in marketing the Company's Sears operations for six months.
These incentives have been extended for an additional six months through
October, 1998. The Company is currently in negotiations to obtain additional
incentives. There can be no assurance, however, that these negotiations will
result in additional incentives.
Liquidity and capital resources:
Since the end of 1997, working capital (current assets less current
liabilities) decreased by $1,440,752. Of this decrease in working capital,
$1,285,271 is due to the movement of long term debt to current debt. Two loans
totaling $650,000 which were classified as long term on December 31, 1997 and
have been subsequently reclassified as current since they are due in twelve
months. Both are due in 1999. In addition, new borrowings for the acquisition
of the Richmond/Tidewater regions have increased the current portion of the
debt. Cash flow from operations amounted to $3,198,927.
The Company obtained $15,435,639 in debt to finance the acquisition of
the twenty three service centers noted above, the addition of two service
centers that were built during the first nine months of 1998, and to expand
its corporate office facilities. The Company also repurchased 39,000 of class
"A" common shares from Quick Lube, Inc. in May 1998 as part of an agreement
entered into in May 1996 as part of the purchase of six Jiffy Lube service
centers in the Lansing, Michigan area.
As previously reported, in February of 1998, the Company borrowed
additional funds through an agreement with Enterprise Mortgage Acceptance
Company, LLC (EMAC) totaling $1,787,000 and in March of 1998, the Company
borrowed an additional $13,274,000 through an agreement with EMAC. These
funds were applied towards the purchase price of the twenty three Jiffy Lube
service centers referenced above.
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.
<PAGE>
Year 2000 Review
The Company has undertaken a review of its computer systems 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 has determined that some of its systems will need to be upgraded. 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 second
quarter in 1999 using current internal resources and already identified
external resources.
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: None
<PAGE>
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 16th day of November 1998.
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,185,497
<SECURITIES> 0
<RECEIVABLES> 544,882
<ALLOWANCES> 39,361
<INVENTORY> 2,715,138
<CURRENT-ASSETS> 7,338,295
<PP&E> 30,813,460
<DEPRECIATION> 5,534,660
<TOTAL-ASSETS> 48,060,735
<CURRENT-LIABILITIES> 6,922,429
<BONDS> 0
0
2,000,000
<COMMON> 56,297
<OTHER-SE> 6,691,868
<TOTAL-LIABILITY-AND-EQUITY> 48,060,735
<SALES> 40,345,455
<TOTAL-REVENUES> 40,345,455
<CGS> 9,348,765
<TOTAL-COSTS> 29,941,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,935,558
<INCOME-PRETAX> (705,084)
<INCOME-TAX> (225,719)
<INCOME-CONTINUING> (479,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479,365)
<EPS-PRIMARY> (0.207)
<EPS-DILUTED> (0.207)
</TABLE>
