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 June 30, 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
August 6, 1997
Common stock, par value $.01 per share 8,895,784
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1997 1996
-------------------- --------------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 2,734,981 $ 1,016,425
-------------------- --------------------
Receivables:
Trade accounts and notes 27,284,845 19,686,318
Refundable income taxes - 396,495
Other 1,156,037 690,034
-------------------- --------------------
28,440,882 20,772,847
Less allowance for doubtful accounts (189,597) (185,000)
-------------------- --------------------
Net receivables 28,251,285 20,587,847
-------------------- --------------------
Inventories
38,443,054 28,238,923
Prepaid expenses 150,626 243,937
Deferred tax asset 109,521 64,513
-------------------- --------------------
Total current assets 69,689,467 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 16,137,015 14,925,713
Tools and dies 8,558,986 8,448,506
Leaseholds, office equipment and vehicles 6,290,811 5,945,069
Construction in progress 9,427,657 5,162,508
-------------------- --------------------
51,405,228 45,470,925
Less accumulated depreciation and amortization (20,902,182) (19,676,377)
-------------------- --------------------
Net property, plant and equipment 30,503,046 25,794,548
-------------------- --------------------
Long-term receivables 362,801 404,007
Investment in affiliates 3,261,225 2,975,000
Intangibles and other assets,
at cost, less accumulated amortization 6,098,023 2,684,073
-------------------- --------------------
$ 109,914,562 $ 82,009,273
==================== ====================
<CAPTION>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS EQUITY
June 30, December 31,
1997 1996
-------------------- -------------------
(Unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $ 13,170,413 $ 6,302,345
Current installments of long-term debt 3,270,000 1,852,500
Line of credit with bank 19,100,000 11,700,000
Deferred licensing and maintenance fees 1,027,530 1,339,868
Accrued expenses and other liabilities 4,664,807 4,288,130
Income taxes payable 287,087 -
-------------------- -------------------
Total current liabilities 41,519,837 25,482,843
Deferred tax liability 1,109,568 1,038,655
Other long-term liabilities 848,771 820,000
Long-term debt, excluding current installments 22,103,750 15,459,375
Deferred licensing and maintenance fees 2,173,149 2,172,137
-------------------- -------------------
Total liabilities 67,755,075 44,973,010
-------------------- -------------------
Shareholders equity:
Common stock, $.01 par value:
50,000,000 shares authorized; 8,895,036 and 5,820,976
issued and outstanding in 1997 and 1996, respectively 88,950 58,209
Additional paid-in capital 11,555,581 9,888,244
Cumulative translation adjustment 17,623 183,803
Retained earnings 30,497,333 26,906,007
-------------------- -------------------
Total shareholders equity
42,159,487 37,036,263
-------------------- -------------------
$ 109,914,562 $ 82,009,273
==================== ===================
<CAPTION>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 32,294,556 $ 25,602,226 $ 62,692,715 $ 49,280,423
Cost of sales 24,353,236 19,482,223 47,086,773 37,457,419
--------------- --------------- -------------- --------------
Gross profit 7,941,320 6,120,003 15,605,942 11,823,004
Selling, general and
administrative expenses 4,836,694 3,403,310 9,057,344 6,626,830
--------------- --------------- -------------- --------------
Operating income 3,104,626 2,716,693 6,548,598 5,196,174
--------------- --------------- -------------- --------------
Other income (expense):
Interest expense (826,649) (378,456) (1,374,107) (807,365)
Other income, net 447,816 97,173 464,185 221,277
--------------- --------------- -------------- --------------
(378,833) (281,283) (909,922) (586,088)
--------------- --------------- -------------- --------------
Income before income taxes 2,725,793 2,435,410 5,638,676 4,610,086
--------------- --------------- -------------- --------------
Income tax expense (benefit):
Current 874,813 949,757 1,976,437 1,814,351
Deferred 49,786 (40,219) 70,913 (70,512)
--------------- --------------- -------------- --------------
924,599 909,538 2,047,350 1,743,839
--------------- --------------- -------------- --------------
Net earnings $ 1,801,194 $ 1,525,872 $ 3,591,326 $ 2,866,247
=============== =============== ============== ==============
Weighted average shares 9,380,837 9,110,795 9,371,218 9,070,248
=============== =============== ============== ==============
Net earnings per share $ 0.19 $ 0.17 $ 0.38 $ 0.32
=============== =============== ============== ==============
<CAPTION>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, June 30,
1997 1996
----------------------- -----------------------
Cash flow from operating activities:
<S> <C> <C>
Net earnings $ 3,591,326 $ 2,866,247
Adjustments to reconcile net income to net cash provided (used)
by operating activities (net of effects from purchase of
subsidiaries:)
Depreciation and amortization 1,234,297 1,232,021
Loss on sale and disposal of assets - 1,382
Cumulative effect of the translation adjustment (166,180) 213,997
Gain on investments in affiliates (9,945) -
Changes in assets and liabilities:
Receivables (6,727,884) (5,568,485)
Refundable income taxes 396,495 -
Prepaid expenses 110,733 (231,042)
Deferred tax liability 25,905 (63,912)
Inventories (6,021,115) (3,271,354)
Other assets 173,196 (6,963)
Accounts payable 6,285,948 2,048,976
Accrued expenses and other liabilities 214,348 1,524,463
Income taxes payable 287,087 350,931
Deferred license fees and other revenue (311,326) 951,587
Other long-term liabilities 28,771 60,000
----------------------- -----------------------
Net cash (used) provided by operating activities (888,344) 107,848
----------------------- -----------------------
Cash flow from investing activities:
Proceeds from sale of assets - 200
Acquisition of property, plant and equipment (4,966,526) (3,583,441)
Acquisition of subsidiary companies (3,768,375) -
Additional investments in affiliates (276,280) -
----------------------- -----------------------
Net cash used in investing activities (9,011,181) (3,583,241)
----------------------- -----------------------
Cash flow from financing activities:
Net borrowings under line of credit agreements 7,400,000 5,000,000
Proceeds from long-term debt 5,100,000 -
Retirement of long-term debt (1,024,125) (676,133)
Proceeds from exercise of stock options 142,206 23,204
----------------------- -----------------------
Net cash provided by financing activities 11,618,081 4,347,071
----------------------- -----------------------
Net increase in cash 1,718,556 871,678
Cash at beginning of year 1,016,425 754,352
----------------------- -----------------------
Cash at end of period $ 2,734,981 $ 1,626,030
======================= =======================
<CAPTION>
Lancer issued debt of $3,986,000 and stock of $1,555,872 to the sellers of the subsidiaries acquired in 1997.
The non-cash portion of these transactions is excluded from the above statement.
See accompanying notes to consolidated financial statements.
</TABLE>
<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 8, 1997, 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>
June 30, December 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Finished Goods $ 10,560,851 $ 8,543,784
Work in process 22,547,285 18,425,735
Raw material and supplies 5,334,918 1,269,404
==================== ====================
$ 38,443,054 $ 28,238,923
==================== ====================
</TABLE>
3. Long-term Debt and Revolving Facility
Effective May 12, 1997, the Company increased its revolving facility from $17.5
million to $25.0 million. All other material terms of the revolving facility are
unchanged.
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.
<PAGE>
If the Company had adopted the Statement as of June 30, 1997, EPS would have
been as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Basic EPS $ 0.20 $ 0.17 $ 0.40 $ 0.33
Diluted EPS 0.19 0.17 0.38 0.32
</TABLE>
Item 2 - Managements Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Comparison of the Three-Month Periods Ended June 30, 1997 and 1996
Net sales for the quarter ended June 30, 1997 were $32.3 million, a 26.1%
increase from sales in the second quarter of 1996. The increase in 1997 reflects
the inclusion of the Companys newly-acquired operations in Brazil and New
Zealand, sales of frozen beverage equipment produced by the joint venture formed
in late 1996, as well as growth from established operations. Sales to customers
outside the United States accounted for 55.1% of sales in the second quarter of
1997, and 37.1% of sales in the second quarter of 1996.
Gross margins in the second quarter of 1997 were 24.6%, up from 23.9% in the
same period of 1996. The improvement was the result of improved manufacturing
efficiencies.
Selling, general and administrative expenses were $4.8 million during the
quarter ended June 30, 1997, an increase of $1.4 million, or 42.1% from the
second quarter of 1996. The Companys newly acquired operations in Brazil and
New Zealand, and the establishment of a distribution company based in Belgium,
contributed to the increase in expenses in the 1997 quarter.
Interest expense for the three months ended June 30, 1997 was $0.8 million, up
$0.4 million, or 118.4%, from the same period of 1996. The higher interest
expense in 1997 was driven by increased borrowing that financed Lancers recent
acquisitions, capital spending, and growth of its current assets. Other income
was $0.4 million in the second quarter of 1997, up from $0.1 million in the 1996
period. Income from the Companys frozen beverage dispenser joint venture was
primarily responsible for the improvement in 1997. Net earnings for the 1997
quarter was $1.8 million, up 18.0% from the $1.5 million of net earnings in
1996.
Comparison of the Six-Month Periods ended June 30, 1997 and 1996
Net sales for the six months ended June 30, 1997 were $62.7 million, a 27.2%
increase from net sales in the same period of 1996. The Companys new operations
in Brazil (acquired in January, 1997) and in New Zealand (acquired in April,
1997) contributed to the sales growth. In addition, sales of the Companys
frozen beverage dispensers and an overall increase in international sales also
contributed to the sales growth during the 1997 period. Sales to customers
outside the United States were 50.3% of net sales in the first half of 1997,
compared to 41.2% in the same period of 1996.
Gross margins in the first half of 1997 were 24.9%, compared to 24.0% in the
first two quarters of 1996. Continued improved manufacturing efficiencies drove
the gross margin improvement in the 1997 period.
Selling, general and administrative expenses were $9.1 million in the first two
quarters of 1997, a 36.7% increase over the amount incurred in the year earlier
period. Added operating costs associated with the Companys new operations in
Brazil, New Zealand and Belgium led to the increase.
Interest expense rose to $1.4 million in the first half of 1997 from $0.8
million in the same period of 1996. Larger borrowings caused the increase in
1997. Other income for the six months was $0.5 million in 1997, up from $0.2
million in 1996. Net earnings rose to $3.6 million for the six-month period of
1997 from $2.9 million in the 1996 period.
Liquidity and Capital Resources
Net cash used by operating activities was $0.9 million in the first half of
1997, compared to $0.1 million of cash provided by operating activities in the
same period of the prior year. Lancer invested $5.0 million in property, plant
and equipment in the first half of 1997. Additionally, the Company paid
approximately $6.0 million for its Brazilian operations, and $3.3 million for
the assets of the New Zealand company acquired in the second quarter. The
Company financed the Brazilian transaction with a $4.0 million note issued to
the seller and $2.0 million in cash. The New Zealand consideration consisted of
122,832 shares of Lancer Corporation common stock valued at approximately $1.6
million, adjusted for the three-for-two stock split effected July 8, 1997, and
$1.7 million in cash. Lancer financed the cash portion of its acquisitions and
its capital spending with bank debt.
Effective May 12, 1997, the Company increased its revolving facility from $17.5
million to $25.0 million. All other material terms of the revolving facility are
unchanged.
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 4 - Submission of Matters to a Vote of Security Holders
During the Lancer Corporation Annual Meeting of Shareholders held May 22, 1997,
the Shareholders considered the following proposals:
1.) An amendment to the Companys 1996 Stock Incentive Plan (the
Plan) to allow for an increase in the maximum number of shares
for which options may be awarded under the Plan. The shareholders
approved an increase to 600,000 shares from 225,000 shares of
Common Stock reserved for issuance upon exercise of options to be
granted under the Plan. Such shares were subsequently increased to
900,000 following a three-for-two stock split effected as of July
8, 1997. Of the then outstanding shares, 5,009,858 voted for the
amendment to the Plan, 242,937 voted against, and 58,233
abstained.
2). An amendment to the Companys Articles of Incorporation increasing
the number of authorized Common Shares to 50,000,000 nonassessable
$0.01 par value common shares from 10,000,000 shares. Of the then
outstanding shares, 5,060,283 voted for the amendment to the
Articles of Incorporation, 403,101 voted against and 9,598
abstained.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
None
<PAGE>
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)
August 13, 1997 By: /s/ George F. Schroeder
George F. Schroeder
President and CEO
August 13, 1997 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 Companys 10-Q For The Year-to-date, And Is
Qualified In Its Entirety By Reference To Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,735
<SECURITIES> 0
<RECEIVABLES> 28,441
<ALLOWANCES> (190)
<INVENTORY> 38,443
<CURRENT-ASSETS> 69,689
<PP&E> 51,405
<DEPRECIATION> (20,902)
<TOTAL-ASSETS> 109,915
<CURRENT-LIABILITIES> 41,520
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 42,071
<TOTAL-LIABILITY-AND-EQUITY> 109,915
<SALES> 62,693
<TOTAL-REVENUES> 63,157
<CGS> 47,087
<TOTAL-COSTS> 56,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,374)
<INCOME-PRETAX> 5,639
<INCOME-TAX> 2,047
<INCOME-CONTINUING> 3,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,591
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
