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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, 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
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 14, 2002, held by non-affiliates of the registrant was
approximately $21,787,193 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
14, 2002 was 9,326,101.
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.
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.
1
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.
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, 2001, 2000 and 1999, accounted for approximately
41%, 38% and 48% 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,
2001, 2000 and 1999, sales of valves and related accessories accounted for
approximately 11%, 12% and 12% 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
5%, 7% and 7% of total net sales in the years ended December 31, 2001, 2000 and
1999, 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 5%, 4% and 3% of net sales in the years ended
December 31, 2001, 2000 and 1999.
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 38%, 39% and 29% of the
Company's total net sales for the years ended December 31, 2001, 2000 and 1999,
respectively.
2
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, 2001, 2000 and 1999,
Company-sponsored research and development expenses were $2.4 million, $2.9
million, and $2.7 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 $7.8
million, $6.0 million and $10.1 million at December 31, 2001, 2000 and 1999,
respectively. It is anticipated that 2001 backlog orders will be filled in 2002.
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 36%, 27% and 25% of the Company's total net sales for the
years ended December 31, 2001, 2000 and 1999, 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.
3
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, 2001, 2000 and 1999, the Company's sales to
customers outside the United States were approximately 30%, 35% and 35% 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 2001,
2000, and 1999 follow (amounts in thousands):
North Latin
America America Pacific Brazil Europe Asia
-------- -------- -------- -------- -------- --------
Net sales:
2001 $ 87,770 $ 9,816 $ 13,137 $ 1,092 $ 9,856 $ 2,133
2000 73,373 7,850 16,638 1,538 10,895 2,944
1999 85,889 11,225 15,407 2,065 9,471 5,783
Operating income (loss):
2001 $ 11,105 $ 587 $ 1,358 $ (247) $ 1,601 $ 56
2000 9,056 827 2,196 10 1,923 285
1999 8,451 528 1,535 (6,819) 1,023 845
Additional financial information about segments and geographic areas is set
forth in Note 14 to the Consolidated Financial Statements.
4
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, 2001, the Company had 1,309 full-time employees of whom 69
were engaged in engineering and technical support, 1,046 in manufacturing, 75 in
marketing and sales and 119 in general management and administrative positions.
593 employees work in the United States, primarily at the Company's facilities
in San Antonio, Texas. 573 employees work at the Company's facility in Piedras
Negras, Mexico, 13 are employed by the Company's Brazilian subsidiary, and a
total of 82 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 89 United States patents and numerous corresponding
foreign patents. It has 22 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 1 to 18 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.
5
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 53,000 square foot plant in Sao Paulo, Brazil,
a 5,400 square foot plant in Auckland, New Zealand, a 69,700 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 415,000 square feet of space
throughout the world.
Total net rent expense for real estate was $1.2 million, $1.5 million and $1.5
million in 2001, 2000 and 1999, respectively. Total rent expense includes
$89,000 in 2001, 2000 and 1999 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, 2001.
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
2001 2000
Quarter High Low High Low
- ------------- ----------------------- -----------------------
First $ 6.50 $ 4.40 $ 5.63 $ 4.13
Second 6.85 4.35 4.75 3.50
Third 6.25 3.70 4.88 3.56
Fourth 5.00 3.60 6.50 4.25
6
On March 14, 2002, the closing price of the Company's common stock, as reported
by the ASE, was $5.45 per share. On that date, there were 256 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,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Operating Data:
Net sales $ 123,804 $ 113,238 $ 129,840 $ 138,423 $ 119,367
Gross profit 27,112 25,575 21,686 33,407 31,350
Selling, general and
administrative expenses 22,759 21,792 22,153 19,911 20,439
Write-down of Brazilian assets - - 5,956 - -
Operating income (loss) 4,353 3,783 (6,423) 13,496 10,911
Interest expense 3,200 3,297 3,464 3,899 2,815
Interest and other income, net (1,076) (427) (2,819) (324) (1,027)
Earnings (loss) before income
taxes 2,229 913 (7,068) 9,921 9,123
Income tax expense (benefit) 827 355 (2,501) 4,078 3,037
Net earnings (loss) 1,402 558 (4,567) 5,843 6,086
Net earnings (loss) per share
Basic $ 0.15 $ 0.06 $ (0.50) $ 0.64 $ 0.69
Diluted $ 0.15 $ 0.06 $ (0.50) $ 0.63 $ 0.65
Weighted average shares outstanding
Basic 9,127 9,125 9,124 9,060 8,863
Diluted 9,315 9,290 9,124 9,306 9,338
As of December 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- --------- --------- --------- ---------
Balance Sheet Data:
Total assets $ 96,300 $ 102,392 $ 103,054 $ 112,840 $ 110,669
Short-term debt 18,318 24,129 22,683 27,094 23,444
Long-term debt, less
current installments 11,872 12,724 13,922 17,568 21,565
Shareholders' equity 44,286 43,533 44,476 48,258 42,961
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.
7
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, 2001 AND DECEMBER 31, 2000
Net sales for the year ended December 31, 2001 increased by $10.6 million, or
9%, to $123.8 million from $113.2 million in 2000. Sales in the North America
region accounted for all of the increase, rising $14.4 million, or 20%. Sales of
traditional fountain dispensers, frozen beverage dispensers, and other accessory
products contributed to the improvement in North America. Sales in the Latin
America region (excluding Brazil) improved by $2.0 million, or 25%, in 2001.
Sales fell 29% in Brazil, and 28% in Asia, as market conditions remained very
weak in those areas. The Pacific region incurred a sales decline of $3.5
million, or 21%. Sales in the region softened in 2001 after several years of
strength caused partly by the 2000 Olympic Games in Australia.
Gross margin for 2001 was 21.9%, down from 22.6% in 2000. The decline was
primarily caused by changes to the sales mix, primarily higher sales of 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. Increased manufacturing spending also contributed to
the gross margin decline in 2001.
Selling, general and administrative expenses were $22.8 million in 2001,
compared with $21.8 million in 2000. Expenses associated with the Company's
Advanced Beverage Solutions subsidiary, which was formed in the second quarter
of 2000, as well as expenses relating to employee salaries and research and
development caused most of the increase.
Interest expense was $3.2 million in 2001 and $3.3 million in 2000. The
favorable impact of lower average interest rates in 2001 were partially offset
by a $0.4 million expense relating to the accounting for certain interest rate
swap agreements under Statement of Financial Accounting Standards No. 133. The
Company reported a loss of $0.3 million from its frozen beverage equipment joint
venture in 2001, compared to a loss of $0.1 million in 2000. Low manufacturing
volumes contributed to the loss. The minority interest benefit of $0.2 million
in 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 2001 includes a $1.0 million gain
relating to the cancellation of a project, and a $0.3 million write-down of the
carrying value of an impaired investment. The effective tax rate was 37.1% in
2001, down from 38.9% in 2000. The effective rate improved in 2001 as higher
pretax income diluted the impact of nondeductible expenses. Additionally,
statutory tax rates declined in certain jurisdictions. Net income was $1.4
million in 2001, and $0.6 million in 2000.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Net sales for the year ended December 31, 2000 were $113.2 million, down $16.6
million, or 13%, from $129.8 million in 1999. Sales in the North America region
declined $12.5 million, or 15%. 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 $3.4 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 or, 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%.
8
Gross margin for the year ended December 31, 2000 was 22.6%, 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 $21.8 million in 2000, down
from $22.2 million in 1999. In 2000, increases in research and development
spending, expenses associated with the Company's Advanced Beverage Solutions
subsidiary which was formed in the second quarter of 2000, and employment costs
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.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of the critical accounting policies or methods used in the
preparation of financial statements. Note 1 of the "Notes to Consolidated
Financial Statements" includes a summary of the significant accounting policies
and methods used in the preparation of the Company's Consolidated Financial
Statements. The following is a discussion of the more significant accounting
policies and methods.
REVENUE RECOGNITION
Revenue is recognized in accordance with the following methods:
(a) At the time of shipment for all products except for those sold under
agreement described in (b).The Company requires a purchase order for
all sales. At the time of the shipment, risk of ownership and title
passes to the customer. The goods are completely assembled and packaged
and the Company has no further performance obligations.
(b) As produced and at time of title transfer, for certain products
manufactured and warehoused under production and warehousing agreements
with certain customers.
(c) 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.
(d) 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.
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY
The Company's provides for slow moving inventory based on an analysis of the
aging and utility of the inventory. Obsolete inventory is 100% reserved at the
time the product is deemed obsolete due to technological advances and
9
discontinuation of products. In addition, management's evaluation of the
specific items also influences the reserve. The Company' believes that the
reserve as of December 31, 2001 is adequate to provide for expected losses.
RESERVE FOR MEDICAL AND WORKER'S COMPENSATION
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and their dependents, which is partially
funded by payroll deductions. The estimate of the loss reserves necessary for
claims is based on the Company's estimate of claims incurred as of the end of
the year. The Company uses detail lag reports provided by the insurance
administrator to determine an appropriate reserve balance. The Company has
provided for both reported medical costs and incurred but not reported medical
costs in the accompanying consolidated balance sheets. The Company has a maximum
liability of $75,000 per employee / dependent per year. Amounts in excess of the
stated maximum are covered under a separate policy provided by an insurance
company.
The Company is self-insured for all workers' compensation claims submitted by
Texas employees for on-the-job injuries. The estimate of the loss reserves
necessary for claims are based on the Company's estimate of claims incurred as
of the December 31, 2001. In addition to detail lag reports provided by the
insurance administrator, the Company uses an injury report to determine an
appropriate reserve balance. The Company has provided for both reported costs
and incurred but not reported costs of workers' compensation coverage in the
accompanying consolidated balance sheets. In an effort to provide for
catastrophic events, the Company carries an excess indemnity policy for workers'
compensation claims. All claims paid under the policy are subject to an annual
deductible of $500,000 to be paid by the Company. Based upon the Company's past
experience, management believes that the Company has adequately provided for
potential losses. However, multiple occurrences of serious injuries to employees
could have a material adverse effect on the Company's financial position or its
results of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains its allowance for doubtful accounts at a balance adequate
to reduce accounts receivable to the amount of cash expected to be realized on
collection. The methodology used to determine the minimum allowance is based on
the Company's prior collection experience. Specific customers' financial
strength and circumstance also influence the balance. Accounts that are
determined to be uncollectible are written-off in the period in which they are
determined to be uncollectible.
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 produced $11.9 million of net cash from operating activities in
2001, compared to $4.5 million in 2000. Changes in inventory levels generated
$7.7 million of cash in 2001, and consumed $4.6 million in 2000.
Capital spending was $4.0 million in 2001. The Company's investment in
production tooling and equipment accounted for most of the spending. During
2001, the Company entered into a $0.7 million capital lease agreement to finance
certain production equipment. The balance of capital spending, along with a $7.4
reduction of debt, was financed with cash provided from operations.
During 2001, the Company amended its credit facilities with its primary lenders.
The amendment adjusted certain financial covenants, added a fixed charge
coverage covenant, and extended the expiration of the facilities to July 15,
2003. 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.
10
CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's contractual obligations
as of December 31, 2001. Additional details about these items are included in
the notes to the consolidated financial statements (amounts in thousands).
Payments Due by Period
----------------------------------------------------------------------
2006 and
Contractual obligations 2002 2003 2004 2005 After Total
- -------------------------- -------- --------- -------- -------- ---------- ----------
Indebtedness $ 2,718 $ 11,464 $ 140 $ 149 $ 119 $ 14,590
Operating leases 657 357 244 47 - 1,305
Other 147 147 147 109 - 550
--------- ---------- --------- ------- ---------- ----------
Total contractual
cash obligations $ 3,522 $ 11,968 $ 531 $ 305 $ 119 $ 16,445
========= ========== ======== ========= ========== ==========
INFLATION
Management believes inflation has not had a significant impact on its business
or operations.
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 current Code, the FSC is no longer a separate foreign sales
entity. A new category of income - extraterritorial income has been created.
Under the Code, as amended, a portion of the extraterritorial income is subject
to federal income taxes, while a portion is permanently exempt from federal
income taxes. Current tax regulations prevent the Company from maintaining the
DISC and have qualifying foreign trade income concurrently. At the time of
liquidation of the DISC, 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 liquidated on December 31, 2001, it would have resulted in a reduction of
approximately $0.8 million in the Company's net earnings.
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 of $7.7 million on its
investment in the Brazilian operation. The Internal Revenue Service (the
"Service") is examining the Company's U.S. income tax return for 1999 including
the deduction of the loss on its investment in the Brazilian operation, and has
proposed the disallowance of the deduction. The Company believes that the
Service's proposal is without merit, and intends to vigorously defend its
position. The Company does not believe that any significant adjustments will be
required as a result of this examination.
11
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," issued in June 2001, establishes accounting and reporting
standards for business combinations. This statement eliminates the
pooling-of-interests method of accounting for business combinations and requires
all business combinations to be accounted for using the purchase method. The
Company adopted SFAS No. 141 on July 1, 2001. The adoption of SFAS No. 141 did
not have a material impact on the Company's financial statements.
SFAS No. 142, "Goodwill and Other Intangible Assets," issued in June 2001,
establishes accounting and reporting standards for acquired goodwill and
other intangible assets. This statement addresses how goodwill and other
intangible assets that are acquired or have already been recognized in the
financial statements should be accounted for. Under this statement goodwill
and certain other intangible assets will no longer be amortized, but will be
required to be reviewed periodically for impairment of value. The Company has
approximately $1.6 million of goodwill, net of accumulated amortization, on
December 31, 2001. Amortization expense related to goodwill for the year
ended December 31, 2001 was $163,000. The Company will adopt SFAS No. 142 on
January 1, 2002. The Company is assessing the impact of SFAS No. 142 on its
financial statements and believes the adoption of SFAS No. 142 will not have
a material impact on the Company's financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations," issued in June
2001, establishes financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) normal use of the asset. The Company is required and plans
to adopt the provisions of SFAS No. 143 for the quarter ending March 31, 2003.
To accomplish this, the Company must identify all legal obligations for asset
retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. The Company believes the adoption of SFAS
No. 143 will not have a material impact on the Company's financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
issued in August 2001, addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of".
However, it retains the fundamental provisions of Statement 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale. The
Company is required and plans to adopt the provisions of SFAS No. 144 beginning
January 1, 2002. The Company believes the adoption of SFAS No. 144 will not have
a material impact on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On December 31, 2001, substantially all of the Company's $30.2 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 $10.0 million. Under the Swap
Agreements, the Company pays fixed interest rates ranging from 5.98% to 6.23%,
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, 2001, 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, 2001.
In 2001, $1.1 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 $0.1
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements and Schedule" included herein
for information required for Item 8.
12
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, 2002 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 65 Chairman of the Board
George F. Schroeder 62 President, Chief Executive Officer and Director
Christopher D. Hughes 55 Chief Operating Officer
Mark L. Freitas 41 Corporate Controller
Walter J. Biegler 60 Director
Jean M. Braley 72 Director
Norborne P. Cole, Jr. 60 Director
Olivia F. Kirtley 51 Director
Richard C. Osborne 58 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.
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."
13
Mr. Norborne P. Cole, Jr. has served as a director of the Company since 2001. He
has been a consultant since 1998. From 1994-1998, Mr. Cole was Managing
Director/CEO of Coca-Cola Amatil in Sydney, Australia. From 1991-1994, Mr. Cole
was President and CEO of Coca-Cola Bottling, SA in Paris, France. From
1989-1990, he was Regional Manager of Coca-Cola Benelux + Denmark. Mr. Cole held
a number of positions with The Coca-Cola Company and Coca-Cola bottlers from
1966 to 1989.
Ms. Olivia F. Kirtley has served as a director of the Company since 1999. She is
a Certified Public Accountant, and is currently 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. She has served on the Board of Directors
of Alderwoods Group, Inc. since 2002.
Mr. Richard C. Osborne has served as a director of the Company since 2001. He
has been a private equity investor since 2000. From 1989-1999, Mr. Osborne
served as Chairman, Chief Executive Officer and President of Scotsman
Industries, a manufacturer of beverage dispensing equipment, ice machines,
display cases, walk-in coolers and refrigeration equipment. He worked in a
variety of positions with Scotsman from 1979-1989. Prior to joining Scotsman,
Mr. Osborne worked with The Pillsbury Company and General Motors.
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 2001, 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 Olivia F. Kirtley, Walter J. Biegler, and
Norborne P. Cole, Jr. The Audit Committee met seven times in 2001. The members
of the Compensation Committee were Richard C. Osborne, Jean M. Braley, and
Norborne P. Cole, Jr. No member of the Compensation Committee was an executive
officer of the Company. The Compensation Committee met three times in 2001.
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, 2002 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.
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, 2002
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.
14
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, 2002 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
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.
15
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.
10.42 First Amendment to Seventh Amendment and Restated Credit
Agreement between Lancer Corporation and The Frost National
Bank, Harris Trust and Savings Bank, and Whitney National
Bank.
10.43 Master Lease and Supplement between The Frost National Bank
and Lancer Partnership, Ltd.
21.1 List of Significant Subsidiaries of the Registrant
23.1 Consent of KPMG 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
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 25, 2002
President and CEO
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 25, 2002
- ----------------------- ----------------------------- -----------------
Alfred A. Schroeder Date
/s/ GEORGE F. SCHROEDER President and Director March 25, 2002
- ------------------------ ----------------------------- -----------------
George F. Schroeder (principal executive officer) Date
/s/ WALTER J. BIEGLER Director March 25, 2002
- ------------------------ ----------------------------- -----------------
Walter J. Biegler Date
/s/ JEAN M. BRALEY Director March 25, 2002
- ------------------------ ----------------------------- -----------------
Jean M. Braley Date
/s/ NORBORNE P. COLE, JR. Director March 25, 2002
- ------------------------ ------------------------------ -----------------
Norborne P. Cole, Jr. Date
/s/ OLIVIA F. KIRTLEY Director March 25, 2002
- ------------------------ ----------------------------- -----------------
Olivia F. Kirtley Date
/s/ RICHARD C. OSBORNE Director March 25, 2002
- ------------------------ ----------------------------- -----------------
Richard C. Osborne Date
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, 2001 and 2000 F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 2001 F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
for each of the years in the three-year period ended December 31, 2001 F-6
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2001 F-7
Notes to Consolidated Financial Statements F-8
Schedule for the years ended December 31, 2001, 2000 and 1999
II-Reserve account F-23
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
schedule 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
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, 2001 and 2000, 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, 2001. 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, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, 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.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2001, the Company changed its method of accounting for derivative
instruments and hedging activities.
KPMG LLP
San Antonio, Texas
March 7, 2002
F-2
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(Amounts in thousands, except share data)
ASSETS
2001 2000
---------- ----------
Current assets
Cash $ 1,849 $ 771
Receivables:
Trade accounts and notes 17,477 16,222
Other 850 643
---------- ----------
18,327 16,865
Less allowance for doubtful accounts (467) (379)
---------- ----------
Net receivables 17,860 16,486
---------- ----------
Inventories 32,160 40,224
Prepaid expenses 655 642
Deferred tax asset 211 273
---------- ----------
Total current assets 52,735 58,396
---------- ----------
Property, plant and equipment, at cost:
Land 1,260 1,260
Buildings 21,983 21,981
Machinery and equipment 23,037 21,838
Tools and dies 12,884 11,273
Leaseholds, office equipment and vehicles 10,826 10,143
Assets in progress 1,194 1,581
========== ==========
71,184 68,076
Less accumulated depreciation and amortization (35,183) (31,384)
========== ==========
Net property, plant and equipment 36,001 36,692
---------- ----------
Long-term recivables ($407 and $529 due from officers,
respectively) 612 761
Long term investments 2,278 2,599
Intangibles and other assets, at cost, less accumulated
amortization 4,674 3,944
---------- ----------
$96,300 $ 102,392
========== ==========
See accompanying notes to consolidated financial statements.
F-3
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2001 and 2000
(Amounts in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
2001 2000
------------- -------------
Current liabilities:
Accounts payable $ 7,911 $ 8,962
Current installments of long-term debt 2,718 3,129
Line of credit with bank 15,600 21,000
Deferred licensing and maintenance fees 1,295 774
Accrued expenses and other liabilities 4,754 5,071
Taxes payable 896 584
------------- -------------
Total current liabilities 33,174 39,520
Deferred tax liability 2,032 2,448
Long-term debt, excluding current installments 11,872 12,724
Deferred licensing and maintenance fees 4,478 3,873
Other long-term liabilities 403 -
------------- -------------
Total liabilities 51,959 58,565
------------- -------------
Commitments and contingencies - -
Minority interest 55 294
Shareholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued - -
Common stock, $.01 par value:
50,000,000 shares authorized; 9,127,757 and 9,124,857
issued and outstanding in 2001 and 2000, respectively 91 91
Additional paid in capital 11,943 11,933
Accumulated other comprehensive loss (3,976) (3,317)
Retained earnings 36,228 34,826
------------- -------------
Total shareholders' equity 44,286 43,533
------------- -------------
$ 96,300 $ 102,392
============= =============
See accompanying notes to consolidated financial statements.
F-4
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001, 2000 and 1999
(Amounts in thousands, except share data)
2001 2000 1999
------------ ------------ ------------
Net sales $ 123,804 $ 113,238 $ 129,840
Cost of sales 96,692 87,663 108,154
------------ ------------ ------------
Gross profit 27,112 25,575 21,686
Selling, general and administrative expenses 22,759 21,792 22,153
Write-down of Brazilian assets - - 5,956
------------ ------------ ------------
Operating income (loss) 4,353 3,783 (6,423)
------------ ------------ ------------
Other (income) expense:
Interest expense 3,200 3,297 3,464
Loss (income) from joint venture 296 82 (1,677)
Gain on sale of investment - - (895)
Minority interest (239) (248) (124)
Interest and other income, net (1,133) (261) (123)
------------ ------------ ------------
2,124 2,870 645
------------ ------------ ------------
Earnings (loss) before income taxes 2,229 913 (7,068)
------------ ------------ ------------
Income tax expense (benefit):
Current 957 1,059 (2,675)
Deferred (130) (704) 174
------------ ------------ ------------
827 355 (2,501)
------------ ------------ ------------
Net earnings (loss) $ 1,402 $ 558 $ (4,567)
============ ============ ============
Common Shares and Equivalents Outstanding:
Basic 9,127,062 9,124,857 9,123,527
Diluted 9,314,789 9,290,003 9,123,527
Earnings (Loss) Per Share:
Basic $ 0.15 $ 0.06 $ (0.50)
Diluted $ 0.15 $ 0.06 $ (0.50)
See accompanying notes to consolidated financial statements.
F-5
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 2001, 2000 and 1999
(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, 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
Comprehensive Income:
Net earnings - - - 1,402 1,402
Cumulative translation adjustment - - (817) - (817)
Reclassification adjustment for
realized loss included in net
income, net of tax 172 172
Unrealized loss on derivative instruments:
Initial loss upon Adoption of
SFAS No. 133 - - (51) - (51)
Reclassification adjustment for loss
included in interest expense - - 37 - 37
--------------
Total comprehensive income: 743
--------------
Exercise of 2,900 stock options - 10 - - 10
----------- --------------- -------------- -------------- --------------
Balance December 31, 2001 $ 91 $ 11,943 $ (3,976) $ 36,228 $ 44,286
=========== =============== ============== ============== ==============
See accompanying notes to consolidated financial statements.
F-6
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
(Amounts in thousands)
2001 2000 1999
------------- ------------- -------------
Cash flow from operating activities:
Net earnings (loss) $ 1,402 $ 558 $ (4,567)
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Depreciation and amortization 4,816 4,205 3,990
Deferred licensing and maintenance fees 1,126 (472) 2,521
Deferred income taxes (453) (704) 174
(Gain) loss on sale and disposal of assets (6) 10 22
Gain on sale of long-term investments - - (895)
Minority interest (239) (248) (124)
Loss (earnings) from joint venture 296 82 (1,677)
Impairment of investment 279 - -
Impairment of Brazilian assets - - 5,956
Change in assets and liabilities, net of effects
from purchase of subsidiary:
Receivables (1,532) 635 3,041
Prepaid expenses (13) (177) 95
Income taxes receivable - 3,505 (3,300)
Inventories 7,678 (4,646) 9,431
Other assets (720) (365) (567)
Accounts payable (868) 409 303
Accrued expenses (239) 1,098 (1,298)
Income taxes payable 343 584 (12)
------------- ------------- ------------
Net cash provided by operating activities 11,870 4,474 13,093
------------- ------------- ------------
Cash flow from investing activities:
Proceeds from sale of assets 52 2 16
Acquisition of property, plant and equipment (3,998) (5,166) (4,957)
Acquisition of subsidiary company - - (1,719)
Proceeds of long-term investments and affiliates 7 209 2,738
------------- ------------- ------------
Net cash used in investing activities (3,939) (4,955) (3,922)
------------- ------------- ------------
Cash flow from financing activities:
Net borrowings (repayments) under line of credit agreements (5,400) 3,400 (4,700)
Proceeds from issuance of long-term debt 697 - 1,457
Retirement of long-term debt (1,960) (3,075) (4,827)
Net proceeds from exercise of stock options 10 - 20
------------- ------------- ------------
Net cash (used in) provided by financing activities (6,653) 325 (8,050)
------------- ------------- ------------
Effect of exchange rate changes on cash (200) (300) (1,013)
Net increase (decrease) in cash 1,078 (456) 108
Cash at beginning of year 771 1,227 1,119
------------- ------------- ------------
Cash at end of year $ 1,849 $ 771 $ 1,227
============= ============= ============
See accompanying notes to consolidated financial statements
F-7
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Lancer Corporation (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 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.
F-8
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE INSTRUMENTS
The Company accounts for derivative instruments using the principles of
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. The Company entered into
the swap agreements to effectively fix the interest rate on a portion of its
debt in order to lessen the Company's exposure to floating rate debt. 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 December 31, 2001, the
fair value of the interest rate swap agreements was a liability of $379,000,
which is included in accrued expenses in the accompanying financial statements.
During 2001, the Company recognized in interest expense $37,000 relating to the
transition adjustment and $328,000 relating to the change in the fair value of
the interest rate swap agreements, respectively.
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 187,727, 165,146, and 0 shares in 2001, 2000 and 1999,
respectively. Options to purchase approximately 132,250, 293,875 and 110,750,
shares in 2001, 2000 and 1999, 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.
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 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.
F-9
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT
Company-sponsored research and development costs are expensed as incurred and
totaled approximately $2.4 million, $2.9 million and $2.7 million for the years
ended December 31, 2001, 2000 and 1999, 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.)
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 income
(loss) consists of net earnings (loss), currency translation adjustment,
unrealized gain (loss) on investment, and unrealized loss on derivative
instruments 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for prior years have
been reclassified to conform with the current year's presentation.
F-10
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 141, "Business Combinations," issued in June 2001, establishes
accounting and reporting standards for business combinations. This statement
eliminates the pooling-of-interests method of accounting for business
combinations and requires all business combinations to be accounted for using
the purchase method. The Company adopted SFAS No. 141 on July 1, 2001. The
adoption of SFAS No. 141 did not have a material impact on the Company's
financial statements.
SFAS No. 142, "Goodwill and Other Intangible Assets," issued in June 2001,
establishes accounting and reporting standards for acquired goodwill and other
intangible assets. This statement addresses how goodwill and other intangible
assets that are acquired or have already been recognized in the financial
statements should be accounted for. Under this statement goodwill and certain
other intangible assets will no longer be amortized, but will be required to be
reviewed periodically for impairment of value. The Company has approximately
$1.6 million of goodwill, net of accumulated amortization, at December 31,2001.
Amortization expense related to goodwill for the year ended December 31, 2001
was $163,000. The Company will adopt SFAS No. 142 on January 1, 2002. The
Company is assessing the impact of SFAS No. 142 on its financial statements and
believes the adoption of SFAS No. 142 will not have a material impact on the
Company's financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations," issued in June
2001, establishes financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) normal use of the asset. The Company is required and plans
to adopt the provisions of SFAS No. 143 for the quarter ending March 31, 2003.
To accomplish this, the Company must identify all legal obligations for asset
retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. The Company believes the adoption of SFAS
No. 143 will not have a material impact on the Company's financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
issued in August 2001, addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of".
However, it retains the fundamental provisions of Statement 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale. The
Company is required and plans to adopt the provisions of SFAS No. 144 beginning
January 1, 2002. The Company believes the adoption of SFAS No. 144 will not have
a material impact on the Company's financial statements.
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 inventory, manufacturing equipment and goodwill 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. The amount of the
write-down was determined based on both internal and external independent
valuations.
F-11
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN JOINT VENTURE
Summarized financial data for investment in joint venture is as follows (amounts
in thousands):
CONDENSED STATEMENT OF OPERATIONS 2001 2000 1999
- --------------------------------- ------------- ------------- -------------
Net Sales $ 8,415 $ 8,632 $ 22,991
Gross profit 1,078 2,251 5,480
Net (loss) earnings (1,323) 154 3,826
CONDENSED BALANCE SHEET
- -----------------------
Current assets $ 3,396 $ 3,225
Non-current assets 3,224 3,344
------------- -------------
$ 6,620 $ 6,569
============= =============
Current liabilities $ 2,389 $ 1,008
Non-current liabilities 2 9
Partners' capital 4,229 5,552
------------- -------------
$ 6,620 $ 6,569
============= =============
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):
2001 Current Deferred Total
------- ------- -------- -------
Federal $ -- $ (246) $ (246)
State 24 -- 24
Foreign 933 116 1,049
------- ------- -------
Total $ 957 $ (130) $ 827
======= ======= =======
2000
-------
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)
======= ======== =======
F-12
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):
2001 2000
------------ ----------
Deferred tax assets:
Accounts receivable $ 217 $ 85
Inventory 257 382
Compensation and benefits 141 349
Net operating loss carryforward, expiring in 2020 1,364 579
Minimum taxes creditable in foreign jurisdictions 503 323
Foreign deferred assets 114 108
Other 252 392
------------ ----------
Total gross deferred tax assets 2,848 2,218
------------ ----------
Deferred tax liabilities:
Property, plant and equipment 3,283 3,007
DISC income 1,386 1,386
------------ ----------
Total deferred tax liability 4,669 4,393
------------ ----------
Net deferred tax liability $ 1,821 $ 2,175
============ ==========
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, 2001.
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):
2001 2000 1999
------- ------- -------
Computed "expected" tax expense (benefit) $ 758 $ 310 $(2,403)
Increase (decrease) in taxes resulting from:
Effect of foreign tax losses - - (256)
Effect of nondeductible expenses 44 99 167
State, net of Federal benefit 16 16 16
Effect of foreign tax rates 34 83 68
Other, net (25) (153) (93)
------- ------- -------
$ 827 $ 355 $(2,501)
======= ======= =======
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.
F-13
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 of $7.7 million on its
investment in the Brazilian operation. The Internal Revenue Service (the
"Service") is examining the Company's U.S. income tax return for 1999 including
the deduction of the loss on its investment in the Brazilian operation, and has
proposed the disallowance of the deduction. The Company believes that the
Service's proposal is without merit, and intends to vigorously defend its
position. The Company does not believe that any significant adjustments will be
required as a result of this examination.
Actual net Federal income taxes (refunded) paid were approximately $0.0, ($3.0)
million, and ($0.3) million for 2001, 2000, and 1999, respectively.
5. LONG-TERM DEBT AND LINE OF CREDIT WITH BANKS
(Amounts in thousands) 2001 2000
--------- --------
$14,824 notes payable to banks, due in quarterly installments plus interest
based upon prime and LIBOR (weighted average rate of 4.43% at December 31,
2001) through July 15, 2003; secured by substantially all
of the Company's assets in the United States $ 12,724 $ 14,124
Note payable to seller of Brazil subsidiary, due in annual installments plus
interest based on LIBOR (weighted average interest rate of 2.68% at
December 31, 2001) through December 31, 2001 1,196 1,594
Capital lease payable to bank, due in monthly installments plus interest of
6.72% through November 1, 2006 670 -
Other - 135
--------- --------
14,590 15,853
Less current installments of long-term debt 2,718 3,129
--------- --------
$ 11,872 $ 12,724
========= ========
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 $15.6
million at December 31, 2001 and $21.0 million at December 31, 2000. There was
$5.4 million available under the Revolving Facility on December 31, 2001.
Interest accrues at a rate based upon either LIBOR or upon the Banks' prime
rate. The weighted average interest rate was 4.24% as of December 31, 2001. The
Revolving Facility expires July 15, 2003.
The note payable to the seller of the Company's Brazil subsidiary was due on
December 31, 2001. Because of the unfavorable business conditions in Brazil, the
holder of the note has not demanded payment of the amount due. The Company has
not repaid the $1.196 million balance pending discussions with the holder of the
note to restructure the debt.
F-14
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Annual maturities on long-term debt outstanding at December 31, 2001 are as
follows (amounts in thousands):
2002 $ 2,718
2003 11,464
2004 140
2005 149
2006 119
----------
$ 14,590
==========
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 $10.0 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 6.23%, 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 with all of these financial ratios and covenants as of December 31,
2001.
Actual interest paid was approximately $3.0 million, $3.2 million and $3.6
million in 2001, 2000 and 1999, 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, 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
Granted 29,000 5.51 - 6.06
Canceled (168,725) 3.56 - 10.00
Exercised (2,900) 3.57 - 3.57
--------------- ----------------------
Outstanding at December 31, 2001 602,413 $ 1.29 16.54
=============== ======================
F-15
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
---------------------------------------------------------------------
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
=====================================================================
2001
$1.0 to 5.0 340,562 $ 1.91
$5.1 to 10.0 46,600 $ 8.54
$10.0 to 17.0 40,700 $ 14.95
=====================================================================
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):
2001 2000 1999
--------- -------- ---------
Net earnings (loss) as reported $ 1,402 $ 558 $ (4,567)
Net earnings (loss) pro forma 1,158 305 (4,893)
Net earnings (loss) per basic share-as reported 0.15 0.06 (0.50)
Net earnings (loss) per basic share-pro forma 0.13 0.03 (0.54)
Net earnings (loss) per diluted share-as reported 0.15 0.06 (0.50)
Net earnings (loss) per diluted share-pro forma 0.12 0.03 (0.54)
Weighted-average fair value of
options, granted during the year 2.02 1.51 3.61
The fair value of each option granted in 2001, 2000 and 1999 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions:
2001 2000 1999
--------- -------- ---------
Expected life (years) 4 4 4
Interest rate 4.0% 5.0% 6.5%
Volatility 44.4% 43.4% 42.0%
Dividend yield None None None
F-16
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SELF-INSURED MEDICAL PLAN
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and their dependents which is partially
funded by payroll deductions. The Company has provided for both reported, and
incurred but not reported, medical costs in the accompanying consolidated
balance sheets. The Company has a maximum liability of $75,000 per employee /
dependent per year. Amounts in excess of the stated maximum are covered under a
separate policy provided by an insurance company.
WORKERS' COMPENSATION COVERAGE
The Company is self-insured for all workers' compensation claims submitted by
employees for on-the-job injuries. The Company has provided for both reported,
and incurred but not reported, costs of workers' compensation coverage in the
accompanying consolidated balance sheets.
In an effort to provide for catastrophic events, the Company carries an excess
indemnity policy for workers' compensation claims. All claims paid under the
policy are subject to a deductible of $500,000 to be paid by the Company. Based
upon the Company's past experience, management believes that the Company has
adequately provided for potential losses. However, multiple occurrences of
serious injuries to employees could have a material adverse effect on the
Company's financial position or its results of operations.
EMPLOYEE PROFIT SHARING PLAN
The Company has established an employee profit sharing and 401(k) plan, which
covers substantially all United States employees who meet the eligibility
requirements. Participants may elect to contribute up to 15% of their annual
wages, subject to certain IRS limitations. The Company matches employee 401(k)
contributions to the plan at a rate of 50% of the first 6% of the salary
contributed to the plan through salary deferral. In addition, the Company, at
the discretion of the Board of Directors, may make profit sharing contributions
to the plan. The accompanying consolidated statements of income for the years
ended December 31, 2001, 2000 and 1999 include Company contributions to the plan
of approximately $0.2 million, $0.5 million and $0.4 million, respectively.
The Company is also required to make contributions to a defined contribution
plan for the employees of Lancer Pacific Pty. Ltd. Contributions during 2001,
2000 and 1999 totaled approximately $0.1 million, $0.2 million, and $0.1
million, respectively.
7. LEASES
The Company rents a building, in which a portion of its manufacturing facilities
are located, under an operating lease from a partnership controlled by certain
shareholders. The month-to-month agreement provides for monthly rental payments
of $7,400, and the payment of real estate taxes, insurance and maintenance
expenses.
At December 31, 2001, future minimum lease payments required under all
noncancelable operating leases are as follows (amounts in thousands):
2002 $ 657
2003 357
2004 244
2005 47
----------
Total minimum lease payments $ 1,305
==========
Total rental expense was approximately $1.3 million, $2.5 million and $2.8
million in 2001, 2000 and 1999, respectively.
F-17
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is party to agreements to provide warehousing space and services for
certain of its customers. Rental income related to the warehousing agreements
totaled approximately $1.7 million, $1.2 million and $1.1 million in 2001, 2000
and 1999, respectively.
8. LONG-TERM RECEIVABLES
Long-term receivables are interest bearing and include approximately $0.4
million and $0.5 million due from officers as of December 31, 2001 and 2000,
respectively.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose estimated fair value of its financial
instruments, including derivative financial instruments, for which it is
practicable to estimate fair value. The following methods and assumptions were
used to estimate the fair market value of each class of financial instrument for
which it is practicable to estimate that value.
CASH, TRADE RECEIVABLES, AND TRADE PAYABLES
The carrying amounts of the Company's cash, trade receivables and trade payables
approximate market value.
LONG-TERM RECEIVABLES
The carrying amount of the Company's notes receivable approximates fair market
value based on the actual interest rates paid on the interest bearing notes.
LONG-TERM INVESTMENTS
Long-term investments, excluding investment in joint venture, are stated at
approximate market value based upon the current nature of the investments. The
Company's investment in Packaged Ice, Inc. was written-down by $279,000 to the
fair market value at December 31, 2001.
DEBT
The carrying amount of the Company's long-term debt and short-term debt
approximate market value as the rates are variable or are fixed at current
market rates.
SWAP AGREEMENTS
The carrying amount of the Company's interest rate swap agreements approximate
market value. The fair market value of interest rate swap agreements was
approximately $(0.4) million as of December 31, 2001.
F-18
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACQUISITIONS
During the second quarter of 1999, the Company acquired certain assets and
liabilities of Allbar Manufacturing, an Australian company, for approximately
$1.7 million. The Company funded the purchase with $1.5 million of bank
borrowings denominated in Australian dollars, and with cash on hand. The
acquisition has been accounted for by the purchase method, and accordingly, the
results of operations of Allbar have been included in the Company's consolidated
financial statements from the date of acquisition. The excess of the purchase
price over the fair value of the identifiable assets acquired $0.5 million has
been recorded as goodwill, and is being amortized over 20 years.
The operating results of the Company would not have been significantly different
had the acquisition occurred at the beginning of 1999.
During the third quarter of 1999, the Company formed Lancer Ice Link, LLC.
Lancer Ice Link is a joint venture formed to develop and commercialize ice
transport technology. The Company's partner contributed intellectual property
rights in return for a 40% ownership interest. The Company owns the remaining
60%, and has agreed to fund certain development costs incurred by the joint
venture. Lancer Ice Link's financial statements are consolidated with those of
the Company. 40% of the losses of Lancer Ice Link have been recorded as income
from minority interest in the Company's Consolidated Statements of Operations.
11. SUPPLEMENTAL BALANCE SHEET AND INCOME STATEMENT INFORMATION
Inventory components are as follows (amounts in thousands):
2001 2000
--------- ---------
Finished goods $ 14,350 $ 16,407
Work in process 8,199 11,043
Raw material and supplies 9,611 12,774
--------- ---------
$ 32,160 $ 40,224
========= =========
Accrued expenses consist of the following (amounts in thousands):
As of December 31,
--------------------
2001 2000
--------- ---------
Payroll and related expenses $ 1,786 $ 1,832
Commissions 499 556
Health and workers' compensation 561 604
Property taxes 297 319
Interest 679 434
Other 932 1,326
--------- ---------
$ 4,754 $ 5,071
========= =========
12. CONTINGENCIES
The Company is a party to various lawsuits and claims generally incidental to
its business. The ultimate disposition of these matters is not expected to have
a significant adverse effect on the Company's financial position or results of
operations.
F-19
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The fourth quarter of 2001 includes an impairment loss of $0.3 million related
to the Company's investment in Packaged Ice, Inc. The following table reflects
the quarterly results for 2001 and 2000 (in thousands except for share data):
Three Months Ended
--------------------------------------------
2001 March June September December
- ---- 31 30 30 31
-------- -------- ---------- ---------
Net sales $ 30,015 $ 31,441 $ 31,388 $ 30,960
Gross profit 7,127 7,383 7,252 5,350
Net earnings (loss) 871 482 561 (512)
Earnings (loss) per share:
Basic $ 0.10 $ 0.05 $ 0.06 $ (0.06)
Diluted $ 0.09 $ 0.05 $ 0.06 $ (0.06)
Three Months Ended
--------------------------------------------
2000 March June September December
- ---- 31 30 30 31
-------- -------- ---------- ---------
Net sales $ 27,679 $ 31,463 $ 29,562 $ 24,534
Gross profit 6,187 8,068 6,630 4,690
Net earnings (loss) 315 806 549 (1,112)
Earnings (loss) per share:
Basic $ 0.03 $ 0.09 $ 0.06 $ (0.12)
Diluted $ 0.03 $ 0.09 $ 0.06 $ (0.12)
14. 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.
F-20
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
North Latin
Amounts in thousands America America Pacific Brazil Europe Asia Corporate Total
---------- ---------- ---------- --------- ----------- ---------- ---------- ------------
Year ended December 31, 2001
Total revenues $ 87,770 9,816 13,137 1,092 9,856 2,133 - $ 123,804
Depreciation and amortization 4,132 170 317 136 61 - 4,816
Operating income (loss) 11,105 587 1,358 (247) 1,601 56 (10,107) 4,353
Identifiable assets -
at December 31, 2001 67,417 13,677 9,080 1,798 4,328 - - 96,300
Capital expenditures 3,292 471 221 12 2 - - 3,998
Year ended December 31, 2000
Total revenues $ 73,373 7,850 16,638 1,538 10,895 2,944 - $ 113,238
Depreciation and amortization 3,583 156 342 60 64 - - 4,205
Operating income (loss) 9,056 827 2,196 10 1,923 285 (10,514) 3,783
Identifiable assets -
at December 31, 2000 76,885 9,348 9,522 1,915 4,722 - - 102,392
Capital expenditures 3,916 290 471 368 121 - - 5,166
Year ended December 31, 1999
Total revenues $ 85,889 11,225 15,407 2,065 9,471 5,783 - $ 129,840
Depreciation and amortization 3,250 151 429 139 21 - - 3,990
Operating income (loss) 8,451 528 1,535 (6,819) 1,023 845 (11,986) (6,423)
Identifiable assets
at December 31, 1999 78,766 7,742 12,128 1,297 3,121 - - 103,054
Capital expenditures 4,819 4 55 63 16 - - 4,957
All intercompany revenues are eliminated in computing revenues and operating
income. The corporate component of operating income represents corporate general
and administrative expenses. Identifiable assets are those assets identified
with the operations in each geographic area.
Substantially all revenues result from the sales of products and services
associated with beverage dispensing. The products can be divided into four major
categories: (i) fountain soft drink and citrus dispensers; (ii) post-mix
dispensing valves; (iii) beer dispensing systems; and (iv) other products and
services as follows (Amounts in thousands):
2001 2000 1999
--------- ---------- ---------
Soft drink, citrus and frozen
beverage dispensers $ 51,001 $ 43,045 $ 62,886
Post mix dispensing valves 13,818 13,359 15,222
Beer dispensing systems 6,281 8,472 9,641
Other 52,704 48,362 42,091
--------- --------- ---------
Total revenue $ 123,804 $ 113,238 $ 129,840
========= ========= =========
F-21
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following provides information regarding net sales to major customers,
domestically and internationally (amounts in thousands):
Percent of Percent of Percent of
2001 Net Sales 2000 Net Sales 1999 Net Sales
--------- ---------- --------- ---------- --------- ----------
United States:
The Coca-Cola Company $ 44,163 36% $ 29,649 27% $ 32,394 25%
Other 42,025 34 42,829 38 51,838 40
--------- ---------- --------- ---------- --------- ----------
86,188 70 72,478 65 84,232 65
--------- ---------- --------- ---------- --------- ----------
Outside of United States:
Other 37,616 30 40,760 35 45,608 35
--------- ---------- --------- ---------- --------- ----------
37,616 30 40,760 35 45,608 35
--------- ---------- --------- ---------- --------- ----------
$ 123,804 100% $ 113,238 100% $ 129,840 100%
========= ========== ========= ========== ========= ==========
In addition to sales made directly to The Coca-Cola Company, substantially all
sales to other entities are significantly influenced by The Coca-Cola Company.
Any disruption or change in the relationship with The Coca-Cola Company could
have a material adverse effect on the results of operations of the Company.
F-22
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE II
RESERVE ACCOUNT
Balance at Additions
Beginning of Charged to Deductions Balance at
Description Year Expense from Account End of Year
- ----------- ------------ ---------- -------------- -----------
Allowance for doubtful accounts
(amounts in thousands):
December 30, 2001 $ 379 $ 122 $ 34 $ 467
December 31, 2000 $ 414 $ 66 $ 101 $ 379
December 31, 1999 $ 326 $ 154 $ 66 $ 414
F-23