United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File Number 0-25164
LUCOR, INC.
Florida 65-0195259
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
790 Pershing Road
Raleigh, North Carolina 27608
(Address of Principal Executive Offices) (Zip Code)
919-828-9511
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.02 par value
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 Exchange Act of 1934 during
the preceding 12 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 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 15, 1997, was $8,117,830
As of March 15, 1997, there were 2,144,733 shares of the Registrant's Class A
Common Stock, $.02 par value, outstanding and 702,155 shares of the Registrant's
Class B Common Stock, $.02 par value, outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
Annual meeting of Stockholders to be held in May 1997 are incorporated by
reference in Parts II and III.
<PAGE>
Lucor, Inc.
Index to Form 10-K
For the Year Ended December 31, 1996
PART I Page
Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 6
Item 4 - Submission of Matters to a Vote of Security-Holders . . . . . 6
PART II
Item 5 - Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . 7
Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . . 7
Item 7 - Management's Discussion and Analysis
Financial Condition and Results of Operation . . . . . . . 9
Item 8 - Financial Statements and Supplementary Data . . . . . . . . . 15
Item 9 - Changes in and Disagreements with Accountants
or Accounting and Financial Disclosure . . . . . . . . . 37
PART III
Item 10 - Directors and Executive Officers of the Registrant . . . . . . 38
Item 11 - Executive Compensation . . . . . . . . . . . . . . . . . . . . 38
Item 12 - Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . 38
Item 13 - Certain Relationships and Related Transactions . . . . . . . . 38
PART IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . . 39
<PAGE>
PART I
Item 1 - Business
General
Lucor, Inc. (the "Registrant" or the "Company") is the largest franchisee
of Jiffy Lube International, Inc. ("JLI") in the United States. These franchises
consist of automotive fast oil change, fluid maintenance, lubrication, and
general preventative maintenance service centers under the name "Jiffy Lube." As
of December 31, 1996, the Company operated ninety four service centers in six
states, including twenty five service centers in the Raleigh-Durham, North
Carolina ADI (Geographic Area of Dominant Influence defined in the Arbitron
Ratings Guide for television markets), twenty one service centers in the
Cincinnati, Ohio ADI (which includes northern Kentucky), eighteen service
centers in the Pittsburgh, Pennsylvania ADI, twelve service centers in the
Dayton, Ohio area, five service centers in the Toledo, Ohio area, seven service
centers in the Nashville, Tennessee area, and six service centers in the
Lansing, Michigan area. The operations of the service centers in each of these
markets are conducted through subsidiaries of the Company, each of which has
entered into area development and franchise agreements with JLI. Unless the
context otherwise requires, references herein to the Company or the Registrant
refer to Lucor, Inc. and its subsidiaries.
In 1996, the Company continued its aggressive expansion program adding
twenty eight service centers in its current markets and purchasing six Jiffy
Lube service centers in the Lansing, Michigan area from Quick Lube, Inc. The
Michigan service centers were operating under the Jiffy Lube name and the
Company intends to continue the operation of these service centers under the
same name. The Company consolidated its operations by moving its accounting
operation to Raleigh, North Carolina and changing its principal place of
business to Raleigh.
In March 1995, JLI and Sears Merchandise Group ("Sears") entered into a
national agreement to open fast oil change units in Sears Auto Centers. During
1996 the Company developed fifteen Sears units included in the twenty eight new
service centers noted above. Since this is a new venture between JLI and Sears,
there is no historical data available to forecast future volumes and
profitability. The Company anticipates that these Sears locations will have
lower volumes and take longer to reach a satisfactory state of customer
acceptance and profitability than normal Company non-Sears facilities. JLI has
made a strong commitment to this Sears program, however, this opportunity is a
new venture for the Company. The Company believes that brand marketing will be
a major determinant of the success of this program. The Company anticipates
obtaining financing for the capital involved in the development of these Sears
units with a loan from a lender. At present, these investments are being
financed from the Company's own internal cash generation.
Quick Lube Industry
In the past, the traditional provider of oil change and lubrication
services has been the corner gas station. The decline in the number of full-
service gasoline stations has reduced the number of convenient places available
to customers for performing basic mechanical and fluid maintenance work on their
automobiles. The Company believes that this trend combined with convenience and
service are significant factors in the continuing success of quick lube centers
in the marketplace.
<PAGE> 2
According to the 1996 10-K of the Pennzoil Company (the parent company of
JLI and 35% holder of Lucor, Inc. class A common stock), Jiffy Lube's share of
the oil change market grew significantly in 1996. Sales reported to JLI from
Jiffy Lube centers for the year ended December 31, 1996 increased $44.8 million,
or approximately 7%, to $701.3 million, compared to the prior year, and
increased $93.9 million, or approximately 15%, comparing 1995 with 1994. Average
ticket prices for JLI increased to $35.27 for the year ended December 31, 1996,
compared to $34.71 and $34.09 for the years ended December 31, 1995 and 1994,
respectively.
On December 31, 1996, 1,380 Jiffy Lube service centers were open in the
United States. Franchisees of JLI operated 855 of the service centers and JLI
owned and operated the remaining 525 locations. (Source: Pennzoil Company, 1996
10-K.) Of the total JLI franchised service centers, the Company operated ninety
four locations, making it the largest franchisee.
Services
The products and services offered by the Company are designed to provide
customers with a convenient way for preventative maintenance of their vehicles,
typically in minutes and without an appointment. The Company's basic "Signature
Service" includes changing engine oil and filter, lubricating the chassis,
checking for proper tire inflation, washing the windows, vacuuming the interior
of the car, checking and replenishing fluids in the transmission, differential,
windshield washer, battery and power steering, and examining the air filter,
lights, and windshield wiper blades while performing a manufacturers recommended
service review. A quality inspection is then completed and a Signature Service
card is signed by a lubrication technician confirming that the service was
properly performed. The pricing of a Signature Service ranges from $24.99 to
$27.99, depending on the geographic area.
The Company also offers several other products and services including fuel
injection system cleaning, automotive additives, manual transmission,
differential and transfer case fluid replacement, radiator coolant replacement,
tire rotation, air filter replacement, breather element replacement, positive
crankcase ventilator valve (PCV valves) replacement, wiper blade replacement,
head and light bulb replacement and auto safety and emissions inspection
services. The Company tested tire rotation and complete transmission fluid
replacement service in 1995. These services were expanded to all service centers
in 1996. The Company does not perform any repairs on vehicles, only preventative
maintenance.
In combination with JLI, "fleet" business is arranged with large, national
and local consumers of lubrication services who may obtain such services at the
Company's service centers. These services are billed by the Company to the fleet
customers through JLI for national fleet customers and by the Company for local
fleet customers. The Company solicits most fleet business from local fleet
customers in each of its markets.
<PAGE> 3
Service Centers
A typical service center consists of approximately 2200 square feet with
three service bays, a customer lounge, storage area, a full basement and rest
rooms. The operating staff at each service center consists of a manager, an
assistant manager and usually eight additional employees.
In general, the Company's service centers are well lit, clean, and provide
customers an attractive surrounding and comfortable waiting area while their
vehicle is serviced.
Marketing
The Company uses newsprint, public relations, direct marketing, radio and
television advertising to market its products and services. In addition to the
Company's marketing programs, JLI conducts national marketing programs for Jiffy
Lube service centers, principally through television advertising. Pennzoil
conducts a national advertising program for Pennzoil motor oil and other
Pennzoil lubrication products. The Company does not pay any fee to either JLI or
Pennzoil for their advertising programs. In addition to direct advertising, the
Company emphasizes the development of goodwill in the communities in which it
operates through involvement in community promotions. Some of the Company's
community campaigns include Coats for Kids, Teaching Excellence, Jump Start on
Reading, Children's Hospital Free Care Fund, Ruth Lyons Children's Fund, Boy
Scouts Scouting for Food and the Arthritis Foundation Grand Prix.
Area Development Agreements and Franchise Agreements
The Company operates Jiffy Lube service centers under individual franchise
agreements that are part of broader exclusive development agreements with JLI,
the franchisor. The exclusive development agreements require the Company to
identify sites for and develop a specific number of service centers in specific
territories and the separate franchise agreements each provide the Company the
right to operate a specific service center for a period of 20 years, with two,
10-year renewal options.
Each development agreement grants the Company exclusive rights to develop
and operate a specific number of service centers within a defined geographic
area, provided that a certain number of service centers are opened over
scheduled intervals.
Cincinnati. The Company has satisfied its obligations to develop service
centers under its Area Development Agreement for the Cincinnati market area, and
currently has a right of first refusal to develop any additional service centers
which JLI may propose to develop or offer to others in this market. This right
extends to December 31, 2000 in the Cincinnati market area
Raleigh-Durham. The Company has satisfied its obligations to develop
service centers under its Area Development Agreement for the Raleigh-Durham
market area, and currently has a right of first refusal to develop any
additional service centers which JLI may propose to develop or offer to others
in this market. This right extends to December 31, 2006 in the Company's
Raleigh-Durham market.
Pittsburgh. Under its area development agreement for the Pittsburgh area,
the Company has satisfied its obligations to develop 8 service centers by June
30, 2000. The Company has the right to develop service centers in its
Pittsburgh territory through June 30, 2004. After that date, JLI may develop or
franchise others to develop service centers in the Company's territory but only
after providing the Company with the first right of refusal to develop any such
centers, which right extends through June 30, 2019.
Other Areas. On August 1, 1995, Cincinnati Lubes, Inc. amended its Area
Development Agreement to include Toledo, Dayton, Nashville and Cincinnati areas
and operate a specific number of centers within the defined geographical areas
until July 31, 2004. The Company has satisfied its development obligation. The
Company has a first right of refusal to develop service centers until July 31,
2019.
<PAGE> 4
Lansing. On May 1, 1996, the Company purchased substantially all of the
assets of Quick Lube, Inc. which included six Jiffy Lube service centers in the
Lansing, Michigan area. The Company has not entered into an Area Development
Agreement regarding Lansing nor is the Company contemplating entering into an
agreement at this time.
The franchise agreements convey the right to use the franchisor's trade
names, trademarks, and service marks with respect to specific service centers.
The franchisor also provides general construction specifications for the design,
color schemes and signage for a service center, training, operating manuals and
marketing assistance. Each franchise agreement requires the franchisee to
purchase products and supplies approved by the franchisor. The initial franchise
fee payable by the Company upon entering into a franchise agreement for a
service center varies based on the market area where the Company develops the
center and the time of development of the center. For service centers which the
Company may develop in 1997, the initial franchise fee ranges from $12,500 to
$25,000. The franchise agreements generally require a monthly royalty fee of 5%
of sales. The royalty fee is reduced to 4% of sales when the fee for a given
month is paid in full by the 15th of the following month, a practice followed by
the Company.
In May 1996, the Company entered into a Sales Agreement with Pennzoil
Products Company as part of a Citicorp financing agreement executed on or about
the same date. This agreement supersedes a previous sales agreement with
Pennzoil Products Company, and requires the Company to purchase from Pennzoil
85% of the Company's combined motor oil, lubricants, and automotive filter
requirements for a specific number of service centers. The Company satisfied
this requirement and paid Pennzoil $3,957,925 to purchase of these items in
1996. Part of the agreement includes special "truck load" pricing for large
purchases. Due to difficulties in distribution, the Company did not finalize
this agreement with Pennzoil until February 1997. The Company anticipates that
this new pricing scheme will have a significant beneficial effect on cost of
sales.
Management Services Agreement
Each of the Company's operating subsidiaries has entered into a
management agreement with CFA Management, Inc., a Florida corporation
(CFA), pursuant to which CFA, as an independent contractor, operates,
manages and maintains the service centers. CFA is owned by Stephen P.
Conway and Jerry B. Conway, both of whom are executive officers and
directors of the Company and each subsidiary, as well as principal
shareholders of the Company. These agreements continue until the
termination of the last franchise agreement between the Company and JLI.
For its services, CFA receives an amount equal to a percentage of the
annual net sales of each service center operated by a subsidiary,
calculated as follows:
Number of Management Fee
Service Centers Per Service Center
_______________ ___________________________________
1 - 34 4.50% of the sales of these centers
35 - 70 3.00% of the sales of these centers
71 - 100 2.25% of the sales of these centers
More than 100 1.50% of the sales of these centers
The Company paid CFA $804,815 in 1996 under the agreement.
<PAGE> 5
Expansion Plans
In 1995, the Company embarked on an extensive expansion program increasing
the number of service centers from thirty six to sixty by the end of the year.
During 1996, the Company acquired six service centers in the Lansing, Michigan
area through an acquisition from Quick Lube, Inc. Twenty eight other service
centers were developed in 1996 in areas where the Company has other stores, six
of which were located in North Carolina, four of which were located in
Cincinnati, nine of which were located in Pittsburgh, six of which were in
Dayton, and three of which were in Nashville. The Company plans to complete its
current expansion program in 1997 which includes three service centers under
construction and three sites under lease or contract for future development.
Financing of these service centers has been obtained. Although the Company may
determine that additional sites are desirable for development in the future,
management will focus its efforts on improving the sales and profitability of
its current service centers, rather than additional expansion.
Competition
The quick oil change and lubrication industry is highly competitive with
respect to the service location, product type, customer service and, to a lesser
degree, price. The Company's service centers compete in their local markets with
the "installed market" consisting of service stations, automobile dealers,
independent operators and franchisees of automotive lubrication service centers,
some of which operate multiple units offering nationally advertised lubrication
products such as Quaker State and Valvoline motor oil. Some of the Company's
competitors are larger and have been in existence for a longer period than the
Company. However, the Company is larger than many independent operators in its
markets and it believes that its size is an advantage in these markets as it
affords the Company the benefits of marketing, name awareness and service as
well as economies of scale for purchasing and easier access to capital for
improvements.
Government Regulation and Environmental Matters
The Company's service centers store new oil and generate and handle large
quantities of used automotive oils and fluids. Accordingly, the Company is
subject to a number of federal, state and local environmental laws governing the
storage and disposal of automotive oils and fluids. Noncompliance with such laws
and regulations, especially those relating to the installation and maintenance
of underground storage tanks (UST's), could result in substantial cost. As of
December 31, 1996, 12 of the Company's service centers had UST's on the
premises. Of those service centers with UST's, only 7 were actively using the
tanks, all at the requirement of local and state regulatory authorities. Those
UST's in use comply with all Environmental Protection Agency regulations
scheduled to become effective December 22, 1998. The remaining five centers
have inactive UST's that are scheduled for removal in the first half of fiscal
1998. The Company is not aware that any leaks have occurred at any of its
existing UST's.
In addition, the Company's service centers are subject to local zoning laws
and building codes which could adversely impact the Company's ability to
construct new service centers or to construct service centers on a cost-
effective basis.
<PAGE> 6
Employees
As of December 31, 1996, the Company employed 1,180 people, of which 1,144
were engaged in operating the Company's Jiffy Lube Service Centers and the
remainder in management, development, marketing, finance and administration
capacities. None of the Company's employees are represented by unions. The
Company considers its employee relations to be good.
Item 2 - Properties
The Company acquired a new 8,000 square foot office facility at 790
Pershing Road in Raleigh, North Carolina on September 30, 1995 and its former
office condominium was sold in February, 1996. This new office facility was
purchased to provide additional office space so that the accounting operations
could be moved from Boca Raton Florida to Raleigh, North Carolina to consolidate
the operations of the Company. The office facility is secured by a note payable
to Centura Bank as described in note 6 of the consolidated financial statements.
Twenty two of the Company's service centers are owned, with the balance of the
centers, and an administrative office in Boca Raton, Florida, leased.
Item 3 - Legal Proceedings
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
<PAGE> 7
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company has two classes of Common Stock consisting of Class A Common
Stock and Class B Common Stock. The Class A stock is traded on the NASDAQ
SmallCaps market. The Class B Common Stock is closely held and not traded in any
public market. In addition, the Company has outstanding 99,500 Warrants to
purchase 99,500 shares of Class A Common Stock at an exercise price of $9.00 per
share, which expire in November 1997 (the "Warrants").
As of December 31, 1996, there were 466 holders of record of the Class A
Common Stock, 82 record holders of the Warrants and three record holders of the
Class B Common Stock. No cash dividends have ever been paid on either class of
the Company's Common Stock.
The following table shows high and low sales prices for the Class A Common
Stock of Lucor as reported on the NASDAQ - SmallCaps market.
1996 1995
Market Price Market Price
Quarter Ended High Low High Low
March 31 $ 7.75 $5.75 Not Applicable Not Applicable
June 30 $10.00 $6.13 $ 7.00 $4.75
September 30 $ 8.50 $7.50 $10.50 $5.75
December 31 $ 7.50 $4.50 $ 8.00 $6.50
Item 6 - Selected Financial Data
The selected consolidated financial data of the Company set forth on the
following page are qualified by reference to, and should be read in conjunction
with, the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this 10-K Report. The data for each of the years in the five year
period ended December 31 and the Balance Sheet data as of December 31, 1992,
1993, 1994, 1995, and 1996 are derived from audited Consolidated Financial
Statements.
<PAGE> 8
<TABLE>
LUCOR, INC.
Five-Year Summary of Selected Financial Data
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operational Data (unaudited):
Cars serviced 1,037,231 789,064 588,708 468,592 379,527
Stores 94 60 36 30 28
Net sales per car serviced $36.42 $35.68 $34.94 $34.71 $33.86
Income Statement Data:
Net sales $37,772,799 $28,153,521 $20,566,519 $16,265,623 $12,849,782
Cost of sales 8,951,465 6,748,266 4,947,670 3,987,441 3,122,718
Gross profit 28,821,334 21,405,255 15,618,849 12,278,182 9,727,064
Costs and expenses:
Direct 14,059,886 10,020,278 6,749,017 5,304,942 4,284,817
Operating 7,786,260 6,053,513 4,640,848 3,872,453 3,214,969
Depreciation, amortization 2,001,300 848,301 442,116 425,842 299,634
Selling, general, admin. 5,455,291 3,183,110 1,951,464 1,654,891 1,467,456
29,302,737 20,105,202 13,988,997 11,428,018 9,445,126
Income (loss) from operations (481,403) 1,300,053 1,629,852 850,164 281,938
Interest expense (1,176,149) (450,471) (205,552) (169,890) (178,250)
Other income 192,558 72,097 174,553 126,324 80,122
Income (loss) before provision
for income taxes (1,464,994) 921,679 1,804,405 976,488 362,060
Provision for income taxes (263,006) 381,436 716,410 377,570 101,053
Net income (loss) $(1,201,988) $ 540,243 $ 1,087,995 $ 598,918 $ 261,007
Preferred dividend accrued (133,287) (35,000) - - -
Net income (loss) available
to common shareholders $(1,335,275) $ 505,243 $ 1,087,995 $ 598,918 $ 261,007
============ ========== =========== =========== ===========
Net income per common share
and common share equivalent $(0.54) $0.26 $0.62 $0.34 $0.15
Cash dividends declared
per share -0- -0- -0- -0- -0-
Weighted average common shares
outstanding 2,451,683 1,944,618 1,757,985 1,758,163 1,734,641
December 31,
1996 1995 1994 1993 1992
Balance Sheet Data:
Cash and other short-term
assets $ 5,213,281 $ 4,143,399 $ 2,967,892 $ 2,139,445 $ 2,145,583
Property and equipment, net 22,506,488 14,246,603 3,140,443 1,878,662 1,372,060
Intangible assets, net 4,907,840 3,288,044 1,140,210 703,357 656,102
Total assets $32,627,609 $21,678,046 $ 7,248,545 $ 4,721,464 $ 4,173,745
=========== =========== =========== =========== ===========
Short-term obligations/debt 5,335,200 3,266,336 2,273,300 1,284,503 1,065,264
Long-term liabilities 16,304,431 12,198,958 1,256,886 1,691,494 1,932,519
Preferred stock, redeemable 2,000,000 2,000,000
Shareholder's equity 8,987,978 4,212,752 3,718,359 1,745,467 1,175,962
</TABLE>
<PAGE> 9
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operation
Introduction
The Company is engaged through its subsidiaries in the automotive fast oil
change, fluid maintenance and lubrication service business at ninety four
service centers located in six states. Twenty five service centers are located
in the Raleigh-Durham area of North Carolina, twenty one in the Cincinnati Ohio
area (which includes northern Kentucky), eighteen in the Pittsburgh,
Pennsylvania area, twelve in the Dayton, Ohio area, five in the Toledo, Ohio
area, seven in the Nashville, Tennessee area, and six in the Lansing, Michigan
area. Starting in early 1995, the Company embarked on a plan of expansion,
involving acquisition of facilities in new markets as well as construction of
new sites in current markets. In July 1995 Citicorp Leasing, Inc. agreed to
lend $18.0 million to the Company to refinance existing debt, fund the
acquisition of new service center sites, and to provide capital for the
acquisition of additional service centers in the Raleigh-Durham, Cincinnati, and
Pittsburgh areas (See Lucor, Inc. 10-K for the year ended December 31, 1995).
During 1995, the Company acquired fifteen centers by purchase and developed nine
other centers, ending the year with sixty operating locations. During 1996, the
Company acquired substantially all the assets of Quick Lube, Inc., which
included six centers in the Lansing, Michigan area. In addition, site
development continued in its existing markets, adding four centers in
Cincinnati, six in Dayton, three in Nashville, six in North Carolina, and nine
in Pittsburgh. At year end the Company had ninety four centers operating. As
of March 15, 1997 the Company had ninety six operating locations with three
centers under construction and expected to open within the next two months. The
Company is under lease or contract for three sites for future development. At
the completion of these development plans, the Company will have substantially
completed its development projects.
The expansion program has been accomplished at some cost, which was not
unexpected. Management believes that it takes approximately twenty four months
for a store reach maturity. As new stores are opened, the impact of the new
stores is to reduce the average over-all car count, revenues per store and
increase the average unit operating cost per store. As assets were added and
debt incurred, the Company incurred additional depreciation (a non-cash charge)
and interest expense. During 1995, the Company averaged forty seven cars per
day in its open locations while in 1996, an average car count of thirty nine
cars per center per day was experienced. Substantial increases in depreciation
and interest contributed to a net loss of $1,201,988 for the year compared to a
profit of $540,243 in 1995. The Company considers this loss to have been a
necessary investment in what it believes is a reasonable expansion plan.
However, there can be no assurance that revenues per location will increase
sufficiently to return the Company to profitability in the near future.
Results of Operations
The Company's primary indicators of business activity are the numbers of
cars serviced at its service centers and the net revenue per car serviced. Costs
are measured as a percentage of net sales. Cost of sales and direct costs (which
includes labor at the retail level and other volume-related operating costs) can
be expected to vary approximately in line with sales volumes. Operating costs
include store occupancy costs, insurance, royalties paid to the franchisor,
management fees and other lesser categories of expenses. Store occupancy costs
can be expected to vary, either with periodic, contractual rent increases at
leased locations or as a function of sales for those leases which have a sales
based rent schedule. Real estate taxes are subject to periodic adjustments.
Royalty fees paid to the franchisor are 4% of sales and management fees are paid
at rates described above (see Management Services Agreement). The Company's
service centers are open 7 days per week and average 360 days of operation per
year.
<PAGE> 10
1996 Compared to 1995
Net sales increased 34% from 1995 to 1996 due to the increase in base
business sales as well as the impact of the new service centers which were
opened during the year as indicated in the following table:
Increase 1996 1995
Same stores 15% $ 32,416,340 $ 28,153,520
New stores 5,356,459 0
Total net sales in 1996 34% $ 37,772,799 $ 28,153,521
============ ============
The Company had average daily sales of thirty nine cars per day, per
service center, compared to forty seven cars per day in the previous year. The
more than 50% increase in the number of service centers opened during the year
contributed to this decline, as new locations typically require approximately
two years to become stabilized at normal sales levels. In addition, the fifteen
Sears location sites, ten of which were opened in the last quarter of the year,
had car counts significantly below those of non-Sears locations. Management
anticipates that the Sears sites will ultimately prove to be profitable
locations, but no assurances can be given that this will occur. Net revenue per
car increased from $35.68 to $36.42 or 2%. Many factors contributed to the
change in the net revenue per car. Part of the increase reflects an increase
in ancillary sales per customer. As discussed above, the Company has introduced
and has aggressively marketed new ancillary sales. As additional services are
purchased beyond the basic "Signature Service", the net revenue per car is
increased. North Carolina performs inspections on vehicles which increases the
net revenue per vehicle. In North Carolina for 1996, the net revenue per car
increased from $39.04 to $40.26 or 3%. Due to the large number of stores
opening in the Company's other regions, the effect of the higher net revenue per
car generated by the North Carolina region was diluted when computing total net
revenue per car for the entire Company.
The increase in net revenue also occurred despite the loss of over
$900,000 in inspection revenue in the Cincinnati area as this service was
centralized by the state of Ohio in January 1996. Net revenue per car increased
in the Cincinnati area from $35.05 to $35.53 or 1% even with the loss of the
inspection revenue. Had Cincinnati not had inspection revenue in 1995, the net
revenue per car would have been $31.62.
Cost of sales, which represents the direct cost of materials sold to the
customer (oil, filters, lubricants, etc.) increased in proportion to sales and
remained relatively unchanged as a percentage of sales.
Direct operating costs increased by 40% or $4,039,608 in 1996 as compared
to 1995. These costs consist primarily of direct labor and supplies costs
expended at each location for customer service. Approximately 74% of this
increase ($3,004,719) was in direct labor costs. Increased sales volume
accounted for 79% of the increase in total direct operating costs, while the
balance was due to higher unit costs ($10.39 in 1996 versus $9.77 in 1995). The
Company has experienced low unemployment labor markets for entry level employees
in its various markets. These low unemployment rates has made it difficult to
obtain the necessary labor to run the service centers, however, the Company has
been able to resist any significant upward pressure on wage rates. The Company
is uncertain to what extent the low unemployment rates will have on its labor
rates.
<PAGE> 11
Operating costs increased by 29% or $1,732,747 in 1996 as compared to 1995,
which is less than the increase in sales of 34%. Operating costs consist
primarily of facility related costs such as rents, real estate and personal
property taxes plus royalties paid to JLI as part of the franchise agreement and
management fees paid to CFA Management, Inc.
Depreciation and amortization costs increased by $1,152,999 reflecting the
large increases in properties purchased and built during 1995 and 1996. The
Company changed its method of depreciation for equipment, signs and point of
sales systems from the double declining balance method to the straight line
method for assets purchased in 1996. In addition, the Company changed the life
over which equipment is depreciated from five years to ten years and the
amortization of pre-opening expenses from two years to six months. Management
made these changes to reflect more closely the life of the assets and their
depreciating value over the periods. The change in the method and lives of
depreciating equipment increased net income by $463,389 while the shortened life
in the amortization of pre-opening costs reduced net income by $358,262, for a
net affect of $105,127. This change in accounting has no impact on the
Company's income tax provision, which utilizes the shortest periods allowed by
the Internal Revenue Service code, minimizing in current years the Company's tax
burden.
Selling, general, and administrative expenses increased by 71% or
$2,272,181. Of this increase, $1,002,157 was the result of increases in
marketing efforts. The company increased its marketing expenses in conjunction
with the new markets that were opened in 1995 and 1996 plus the new stores
opened. Regional and corporate costs associated with the expansion of the
Company increased by $1,270,024. These costs increased reflecting a full year's
expense for regions acquired in 1995, the acquisition of the Lansing region, and
current year service center additions.
Interest expenses increased by $725,678 reflecting the Company's continued
expansion program and additional Citicorp financing (See discussion below).
Other income includes approximately $47,000 profit earned on the sale of
the Company's office condo in Raleigh when the Corporate headquarters were moved
to the Pershing Road facility.
Income tax (benefit) expense represented (18%) of the before tax loss in
1996, versus 41% of the before tax income in 1995. State income taxes,
approximating 6% of before tax results, cannot generally be carried back to
prior years. Federal income losses, however, may be carried back to offset
previously reported income. The Company has recorded a receivable of $556,364,
representing income taxes paid in prior years and now recoverable. A deferred
tax provision of $293,358 was made mainly representing future taxes that may be
paid when the accelerated depreciation used for tax purposes is reduced below
the book depreciation.
Dividends on Series A redeemable preferred stock (see discussion below) was
$133,287, up $98,287 from 1995. This increase reflects a full years dividend as
compared to one quarter charged in 1995.
<PAGE> 12
1995 Compared to 1994
Net sales increased 37% from 1994 to 1995 due to increases in base business
sales as well as the impact of new service stations opened (see table below).
The Company serviced an average of 47 cars per day on a 7 day per week basis in
each of its service centers in 1995 compared to 49 cars per day during 1994.
Average cars serviced fell from 1994 to 1995 due to the impact of 24 new stores
opening during the year, as new locations normally have lower sales during the
early years of operation than do mature locations. The stores acquired from AOC
had significantly lower sales per service center than do Lucor's other centers.
Management anticipates that these new centers can be brought to a sales level of
Lucor's other locations but there is no assurance that such increased sales will
be realized or that these centers will be profitable. Total cars serviced
increased by 34%, from 588,708 in 1994 to 789,064 in 1995. Net revenue per car
serviced increased 2% year to year.
Sales Analysis - 1995 v. 1994
Increase 1995 1994
Same stores 14% $ 23,448,939 $ 20,566,518
New stores 4,704,581
Total sales 37% $ 28,153,520 $ 20,566,518
============ ============
Costs of sales, which represents the direct cost of materials sold to the
customer (oil, filters, etc.) increased in proportion to sales. Net automobile
emission inspection revenue in the Cincinnati area (revenue received, less cost
of safety stickers) was $715,959 during 1995, compared to $627,187 in 1994. The
State of Ohio discontinued its inspection programs through individual retail
locations in January 1996.. Management believes that the Company's earnings will
not be materially adversely affected by the discontinuance of this revenue
source because the Company expects to generate new earnings of a like dollar
amount from increases in the base price and volume of its operations and from
other product sales and services. No assurance can be given that the
discontinuance of inspection revenue in Ohio will not have a material adverse
impact on the net sales of service centers in Ohio or that the Company will be
able to generate increased net sales to offset the loss of this Ohio revenue
source.
<PAGE> 13
Direct operating costs increased 48%, or $3,271,261 in 1995 compared to
1994. These costs consist primarily of direct labor and the supplies required
to service customers at each service center. Approximately 80% of the increase
($2,582,087) was in direct labor costs. Increased sales volume accounted for
$1.7 million of this amount, while average labor costs increased $1.06 per car,
accounting for the balance. Hourly wages were increased by $1.00 per hour in the
North Carolina and Cincinnati stores for entry level employees, and the
relatively lower sales volumes in the newer stores translated into higher unit
costs.
Operating costs increased year to year by 30%, or $1,412,665. Of this
increase, $828,122 was attributable to the acquisition of the new stores in
Dayton, Toledo and Nashville as well as the effect of the 5 original Pittsburgh
stores being open 12 months during 1995, versus 6 months in 1994 ($447,957). The
largest component of this category of expense is store rent.
Interest expense increased by $244,919, or 119% due to the Company's
capital investment program and associated Citicorp financing (see discussion
below).
Expenses of depreciation and amortization increased primarily due to the
effect of depreciation ($289,109) on assets associated with the acquisitions in
Pittsburgh, Dayton, Toledo and Nashville. Increased depreciation was recorded
in Carolina and Nashville where previously leased service stations were
acquired.
Selling, general and administrative expenses increased $1,231,646 or 63%.
Selling costs increased $430,349 or 60% as the advertising budget was increased
to approximately 4% of total sales (which increased) during 1995, versus 3.1%
incurred during 1994. Costs of administration increased $328,830 or 58% in
1995, primarily due to increased costs associated with being a publicly held
company (shareholder services, SEC related costs and increased legal and
accounting services).
Regional costs increased $468,686 primarily due to three new regional areas
being established ($153,772) as well as increased costs for planned and
accomplished supervisory staff increases in anticipation of current and future
center development which were incurred ($75,216). Other costs were generally in
line with increased sites (60 at year end, versus 36 at the previous year end).
Other income decreased in 1995 by $102,456 as a one-time "first refusal"
right was sold in 1994 for $100,000 - not repeated in 1995.
Provisions for income taxes represent approximately 40% of taxable income
in both years.
Dividends on Series A redeemable preferred stock (see discussion below)
were accrued in the amount of $35,000 - there was no such charge in 1994.
Liquidity and Capital Resources
On September 30, 1996, the credit facility with Citicorp Leasing, Inc. was
changed to a term loan in the amount of $13,212,237 as provided for in the
agreement.
As of December 31, 1996, the Company had cash and short term assets of
$5,213,281 and short term obligations (including the current portion of long
term debt) of $5,335,200 for net working capital deficiency of $121,919. Cash
provided by operations amounted to $1,177,138. $11,106,005 was invested in
purchases of property, plant and equipment in furtherance of the Company's
expansion program. In addition, $1,548,191 was invested in the purchase of new
centers in Lansing, Michigan. $1,049,627 was disbursed for license fees,
deposits and costs associated with the opening of new service centers. New debt
in the amount of $4,719,981 was added, primarily from Citicorp to finance the
expansion. Additionally, Class A Stock was issued in 1996 for $5,345,938;
Pennzoil purchased $5,000,000 in Class A Stock with the remaining issue done
through a private placement with two of its Directors. Debt totaling $315,203
was repaid according to terms of the agreement.
<PAGE> 14
During 1996, CFA Management, Inc. (CFA) elected to reduce its management
fees to the Company by $500,000, stating that the reduction was a demonstration
of CFA's confidence in the future of the Company during this historic expansion
period. The Company originally treated this decrease in fees as a reduction in
operating expense. However, following discussions with the Securities and
Exchange Commission (SEC), the Company decided to account for the reduction of
management fees as a capital contribution in 1996.
As of December 31, 1995, the Company had cash and short term assets of
$4,143,399 and short term obligations (including current portion of long term
debt) of $3,266,336 for net working capital of $877,063. Cash provided by
operations amounted to $2,090,130. Of these funds, $10,081,718 were invested in
purchases of property, plant and equipment in furtherance of the Company's
expansion program; $1,887,210 was invested in the purchase of the new centers in
Dayton, Toledo and Nashville; construction in progress increased from year end
to year end by $1,397,595 and $538,571 was disbursed for loan acquisition costs
Incomplete construction in progress at year-end will require approximately $5
million for completion - these funds are available through Citicorp financing
discussed above. New debt was added, primarily from Citicorp (see discussion
above) part of whose proceeds went for the retirement of preexisting debt.
Additionally, the Pennzoil bridge loan discussed above was converted to
redeemable preferred stock ($2,000,000).
Based on the Company's current level of operations and anticipated growth
in net sales and earnings as a result of its business strategy, the Company
expects that cash flows from operations and funds from currently available
facilities will be sufficient to enable the Company to meet its anticipated cash
requirements for the next 12 months, including for debt service. In order to
satisfy its long term capital requirements, additional financing sources will
need to be found. Management believes that such financing sources will be
available to meet its growth plans. If the Company is unable to satisfy such
cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, restructuring
indebtedness, or selling assets. The sale of additional equity could result in
additional dilution to the Company's stockholders.
<PAGE> 15
Item 8 - Consolidated Financial Statements and Supplementary Data
Page
Consolidated Financial Statements:
Independent Auditor's Report 16
Consolidated Balance Sheets as of December 31, 1996 and 1995 18
Consolidated Statements of Income (Loss) for the years ended
December 31, 1996, 1995 and 1994 19
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22
Financial Statement Schedule:
All schedules have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
Consolidated Financial Statements or Notes thereto.
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Lucor, Inc. and Subsidiaries
Raleigh, North Carolina
We have audited the accompanying consolidated balance sheets of Lucor, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income (loss), stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
accompanying financial statements of Lucor, Inc. and subsidiaries for the
year ended December 31, 1994, were audited by other auditors whose report
thereon dated February 22, 1995, expressed an unqualified opinion on those
statements.
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 financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Lucor, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
The 1996 consolidated financial statements have been restated as disclosed in
note 5.
KPMG Peat Marwick LLP
Raleigh, North Carolina
March 7, 1997, except for the
last sentence of note 6, which
is dated April 11, 1997, and
except for paragraph 3 of note
5, which is dated March 6, 1998.
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lucor, Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Lucor, Inc.
and Subsidiaries as of December 31, 1994 and the related consolidated
statements of income, stockholders' equity, and cash flows for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's 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 financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lucor,
Inc. and Subsidiaries as of December 31, 1994 and the results of their
operations and their cash flows for the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
Goldstein Lewin & Co.
Boca Raton, Florida
February 22, 1995
<PAGE> 18
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
______ ____ ____
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 14) $ 2,052,417 2,344,484
Accounts receivable, trade, net of allowance for doubtful
accounts of $34,245 and $2,559 at December 31, 1996 and
1995, respectively 233,553 130,540
Accounts receivable, other (including receivables from
affiliates of $134,363 and $52,173 at December 31, 1996
and 1995, respectively) 257,601 100,962
Income tax receivable 556,364 231,008
Inventories 1,832,658 1,126,302
Prepaid expenses 280,688 210,103
____________ ___________
Total current assets 5,213,281 4,143,399
____________ ___________
Property and equipment, net of accumulated
depreciation (notes 3 and 6) 22,506,488 14,246,603
___________ ___________
Other assets:
Goodwill, net of accumulated amortization of $188,561
and $96,965 at December 31, 1996 and 1995,
respectively 2,709,796 1,378,951
License, application, area development, loan acquisition,
non-compete agreements and organization costs, net of accumulated
amortization of $756,171 and $547,614 at December 31, 1996
and 1995, respectively 1,833,807 1,708,808
Security deposits and pre-opening costs, net of accumulated
amortization of $581,942 and $29,823 at December 31, 1996
and 1995, respectively 364,237 200,285
__________ __________
4,907,840 3,288,044
__________ __________
$ 32,627,609 21,678,046
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt (note 6) 969,893 328,121
Current portion of capital lease (note 8) 22,664 -
Accounts payable 2,803,146 2,243,287
Accrued expenses:
Payroll 637,744 290,386
Property taxes 189,898 195,301
Other 676,855 174,241
Preferred dividend 35,000 35,000
__________ __________
Total current liabilities 5,335,200 3,266,336
__________ __________
Long-term debt, net of current portion (note 6) 15,831,727 12,068,721
Capital lease, net of current portion (note 8) 49,110 -
Deferred taxes (note 4) 423,594 130,237
__________ __________
Total long-term liabilities 16,304,431 12,198,958
__________ __________
Series A redeemable preferred stock (note 10) 2,000,000 2,000,000
__________ __________
Stockholders' equity (notes 9, 11, 12 and 13):
Preferred stock, $.02 par value, ($.10
liquidation preference), authorized 5,000,000
shares, issued and outstanding, none - -
Common stock, Class "A", $.02 par value,
authorized 5,000,000 shares, issued and outstanding
2,099,733 and 1,243,256 shares at December 31, 1996
and 1995, respectively 41,994 24,864
Common stock, Class "B", $.02 par value,
authorized 2,500,000 shares, issued and outstanding
702,155 shares at December 31, 1996 and 1995 14,043 14,043
Additional paid-in capital 9,001,062 2,904,254
Treasury stock at cost (760 shares at December 31, 1996) (3,437) -
Retained earnings (65,684) 1,269,591
__________ __________
Total stockholders' equity 8,987,978 4,212,752
__________ __________
Commitments and contingencies (notes 7 and 8)
$ 32,627,609 21,678,046
========== ==========
See accompanying notes to consolidated financial statements.
Certain amounts have been restated as discussed in note 5.
</TABLE>
<PAGE> 19
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 37,772,799 $ 28,153,521 $ 20,566,519
Cost of sales (note 5) 8,951,465 6,748,266 4,947,670
___________ ___________ ___________
Gross profit 28,821,334 21,405,255 15,618,849
___________ ___________ ___________
Costs and expenses:
Direct 14,059,886 10,020,278 6,749,017
Operating (note 5) 7,786,260 6,053,513 4,640,848
Depreciation and amortization 2,001,300 848,301 442,116
Selling, general and administrative 5,455,291 3,183,110 1,951,464
___________ ___________ ___________
29,302,737 20,105,202 13,783,445
___________ ___________ ___________
Income from operations (481,403) 1,300,053 1,835,404
___________ ___________ ___________
Interest expense (1,176,149) (450,471) (205,552)
Other income 192,558 72,097 174,553
____________ ___________ ___________
(983,591) (378,374) (30,999)
___________ ___________ ___________
Income (loss) before provision for income taxes (1,464,994) 921,679 1,804,405
Income tax expense (benefit) (note 4) (263,006) 381,436 716,410
___________ ___________ ___________
Net income (loss) (1,201,988) 540,243 1,087,995
Preferred dividend (133,287) (35,000) -
___________ ___________ ___________
Net income (loss) available to common
shareholders $ (1,335,275) $ 505,243 $ 1,087,995
========== ========== ==========
Weighted average number of shares $ 2,451,683 1,944,618 1,757,985
========== ========== ==========
Net income (loss) per common share and common
share equivalent (note 13) $ (.54) $ .26 $ .62
========== ========= =========
See accompanying notes to consolidated financial statements.
Certain amounts have been restated as discussed in note 5.
</TABLE>
<PAGE> 20
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
Preferred Stock Common Stock Additional
Number Number of shares paid-in
of shares Par value Class "A" Class "B" Par value capital
_________ __________ ________ ________ __________ __________
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 - $ - 993,648 702,155 $ 33,915 2,035,120
Sale of stock (note 9) - - 100,000 - 2,000 419,041
Exercise of stock options (note 12) - - 62,500 - 1,250 11,250
Conversion of note payable (note 9) - - 79,048 - 1,581 413,419
Employee stock bonuses (note 12) - - 6,940 - 139 36,296
Net income - - - - - -
__________ ________ _________ _________ _________ _________
Balance at December 31, 1994 - - 1,242,136 702,155 38,885 2,915,126
Stock issued for employee bonuses
and directors' fees (note 12) - - 1,120 - 22 9,218
Stock issuance costs - - - - - (20,090)
Net income - - - - - -
Preferred dividend - - - - - -
__________ ________ _________ _________ _________ _________
Balance at December 31, 1995 - - 1,243,256 702,155 38,907 2,904,254
Stock issued for directors' fees (note 12) - - 1,000 - 20 7,480
Exercise of stock options (note 12) - - 2,000 - 40 10,460
Sale of stock to Directors (note 9) - - 55,000 - 1,100 342,650
Sale of stock to Pennzoil (note 9) - - 759,477 - 15,190 4,986,998
Repurchase of shares - - - - - -
Purchase of Lansing units (note 7) - - 39,000 - 780 249,220
Capital contribution - - - - - 500,000
Net (loss) - - - - - -
Preferred dividend - - - - - -
__________ ________ _________ _________ _________ _________
Balance at December 31, 1996 - $ - 2,099,733 702,155 $ 56,037 9,001,062
========== ========= ========= ======== ======== =========
</TABLE>
<TABLE>
Treasury Stock Retained
Number earnings
of Shares Cost (deficit)
_______ ________ _________
<S> <C> <C> <C>
Balance at December 31, 1993 - - (323,647)
Sale of stock (note 9) - - -
Exercise of stock options (note 12) - - -
Conversion of note payable (note 9) - - -
Employee stock bonuses (note 12) - - -
Net income - - 1,087,995
_______ ________ _________
Balance at December 31, 1994 - - 764,348
Stock issued for employee bonuses
and directors' fees (note 12) - - -
Stock issuance costs - - -
Net income - - 540,243
Preferred dividend - - (35,000)
_______ ________ _________
Balance at December 31, 1995 - - 1,269,591
Stock issued for directors' fees (note 12) - - -
Exercise of stock options (note 12) - - -
Sale of stock to Directors (note 9) - - -
Sale of stock to Pennzoil (note 9) - - -
Repurchase of shares 760 (3,437) -
Purchase of Lansing units (note 7) - - -
Capital Contribution - - -
Net (loss) - - (1,201,988)
Preferred dividend - - (133,287)
_______ ________ _________
Balance at December 31, 1996 760 (3,437) (65,684)
==== ======= ========
See accompanying notes to consolidated financial statements.
Certain amounts have been restated as discussed in note 5.
</TABLE>
<PAGE> 21
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss) $ (1,201,988) $ 540,243 $ 1,087,995
Adjustments to reconcile net income to
net cash provided by operating activities:
(Gain) loss on sale of property and equipment (47,942) (178) -
Depreciation and amortization of property and
equipment 1,149,028 671,553 373,470
Amortization of intangible assets and pre-operating costs 852,272 176,748 68,646
Stock issued as employee bonuses and
directors' fees 7,500 9,240 36,435
Changes in assets and liabilities:
Increase in accounts receivable, trade (103,013) (25,213) (29,274)
Decrease (increase) accounts receivable, other (156,639) (40,279) 24,581
Increase in inventories (623,924) (57,548) (111,704)
Decrease (increase) prepaid expenses (70,585) (143,386) 40,292
Increase in income tax receivable (325,356) (231,008) -
Increase in accounts payable and accrued
expenses 1,404,428 1,445,769 627,298
Increase (decrease) income taxes payable - (386,048) 217,105
Increase in deferred tax liability 293,357 130,237 -
_________ _________ _________
Net cash provided by operating activities 1,177,138 2,090,130 2,334,844
_________ _________ _________
Cash flows from investing activities:
Purchase of property and equipment (11,106,005) (10,081,718) (443,512)
Acquisition of additional service centers (1,548,191) (1,887,210) (400,000)
Acquisition of area development agreement
and other intangible assets (333,556) (386,774) (430,000)
Increase in security deposits (19,649) (106) (331)
Pre-opening costs (696,422) (158,424) -
Proceeds from sale of property and equipment 173,950 1,577 8,321
Decrease (increase) in construction in progress 1,939,702 (1,397,395) (957,074)
_________ __________ _________
Net cash used in investing activities (11,590,171) (13,910,050) (2,222,596)
__________ __________ _________
Cash flows from financing activities:
Proceeds from the exercise of stock options 10,500 - 12,500
Repurchase of common stock (3,437) - -
Proceeds from issuance of common stock 5,345,938 - 421,041
Proceeds from issuance of Series A redeemable
preferred stock - 2,000,000 -
Contribution capital 500,000 -
Loan origination costs - (538,571) -
Dividend paid (133,287) - -
Stock issuance costs - (20,090) -
Repayments of capital lease (3,526) - -
Proceeds from borrowings 4,719,981 15,870,591 500,000
Repayments of debt (315,203) (5,160,441) (375,294)
_________ __________ _________
Net cash provided by financing activities 10,120,966 12,151,489 558,247
_________ __________ _________
Increase (decrease) in cash and cash equivalents (292,067) 331,569 670,495
Cash and cash equivalents at beginning of period 2,344,484 2,012,915 1,342,420
__________ _________ _________
Cash and cash equivalents at end of period $ 2,052,417 $ 2,344,484 $ 2,012,915
========= ========= =========
</TABLE>
<PAGE> 22
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Supplementary disclosures:
Interest paid, net of amounts capitalized $ 1,052,041 $ 441,804 $ 205,552
========= ========= =========
Income tax paid $ 23,425 $ 868,256 $ 502,605
========= ========= =========
Acquisition of units:
Inventory acquired $ 82,432 $ 297,644 $ 81,847
Fair value of other assets acquired,
principally property and equipment 293,318 475,232 242,985
Value of stock issued (250,000) - -
Goodwill 1,422,441 1,114,334 75,168
__________ _________ ________
Cash paid $ 1,548,191 $ 1,887,210 $ 400,000
========== ========== ========
Supplementary schedule of non-cash financing
and investing activities:
Issuance of common stock in settlement
of note payable $ - $ - $ 415,000
========= ======== ========
Capital lease $ 75,300 $ - $ -
========= ======== ========
See accompanying notes to consolidated financial statements.
Certain amounts have been restated as discussed in note 5.
</TABLE>
<PAGE> 23
LUCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Nature of Business
Lucor, Inc. (the "Company") is the largest franchisee of Jiffy Lube
International, Inc. ("JLI") in the United States. These franchises consist of
automotive fast oil change, fluid maintenance, lubrication, and general
preventative maintenance service centers under the name "Jiffy Lube". As of
December 31, 1996, the Company operated ninety-four service centers in six
states, including twenty-five service centers in the Raleigh-Durham, North
Carolina ADI (Geographic Area of Dominant Influence defined in the Arbitron
Ratings Guide for television markets), twenty-one service centers in the
Cincinnati, Ohio ADI (which includes northern Kentucky), eighteen service
centers in the Pittsburgh, Pennsylvania ADI, twelve service centers in the
Dayton, Ohio area, five service centers in the Toledo, Ohio area, seven
service centers in the Nashville, Tennessee area, and six service centers in
the Lansing, Michigan area. The operations of the service centers in each of
these markets are conducted through subsidiaries of the Company, each of which
has entered into area development and franchise agreements with JLI. These
franchise agreements generally require a monthly royalty fee of 5% of sales.
The royalty fee is reduced to 4% of sales when the fee for a given month is
paid in full by the fifteen of the following month, a practice followed by the
Company. The Company purchases, leases as well as constructs these service
centers. The Company has a continuing obligation to purchase from Pennzoil
Products Company 85% of the Company's motor oil and automotive filter
requirements for its service centers. The Company operated 60 and 36 service
centers at December 31, 1995 and 1994, respectively.
(2) Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned subsidiaries. Intercompany transactions
and balances have been eliminated upon consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Inventories
Inventories of oil, lubricants and other automobile supplies are stated at the
lower of cost (first-in, first-out) or market.
<PAGE> 24
(2) Summary of Significant Accounting Policies, Continued
Property and Equipment
Property and equipment are recorded at cost. The Company changed its method
of depreciation for equipment, signs and point of sales systems from the
double declining balance method to the straight-line method for assets
purchased in 1996. In addition, the Company changed the life over which
equipment is depreciated from five years to a 10 year depreciable life during
1996. Management made these changes to reflect more closely the life of the
assets and their depreciating value over the periods. The change in the method
and lives of depreciating equipment increased net income by $463,389. Costs of
construction of certain long-lived assets include capitalized interest which is
amortized over the estimated useful lives of the related assets. The Company
capitalized interest of $124,108 and $133,191 in 1996 and 1995, respectively,
as an additional cost of buildings. No interest was capitalized in 1994.
Amortization
Amortization of other assets is being computed using the straight-line method
over the following lives:
Years
Goodwill 15, 20 and 40
License fees 10, 15 and 20
Organization costs 5
Area development agreement 4.5, 10 and 13
Application fees 20
Loan acquisition costs 8 and 9
Non-compete agreements 5 and 10
Pre-opening costs 0.5 and 2
Useful lives of pre-opening costs incurred subsequent to January 1, 1996 were
shortened from two years to six months, resulting in additional amortization
expense during the year ended December 31, 1996 of $358,262.
Income Taxes
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events
other than enactments of changes in the tax laws or rates.
<PAGE> 25
(2) Summary of Significant Accounting Policies, Continued
Advertising
The Company expenses the cost of advertising as incurred.
Loan Acquisition Costs
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the lives of the
related debt.
Earnings Per Share
Earnings per share are based upon the weighted average number of common and
common equivalent shares outstanding during the period. When dilutive,
options and warrants are included as common equivalent shares using the
treasury stock method.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". SFAS No. 128 is effective for fiscal years ending
after December 15, 1997, and establishes standards for computing and
presenting earnings per share (EPS). This statement will require the Company
to present Basic and Diluted EPS. There will be no material impact of
adoption of SFAS No. 128.
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 and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform with the 1996 presentation.
(3) Property and Equipment
Major classifications of property and equipment together with their estimated
useful lives are summarized below:
<TABLE>
Lives
1996 1995 (years)
<S> <C> <C> <C>
Land $ 4,379,053 2,979,944 N/A
Buildings 11,017,083 5,935,319 31.5
Point of sale systems 289,488 152,848 5
Equipment 5,666,207 2,798,149 5 and 10
Furniture and fixtures 337,058 225,474 7
Signs 505,995 253,062 7
Transportation equipment 336,329 302,204 5
Leasehold improvements 2,400,505 1,011,403 31.5 or remaining life
of lease
Software 75,300 - Life of lease
Construction in progress,
including related land 704,859 2,644,561
_________ __________
25,711,877 16,302,964
Accumulated depreciation (3,205,389) (2,056,361)
__________ __________
$ 22,506,488 14,246,603
=========== ===========
</TABLE>
<PAGE> 26
(4) Income Taxes
The components of income tax expense (benefit) for the years ended December
31, 1996, 1995 and 1994 consisted of the following:
<TABLE>
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Current expense:
Federal $ (556,364) $ 181,694 $ 560,483
State - 69,506 155,927
_________ ________ _______
(556,364) 251,200 716,410
_________ ________ _______
Deferred expense:
Federal 230,466 110,041 -
State 62,892 20,195 -
_________ ________ ________
293,358 130,236 -
_________ ________ ________
Total $ (263,006) $ 381,436 $ 716,410
======== ======== ========
</TABLE>
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1996 and 1995 are as follows:
<TABLE>
1996 1995
____ ____
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ - 3,010
Allowance for doubtful receivable 13,594 1,012
State net economic loss carryforwards 169,658 31,098
Tax credit carryforward 239,685 -
_________ _______
Total gross deferred tax assets 422,937 35,120
Less valuation allowance (121,925) (24,176)
________ _______
Net deferred tax assets 301,012 10,944
Deferred tax liabilities:
Depreciation (724,606) (141,181)
_________ ________
Total gross deferred tax liabilities (724,606) (141,181)
_________ ________
Net deferred tax liability $ (423,594) (130,237)
========= ========
</TABLE>
It is management's opinion that it is more likely than not that the net
deferred tax assets will be realized. This conclusion is based on the fact
that the tax credit carryforwards are available indefinitely, there is a
fifteen year carryforward period for a portion of the state net economic loss
carryforward and the reversal of the gross deferred tax liabilities. A
valuation allowance has been recorded relating to state loss carryforwards
that expire in three to five years.
<PAGE> 27
(4) Income Taxes, Continued
The reasons for the difference between actual income tax expense for the
years ended December 31, 1996, 1995 and 1994 and the amount computed by
applying the statutory federal income tax rate to earnings before income
taxes are as follows:
<TABLE>
1996 1995 1994
______________ _______________ ______________
% of % of % of
pretax pretax pretax
Amount earnings Amount earnings Amount earnings
_______ ________ ______ ________ ______ ________
<S> <C> <C> <C> <C> <C> <C>
Income tax (benefit) expense
at statutory rate $ (498,098) (34.0%) $ 313,371 34.0% $ 613,498 34.0%
State income taxes,
net of federal income
tax benefit 41,509 2.8 59,203 6.4 102,912 5.7
Nondeductible management
fees 170,000 11.6 - - - -
Other, net 23,583 1.6 8,862 1.0 - -
_________ ______ ________ ____ ________ ____
Income tax (benefit)
expense $ (263,006) (18.0%) $ 381,436 41.4% $ 716,410 39.7%
========= ===== ======= ===== ======= ====
</TABLE>
(5) Related Party Transactions
The Company, through its subsidiaries, entered into management agreements (as
amended September 9, 1993) with CFA Management, Inc. ("CFA") which is owned by
certain stockholders of the Company, to operate, manage and maintain the
subsidiaries' service centers. The management agreements for the entities
expire on various dates through 2002. These agreements may be extended. For
its services, CFA Management, Inc. receives a percentage of annual gross sales
calculated on the basis of all service centers as follows:
Number of Management fee
service centers per service center
1 - 34 4.50%
35 - 70 3.00%
71 - 100 2.25%
More than 100 1.50%
Management fees paid in 1996, 1995 and 1994 were $804,815 and $1,189,800 and
$923,864, respectively. CFA agreed to reduce the 1996 management fee by
$500,000. The Company believes that these fees cover the compensation
expense incurred by CFA which would be paid by the Company for the fair value
of their services during 1996, as well as the fair value of any other
services they provided to the Company during the period. CFA agreed to this
one time fee reduction in recognition of the downward pressure on net
income caused by the relatively large number of new, unstabilized stores.
Management estimates that a store requires an average of twenty-four months
to stabilize its customer base. Further adjustment of management fees is not
contemplated. Included in accounts payable at December 31, 1996 was an
amount due of approximately $115,000.
The Company previously accounted for the reduction of management fees as a
reduction of expenses under the terms of the management contract. After
discussions with the Securities and Exchange Commission (SEC), the Company
decided to account for the reduction of management fees as a capital
contribution during 1996. The impact of this restatement on the Company's
net loss and related per share amounts is as follows:
Impact of Restatement
Income (loss) from operations:
As previously reported $ 18,597
As restated (481,403)
Loss before provision for income taxes:
As previously reported $ (964,994)
As restated (1,464,994)
Net loss:
As previously reported $ (701,988)
As restated (1,201,988)
Net loss available to common shareholders:
As previously stated $ (835,275)
As restated (1,335,275)
Net loss per common share and common share equivalent:
As previously stated $ (.34)
As restated (.54)
The Company purchases gasoline additive products from Oil Handlers, Inc.
which is owned by stockholders of the Company. Purchases of these products
amounted to $250,964, $210,536 and $158,486 in 1996, 1995 and 1994,
respectively.
The Company purchased oil, oil filters and other inventory items from
Pennzoil Products Company (PPC) in the amount of $3,957,925 during the year
ended December 31, 1996. In addition to these purchases, the Company paid
rent in the amount of $92,556 and dividends on preferred stock of $133,287 to
PPC during the year ended December 31, 1996. Included in accounts payable at
December 31, 1996 was an amount due of $829,879.
<PAGE> 28
(5) Related Party Transactions, Continued
The Company paid or received the following amounts to Jiffy Lube
International, a subsidiary of PPC, during the year ended December 31, 1996:
Paid (Received)
Royalties $ 1,514,977
Rent 2,160,160
Operating expenses 293,757
License and franchise fees 257,500
Fleet payments (1,305,621)
Grand opening rebates (110,304)
Sears charge credits (100,950)
(6) Long-Term Debt
Long-term debt consists of:
<TABLE>
December 31,
1996 1995
____ ____
<S> <C> <C>
Note payable, Citicorp Leasing, Inc., in monthly
installments beginning October 31, 1996, including
interest at Eurodollar plus 2.9%, secured by real
property of the Company (a) $ 13,158,608 $ 8,534,756
Note payable, Citicorp Leasing, Inc., in monthly
installments including interest at Eurodollar plus
2.9%, secured by real property of the Company (b) 3,266,750 3,430,008
Note payable, Centura Bank, in monthly installments
of $5,145, including interest at 9.25%, secured by
real property of the Company 376,262 360,966
Notes payable, Centura Bank, repaid during the year
ended December 31, 1996 - 71,112
___________ ___________
16,801,620 12,396,842
Less current portion (969,893) (328,121)
___________ __________
$ 15,831,727 $ 12,068,721
========== ===========
</TABLE>
The following are the maturities at December 31, 1996 of long-term debt for
each of the next five years and in the aggregate.
December 31,
____________
1997 $ 969,893
1998 977,054
1999 1,060,453
2000 1,418,623
2001 1,222,667
Thereafter 11,152,930
___________
$ 16,801,620
===========
<PAGE> 29
(6) Long-Term Debt, Continued
(a)During 1995 the Company entered into a Loan and Security agreement with
Citicorp Leasing ("Lender"). The line of credit in the amount of
$13,212,237 was converted to a term loan on October 1, 1996. The principal
amount of this term loan is to be repaid in 144 consecutive installments
commencing on October 31, 1996. The rate of interest is to equal to the
Eurodollar rate plus 2.9% (8.56% and 8.65% at December 31, 1996 and 1995,
respectively).
(b)The principal amount of the term loan is to be repaid in 108 consecutive
installments commencing on August 31, 1995 with a balloon payment of
approximately $1.3 million in July 2004. The rate of interest is to equal
to the Eurodollar rate plus 2.9% (8.56% and 8.65% at December 31, 1996 and
1995, respectively).
These loans contain restrictive covenants pertaining to net worth, debt
coverage and the current ratio. The Company was in compliance or had
received waivers in relation to these covenants at December 31, 1996.
(7) License and Area Development Agreements
The Company operates Jiffy Lube service centers under individual franchise
agreements that are part of broader exclusive development agreements with JLI,
the franchisor. The exclusive development agreements require the Company to
identify sites for and develop a specific number of service centers in
specific territories and the separate franchise agreements each provide the
Company the right to operate a specific service center for a period of 20
years, with two, 10-year renewal options.
Each development agreement grants the Company exclusive rights to develop and
operate a specific number of service centers within a defined geographic area,
provided that a certain number of service centers are opened over scheduled
intervals.
Raleigh-Durham
The Company has satisfied its obligations to develop service centers under its
Area Development Agreement for the Raleigh-Durham market area, and currently
has a right of first refusal to develop any additional service centers which
JLI may propose to develop or offer to others in this market. This right
extends to December 31, 2006 in the Raleigh-Durham market.
Pittsburgh
Under its area development agreement for the Pittsburgh area, the Company has
satisfied its obligations to develop eight service centers by June 30, 2000.
The Company has the right to develop service centers in its Pittsburgh
territory through June 30, 2004. After that date, the franchisor may develop
or franchise others to develop service centers in the Company's territory but
only after providing the Company with the first right of refusal to develop
any such centers, which right extends through June 30, 2019.
<PAGE> 30
(7) License and Area Development Agreements
Cincinnati and Other Areas
The Company has satisfied its obligations to develop service centers under its
Area Development Agreement for the Cincinnati market area, and currently has a
right of first refusal to develop any additional service centers which JLI may
propose to develop or offer to others in this market. This right extends to
December 31, 2000 in the Cincinnati market area.
On August 1, 1995, the Company amended its Area Development Agreement for the
Cincinnati market area to include Toledo, Dayton and Nashville areas and
operate a specific number of centers within the defined geographical areas
until July 31, 2004. The Company has satisfied its development obligation.
The Company has a first right of refusal to develop service centers until July
31, 2019.
Lansing
On May 1, 1996, the Company purchased substantially all of the assets of Quick
Lube, Inc. which included six service centers in the Lansing, Michigan area.
The Company has not entered into an Area Development agreement regarding
Lansing. During the year ended December 31, 1995, Quick Lube, Inc. had net
sales of $3,219,023 and operating income of $219,637. If the purchase had
occurred as of January 1, 1995, Quick Lube, Inc. would have incurred
additional management fees of $96,571 during the year ended December 31, 1996.
Included in Lucor's net sales for the year ended December 31, 1996 are net
sales for these service centers of $2,049,429.
The franchise agreements convey the right to use the franchisor's trade names,
trademarks, and service marks with respect to specific service centers. The
franchisor also provides general construction specifications for the design,
color schemes and signage for a service center, training, operating manuals
and marketing assistance. Each franchise agreement requires the franchisee to
purchase products and supplies approved by the franchisor. The initial
franchise fee payable by the Company upon entering into a franchise agreement
for a service center varies based on the market area where the Company
develops the center and the time of development of the center. For service
centers which the Company may develop in 1977, the initial franchise fee
ranges from $12,500 to $25,000.
(8) Commitments and Contingencies
During 1996, the Company leased software costing $75,300 under a capital lease
agreement which expires in 1999. The software associated with this capital
lease was not placed in service until January 1, 1997, and was accordingly not
amortized during the year ended December 31, 1996.
The Company has entered into operating leases for the buildings and
improvements used in the service centers. Substantially all of the leases are
net leases. Several of the leases stipulate rent increases based on various
formulas for cost of living, percentage of sales, and cost of money increases.
<PAGE> 31
(8) Commitments and Contingencies, Continued
Future minimum lease payments under noncancellable operating leases and the
present value of future minimum capital lease payments at December 31, 1996
are:
<TABLE>
Operating Operating
leases leases
with with
non-related related Capital
parties parties leases
___________ __________ ________
<S> <C> <C> <C>
1997 $ 1,434,825 2,079,825 29,909
1998 1,450,606 2,092,299 29,909
1999 1,469,753 2,115,876 24,728
2000 1,476,159 2,085,086 -
2001 1,504,759 1,931,681 -
Thereafter 20,231,222 21,203,367 -
___________ __________ _______
Total minimum lease payments $ 27,567,324 31,508,134 84,546
=========== ==========
Less amounts representing interest
(at 11.76%) 12,772
_______
Present value of future minimum lease payments 71,774
Less current portion of obligations under
capital leases 22,664
_______
Capital lease obligations, less current portion $ 49,110
========
</TABLE>
Rent expense, including contingent rentals, for the years ended December 31,
1996, 1995 and 1994 were $3,278,019, $2,458,570 and $1,995,971, respectively.
Contingent rentals included in rent expense were approximately $177,000 and
$114,000 in 1996 and 1995, respectively. There were no contingent rentals
incurred during 1994.
As of December 31, 1996 and 1995, the Company had capital expenditure
purchase commitments outstanding of approximately $860,000 and $5 million,
respectively.
(9) Common Stock
The Company currently has two classes of common stock authorized.
Class A common stock has one vote per share, but may be voted only in
connection with: (i) the election of directors; (ii) the sale lease, exchange,
or other disposition of all, or substantially all, of the Company's assets;
and (iii) the removal of CFA Management, Inc. or a successor management
company under a Management Agreement with a subsidiary. Class B shareholders
have the right to elect a majority of the Directors of the Company. All
shares of Class B common stock have equal voting rights and have one vote per
share in all matters to be voted upon by the shareholders.
Class B shareholders have preemptive rights. Upon the sale for cash of shares
of any class of common stock of the Company, each Class B shareholder has the
right to purchase that number of shares offered at the offering price, so that
Class B shareholders are entitled to maintain their overall pro rata holdings
of common stock. Holders of Class A common stock and preferred stock have no
preemptive rights.
<PAGE> 32
(9) Common Stock, Continued
In December 1994, the Company, in a public stock offering, issued 100,000
units, at $5.25 per unit, comprised of one share of common stock and one
warrant to purchase one share of common stock at an exercise price of $9.00
per share by tendering cash. Proceeds from the offering, net of commissions
and related costs of $102,333, were $421,041. The warrants are exercisable
within 3 years of issuance. The Company may redeem the warrants at a price of
$.02 per warrant with 60 days notification prior to either expiration or
exercise of the warrants. 100,000 shares of common stock are reserved for
issuance upon the exercise of the warrants. There were 99,500 warrants in
relation to these shares outstanding at December 31, 1996.
During 1994, a note payable in the amount of $415,000 was converted to 79,048
shares of common stock.
On June 3 1996, the Company sold 759,477 of Class A common stock shares at
fair market value to PPC. At December 31, 1996, PPC owned 35% of the Class A
common stock.
In May 1996, the Company sold 55,000 shares of Class A common stock to the
directors of the Company at the fair market value of $6.25.
(10) Series A Redeemable Preferred Stock
During 1995 the Company entered into a stock purchase agreement with PPC,
whereby the Company established 20,000 shares of Series A Redeemable Preferred
Stock which were issued to PPC at a price of $100 each together with warrants
to purchase 30,000 shares of Class A common stock at a price of $15 per share.
The Company has the right and option at any time to redeem all, but not part,
of the Series A Redeemable Preferred Stock by paying in full $100 ("Redemption
Price") per share plus any accrued and unpaid dividends. At any time from and
after the seventh anniversary of the date of issuance of the Series A
redeemable Preferred Stock PPC shall have the right to cause the Company to
redeem all, but not part of the Series A Redeemable Preferred Stock by paying
the Redemption Price.
The holders of Series A Redeemable Preferred Stock shall be entitled to
receive cumulative dividends accruing from the date of issuance at the rate of
$7 per share per annum, payable semiannually on March 31, and September 30, of
each year. If, at any time, the Company fails to make a semiannual dividend
payment on any payment date for any period for which the applicable coverage
ratio exceeded 1.25 to 1 and the Company is permitted under the terms of its
Credit Facilities to pay dividends, the dividend rate shall increase by $0.50
per share per annum. The increased dividend rate shall remain in effect until
the earlier of the date all accrued dividends are paid in full or until all
outstanding shares of Series A Redeemable preferred stock are redeemed at the
Redemption Price. The Company paid dividends of $133,287 during the year
ended December 31, 1996.
The holders of the Series A Redeemable preferred stock shall have no voting
rights. In the event of any liquidation, dissolution or winding up of the
Company, holders of each share of the Series A Redeemable preferred stock have
be entitled to an amount per share equal to the original price of the Series A
Redeemable preferred stock plus accumulated dividends up through and including
the payment date before any payment shall be made to the holders of any stock
ranking on liquidation junior to the Series A Redeemable preferred stock,
including the common stock.
<PAGE> 33
(11) Preferred Stock
The Company also has non-redeemable preferred stock with a par value of $0.02.
As of December 31, 1996 and 1995, 5,000,000 shares are authorized, but no
shares had been issued or were outstanding.
(12) Stock Plans
1991 Nonqualified Stock Plan
The Company has adopted a non-qualified stock plan (as amended) (1991 plan)
with 150,000 shares of Class "A" common stock reserved for the grant of stock
or options to key employees, officers and directors of the Company. Option
prices may be less than the fair market value of the common stock on the date
the options are granted. As of December 31, 1993, options for an additional
62,500 shares were granted. During the year ended December 31, 1994, the
vesting of the options granted in 1992 were accelerated and the options were
exercised. In addition, in 1994, an additional 6,940 shares were granted for
bonuses. As of December 31, 1995, an additional 120 shares were granted for
bonuses. During the year ended December 31, 1996, the vesting for these
options was accelerated. The options will expire on June 14, 1997. All
shares granted are subject to significant restrictions as to disposition by
the optionee.
Changes in the shares authorized, granted and available under the 1991 plan
are as follows:
<TABLE> Weighted
Average
Exercise
Authorized Granted Price
__________ ________ _________
<S> <C> <C> <C>
Balance December 31, 1993 112,500 62,500 $ .20
Granted ($5.25 per share) - 49,880 5.25
Exercised (at prices ranging from $0.2
to $5.25 per share) (69,440) (69,440) .70
_______ _______ _______
Balance December 31, 1994 43,060 42,940 5.25
Granted ($8.25 per share) - 120 8.25
Exercised ($8.25 per share) (120) (120) 8.25
Canceled - (260) 5.25
_______ _______ _______
Balance December 31, 1995 42,940 42,680 5.25
Exercised ($5.25 per share) (2,000) (2,000) 5.25
_______ _______ _______
Balance December 31, 1996 40,940 40,680 $ 5.25
======= ======= =======
</TABLE>
Proceeds received from the exercise of stock options are credited to the
Company's capital accounts. All of the options outstanding at December 31,
1996 are exercisable.
Omnibus Stock Plan
On December 27, 1994, the Company adopted, a stock award and incentive plan
(the "Plan") which permits the issuance of options, stock appreciation rights
(SARs), limited SARs, restricted stock, and other stock-based awards to
directors and employees of the Company. The Plan reserves 600,000 shares of
Class "A" common stock for grants and provides that the term of each award be
determined by the committee of the board of directors (the "Committee")
charged with administering the Plan. These shares are subject to certain
transfer restrictions as determined by the committee.
Under the terms of the plan, options granted may be either nonqualified or
incentive stock options and the exercise price, determined by the committee,
may not be less than the fair market value of a share on the date of grant.
SARs and limited SARs granted in tandem with an option shall be exercisable
only to the extent the underlying option is exercisable and the grant price
shall be equal to a percent, as determined by the committee, of the amount by
which the fair market value per share of stock exceeds the exercise price of
the SAR. All stock options issued have 5-year terms and vest and are
exercisable in 20% increments each year.
Stock option activity under the Omnibus Stock Plan during the periods
indicated is as follows:
Weighted
Average
Number Exercise
of Shares Price
________ ______
Balance at December 31, 1994 - $ -
Granted 102,500 6.50
_______ ______
Balance at December 31, 1995 102,500 6.50
Granted 50,000 7.57
_______ ______
Balance at December 31, 1996 152,500 6.85
======= ======
At December 31, 1996, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $5.00-$8.00 and 4.0
years, respectively.
At December 31, 1996 and 1995 there were 600,000 and 300,000 shares
authorized, and 447,500 and 197,500 shares available under the Omnibus Stock
Plan. Of these outstanding options, 58,750 and 30,500 were exercisable at
December 31, 1996 and 1995, and the weighted average exercise price was
$6.71 and $6.50.
Directors' Stock Award Plan
On April 4, 1995, the Company adopted a stock award plan for the outside
directors ("Directors' Plan"). The Directors' Plan reserves 15,000 shares of
Class "A" common stock for issuance under awards to be granted under the
Directors' Plan. The Company granted awards of 1,000 and 1,120 shares during
the years ended December 31, 1996 and 1995, respectively. These options were
exercised at the time of grant.
At December 31, 1996, these were 15,000 shares authorized, 2,000 granted and
exercised and 13,000 available under the Directors' Plan.
Adoption of Statement of Financial Accounting Standards No. 123
The Company has two fixed option plans which reserve shares of common stock
for issuance to executives key employees and directors. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly,
no compensation cost has been recognized for the stock option plans. Had
compensation cost for the Corporation's two stock option plans been
determined based on the fair value at the grant date for awards in 1996 and
1995 consistent with the provisions of SFAS No. 123, the Corporation's net
earnings and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Net income (loss), as reported $(1,335,275) 505,243 1,087,995
Net income (loss), pro forma (1,423,435) 483,899 1,069,685
Earnings (loss) per share, as reported (0.54) 0.26 0.62
Earnings (loss) per share, pro forma (0.58) 0.25 0.61
</TABLE>
<PAGE> 35
(12) Stock Plans, Continued
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield 0%
Expected stock price volatility 30.1%
Risk-free interest rate 6.21%
Expected life of options 5 years
The weighted average fair value of options granted during 1996 and 1995 is
$2.84 and $3,34, respectively, per share.
(13) Net Income Per Common Share
At December 31, 1996, there are 129,500 shareholder warrants outstanding, no
preferred stock outstanding, and 193,180 stock options outstanding.
The net income per common share and common equivalent share are calculated by
deducting dividends applicable to preferred shares from net income and
dividing the result by the weighted average number of shares of common share
and common share equivalents outstanding during each of the years. The number
of common shares was increased by the number of shares issuable upon the
exercise of the stock option described in note 12 and this theoretical
increase in the number of common shares was reduced by the number of common
shares which are assumed to have been repurchased for the treasury with the
proceeds from the exercise of the options; these purchases were assumed to
have been made at $7 and $5.25 and have been treated as outstanding at
December 31, 1996 and 1995, respectively. Warrants are not included in the
fully diluted earnings per share calculation for 1996, 1995 and 1994 because
they are anti-dilutive. As earnings per share computed in this manner are not
more than 3% diluted, earnings per share has been computed as earnings divided
by the weighted average of common stock outstanding during 1996 and 1995 and
common stock equivalents have not been used in the calculation.
(14) Concentration of Credit Risk
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 1996, cash balances in excess of the insurance
limits totaled $373,771. In addition, the Company had a cash balance of
$858,575 in a money market fund at December 31, 1996 which was not insured.
(15) Profit Sharing Plan
During 1994, effective for years beginning after January 1, 1995, the Company
adopted a profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code ("Code") whereby participants may contribute a percentage of
compensation, but not in excess of the maximum allowed under the Code. The
plan provides for a discretionary matching contribution by the Company.
Employees are eligible for the plan after being employed full time for six
consecutive months. For the years ended December 31, 1996 and 1995, the
Company contributed $46,387 and $42,305, respectively, to the plan.
<PAGE> 36
(16) Fair Value of Financial Instruments
The Company's financial instruments are cash and cash equivalents, notes
payable and long-term debt and various receivables and payables. The carrying
values of these on-balance sheet financial instruments approximate fair value.
<PAGE> 37
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Unaudited Quarterly Results
Unaudited quarterly financial information for 1996 and 1995 is set forth in the table below:
March June September December
_________________ _________________ __________________ ________________
1996 1995 1996 1995 1996 1995 1996 1995
____ ____ ____ ____ ____ ____ ____ ____
All dollar amounts in thousands except per common share data
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 7,897 5,593 9,414 6,410 10,055 7,882 10,408 8,268
Gross profit 6,011 4,231 7,183 4,857 7,702 6,009 7,926 6,308
Preferred dividend
accrued (35) - (35) - (28) - (35) (35)
Net income (loss)* (207) 165 (211) 175 (219) 182 (698) (17)
Earnings (loss) per
common share* (0.11) 0.08 (0.08) 0.09 (0.08) 0.09 (0.54) (0.01)
*Net loss and loss per common share as previously reported for the quarters ended
June 30, 1996 and September 30, 1996 were ($158) and ($0.062) and ($160) and ($0.057),
respectively). The loss reflected above includes additional expense of ($0.021) and
($0.021) per common share for the quarters ended June 30, 1996 and September 30, 1996,
respectively. This additional expense is a result of a retroactive adjustment for
capitalized interest expense which was capitalized during the 2nd and 3rd quarter.
Certain amounts have been restated as discussed in note 5.
<PAGE> 38
Item 9 - Changes in and Disagreements with Accountants or Accounting and
Financial Disclosure
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
Reference is made to the information set forth in the section entitled
"Election of Directors" in the Proxy Statement, which information is
incorporated herein by reference.
Reference is made to the information set forth in the section entitled
"Directors and Executive Officers" in the Proxy Statement, which information is
incorporated herein by reference.
Additionally, Mr. Kendall A. Carr was appointed to his position as Vice
President, Finance and Chief Financial Officer on January 1, 1996. It was
erroneously stated in the Proxy statement that Mr. Martin Kauffman is the
secretary for the Company. Mr. D. Fredrico Fazio and Mr. Anthony J. Beisler III
have law practices as stated in the Proxy statement and have been practicing law
in excess of twenty years.
Item 11 - Executive Compensation
Reference is made to the information set forth in the section entitled
"Executive Compensation" in the Proxy Statement, which information is
incorporated herein by reference.
Additionally, Mr. D. Fredrico Fazio and Mr. Anthony J. Beisler III were
compensated for their services as directors of the Company through the granting
of 500 shares of Class A stock under the Company's 1995 Outside Director's Stock
Award Plan. Mr. Jerry B. Conway and Mr. Stephen P. Conway received no
additional compensation as directors of the Company.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement, which information is incorporated herein by reference.
Item 13 - Certain Relationships and Related Transactions
Reference is made to the information set forth in the sections entitled
"Election of Directors" and "Certain Transactions" in the Proxy Statement, which
information is incorporated herein by reference
<PAGE> 39
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Financial statements and financial statement schedule - see Index to
Consolidated Financial Statements at Item 8 of this report.
(a)(1) and (a)(2) have been deleted.
(a)(3) Exhibits: Unless otherwise indicated, the following exhibits are
incorporated herein by reference from the Registrant's Registration Statement on
Form S-1, File No. 33-71630, and made a part hereof by such reference.
Exhibit
Number Exhibit Description
3.1 Articles of Incorporation
3.2 By-Laws of the Registrant
3.3 Amendment to Articles of Incorporation
3.4 Amendment to Articles of Incorporation dated June 27, 1994
4.1 Form of Warrant Agreement
4.2 Form of Common Stock Certificate
4.3 Form of Warrant Certificate
10.1 Area Development Agreement - Carolina Lubes
10.2 Right of First Refusal - Carolina Lubes
10.3 Area Development Agreement and Amendment - Cincinnati Lubes
10.4 Standard form of Franchise Agreement with standard form of
Amendment to License Agreement
10.5 Standard License Agreement
10.6 Amendment to Standard License Agreement
10.7 Amended and Restated Management Agreement of August 1988
with Amendments of September 1993 with Carolina Lubes,
Cincinnati Lubes and CFA Management.
10.8 Deed, Note & Loan Agreement, Milbrook - Carolina Lubes
10.12 Area Development Agreement, Jiffy Lube - Pittsburgh Lubes
10.13 Management Agreement between Pittsburgh Lubes, Inc. and CFA
Management, Inc.
10.14 Lucor, Inc. Omnibus Stock Plan
10.15 Carolina Lubes First Right of Refusal Agreement with Jiffy
Lube International, Inc. dated December 12, 1994
10.16 Commercial Note - Centura Bank, Pershing Road
10.17 Assignment and Assumption Agreement - P.B. Lubes and
Carolina Lubes
10.18 Lucor, Inc. Amended and Restated 1991 Non-Qualified Stock
Plan
10.20 Standard Lease of Inspection Equipment - Carolina Lubes
10.21 Citicorp Leasing Credit Facility form of preferred stock
with designation of rights, and form of Sales Agreement (1)
10.23 Franchise Agreement, Jiffy Lube - Pittsburgh Lubes
21 * Subsidiaries of the Company
27 * Financial Data Schedule
* Filed herewith.
(1) Incorporated by reference to Form 8-K, File No. 0-25164, dated August 18,
1995
<PAGE> 40
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LUCOR, INC.
By ________________________________________
Stephen P. Conway, Chairman and Chief
Executive Officer
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 11th day of March, 1998.
/s/ Stephen P. Conway
__________________________ Chairman, Chief Executive Officer and Director
Stephen P. Conway (Principal Executive Officer)
/s/ Jerry B. Conway
__________________________ President, Chief Operating Officer and Director
Jerry B. Conway
/s/ Kendall A. Carr
__________________________ Vice President - Finance
Kendall A. Carr (Principal Financial Officer)
/s/ Martin Kauffman
__________________________ Controller
Martin Kauffman (Principal Accounting Officer)
/s/ D. Fredrico Fazio
__________________________ Director
D. Fredrico Fazio
/s/ Anthony J. Beisler, III
__________________________ Director
Anthony J. Beisler, III
</TABLE>
EXHIBIT 21
Lucor, Inc
Subsidiaries of the Company
Carolina Lubes, Inc.
Cincinnati Lubes, Inc.
Pittsburgh Lubes, Inc.
PB Lubes, Inc.
Ohio Lubes, Inc.
Tennessee Lubes, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K/A and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,052,417
<SECURITIES> 0
<RECEIVABLES> 1,081,763
<ALLOWANCES> 34,245
<INVENTORY> 1,832,658
<CURRENT-ASSETS> 5,213,281
<PP&E> 25,711,877
<DEPRECIATION> 3,205,389
<TOTAL-ASSETS> 32,627,609
<CURRENT-LIABILITIES> 5,335,200
<BONDS> 0
0
2,000,000
<COMMON> 56,037
<OTHER-SE> 8,931,941
<TOTAL-LIABILITY-AND-EQUITY> 32,627,609
<SALES> 37,772,799
<TOTAL-REVENUES> 37,772,799
<CGS> 8,951,465
<TOTAL-COSTS> 29,302,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,176,149
<INCOME-PRETAX> (1,464,994)
<INCOME-TAX> (263,006)
<INCOME-CONTINUING> (1,201,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,201,988)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
