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, 1996 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 November 1, 1996
Common stock, par value $.01 per share 5,813,849
1
<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
------------------- -------------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 2,378,746 $ 754,352
------------------- -------------------
Receivables:
Trade accounts and notes 19,676,794 14,431,531
Other 285,511 272,214
------------------- -------------------
19,962,305 14,703,745
Less allowance for doubtful accounts (85,000) (85,000)
------------------- -------------------
Net receivables 19,877,305 14,618,745
------------------- -------------------
Inventories (note 2) 27,055,555 20,031,758
Prepaid expenses 330,547 146,776
Deferred income taxes 64,245 -
------------------- -------------------
Total current assets 49,706,398 35,551,631
------------------- -------------------
Property, plant and equipment, at cost:
Land 1,307,663 977,888
Buildings 9,621,070 7,950,514
Machinery and equipment 14,746,329 13,255,089
Tools and dies 8,382,559 7,927,246
Leaseholds, office equipment and vehicles 6,220,615 4,969,712
Construction in progress 1,974,435 1,361,906
------------------- -------------------
42,252,671 36,442,355
Less accumulated depreciation and amortization (19,078,069) (17,242,089)
------------------- -------------------
Net property, plant and equipment 23,174,602 19,200,266
------------------- -------------------
Long-term receivables 437,592 512,388
Intangibles and other assets,
at cost, less accumulated amortization 2,742,101 2,679,578
------------------- -------------------
$ 76,060,693 $ 57,943,863
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY
September 30, December 31,
1996 1995
------------------- -------------------
(Unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $ 7,627,998 $ 5,645,063
Current installments of long-term debt 850,000 1,448,093
Line of credit with bank (note 3) 14,900,000 7,000,000
Deferred revenue 365,102 815,901
Accrued expenses and other liabilities 4,161,989 2,882,886
Income taxes payable 183,932 487,395
------------------- -------------------
Total current liabilities 28,089,021 18,279,338
Deferred income taxes 1,033,540 996,409
Other long-term liabilities 790,000 700,000
Long-term debt, excluding current installments (note 3) 7,850,000 5,397,574
Deferred revenue 2,616,092 1,505,600
------------------- -------------------
Total liabilities 40,378,653 26,878,921
------------------- -------------------
Shareholders' equity (note 4):
Preferred stock, without par value:
5,000,000 shares authorized, none issued - -
Common stock, $.01 par value:
10,000,000 shares authorized; 5,813,849 and 3,872,221
issued and outstanding in 1996 and 1995, respectively 58,138 38,722
Additional paid-in capital 9,856,501 9,852,713
Cumulative translation adjustment 218,896 -
Retained earnings 25,548,505 21,173,507
------------------- -------------------
Total shareholders' equity 35,682,040 31,064,942
------------------- -------------------
$ 76,060,693 $ 57,943,863
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 27,605,585 $ 17,375,660 $ 76,391,663 $ 59,029,816
Cost of sales 21,191,957 13,700,527 58,343,988 47,223,852
------------------- ------------------ ------------------ ------------------
Gross profit 6,413,628 3,675,133 18,047,675 11,805,964
Selling, general and
administrative expenses 4,085,332 2,631,924 10,670,224 7,621,123
------------------- ------------------ ------------------ ------------------
Operating income 2,328,296 1,043,209 7,377,451 4,184,841
------------------- ------------------ ------------------ ------------------
Other income (expense):
Interest expense (306,971) (215,072) (1,114,336) (733,995)
Interest and other income, net 303,423 356,138 671,719 1,351,107
------------------- ------------------ ------------------ ------------------
(3,548) 141,066 (442,617) 617,112
------------------- ------------------ ------------------ ------------------
Earnings before income taxes 2,324,748 1,184,275 6,934,834 4,801,953
------------------- ------------------ ------------------ ------------------
Income tax expense (benefit):
Current 708,353 312,317 2,522,704 1,752,713
Deferred 107,643 58,277 37,131 (48,020)
------------------- ------------------ ------------------ ------------------
815,996 370,594 2,559,835 1,704,693
------------------- ------------------ ------------------ ------------------
Net earnings $ 1,508,752 $ 813,681 $ 4,374,999 $ 3,097,260
=================== ================== ================== ==================
Weighted average common and
common equivalent shares 6,080,504 6,005,490 6,060,891 5,984,447
=================== ================== ================== ==================
Net earnings per share $ 0.25 $ 0.14 $ 0.72 $ 0.52
=================== ================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
---------------------- ----------------------
Cash flow from operating activities:
<S> <C> <C>
Net earnings $ 4,374,999 $ 3,097,260
Adjustments to reconcile net earnings to net
cash (used) provided by operating activities:
Depreciation and amortization 1,844,980 1,640,587
Loss on sale and disposal of assets (15,485) 12,845
Cumulative effect of the translation adjustment 218,896 -
Changes in assets and liabilities:
Receivables (5,183,764) (4,146,840)
Refundable income taxes - 342,981
Prepaid expenses (183,771) (98,673)
Inventories (7,023,797) 3,713,524
Other assets (71,524) 410,350
Accounts payable 1,982,935 (1,222,426)
Accrued expenses 1,279,103 1,393,055
Income taxes payable (303,463) 150,731
Deferred revenue 659,693 -
Deferred income taxes (27,114) (48,019)
Other long-term liabilities 90,000 180,000
---------------------- ----------------------
Net cash (used) provided by operating activities (2,358,312) 5,425,375
---------------------- ----------------------
Cash flow from investing activities:
Proceeds from sale of assets 43,625 19,201
Acquisition of property, plant and equipment (5,838,456) (4,865,656)
---------------------- ----------------------
Net cash used in investing activities (5,794,831) (4,846,455)
---------------------- ----------------------
Cash flow from financing activities:
Net (repayment) borrowings under line of credit agreements 7,900,000 (2,400,000)
Proceeds from issuance of long-term debt 8,301,883 1,929,000
Retirement of long-term debt (6,447,550) (1,231,225)
Proceeds from exercise of stock options 23,204 33,496
---------------------- ----------------------
Net cash provided (used) by financing activities 9,777,537 (1,668,729)
---------------------- ----------------------
Net (decrease) increase in cash 1,624,394 (1,089,809)
Cash at beginning of year 754,352 2,102,390
---------------------- ----------------------
Cash at end of period $ 2,378,746 $ 1,012,581
====================== ======================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
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, 1995 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 9, 1996, 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,
1996 1995
---------------- ---------------
<S> <C> <C>
Finished Goods $ 6,994,323 $ 4,558,742
Work in process 15,892,664 11,982,620
Raw material and supplies 4,168,568 3,490,396
---------------- ---------------
$ 27,055,555 $ 20,031,758
================ ==============
</TABLE>
3. Long-term Debt and Line of Credit
On July 15, 1996, the Company entered into an agreement with two banks to
replace its existing credit agreements with $42.5 million in new credit
facilities (the Credit Facilities). The terms of the Credit Facilities require
the Company to maintain certain financial ratios and other covenants. Advances
bear interest based upon either the London Interbank Offered Rates (LIBOR) or
upon, and fluctuating with, the lender's prime rate.
4. Stock Dividends
On May 23, 1996, the Companys Board of Directors authorized a three-for-two
stock split effected in the form of a dividend to be distributed on July 9, 1996
to shareholders of record as of June 25, 1996. Shareholders equity has been
restated to give retroactive recognition to the stock split in the current
period by reclassifying from additional paid-in capital to common stock the par
value of the additional shares arising from the stock dividend.
5. Subsequent Event
In October 1996, the Company invested $2.6 million in Lancer FBD Partnership,
Ltd., a new joint venture formed to manufacture frozen beverage dispensers.
Lancer will own 50% of the joint venture, which will be headquartered in San
Antonio, Texas.
6
<PAGE>
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, 1996 and 1995
Net sales for the quarter ended September 30, 1996 were $27.6 million, a $10.2
million (58.9%) increase from the $17.4 million for the same period in 1995.
Domestic and international sales in the 1996 period each increased by $5.1
million over levels of the same period of 1995. The increase was caused by
stronger demand for most of the Companys product lines, plus the inclusion of
Glenn Pleass Holdings, Pty, Ltd. (GPH), an Australian based wholly-owned
subsidiary, which was acquired in December 1995.
Gross profit for the third quarter of 1996 increased to $6.4 million (23.2% of
sales) from $3.7 million (21.2 % of sales) in the same quarter last year. The
increase was caused by the higher sales level and improved profit margins. The
improvement in profit margin was the result of continued reductions in
manufacturing and overhead costs.
Selling, general, and administrative expenses were $4.1 million during the
quarter ended September 30, 1996, an increase of $1.5 million, or 55.2%, from
the third quarter of 1995. Expenses rose because of higher activity levels in
support of higher sales and the inclusion of GPH.
Interest expense was $307 thousand in the third quarter of 1996, up from $215
thousand from the 1995 period, reflecting higher average borrowings.
Net earnings for the quarter ended September 30, 1996 were $1.5 million, up
85.4% from the $.8 million earned in the same quarter of 1995.
Comparison of the Nine-Month Periods Ended September 30, 1996 and 1995
Net sales for the nine-month period ended September 30, 1996 were $76.4 million,
an increase of $17.4 million (29.4%) from $59.0 million for the same period in
1995. The sales growth reflects strong demand for new and existing products and
the inclusion of GPHs sales. International sales were $30.4 million (39.8% of
net sales) in the nine months ended September 30, 1996, compared to $18.3
million (31.0% of net sales) for the same period of 1995.
Gross profit for the 1996 period was $18.0 million, up from $11.8 million in the
same period of 1995. The improvement in gross profit was caused by higher sales,
and by a higher profit margin. The profit margin rose to 23.6% in the first nine
months of 1996 from 20.0% in the comparable period of 1995, reflecting
reductions in manufacturing and overhead costs.
Selling, general, and administrative expenses were $10.7 million for the nine
months ended September 30, 1996, up 40.0% from $7.6 million in the same period
of 1995. This increase reflects higher selling, engineering, and research and
development expenses, and the inclusion of expenses associated with GPH.
Interest expense in the nine-month period of 1996 was $1.1 million, up from $734
thousand in the same period of 1995. Higher average borrowings caused the
increase in interest expense.
Net earnings for the nine months ended September 30, 1996 were $4.4 million, up
41.3% from $3.1 million in the same period of 1995.
Liquidity and Capital Resources
Cash used by operating activities was $2.4 million for the nine months ended
September 30, 1996 compared to cash provided by operating activities of $5.4
million for the same period of 1995. Growth in inventory and accounts receivable
totaling $12.2 million was the primary use of cash in the 1996 period. The $2.4
million of cash used by operating activities, together with $5.8 million of
capital spending, was financed primarily with borrowings under the Companys
credit facilities. The Company expects cash from operations, availability under
the credit facilities, and cash on hand to be sufficient to fund the Companys
growth for the foreseeable future.
7
<PAGE>
On July 15, 1996, the Company entered into an agreement with two banks to
replace its existing credit agreements with $42.5 million in new credit
facilities. The loans are due in five years, and provide financing for working
capital requirements, potential acquisitions, and for capital spending,
including the expansion of the Companys facilities in San Antonio, Texas and
Piedras Negras, Mexico.
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
8
<PAGE>
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 11, 1996 By: /s/ George F. Schroeder
George F. Schroeder
President and CEO
November 11, 1996 By: /s/ John P. Herbots
John P. Herbots
Chief Financial Officer
9
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2379
<SECURITIES> 0
<RECEIVABLES> 19877
<ALLOWANCES> 85
<INVENTORY> 27056
<CURRENT-ASSETS> 49706
<PP&E> 42253
<DEPRECIATION> 19078
<TOTAL-ASSETS> 76061
<CURRENT-LIABILITIES> 28089
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 35624
<TOTAL-LIABILITY-AND-EQUITY> 76061
<SALES> 76392
<TOTAL-REVENUES> 77063
<CGS> 58344
<TOTAL-COSTS> 69014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1114
<INCOME-PRETAX> 6935
<INCOME-TAX> 2560
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4375
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
