<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 MARCH 31, 2000 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.)
6655 LANCER BLVD., SAN ANTONIO, TEXAS 78219
(Address of principal executive offices) (Zip Code)
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.
TITLE SHARES OUTSTANDING AS OF
MAY 8, 2000
Common stock, par value $.01 per share 9,124,857
<PAGE> 2
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 556 $ 1,227
Receivables:
Trade accounts and notes 17,991 17,483
Other 775 537
--------- ---------
18,766 18,020
Less allowance for doubtful accounts (405) (414)
--------- ---------
Net receivables 18,361 17,606
--------- ---------
Inventories 37,818 36,166
Prepaid expenses 587 465
Income tax receivable 2,381 3,505
Deferred tax asset 92 134
--------- ---------
Total current assets 59,795 59,103
--------- ---------
Property, plant and equipment, at cost:
Land 1,260 1,260
Buildings 21,880 21,880
Machinery and equipment 20,677 20,531
Tools and dies 9,300 9,025
Leaseholds, office equipment and vehicles 9,166 8,941
Assets in progress 2,668 1,821
--------- ---------
64,951 63,458
Less accumulated depreciation and amortization (28,669) (27,795)
--------- ---------
Net property, plant and equipment 36,282 35,663
--------- ---------
Long-term receivables ($762 and $746 due
from officers, respectively) 1,080 1,029
Long-term investments 2,793 3,053
Intangibles and other assets,
at cost, less accumulated amortization 4,003 4,206
--------- ---------
$ 103,953 $ 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>
March 31, December 31,
2000 1999
--------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,575 $ 9,119
Current installments of long-term debt 3,997 5,083
Line of credit with bank 20,200 17,600
Deferred licensing and maintenance fees 689 619
Accrued expenses and other liabilities 3,975 4,091
--------- ---------
Total current liabilities 39,436 36,512
Deferred tax liability 3,108 3,102
Long-term debt, excluding current installments 12,771 13,922
Deferred licensing and maintenance fees 3,812 4,500
--------- ---------
Total liabilities 59,127 58,036
--------- ---------
Commitments and contingencies -- --
Minority interest 475 542
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 (2,256) (1,816)
Retained earnings 34,583 34,268
--------- ---------
Total shareholders' equity 44,351 44,476
--------- ---------
$ 103,953 $ 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
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 27,729 $ 36,228
Cost of sales 21,492 28,160
----------- -----------
Gross profit 6,237 8,068
Selling, general and
administrative expenses 4,992 5,193
----------- -----------
Operating income 1,245 2,875
----------- -----------
Other (income) expense:
Interest expense 666 908
Loss (earnings) from joint venture 91 (460)
Minority interest (67) --
Other (income) expense, net (6) (80)
----------- -----------
684 368
----------- -----------
Income before income taxes 561 2,507
Income tax (benefit) expense:
Current 247 953
Deferred (1) 103
----------- -----------
246 1,056
----------- -----------
Net earnings $ 315 $ 1,451
=========== ===========
Common Shares and
Equivalents Outstanding:
Basic 9,124,857 9,121,482
Diluted 9,249,015 9,344,485
Earnings Per Share:
Basic $ 0.03 $ 0.16
Diluted $ 0.03 $ 0.16
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net earnings $ 315 $ 1,451
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 1,028 940
Deferred licensing and maintenance fees (618) (86)
Deferred income taxes (1) (21)
Loss on sale and disposal of assets (1) (9)
Minority interest (67) --
Loss (earnings) from joint venture 91 (460)
Changes in assets and liabilities:
Receivables (1,141) 756
Prepaid expenses (122) (21)
Income taxes receivable 1,124 212
Inventories (1,878) (1,986)
Other assets (49) (186)
Accounts payable 1,680 4,592
Accrued expenses (86) (445)
Income taxes payable 32 695
------- -------
Net cash provided by operating activities 307 5,432
------- -------
Cash flow from investing activities:
Proceeds from sale of assets 2 12
Acquisition of property, plant and equipment (1,632) (1,042)
Cash proceeds from long-term investments and affiliates 287 16
------- -------
Net cash used in investing activities (1,343) (1,014)
------- -------
Cash flow from financing activities:
Net borrowings (repayments) under line of credit agreements 2,600 (2,300)
Retirement of long-term debt, net of proceeds (2,203) (1,597)
------- -------
Net cash provided by (used in) financing activities 397 (3,897)
------- -------
Effect of exchange rate changes on cash (32) 47
------- -------
Net (decrease) increase in cash (671) 568
Cash at beginning of period 1,227 1,119
------- -------
Cash at end of period $ 556 $ 1,687
======= =======
</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>
March 31, December 31,
2000 1999
-------- -----------
<S> <C> <C>
Finished Goods $15,819 $14,662
Work in process 9,194 10,828
Raw material and supplies 12,805 10,676
------- -------
$37,818 $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 potentially dilutive common shares
outstanding during the reporting period. The dilutive effect of stock options
approximated 124,158 and 223,003 shares for the three months ended March 31,
2000 and 1999, respectively.
6
<PAGE> 7
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMPREHENSIVE (LOSS) INCOME
The following are the components of comprehensive (loss) income (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
-------- --------
<S> <C> <C>
Net earnings $ 315 $ 1,451
Foreign currency loss arising
during the period (517) (1,338)
Unrealized gain on investment (net of tax) 77 114
------- -------
Comprehensive (loss) income $ (125) $ 227
======= =======
</TABLE>
Accumulated other comprehensive loss on the accompanying consolidated balance
sheets includes foreign currency translation adjustments and unrealized gain 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 All
America America Pacific Brazil Other Corporate Total
------- ------- ------- ------ ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 2000
Total revenues $17,853 1,671 4,921 574 2,710 -- $27,729
Operating income (loss) 2,411 366 837 54 434 (2,857) 1,245
Three months ended March 31, 1999
Total revenues $23,203 3,810 3,273 345 5,597 -- $36,228
Operating income (loss) 4,384 417 303 (403) 1,039 (2,865) 2,875
</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 March 31, 2000 and 1999
Net sales for the quarter ended March 31, 2000 were $27.7 million, down 23% from
net sales in the first quarter of 1999. Sales in the Company's North America
region declined 23%, primarily because of lower sales of frozen beverage
equipment. Revenue fell 56% in Latin America (excluding Brazil), and 52% in Asia
and Europe combined, as market conditions in those regions continued to be soft.
Sales rose 50% in the Pacific region due largely to good demand for beer
equipment.
Gross margin in the first quarter of 2000 was 22.5%, up slightly from 22.3% in
the same period of 1999. The Company has reduced manufacturing costs in response
to the lower sales and production levels.
Selling, general and administrative costs for the first three months of 2000
were $5.0 million, compared to $5.2 million in the first quarter of 1999. The
Company is managing expenses carefully during the current downturn in its
markets.
Interest expense for the first quarter of 2000 was $0.7 million, down from the
first quarter of 1999 primarily because of lower average borrowings. The Company
recognized a loss from its frozen beverage joint venture of $0.1 million in the
first quarter of 2000, compared to $0.5 million of income in the first quarter
last year. 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
financial statements are consolidated with those of the Company. The effective
tax rate in the 2000 quarter was 43.4%, versus 42.1% in the first quarter of
1999. The effective rate exceeded the statutory rate in 2000 primarily because
of non-deductible expenses, and in 1999 because of non-deductible losses by
foreign subsidiaries. First quarter net income was $0.3 million in 2000,
compared to $1.5 million in 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.
8
<PAGE> 9
Cash provided by operating activities was $0.3 million in the first quarter of
2000, compared to $5.4 million in the same period of 1999. The Company made
capital expenditures of $1.6 million, primarily for production tooling.
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.
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.
Part II - Other Information
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
9
<PAGE> 10
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 8, 2000 By: /s/ GEORGE F. SCHROEDER
--------------------------------------
George F. Schroeder
President and CEO
May 8, 2000 By: /s/ MARK L. FREITAS
--------------------------------------
Mark L. Freitas
Vice President - Controller
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Balance Sheets and Consolidated Statements of Income found on
pages 2 to 4 of the Company's Form 10-Q for the Year-to-Date, and is qualified
in its entirety by reference to such Financial Statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 556
<SECURITIES> 0
<RECEIVABLES> 18,766
<ALLOWANCES> 405
<INVENTORY> 37,818
<CURRENT-ASSETS> 59,795
<PP&E> 64,951
<DEPRECIATION> 28,669
<TOTAL-ASSETS> 103,953
<CURRENT-LIABILITIES> 39,436
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 44,260
<TOTAL-LIABILITY-AND-EQUITY> 103,953
<SALES> 27,729
<TOTAL-REVENUES> 27,729
<CGS> 21,492
<TOTAL-COSTS> 26,484
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 666
<INCOME-PRETAX> 561
<INCOME-TAX> 246
<INCOME-CONTINUING> 315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
