UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Under Section 13 or 15 (d) of the Securities and Exchange
Act of 1934
For the quarterly period ended September 30, 2000
Commission File Number: 0-25164
LUCOR, INC.
Florida 65-0195259
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
790 Pershing Road, Raleigh, NC 27608
(Address of principal executive offices) (Zip Code)
(919) 828-9511
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
reported)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date: October 30, 2000 Class A Common Stock, par value $.02 per share
Shares Outstanding: 2,333,133
Class B Common Stock, par value $.02 per share
Shares Outstanding: 502,155
<PAGE>
LUCOR, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 (unaudited) and
December 31, 1999 1
Consolidated Statements of Loss
Three Months Ended September 30, 2000 (unaudited)
and September 30, 1999 (unaudited) and Nine Months
Ended September 30, 2000 (unaudited) and
September 30, 1999 (unaudited) 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 (unaudited)
and September 30, 1999 (unaudited) 4
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
PART II - Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
ASSETS 30-September-2000 31-December-1999
----------------- ----------------
Current assets:
Cash $ 3,085,031 $ 7,097,115
Accounts receivable 1,311,562 1,468,669
Inventory 4,795,488 4,885,220
Prepaid charges 481,905 683,677
Income tax receivable 44,944 --
----------- -----------
Total current assets 9,718,930 14,134,681
----------- -----------
Property and equipment, net
of accumulated depreciation 41,722,653 33,419,225
----------- -----------
Other assets:
Goodwill, net of accumulated
amortization 20,548,162 21,956,315
Franchise and operating rights,
net of accumulated amortization 8,168,974 8,385,966
Leasehold license, application, area
development, loan acquisition, and
non-compete agreements, net
of accumulated amortization 4,194,904 4,285,748
Other assets 109,010 160,093
----------- -----------
Total other assets 33,021,050 34,788,122
----------- -----------
Total assets $84,462,633 $82,342,028
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,681,388 $ 3,136,090
Current portion of deferred
revenue 200,000 200,000
Accounts payable 4,792,523 5,428,011
Income tax payable 5,201 43,002
Accrued expenses 6,172,122 5,927,936
Preferred dividend payable -- 35,000
----------- -----------
Total current liabilities 13,851,234 14,770,039
----------- -----------
Long-term debt, net of
current portion 64,011,012 60,178,661
Deferred gain 108,904 90,348
Deferred revenue and other long-
term liabilities 1,819,964 2,067,902
Deferred taxes 150,000 150,000
----------- -----------
Total long-term liabilities 66,089,880 62,486,911
----------- -----------
Stockholders' equity 4,521,519 5,085,078
----------- ----------
Total liabilities, equity $84,462,633 $82,342,028
=========== ===========
(1)
<PAGE>
LUCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
THREE MOS THREE MOS NINE MOS NINE MOS
ENDED ENDED ENDED ENDED
30-SEP-00 30-SEP-99 30-SEP-00 30-SEP-99
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $27,360,563 $23,562,506 $80,401,216 $59,942,632
Cost of sales 6,051,138 5,454,625 17,993,405 13,457,200
__________ __________ ___________ ___________
Gross profit 21,309,425 18,107,881 62,407,811 46,485,432
__________ __________ ___________ ___________
Costs and expenses:
Direct 11,107,912 9,718,276 30,873,302 23,272,281
Operating 5,192,392 4,406,981 15,208,268 11,494,460
Depreciation and
amortization 880,299 789,018 2,761,282 2,000,472
Selling, general, and
administrative 3,400,598 3,222,199 10,179,430 8,009,158
__________ __________ ___________ ___________
20,581,201 18,136,474 59,022,282 44,776,371
__________ __________ ___________ ___________
Income (loss) from
operations 728,224 (28,593) 3,385,529 1,709,061
__________ __________ ___________ ___________
Other income 166,149 51,691 528,425 217,038
Interest expense (1,450,090) (1,012,098) (4,308,994) (2,644,206)
__________ __________ ___________ ___________
Loss before provision
for income taxes (555,717) (989,000) (395,040) (718,107)
Income tax expense 12,071 25,000 66,895 25,000
__________ __________ ___________ ___________
Net loss (567,788) (1,014,000) (461,935) (743,107)
Preferred dividend (35,000) (35,000) (105,000) (105,000)
__________ __________ ___________ ___________
Loss available
to common shareholders ($602,788) ($1,049,000) ($566,935) ($848,107)
========== ========== =========== ===========
</TABLE>
(2)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding-
Basic and Diluted 2,835,288 2,833,788 2,835,087 2,826,899
========== ========== =========== ===========
Basic and diluted income
available to common
shareholders per common
share outstanding ($0.21) ($0.37) ($0.20) ($0.30)
========== ========== =========== ===========
</TABLE>
(3)
<PAGE>
LUCOR, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
(Unaudited)
30-Sep-2000 30-Sep-1999
___________ ___________
Cash flow from operations:
Net loss $ (461,935) $ (743,107)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization
of property and equipment 1,778,136 1,374,864
Amortization of intangible assets 975,516 625,608
Stock issued as directors' fees 3,376 --
Changes in assets and liabilities:
Decrease(increase)in accounts
receivable 156,317 (1,796,063)
Decrease(increase) in inventories 89,732 (548,914)
Decrease in prepaid expenses 201,772 58,489
Increase in income tax receivable (44,944) (20,315)
Increase (decrease) in accounts
payable and accrued expenses (559,364) 5,031,095
Increase (decrease) in deferred
gain 18,556 (2,060)
___________ ___________
Net cash provided by operating
activities 2,157,162 3,979,597
___________ ___________
Cash flow from investing activities:
Purchase of property and equipment (4,602,509) (5,725,004)
Net increase in construction
in progress (2,377,305) (1,870,132)
Acquisition of additional service centers -- (5,186,718)
Net assets of acquisition 71,387 --
Net decrease (increase)in franchise
fees, goodwill, etc. 171,628 (743,183)
___________ __________
Net cash used in
investing activities (6,736,799) (13,525,037)
____________ ____________
Cash flows from financing activities:
Repayments of debt and obligations under
capital leases (1,338,978) (1,121,565)
Proceeds from borrowings 2,259,469 13,064,264
Dividend paid (105,000) (105,000)
Repurchase of common stock -- 69,750
Decrease in long-term liabilities (247,938) --
____________ ___________
Cash provided by financing activities 567,553 11,907,449
____________ ___________
Increase (decrease) in cash (4,012,084) 2,362,009
Cash at beginning of period 7,097,115 3,269,859
____________ ____________
Cash at end of period $ 3,085,031 $ 5,631,868
============ ============
(4)
<PAGE>
Disclosure of noncash investing and financing activities:
During the nine months ended September 30, 2000, an adjustment was made to
the purchase price of a previously recorded acquisition. The adjustment
resulted in a decrease of $881,066, $995,127, and $114,062 in goodwill,
notes payable, and accounts payable, respectively.
(5)
<PAGE>
LUCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
Lucor, Inc. and its subsidiaries have license agreements with Jiffy Lube
International, Inc. ("JLI") to operate Jiffy Lube service centers in the
Raleigh-Durham, North Carolina, Cincinnati, Ohio (including northern
Kentucky), Pittsburgh, Pennsylvania, Dayton, Ohio, Toledo, Ohio, Lansing,
Michigan, Nashville, Tennessee, Richmond/Tidewater, Virginia and Atlanta,
Georgia areas. These service centers provide rapid lubrication, oil changes
and related services for automobiles, light duty trucks and other vehicles. As
of September 30, 2000 the Company had 212 centers in operation; as of December
31, 1999, 219 centers were in operation; and as of September 30, 1999, 199
service centers were in operation.
The financial information as of September 30, 2000 and September 30, 1999
included herein is unaudited. However, such information reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods. Financial statement
information as of December 31, 1999 has been extracted from audited financial
statements. All of the above financial information should be read in
conjunction with the Company's annual audited financial statements (and notes
thereto) included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
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 third 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 three service centers during 2000. The
remaining two service centers are scheduled to close by December 31, 2000.
During June 2000, the Company acquired Navigator Real Estate, LLC from
Navigator Management, Inc. Navigator Real Estate owns several properties
leased by the Company and has loans outstanding for these properties which
were acquired in late 1999 and early 2000. The purchase price of $50,000 for
the membership interest of Navigator Real Estate was the capital investment of
the original members. Navigator Management, Inc. is owned by two major
shareholders of Lucor, Inc. For more information on the ownership of
Navigator Management, Inc. see Certain Relationships and Related Transactions
section of the Company's Form 10-K for the year ended December 31, 1999.
During the third quarter the Company discovered a discrepancy in the
purchase price of the seventy-three service centers acquired in April and May
of 1999. The discrepancy resulted in a reduction of the purchase price by
approximately $900,000. The results for the third quarter of 2000 reflect the
adjustment of the purchase price by reducing the amount of goodwill associated
with the acquisition and reducing a note and trade payable to the seller.
In addition, the Company adjusted the previously recognized amortization
expense for goodwill and the interest expense for the note payable. The
cumulative income adjustment recognized in the third quarter of 2000 was
approximately $115,000. Management reviewed the impact of this adjustment on
prior periods and previous public filings. Management concluded that the
amount of the adjustment related to each prior period is not material and
restatements would not be necessary.
Certain statements in this Form 10-Q "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward looking statements. Such factors include, among others, the
following: competition, success of operating initiative, advertising and
promotional efforts, adverse publicity, acceptance of new product offerings,
availability, locations and terms of sites for store development, changes in
business strategy or development plan, availability and terms of capital,
labor and employee benefit costs, changes in government regulation, regional
weather conditions, and other factors specifically referred to in this 10-Q.
(6)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THIRD
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Consolidated net sales for the three months ended September 30, 2000
rose 16.1% when compared to the third quarter of 1999. The sales growth
reflects the increase in the number of stores operated by the Company, due to
the December 1999 acquisition of twenty-four stores in the Raleigh-Durham
area.
Consolidated net sales for the nine months ended September 30, 2000 rose
34.1% when compared to the first nine months of 1999. The sales growth
reflects the increase in the number of stores operated by the Company, due to
the 1999 acquisition of seventy-three stores in the Nashville, Tennessee,
Dayton, Ohio, Cincinnati, Ohio, Lansing, Michigan and Atlanta, Georgia areas
and the acquisition of twenty-four stores in the Raleigh-Durham area. During
1999, the Company also built an additional five service centers.
Same store sales, comparing the three-month and nine-month periods of
2000 to the same periods in 1999, increased 0.3% and 2.7%, respectively.
Cost of sales as a percent of sales decreased 1.0% from 23.1% to 22.1%
for the three-month period ended September 30, 1999 compared to September 30,
2000. Cost of sales as a percent of sales decreased 0.1% from 22.5% to 22.4%
for the nine-month period ended September 30, 1999 compared to September 30,
2000. The decrease in the cost of sales as a percent of sales reflects the
Company's continued efforts to reduce costs of materials purchased, an
increase in the prices of its basic signature service oil change, and
increased sales of services that have higher margins. Pennzoil-Quaker State
Company, the major supplier of oil for the Company, implemented three price
increases in the cost of oil during 2000 which increased the Company's cost of
sales but was offset by the savings mentioned above.
Direct costs decreased for the third quarter as a percent of sales from
41.2% to 40.6% for 1999 and 2000, respectively. Direct costs decreased for
the first nine months as a percent of sales from 38.8% to 38.4% for 1999 and
2000 respectively. This decrease is due to higher volume at the service
centers thus reducing the direct labor required as a percent of sales by
spreading the fixed nature of some of these costs over the higher volume.
Operating costs increased as a percent of sales from 18.7% for the third
quarter of 1999 to 19.0% for the third quarter of 2000. Actual cost increased
by $785,411 for the three-months ended September 30, 2000 compared to the same
period in 1999. The increase in operating cost as a percentage of sales in
the three-month period is the result of price increases in credit card
processing costs and store rental costs that were not offset by higher per
store revenue for the quarter.
Operating costs decreased as a percentage of sales for the nine-month
period ended September 30, 2000. Operating costs decreased from 19.2% for 1999
to 18.9% for 2000. Actual cost increased by $3,713,808 for the nine months
ended September 30, 2000 compared to the same period in 1999. The decrease in
operating cost as a percentage of sales in the nine-month period is the result
of lower rental and management fees as a percentage of sales for acquired
operations and increased revenue per store for other operations.
(7)
<PAGE>
Depreciation and amortization charges increased $91,281 for the third
quarter of 2000 in comparison to the third quarter of 1999 and increased
$760,810 for the nine-month period of 2000 in comparison with the nine-month
period of 1999. Depreciation and amortization expense increased due to the
acquisition of service centers as previously noted plus additional
depreciation associated with the cost of major renovations to stores acquired
in 1999.
Selling, general and administrative (SG&A) expenses increased 5.5% or
$178,399 comparing the three-month period ending September 30, 2000 to the
same period ended September 30, 1999. As a percentage of net sales, SG&A
expense decreased from 13.7% to 12.4%. Selling, general and administrative
expense increased 27.1% or $2,170,272 comparing the nine-month period ended
September 30, 2000 to the nine-month period ended September 30, 1999. As a
percentage of net sales, SG&A expense decreased from 13.4% to 12.7%. Increases
in SG&A expense is the result of increased regional and corporate requirements
associated with twenty-four stores acquired in December 1999 in the Raleigh-
Durham area.
Other income increased $114,458 comparing the third quarter of 2000 with
the third quarter of 1999. Other income increased $311,387 comparing the
nine-month period ended June 30, 2000 to the nine-month period ended September
30, 1999. Other income increased due to income from a lease of operations of
four stores not included in the Company's licensing agreements, increases in
interest earned and higher commissions on vending sales due to the larger
number of stores.
Interest expense increased by $437,992 for the three-month period ended
September 30, 2000 compared to the three-month period ended September 30,
1999. Interest expense increased by $1,664,788 for the nine-month period
ended September 30, 2000 compared with the nine-month period ended September
30, 1999. The increase reflects additional borrowing required by the Company
associated with the additional service centers acquired or built during 1999.
A charge for dividend payments due on the Company's preferred stock was made
for each period.
An income tax charge of $12,071 and $66,895 was made for the three-month
and nine-month period ending September 30, 2000 reflecting state income taxes
estimated to be payable. The Company has a federal net operating loss carry-
forward and, therefore, has not made a federal income tax charge for the year.
Liquidity and capital resources:
Since the end of 1999, working capital (current assets less current
liabilities) decreased by $3,496,946. A majority of the working capital
decrease has resulted from the use of funds in capital improvements made to
stores acquired in 1999 and to build new service centers. Cash flow from
operations amounted to $2,157,162. The positive cash flow resulted from the
net loss after income tax adding back the non-cash items of depreciation and
amortization, plus decreases in account receivables, inventories and prepaid
expenses offset by an increase in income tax receivable and a decrease in
accounts payable.
During the third quarter the Company discovered a discrepancy in the
purchase price of the seventy-three service centers acquired in April and May
of 1999. The discrepancy resulted in a reduction of the purchase price by
approximately $900,000. The results for the third quarter of 2000 reflect the
adjustment of the purchase price by reducing the amount of goodwill associated
with the acquisition and reducing a note and trade payable to the seller.
In addition, the Company adjusted the previously recognized amortization
expense for goodwill and the interest expense for the note payable. The
cumulative income adjustment recognized in the third quarter of 2000 was
approximately $115,000. Management reviewed the impact of this adjustment
on prior periods and previous public filings. Management concluded that the
amount of the adjustment related to each prior period is not material and
restatements would not be necessary.
(8)
<PAGE>
During 2000, the Company has borrowed $2,259,469 from two sources to
provide funds for the addition of two service centers that were built during
the first nine months of 2000 and funds for service centers under construction
but not completed in the third quarter.
The Company borrowed funds during the second quarter of 2000 through an
agreement with Franchise Finance Corporation of America for $715,000. This
loan carries an interest rate of 10.41% and is amortized over a twenty-five
year period with a balloon payment after twenty years. These funds were used
in the construction of a new service center. During the second quarter of
2000, the Company also borrowed $417,049 from Franchise Finance Corporation to
be used for construction of additional service centers. This loan is for
interest only until completion of the site at which time the interest rate
will be 13.5% and the loan will be amortized over a twenty-five year period
with a balloon payment after twenty years.
The Company borrowed funds during the third quarter of 2000 through an
agreement with Franchise Finance Corporation of America for $800,000. This
loan carries an interest rate of 13.5% and is amortized over a twenty-five
year period with a balloon payment after twenty years. These funds were used
in the construction of a new service center.
During the third quarter of 2000, The Company borrowed $327,420 to be
used for construction of additional service centers. The loan is from a
$900,000 line of credit from Central Carolina Bank. This loan is for interest
only until completion of the site at which time the interest on this loan is
paid at an adjustable rate on the principal amount outstanding. The
adjustable rate is the three month LIBOR plus two and one-quarter percent
(2.25%). The rate will change on the first business day of the month following
any change in the ninety day LIBOR rate. This loan is amortized over a twenty-
year period with a balloon payment after fifteen years.
Management believes that cash generated from its operations and cash on
hand will be sufficient to satisfy the Company's operating requirements for
the next twelve months. Any acquisitions or new service center sites will
require the Company to incur debt or obtain additional credit facilities.
Although the Company is reviewing these possibilities, there can be no
assurance that such financing will be available.
During June 2000, the Company acquired Navigator Real Estate, LLC from
Navigator Management, Inc., increasing the total assets and liabilities of the
Company by approximately $3,324,000. The properties and debt are carried on
the records of the Company on the same basis as they were under Navigator
Management, Inc. There was no gain or loss on the transaction recorded by
Navigator Management, Inc.
(9)
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings: The Company is involved in lawsuits and claims
arising in the normal course of business. Although the outcome of these
lawsuits and claims are uncertain, Management believes that these lawsuits and
claims are adequately covered by insurance or they will not (singly or in the
aggregate) have a material adverse affect on the Company's business, financial
condition, or operations. Those lawsuits and claims against the Company which
have not been resolved and which can be estimated and are probable to occur,
have been accounted for in the Company's financial statements.
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of
Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: On August 23, 2000 the Company
filed a Form 8-K reporting that the Company was notified by Nasdaq that the
Company was no longer in compliance with Marketplace Rule 4310(c)(2)(B). As a
result of this non-compliance, effective August 24, 2000, the stock was no
longer listed on The Nasdaq SmallCap Market. Following such de-listing, the
stock will be eligible for trade on the OTC Bulletin Board.
(10)
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 14th day of November 2000.
LUCOR, INC.
/s/ Stephen P. Conway
-----------------------------------
Stephen P. Conway
Chairman, Chief Executive Officer,
and Director
/s/ Kendall A. Carr
-----------------------------------
Kendall A. Carr
Chief Financial Officer
