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 March 31, 1997 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.
Title Shares outstanding as of
May 12, 1997
Common stock, par value $.01 per share 5,843,776
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
-------------------- --------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,183,623 $ 1,016,425
-------------------- --------------------
Receivables:
Trade accounts and notes 24,229,046 19,686,318
Refundable income taxes
- 396,495
Other 1,110,672 690,034
-------------------- --------------------
25,339,718 20,772,847
Less allowance for doubtful accounts
(185,000) (185,000)
-------------------- --------------------
Net receivables 25,154,718 20,587,847
-------------------- --------------------
Inventories 31,531,802 28,238,923
Prepaid expenses 179,368 243,937
Deferred tax asset 109,521 64,513
-------------------- --------------------
Total current assets 58,159,032 50,151,645
-------------------- --------------------
Property, plant and equipment, at cost:
Land 1,307,663 1,307,663
Buildings 9,683,096 9,681,466
Machinery and equipment 15,645,476 14,925,713
Tools and dies 8,455,958 8,448,506
Leaseholds, office equipment and vehicles 6,117,284 5,945,069
Construction in progress 7,610,971 5,162,508
-------------------- --------------------
48,820,448 45,470,925
Less accumulated depreciation and amortization (20,286,834) (19,676,377)
-------------------- --------------------
Net property, plant and equipment 28,533,614 25,794,548
-------------------- --------------------
Long-term receivables 358,601 404,007
Investment in affiliates 3,011,132 2,975,000
Intangibles and other assets,
at cost, less accumulated amortization 5,628,699 2,684,073
-------------------- --------------------
$ 95,691,078 $ 82,009,273
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1997 1996
-------------------- -------------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,904,877 $ 6,302,345
Current installments of long-term debt 3,247,200 1,852,500
Line of credit with bank 13,000,000 11,700,000
Deferred licensing and maintenance fees 1,276,598 1,339,868
Accrued expenses and other liabilities 4,228,024 4,288,130
Income taxes payable 726,030 -
-------------------- -------------------
Total current liabilities 32,382,729 25,482,843
Deferred tax liability 1,059,782 1,038,655
Other long-term liabilities 820,000 820,000
Long-term debt, excluding current installments 20,365,550 15,459,375
Deferred licensing and maintenance fees 2,173,149 2,172,137
-------------------- -------------------
Total liabilities 56,801,210 44,973,010
-------------------- -------------------
Shareholders equity:
Common stock, $.01 par value:
10,000,000 shares authorized; 5,836,925 and 5,820,976
issued and outstanding in 1997 and 1996, respectively 58,369 58,209
Additional paid-in capital 9,992,855 9,888,244
Cumulative translation adjustment 142,505 183,803
Retained earnings 28,696,139 26,906,007
-------------------- -------------------
Total shareholders' equity 38,889,868 37,036,263
-------------------- -------------------
$ 95,691,078 $ 82,009,273
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31, March 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Net sales $ 30,398,159 $ 23,678,197
Cost of sales 22,733,537 17,975,196
------------------ ------------------
Gross profit
7,664,622 5,703,001
Selling, general and administrative expenses 4,220,650 3,223,520
------------------ ------------------
Operating income 3,443,972 2,479,481
------------------ ------------------
Other income (expense):
Interest expense (547,458) (428,909)
Interest and other income, net 16,369 124,104
------------------ ------------------
(531,089) (304,805)
------------------ ------------------
Income before income taxes
2,912,883 2,174,676
------------------ ------------------
Income taxes expense (benefit):
Current 1,101,624 864,594
Deferred 21,127 (30,293)
------------------ ------------------
1,122,751 834,301
------------------ ------------------
Net income $ 1,790,132 $ 1,340,375
================== ==================
Weighted average shares 6,155,254 6,013,596
================== ==================
Net earnings per share $ 0.29 $ 0.22
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31, March 31,
1997 1996
----------------------- -----------------------
Cash flow from operating activities:
<S> <C> <C>
Net income $ 1,790,132 $ 1,340,375
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 615,202 624,657
Cumulative effect of the translation adjustment (41,298) -
Loss on investments in affiliates 213,868 -
Changes in assets and liabilities:
Receivables (4,917,960) (3,949,333)
Refundable income taxes 396,495 -
Prepaid expenses 64,569 (80,278)
Deferred tax liability (23,881) (93,799)
Inventories (1,017,879) (1,662,777)
Other assets 111,629 169,506
Accounts payable 3,602,532 2,983,501
Accrued expenses and other liabilities (60,106) (443,617)
Income taxes payable 726,030 942,184
Deferred license fees and other revenue (62,258) 886,680
Other long-term liabilities - 30,000
----------------------- -----------------------
Net cash provided by operating activities 1,397,075 747,099
----------------------- -----------------------
Cash flow from investing activities:
Acquisition of property, plant and equipment (2,699,523) (2,030,535)
Acquisition of subsidiary company (5,986,000) -
Net long-term investments (250,000) -
----------------------- -----------------------
Net cash used in investing activities (8,935,523) (2,030,535)
----------------------- -----------------------
Cash flow from financing activities:
Net borrowings under line of credit agreements 1,300,000 1,000,000
Proceeds from long-term debt 6,300,875 -
Retirement of long-term debt - (320,515)
Proceeds from exercise of stock options 104,771 9,658
----------------------- -----------------------
Net cash provided by financing activities
7,705,646 689,143
----------------------- -----------------------
Net increase (decrease) in cash 167,198 (594,293)
Cash at beginning of year 1,016,425 754,352
----------------------- -----------------------
Cash at end of period $ 1,183,623 $ 160,059
======================= =======================
</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, 1996 Annual Report on Form 10-K.
Net earnings per share are based on the weighted average number of common and
common equivalent (dilutive stock options) shares outstanding each period. Fully
diluted net earnings per share would not be different than net earnings per
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.
Certain amounts in the consolidated financial statements for prior years have
been reclassified to conform with the current year's presentation.
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>
March 31, December 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Finished Goods $ 8,662,232 $ 8,543,784
Work in process 18,493,758 18,425,735
Raw material and supplies 4,375,812 1,269,404
-------------------- --------------------
$ 31,531,802 $ 28,238,923
==================== ====================
</TABLE>
3. Long-term Debt
On January 10, 1997, the Company issued $4.0 million of interest bearing notes
to complete the acquisition of its Brazilian subsidiary, Lancer do Brasil,
Ltda., formerly Vila Formosa, Ltda., from PanAmerican Beverages, Inc. The notes,
issued to the seller, are due in five equal annual installments and bear
interest based upon and fluctuating with the London Interbank Offered Rates.
4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(Statement 128). Statement 128 specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with publicly
held common stock or potential common stock. Statement 128 was issued to
simplify the computation of EPS and to make the U.S. standard more compatible
with the EPS standards of other countries and that of the International
Accounting Standards Committee (IASC). It replaces the presentation of primary
EPS with a presentation of basic EPS and fully diluted EPS with diluted EPS.
6
<PAGE>
If the Company had adopted the Statement as of March 31, 1997, EPS would have
been as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
------------------- -------------------
<S> <C> <C>
Basic EPS $ 0.31 $ 0.23
Diluted EPS 0.29 0.22
</TABLE>
5. Subsequent Event
In April 1997, the Company completed its acquisition of the Applied Beverage
Systems (1990), Ltd. (ABS) business based in Auckland, New Zealand. ABS
manufactures and distributes fountain soft drink and beer dispensing systems in
New Zealand, Australia and Brazil. The acquisition was effected as a purchase of
certain assets and liabilities of ABS (the Net Assets) for a combination of $1.5
million in cash and 81,888 shares of Lancer Corporation common stock, based on a
price of $19 per share.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Comparison of the Three-Month Periods Ended March 31, 1997 and 1996
Net sales for the quarter ended March 31, 1997 were $30.4 million, a $6.7
million (28.4%) increase from the $23.7 million for the same period in 1996.
Domestic and international sales in the 1997 period increased by $3.4 million
(26.3%) and $3.3 million (30.9%) respectively, over levels of the same period of
1996. The increase was the result of increased sales volumes due to stronger
demand for most of the Companys product lines, plus the inclusion of Lancer do
Brasil, Ltda., a Brazilian based wholly-owned subsidiary, which began operations
in January 1997.
Gross profit for the first quarter of 1997 increased to $7.7 million (25.2% of
net sales) from $5.7 million (24.1% 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 $4.2 million during the
quarter ended March 31, 1997, an increase of $1.0 million, or 30.9%, from the
first quarter of 1996. Expenses rose because of higher activity levels in
support of increased sales volume and the inclusion of Lancer do Brasil, Ltda.
Interest expense was $547 thousand in the first quarter of 1997, up from $429
thousand in the same period of 1996, reflecting higher average borrowings.
Net earnings for the quarter ended March 31, 1997 were $1.8 million, up 33.6%
from the $1.3 million earned in the same quarter of 1996.
Liquidity and Capital Resources
Cash from operating activities was $1.4 million for the three months ended March
31, 1997 compared to $747 thousand for the same period in the prior year.
Capital spending of $2.7 million together with $2.0 million in cash used to
acquire the Brazilian subsidiary were the primary investments made by the
Company in the 1997 period. These expenditures were financed by the $1.4 million
of cash generated from operating activities and by borrowings under the Companys
credit facilities.
7
<PAGE>
The Company is continuing the expansion of its manufacturing and administrative
facilities is San Antonio. The construction is expected to be completed by the
end of 1997. The remaining construction costs of approximately $2.5 million will
be funded from the Companys credit facilities.
In addition to the initial cash paid for its Brazilian subsidiary, the Company
also issued to the seller $4.0 million in five-year notes due in five equal
annual installments. The outstanding balance under the notes bear interest based
upon and fluctuating with LIBOR.
Subsequent to March 31, 1997 the Company acquired certain assets and liabilities
of Applied Beverage Systems (1990), Ltd. (ABS) . The purchase purchase price of
$3.1 million was financed by borrowings of $1.5 million of borrowings under the
Company's credit facilities and 81,888 shares of Lancer Corporation common stock
based on a price of $19 per share.
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.
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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
The Company filed a report on Form 8-K in January 1997 for the
acquisition of a subsidiary company.
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)
May 14, 1997 By: /s/George F. Schroeder
George F. Schroeder
President and CEO
May 14, 1997 By: /s/John P. Herbots
John P. Herbots
Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,184
<SECURITIES> 0
<RECEIVABLES> 25,340
<ALLOWANCES> (185)
<INVENTORY> 31,532
<CURRENT-ASSETS> 58,159
<PP&E> 48,820
<DEPRECIATION> (20,287)
<TOTAL-ASSETS> 95,691
<CURRENT-LIABILITIES> 32,383
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 38,831
<TOTAL-LIABILITY-AND-EQUITY> 95,691
<SALES> 30,398
<TOTAL-REVENUES> 30,415
<CGS> 22,734
<TOTAL-COSTS> 26,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (547)
<INCOME-PRETAX> 2,913
<INCOME-TAX> 1,123
<INCOME-CONTINUING> 1,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,790
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
