<PAGE> 1
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, 2000 COMMISSION FILE NUMBER 0-13875
LANCER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1591073
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
6655 LANCER BLVD., SAN ANTONIO, TEXAS 78219
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (210) 310-7000
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.
<TABLE>
<CAPTION>
TITLE SHARES OUTSTANDING AS OF
AUGUST 3, 2000
<S> <C>
Common stock, par value $.01 per share 9,124,857
</TABLE>
<PAGE> 2
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
--------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 830 $ 1,227
Receivables:
Trade accounts and notes 20,400 17,483
Other 559 537
--------- ---------
20,959 18,020
Less allowance for doubtful accounts (397) (414)
--------- ---------
Net receivables 20,562 17,606
--------- ---------
Inventories 38,887 36,166
Prepaid expenses 703 465
Income tax receivable -- 3,505
Deferred tax asset 95 134
--------- ---------
Total current assets 61,077 59,103
--------- ---------
Property, plant and equipment, at cost:
Land 1,260 1,260
Buildings 21,885 21,880
Machinery and equipment 20,838 20,531
Tools and dies 9,879 9,025
Leaseholds, office equipment and vehicles 9,852 8,941
Assets in progress 2,317 1,821
--------- ---------
66,031 63,458
Less accumulated depreciation and amortization (29,621) (27,795)
--------- ---------
Net property, plant and equipment 36,410 35,663
--------- ---------
Long-term receivables ($766 and $746 due
from officers, respectively) 1,043 1,029
Long-term investments 2,874 3,053
Intangibles and other assets,
at cost, less accumulated amortization 4,015 4,206
--------- ---------
$ 105,419 $ 103,054
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,592 9,119
Current installments of long-term debt 4,447 5,083
Line of credit with bank 20,300 17,600
Deferred licensing and maintenance fees 774 619
Accrued expenses and other liabilities 4,586 4,091
Taxes payable 2,055 --
--------- ---------
Total current liabilities 41,754 36,512
Deferred tax liability 2,596 3,102
Long-term debt, excluding current installments 11,971 13,922
Deferred licensing and maintenance fees 3,803 4,500
--------- ---------
Total liabilities 60,124 58,036
--------- ---------
Commitments and contingencies -- --
Minority interest 406 542
Shareholders' equity:
Preferred stock, without par value
5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value:
50,000,000 shares authorized; 9,124,857
issued and outstanding 91 91
Additional paid-in capital 11,933 11,933
Accumulated other comprehensive loss (2,524) (1,816)
Retained earnings 35,389 34,268
--------- ---------
Total shareholders' equity 44,889 44,476
--------- ---------
$ 105,419 $ 103,054
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 31,551 $ 38,072 $ 59,280 $ 74,300
Cost of sales 23,395 30,498 44,887 58,658
----------- ----------- ----------- -----------
Gross profit 8,156 7,574 14,393 15,642
Selling, general and
administrative expenses 6,093 5,355 11,085 10,548
----------- ----------- ----------- -----------
Operating income 2,063 2,219 3,308 5,094
----------- ----------- ----------- -----------
Other (income) expense:
Interest expense 802 896 1,468 1,804
(Earnings) loss from joint venture (58) (1,068) 33 (1,528)
Minority interest (69) -- (136) --
Other (income) expense, net (44) 73 (50) (7)
----------- ----------- ----------- -----------
631 (99) 1,315 269
----------- ----------- ----------- -----------
Income before income taxes 1,432 2,318 1,993 4,825
----------- ----------- ----------- -----------
Income tax expense (benefit):
Current 1,130 764 1,377 1,717
Deferred (504) 104 (505) 207
----------- ----------- ----------- -----------
626 868 872 1,924
----------- ----------- ----------- -----------
Net earnings $ 806 $ 1,450 $ 1,121 $ 2,901
=========== =========== =========== ===========
Common Shares and
Equivalents Outstanding:
Basic 9,124,857 9,121,482 9,124,857 9,121,482
Diluted 9,263,726 9,283,841 9,283,900 9,313,484
Earnings Per Share:
Basic $ 0.09 $ 0.16 $ 0.12 $ 0.32
Diluted $ 0.09 $ 0.16 $ 0.12 $ 0.31
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
2000 1999
-------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net earnings $ 1,121 $ 2,901
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 2,074 1,828
Deferred licensing and maintenance fees (542) 167
Deferred income taxes (505) 250
Gain on sale and disposal of assets (1) (8)
Minority interest (136) --
Loss (earnings) from joint venture 33 (1,528)
Changes in assets and liabilities:
Receivables (3,436) (3,095)
Prepaid expenses (238) (150)
Income taxes receivable 3,505 205
Inventories (3,055) 1,995
Other assets (138) (329)
Accounts payable 804 760
Accrued expenses 546 (455)
Income taxes payable 2,083 405
------- -------
Net cash provided by operating activities 2,115 2,946
------- -------
Cash flow from investing activities:
Proceeds from sale of assets 2 12
Acquisition of property, plant and equipment (2,796) (2,434)
Acquisition of subsidiary company -- (1,718)
Cash proceeds from long-term investments and affiliates 235 706
------- -------
Net cash used in investing activities (2,559) (3,434)
------- -------
Cash flow from financing activities:
Net borrowings under line of credit agreements 2,700 1,800
Retirement of long-term debt, net of proceeds (2,536) (1,109)
------- -------
Net cash provided by financing activities 164 691
------- -------
Effect of exchange rate changes on cash (117) (185)
------- -------
Net (decrease) increase in cash (397) 18
Cash at beginning of period 1,227 1,119
------- -------
Cash at end of period $ 830 $ 1,137
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999 Annual Report on Form 10-K.
Certain amounts in the consolidated financial statements for prior periods have
been reclassified to conform with the current year's presentation.
2. INVENTORY COMPONENTS
Inventories are stated at the lower of cost or market on a first-in, first-out
basis (average cost as to raw materials and supplies) or market (net realizable
value). Inventory components are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -----------
<S> <C> <C>
Finished goods $15,012 $14,662
Work in process 10,322 10,828
Raw material and supplies 13,553 10,676
------- -------
$38,887 $36,166
======= =======
</TABLE>
3. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding and diluted earnings per share is calculated assuming
the issuance of common shares for all potential dilutive common shares
outstanding during the reporting period. The dilutive effect of stock options
approximated 138,869 and 162,359 shares for the three months ended June 30, 2000
and 1999, and 159,043 and 192,002 shares for the six months ended June 30, 2000
and 1999, respectively.
6
<PAGE> 7
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMPREHENSIVE INCOME
The following are the components of comprehensive income (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 806 $ 1,450 $ 1,121 $ 2,901
Foreign currency gain (loss) arising
during the period (249) 31 (766) (1,306)
Unrealized gain (loss) on investment (net of tax) (19) (12) 58 102
------- ------- ------- -------
Comprehensive income $ 538 $ 1,469 $ 413 $ 1,697
======= ======= ======= =======
</TABLE>
Accumulated other comprehensive loss on the accompanying consolidated balance
sheets includes foreign currency translation adjustments and unrealized gain
(loss) on investment.
5. SEGMENT AND GEOGRAPHIC INFORMATION
The Company and its subsidiaries are engaged in the manufacture and distribution
of beverage dispensing equipment and related parts and components. The Company
manages its operations geographically. Sales are attributed to a region based on
the ordering location of the customer. (Amounts in thousands)
<TABLE>
<CAPTION>
North Latin
America America Pacific Brazil Europe Asia Corporate Total
--------- -------- -------- ------- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended June 30, 2000
Total revenues $ 19,802 $ 2,238 $ 4,188 $ 288 $ 4,030 $ 1,005 $ - $ 31,551
Operating income (loss) 3,944 299 449 (3) 909 371 (3,906) 2,063
Three months ended June 30, 1999
Total revenues $ 25,477 $ 3,177 $ 3,319 $ 481 $ 3,287 $ 2,331 $ - $ 38,072
Operating income (loss) 3,928 379 295 (149) 418 362 (3,014) 2,219
Six months ended June 30, 2000
Total revenues $ 37,655 $ 3,909 $ 9,109 $ 862 $ 5,998 $ 1,747 $ - $ 59,280
Operating income (loss) 6,355 665 1,287 50 1,069 645 (6,763) 3,308
Six months ended June 30, 1999
Total revenues $ 48,679 $ 6,986 $ 6,592 $ 825 $ 6,327 $ 4,891 $ - $ 74,300
Operating income (loss) 8,451 780 598 (553) 1,003 725 (5,910) 5,094
</TABLE>
All intercompany revenues are eliminated in computing revenues and operating
income. The corporate component of operating income represents corporate general
and administrative expenses.
7
<PAGE> 8
LANCER CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This document contains certain "forward-looking" statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "forecast," "plan," and "intend" and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions which exist
or must be made as a result of certain factors including, without limitation,
competitive factors, general economic conditions, customer relations,
relationships with vendors, the interest rate environment, governmental
regulation and supervision, seasonality, distribution networks, product
introductions and acceptance, one-time events and other factors described herein
and in other filings made by the Company with the Securities and Exchange
Commission. Based upon changing conditions, should any one or more of these
risks or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, forecast, planned or intended. The
Company does not intend to update these forward-looking statements.
RESULTS OF OPERATIONS
Comparison of the Three-Month Periods Ended June 30, 2000 and 1999
Net sales for the quarter ended June 30, 2000 were $31.6 million, down 17% from
net sales in the second quarter of 1999. Sales in the Company's North American
region declined 22%, primarily because of lower sales of frozen beverage
equipment. Revenue fell 30% in Latin America (excluding Brazil), and 57% in
Asia. Market conditions in the two regions remained unfavorable. Sales in the
Pacific region increased 26%, due largely to strong demand for beer equipment.
Gross margin in the second quarter of 2000 was 25.9%, up from 19.9% in the
second quarter of 1999. The improvement in margin was caused primarily by lower
sales of frozen beverage equipment. The Company buys the equipment from a joint
venture of which the Company owns 50%. The Company resells the dispensers and
earns a distribution profit, which is reflected in gross margin. The Company's
50% share of the manufacturing profit, after elimination of profit in ending
inventory, is included in other income. Better plant utilization and improved
manufacturing efficiencies also contributed to the margin gain.
Selling, general and administrative expenses for the second quarter of 2000 were
$6.1 million, compared to $5.4 million in the same period of 1999. The increase
was caused partially by new product development, and by the Company's ABS
distribution subsidiary in Chicago, which did not exist in the second quarter of
1999.
Interest expense in the second quarter of 2000 was $0.8 million, down from the
second quarter of 1999 primarily because of lower average borrowings. The
Company's earnings from its frozen beverage joint venture declined by $1.0
million in the 2000 period because of lower production levels at the joint
venture. The minority interest benefit of $0.1 million stems from the Company's
majority ownership position in Lancer Ice Link, LLC, and represents the minority
partner's share of the subsidiary's losses. Lancer Ice Link's operations are
consolidated with those of the Company. The effective tax rate was 43.7% in the
second quarter of 2000, compared to 37.4% in the second quarter of 1999. The
effective rate rose in 2000 primarily because a larger proportion of the
Company's earnings was in high tax rate jurisdictions, and because of
non-deductible expenses. Second quarter net income was $0.8 million in 2000,
versus $1.5 million in 1999.
8
<PAGE> 9
Comparison of the Six-Month Periods Ended June 30, 2000 and 1999
Net sales for the first six months of 2000 were $59.3 million, down 20% from net
sales in the same period of 1999. Sales in the North America region declined
23%, primarily because of lower sales of frozen beverage dispensers. Revenue
fell 44% in Latin America (excluding Brazil) and 64% in Asia, as market
conditions remained unfavorable in the two regions. Revenue in the Pacific
region rose 38%, due largely to strong demand for beer equipment.
Gross margin in the first half of 2000 was 24.3%, compared to 21.1% in the first
half of 1999. The improvement in margin was caused primarily by lower sales of
frozen beverage equipment. The Company buys the equipment from a joint venture
of which the Company owns 50%. The Company resells the dispensers and earns a
distribution profit, which is reflected in gross margin. The Company's 50% share
of the manufacturing profit, after elimination of profit in ending inventory, is
included in other income.
Selling, general and administrative expenses were $11.1 million during the first
six months of 2000, compared to $10.5 million in the first half of 1999. The
increase was partially caused by new product development expenses, and by the
Company's ABS distribution subsidiary in Chicago, which did not exist in the
first half of 1999.
Interest expense in the first six months of 2000 was $1.5 million, down from
$1.8 million in the same period last year primarily because of lower average
borrowings. The Company's earnings from its frozen beverage joint venture
declined by $1.6 million in the first half of 2000 because of lower production
levels at the joint venture. The minority interest benefit stems from the
Company's majority ownership position in Lancer Ice Link, LLC, and represents
the minority partner's share of the subsidiary's losses. Lancer Ice Link's
operations are consolidated with those of the Company. The effective tax rate
was 43.8% in the first half of 2000, compared to 39.9% in the first half of
1999. The effective rate rose in 2000 primarily because a larger proportion of
the Company's earnings was earned in high tax rate jurisdictions, and because of
non-deductible expenses. Net income was $1.1 million in the first half of 2000,
versus $2.9 million in the same period of 1999.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from operations and
amounts available under the Company's existing lines of credit. The Company has
met, and currently expects that it will continue to meet, substantially all of
its working capital and capital expenditure requirements, as well as its debt
service requirements, with funds provided by operations and borrowings under its
credit facilities. The Company is in compliance with, or has obtained waivers
of, the financial covenants contained in the credit agreement that governs the
Company's primary credit facilities.
Cash provided by operating activities was $2.1 million in the first six months
of 2000, compared to $2.9 million in the same period last year. The Company made
capital expenditures of $2.8 million in the first half of 2000, primarily for
production tooling and equipment.
Accounting Matters
The Company maintains a DISC in order to defer income taxes on its foreign
sales. The Company continues to evaluate the benefit of converting the DISC to a
Foreign Sales Corporation. At the time of such conversion, the Company will be
required to provide for federal income taxes on $2.4 million of undistributed
earnings of the DISC. See 1999 Form 10-K.
The Internal Revenue Service is examining the Company's U.S. income tax return
for 1995. Management does not believe that any significant adjustments will be
required as a result of this review.
9
<PAGE> 10
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement provides guidance on
accounting and financial reporting for derivative instruments and hedging
activities. The Statement requires the recognition of all derivatives as either
assets or liabilities in the consolidated balance sheet, and the periodic
measurement of those instruments at fair value. The Company plans to adopt SFAS
No. 133 effective January 1, 2001. The Company anticipates having certain
derivative instruments, principally interest rate swap agreements, at the time
of adoption. The Company is currently analyzing and assessing the impact that
the adoption of SFAS No. 133 is expected to have on its consolidated results of
operations, cash flows and financial position.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in the Company's market risk factors
since December 31, 1999.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of the Company held on May 18, 2000, the
shareholders elected eight members of the Board of Directors of the Company to
serve until the next annual meeting of the shareholders.
The vote for nominated directors was as follows:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
------- --------- -------------------
<S> <C> <C>
Walter J. Beigler 8,054,678 173,811
Jean M. Braley 8,056,190 172,299
Charles K. Clymer 8,056,678 171,811
Olivia F. Kirtley 8,057,690 170,799
Alfred A. Schroeder 8,052,490 175,999
George F. Schroeder 8,041,990 186,499
Micheal E. Smith 8,056,178 172,311
E.T. (Toby) Summers 8,057,690 170,799
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
10
<PAGE> 11
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 11, 2000 By: /s/ GEORGE F. SCHROEDER
-----------------------
George F. Schroeder
President and CEO
August 11, 2000 By: /s/ MARK L. FREITAS
-------------------
Mark L. Freitas
Vice President - Controller
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
