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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock, par value $.01 per
share, as of March 9, 2001, held by non-affiliates of the registrant was
approximately $24,572,535 based on the closing sale price. For purposes of this
computation, all executive officers, directors and 5% beneficial owners of the
registrant are deemed to be affiliates. Such determination should not be deemed
to be an admission that such officers, directors or 5% beneficial owners are, in
fact, affiliates of the Company.
The number of shares of the registrant's common stock outstanding as of March 9,
2001 was 9,126,557.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission (the "Commission") not later than 120 days
after the end of the fiscal year covered by this report and prepared for the
2001 annual meeting of shareholders are incorporated by reference into Part III
of this report.
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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.
PART I
ITEM 1. BUSINESS
GENERAL
Lancer designs, engineers, manufactures and markets fountain soft drink, beer
and citrus beverage dispensing systems, and other equipment for use in the food
service and beverage industry. Lancer also markets frozen beverage dispensers
manufactured by a joint venture that is 50% owned by the Company. Lancer's
products are sold by Company personnel and through independent distributors and
agents principally to major soft drink companies (primarily The Coca-Cola
Company), bottlers, equipment distributors, beer breweries and food service
chains for use in various food and beverage operations. The Company is a
vertically integrated manufacturer whose tooling, production, assembly and
testing capabilities enable it to fabricate a substantial portion of the
components used in Company products. In addition, the Company is an innovator of
new products in the beverage dispensing industry and has a large technical staff
supported by state-of-the-art engineering facilities to develop these new
products and to enhance existing product lines in response to changing industry
requirements and specific customer demands.
The Company was incorporated in Texas on December 18, 1967, and initially
manufactured parts for beverage dispensing equipment. The Company designed,
engineered, manufactured and marketed its first mechanically cooled soft drink
dispensing system in 1971. Since that time, the Company has expanded its
engineering and production facilities and has developed new products, including
various configurations of the Company's mechanically and ice cooled beverage
dispensing systems, syrup pumps, carbonators and other related equipment,
accessories and parts.
THE BEVERAGE DISPENSING INDUSTRY
The manufacture of fountain soft drink and other beverage dispensing systems is
a rapidly changing industry. Technological changes and improvements continue to
be reflected in the development, manufacture and introduction of new products
and processes. Manufacturers of such beverage dispensing systems generally sell
most of their products to one or more major soft drink companies, licensed
bottlers, large international breweries, equipment distributors and food service
chains. In order to facilitate sales of their beverage products to end-users,
soft drink companies and some breweries, and their respective affiliates, in
turn sell or lease the dispensing systems to restaurants, convenience stores,
concessionaires and other food and beverage operators. Soft drink companies
generally recommend that their affiliates purchase beverage dispensing systems
from approved manufacturers. Informal, long-term relationships between certain
manufacturers and soft drink companies have become the norm in the industry.
PRODUCTS
The Company's products can be divided into four major categories: (i) fountain
soft drink, citrus, and frozen beverage dispensers; (ii) post-mix dispensing
valves; (iii) beer dispensing systems; and (iv) other products and services.
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Soft Drink, Citrus, and Frozen Beverage Dispensers
The Company manufactures and sells a broad range of mechanically cooled and ice
cooled soft drink and citrus dispensing systems. These systems are non-coin
operated. The type of equipment and configuration of each model varies according
to intended use and specific customer needs. The Company's mechanically cooled
dispensing systems chill beverages as they run through stainless steel tubing
inside a self-contained refrigeration unit. In the Company's ice cooled
dispensing systems, the beverage is cooled as it runs through stainless steel
tubing encased in an aluminum cold plate which serves as the heat transfer
element when covered with ice. Several of the ice cooled systems also dispense
ice. The Company manufactures both post-mix and pre-mix dispensing equipment for
each of the mechanically cooled and ice cooled fountain systems.
Lancer manufactures several models of mechanically cooled citrus dispensing
systems for counter top use. The Minute Maid Company, a division of The Coca
Cola Company, is the primary customer for the Company's citrus dispensing
products.
Lancer FBD Partnership, Ltd., a joint venture in which Lancer owns a 50%
interest, manufactures frozen beverage dispensers. The joint venture sells its
production to Lancer, and Lancer markets and distributes the equipment to third
parties.
The prices of the Company's dispensing systems vary depending on dispensing
capacity, number of drink selections, speed of beverage flow and other customer
requirements. Sales of soft drink, citrus, and frozen beverage dispensers for
the years ended December 31, 2000, 1999 and 1998, accounted for approximately
38%, 48% and 50% of total sales, respectively.
Post-Mix Dispensing Valves
The Company manufactures and sells post-mix dispensing valves which mix syrup
and carbonated water at a preset ratio. The valves are designed to be
interchangeable with existing post-mix valves used with Coca-Cola products. The
Company manufactures accessories for the valves, including push-button
activation, water-only dispensing mechanisms, portion controls and other
automatically activated valve controls. The Company's primary valve, the LEV,
has been designated by The Coca-Cola Company as the standard valve for the U.S.
market. Lancer uses the LEV in many of its own dispensing systems, and also
sells the valve to competing equipment makers. For the years ended December 31,
2000, 1999 and 1998, sales of valves and related accessories accounted for
approximately 12%, 12%, and 14% of total net sales, respectively.
Beer Dispensing Systems
The Company manufactures and markets beer dispensing equipment and related
accessories. Products include chillers, taps, fonts, dispensers and kegs.
Lancer's operations in Australia, Brazil and New Zealand account for most of the
Company's sales of beer related equipment. Sales of beer equipment represented
7%, 7% and 6% of total net sales in the years ended December 31, 2000, 1999 and
1998, respectively.
Other Related Products and Services
The Company remanufactures various dispensing systems and sells replacement
parts in connection with the remanufacturing process. Revenues from
remanufacturing activities were 4%, 3%, and 4% of net sales in the years ended
December 31, 2000, 1999 and 1998.
The Company manufactures and/or markets a variety of other products including
syrup pumps, carbonators, stainless steel and brass fittings, carbon dioxide
regulator components, ice bagger machines, water filtering systems, and a
variety of other products, parts and accessories for use with beverage
dispensing systems. Lancer also provides logistics services to certain of its
customers. Together, these parts and services constitute 39%, 30% and 26% of the
Company's total net sales for the years ended December 31, 2000, 1999 and 1998,
respectively.
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PRODUCT RESEARCH AND DEVELOPMENT
In order to maintain its competitive position, the Company continuously seeks to
improve and enhance its line of existing beverage dispensing systems and
equipment, and to develop new products to meet the demands of the food and
beverage industry. Some projects are originated by Company personnel while
others are initiated by customers, primarily The Coca-Cola Company. The Company
has, from time to time, entered into agreements with customers to design and
develop new products. For the years ended December 31, 2000, 1999 and 1998,
Company-sponsored research and development expenses were $3.8 million, $2.7
million, and $2.2 million, respectively.
PRODUCTION, INVENTORY AND RAW MATERIALS
The Company's major products typically contain a number of metal and/or plastic
parts that are manufactured by the Company. The production of these parts
usually requires metal dies, fixtures, thermal plastic injection molds, and
other tooling, some of which are produced in the Company's tool and die and mold
departments. Other manufacturing processes include welding, polishing, painting,
tube bending, metal turning, stamping, and assembling of printed circuit boards
and wire harnesses. The Company assembles the various parts and components into
finished products, or sells them as spare parts.
Substantially all raw materials and parts not manufactured internally are
readily available from other commercial sources. The Company has not experienced
any significant shortages in the supply of its raw materials and parts over the
past several years. Shortages can occur from time to time, however, and could
delay or limit the manufacture of the Company's products. Such a disruption
could adversely affect the Company's operations. The Company does not stockpile
large amounts of raw materials and parts, but attempts to control its inventory
through extrapolation of historical production requirements and by using its
specific knowledge of the market. In addition, the Company would be able to
manufacture some purchased parts if shortages of these parts were to occur.
There can be no assurances, however, that these measures will be entirely
successful or that disruptive shortages will not occur in the future.
BACKLOG
The Company's manufacturing operations are driven by actual and forecasted
customer demand. The Company's backlog of unfilled orders was approximately $6.0
million, $10.1 million and $13.0 million at December 31, 2000, 1999 and 1998,
respectively. It is anticipated that 2000 backlog orders will be filled in 2001.
MARKETING AND CUSTOMERS
The Company's products are marketed on a wholesale basis in the United States
through a network of independent distributors and salaried sales
representatives. The principal purchasers of Company products are major soft
drink companies, bottlers, breweries, beverage equipment dealers, restaurants,
convenience stores, and other end users.
Substantially all of the Company's sales are derived from, or influenced by, The
Coca-Cola Company. Lancer is a preferred supplier to The Coca-Cola Company.
Direct sales to The Coca-Cola Company, the Company's largest customer, accounted
for approximately 26%, 25% and 23% of the Company's total net sales for the
years ended December 31, 2000, 1999 and 1998, respectively. None of the
Company's customers, including The Coca-Cola Company, are contractually
obligated to purchase minimum quantities of Lancer products. Consequently, The
Coca-Cola Company has the ability to adversely affect, directly or indirectly,
the volume and price of the products sold by the Company. Lancer does not expect
any significant volume or price reductions in its business with The Coca-Cola
Company. If they were to occur, however, such reductions would have a material
adverse impact on the Company's financial position and its results of
operations.
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The Company and The Coca-Cola Company have entered into a master development
agreement which governs development of various products. Products that are
developed pursuant to this agreement may be sold only to The Coca-Cola Company
or its designated agents. The agreement generally provides that The Coca-Cola
Company will also retain the rights to any tooling it pays for and any resulting
patents. The Company is obligated under the development agreement to make its
manufacturing capabilities available for the benefit of The Coca-Cola Company as
they relate to, and are required for, selected projects. The Company supplies
engineering and research and development personnel, designs, develops and
creates prototypes, and obtains either an exclusive or a non-exclusive license
to manufacture and market the resulting products. Generally, the Company
warrants all such products for one year. The Coca-Cola Company may terminate the
development agreement at any time, subject to certain conditions.
The Company and The Coca-Cola Company have entered into certain logistics
support agreements under which the Company warehouses and distributes new and
used products owned by The Coca-Cola Company. The two parties also have entered
into agreements which provide for the remanufacturing of used dispensing
equipment owned by The Coca-Cola Company.
INTERNATIONAL SALES
For the years ended December 31, 2000, 1999 and 1998, the Company's sales to
customers outside the United States were approximately 40%, 35% and 48% of total
net sales, respectively. The Company has sales employees, distributors, and/or
licensees in Latin America, Europe, Africa and Asia. The Company manufactures
products in Australia, Brazil, and Mexico, and operates warehouses in Belgium,
Ecuador, New Zealand, and Russia.
The Company's foreign sales and operations could be adversely affected by
foreign currency fluctuations, exchange controls, tax policies, deterioration of
foreign economies, the expropriation of Company property, and other political
actions and economic events. Although the Company attempts to limit such risks,
there can be no assurance that these efforts will be successful.
FINANCIAL INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS
The Company organizes its business into the following geographical segments: the
North America region, the Latin America region, the Brazil region, the Europe
region, the Asia region, and the Pacific region. The North America region
consists of the United States and Canada. The Europe region includes the Middle
East and Africa. The Company's net sales and operating income (loss) for 2000,
1999, and 1998 follow (amounts in thousands):
North Latin
America America Pacific Brazil Europe Asia
------- ------- ------- ------- ------- -------
Net sales:
2000 $73,618 $ 7,882 $16,639 $ 1,538 $10,897 $ 2,956
1999 85,889 11,225 15,407 2,065 9,471 5,783
1998 72,372 21,624 15,459 6,142 11,446 11,380
Operating income (loss): $11,272 $ 1,219 $ 2,196 $ 10 $ 1,113 973
2000 8,451 528 1,535 (6,819) 1,023 845
1999 15,691 3,282 2,199 (1,743) 2,273 2,153
1998
Additional financial information about segments and geographic areas is set
forth in Note 14 to the Consolidated Financial Statements.
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COMPETITION
The business of manufacturing and marketing beverage dispensing systems and
related equipment is highly competitive and is characterized by rapidly changing
technology. Competition is primarily based upon product suitability,
reliability, technological development and expertise, price, product warranty
and delivery time. In addition, the Company frequently competes with companies
having substantially greater financial resources than the Company. The Company
has been able to compete successfully in the past, and believes it will be able
to do so in the future.
EMPLOYEES
As of December 31, 2000, the Company had 1,452 full-time employees of whom 78
were engaged in engineering and technical support, 1,166 in manufacturing, 79 in
marketing and sales and 129 in general management and administrative positions.
610 employees work in the United States, primarily at the Company's facilities
in San Antonio, Texas. 677 employees work at the Company's facility in Piedras
Negras, Mexico, 20 are employed by the Company's Brazilian subsidiary, and a
total of 93 people are employed by the Company's subsidiaries in Australia and
New Zealand. Certain sales representatives are located in various parts of the
United States, Latin America, Europe and Asia. None of the U.S. employees are
represented by a union or are subject to collective bargaining agreements.
Substantially all full-time United States employees are eligible to participate
in the Company's employee profit sharing plan and various other benefit
programs.
INTELLECTUAL PROPERTY
The Company presently owns 58 United States patents and numerous corresponding
foreign patents. It has 28 pending U.S. patent applications and corresponding
foreign patent applications. The Company's products covered by patents or
pending patent applications include food, beverage and ice beverage dispensing
equipment and components. The patents have a remaining life of 2 to 19 years.
Management does not believe the expiration of such patents will have a
significant adverse impact on continuing operations.
The Company seeks to improve its products and to obtain patents on these
improvements. As a result, the Company believes its patent portfolio will
expand, thereby lessening its reliance on any one particular patent. The Company
also believes its competitive position is enhanced by its existing patents and
that any future patents will continue to enhance this position. There can be no
assurance, however, that the Company's existing or future patents will continue
to provide a competitive advantage, nor can there be any assurance that the
Company's competitors will not produce non-infringing competing products.
In addition to Company-owned patents, Lancer has assigned patents to the
Company's customers, primarily The Coca-Cola Company. These patents are the
result of special development projects between Lancer and its customers. These
projects are typically paid for by the customer, with Lancer either retaining
licenses to manufacture the products covered by these patents for the customer,
or granting such licenses to the customer. The Company occasionally acquires
patent protection for products that are complimentary to products whose patents
are controlled by third parties.
The name "Lancer" is the federally registered trademark of the Company. It is
also registered in many foreign countries. In certain instances, the Company
grants a non-exclusive license to its distributors, primarily foreign, to use
the trademark subject to control by the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to increasingly stringent federal, state,
local, and foreign laws and regulations relating to the protection of the
environment. In the United States, these environmental laws and regulations,
which are implemented by the Environmental Protection Agency and comparable
state agencies, govern the management of hazardous waste, the discharge of
pollutants into the air and into surface and ground water, and the manufacture
and disposal of certain substances.
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There are no material environmental claims pending or, to the Company's
knowledge, threatened against the Company. The Company also believes that its
operations are in material compliance with current U.S., state, and foreign laws
and regulations. The Company estimates that any expenses incurred in maintaining
compliance with current laws and regulations will not have a material effect on
the Company's earnings or capital expenditures. The Company can provide no
assurance, however, that the current regulatory requirements will not change, or
that currently unforeseen environmental incidents will not occur, or that past
non-compliance with environmental laws will not be discovered on the Company's
properties.
ITEM 2. PROPERTIES
The Company's primary manufacturing and administrative facilities are located in
several buildings in San Antonio, Texas, totaling approximately 583,000 square
feet, including three buildings owned by Lancer covering approximately 409,000
square feet of space, the largest of which is located on a 40-acre tract of land
in the southeast sector of San Antonio. The Company owns and operates facilities
located in Piedras Negras, Mexico consisting of 195,000 square feet of completed
space. The Company also leases a 75,000 square foot plant in Sao Paulo, Brazil,
a 41,000 square foot plant in Auckland, New Zealand, a 43,000 square foot plant
in Beverley, South Australia, a suburb of Adelaide, and small facilities in
Sydney, Australia; Brussels, Belgium; Quito, Ecuador; Moscow, Russia; and
Monterrey, Mexico. The Company leases approximately 404,000 square feet of space
throughout the world.
Total net rent expense for real estate was $1.5 million, $1.5 million and $1.4
million in 2000, 1999 and 1998, respectively. Included in total rent expense in
2000 is $89,000 for certain properties that are leased from a partnership
controlled by certain shareholders. See Note 7 of Notes to Consolidated
Financial Statements and "Certain Relationships and Related Transactions" for
more information.
ITEM 3. LEGAL PROCEEDINGS
There are no claims or legal actions pending against the Company other than
claims arising in the ordinary course of business. The Company believes these
claims, taking into account reserves and applicable insurance, will not have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the security holders for a vote by proxy or otherwise
during the fourth quarter of the year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is currently traded on the American Stock Exchange
("ASE") under the symbol "LAN." The following table sets forth the range of high
and low market price as reported by the ASE for the periods indicated.
Market Price For Common Stock
2000 1999
Quarter High Low High Low
--------- --------- --------- ---------
First $ 5.63 $ 4.13 $ 12.94 $ 8.50
Second 4.75 3.50 9.00 6.88
Third 4.88 3.56 10.13 5.63
Fourth 6.50 4.25 6.00 4.00
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On March 9, 2001, the closing price of the Company's common stock, as reported
by the ASE, was $5.00 per share. On that date, there were 253 holders of record
of the Company's common stock, not including shares held by brokers and
nominees. The Company has not declared a cash dividend on the common stock to
date. It is a general policy of the Company to retain earnings to support future
growth.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Years Ended December 31,
------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Operating Data:
Net sales $ 113,530 $ 129,840 $ 138,423 $ 119,367 $ 103,295
Gross profit 25,867 21,686 33,407 31,350 25,088
Selling, general and
administrative expenses 22,084 22,153 19,911 20,439 14,512
Write-down of Brazilian
assets -- 5,956 -- -- --
Operating income (loss) 3,783 (6,423) 13,496 10,911 10,576
Interest expense 3,297 3,464 3,899 2,815 1,588
Interest and other income, net (427) (2,819) (324) (1,027) (160)
Earnings (loss) before income
taxes 913 (7,068) 9,921 9,123 9,148
Income tax expense (benefit) 355 (2,501) 4,078 3,037 3,415
Net earnings (loss) 558 (4,567) 5,843 6,086 5,733
Net earnings (loss) per share
Basic $ 0.06 $ (0.50) $ 0.64 $ 0.69 $ 0.66
Diluted $ 0.06 $ (0.50) $ 0.63 $ 0.65 $ 0.63
Weighted average shares outstanding
Basic 9,125 9,124 9,060 8,863 8,722
Diluted 9,290 9,124 9,306 9,338 9,052
As of December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Balance Sheet Data:
Total assets $102,392 $103,054 $112,840 $110,669 $ 82,009
Short-term debt 24,129 22,683 27,094 23,444 13,553
Long-term debt, less
current installments 12,724 13,922 17,568 21,565 15,459
Shareholders' equity 43,533 44,476 48,258 42,961 37,036
ITEM 7. 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.
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The following discussion should be read in connection with the Company's
Consolidated Financial Statements, related notes and other financial information
included elsewhere in this filing.
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 2000 and December 31, 1999
Net sales for the year ended December 31, 2000 were $113.5 million, down $16.3
million, or 13%, from $129.8 million in 1999. Sales in the North America region
declined $12.3 million, or 14%. Substantially all of the decline was caused by
lower sales of frozen beverage equipment. During 1999, the Company shipped a
large, non-recurring order of frozen beverage equipment to a single customer.
Revenue in Latin America (excluding Brazil) fell $3.3 million, or 30%, while
sales in Brazil fell $0.5 million, or 26%. Sales in Asia declined $2.8 million,
or 49%. Results in Latin America and Asia continued to suffer from poor economic
conditions. Sales rose $1.4 million (15%) in Europe partly because of improved
sales of frozen beverage equipment. The Company's business in the Pacific region
continued to benefit from activity related to the 2000 Olympic Games in
Australia, rising $1.2 million, or 8%.
Sales to customers outside the United States were 40% of net sales in 2000, and
35% of net sales in 1999.
Gross margin for the year ended December 31, 2000 was 22.8%, compared to 16.7%
in 1999. In the 1999 period, gross margin was negatively impacted by factors
including reduced production levels that led to insufficient overhead
absorption, an $0.8 million reserve for certain types of equipment whose
marketability had become impaired, and changes in the sales mix toward lower
margin products, particularly frozen beverage equipment. The lower gross margin
on frozen beverage equipment stems from the fact that the Company buys the
dispensers 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 $22.1 million in 2000, down
from $22.2 million in 1999. Increases in research and development spending and
employment costs in 2000 were offset by reductions in a number of discretionary
spending categories.
In 1999, the Company expensed $6.0 million relating to the impairment of
substantially all of the Company's investment in its Brazilian subsidiary. The
Company substantially reduced its Brazilian operations in an effort to limit
continued losses caused by the depressed business environment in much of Latin
America.
Interest expense was $3.3 million in 2000, down from $3.5 million in the prior
year, reflecting lower average borrowings. The Company reported a loss of $0.1
million from its frozen beverage joint venture in 2000, compared to income of
$1.7 million in 1999. The decline in joint venture income was caused by the
joint venture producing fewer dispensers in 2000 than in 1999. The Company
recorded a gain of $0.9 million in 1999 on the sale of its investment in Victory
Refrigeration, a manufacturer of refrigerated coolers. The minority interest
benefit of $0.2 million in 2000 and $0.1 million in 1999 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 provision
for income taxes was $0.4 million in 2000. The Company recorded a tax benefit of
$2.5 million in 1999 because of the pretax loss of $7.1 million. The effective
rate rose in 2000 because nondeductible expenses were a larger percentage of
pretax income in 2000 than in 1999. Additionally, a larger proportion of income
was earned in high tax jurisdictions in 2000. Net income in 2000 was $0.6
million, compared to a net loss of $4.6 million in 1999.
Comparison of the Years Ended December 31, 1999 and December 31, 1998
Net sales for the year ended December 31, 1999 decreased by $8.6 million, or 6%,
to $129.8 million from $138.4 million in 1998. Sales in the Latin America region
fell $10.4 million, or 48%, because of currency devaluations and weak economic
conditions throughout the region. Brazilian sales declined $4.1 million, or 66%,
due largely to weak local economic conditions and the effects of a devaluation
of the Brazilian currency in early 1999. Asian sales were also weak in 1999.
Sales in the United States rose $13.5 million, or 18.7%. Much of the growth in
the domestic market came from strong sales of frozen beverage dispensing
equipment, which benefited from a large order from a single customer.
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Sales to customers outside the United States were 35% of net sales in 1999, and
48% of net sales in 1998.
Gross margin for the year ended December 31, 1999 was 16.7%, down from 24.1 % in
1998. Reduced production levels at plants in the United States and Mexico
negatively affected overhead absorption rates during the year. Gross margin was
further reduced by changes in the sales mix, particularly by higher sales of
frozen beverage dispensers. Additionally, the Company made a provision of
approximately $0.8 million in 1999 for certain types of equipment whose
marketability has been impaired.
Selling, general and administrative expenses were $22.2 million in 1999,
compared to $19.9 million in 1998. Product development costs rose, along with
costs associated with the newly acquired Allbar operation and the new Lancer Ice
Link subsidiary. The Company acquired Allbar in the second quarter of 1999, and
formed Lancer Ice Link in the third quarter of 1999.
In 1999, the Company expensed $6.0 million relating to the impairment of
substantially all of the Company's investment in its Brazilian subsidiary. The
Company has substantially reduced its Brazilian operations in an effort to limit
continued losses caused by the depressed business environment in much of Latin
America.
Interest expense was $3.5 million in 1999, down from $3.9 million in the prior
year, reflecting lower average borrowings. The Company reported income from its
frozen beverage joint venture of $1.7 million in 1999, versus $0.2 million in
1998. Also during 1999, the Company recorded a gain of $0.9 million on the sale
of its investment in Victory Refrigeration, a manufacturer of refrigerated
coolers. 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 Company recorded a
tax benefit of $2.5 million in 1999 because of the pretax loss of $7.1 million.
The provision for income taxes was $4.1 million in 1998. The effective tax rate
fell in 1999 from the rate in 1998 because of nondeductible losses incurred by
foreign operations in 1998, which were partially deducted in 1999. The net loss
for 1999 was $4.6 million, compared to net income of $5.8 million in the prior
year.
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.
Lancer generated $4.5 million of net cash from operating activities in 2000,
compared to $13.1 million in 1999. Changes in inventory levels consumed $4.6
million of cash in 2000, and generated $9.4 million in 1999.
Capital spending was $5.2 million during 2000. The Company's investment in
production tooling and equipment accounted for most of the spending. Capital
spending was financed with cash from operations, increased borrowings, and with
cash on hand.
During 2000, the Company amended its credit facilities with its primary lenders.
The primary changes were the following: the expiration of the facilities was
extended until July 15, 2002, certain financial covenants were adjusted,
scheduled quarterly principal payments were reduced to $0.35 million, the
facilities were collateralized by substantially all of the Company's assets in
the United States, and the revolving credit facility was reduced to $30.0
million. The Company's bank facilities require that the Company maintain certain
financial ratios and other covenants. The Company is in compliance with, or has
obtained waivers of, the financial ratios and covenants contained in the credit
agreement.
INFLATION
Management believes inflation has not had a significant impact on its business
or operations.
9
11
SEASONALITY
The Company's net sales in the fourth quarter of its fiscal years have
frequently been lower than in other quarters because of seasonality in the
capital spending budgets of many of the Company's customers.
ACCOUNTING MATTERS
The Company established a DISC in 1979 in order to defer federal income taxes on
its foreign sales. In late 1984, the Internal Revenue Code (the "Code") was
amended to limit the benefits of a DISC, primarily by imposing an interest
charge on the accumulated deferred federal income taxes of a DISC. At the same
time, the Code was amended to permit the creation of a Foreign Sales Corporation
("FSC"). Under the Code, as amended, a portion of a FSC's income is subject to
federal income taxes, while a portion is permanently exempt from federal income
taxes. As a result, at some point, the interest charge the Company incurs on the
deferred federal income taxes of its DISC will equal or exceed the taxes it
would have incurred had it operated a FSC. Current tax regulations prevent the
Company from maintaining the DISC and a FSC concurrently. The Company does not
plan to convert from the DISC to a FSC in 2001. At the time of such a
conversion, the Company would be required to provide for federal income taxes on
the $2.4 million of undistributed earnings of the DISC, for which federal income
taxes have not previously been provided. The Company would be able to pay such
federal income taxes over a ten-year period. If the DISC had been converted on
December 31, 2000, it would have resulted in a reduction of approximately $0.8
million in the Company's net earnings.
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 will adopt SFAS No.
133 effective January 1, 2001. Under the transition provisions of SFAS No. 133,
on January 1, 2001 the Company will record an after-tax, cumulative-effect-type
expense to net income of approximately $34,000 related to certain derivative
instruments consisting principally of interest rate swap agreements. The Company
has determined that hedge accounting will not be elected for derivatives
existing at January 1, 2001. Future changes in the fair value of those
derivatives will be recorded in income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On December 31, 2000, substantially all of the Company's $36.9 million of debt
outstanding was variable rate debt. The Company uses interest rate swap
agreements (the "Swap Agreements") to hedge a portion of the interest rate risk
associated with the Company's variable rate debt. The Company has entered into
Swap Agreements with a combined notional amount of $15.0 million. Under the Swap
Agreements, the Company pays fixed interest rates ranging from 5.98% to 6.345%,
while receiving a floating rate payment equal to the three month LIBOR rate
determined on a quarterly basis with settlement occurring on specific dates.
Based on exposures on December 31, 2000, if interest rates were to change by one
percentage point, the Company's annual pretax income would be impacted by
approximately $0.2 million.
The Company does not trade in interest rate swaps with the objective of earning
financial gain on interest rate fluctuations. The Company had no additional
derivative financial instruments at December 31, 2000.
In 2000, $2.2 million of the Company's operating income was incurred by foreign
subsidiaries with a functional currency other than the United States dollar. If
the average annual exchange rate of the functional currencies of those
subsidiaries were to fluctuate by 10% against the United States dollar, the
operating profit of those subsidiaries could be impacted by as much as $0.2
million, when translated to United States dollars. This analysis does not
consider the effect of changes in costs, demand, asset values, or other
unpredictable factors that could result from currency fluctuations.
10
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Schedule" included herein
for information required for Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in the
Company's proxy statement for its May 15, 2001 Annual Meeting of Shareholders,
which is to be filed with the Commission, describes all persons to be nominated
to become directors of the Company as required in response to this item and is
incorporated herein by reference. The information set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy
statement which is to be filed with the Commission is incorporated herein by
reference.
The following table sets forth certain information concerning the executive
officers and directors of the Company:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Alfred A. Schroeder 64 Chairman of the Board
George F. Schroeder 61 President, Chief Executive Officer and Director
Christopher D. Hughes 54 Chief Operating Officer
Mark L. Freitas 40 Corporate Controller
Walter J. Biegler 59 Director
Jean M. Braley 71 Director
Charles K. Clymer 64 Director
Olivia F. Kirtley 50 Director
Michael E. Smith 59 Director
E.T. (Toby) Summers, III 53 Director
Mr. Alfred A. Schroeder is a co-founder of the Company and has served as
Chairman of the Board of Directors of the Company since its inception in 1967.
His primary responsibilities include conceptual engineering design, new product
development and corporate planning. He is the brother of George F. Schroeder,
and is also a partner in Lancer Properties. See "Certain Relationships and
Related Transactions."
Mr. George F. Schroeder is a co-founder of the Company and has served as Chief
Executive Officer, President and a director of the Company since 1967. His
primary responsibilities include strategic planning, marketing, overall
production management and corporate administration. He is the brother of Alfred
A. Schroeder, and is also a partner in Lancer Properties. See "Certain
Relationships and Related Transactions."
Mr. Christopher D. Hughes, Chief Operating Officer, joined the Company in 2000.
Prior to joining Lancer, Mr. Hughes worked for 17 years with Enodis Corporation
and its predecessor entity, Scotsman Industries. He served in a variety of
senior management positions with Enodis, including Vice President-Operations of
Kysor Warren, President of Booth/Crystal Tips, President of Halsey Taylor, and
Vice President-Operations of Scotsman Ice Systems. Prior to his association with
Enodis, Mr. Hughes served as Vice-President-General Manager of
Morrison-Knudsen's Central and Western Transit Operations, and as Vice
President-Operations of Mooney Aircraft Corporation in Kerrville, Texas.
Mr. Mark L. Freitas joined the Company in 1998 and serves as Corporate
Controller. Before joining Lancer, Mr. Freitas worked for three years with
Bausch & Lomb, Inc., as a Senior Corporate Auditor and Cost Manager, and ten
years in public accounting with various firms.
11
13
Mr. Walter J. Biegler has served as a director of the Company since 1985. Mr.
Biegler is a private investor. From 1991 until 1998, he was Chief Financial
Officer of Periodical Management Group, Inc., a San Antonio, Texas distributor
of periodicals, books and specialty items in the United States, Mexico and the
Virgin Islands. Prior to November 1991, he served as the Chief Financial Officer
and Senior Vice President-Finance of La Quinta Motor Inns, Inc. of San Antonio,
Texas, a national hotel chain.
Ms. Jean M. Braley has served as a director of the Company since 1976. She
served as Secretary of the Company from 1982 to 1985. Ms. Braley has been a
private investor since 1985. She is also a partner in Lancer Properties. See
"Certain Relationships and Related Transactions."
Mr. Charles K. Clymer has served as a director of the Company since 1996. Mr.
Clymer retired from The Coca-Cola Company in 1993 after 31 years of service. He
held managerial positions with Coca-Cola International including Manager of
Chile, Director and Senior Vice President of Coca-Cola (Japan) Company Limited,
and Vice President of On Premise Market Development and Customer Service for the
Latin America Group.
Ms. Olivia F. Kirtley has served as a director of the Company since 1999. She
currently is Chair of the Board of the American Institute of Certified Public
Accountants (AICPA) Board of Examiners, which oversees the uniform CPA
Examination for the United States. The AICPA is the national professional
organization for over 350,000 CPAs in business and industry, public practice,
government and education. From 1998-1999, Ms. Kirtley served as Chair of the
AICPA. Until 2000, Ms. Kirtley was Vice President of Vermont American
Corporation, a leading global manufacturer and marketer of power tool
accessories, headquartered in Louisville, Kentucky. Ms. Kirtley was with Vermont
American over 20 years and held the positions of Chief Financial Officer,
Treasurer and Director of Tax. Ms. Kirtley has served on the Board of Directors
of Res Care, Inc. since 1998.
Mr. Michael E. Smith has served as a director of the Company since 1985. Mr.
Smith is presently a principal shareholder and Executive Vice President of
Gosling & Sachse, an insurance brokerage firm. He has been employed by the same
firm since 1968. Mr. Smith has been the Company's insurance broker since 1981.
Mr. E.T. (Toby) Summers, III has served as a director of the Company since 1999.
Mr. Summers is a private investor and principal in The Harvest Group, Inc., a
private equity investment firm. Mr. Summers served in a variety of leadership
positions with Coca-Cola Bottling Company of the Southwest from 1973 through
1998. Most recently he held the position of President and Chief Operating
Officer from 1988 through 1998 until the company's merger with Coca-Cola
Enterprises. Mr. Summers also served as Chairman of the Board of Directors of
Western Container Corporation, a manufacturer of plastic bottles for the
beverage industry, and as a member of the Board of Governors of the National
Coca-Cola Bottlers' Association from 1989-1998.
All directors of the Company are elected annually. The executive officers are
elected annually by, and serve at the discretion of, the Company's Board of
Directors. During 2000, the Board of Directors of the Company maintained an
Audit Committee, a Compensation Committee and a Stock Option Committee. The
members of the Audit Committee were Walter J. Biegler, Olivia F. Kirtley and
E.T. Summers, III. The Audit Committee met four times in 2000. The members of
the Compensation Committee were Jean M. Braley, Charles K. Clymer and Michael E.
Smith. No member of the Compensation Committee was an executive officer of the
Company. The Compensation Committee met three times in 2000. The members of the
Stock Option Committee were Jean M. Braley, Charles K. Clymer and Michael E.
Smith. The Stock Option Committee met five times in 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation and Certain
Transactions" in the Company's proxy statement for its May 15, 2001 Annual
Meeting of Shareholders, which is to be filed with the Commission, sets forth
information regarding executive compensation and certain transactions as
required in response to this item and is incorporated herein by reference.
12
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Principal Shareholders" and
"Election of Directors" in the Company's proxy statement for its May 15, 2001
Annual Meeting of Shareholders, which is to be filed with the Commission,
describes the security ownership of certain beneficial owners and management as
required in response to this item and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related
Transactions" in the Company's proxy statement for its May 15, 2001 Annual
Meeting of Shareholders, which is to be filed with the Commission, sets forth
information regarding certain relationships and related transactions as required
in response to this item and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial statements:
The financial statements filed as a part of this report are listed in
the "Index to Consolidated Financial Statements and Schedule"
referenced in Item 8.
(2) Financial statement schedule:
The financial statement schedule filed as a part of this report is
listed in the "Index to Consolidated Financial Statements and Schedule"
referenced in Item 8.
(3) Exhibits:
3.1* Registrants Articles of Incorporation and amendments thereto
3.2* Bylaws of the Registrant
4.1* Specimen Common Stock Certificate, $0.01 par value, of
Registrant
10.1* Lancer Corporation Profit Sharing Plan
10.2* 1992 Non-Statutory Stock Option Plan
10.3* 1987 Incentive Stock Option Plan
10.4* Master Development Agreement, dated January 12, 1984, between
Lancer Corporation and The Coca-Cola Company
10.5* Net Lease Agreement, dated July 1, 1974, between Lancer
Corporation and Lancer Properties dated as of June 3, 1977
10.13* Development and Manufacturing Agreement, dated April 13, 1993,
between Lancer Corporation and Packaged Ice, Inc.
10.14* Manufacturer's Representation Agreement, dated June 1993,
between Lancer Corporation and Middleby Marshall Inc., doing
business as Victory - A Middleby Company
10.15* Form of Notice of Grant of Stock Option under the 1987
Incentive Stock Option Plan
10.16* Form of Nonstatutory Stock Option Agreement under the 1992
Non-Statutory Stock Option Plan
10.27++ Credit Agreement, dated July 15,1996, between Lancer
Corporation and The Frost National Bank and The Boatmen's
National Bank of St. Louis
10.28++ Term A Note, dated July 15,1996, between Lancer Corporation
and The Frost National Bank and The Boatmen's National Bank of
St. Louis
10.29++ Term B Note, dated July 15,1996, between Lancer Corporation
and The Frost National Bank and The Boatmen's National Bank of
St. Louis
10.30++ Revolving Note, dated July 15,1996, between Lancer Corporation
and The Frost National Bank and The Boatmen's National Bank of
St. Louis
13
15
10.31++ Acquisition Note, dated July 15,1996, between Lancer
Corporation and The Frost National Bank and The Boatmen's
National Bank of St. Louis
10.32++ Stock Pledge, dated July 15,1996, between Lancer Corporation
and The Frost National Bank
10.33++ Parent and Affiliate Guaranties, dated July 15,1996, between
Lancer Corporation or its subsidiaries and The Frost National
Bank
10.34# Lancer Corporation Stock Incentive Plan, Effective Date March
1, 1996
10.35+++ Master Lease Agreement dated September 4, 1996 between Lancer
Partnership, Ltd. and CCA Financial, Inc.
10.36## First Amendment to Credit Agreement dated May 12, 1997 between
Lancer Partnership, Ltd. and The Frost National Bank and
NationsBank, N.A.
10.37## Second Amendment to Credit Agreement dated December 31, 1997
between Lancer Partnership, Ltd. and The Frost National Bank
and NationsBank, N.A.
10.38### Third Amendment to Credit Agreement dated July 15, 1998
between Lancer Corporation and The Frost National Bank and
NationsBank, N.A.
10.39** Fourth Amendment to Credit Agreement dated March 15, 1999
between Lancer Corporation and The Frost National Bank and
NationsBank, N.A.
10.40*** Seventh Amendment and Restated Credit Agreement dated October
26, 2000 between Lancer Corporation and The Frost National
Bank, Harris Trust and Savings Bank, and Whitney National
Bank.
10.41*** Security Agreement between Lancer Corporation and The Frost
National Bank, Harris Trust and Savings Bank, and Whitney
National Bank.
21.1 List of Significant Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP
* These exhibits are incorporated by reference to the same Exhibit to the
Registrant's Registration Statement No. 33-82434 filed on Form S-1 with
the Securities and Exchange Commission (the "Commission") on August 5,
1994, as amended by Amendment No. 1 to Form S-1 Registration Statement
with the Commission on August 23, 1994.
++ These exhibits are incorporated by reference to the Exhibit to the
Registrant's Form 10-Q for the quarter ended June 30, 1995.
+++ This exhibit is incorporated by reference to the Exhibit to the
Registrant's Form 10-K for the year ended December 31, 1996.
# This exhibit is incorporated by reference to the Exhibit to the
Registrant's Proxy dated April 22, 1996.
## These exhibits are incorporated by reference to the Exhibit to the
Registrant's Form 10-K for the year ended December 31, 1997.
### This exhibit is incorporated by reference to the Exhibit to the
Registrant's Form 10-Q for the quarter ended June 30, 1998.
** This exhibit is incorporated by reference to the Exhibit to the
Registrant's Form 10-Q for the quarter ended June 30, 1999.
*** This exhibit is incorporated by reference to the Exhibit to the
Registrant's Form 10-Q for the quarter ended September 30, 2000.
(b) Reports on Form 8-K: None
14
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
by: /s/ GEORGE F. SCHROEDER
George F. Schroeder March 23, 2001
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- -------------------------------- ---------------------------------- ---------------------
/s/ ALFRED A. SCHROEDER Chairman of the Board March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
Alfred A. Schroeder Date
/s/ GEORGE F. SCHROEDER President and Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
George F. Schroeder (principal executive officer) Date
/s/ WALTER J. BIEGLER Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
Walter J. Biegler Date
/s/ JEAN M. BRALEY Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
Jean M. Braley Date
/s/ CHARLES K. CLYMER Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
Charles K. Clymer Date
/s/ OLIVIA F. KIRTLEY Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
Olivia F. Kirtley Date
/s/ MICHAEL E. SMITH Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
Michael E. Smith Date
/s/ E. T. SUMMERS, III Director March 23, 2001
- -------------------------------- ---------------------------------- ---------------------
E. T. Summers, III Date
15
17
LANCER CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
LANCER CORPORATION AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for each of the years in the three-year period
ended December 31, 2000 F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
for each of the years in the three-year period ended December 31, 2000 F-6
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2000 F-7
Notes to Consolidated Financial Statements F-8
Schedule for the years ended December 31, 2000, 1999 and 1998
II-Reserve account F-22
LANCER FBD PARTNERSHIP, LTD.
Report of Independent Public Accountants F-23
Balance Sheets as of December 31, 2000 and 1999 F-24
Statements of Income for the years ended December 31, 2000 and 1999 F-26
Statements of Partners' Capital for the years ended December 31, 2000 and 1999 F-27
Statements of Cash Flows for the years ended December 31, 2000 and 1999 F-28
Notes to Financial Statements F-29
All other schedules for which provision is made in the applicable rules and
regulations of the Securities and Exchange Commission have been omitted as the
schedules are not required under the related instructions, are not applicable,
or the information required thereby is set forth in the consolidated financial
statements or notes thereto.
F-1
18
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lancer Corporation:
We have audited the accompanying consolidated balance sheets of Lancer
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income (loss), and cash flows for each of the years in the three year period
ended December 31, 2000. These consolidated financial statements and
consolidated financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lancer Corporation
and subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG LLP
San Antonio, Texas
February 28, 2001
F-2
19
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Amounts in thousands, except share data)
ASSETS
2000 1999
------------ ------------
Current assets:
Cash $ 771 $ 1,227
Receivables:
Trade accounts and notes 16,222 17,483
Other 643 537
------------ ------------
16,865 18,020
Less allowance for doubtful accounts (379) (414)
------------ ------------
Net receivables 16,486 17,606
------------ ------------
Inventories 40,224 36,166
Prepaid expenses 642 465
Income taxes receivable -- 3,505
Deferred tax asset 273 134
------------ ------------
Total current assets 58,396 59,103
------------ ------------
Property, plant and equipment, at cost:
Land 1,260 1,260
Buildings 21,981 21,880
Machinery and equipment 21,838 20,531
Tools and dies 11,273 9,025
Leaseholds, office equipment and vehicles 10,143 8,941
Assets in progress 1,581 1,821
------------ ------------
68,076 63,458
Less accumulated depreciation and amortization (31,384) (27,795)
------------ ------------
Net property, plant and equipment 36,692 35,663
------------ ------------
Long-term receivables ($529 and $746 due
from officers, respectively) 761 1,029
Long-term investments 2,599 3,053
Intangibles and other assets, at cost, less
accumulated amortization 3,944 4,206
------------ ------------
$ 102,392 $ 103,054
============ ============
See accompanying notes to consolidated financial statements.
F-3
20
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2000 and 1999
(Amounts in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
------------ ------------
Current liabilities:
Accounts payable $ 8,962 $ 9,119
Current installments of long-term debt 3,129 5,083
Line of credit with bank 21,000 17,600
Deferred licensing and maintenance fees 774 619
Accrued expenses and other liabilities 5,071 4,091
Taxes payable 584 --
------------ ------------
Total current liabilities 39,520 36,512
Deferred tax liability 2,448 3,102
Long-term debt, excluding current installments 12,724 13,922
Deferred licensing and maintenance fees 3,873 4,500
------------ ------------
Total liabilities 58,565 58,036
------------ ------------
Commitments and contingencies -- --
Minority interest 294 542
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 in 2000 and 1999 91 91
Additional paid-in capital 11,933 11,933
Accumulated other comprehensive loss (3,317) (1,816)
Retained earnings 34,826 34,268
------------ ------------
Total shareholders' equity 43,533 44,476
------------ ------------
$ 102,392 $ 103,054
============ ============
See accompanying notes to consolidated financial statements.
F-4
21
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(Amounts in thousands, except share data)
2000 1999 1998
----------- ----------- -----------
Net sales $ 113,530 $ 129,840 $ 138,423
Cost of sales 87,663 108,154 105,016
----------- ----------- -----------
Gross profit 25,867 21,686 33,407
Selling, general and administrative expenses 22,084 22,153 19,911
Write-down of Brazilian assets -- 5,956 --
----------- ----------- -----------
Operating income (loss) 3,783 (6,423) 13,496
----------- ----------- -----------
Other (income) expense:
Interest expense 3,297 3,464 3,899
Loss (income) from joint venture 82 (1,677) (154)
Gain on sale of investment -- (895) --
Minority interest (248) (124) --
Interest and other income, net (261) (123) (170)
----------- ----------- -----------
2,870 645 3,575
----------- ----------- -----------
Earnings (loss) before income taxes 913 (7,068) 9,921
----------- ----------- -----------
Income tax expense (benefit):
Current 1,059 (2,675) 2,772
Deferred (704) 174 1,306
----------- ----------- -----------
355 (2,501) 4,078
----------- ----------- -----------
Net earnings (loss) $ 558 $ (4,567) $ 5,843
=========== =========== ===========
Common Shares and Equivalents Outstanding:
Basic 9,124,857 9,123,527 9,059,539
Diluted 9,290,003 9,123,527 9,305,796
Earnings (Loss) Per Share:
Basic $ 0.06 $ (0.50) $ 0.64
Diluted $ 0.06 $ (0.50) $ 0.63
See accompanying notes to consolidated financial statements.
F-5
22
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 2000, 1999 and 1998
(Amounts in thousands, except share data)
Accumulated
Additional and Other Total
Common Paid-in Comprehensive Retained Shareholders'
Stock Capital Income (Loss) Earnings Equity
------------ ------------ ------------- ------------ ------------
Balance December 31, 1997 $ 89 $ 11,607 $ (1,728) $ 32,992 $ 42,960
Comprehensive income:
Net earnings -- -- -- 5,843 5,843
Cumulative translation adjustment -- -- (853) -- (853)
------------
Total comprehensive income: -- -- -- -- 4,990
------------
Acquisition and retirement of 40,608
share of common stock -- (591) -- -- (591)
Exercise of 259,906 stock options 2 897 -- -- 899
------------ ------------ ------------ ------------ ------------
Balance December 31, 1998 91 11,913 (2,581) 38,835 48,258
Comprehensive loss:
Net loss -- -- -- (4,567) (4,567)
Cumulative translation adjustment -- -- 829 -- 829
Unrealized loss on investment,
net of tax -- -- (64) -- (64)
------------
Total comprehensive loss: (3,802)
------------
Exercise of 3,375 stock options -- 20 -- -- 20
------------ ------------ ------------ ------------ ------------
Balance December 31, 1999 91 11,933 (1,816) 34,268 44,476
Comprehensive loss:
Net earnings -- -- -- 558 558
Cumulative translation adjustment -- -- (1,393) -- (1,393)
Unrealized loss on investment,
net of tax -- -- (108) -- (108)
------------
Total comprehensive loss: (943)
------------ ------------ ------------ ------------ ------------
Balance December 31, 2000 $ 91 $ 11,933 $ (3,317) $ 34,826 $ 43,533
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-6
23
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Amounts in thousands)
2000 1999 1998
------------ ------------ ------------
Cash flow from operating activities:
Net earnings (loss) $ 558 $ (4,567) $ 5,843
Adjustments to reconcile net earnings to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,205 3,990 2,888
Deferred licensing and maintenance fees (472) 2,521 494
Deferred income taxes (704) 174 1,321
Loss on sale and disposal of assets 10 22 16
Gain on sale of long-term investments -- (895) --
Minority interest (248) (124) --
Loss (earnings) from joint venture 82 (1,677) (154)
Impairment of Brazilian assets -- 5,956 --
Change in assets and liabilities, net of effects
from purchase of subsidiary:
Receivables 635 3,041 1,401
Prepaid expenses (177) 95 (381)
Income taxes receivable 3,505 (3,300) (212)
Inventories (4,646) 9,431 (2,174)
Other assets (365) (567) (439)
Accounts payable 409 303 (3,098)
Accrued expenses 1,098 (1,298) (930)
Income taxes payable 584 (12) (193)
------------ ------------ ------------
Net cash provided by operating activities 4,474 13,093 4,382
------------ ------------ ------------
Cash flow from investing activities:
Proceeds from sale of assets 2 16 7
Acquisition of property, plant and equipment (5,166) (4,957) (5,216)
Acquisition of subsidiary company -- (1,719) --
Proceeds (purchase) of long-term investments and affiliates 209 2,738 111
------------ ------------ ------------
Net cash used in investing activities (4,955) (3,922) (5,098)
------------ ------------ ------------
Cash flow from financing activities:
Net borrowings (repayments) under line of credit agreements 3,400 (4,700) 3,300
Proceeds from issuance of long-term debt -- 1,457 --
Retirement of long-term debt (3,075) (4,827) (3,647)
Net proceeds from exercise of stock options -- 20 308
------------ ------------ ------------
Net cash (used in) provided by financing activities 325 (8,050) (39)
------------ ------------ ------------
Effect of exchange rate changes on cash (300) (1,013) 23
Net (decrease) increase in cash (456) 108 (732)
Cash at beginning of year 1,227 1,119 1,851
------------ ------------ ------------
Cash at end of year $ 771 $ 1,227 $ 1,119
============ ============ ============
See accompanying notes to consolidated financial statements
F-7
24
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company designs, engineers, manufactures and markets fountain soft drink and
other beverage dispensing systems and related equipment for use in the food
service and beverage industry. The consolidated financial statements include the
accounts of Lancer Corporation (the "Company") and its majority-owned
subsidiaries, with intercompany balances and transactions eliminated in
consolidation.
Inventories
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).
Certain items in inventory have become obsolete due to technological advances
and discontinuation of products. The Company has taken these items into
consideration in valuing its inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated on
a straight-line basis over estimated useful lives ranging from 5 to 39 years.
Long-lived assets are evaluated annually for possible impairment adjustments
which may be required. See note 2 for discussion of impairment of Brazilian
assets in 1999.
Maintenance, repair and purchases of small tools and dies are expensed as
incurred.
Intangibles and Other Assets
Intangibles and other assets consist principally of patents and goodwill.
Patents are amortized over the estimated useful lives of the respective assets
using the straight-line method. Goodwill is being amortized using the
straight-line method over twenty to thirty years. The Company continually
evaluates the carrying value of goodwill as well as the amortization period to
determine whether adjustments are required. See note 2 for discussion of
impairment of Brazilian assets in 1999.
Long-term Investments
The Company owns a 50% interest in a joint venture, Lancer FBD Partnership,
Ltd., which manufactures frozen beverage dispensing systems. The investment is
accounted for under the equity method. The remaining 50% is owned by the
developer of the technology utilized by the joint venture. The joint venture now
owns the rights to that technology. (See note 3)
Also included in long-term investments is an investment in the common stock of
Packaged Ice, Inc., a company which sells ice bagger machines manufactured by
the Company. Lancer owns less than 10% of the common stock of Packaged Ice, Inc.
The investment, accounted for as an available-for-sale security, is recorded at
fair value with net unrealized gains and losses reported, net of tax, in other
comprehensive income. The fair value is determined by quoted market prices.
Net 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 dilutive potential common shares
outstanding during the reporting period. The dilutive effect of stock options
approximated 165,146, 0, and 246,257 shares in 2000, 1999 and 1998,
respectively. Options to purchase approximately 293,875, 110,750 and 56,500
shares in 2000, 1999 and 1998, respectively, were outstanding but were not
included in the computation because the exercise price is greater than the
average market price of the common shares.
F-8
25
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue is recognized in accordance with the following methods:
(a) At time of shipment for all products except for those sold under
agreements described in (b);
(b) As produced and at time of title transfer, for certain products
manufactured and warehoused under production and warehousing
agreements with certain customers.
The Company has entered into an agreement with its major customer to receive
partial reimbursement for design and development. The reimbursement is offset
against cost on a percentage of completion basis. In addition, the Company has
agreed to provide exclusive rights for use of certain tools to its major
customer. These tools are included in fixed assets and are depreciated over the
life of the asset. The corresponding license and maintenance fees are recorded
as deferred income and recognized over the life of the agreement which
approximates the life of the corresponding asset.
Income Taxes
Amounts in the financial statements related to income taxes are calculated using
the principles of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for tax
purposes. These deferred taxes are measured by applying currently enacted tax
rates.
Provision for U.S. income taxes on the undistributed earnings of foreign
subsidiaries is made only on those amounts in excess of the funds considered to
be permanently reinvested.
Research and Development
Company-sponsored research and development costs are expensed as incurred and
totaled approximately $3.8 million, $2.7 million and $2.2 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency
environment are translated to U.S. dollars at year-end exchange rates. Income
and expense items are translated at average rates of exchange prevailing during
the year. Translation adjustments are accumulated in a separate component of
shareholders' equity. Inventories, plant and equipment and other non-monetary
assets and liabilities of non-U.S. subsidiaries that operate in U.S. dollars are
translated at approximate exchange rates prevailing when acquired. All other
assets and liabilities are translated at year-end exchange rates. Inventories
charged to cost of sales and depreciation are translated at historical exchange
rates. All other income and expense items are translated at average rates of
exchange prevailing during the year. For those companies that operate in U.S.
dollars, gains and losses that result from translation are included in earnings.
Stock Compensation Plans
The Company utilizes the intrinsic value method required under provisions of APB
Opinion No. 25 and related interpretations in measuring stock-based compensation
for employees. In addition, the required pro forma disclosures of net income and
net income per share as if the fair value method of accounting for stock based
compensation had been applied under SFAS No. 123 "Accounting for Stock-Based
Compensation" are made in the notes to the consolidated financial statements.
(See note 6)
F-9
26
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive (loss)
income consists of net earnings (loss), currency translation adjustment, and
unrealized loss on investment and is presented in the consolidated statements of
shareholders' equity and comprehensive income. The Statement requires additional
disclosures in the consolidated financial statements but it does not affect the
Company's financial position or results of operations.
Segment Disclosures
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. (See note 14)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued 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 will adopt SFAS No. 133 effective January 1, 2001. Under the transition
provisions of SFAS No. 133, on January 1, 2001 the Company will record an
after-tax, cumulative-effect-type expense to net income of approximately $34,000
related to certain derivative instruments consisting principally of interest
rate swap agreements. The Company has determined that hedge accounting will not
be elected for derivatives existing at January 1, 2001. Future changes in the
fair value of those derivatives will be recorded in income.
2. IMPAIRMENT OF BRAZILIAN ASSETS
As a result of the continuing poor business conditions in much of Latin America,
the Company has substantially reduced its manufacturing operations in Brazil.
Accordingly, the Company's investment in Brazil has been written-down to net
realizable value. The write-down resulted in a pre-tax charge of approximately
$6.0 million during 1999.
3. INVESTMENT IN JOINT VENTURE
Summarized financial data for investment in joint venture is as follows (amounts
in thousands):
Condensed Statement of Operations 2000 1999 1998
------------ ------------ ------------
Net Sales $ 8,632 $ 22,991 $ 7,512
Gross profit 2,251 5,480 1,557
Net earnings 154 3,826 445
Condensed Balance Sheet
Current assets $ 3,225 $ 3,529
Non-current assets 3,344 3,497
------------ ------------
$ 6,569 $ 7,026
============ ============
Current liabilities $ 1,008 $ 1,140
Non-current liabilities 9 16
Partners' capital 5,552 5,870
------------ ------------
$ 6,569 $ 7,026
============ ============
F-10
27
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's 50% share of net earnings, after elimination of profit in ending
inventory, is included in other income. The Company purchases substantially all
equipment manufactured by the joint venture as it is produced.
4. INCOME TAXES
An analysis of income tax expense (benefit) follows (amounts in thousands):
2000 Current Deferred Total
---- ---------- ---------- ----------
Federal $ (297) $ (680) $ (977)
State 24 -- 24
Foreign 1,332 (24) 1,308
---------- ---------- ----------
Total $ 1,059 $ (704) $ 355
========== ========== ==========
1999
----
Federal $ (3,563) $ 158 $ (3,405)
State 24 -- 24
Foreign 864 16 880
---------- ---------- ----------
Total $ (2,675) $ 174 $ (2,501)
========== ========== ==========
1998
----
Federal $ 1,844 $ 1,095 $ 2,939
State 52 -- 52
Foreign 876 211 1,087
---------- ---------- ----------
Total $ 2,772 $ 1,306 $ 4,078
========== ========== ==========
F-11
28
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to significant portions of the
net deferred tax liability relate to the following (amounts in thousands):
2000 1999
---------- ----------
Deferred tax assets:
Accounts receivable $ 85 --
Inventory 382 --
Compensation and benefits 349 308
Net operating loss carryforward, expiring in 2020 579 --
Foreign creditable minimum taxes 323 441
Foreign deferred assets 108 101
Other 392 54
---------- ----------
Total gross deferred tax assets 2,218 904
---------- ----------
Deferred tax liabilities:
Accounts receivable -- 85
Inventories -- 35
Property, plant and equipment 3,007 2,603
DISC income 1,386 1,149
---------- ----------
Total deferred tax liability 4,393 3,872
---------- ----------
Net deferred tax liability $ 2,175 $ 2,968
========== ==========
The Company elected to treat the Brazilian subsidiary as a partnership for U.S.
tax purposes for the year ended December 31, 1999. This election has enabled the
Company to recognize for U.S. income tax purposes a loss on its investment in
the Brazilian operation. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Based on the expectation of
future taxable income and that the deductible temporary differences will offset
existing taxable temporary differences, management believes it is more likely
than not the Company will realize the benefits of these deductible differences
at December 31, 2000.
The actual tax expense (benefit) differs from the "expected" tax expense
(benefit) (computed by applying U.S. Federal corporate rate of 34% to earnings
before income taxes) as follows (amounts in thousands):
2000 1999 1998
------------ ------------ ------------
Computed "expected" tax expense (benefit) $ 310 $ (2,403) $ 3,373
Increase (decrease) in taxes resulting from:
Effect of foreign tax losses -- (256) 452
Effect of nondeductible expenses 99 167 106
State, net of Federal benefit 16 16 35
Effect of foreign tax rates 83 68 50
Other, net (153) (93) 62
------------ ------------ ------------
$ 355 $ (2,501) $ 4,078
============ ============ ============
F-12
29
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with SFAS No. 109, no federal and state income taxes have been
provided for the accumulated undistributed earnings of the DISC as of December
31, 1992. On December 31, 1992, the accumulated undistributed earnings of the
DISC totaled $2.4 million. Should the DISC terminate in the future, SFAS No. 109
would require federal and state income taxes to be provided. Such a provision
would result in a federal and state income tax charge to the financial
statements, thereby increasing the Company's effective tax rate.
Actual net income taxes (refunded) paid were approximately ($3.0) million,
($0.3) million and $3.2 million for 2000, 1999 and 1998, respectively.
5. LONG-TERM DEBT AND LINE OF CREDIT WITH BANKS
(Amounts in thousands) 2000 1999
------------ ------------
$14,824 notes payable to banks, due in quarterly installments plus interest
based upon prime and LIBOR (weighted average rate of 9.46% at December 31,
2000) through July 15, 2002; secured by substantially all
of the Company' assets in the United States $ 14,124 $ 15,974
Note payable to seller of Brazil subsidiary, due in annual installments plus
interest based on LIBOR (weighted average interest rate of 7.37% at
December 31, 2000) through December 31, 2001 1,594 2,392
Notes payable to bank, denominated in Australian dollars, due in monthly
installments plus interest based on the Bank Bill Swap Reference Rate
(weighted average interest rate of 7.81% at December 31, 1999) -- 639
Other 135 --
------------ ------------
15,853 19,005
Less current installments of long-term debt 3,129 5,083
------------ ------------
$ 12,724 $ 13,922
============ ============
The Company also has a $30.0 million revolving credit facility (the "Revolving
Facility") from three banks. Borrowings under the Revolving Facility are based
on certain percentages of accounts receivable and inventories. The Revolving
Facility is collateralized by substantially all of the Company's assets in the
United States. Amounts outstanding under the revolving facility were $21.0
million at December 31, 2000 and $17.6 million at December 31, 1999. There was
$2.5 million available under the Revolving Facility on December 31, 2000.
Interest accrues at a rate based upon either LIBOR or upon the Banks' prime
rate. The weighted average interest rate was 9.66% as of December 31, 2000. The
Revolving Facility expires July 15, 2002.
The Company has a $0.3 million credit facility with an Australian bank.
Availability under the credit facility is based on the original principal
balance less scheduled monthly payments. There was $0.3 million available under
the credit facility at December 31, 2000.
F-13
30
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Annual maturities on long-term debt outstanding at December 31, 2000 are as
follows (amounts in thousands):
2001 $ 3,129
2002 12,724
-----------
$ 15,853
===========
To manage its exposure to fluctuations in interest rates, the Company has
entered into interest rate swap agreements (the "Swap Agreements") for a
combined notional principal amount of $15 million. Interest rate swap agreements
involve the exchange of interest obligations on fixed and floating rate debt
without the exchange of the underlying principal amounts. The difference paid or
received on the swap agreement is recognized as an adjustment to interest
expense. The Company's Swap Agreements provide that the Company pay fixed
interest rates ranging from 5.98% to 6.345%, while receiving a floating rate
payment equal to the three month LIBOR rate determined on a quarterly basis with
settlement occurring on specific dates. While the Company has credit risk
associated with this financial instrument, no loss is anticipated due to
nonperformance by the counterparties to these agreements because of the
financial strength of the financial institution involved.
The Credit Facilities and the Revolving Credit Facility require that the Company
maintain certain financial ratios and other covenants. The Company is in
compliance or has obtained waivers for all of these financial ratios and
covenants as of December 31, 2000.
Actual interest paid was approximately $3.2 million, $3.6 million and $4.0
million in 2000, 1999 and 1998, respectively.
6. EMPLOYEE BENEFIT PLANS
Common Stock Options
The Company has stock option plans under which incentive and non-qualified
options may be granted. Options are granted at the market price per share at the
grant date. Options generally become exercisable in 20% increments beginning on
the grant date and expire five years from the grant date.
A summary of transactions for all options follows:
Stock Options Option Price
------------- -------------------------
Outstanding at December 31, 1997 798,638 $ 1.29 - 16.54
Granted 44,000 9.63 - 13.63
Canceled (27,869) 4.93 - 7.39
Exercised (259,906) 2.37 - 7.39
---------- ---------- ----------
Outstanding at December 31, 1998 554,863 $ 1.29 - 16.54
Granted 82,000 7.81 - 10.06
Canceled (90,500) 7.22 - 13.83
Exercised (3,375) 4.96 - 7.22
---------- ---------- ----------
Outstanding at December 31, 1999 542,988 $ 1.29 - 16.54
Granted 225,000 3.57 - 5.00
Canceled (22,950) 3.57 - 13.25
---------- ---------- ----------
Outstanding at December 31, 2000 745,038 $ 1.29 - $ 16.54
========== ========== ==========
F-14
31
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of exercisable options follows:
Number of Weighted
Range of Exercisable Avg. of
Prices Options Exercise Price
- ------------- ----------- --------------
1998
$1.0 to 5.0 258,187 $ 1.33
$5.1 to 10.0 120,325 $ 7.49
$10.0 to 17.0 23,400 $ 14.23
========== ==========
1999
$1.0 to 5.0 256,162 $ 1.30
$5.1 to 10.0 158,800 $ 7.61
$10.0 to 17.0 24,400 $ 14.94
========== ==========
2000
$1.0 to 5.0 300,761 $ 1.66
$5.1 to 10.0 191,375 $ 7.67
$10.0 to 17.0 32,100 $ 14.97
========== ==========
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation has been recognized for the stock option plans. If
the Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net earnings
(loss) and net earnings (loss) per share would have been adjusted to the pro
forma amounts indicated in the table below (amounts in thousands, except share
data):
2000 1999 1998
------------ ------------ ------------
Net earnings (loss)-as reported $ 558 $ (4,567) $ 5,843
Net earnings (loss)-pro forma 305 (4,893) 5,579
Net earnings (loss) per basic share-as reported 0.06 (0.50) 0.64
Net earnings (loss) per basic share-pro forma 0.03 (0.54) 0.62
Net earnings (loss) per diluted share-as reported 0.06 (0.50) 0.63
Net earnings (loss) per diluted share-pro forma 0.03 (0.54) 0.60
Weighted-average fair value of
options, granted during the year 1.51 3.61