14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1995 Commission file number 0-13875
LANCER CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1591073
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
235 West Turbo, San Antonio, Texas 78216
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (210) 344-3071
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 14(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 the number of shares outstanding of each of the
issuers of classes of common stock, as of the latest
practicable date.
Shares outstanding as of
Title October 31, 1995
Common stock, par value 3,872,221
$.01 per share
Part I - Financial Information
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 1,012,581 $ 2,102,390
Receivables:
Trade accounts and notes 13,489,822 9,152,033
Refundable income taxes - 342,981
Affiliates and others 290,931 455,811
13,780,753 9,950,825
Less allowance for doubtful accounts (85,000) (85,000)
Net receivables 13,695,753 9,865,825
Inventories (note 2) 16,604,549 20,318,073
Prepaid expenses 153,500 54,827
Total current assets 31,466,383 32,341,115
Property, plant and equipment, at cost:
Machinery and equipment 12,596,015 12,093,915
Tools and dies 5,935,959 5,189,667
Leaseholds, office equipment and
vehicles 4,554,561 3,830,330
Buildings 7,638,668 6,522,429
Land 977,887 656,740
Construction in progress 1,253,676 -
32,956,766 28,293,081
Less accumulated depreciation
and amortization (16,501,788) (15,051,379)
Net property, plant and equipment 16,454,978 13,241,702
Long-term receivables 512,243 538,312
Deferred charges and other assets,
at cost, less applicable amortization 344,472 775,075
$ 48,778,076 $ 46,896,204
</TABLE>
See accompanying notes to consolidated financial statements.
Part I - Financial Information
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,677,124 $ 4,899,550
Current installments of long-term debt 1,395,411 1,408,663
Line of credit with bank (note 3) 3,600,000 6,000,000
Accrued expenses and other liabilities 4,048,168 2,655,113
Income taxes payable 150,731 -
Total current liabilities 12,871,434 14,963,326
Deferred Federal income taxes 1,048,942 1,096,961
Other long-term liabilities 700,000 520,000
Long-term debt, excluding current
installments (note 3) 4,108,201 3,397,174
Total liabilities 18,728,577 19,977,461
Shareholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized, none issued - -
Common stock, $.01 par value:
10,000,000 shares authorized; 3,868,171
and 3,861,906 issued and outstanding in
1995 and 1994, respectively 38,669 38,619
Additional paid-in capital 9,831,180 9,797,734
Retained earnings 20,179,650 17,082,390
Total shareholders' equity 30,049,499 26,918,743
$ 48,778,076 $ 46,896,204
</TABLE>
See accompanying notes to consolidated financial statements.
Part I - Financial Information
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 17,375,660 $ 19,339,961 $ 59,029,816 $ 54,127,833
Cost of sales 13,700,527 15,710,649 47,223,852 43,610,522
Gross profit 3,675,133 3,629,312 11,805,964 10,517,311
Selling, general and
administrative 2,631,924 2,235,629 7,621,123 6,485,151
Operating income 1,043,209 1,393,683 4,184,841 4,032,160
Other income(expense):
Interest expense (215,072) (209,129) (733,995) (558,902)
Interest and other
income 356,138 130,976 1,351,107 673,685
141,066 (78,153) 617,112 114,783
Earnings before
income taxes 1,184,275 1,315,530 4,801,953 4,146,943
Income taxes expense
(benefit):
Current 312,317 434,273 1,752,713 1,575,333
Deferred 58,277 (78,144) (48,020) (142,830)
370,594 356,129 1,704,693 1,432,503
Net earnings $ 813,681 $ 959,401 $ 3,097,260 $ 2,714,440
Weighted average
common shares 4,003,660 3,787,448 3,989,631 3,715,671
Net earnings per
common share $ 0.20 $ 0.25 $ 0.78 $ 0.73
</TABLE>
See accompanying notes to consolidated financial statements.
Part I - Financial Information
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1995 1994
<S> <C> <C>
Cash flow from operating activities:
Net earnings $ 3,097,260 $ 2,714,440
Adjustments to reconcile net
earnings to net cash provided
(used) by operating activities:
Depreciation and amortization 1,640,587 1,431,574
Loss on sale and disposal of assets 12,845 15,829
Increase in receivables (4,146,840) (1,366,485)
Decrease in refundable income taxes 342,981 -
Increase in prepaid expenses (98,673) (81,581)
Decrease (increase) in inventories 3,713,524 (4,857,821)
Decrease in other assets 410,350 24,080
(Decrease) increase in accounts payable (1,222,426) 1,372,625
Increase in accrued expenses 1,393,055 727,035
Increase in income taxes payable 150,731 42,779
Decrease in deferred Federal income taxes (48,019) (142,830)
Increase in other long-term liabilities 180,000 180,000
Net cash provided by operating activities 5,425,375 59,645
Cash flow from investing activities:
Proceeds from sale of assets 19,201 4,700
Acquisition of property, plant and
equipment (4,865,656) (2,648,240)
Investment in common stock - (150,000)
Net cash used in investing activities (4,846,455) (2,793,540)
Cash flow from financing activities:
Net (repayment) borrowings under line
of credit agreements (2,400,000) 245,000
Proceeds from issuance of long-term
debt 1,929,000 435,072
Retirement of long-term debt (1,231,225) (1,444,537)
Proceeds from issuance of common stock - 3,534,463
Proceeds from exercise of stock options 33,496 110,141
Net cash (used in) provided by financing
activities (1,668,729) 2,880,139
Net (decrease) increase in cash (1,089,809) 146,244
Cash at beginning of year 2,102,390 1,353,167
Cash at end of period $ 1,012,581 $ 1,499,411
</TABLE>
See accompanying notes to consolidated financial statements.
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
All adjustments (consisting of normal recurring adjustments)
have been made which are necessary for a fair presentation of
financial position and results of operations. All intercompany
balances and transactions have been eliminated in
consolidation. It is suggested that the consolidated financial
statements be read in conjunction with the consolidated
financial statements and notes thereto included in the December
31, 1994 Annual Report on Form 10-K.
Earnings per share are based on the weighted average number of
common and common equivalent (dilutive stock options) shares
outstanding each period. Fully diluted earnings per share
would not be different than earnings per common and common
equivalent share. On July 11, 1995, the Company effected a
three-for-two stock split accounted for as a dividend. Prior
year weighted average shares outstanding and prior year per
share amounts have been restated accordingly.
2. Inventory Components
The Company uses the gross profit method to determine cost of
sales and inventory for interim periods. Inventory components
are estimated based on historical relationships as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Finished Goods $ 5,337,936 $ 6,531,738
Work in process 10,263,044 12,558,323
Raw material and supplies 1,003,569 1,228,012
$ 16,604,549 $ 20,318,073
</TABLE>
3. Long-term Debt and Line of Credit
One of the Companys wholly-owned subsidiaries entered into a
loan agreement dated August 1, 1995, with the Companys primary
lender to provide $2.5 million of term debt to finance the
expansion of its production facilities in Mexico. This new
loan will bear interest based upon the banks prime rate, is
subject to a seven-year amortization schedule and is due and
payable in full on January 15, 1999. The Company has also
entered into a separate agreement with its lender to guarantee
the subsidiarys performance under the loan agreement.
On August 1, 1995, the Company replaced its prior $8.0 million
working capital revolving line of credit with a $10.0 million
working capital revolving line of credit (the Credit Facility)
from its primary lender. The terms of the Credit Facility are
substantially the same as the terms of the prior line of
credit, with the interest rate being based upon either the
London Interbank Offered Rates (LIBOR) or upon, and fluctuating
with, the lenders prime rate. Under the Credit Facility, the
Company will be able to borrow up to a certain percentage of
its eligible accounts receivable and inventory, provided it
maintains certain financial ratios and complies with certain
covenants. The Company is either in compliance with all such
convenants or has obtained waivers from its primary lender.
Part I - Financial Information
Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of the Three-Month Periods Ended September 30, 1995
and 1994
Net sales for the quarter ended September 30, 1995, decreased
by $1.9 million, or 10.2%, to $17.4 million from $19.3 million
for the same period last year. This decrease reflects a
temporary decline in demand from manufacturers who use certain
of the Companys products in their line of fountain drink
dispensers and a decrease in sales to Mexican customers as a
result of a significant devaluation in the Mexican Peso.
Combined sales in international markets other than Mexico more
than offset this decline. Total international sales amounted
to $5.2 million, or 29.9% of net sales, for the quarter ended
September 30, 1995, an increase of $1.9 million, or 57.6%, from
$3.3 million, or 17.1% of net sales, for the same period last
year.
Even though sales were down for the 1995 quarter, gross profit
recognized for the period increased by 1.3% to $3.7 million
from $3.6 million for the same quarter last year, while gross
margin for the period (represented as a percentage of net
sales) increased to 21.2% from 18.8% in the same period of
1994. These increases are primarily due to an increased focus
on cost reductions and manufacturing process improvements;
however, they were tempered by corresponding increases in the
prices of certain key raw materials.
Selling, general and administrative costs during the quarter
ended September 30, 1995 increased by $396 thousand, or 17.7%,
to $2.6 million from $2.2 million for the same quarter last
year. This increase reflects higher selling and research and
development expenses.
Interest expense for the three months ended September 30, 1995
increased $6 thousand, or 2.8%, to $215 thousand from $209
thousand for the same period last year, reflecting slightly
higher average bank debt in 1995 associated with the purchase
of land and facilities and construction of additional
facilities to support the Companys operations in Piedras
Negras, Coahuila, Mexico.
Interest and other income for the three months ended September
30, 1995 increased by $225 thousand, or 171.9%, from $131
thousand for the same period in 1994, due primarily to an
increase in revenues from special engineering services provided
to the Companys largest customer.
Income tax expense for the three months ended September 30,
1995 increased by 4.1%, to $371 thousand from $356 thousand for
the same period in 1994. The Companys estimated effective tax
rate used for 1995 is slightly higher than the rate used for
1994.
Net earnings for the three months ended September 30, 1995
decreased by $146 thousand, or 15.2%, to $814 million ($0.20
per share) from $959 thousand ($0.25 per share) for the same
period in 1994. This decrease was primarily due to lower sales
partially offset by improved gross margins and higher interest
and other income.
Comparison of the Nine-Month Periods Ended September 30, 1995
and 1994
Net sales for the nine-month period ended September 30, 1995
increased by $4.9 million, or 9.1%, to $59.0 million from $54.1
million for the same period in 1994. This increase reflects a
general increase in demand for all product lines, particularly
dispensers of all types. International sales amounted to $18.3
million, or 31.0% of net sales, for the nine months ended
September 30, 1995, an increase of $4.6 million, or 33.6%, from
$13.7 million, or 25.3% of net sales, for the same period last
year.
Gross profit for the nine months ended September 30, 1995
increased by $1.3 million, or 12.3%, to $11.8 million from
$10.5 million for the same period in 1994, while gross margin
for the period (represented as a percentage of net sales)
increased slightly to 20.0% from 19.4% in the same period in
1994 reflecting the Companys focus on cost reductions and
manufacturing process improvements partially offset by the
impact of key raw material price increases.
Selling, general and administrative expenses for the nine-month
period ended September 30, 1995 increased by $1.1 million, or
17.5%, to $7.6 million from $6.5 million for the same period in
1994. This increase was due primarily to higher selling and
engineering research and development expenses.
Interest expense for the first nine months of 1995 increased by
$175 thousand, or 31.3%, to $734 thousand from $559 thousand
for the same period last year. This increase resulted from the
increase in average bank debt resulting from the purchase of
land and facilities and construction of additional facilities
in Mexico.
Interest and other income for the nine months ended September
30, 1995 increased by $677 thousand, or 100.6%, to $1.4 million
from $674 thousand for the same period in 1994. This increase
was due primarily to higher revenues from special engineering
projects sponsored by the Companys largest customer and from
commissions the Company was paid under a sales representative
agreement entered into in 1993 for the sale of beverage
coolers. This agreement is terminable by either party upon 30
days written notice.
Income tax expense for the nine months ended September 30, 1995
increased by 19.0%, to approximately $1.7 million from $1.4
million for the same period in 1994. This increase was
primarily due to increased earnings and a higher estimated
effective tax rate for 1995.
Net earnings for the nine months ended September 30, 1995
increased by $383 thousand, or 14.1%, to approximately $3.1
million ($0.78 per share) from $2.7 million ($0.73 per share)
for the same period in 1994. The increase was primarily due to
improvements in gross margin and the increase in interest and
other income partially offset by higher selling, general and
administrative expense and higher interest expense.
Liquidity and Capital Resources
Cash provided by operations for the nine months ended September
30, 1995 was approximately $5.4 million compared to $60
thousand for the same period in the prior year. Cash provided
by operations during the first nine months of 1995, along with
cash on hand and approximately $1.9 million in new borrowings,
was used to acquire additional machinery and equipment, tools
and dies, and leaseholds and office equipment for $2.2 million,
purchase Company occupied buildings and land, which had
previously been leased, to support its Maquiladora operations
in Mexico, for $1.3 million, fund construction of a new
building in Mexico for $1.3 million, and repay $1.2 million of
long-term debt.
On August 1, 1995, the Company replaced its prior $8.0 million
working capital revolving line of credit with a $10.0 million
working capital revolving line of credit (the Credit Facility)
from its primary lender. The terms of the Credit Facility are
substantially the same as the terms of the prior line of
credit, with the interest rate being based upon either London
Interbank Offered Rates (LIBOR) or upon, and fluctuating with,
the lenders prime rate. Under the Credit Facility, the Company
will be able to borrow up to a certain percentage of its
eligible accounts receivable and inventory, provided it
maintains certain financial ratios and complies with certain
covenants. As of September 30, 1995, the Company had
outstanding borrowings of $3.6 million under the Credit
Facility and the blended interest rate was 8.12%. All
borrowings under the Credit Facility become due and payable in
full on July 31, 1996.
The Company also entered into a loan agreement dated August 1,
1995, with its primary lender to provide $2.5 million of term
debt to finance the expansion of its production facilities in
Mexico. This new loan will bear interest based upon the banks
prime rate, is subject to an seven-year amortization schedule
and is due and payable in full on July 31, 1998.
Part II - Other Information
Item 1. Legal Proceedings
The Company is a party to various lawsuits and claims generally
incidental to its business. In the opinion of management and
independent legal counsel, the ultimate disposition of these
matters is not expected to have a significant adverse effect on
the Companys financial position or results of operations.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
fiscal quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements 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.
LANCER CORPORATION
(Registrant)
November 10, 1995 By: /s/ George F. Schroeder
George F. Schroeder
President and CEO
November 10, 1995 By: /s/ John P. Herbots
John P. Herbots
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Income found
on pages 2, 3 and 4 of the Company's 10-Q for the year-to-date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1013
<SECURITIES> 0
<RECEIVABLES> 13781
<ALLOWANCES> (85)
<INVENTORY> 16605
<CURRENT-ASSETS> 31466
<PP&E> 32957
<DEPRECIATION> (16502)
<TOTAL-ASSETS> 48778
<CURRENT-LIABILITIES> 12871
<BONDS> 0
<COMMON> 39
0
0
<OTHER-SE> 30011
<TOTAL-LIABILITY-AND-EQUITY> 48778
<SALES> 59030
<TOTAL-REVENUES> 60381
<CGS> 47224
<TOTAL-COSTS> 54845
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734
<INCOME-PRETAX> 4802
<INCOME-TAX> 1705
<INCOME-CONTINUING> 3097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3097
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
