United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
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, 2000, was $ 1,606,698
As of March 15, 2000, there were 2,333,133 shares of the Registrant's Class A
Common Stock, $.02 par value, outstanding and 502,155 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 2000 are incorporated by
reference in Parts II and III.
<PAGE>
Lucor, Inc.
Index to Form 10-K
For the Year Ended December 31, 1999
PART I Page
Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . . . . 5
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 Operations. . . . . . . 10
Item 8 - Consolidated Financial Statements and Supplementary Data . . . 17
Item 9 - Changes in and Disagreements with Accountants
or Accounting and Financial Disclosure . . . . . . . . . 54
PART III
Item 10 - Directors and Executive Officers of the Registrant . . . . . . 55
Item 11 - Executive Compensation . . . . . . . . . . . . . . . . . . . . 55
Item 12 - Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . 55
Item 13 - Certain Relationships and Related Transactions . . . . . . . . 55
PART IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . . 56
<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, 1999, the Company operated two hundred nineteen service centers
in eight states, including fifty two service centers in the Raleigh-Durham,
North Carolina area, four service centers in the Greensboro/Winston-Salem, North
Carolina area, twenty seven service centers in the Cincinnati, Ohio area (which
includes northern Kentucky), fifteen service centers in the Pittsburgh,
Pennsylvania area, seventeen service centers in the Dayton, Ohio area, five
service centers in the Toledo, Ohio area, eighteen service centers in the
Nashville, Tennessee area, twenty three in the Richmond and Tidewater Virginia
area, eight service centers in the Lansing, Michigan area, and fifty in the
Atlanta, Georgia 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 (except Lansing and Atlanta) 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.
Under a Combined Asset Purchase Agreement, dated March 31, 1999, the
Company acquired seventy-three service centers from Q Lube, Inc. and a
subsidiary of Jiffy Lube International ("JLI"). Twenty of these centers are
located in the markets of Cincinnati, Ohio; Dayton, Ohio; Lansing, Michigan; and
Nashville, Tennessee. The remaining fifty-three new centers are located in the
Atlanta, Georgia area. Twenty-seven of the seventy-three service centers
purchased were operated as "Jiffy Lube" centers, with the remaining forty-six
operated as "Q Lube" centers. The Company has since converted these service
centers into "Jiffy Lube" facilities.
In addition, on December 16, 1999, the Company executed a Stock Purchase
Agreement pursuant to which the Company purchased all of the outstanding stock
of Quick 10 Corporation ("Quick 10"). At the time, Quick 10 operated twenty
seven quick oil change and lubrication service centers under the trade name
"Quick 10". Twenty-three of these centers are located in the Raleigh/Durham,
North Carolina area and four are located in the Greensboro and Winston Salem,
North Carolina areas. The Company has converted all twenty-three Raleigh/Durham
area centers into "Jiffy Lube" facilities. Since the four centers in the
Greensboro and Winston Salem areas are within an area which is operated by
another "Jiffy Lube" franchisee, the Company has continued to operate these
centers as "Quick 10" service centers, but is anticipates transferring these
centers to such franchisee in April 2000.
Within existing regions operating in 1999, the Company developed five new
"Jiffy Lube" service centers, as well as acquiring two service centers from
independent operators. One of the newly-developed service centers was
constructed to replace a "Q Lube" service center that the Company acquired
earlier in 1999, but whose lease terminated shortly after purchase of the center
from Q Lube. The acquired centers have been converted into operation as "Jiffy
Lube" centers.
The Company's acquisitions of service centers in 1999 were consistent with
its current growth strategies of acquiring service centers in areas where the
"Jiffy Lube" trade name is already well-established or constructing new service
centers in areas where the Company has already developed a strong presence. All
1999 growth and development occurred in regions where the Company was already
operating except for the Atlanta area acquisitions, where the "Jiffy Lube" trade
name was already firmly established in that market area, and the regional
demographics fit well with the Company's current customer base. During 2000,
the Company intends to follow a growth strategy of purchasing or building new
stores within the areas where the Company already has a strong presence.
Due to disappointing revenue and profits, the Company made the decision in
1998 to close twelve of its Sears service centers. As a result of this
decision, during the fourth quarter of 1998, the Company took a charge of
$1,383,475. The Company closed six of these service centers during the first
quarter of 1999, five additional service centers during the second quarter of
1999, and one service center during February 2000.
The Company made the decision in 1999 to close nine additional service
centers, four of which are located in Sears service centers. As a result of
this decision, during the fourth quarter of 1999, the Company took a charge of
$276,007. The Company closed four of these service centers during the fourth
quarter of 1999 and has closed two service centers during the first quarter of
2000. The remaining three service centers are scheduled to close by December
31, 2000.
<PAGE>
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 preventative maintenance and fluid replacement
service 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.
As of February 29, 2000, 2,143 Jiffy Lube service centers were open in the
United States. Franchisees of JLI operated 1,603 of the service centers and JLI
owned and operated the remaining 540 locations. (Source: National Oil & Lube
News, March 2000) Of the total JLI franchised service centers, the Company
operates 216 locations (as of March 15, 2000) making it the largest franchisee.
According to National Oil & Lube News, March 2000 edition, there are
approximately 6,299 fast lube chain service centers in operation as of February
29, 2000, representing an increase in the number of fast lube operations by 4%
over 1999. Jiffy Lube is the largest fast lube operation chain, more than
double the number of service centers run by the next largest chain.
Services
The products and services offered by the Company are designed to provide
customers with a convenient way to perform preventative maintenance on their
vehicles, typically in minutes and without an appointment. The Company's
proprietary service mark "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. The pricing of a
Signature Service ranges from $24.99 to $29.99, 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,
headlight and light bulb replacement, complete transmission fluid replacement,
preventative maintenance packages, and auto safety and emissions inspection
services. In 1998, the Company introduced, as a test, the sale of batteries in
most of its markets. The Company expanded the sale of batteries to all markets
in 1999. Battery sales during 1999 accounted for 1% of sales. The Company does
not perform any repairs on vehicles, only preventative maintenance and fluid
replacement services.
In combination with JLI, the Company's "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 fleet business from
local fleet customers in each of its markets.
Service Centers
A typical service center consists of approximately 2,200 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. The service centers
are open six days a week (with the exception of service centers located at Sears
auto center which are open seven days a week, four hours on Sunday).
In general, the Company's service centers are well lit, clean, and provide
customers an attractive surrounding and comfortable professional waiting area
while their vehicle is serviced.
<PAGE>
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. The Company
does not pay any fee to JLI 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, and Boy Scouts Scouting for Food.
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, Dayton, Nashville, and Toledo. The Company amended its Area
Development Agreement with JLI in August 1995 to include all of these areas.
The Company has satisfied its obligations to develop service centers under its
Area Development Agreement for these areas. The Company has a right of first
refusal to develop service centers until July 31, 2019.
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. The Company has satisfied its obligations to develop service
centers under its Area Development Agreement for the Pittsburgh 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 June 30, 2019.
Lansing. The Company has not entered into an Area Development Agreement
regarding Lansing nor is the Company contemplating entering into an agreement at
this time.
Richmond/Tidewater. The Company has an area development agreement which
requires the Company to develop one service center in each of the next two
years. The Company has plans to meet this obligation. The Company has a right
of first refusal to develop service centers until December 31, 2008.
Atlanta. The Company acquired fifty three Jiffy Lube and Q Lube service
centers located in the Atlanta, Georgia area on April 30, 1999. The Company has
exclusive right to develop service centers in specified counties within the
Atlanta, GA area for three years. The Company has the right of first refusal
for the sale of service centers or to develop service centers until April 30,
2009.
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 2000, the initial franchise fee ranges from $12,500 to
$35,000. 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.
<PAGE>
Management Services Agreement
Each of the Company's operating subsidiaries has entered into a management
service agreement with Navigator Management, Inc., a Florida corporation
("Navigator"), pursuant to which Navigator, as an independent contractor,
operates, manages and maintains the service centers. Navigator 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, Navigator
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
Expansion Plans
During 1999, the Company acquired 102 service centers, the largest
acquisition by any Jiffy Lube Franchisee. The Company intends to stabilize
growth during 2000 by making small acquisitions and building new service centers
within existing regions of business. The Company has five sites under
development in current markets.
Competition
The quick oil change and lubrication industry is highly competitive with
respect to the service location, product type, customer service, and 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 Havoline 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 the majority of 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.
<PAGE>
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, 1999, six of the Company's service centers had UST's on the
premises. All six locations have UST's at the requirement of local and state
regulatory authorities. Those UST's in use comply with all Environmental
Protection Agency regulations that became effective December 22, 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.
Employees
As of December 31, 1999, the Company employed 2,012 people, of which 1,929
were engaged in operating the Company's Jiffy Lube Service Centers and the
remainder were in management, development, marketing, finance and administrative
capacities. None of the Company's employees are represented by unions. The
Company considers its employee relations to be good.
Item 2 - Properties
Twenty-three of the Company's two hundred sixteen service centers are
owned, with the balance of the service centers leased. Most of the leases are
for a twenty year period with generally one to two, ten year options to renew.
Twelve of the company's owned service centers are secured by a mortgage held by
Enterprise Mortgage Acceptance Company, LLC ("EMAC"). Ninety-eight of the
leased service centers are secured by a leasehold mortgage held by EMAC. Four
of the Company's owned service centers are secured by a mortgage held by
Franchise Finance Corporation of America. The Company also owns a 13,500 square
foot office building in Raleigh, North Carolina which is secured by a mortgage
to Centura Bank as described in the notes to the financial statements.
Item 3 - Legal Proceedings
The Company is involved in lawsuits and claims arising in the normal
course of business. Although the outcome of these lawsuits and claims are
uncertain, Management believes that these lawsuits and claims are adequately
covered by insurance or they will not (singly or in the aggregate) have a
material adverse affect on the Company's business, financial condition, or
operations. Those lawsuits and claims against the Company which have not been
resolved and which can be estimated and are probable to occur, have been
accounted for in the Company's financial statements.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
<PAGE>
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 Stock
Market(r) SmallCaps market under the symbol LUCR. The Class B Common Stock is
closely held and not traded in any public market.
As of December 31, 1999, there were approximately 635 holders of record of
the Class A Common Stock and two 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.
1999 1998
Market Price Market Price
Quarter Ended High Low High Low
March 31 $ 5.00 $ 3.50 $ 5.00 $ 2.50
June 30 $ 4.94 $ 3.94 $ 6.88 $ 3.88
September 30 $ 5.25 $ 3.06 $ 6.75 $ 4.75
December 31 $ 4.25 $ 1.75 $ 6.00 $ 4.00
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 income statement data for each of the years
in the five year period ended December 31 and the Balance Sheet data as of
December 31, 1995, 1996, 1997, 1998, and 1999 are derived from audited
Consolidated Financial Statements.
<PAGE>
<TABLE>
LUCOR, INC.
Five Year Summary of Selected Financial Data
1999 1998 1997 1996 1995
----------- ---------- ---------- ----------
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales $84,018,095 $55,307,206 $42,678,313 $37,772,799 $28,153,521
Cost of sales 18,683,931 12,715,861 9,979,363 8,951,465 6,748,266
---------- ---------- ---------- ---------- ----------
Gross profit 65,334,164 42,591,345 32,698,950 28,821,334 21,405,255
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Direct 32,905,302 20,449,478 16,494,374 14,059,886 10,020,278
Operating 16,264,016 10,981,273 8,923,880 7,786,260 6,053,513
Depreciation,
amortization 2,752,908 2,217,366 2,056,059 2,001,300 848,301
Selling, general,admin. 11,496,058 7,388,269 5,928,152 5,455,291 3,183,110
Impairment Loss(Service
center closings) 276,007 1,383,475 - - -
---------- ---------- ---------- ---------- ----------
63,694,291 42,419,861 33,402,465 29,302,737 20,105,202
Income (loss)
from operations 1,639,873 171,484 (703,515) (481,403) 1,300,053
Interest expense (3,764,526) (2,664,938) (1,480,679) (1,176,149) (450,471)
Income(loss) before
provision for
income taxes and
extraordinary item (1,844,969) (2,287,498) (2,122,038) (1,464,994) 921,679
Income (loss) before
extraordinary item (1,972,626) (2,114,481) (1,581,443) (1,201,988) 540,243
Extraordinary loss
(net of tax) - - (258,625) - -
Net income (loss) $(1,972,626) $(2,114,481) $(1,840,068) $(1,201,988) $ 540,243
========== ========== ========== ========== ==========
Preferred dividend (140,000) (140,000) (140,000) (133,287) (35,000)
Income (loss) before
extraordinary item
available to common
shareholders $(2,112,626) $(2,254,481) $(1,721,443) $(1,335,275) $ 505,243
============ ========== =========== =========== ===========
Basic income (loss)
before extraordinary
item per common share $(0.75) $(0.80) $(0.61) $(0.54) $0.26
Diluted income (loss)
before extraordinary
item per common share $(0.75) $(0.80) $(0.61) $(0.54) $0.26
Cash dividends declared
per share -0- -0- -0- -0- -0-
Weighted average common
shares outstanding -
Basic 2,828,480 2,824,868 2,842,367 2,451,683 1,944,618
Weighted average common
shares outstanding -
Dilutive 2,828,480 2,824,868 2,842,367 2,451,683 1,960,38
</TABLE>
<PAGE>
<TABLE>
December 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and other short-term
assets $14,134,681 $ 6,947,635 $ 6,614,374 $ 5,213,281 $ 4,143,399
Property and equipment, net 33,419,225 23,292,926 21,839,319 22,506,488 14,246,603
Other assets, net 34,788,122 16,038,927 4,766,587 4,907,840 3,288,044
Total assets $82,342,028 $46,279,488 $33,220,280 $32,627,609 $21,678,046
=========== =========== =========== =========== ===========
Short-term obligations/debt 14,770,039 6,984,231 4,757,756 5,335,200 3,266,336
Long-term liabilities 62,486,911 32,167,303 18,855,114 16,304,431 12,198,968
Preferred stock, redeemable -- 2,000,000 2,000,000 2,000,000 2,000,000
Stockholders' equity 5,085,078 5,127,954 7,607,410 8,987,978 4,212,752
</TABLE>
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The Company is engaged through its subsidiaries in the automotive fast oil
change, fluid maintenance lubrication, and general preventative maintenance
service business at two hundred nineteen service centers in eight states,
including fifty-two service centers in the Raleigh-Durham, North Carolina area,
four service centers in the Greensboro/Winston-Salem, North Carolina areas,
twenty-seven service centers in the Cincinnati, Ohio area (which includes
northern Kentucky), fifteen service centers in the Pittsburgh, Pennsylvania
area, seventeen service centers in the Dayton, Ohio area, five service centers
in the Toledo, Ohio area, eighteen service centers in the Nashville, Tennessee
area, twenty-three in the Richmond and Tidewater Virginia area, eight service
centers in the Lansing, Michigan area, and fifty in the Atlanta, Georgia 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 Jiffy Lube service 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.
During 1997, the Company added six service centers. One center was
acquired in Lansing, Michigan, a Sears center in Cincinnati, Ohio, one service
center in Dayton, Ohio, one service center in Nashville, Tennessee, and one
service center in Pittsburgh, Pennsylvania. At the end of 1997, the Company had
one hundred service centers in operation.
In 1998, the Company built one service center in Pittsburgh and one in
Nashville. In addition, it acquired three service centers from independent
owners, one in Cincinnati and two in Nashville, that were not Jiffy Lube service
centers. These service centers have been converted to Jiffy Lube service
centers. On April 1, 1998, the Company acquired substantially all of the assets
of Tidewater Lube Ventures, Inc. ("TLV") and Lube Ventures East, Inc. ("LVE")
which added twenty-three Jiffy Lube service centers; nine in the Richmond,
Virginia area, twelve in the Tidewater, Virginia area, and two in eastern North
Carolina. At the end of 1998, the Company had one hundred twenty eight Jiffy
Lube service centers in operation.
During 1999, the Company built five service centers plus acquired two
service centers from independent operators. On March 31, 1999, the Company
acquired 20 "Q Lube" facilities located in the markets of Cincinnati, Ohio,
Dayton, Ohio, Lansing, Michigan and Nashville, Tennessee. The Company acquired
53 Jiffy Lube and Q Lube service centers located in the Atlanta, Georgia area on
April 30, 1999. On December 16, 1999, the Company executed a Stock Purchase
Agreement with Quick 10 Corporation ("Quick 10") to purchase 23 lube service
centers in the Raleigh/Durham area and 4 quick lube service centers in the
Greensboro and Winston Salem, North Carolina area. All service centers acquired
in 1999 will be converted to Jiffy Lube service centers in 2000.
During 1999, the Company has borrowed $31,602,353 from four sources to
finance the acquisition of the 102 service centers noted above and to refurbish
and update those service centers. The financing was also used to provide funds
for the Company to build service centers during 1999, and for other general
corporate purposes.
<PAGE>
Results of Operations
The Company's primary indicator of business activity is revenue generated.
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 six days per week and average 308 days of
operation per year.
The Company experienced a loss for the year of approximately $1,973,000 due
in large part to the loss generated by the newly acquired stores in Atlanta and
the Q Lubes stores in areas the Company already had a presence. The loss
from these areas account for approximately $1,363,000 of the total loss or
approximately $0.48 per share. It is anticipated that the operations will
return to profitability in the year 2000.
1999 Compared to 1998
Net sales increased by 51.9% from 1998 to 1999 due to the increase in base
business over the previous year as well as the impact of new service centers
which were opened and acquired during 1999 as indicated on the following table:
1999 1998
------ ------
Same stores 9.5% $ 60,563,606 $ 55,307,206
New Stores 23,454,489 0
------------ ------------
Total new sales change 51.9% $ 84,018,095 $ 55,307,206
============ ============
The Company's average daily sales per service center increased by 13% when
comparing 1999 with 1998. The average daily sales per service center for base
business in 1999 increased 22.5% when comparing 1999 and 1998 results. The
Company anticipates improved average daily sales per service center in the
service centers acquired in 1999 during the first quarter of 2000. Sales were
lower than could otherwise be expected in the third quarter of 1999 due to two
hurricanes that interrupted business in the Company's two largest regions,
Raleigh-Durham, North Carolina and Tidewater-Richmond, Virginia. The hurricanes
caused most of the service centers in these regions to close and drastically
reduced business at other stores. One service center closed for approximately
two months due to flood damage from the hurricanes. The repair costs were not
significant.
Cost of sales, which represents the direct cost of material sold to the
customer (oil, filters, lubricants, wiper blades, additives, etc.) decreased as
a percent of sales from 23.0% to 22.2%. The decrease in the cost of sales
reflects the Company's continued efforts to reduce costs of materials purchased,
an increase in the price of its basic signature service oil change, and
increased sales of services that have little or no material content. Pennzoil-
Quaker State Company, the major supplier of oil for the Company, implemented a
price increase of approximately four cents per quart in August 1999 which
increased the Company's cost of sales but was offset by other savings and the
price increase.
Direct operating costs increased by $12,455,824 or 60.9% in 1999 as
compared to 1998. As a percent of sales these costs increased from 37.0% in
1998 to 39.2% in 1999. Labor costs accounted for a majority of this increase,
representing an increase of approximately 1.1% of sales. This increase is the
result of higher labor costs at the newly acquired service centers, including
higher fixed labor charges at stores for store management at these services
centers, most of which have lower sales per store. Other direct costs increased
approximately 1.1%. This increase is the result of start up costs associated
with the newly acquired service centers. Without the acquisitions, direct costs
for 1999 would have been approximately 37.7%.
Operating costs increased by $5,282,743 or 48.1% in 1999 as compared to
1998. This increase is less than the percentage of sales increase. As a
percent of sales, operating costs decreased from 19.9% of sales in 1998 to 19.4%
of sales in 1999. 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 Navigator
Management, Inc. Since some of these costs are fixed (mainly rent), the cost
per sales dollar decreases as the sales increase.
Depreciation and amortization costs increased by $535,542. The majority of
the increase in depreciation and amortization expense for 1999 is due to the
acquisition of the service centers as noted above.
Selling, general, and administrative (SGA) costs increased by $4,107,789 or
55.6% in 1999 as compared to 1998. As a percent of sales, SGA costs increased
by 0.3%. The increase in these costs reflect additional costs required due to
the acquisition of additional service centers and the required costs associated
with their administration and marketing.
In 1999, the Company recorded an impairment loss of $276,007 reflecting its
anticipation of closing nine stores. Four of the stores are Sears, three of
which were acquired in the Atlanta acquisition. The remaining five stores are
not meeting expected operating results. The Company closed four of these
service centers during the fourth quarter of 1999 and has closed two service
centers during the first quarter of 2000. The remaining three service centers
are scheduled to close by December 31, 2000.
In 1998, the Company recorded an impairment loss of $1,383,475 reflecting
the write down of assets at twelve of its sixteen service centers located at
Sears auto centers. The Company closed six of these service centers during the
first quarter of 1999, five additional service centers during the second quarter
of 1999, and one service center during February 2000.
Interest expense increased by $1,099,588 reflecting the increased debt
acquired due to the acquisitions as noted above.
Other income increased by $73,728 in 1999 compared to 1998. This increase
is the result of additional interest and commission income for the year.
A charge of $127,657 was made for income taxes due mainly to state income
taxes. The Company has substantial net operating loss carryforwards for Federal
and some states, however the tax benefit generated by these net operating loss
carryforwards are being offset by valuation reserves.
Dividends on Series A preferred stock were $140,000 in 1999.
<PAGE>
1998 Compared to 1997
Net sales increased by 30% from 1997 to 1998 due to the increase in base
business over the previous year as well as the impact of new service centers
which were opened and acquired during 1998 as indicated on the following table:
1998 1997
------ ------
Same stores 3% $ 43,974,140 $ 42,678,313
New Stores 11,333,066 0
------------ ------------
Total new sales change 30% $ 55,307,206 $ 42,678,313
============ ============
The Company's average daily sales per service center increased by 15% when
comparing 1998 with 1997. There were two changes in 1998 that had major impacts
on the daily sales per service center. One, the acquisition of TLV and LVE
increased the sales per service center per day by 8.5%. Two, the Company
changed its policy on store openings to close all of its stores on Sunday except
for the service centers located in Sears auto centers. Sales on Sundays are
much less than sales on other days of the week thus boosting the sales per day.
The impact of closing on Sunday cannot be quantified since it is believed that
many customers are going to the Company's service centers on other days of the
week.
Cost of sales, which represents the direct cost of material sold to the
customer (oil, filters, lubricants, wiper blades, additives, etc.) decreased as
a percent of sales from 23.4% to 23.0%. This improvement has been generated
from higher rebates obtained from our major suppliers. A small decrease in the
cost of sales can be traced to a price increase implemented November 1, 1998 in
most of our markets increasing the signature service by $1.00 and smaller
increases in other ancillary items.
Direct operating costs increased by $3,955,104 or 24% in 1998 as compared
to 1997. This increase is less than our sales increase reflecting lower cost
per revenue dollar generated. These costs consist primarily of direct labor and
associated labor benefits costs and supplies expended at each location to run
the service center. As a percent of sales these costs decreased from 38.6% in
1997 to 37.0% in 1998. The majority of the decreased percentage cost of sales
relates to decreased labor costs as a percent of sales. Efforts were made by
the Company in 1998 to control labor costs which has resulted in the lower labor
costs. Higher revenue per service center per day has also decreased these costs
as a percent of sales due to the fixed labor requirement to operate a service
center. In addition, with the closure on Sunday, less hourly labor is required.
Operating costs increased by $2,057,393 or 23.1% in 1998 as compared to
1997. This increase is less than the sales increase. As a percent of sales,
operating costs decreased from 20.9% of sales in 1997 to 19.9% of sales in 1998.
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 Navigator Management, Inc.
Since some of these costs are fixed (mainly rent), the cost per sales dollar
decreases as the sales per day increases. In addition, the Company has
contracted with companies to receive payment for waste oil removed from its
facilities.
Depreciation and amortization costs increased by $161,307. This small
increase in depreciation and amortization reflects the declining depreciation on
assets acquired prior to 1997, since they are being depreciated on an
accelerated basis, offset by the increased depreciation and amortization on
assets acquired in 1998, primarily those of TLV and LVE.
Selling, general, and administrative (SGA) costs increased by $1,460,117 or
24.6% in 1998 as compared to 1997. As a percent of sales, SGA costs decreased
by 0.5%. The increase in these costs reflect additional costs required due to
the acquisition of additional service centers and the required costs associated
with their administration and marketing.
The Company recorded an impairment loss of $1,383,475 reflecting the write
down of assets at 12 of its 16 service centers located at Sears auto centers.
These service centers had negative cash flow in 1998. The Company closed four of
these service centers on January 31, 1999.
Interest expense increased by $1,184,259 reflecting the increased debt
acquired due to the acquisition as noted above.
Other income increased by $143,800 in 1998 compared to 1997. Other income
increased due to an agreement with a major vending machine operator to supply
drink machines in its stores for a commission. In addition, interest income
increased slightly due to more funds being available for investing.
Income tax benefit represented 7.6% of net income. The benefit is lower
than the statutory rate due to the establishment of a valuation allowance
necessary to offset certain deferred tax assets which management believes may
not be recoverable in the future. The Company has substantial net loss carry-
forwards which can be used to offset future taxable income. No deferred tax
asset was recorded.
Other income increased by $143,800 in 1998 compared to 1997. Other income
increased due to an agreement with a major vending machine operator to supply
drink machines in its stores for a commission. In addition, interest income
increased slightly due to more funds being available for investing.
Income tax benefit represented 7.6% of net income. The benefit is lower
than the statutory rate due to the establishment of a valuation allowance
necessary to offset certain deferred tax assets which management believes may
not be recoverable in the future. The Company has substantial net loss carry-
forwards which can be used to offset future taxable income. No deferred tax
asset was recorded.
Dividends on Series A redeemable preferred stock were $140,000 in 1998.
<PAGE>
Liquidity and Capital Resources
As of December 31, 1999, the Company had cash and current assets of
$14,134,681 and short term obligations (including the current portion of long
term debt) of $14,770,039 for net working capital of ($635,358). Cash provided
by operations amounted to $4,916,812. Net cash used in investing activities was
$32,580,951. These funds were spent on building service centers, the purchase
of two service centers from an independent operator, and the acquisition of
seventy-three Jiffy Lube and Q Lube service centers and twenty-seven Quick 10
service centers as noted elsewhere in this 10-K.
During 1999, the Company has borrowed $31,602,353 from four sources to
finance the acquisition of the one hundred two service centers noted above and
to refurbish and update those service centers. The financing was also used to
provide funds for the Company to build and furbish service centers during 1999,
and for other general corporate purposes.
The Company borrowed funds during the first quarter of 1999 through an
agreement with Franchise Finance Corporation of America ("FFCA") for $2,600,000.
This loan carries an interest rate of approximately 9.5% and is amortized over a
25-year period. These funds were used in the construction of new service
centers and other general corporate purposes as noted above.
The Company also borrowed funds in the first quarter of 1999 through an
agreement with Centura Bank totaling $855,353. This loan carries an interest
rate of approximately 9.0% and is amortized over a fifteen-year period with a
balloon payment after five years. These funds were applied toward construction
costs associated with building an addition to the Company's headquarters in
North Carolina and to pay off a loan from Centura obtained when the Company
purchased the building.
On March 31, 1999, the Company entered into an asset purchase agreement
with subsidiaries of Pennzoil-Quaker State Company to acquire seventy-three Q
Lube and Jiffy Lube Centers (See the Company's Form 8-K filed on April 14,
1999). A series of loans were obtained from Enterprise Mortgage Acceptance
Company, LLC ("EMAC") to fund this acquisition. In June of 1999, the Company
borrowed funds totaling $9,070,000. This loan carries an interest rate of
approximately 9.25% and is amortized over a 15-year period. In September of
1999, the Company borrowed additional funds totaling $518,000. This loan
carries an interest rate of approximately 9.5% and is amortized over a 15-year
period.
In December 1999, the Company borrowed $1,780,000 from EMAC for the
acquisition of two service centers in Virginia. This loan carries an interest
rate of approximately 9.7% and is amortized over a fifteen-year period.
On December 16, 1999, the Company executed a Stock Purchase Agreement with
Quick 10 Corporation ("Quick 10") to purchase twenty-three lube service centers
in the Raleigh/Durham area and four quick lube service centers in the Greensboro
and Winston Salem, North Carolina area. (See the Company's Form 8-K filed on
January 3, 2000). The Company borrowed funds through an agreement with EMAC
totaling $16,079,000. This loan carries an interest rate of approximately 9.8%
and is amortized over a 15-year period.
The funds from the EMAC loans were used to purchase the service centers, to
make significant improvements and refurbishments at the service centers, and for
other general corporate purposes as noted above.
As part of the asset purchase agreement to acquire the seventy-three Q Lube
and Jiffy Lube Centers, the Company obtained a $700,000 short-term loan from
Jiffy Lube International. This loan carries an interest rate of approximately
10%.
As of December 31, 1998, the Company had cash and current assets of
$6,947,635 and short term obligations (including the current portion of long
term debt) of $6,984,231 for net working capital of ($36,596). Cash provided by
operations amounted to $2,635,958. Net cash used in investing activities was
$16,775,636. These funds were mainly spent on the addition of service centers
and the acquisition of TLV and LVE as noted elsewhere in this 10-K.
In February of 1998, the Company borrowed additional funds through an
agreement with Enterprise Mortgage Acceptance Company, LLC ("EMAC") totaling
$1,787,000. This loan carries an interest rate of approximately 8.5% and is
amortized over a 15 year period. The first three month's payments are interest
only. In March of 1998, the Company borrowed an additional $13,274,000 through
an agreement with EMAC. This loan carries an interest rate of approximately
8.6% and is amortized over a 15 year period. Most of these funds were applied
towards the purchase price of the twenty three Jiffy Lube service centers
referenced above.
On July 26, 1999, the Company negotiated a waiver of the redemption rights
on its Series A Preferred Stock held by Pennzoil-Quaker State Company. This
waiver had the affect of reclassifying the Preferred Stock into stockholders'
equity. See Form 8-K filed on July 29, 1999 for more details.
<PAGE>
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 addition,
the Company believes that it will be able to obtain additional financing through
its lender to facilitate expansion plans over the next three to five years. If
the Company is unable to satisfy its cash requirements, the Company could be
required to adopt one or more alternatives, such as reducing or delaying capital
expenditures and expansion plans, restructuring indebtedness, or selling assets.
The Company contemplates the sale of additional equity instruments over the next
twelve months. There can be no assurance that there will be a market for the
Company's equity instruments at a price that the Company deems sufficient. The
sale of additional equity could result in additional dilution to the Company's
stockholders.
Year 2000 Review
The Company reviewed its computer systems in 1998 identifying those systems
that could be affected by the "Year 2000" issue. The "Year 2000 problem" is the
result of computer programs designating the year using two digits rather than
four (98 versus 1998). As a result, in the year 2000, computer programs could
recognize 00 as 1900 instead of the year 2000. The Company determined that some
of its systems needed to be upgraded, mainly its point of sale systems ("POS").
The cost of upgrading its systems did not have a material adverse impact on its
business operations or financial condition. By the end of 1999, the Company had
upgraded all computer systems. The Company experienced one minor problem with
third party software used for POS charge card transactions which resulted in
multiple credit card charges. The problem was noted quickly and multiple credit
card charges were reversed with a minor amount of expense to the Company.
Forward Looking Statements
Certain statements in this Form 10-K "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward
looking statements. Such factors include, among others, the following:
competition, success of operating initiative, advertising and promotional
efforts, adverse publicity, acceptance of new product offerings, availability,
locations and terms of sites for store development, changes in business strategy
or development plan, availability and terms of capital, labor and employee
benefit costs, changes in government regulation, regional weather conditions,
and other factors specifically referred to in this 10-K.
<PAGE>
Item 8 - Consolidated Financial Statements and Supplementary Data
Page
Consolidated Financial Statements:
Independent Auditors' Report 19
Consolidated Balance Sheets as of December 31, 1999 and 1998 20
Consolidated Statements of Loss for the years ended
December 31, 1999, 1998 and 1997 21
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997 22
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 24
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>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
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, 1999 and 1998, and the related consolidated
statements of loss, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
- --------------------
KPMG LLP
Raleigh, North Carolina
March 17, 2000
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
1999 1998
Assets ------ ------
Current assets:
Cash and cash equivalents (note 14) $ 7,097,115 3,269,859
Accounts receivable, trade, net of
allowance for doubtful accounts
of $59,265 and $60,935 at
December 31, 1999 and 1998,
respectively 745,883 356,134
Accounts receivable, other 722,786 448,606
Income tax receivable - 40,241
Inventories, net of obsolescence
reserves of $67,556 and $47,932
at December 31, 1999 and 1998
respectively 4,885,220 2,401,953
Prepaid expenses 683,677 417,135
------------- -------------
Total current assets 14,134,681 6,933,928
------------- -------------
Property and equipment, net of
accumulated depreciation (notes
3 and 6) 33,419,225 23,292,926
------------- -------------
Other assets:
Franchise and operating rights, net
of accumulated amortization of
$501,724 and $215,025 at
December 31, 1999 and 1998,
respectively (note 7) 8,385,966 8,672,665
Goodwill, net of accumulated
amortization of $612,630 and
$420,856 at December 31, 1999
and 1998, respectively (note 7) 21,956,315 4,118,558
Leasehold license, application, area
development, loan acquisition, and
non-compete agreements, net of
accumulated amortization of $1,451,568
and $997,298 at December 31, 1999
and 1998, respectively 4,285,748 3,156,011
Deposits 96,593 91,693
Other assets 63,500 13,707
------------- -------------
34,788,122 16,052,634
------------- -------------
$ 82,342,028 46,279,488
============= =============
Liabilities and
Stockholder's Equity
Current liabilities:
Current portion of long-term
debt (note 6) 3,136,090 1,675,548
Current portion of capital
lease - 23,631
Current portion of deferred
revenue (note 17) 200,000 -
Accounts payable 5,428,011 2,501,057
Income tax payable 43,002 -
Accrued expenses:
Payroll 1,159,206 690,279
Management fees 779,180 444,450
Property taxes 517,649 389,752
Other 3,471,901 1,224,514
Preferred dividend 35,000 35,000
------------- -------------
Total current liabilities 14,770,039 6,984,231
------------- -------------
Long-term debt, net of current
portion (note 6) 60,178,661 32,112,596
Deferred gain (notes 5 and 8) 90,348 54,707
Deferred revenue and other long-term
liabilities (note 17) 2,067,902 -
Deferred taxes (note 4) 150,000 -
-------------- -------------
Total long-term liabilities 62,486,911 32,167,303
Series A redeemable preferred
stock (note 10) - 2,000,000
Stockholders' equity (notes 9,
10, 11 and 12):
Series A Preferred stock, $100 par
value, 20,000 shares authorized,
issued and outstanding 2,000,000 -
Preferred stock, $.02 par value,
($.10 liquidation preference),
authorized 5,000,000 shares,
issued and outstanding, none - -
Common stock, Class "A", $.02 par
value, 5,000,000 shares
authorized, 2,331,633 and
2,316,133 shares issued and
outstanding at December 31, 1999
and 1998, respectively 46,632 46,322
Common stock, Class "B", $.02 par
value, 2,500,000 shares
authorized, 502,155 shares issued
and outstanding at December 31,
1999 and 1998 10,043 10,043
Additional paid-in capital 9,444,699 9,375,259
Treasury stock at cost (760 shares
at December 31, 1999 and 1998) (3,437) (3,437)
Accumulated deficit (6,412,859) (4,300,233)
------------- -------------
Total stockholders' equity 5,085,078 5,127,954
------------- -------------
Commitments and contingencies
(note 8)
$ 82,342,028 46,279,488
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Net sales $ 84,018,095 55,307,206 42,678,313
Cost of sales (note 5) 18,683,931 12,715,861 9,979,363
------------- ------------ -------------
Gross profit 65,334,164 42,591,345 32,698,950
------------- ------------ -------------
Costs and expenses:
Direct 32,905,302 20,449,478 16,494,374
Operating (note 5) 16,264,016 10,981,273 8,923,880
Depreciation and amortization 2,752,908 2,217,366 2,056,059
Selling, general and
administrative 11,496,058 7,388,269 5,928,152
Impairment loss - service
center assets (note 13) 276,007 1,383,475 -
------------- ------------- -------------
63,694,291 42,419,861 33,402,465
------------- ------------- -------------
Income (loss) from
operations 1,639,873 171,484 (703,515)
------------- ------------- -------------
Interest expense (3,764,526) (2,664,938) (1,480,679)
Other income 279,684 205,956 62,156
------------- ------------- -------------
(3,484,842) (2,458,982) (1,418,523)
------------- ------------- -------------
Loss before provision
for income taxes and
extraordinary item (1,844,969) (2,287,498) (2,122,038)
Income tax benefit
(expense) (note 4) (127,657) 173,017 540,595
------------- ------------- ------------
Loss before extra-
ordinary item (1,972,626) (2,114,481) (1,581,443)
Extraordinary item - loss on
extinguishment of debt, net of
income tax benefit of $133,000
(note 6) - - (258,625)
------------- ------------- -------------
Net loss $ (1,972,626) (2,114,481) (1,840,068)
============= ============= =============
Loss before extra-
ordinary item (1,972,626) (2,114,481) (1,581,443)
Preferred dividend (140,000) (140,000) (140,000)
------------- ------------- -------------
Loss before extra-
ordinary item
available to common
shareholders $ (2,112,626) (2,254,481) (1,721,443)
============= ============= =============
Basic and diluted loss per
common share:
Loss before extraordinary
item available to common
shareholders (0.75) (0.80) (0.61)
Extraordinary item - - (0.09)
------------- ------------- -------------
Net loss per common share
available to common
shareholders $ (0.75) (0.80) (0.70)
============= ============= =============
Weighted average common shares
Outstanding:
Basic and dilutive 2,828,480 2,824,868 2,842,367
============= ============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
Preferred
Stock Common Stock
------------------ -----------------------------------
Number of Shares
Number ----------------
of Par Class Class Par
shares value "A" "B" value
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 - - 2,099,733 702,155 56,037
Stock issued for directors' fees
(note 12) - - 1,000 - 20
Sale of stock to directors(note 9) - - 45,000 - 900
Capital contribution (note 5) - - - - -
Net loss - - - - -
Preferred dividend (note 10) - - - - -
------ -------- --------- -------- -------
Balance at December 31, 1997 - - 2,145,733 702,155 56,967
Repurchase of shares (note 9) - - (39,000) - (780)
Exchange of shares (note 9) - - 200,000 (200,000) -
Stock issued for employee bonuses
and directors' fees (note 12) - - 9,400 - 188
Net loss - - - - -
Preferred dividend (note 10) - - - - -
------ --------- ---------- -------- -------
Balance at December 31, 1998 - - 2,316,133 502,155 56,365
Waiver of redemption rights (note 10) 20,000 2,000,000 - - -
Stock issued for employee bonuses
and director's fees (note 12) - - 15,500 - 310
Net loss - - - - -
Preferred dividend (note 10) - - - - -
------ --------- ----------- -------- -------
Balance at December 31, 1999 20,000 $2,000,000 2,331,633 502,155 $ 56,675
====== ========= =========== ======== =======
</TABLE>
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
Treasury Stock
----------------
Additional Number
paid-in of Retained
capital shares Cost deficit
---------- ------ ------ ---------
Balance at December 31, 1996 9,001,062 760 (3,437) (65,684)
Stock issued for directors'
fees (note 12) 2,730 - - -
Sale of stock to directors
(note 9) 257,850 - - -
Capital contribution (note 5) 338,000 - - -
Net loss - - - (1,840,068)
Preferred dividend (note 10) - - - (140,000)
--------- ---- ------ -----------
Balance at December 31, 1997 9,599,642 760 (3,437) (2,045,752)
Repurchase of shares (note 9) (274,220) - - -
Exchange of shares (note 9) - - - -
Stock issued for employee
bonuses and directors' fees
(note 12) 49,837 - - -
Net loss - - - (2,114,481)
Preferred dividend (note 10) - - - (140,000)
--------- ---- ------ -----------
Balance at December 31, 1998 9,375,259 760 (3,437) (4,300,233)
Waiver of redemption rights
(note 10) - - - -
Stock issued for employee
bonuses and director's
fees (note 12) 69,440 - - -
Net loss - - - (1,972,626)
Preferred dividend (note 10) - - - (140,000)
--------- ---- ------ -----------
Balance at December 31, 1999 9,444,699 760 (3,437) (6,412,859)
========= ==== ====== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
Cash flows from operations
<S> <C> <C> <C>
Net loss $ (1,972,626) (2,114,481) (1,840,068)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Amortization of deferred gain (2,747) (229) (1,200)
Depreciation of property and equipment 1,818,457 1,410,487 1,272,583
Amortization of intangible assets and
pre-opening costs 934,451 806,879 783,476
Loss on impaired assets 276,007 1,383,475 --
Write-off of loan origination costs -- -- 391,625
Write-off of pre-opening costs 15,742 -- --
Stock issued as employee bonuses and
directors' fees 69,750 50,025 2,750
Provision for deferred taxes 150,000 189,000 (234,594)
Management fee recorded as
contributed capital -- -- 338,000
Changes in assets and liabilities,
excluding effects of acquisitions:
Increase in accounts receivable,
trade (320,075) (1,577) (59,811)
Decrease (increase) in accounts
receivable, other (274,180) (359,863) 168,858
Increase in other assets (49,793) (13,707) --
Decrease (increase) in inventories (483,329) 181,503 (305,522)
Decrease (increase) prepaid expenses 255,251 (180,188) 87,244
Decrease in income tax receivable 40,241 426,282 89,841
Increase in income tax payable 43,002 -- --
Increase in accounts payable and
accrued expenses 4,416,661 858,352 84,057
------------ ------------ ------------
Net cash provided by operating
activities 4,916,812 2,635,958 777,239
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (4,420,502) (3,231,300) (3,101,160)
Acquisition of additional service
centers and related assets (30,212,414) (14,100,861) (45,000)
Acquisition of area development agreement
and other intangible assets (34,891) (303,881) (140,817)
Decrease (increase) in deposits (20,642) (6,423) 22,405
Pre-opening costs -- (66,840) (197,737)
Proceeds from sale of property and
equipment 2,145,886 988,376 2,504,437
Deferred gain (38,388) (54,707) --
------------ ------------- ------------
Net cash used in investing
activities (32,580,951) (16,775,636) (957,872)
------------ ------------- ------------
Cash flows from financing activities:
Repurchase of common stock -- (275,000) --
Proceeds from issuance of common stock -- -- 258,750
Loan origination costs (139,483) (424,188) (680,190)
Dividend paid (140,000) (140,000) (140,000)
Repayments of capital lease (23,631) (25,481) (22,662)
Increase in other long term liabilities 2,267,902 -- --
Proceeds from borrowings 31,602,353 17,320,557 16,713,298
Repayment of debt (2,075,746) (594,769) (16,452,562)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 31,491,395 15,861,119 (323,366)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents 3,827,256 1,721,441 (503,999)
Cash and cash equivalents at beginning
of year 3,269,859 1,548,418 2,052,417
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,097,115 3,269,859 1,548,418
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
LUCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
Supplementary disclosures:
<S> <C> <C> <C>
Interest paid $ 3,553,956 2,430,559 1,480,679
============ ============ ============
Income tax paid $ 93,866 17,500 41,031
============ ============ ============
Acquisitions of service centers:
Accounts receivable acquired 69,674 61,193 --
Inventory acquired 1,999,938 445,276 --
Prepaid expenses acquired 521,793 43,503 --
Franchise and operating rights acquired -- 8,887,690 --
Leasehold rights and franchise fees
acquired 233,500 872,269 --
Noncompete acquire 175,800 -- --
Fair value of other assets acquired,
principally property and equipment 10,889,886 2,188,499 7,490
Goodwill 18,011,057 1,603,548 37,510
Accounts payable and accrued expenses
acquired (1,689,234) -- --
Expenses -- (1,117) --
------------ ------------ ------------
Cash paid, net of cash acquired $ 30,212,414 14,100,861 45,000
============ ============ ============
Supplementary schedule of non-cash
financing and investing activities:
Unreleased proceeds from borrowings,
included in accounts receivable,
other $ -- -- 1,885,702
============ ============ ============
During 1998, the Company transferred
$324,410 from property and equipment
into various asset accounts.
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(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, 1999, the Company operated two hundred nineteen service
centers in eight states, including fifty-two service centers in the
Raleigh-Durham, North Carolina area, four service centers in the
Greensboro/Winston-Salem, North Carolina area, twenty-seven service centers
in the Cincinnati, Ohio area (which includes northern Kentucky), fifteen
service centers in the Pittsburgh, Pennsylvania area, seventeen service
centers in the Dayton, Ohio area, five service centers in the Toledo, Ohio
area, eighteen service centers in the Nashville, Tennessee area, twenty-
three in the Richmond and Tidewater Virginia area's, eight service centers
in the Lansing, Michigan area, and fifty in the Atlanta, Georgia 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 (except for Lansing and Atlanta) 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 fifteenth of the following month, a
practice followed by the Company. The Company purchases, leases, as well
as constructs these service centers. The Company operated one hundred
twenty eight and one hundred service centers at December 31, 1998 and 1997,
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>
Receivables
The Company provides an allowance for doubtful receivables equal to the
estimated collection losses that will be incurred in collection of all
receivables. Estimated losses are based on historical collection
experience, as well as a review by management of the current status of all
receivables.
Deferred Revenues
Funds received, but not yet earned, are reported as deferred revenues.
When the funds are deemed to be earned they are reported as revenues.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the related
assets. Amortization of leasehold improvements is computed by the
straight-line method over the term of the lease or estimated useful lives
of the improvements, whichever is less. Repairs and maintenance are
charged to operations as incurred, and expenditures for additions and
improvements are capitalized. Costs of construction of certain long-lived
assets include capitalized interest which is amortized over the estimated
useful lives of the related assets. No interest was capitalized in 1999 and
1998.
Intangible Assets
The Company evaluates, when circumstances warrant, the recoverability of
its goodwill on the basis of undiscounted cash flow projections and through
the use of various other measures, which include, among other things, a
review of its image, market share and business plans.
The acquisition costs related to franchise and operating rights, goodwill,
license fees and acquisition/application fees are capitalized based on
relative fair values and amortized over the related franchise terms.
The costs related to area development and non-compete agreements are
capitalized and amortized over the related agreement term.
The costs related to the issuance of debt are capitalized and amortized
over the lives of the related debt.
Amortization of other assets is being computed using the straight-line
method over the following lives:
Lives
(Years)
-------
Franchise and operating rights 31
Goodwill 15, 20 and 40
License fees 10, 15 and 20
Area development agreement 4.5, 10 and 13
Acquisition/Application fees 20 and 40
Loan acquisition costs 9, 15 and 25
Non-compete agreements 2, 5 and 10
Legal costs 12
During 1999, the Company adopted American Institute of Certified Public
Accountants Statement of Position No. 98-5, Reporting on the Costs of
Start-Up Activities (SOP 98-5) requiring that costs incurred during start-
up activities, including organization costs, be expensed as incurred. The
adoption resulted in the write-off of $19,693 representing the balance of
all pre-opening costs previously recorded as well as the related
accumulated amortization of such costs totaling $3,951. Additionally, the
Company will no longer be able to capitalize organization and pre-opening
costs.
<PAGE>
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Advertising
The Company expenses the cost of advertising as incurred.
Basic and Diluted Loss Per Common Share
The basic loss per common share has been computed based upon the weighted
average of shares of common stock outstanding. Diluted loss per common
share has been computed based upon the weighted average of shares of common
stock outstanding and shares that would have been outstanding assuming the
issuance of common stock for all dilutive potential common stock
outstanding. The Company's outstanding stock options and warrants
represent the only potential dilutive common stock outstanding. The
amounts of loss used in the calculations of diluted and basic loss per
common share were the same for all the years presented. Diluted net loss
per common share is equal to the basic net loss per common share for the
years ended December 31, 1999, 1998, and 1997 as common equivalent shares
from stock options of 423,750 and stock warrants of 130,000 would have an
antidilutive effect.
Stock Options
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123") Accounting for Stock-Based Compensation. As permitted under
this standard, the Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees in
accounting for its stock options and other stock-based employee awards.
Pro forma information regarding net loss and loss per share, as calculated
under the provisions of SFAS 123, are disclosed in note 12.
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
significantly from those estimates.
<PAGE>
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standard No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Reclassifications
Certain accounts included in the 1998 financial statements have been
reclassified to conform to the 1999 presentation. These reclassifications
have no effect on net loss or stockholders' equity as previously reported.
(3) Property and Equipment
Major classifications of property and equipment together with their
estimated useful lives are summarized below:
Lives
1999 1998 (years)
----------- ----------- ------------
Land $4,995,740 3,661,366 N/A
Buildings 13,886,844 11,442,106 31.5 and 39
Point of sale systems and
computer hardware 723,809 542,766 3, 5 and 7
Equipment 11,429,224 7,177,924 5, 7 and 10
Furniture and fixtures 878,878 555,172 7
Signs 1,326,504 771,127 7
Transportation equipment 427,864 408,008 5
Leasehold improvement 5,331,515 3,722,106 31.5, 39, or lease
term
Software 75,300 75,300 3 or lease term
Construction in progress,
including related land 1,436,821 583,763 N/A
---------- ----------
40,512,499 28,939,638
Accumulated depreciation (7,093,274) (5,646,712)
----------- -----------
$33,419,225 23,292,926
=========== ===========
<PAGE>
(4) Income Taxes
The components of income tax expense (benefit) attributable to loss before
income taxes and extraordinary item for the years ended December 31, 1999,
1998 and 1997 consisted of the following:
1999 1998 1997
-------- -------- --------
Current:
Federal $ - - (439,000)
State 40,000 15,983 -
-------- -------- --------
40,000 15,983 (439,000)
-------- -------- --------
Deferred:
Federal 281,000 (305,000) (183,507)
State (193,343) 116,000 81,912
-------- -------- --------
87,657 (189,000) (101,595)
-------- -------- --------
Total $127,657 (173,017) (540,595)
======== ======== ========
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1999 and 1998 are as follows:
1999 1998
---------- ----------
Deferred tax assets:
Reserves $865,000 571,000
Allowance for doubtful receivable 24,000 24,000
State net economic loss carryforwards 785,000 475,000
Federal net operating loss carryforward 3,359,000 1,712,000
Tax credit carryforward 56,000 56,000
---------- ----------
Total gross deferred tax assets 5,089,000 2,838,000
Less valuation allowance (1,656,000) (971,000)
---------- ----------
Net deferred tax assets 3,433,000 1,867,000
---------- ----------
Deferred tax liabilities:
Depreciation (3,583,000) (1,867,000)
---------- ----------
Total gross deferred tax
liabilities (3,583,000) (1,867,000)
---------- ----------
Net deferred tax liability $(150,000) -
========== ==========
<PAGE>
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of $9,880,000 which begin to expire in 2012.
The Company also has net operating loss carryforwards for state tax
purposes of $12,882,000 which begin to expire in 2005. The Company has
established a valuation allowance against a portion of its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
The valuation allowance for deferred tax assets as of January 1, 1999 was
$971,000. The net change in total valuation allowance for the year ended
December 31, 1999 was an increase of $685,000. In addition, the Company
has alternative minimum tax credit carryforwards of $56,000 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.
The reasons for the difference between actual income tax expense (benefit)
attributable to loss before extraordinary item for the years ended December
31, 1999, 1998 and 1997 and the amount computed by applying the statutory
federal income tax rate to loss before income taxes are as follows:
1999 1998 1997
------------------ ------------------ --------------------
% of % of % of
pretax pretax pretax
Amount loss Amount loss Amount loss
--------- ------- --------- ------- --------- -------
Income tax
benefit at
statutory rate $(627,290) (34.0%) $(777,749) (34.0%) $(721,493) (34.0%)
State income
taxes, net of
federal income
tax benefit (101,207) (5.5%) 87,109 3.8% 54,062 2.5%
Increase in
valuation
allowance 858,499 46.5% 500,000 21.9% - -
Nondeductible
management fee - - - - 114,920 5.4%
Other, net (2,345) (0.1%) 17,623 0.8% 11,916 0.6%
--------- ------- --------- ------- --------- -------
Income tax
expense
(benefit) $127,657 6.9% $(173,017) (7.5%) $(540,595) (25.5%)
========= ======= ========= ======= ========= =======
(5) Related Party Transactions
Prior to 1998, the Company, through its subsidiaries, entered into
management agreements with CFA Management, Inc. ("CFA") which was owned by
certain stockholders of the Company, to operate, manage and maintain the
subsidiaries' service centers. On December 1, 1997, CFA assigned its
management agreement with the Company to Navigator Management, Inc, which
is owned by certain stockholders of the Company. These management
agreements expire on various dates through 2002 but may be extended. For
its services, Navigator 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 to related parties in 1999, 1998 and 1997 were
$1,869,479, $1,402,919 and $1,231,377, respectively.
During 1997, CFA agreed to reduce its management fees by $338,000. The
Company accounted for the reduction of management fees as capital
contributions. There was no such reduction during 1999 or 1998.
Included in accrued expenses payable at December 31, 1999 and 1998 were
amounts due to Navigator Management, Inc. of $779,180 and $444,450,
respectively.
In 1997, the Company began purchasing gasoline and engine additive
products, wiper blades, windshield glass treatment and other automotive
products from O.H. Distributors, Inc., which is owned by stockholders of
the Company. Purchases of these products amounted to $3,282,944,
$1,624,381 and $1,243,792 in 1999, 1998 and 1997, respectively. Included
in accounts payable at December 31, 1999 and 1998 were amounts due to O.H.
Distributors, Inc. of $64,030 and $81,719, respectively.
The Company purchased oil, oil filters and other inventory items from
Pennzoil-Quaker State Company ("PQSC") (previously Pennzoil Products
Company) in the amount of $8,651,241, $5,883,516 and $5,850,747 during the
years ended December 31, 1999, 1998 and 1997, respectively. In addition to
these purchases, the Company paid rent in the amount of $200,739, $196,116
and $146,902, and dividends on preferred stock of $140,000, $140,000 and
$140,000 to PQSC during the years ended December 31, 1999, 1998 and 1997,
respectively. Included in accounts payable at December 31, 1999 and 1998
were amounts due to PQSC of $1,473,226 and $937,631, respectively. Also
included in accrued expenses at both December 31, 1999 and 1998 was $35,000
for preferred dividends due to PQSC.
The Company enters into transactions with Jiffy Lube International ("JLI"),
a subsidiary of PQSC. These transactions include payments for royalties,
operating expenses, and license fees. In addition, JLI enters into
transactions to credit the Company for national fleet accounts, rebates for
grand openings, and charges for Sears credit cards. The net amount of
these transactions were payments to JLI of $1,260,024 in 1999, receipts of
$212,753 from JLI in 1998, and payments of $165,476 to JLI in 1997. In
addition to these transactions, the Company paid rent in the amount of
$2,731,730, $1,835,540 and $1,660,954 to JLI during the years ended
December 31, 1999, 1998 and 1997, respectively. At December 31, 1999 and
1998, amounts receivable from JLI included $408,318 and $384,328,
respectively. Included in accrued expenses at December 31, 1999 and 1998
were amounts due to JLI for royalties of $307,225 and $185,002,
respectively.
The Company sold three service centers in 1999 to Navigator Real Estate,
LLC which is owned by certain stockholders of the Company, and leased each
of them back for a period of twenty years. The resulting leases are being
accounted for as operating leases, and one resulted in a deferred gain of
$38,388 which is being amortized over the life of the lease.
<PAGE>
(6) Long-Term Debt
Long-term debt consists of:
December 31,
-------------------------------------
1999 1998
---------------- ----------------
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $107,740, including
interest at 8.54%, to maturity
date of April 2013, secured by real
property of the Company (a) $10,271,330 10,668,428
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $161,066,including
interest at 8.76%, to maturity date
of January 2013 and 2023, secured
by real property of the Company (b) 17,304,691 17,702,465
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $17,923, including
interest at 8.67%, to maturity date
of January 2013, secured by real
property of the Company (c) 1,696,685 1,761,574
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $17,796, including
interest at 8.54%, to maturity date
of February 2013, secured by real
property of the Company (d) 1,684,249 1,750,745
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $5,690,including
interest at 8.67%, to maturity date
of April 2013, secured by real
property of the Company (e) 538,616 559,223
Notes payable, Jay C. Howell, due on
demand, with monthly installments of
interest at 12% beginning March 1, 1997,
secured by a Leasehold Mortgage and
Security Agreement and the Continuing
and Unconditional Guarantee executed by
the Company 400,000 400,000
Notes payable, Centura Bank, in 59
monthly installments of principal of
$4,823, plus interest of prime
plus .5% beginning July 10, 1998
(9.00%) at December 31, 1999), plus
a balloon payment at maturity date of
March 2004, secured by real property
of the Company (f) 811,942 373,855
Notes payable, Centura Bank, in monthly
installments of principal of $4,824,
plus interest of prime plus .5%, to
maturity date of March 2004, secured
by real property of the Company.
Paid in full in 1999 - 321,854
Notes payable, Pennzoil-Quaker State
Company in one balloon payment at
maturity date of July 1999,with
monthly installments of interest at
10%. Paid in full in 1999 - 250,000
Notes payable, Franchise Finance
Corporation of America, in monthly
installments of $7,863, including
interest at 9.5%, to maturity date
of April 2024 secured by real
property of the Company (g) 893,928 -
Notes payable, Franchise Finance
Corporation of America, in monthly
installments of $3,495, including
interest at 9.5%, to maturity date
of April 2024 secured by real
property of the Company (h) 397,301 -
Notes payable, Franchise Finance
Corporation of America, in monthly
installments of $4,106, including
interest at 9.5%, to maturity date
of April 2024 secured by real
property of the Company (i) 466,829 -
Notes payable, Franchise Finance
Corporation of America, in monthly
installments of $7,252, including
interest at 9.5%, to maturity date
of May 2024 secured by real
property of the Company (j) 825,119 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $8,884, including
interest at 9.7%, to maturity date
of January 2015, secured by real
property of the Company (k) 841,000 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $8,876, including
interest at 9.7%, to maturity date
of January 2020, secured by real
property of the Company (l) 939,000 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $27,407, including
interest at 9.25%, to maturity date
of July 2014, secured by real
property of the Company (m) 2,628,065 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $65,940, including
interest at 9.25%, to maturity date
of July 2014, secured by real
property of the Company (n) 6,322,952 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $5,409, including
interest at 9.5%, to maturity date
of October 2014, secured by real
property of the Company (o) 514,044 -
Notes payable, Jiffy Lube International,
in one balloon payment of $700,000,
at a maturity date of April 1, 2000 (p) 700,000 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $157,475, including
interest at 9.79%, to maturity date
of January 2015, secured by real
property of the Company (q) 14,831,000 -
Notes payable, Enterprise Mortgage
Acceptance Corporation, in monthly
installments of $17,429, including
interest at 9.79%, to maturity date
of January 2009, secured by real
property of the Company (r) 1,248,000 -
------------ ------------
63,314,751 33,788,144
Less current portion (3,136,090) (1,675,548)
------------ ------------
$60,178,661 32,112,596
============ ============
<PAGE>
The following are the maturities at December 31, 1999 of long-term debt for
each of the next five years and in the aggregate.
2000 $ 3,136,090
2001 2,219,029
2002 2,424,126
2003 2,648,755
2004 3,417,313
Thereafter 49,469,438
-------------
$ 63,314,751
=============
During 1997, the Company repaid two notes payable to Citicorp Leasing, Inc.
with original maturity dates in 2004 and 2008. Consequently, the Company
recognized an extraordinary loss of $258,625, net of related income tax
benefit of $133,000, which represented the unamortized debt issuance costs.
In December 1998, the Company obtained a financing commitment from a
lending institution. The commitment provided financing for up to twelve
service centers and expired on December 31, 1999. The Company paid $36,000
for this commitment.
(a) During 1998, the Company entered into 10 Loan and Security Agreements
with Enterprise Mortgage Acceptance Corporation.
The principal amount of $10,915,000 related to these loans is to be
repaid in 180 consecutive installments commencing on April 1, 1998.
These loans contain restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants became effective April 1,
1999. The Company was in compliance with these covenants at December
31, 1999.
(b) During 1997, the Company entered into 14 Loan and Security Agreements
with Enterprise Mortgage Acceptance Corporation.
The principal amount of $7,078,000 related to 9 of these loans is to be
repaid in 177 consecutive installments commencing on April 1, 1998.
Interest only payments of $51,669 were made for three months,
commencing January 1, 1998.
The principal amount of $10,871,000 related to 5 of these loans is to
be repaid in 297 consecutive installments commencing on April 1, 1998.
Interest only payments of $79,358 were made for three months,
commencing January 1, 1998.
These loans contain restrictive covenants pertaining to fixed charge
coverage ratios. The Company was in compliance with these covenants at
December 31, 1999.
(c) During 1998, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Corporation.
The principal amount of $1,787,000 related to this loan is to be repaid
in 177 consecutive installments commencing on July 1, 1998. Interest
only payments of $12,911 were made for three months, commencing April
1, 1998.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants became effective April 1,
1999. The Company was in compliance with these covenants at December
31, 1999.
(d) During 1998, the Company entered into 2 Loan and Security Agreements
with Enterprise Mortgage Acceptance Corporation.
The principal amount of $1,787,000 related to these loans is to be
repaid in 177 consecutive installments commencing on June 1, 1998.
Interest only payments of $12,717 were made for three months,
commencing February 3, 1998.
These loans contain restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants became effective February
3, 1999. The Company was in compliance with these covenants at December
31, 1999.
(e) During 1998, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Corporation.
The principal amount of $572,000 related to this loan is to be repaid
in 180 consecutive installments commencing on April 1, 1998,
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants became effective April 1,
1999. The Company was in compliance with these covenants at December
31, 1999.
(f) In February 1999, the Company modified its note payable, entered into
in June 1998, to Centura Bank. The note was increased to $868,223,
payable in 59 monthly installments of principal of $4,823 plus interest
of prime plus .5% beginning April 10, 1999. A balloon payment is due
at maturity date of March 2004. The Company used the funds to retire
its 1995 corporate office building loan and finance the expansion of
its corporate office.
(g) During 1999, the Company entered into a Loan and Security Agreement
with Franchise Finance Corporation of America.
The principal amount of $900,000 related to this loan is to be repaid
in 300 consecutive installments commencing on May 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective May 1,
2000.
(h) During 1999, the Company entered into a Loan and Security Agreement
with Franchise Finance Corporation of America.
The principal amount of $400,000 related to this loan is to be repaid
in 300 consecutive installments commencing on May 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective May 1,
2000.
(i) During 1999, the Company entered into a Loan and Security Agreement
with Franchise Finance Corporation of America.
The principal amount of $470,000 related to this loan is to be repaid
in 300 consecutive installments commencing on May 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective May 1,
2000.
(j) During 1999, the Company entered into a Loan and Security Agreement
with Franchise Finance Corporation of America.
The principal amount of $830,000 related to this loan is to be repaid
in 300 consecutive installments commencing on June 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective June 1,
2000.
(k) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company
<PAGE>
The principal amount of $841,000 related to this loan is to be repaid
in 180 consecutive installments commencing on January 1, 2000.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective January
1, 2001.
(l) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company.
The principal amount of $939,000 related to this loan is to be repaid
in 240 consecutive installments commencing on January 1, 2000.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective January
1, 2001.
(m) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company.
The principal amount of $2,663,000 related to this loan is to be repaid
in 180 consecutive installments commencing on July 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective July 1,
2001.
(n) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company.
The principal amount of $6,407,000 related to this loan is to be repaid
in 180 consecutive installments commencing on July 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective July 1,
2001.
(o) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company.
The principal amount of $518,000 related to this loan is to be repaid
in 180 consecutive installments commencing on October 1, 1999.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective October
1, 2001.
(p) During 1999, the Company entered into a Loan and Security Agreement
with Jiffy Lube International.
The principal amount of $700,000 related to this loan is to be repaid
in one balloon payment in April 2000.
(q) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company.
The principal amount of $14,831,000 related to this loan is to be
repaid in 180 consecutive installments commencing on January 1, 2000.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective January
1, 2001.
<PAGE>
(r) During 1999, the Company entered into a Loan and Security Agreement
with Enterprise Mortgage Acceptance Company.
The principal amount of $1,248,000 related to this loan is to be repaid
in 108 consecutive installments commencing on January 1, 2000.
This loan contains restrictive covenants pertaining to fixed charge
coverage ratios. These restrictive covenants become effective January
1, 2001.
(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.
On December 16, 1999 the Company purchased all of the outstanding stock of
Quick 10 Corporation ("Quick 10"), which included twenty seven service
centers in North Carolina.
<PAGE>
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.
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 agreement also covers twenty-three Q Lube
service centers purchased from JLI during 1999. 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.
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 1999, the
initial franchise fee ranges from $5,500 to $35,000.
<PAGE>
Atlanta
On April 30, 1999, pursuant to Purchase Agreements between the Company and
Q Lube, Inc. and Jiffy Lube International, Inc., the Company acquired 20 Q
Lube service centers and 53 Jiffy Lube service centers (73 service center
acquisition).
Fifty Q Lube and Jiffy Lube service centers are located in the Atlanta,
Georgia area and twenty-three are located in the Cincinnati market area.
The Company has not entered into an Area Development agreement regarding
Atlanta. The Company does, however, have the right to develop service
centers in specified counties within the Atlanta, GA area for three years.
The Company has the right of first refusal for the sale of service centers
or to develop service centers until April 30, 2009.
Richmond and Tidewater
On April 1, 1998, the Company purchased substantially all of the assets of
Tidewater Lube Ventures, Inc. and Lube Venture East, Inc., which included
twenty one Jiffy Lube service centers in the Richmond and Tidewater,
Virginia areas, and two Jiffy Lube service centers in Eastern North
Carolina. The Company was also assigned an area development agreement as
part of the purchase which requires the Company to develop one service
center in each of the next two years. The Company has a first right of
refusal to develop service centers until December 31, 2008.
The acquisition of Tidewater Lube Ventures, Inc. and Lube Ventures East,
Inc. (Tidewater acquisition) were accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying
consolidated statements of loss do not include any revenues or expenses
related to these acquisitions prior to the closing date.
(8) Commitments and Contingencies
During 1996, the Company leased software costing $75,300 under a capital
lease agreement which expired in 1999.
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>
Future minimum lease payments under noncancellable operating leases at
December 31, 1999 are:
Operating Operating
leases with leases
non-related with related
parties parties
--------------- ---------------
2000 $ 5,989,879 4,240,485
2001 6,003,056 3,928,304
2002 6,016,365 3,743,413
2003 5,704,218 3,655,936
2004 5,417,404 3,453,900
Thereafter 40,486,159 19,684,975
--------------- ---------------
Total minimum lease
payments $ 69,617,081 38,707,013
=============== ===============
The Company sold a service center in 1998 for $637,640, and leased it back
from the purchaser for a period of twenty years. The resulting lease is
being accounted for as an operating lease, and the resulting deferred gain
of $54,936 is being amortized over the life of the lease. The lease
requires the Company to observe certain operating restrictions and
covenants and contains four five-year lease renewal options by the Company.
The Company sold a service center in 1999 for $775,347, and leased it back
from the purchaser for a period of twenty years. The resulting lease is
being accounted for as an operating lease, and the resulting deferred gain
of $38,388 is being amortized over the life of the lease.
Rent expense, including contingent rentals, for the years ended December
31, 1999, 1998 and 1997 was $8,462,269, $5,913,642 and $4,452,896,
respectively.
As of December 31, 1999 and 1998, the Company had capital expenditure
purchase commitments outstanding of approximately $185,800 and $97,500,
respectively.
On May 15, 1998, the Company entered into a consulting agreement for a
period of one year. As of December 31, 1998, the Company had compensation
payment commitments outstanding of approximately $18,180 related to this
agreement.
<PAGE>
(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 Navigator 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.
On February 2, 1997, the Company sold 45,000 shares of Class A common stock
to the directors of the Company at the fair market value of $5.75 per
share.
In April 1998, an officer of the Company exchanged 200,000 shares of Class
B common stock for 200,000 shares of Class A common stock.
On May 1, 1998, the Company repurchased 39,000 shares of Class A common
stock from Quick Lube, Inc. at a contractual value of $7.05. The shares
were subsequently retired.
On June 15, 1998, the Company granted warrants for the purchase of 100,000
shares of unregistered Class A common stock to a third party. The warrants
are exercisable for five years, in installments of 20% of the shares each
year, at an exercise price of $5 per share, beginning on June 15, 1998. No
warrants have been exercised as of December 31, 1999.
<PAGE>
(10) Series A Redeemable Preferred Stock
During 1995 the Company entered into a stock purchase agreement with PQSC,
whereby the Company established 20,000 shares of Series A Redeemable
Preferred Stock which were issued to PQSC 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. No warrants have been exercised as of December 31, 1999.
The Company had 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.
Prior to 1999, PQSC had the right to cause the Company to redeem all, but
not part of the Series A Redeemable Preferred Stock by paying the
Redemption Price at any time from and after the seventh anniversary of the
date of isuance of the Series redeemable Preferred Stock. During 1999, the
Company negotiated a waiver of the PQSC redemption rights, which had the
affect of reclassifying the Preferred Stock into stockholders' equity.
Under the agreement, the Company agreed to increase the dividend from its
current $7 per share to $15 per share beginning on the seventh anniversary
of the issuance of the preferred stock.
The holders of Series A Preferred Stock shall be entitled to receive
cumulative dividends accruing from the date of issuance, 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 date
all accrued dividends are paid in full. The Company paid dividends of
$140,000 during the years ended December 31, 1999, 1998, and 1997.
The holders of the Series A 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 preferred stock are entitled to an
amount per share equal to the original price of the Series A 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 preferred stock, including the common
stock.
(11) Preferred Stock
The Company also has preferred stock with a par value of $0.02. As of
December 31, 1999 and 1998, 5,000,000 shares were authorized, but no shares
had been issued or were outstanding.
<PAGE>
(12) Stock Plans
1991 Nonqualified Stock Plan
The Company has adopted a non-qualified stock plan (as amended) 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. All shares granted are subject to significant
restrictions as to disposition by the optionee. At December 31, 1999, and
1998, 40,940 shares were authorized and zero shares were granted.
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, typically ten years, 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 vesting periods, 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 options price
-------------- --------------
Balance at December 31, 1996 150,000 $ 6.85
Granted 326,500 5.92
Cancelled (33,750) 7.21
-------------- --------------
Balance at December 31, 1997 442,750 6.14
Cancelled (19,000) 7.02
-------------- --------------
Balance at December 31, 1998 423,750 6.10
Granted 70,000 3.75
Cancelled (6,500) 6.88
-------------- --------------
Balance at December 31, 1999 487,250 $ 5.75
============== ==============
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $3.75-$8.00 and 5.3
years, respectively.
The Company granted stock awards of 15,500 shares at a price of $4.50 per
share during the year ended December 31, 1999. The Company granted awards
of 8,400 shares to employees during the year ended December 31, 1998.
6,000 of the shares were granted at a price of $5.00 per share, and 2,400
of the shares were granted at a price of $6.00 per share. No stock awards
were granted under this plan in 1997.
At December 31, 1999, 1998 and 1997, there were 600,000 shares authorized,
and 88,850, 167,850, and 157,250 shares, respectively, available under the
Omnibus Stock Plan. Of the outstanding options, 211,900, 117,250, and
38,500 were exercisable at December 31, 1999, 1998 and 1997, and the
weighted average exercise price was $6.00, $6.22, and $6.61, respectively.
<PAGE>
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. No shares were granted under this plan during 1999. The
Company granted awards of 1,000 shares during each of the years ended
December 31, 1998 and 1997 respectively. The shares were granted at a
price of $5.625 per share in 1998 and $2.75 per share in 1997.
At December 31, 1999, 1998 and 1997, 4,120, 4,120, and 3,120 shares were
outstanding, respectively, and 10,880, 10,880, and 11,880 available,
respectively, under the Directors' Plan.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the
Corporation's stock option plans been determined based on the fair value at
the grant date for awards in 1999, 1998 and 1997 and consistent with the
provisions of SFAS No. 123, the Corporation's net loss and loss per share
would have been increased the pro forma amounts indicated below:
<TABLE>
As Reported Pro Forma
-------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
Loss before
extraordinary
item available
to common
shareholders $ (2,112,626) (2,254,481) (1,721,443) (2,212,967) (2,334,007) (1,790,685)
Extraordinary
item, net of
income tax
benefit - - (258,625) - - (258,625)
------------- ------------- ------------- ------------- ------------- -------------
Net loss
available to
common
shareholders $ (2,112,626) (2,254,481) (1,980,068) (2,212,967) (2,334,007) (2,049,310)
</TABLE>
<TABLE>
As Reported Pro Forma
------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
Basic and
diluted loss
per common
share:
Loss before
extraordinary
item available
to common
shareholders $ (.75) (.80) (.61) (.78) (.83) (.63)
Extraordinary
item - - (.09) - - (.09)
------------- ------------- ------------- ------------- ------------- -------------
Net loss per
common share
available to
common
shareholders $ (.75) (.80) (.70) (.78) (.83) (.72)
============= ============= ============= ============= ============= =============
</TABLE>
The pro forma effect on net loss for 1999, 1998 and 1997 is not
representative of the pro forma effect on net loss in future years because
it does not take into consideration pro forma compensation expense related
to grants made prior to 1995.
<PAGE>
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:
1999 1997
---------- ----------
Expected dividend yield 0% 0%
Expected stock price
volatility 64.1% 39.0%
Risk-free interest rate 6.35% 5.69%
Expected life of options 5 years 5 years
The weighted average fair value of options granted during 1999 and 1997 is
$.90 and $.53 per share, respectively. No options were granted during
1998.
(13) Impairment Loss
As of December 31, 1999, the Company was operating nine service centers for
which, as a result of continued disappointing revenue and profits generated
by the service centers, the Company performed an impairment review of its
long-lived assets, in accordance with Statement of Financial Accounting
Standard No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of ("SFAS No. 121"). During the
fourth quarter of 1999, the Company determined that estimated future
undiscounted cash flows of the operations were below the carrying value of
the long-lived assets. Accordingly, during the fourth quarter of 1999, the
Company adjusted the carrying value of the long-lived assets, primarily
equipment, point of sale systems, furniture and fixtures, leasehold
improvements and franchise fees, to their estimated fair value, resulting
in a noncash impairment loss of $276,007 ($0.10 per share). The estimated
fair value was based on anticipated future cash flows discounted at a rate
commensurate with the risk involved.
As of December 31, 1998, the Company was operating sixteen Jiffy Lube
Service Centers within Sears Auto Centers. As a result of continued
disappointing revenue and profits generated by the service centers located
in Sears, the Company performed an impairment review of its long-lived
assets, in accordance with SFAS No. 121. During the fourth quarter of
1998, the Company determined that estimated future undiscounted cash flows
of the Sears operations were below the carrying value of the Sears long-
lived assets. Accordingly, during the fourth quarter of 1998, the Company
adjusted the carrying value of the Sears long-lived assets, primarily
equipment, point of sale systems, furniture and fixtures, leasehold
improvements and franchise fees, to their estimated fair value, resulting
in a noncash impairment loss of $1,383,475 ($0.50 per share). The
estimated fair value was based on anticipated future cash flows discounted
at a rate commensurate with the risk involved.
<PAGE>
(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, 1999, cash balances in excess of the insurance
limits totaled $2,600,721. In addition, the Company had a cash balance of
$3,471,684 in a money market fund at December 31, 1999 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, 1999,
1998 and 1997, the Company contributed $71,383, $64,492, and $49,348,
respectively, to the plan.
(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 fair
value of notes payable and long-term debt are estimated by discounting cash
flows through the maturity dates. The carrying values of these on-balance
sheet financial instruments approximate fair value.
(17) Deferred Revenue and Other Long Term Liabilities
During 1999, the Company acquired, through the purchase of Quick 10, a
long-term purchase agreement for oil and filters entered into by Quick 10
in 1997. The supplier provided the Company with $1,250,000 of business
development funds which are reflected in other long-term liabilities. The
business development funds are amortized based on the Company's purchases
of oil and filters. The Company can terminate the agreement by paying the
supplier the unamortized portion of the business development funds. During
1999 and 1998, Quick 10 received $250,000 and $200,000, respectively of
additional business development funds under the same purchase agreement,
increasing the remaining purchase obligation by equal amounts. As of
December 31, 1999 the Company's remaining purchase obligation totaled
approximately $1,268,000. The agreement requires that an annual minimum
purchase requirement be met, with such requirement ending in 2008. The
Company met its minimum purchase requirements in 1999.
During the fourth quarter of 1999, the Company received $1,000,000 from
Jiffy Lube International for a five year non-compete agreement. The
deferred revenue will be recognized over the term of the agreement,
beginning in January, 2000, resulting in a $200,000 current portion of
deferred revenue at December 31, 1999.
<PAGE>
(18) Unaudited Pro Forma Results of Acquisitions
The Tidewater acquisition, Quick 10 acquisition and the 73 service center
acquisition were accounted for by the purchase method of accounting for
business combinations. Accordingly, the accompanying consolidated
statements of loss do not include any revenues or expenses related to these
acquisitions prior to the closing dates. Following are the Company's
unaudited pro forma results for 1999, 1998 and 1997 assuming the
acquisitions occurred at the beginning of each period presented:
1999
---------------------------------------------------------
73 Service
Lucor Centers Quick 10 Total
------------ ----------- ------------ -------------
Net sales $ 63,047,033 27,778,671 14,496,492 105,322,196
Net income (loss) (690,958) (1,737,531) 1,289,846 (1,138,643)
Income (loss)
available to
common
shareholders (830,958) (1,737,531) 1,289,846 (1,278,643)
Basic and diluted
income (loss)
per common share:
Net income (loss)
per common share
available to common
shareholders $ (0.45)
=============
<TABLE>
1998
------------------------------------------------------------------------
73 Service
Lucor Tidewater Centers Quick 10 Total
<S> <C> <C> <C> <C> <C>
Net sales $ 44,945,272 10,361,934 24,366,578 12,221,493 91,895,277
Net income (loss) (2,428,860) 314,379 1,843,881 1,169,244 898,644
Income (loss)
available to
common
shareholders (2,568,860) 314,379 1,843,881 1,169,244 (758,644)
Basic and diluted
income per common
share:
Net income per
common share
available to
common
shareholders $ 0.27
=============
</TABLE>
1997
--------------------------------------------
Lucor Tidewater Total
------------ ------------- ------------
Net sales
$42,678,313 13,428,213 56,106,526
Net loss before
extraordinary item (1,581,443) (7,119) (1,588,562)
Loss before
extraordinary
item available
to common
shareholders (1,721,443) (7,119) (1,728,562)
Basic and diluted
loss per common
share:
Loss before
extraordinary
item available to
common
shareholders (0.61)
Extraordinary item (0.09)
-------------
Net loss per common
share available to
common shareholders $ (0.70)
=============
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(18) Unaudited Quarterly Results
<TABLE>
Unaudited quarterly financial information for 1999 and 1998 is set forth in the table below:
March June September December
------------------ ------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 14,795 10,728 21,585 14,966 23,563 14,650 24,075 14,963
Gross profit 11,532 8,207 16,845 11,582 18,108 11,280 18,849 11,522
Preferred dividend (35) (35) (35) (35) (35) (35) (35) (35)
Income (loss) before
extraordinary item
available to common
shareholder (243) (574) 444 189 (991) (250) (1,323) (1,619)
Basic and diluted loss
per common share (0.09) (0.20) 0.16 0.07 (0.35) (0.09) (0.47) (0.57)
</TABLE>
<PAGE>
Item 9 - Changes in and Disagreements with Accountants or Accounting and
Financial Disclosure
None
<PAGE>
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.
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.
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>
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)(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 under the same exhibit reference number, and are
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, Inc.
10.2 Right of First Refusal - Carolina Lubes, Inc.
10.3 (1) Area Development Agreement and Amendment - Cincinnati Lubes,
Inc.
10.4 Omitted. This agreement is disclosed in exhibits 10.5 and 10.6
10.5 Standard License Agreement
10.6 Amendment to Standard License Agreement
10.7 (2) Amended and Restated Management Agreement of August 1988, with
Amendments of September 1993 with Carolina Lubes, Inc.,
Cincinnati Lubes, Inc. and CFA Management, Inc.
10.8 (3) Deed, Note & Loan Agreement, Millbrook - Carolina Lubes, Inc.
10.12 (4) Area Development Agreement, Jiffy Lube - Pittsburgh Lubes
10.13 (5) Management Agreement between Pittsburgh Lubes, Inc. and CFA
Management, Inc.
10.14 (6) Lucor, Inc. Omnibus Stock Plan
10.15 (7) Carolina Lubes First Right of Refusal Agreement with Jiffy
Lube International, Inc. dated December 12, 1994
10.16 (8) Commercial Note - Centura Bank, Pershing Road
10.17 (9) Assignment and Assumption Agreement - P.B. Lubes and Carolina Lubes
10.18 (10) Lucor, Inc. Amended and Restated 1991 Non-Qualified Stock Plan
10.20 Standard Lease of Inspection Equipment - Carolina Lubes
10.21 (11) Citicorp Leasing Credit Facility form of preferred stock with
designation of rights, and form of Sales Agreement
10.23 Franchise Agreement, Jiffy Lube - Pittsburgh Lubes Inc. and CFA
Management, Inc. dated July 1, 1994
10.24 (12) Form of Loan Agreements with Enterprise Mortgage Acceptance
Company, LLC
10.25 (12) Amendment to the Management Agreement between Carolina Lubes,
Inc. and CFA Management, Inc.
10.26 (12) Amendment to the Management Agreement between Cincinnati Lubes,
Inc. and CFA Management, Inc.
10.27 (12) Amendment to the Management Agreement between Pittsburgh Lubes,
Inc. and CFA Management, Inc.
10.28 Management Agreement between Commonwealth Lubes, Inc. and
Navigator Management Inc.
21 * Subsidiaries of the Company
27 * Financial Data Schedule
*Filed herewith.
(1) Originally filed as Exhibits 10.3 and 10.4 on Registrant's Registration
Statement on Form S-1, File No. 33-71630.
(2) Originally filed as Exhibit 10.8 on Registrant's Registration Statement on
Form S-1, File No. 33-71630.
(3) Originally filed as Exhibit 10.14 on Registrant's Registration Statement on
Form S-1, File No. 33-71630.
(4) Originally filed as Exhibit 10.24 on Registrant's Registration Statement on
Form S-1, File No. 33-71630.
(5) Originally filed as Exhibit 10.25 on Registrant's Registration Statement on
Form S-1, File No. 33-71630.
(6) Originally filed as Exhibit 10.26 on Registrant's Form 10-K filed for the
year ended December 31, 1994.
(7) Originally filed as Exhibit 10.27 on Registrant's Form 10-K filed for the
year ended December 31, 1994.
(8) Originally filed as Exhibit 10.16 on Registrant's Form 10-K filed for the
year ended December 31, 1995.
(9) Originally filed as Exhibit 10.17 on Registrant's Form 10-K filed for the
year ended December 31, 1995.
(10) Originally filed as Exhibit 10.18 on Registrant's Form 10-K filed for the
year ended December 31, 1994.
(11) Originally filed as Exhibit 10.6 on Registrant's Form 10-K filed for the
year ended December 31, 1995.
(12) Filed with original filing of the Registrant's Form 10-K for the year ended
December 31, 1997.
<PAGE>
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 /s/ Stephen P. Conway
--------------------------------------
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 30th day of March, 2000.
/s/ Stephen P. Conway Chairman, Chief Executive Officer and Director
- --------------------------(Principal Executive Officer)
Stephen P. Conway
/s/ Jerry B. Conway President, Chief Operating Officer and Director
- --------------------------
Jerry B. Conway
/s/ Kendall A. Carr Vice President - Finance
- --------------------------(Principal Financial Officer and Principal
Kendall A. Carr Accounting Officer)
Director
- --------------------------
D. Fredrico Fazio
/s/ Anthony J. Beisler Director
- --------------------------
Anthony J. Beisler, III
/s/ Richard L. Rubin Director
- --------------------------
Richard L. Rubin
R. Lewis Stanford Director
- --------------------------
R. Lewis Stanford
<PAGE>
EXHIBIT 21
Lucor, Inc
Subsidiaries of the Company
Carolina Lubes, Inc.
Cincinnati Lubes, Inc.
Commonwealth Lubes, Inc.
Pittsburgh Lubes, Inc.
PB Lubes, Inc.
Ohio Lubes, Inc.
Tennessee Lubes, Inc.
Tennessee Lubes One, LLC
Tennessee Lubes Two, LLC
Atlanta Lubes One, LLC
Atlanta Lubes Two, LLC
Vircal Lubes, Inc
Quick 10 Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,097,115
<SECURITIES> 0
<RECEIVABLES> 1,527,934
<ALLOWANCES> 59,265
<INVENTORY> 4,885,220
<CURRENT-ASSETS> 14,134,681
<PP&E> 40,512,499
<DEPRECIATION> 7,093,274
<TOTAL-ASSETS> 82,342,028
<CURRENT-LIABILITIES> 14,770,039
<BONDS> 0
0
2,000,000
<COMMON> 56,675
<OTHER-SE> 5,085,078
<TOTAL-LIABILITY-AND-EQUITY> 82,342,028
<SALES> 84,018,095
<TOTAL-REVENUES> 84,018,095
<CGS> 18,683,931
<TOTAL-COSTS> 65,334,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,764,526
<INCOME-PRETAX> (1,844,969)
<INCOME-TAX> 127,657
<INCOME-CONTINUING> (1,972,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,972,626)
<EPS-BASIC> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
