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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, 2001 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 4, 2001
Common stock, par value $.01 per share 9,126,557
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Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
March 31, December 31,
2001 2000
----------- ------------
(Unaudited)
Current assets:
Cash $ 1,069 $ 771
Receivables:
Trade accounts and notes 20,244 16,222
Other 751 643
--------- ---------
20,995 16,865
Less allowance for doubtful accounts (375) (379)
--------- ---------
Net receivables 20,620 16,486
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Inventories 40,028 40,224
Prepaid expenses 528 642
Deferred tax asset 248 273
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Total current assets 62,493 58,396
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Property, plant and equipment, at cost:
Land 1,260 1,260
Buildings 21,983 21,981
Machinery and equipment 21,664 21,838
Tools and dies 11,358 11,273
Leaseholds, office equipment and vehicles 10,269 10,143
Assets in progress 2,449 1,581
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68,983 68,076
Less accumulated depreciation and amortization (32,271) (31,384)
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Net property, plant and equipment 36,712 36,692
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Long-term receivables ($500 and $529 due
from officers, respectively) 674 761
Long-term investments 2,680 2,599
Intangibles and other assets,
at cost, less accumulated amortization 3,776 3,944
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$ 106,335 $ 102,392
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See accompanying notes to consolidated financial statements.
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LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
Current liabilities:
Accounts payable $ 10,873 $ 8,962
Current installments of long-term debt 3,084 3,129
Line of credit with bank 22,200 21,000
Deferred licensing and maintenance fees 1,407 774
Accrued expenses and other liabilities 4,775 5,071
Taxes payable 1,327 584
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Total current liabilities 43,666 39,520
Deferred tax liability 2,447 2,448
Long-term debt, excluding current installments 12,374 12,724
Deferred licensing and maintenance fees 4,163 3,873
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Total liabilities 62,650 58,565
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Commitments and contingencies -- --
Minority interest 235 294
Shareholders' equity:
Preferred stock, without par value
5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value:
50,000,000 shares authorized; 9,126,557 and 9,124,857
issued and outstanding in 2001 and 2000, respectively 91 91
Additional paid-in capital 11,939 11,933
Accumulated other comprehensive loss (4,277) (3,317)
Retained earnings 35,697 34,826
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Total shareholders' equity 43,450 43,533
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$ 106,335 $ 102,392
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See accompanying notes to consolidated financial statements.
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LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except share data)
Three Months Ended
March 31, March 31,
2001 2000
----------- -----------
Net sales $ 30,015 $ 27,679
Cost of sales 22,888 21,492
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Gross profit 7,127 6,187
Selling, general and
administrative expenses 5,838 4,942
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Operating income 1,289 1,245
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Other (income) expense:
Interest expense 1,105 666
Loss (earnings) from joint venture (61) 91
Minority interest (59) (67)
Other (income) expense, net (1,116) (6)
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(131) 684
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Income before income taxes 1,420 561
Income tax expense (benefit):
Current 550 247
Deferred (1) (1)
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549 246
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Net earnings $ 871 $ 315
=========== ===========
Common Shares Outstanding:
Basic 9,126,218 9,124,857
Diluted 9,318,880 9,249,015
Earnings Per Share:
Basic $ 0.10 $ 0.03
Diluted $ 0.09 $ 0.03
See accompanying notes to consolidated financial statements.
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LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three Months Ended
March 31, March 31,
2001 2000
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Cash flow from operating activities:
Net earnings $ 871 $ 315
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 1,138 1,028
Deferred licensing and maintenance fees 923 (618)
Deferred income taxes (1) (1)
Gain on sale and disposal of assets (18) (1)
Minority interest (59) (67)
(Earnings) loss from joint venture (61) 91
Changes in assets and liabilities:
Receivables (4,457) (1,141)
Prepaid expenses 114 (122)
Income taxes receivable -- 1,124
Inventories (271) (1,878)
Other assets (187) (49)
Accounts payable 2,275 1,680
Accrued expenses (247) (86)
Income taxes payable 786 32
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Net cash provided by operating activities 806 307
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Cash flow from investing activities:
Proceeds from sale of assets 50 2
Acquisition of property, plant and equipment (1,290) (1,632)
Cash proceeds from long-term investments and affiliates -- 287
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Net cash used in investing activities (1,240) (1,343)
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Cash flow from financing activities:
Net borrowings under line of credit agreements 1,200 2,600
Retirement of long-term debt, net of proceeds (395) (2,203)
Proceeds from exercise of stock options 6 --
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Net cash provided by financing activities 811 397
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Effect of exchange rate changes on cash (79) (32)
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Net increase (decrease) in cash 298 (671)
Cash at beginning of period 771 1,227
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Cash at end of period $ 1,069 $ 556
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See accompanying notes to consolidated financial statements.
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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, 2000 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. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 2001 the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 provides guidance on accounting and financial
reporting for derivative instruments and hedging activities. SFAS No. 133
requires the recognition of all derivatives as either assets or liabilities on
the consolidated balance sheet, and the periodic measurement of those
instruments at fair value. The Company has determined that hedge accounting will
not be elected for derivatives existing at January 1, 2001, which consist of
interest rate swap agreements. Future changes in the fair value of those
derivatives will be recorded in income. The adoption of SFAS No. 133 as of
January 1, 2001, resulted in a cumulative-effect-type expense to other
comprehensive income of $51,000 which will be recognized in interest expense
over the term of the interest rate swap agreements ranging from 11 months to 24
months. As of March 31, 2001, the fair value of the interest rate swap
agreements was a liability of $286,000. During the first quarter of 2001, the
Company recognized in interest expense $10,000 relating to the transition
adjustment and $235,000 relating to the change in the fair value of the interest
rate swap agreements, respectively.
3. 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):
March 31, December 31,
2001 2000
--------- ------------
Finished goods $16,273 $16,407
Work in process 11,884 11,043
Raw material and supplies 11,871 12,774
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$40,028 $40,224
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4. 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 192,662 shares and 124,158 for the three months ended March 31,
2001 and 2000, respectively.
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LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. COMPREHENSIVE INCOME
The following are the components of comprehensive income (loss) (amounts in
thousands):
Three Months Ended
March 31, March 31,
2001 2000
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Net earnings $ 871 $ 315
Foreign currency loss arising
during the period (931) (517)
Unrealized gain on investment (net of tax) 12 77
Unrealized loss on derivative instruments:
Initial loss upon adoption of SFAS. No. 133 (51) --
Reclassification adjustment for loss included
in interest expense 10 --
----- -----
Comprehensive loss $ (89) $(125)
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Accumulated other comprehensive loss on the accompanying consolidated balance
sheets includes foreign currency losses, unrealized loss on investment and
unrealized loss on derivative instruments.
6. 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).
North Latin
America America Pacific Brazil Europe Asia Corporate Total
------- ------- ------- ------- ------- ------- --------- -------
Three months ended March 31, 2001
Total revenues $20,682 $ 2,454 $ 3,038 $ 345 $ 2,728 $ 768 $ -- $30,015
Operating income (loss) 3,870 253 217 (41) 639 81 (3,730) 1,289
Three months ended March 31, 2000
Total revenues $17,811 $ 1,665 $ 4,921 $ 573 $ 1,969 $ 740 $ -- $27,679
Operating income (loss) 2,389 330 837 54 406 63 (2,834) 1,245
All intercompany revenues are eliminated in computing revenues and operating
income. The corporate component of operating income represents corporate general
and administrative expenses.
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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, 2001 and 2000
Net sales for the three months ended March 31, 2001 were $30.0 million, up 8%
from net sales in the same quarter of 2000. Most of the increase came in the
North America region, where sales rose 16%. Sales increased 47% in Latin America
(excluding Brazil) and 39% in Europe. Market conditions in the two regions
improved somewhat from the weakness that existed in the first quarter of 2000.
Sales in the Pacific region declined 38% because of lower demand for equipment
following the completion of the 2001 Olympic Games in Australia.
Gross margin in the first quarter of 2001 was 23.7%, up from 22.4% in the first
quarter of 2000. The margin improvement in 2001 resulted from manufacturing cost
reductions and higher volumes than in the prior year.
Selling, general and administrative expenses were $5.8 million in the first
quarter of 2001, up from $4.9 million in the same period last year. Expenses
associated with the Company's Advanced Beverage Solutions subsidiary, which was
formed in the second quarter of 2000, plus higher compensation expenses
accounted for most of the increase.
First quarter interest expense rose to $1.1 million in 2001 from $0.7 million in
2000. Interest expense in 2001 includes a $245,000 expense relating to the
accounting for certain interest rate swap agreements under Statement of
Financial Accounting Standards No. 133. The increase in interest expense also
reflects higher average borrowings in the first quarter of 2001. The minority
interest benefit of $0.1 million in the third quarter of both 2001 and 2000
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.
Other income of $1.1 million in the first quarter of 2001 includes a $1.0
million gain in the quarter relating to the cancellation of a project. The
effective tax rate was 38.7% in the first quarter of 2001, compared to 43.9% in
the first quarter of 2000. The lower rate in 2001 reflects the fact that a
larger proportion of the Company's income was earned in lower tax jurisdictions.
Net income for the first quarter of 2001 was $0.9 million, compared to $0.3
million in the first quarter last year.
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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 $0.8 million in the first three months
of 2001, compared to $0.3 million in the same period of 2000. The Company made
capital expenditures of $1.3 million in the 2001 quarter, primarily for
production tooling. The capital spending was financed with cash from operations
and increased borrowings.
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 2000 Form 10-K.
The Internal Revenue Service is examining the Company's U.S. income tax return
for 1999. Management does not believe that any significant adjustments will be
required as a result of this review.
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, 2000.
Part II - Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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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 10, 2001 By: /s/ GEORGE F. SCROEDER
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George F. Schroeder
President and CEO
May 10, 2001 By: /s/ MARK L. FREITAS
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Mark L. Freitas
Vice President - Controller
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