QuickLinks -- Click here to rapidly navigate through this document

---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-Q

Quarterly report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarter ended March 31, 2002

Commission file number 0-13875

---

LANCER CORPORATION
(Exact name of registrant as specified in its charter)

Texas		74-1591073
(State or other jurisdiction of incorporation or organization)		(IRS employer identification no.)
6655 Lancer Blvd., San Antonio, Texas		78219
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (210) 310-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 14(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES ý        NO o

Indicate the number of shares outstanding of each of the issuers of classes of common stock, as of the latest practicable date.

Title		Shares outstanding as of           April 30, 2002
Common stock, par value $.01 per share		9,330,101

---

Part I—Financial Information

Item 1—Financial Statements

LANCER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

ASSETS

					March 31, 2002			December 31, 2001
					(Unaudited)
Current assets:
	Cash				$	2,143		$	1,849
	Receivables:
		Trade accounts and notes				20,080			17,477
		Other				914			850
						20,994			18,327
		Less allowance for doubtful accounts				(478	)		(467	)
			Net receivables			20,516			17,860
	Inventories					32,729			32,160
	Prepaid expenses					917			655
	Deferred tax asset					224			211
			Total current assets			56,529			52,735
Property, plant and equipment, at cost:
	Land					1,260			1,260
	Buildings					21,905			21,906
	Machinery and equipment					23,325			23,028
	Tools and dies					13,433			12,884
	Leaseholds, office equipment and vehicles					10,356			10,402
	Assets in progress					903			1,194
						71,182			70,674
	Less accumulated depreciation and amortization					(35,815	)		(34,673	)
			Net property, plant and equipment			35,367			36,001
Long-term receivables ($406 and $407 due from officers, respectively)						640			612
Long-term investments						2,535			2,278
Intangibles and other assets, at cost, less accumulated amortization						4,880			4,674
					$	99,951		$	96,300

See accompanying notes to consolidated financial statements.

2

---

LANCER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(Amounts in thousands, except share data)

LIABILITIES AND SHAREHOLDERS' EQUITY

				March 31, 2002			December 31, 2001
				(Unaudited)
Current liabilities:
	Accounts payable			$	10,681		$	7,911
	Current installments of long-term debt				2,719			2,718
	Line of credit with bank				15,800			15,600
	Deferred licensing and maintenance fees				1,248			1,295
	Accrued expenses and other liabilities				5,142			4,754
	Taxes payable				996			896
		Total current liabilities			36,586			33,174
Deferred tax liability					2,037			2,032
Long-term debt, excluding current installments					11,494			11,872
Deferred licensing and maintenance fees					4,317			4,478
Other long-term liabilities					403			403
		Total liabilities			54,837			51,959
Commitments and contingencies					—			—
Minority interest					11			55
Shareholders' equity:
	Preferred stock, without par value 5,000,000 shares authorized; none issued				—			—
	Common stock, $.01 par value: 50,000,000 shares authorized; 9,383,919 issued and 9,327,715 outstanding in 2002, and 9,127,757 issued and oustanding in 2001				94			91
	Additional paid-in capital				12,272			11,943
	Accumulated other comprehensive loss				(3,676	)		(3,976	)
	Retained earnings				36,731			36,228
	Less common stock in treasury, at cost; 56,204 shares in 2002				(318	)		—
		Total shareholders' equity			45,103			44,286
				$	99,951		$	96,300

See accompanying notes to consolidated financial statements.

3

---

LANCER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except share data)

				Three Months Ended
				March 31, 2002			March 31, 2001
Net sales				$	30,380		$	30,015
Cost of sales					23,171			22,888
	Gross profit				7,209			7,127
Selling, general and administrative expenses					5,968			5,838
	Operating income				1,241			1,289
Other (income) expense:
	Interest expense				460			1,105
	Loss (earnings) from joint venture				92			(61	)
	Minority interest				(44	)		(59	)
	Other income, net				(65	)		(1,116	)
					443			(131	)
		Income before income taxes			798			1,420
Income tax expense (benefit):
	Current				291			550
	Deferred				4			(1	)
					295			549
		Net earnings		$	503		$	871
Common Shares Outstanding:
	Basic				9,303,771			9,126,218
	Diluted				9,388,797			9,318,880
Earnings Per Share:
	Basic			$	0.05		$	0.10
	Diluted			$	0.05		$	0.09

See accompanying notes to consolidated financial statements.

4

---

LANCER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

						Three Months Ended
						March 31, 2002			March 31, 2001
Cash flow from operating activities:
	Net earnings					$	503		$	871
		Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
			Depreciation and amortization				1,173			1,138
			Deferred licensing and maintenance fees				(208	)		923
			Deferred income taxes				4			(1	)
			Loss (gain) on sale and disposal of assets				3			(18	)
			Minority interest				(44	)		(59	)
			Loss (earnings) from joint venture				92			(61	)
			Changes in assets and liabilities:
				Receivables			(2,556	)		(4,457	)
				Prepaid expenses			(262	)		114
				Inventories			(443	)		(271	)
				Other assets			(162	)		(187	)
				Accounts payable			2,690			2,275
				Accrued expenses			362			(247	)
				Income taxes payable			78			786
	Net cash provided by operating activities						1,230			806
Cash flow from investing activities:
			Proceeds from sale of assets				2			50
			Acquisition of property, plant and equipment				(467	)		(1,290	)
			Acquisition of long-term investments				(370	)		—
	Net cash used in investing activities						(835	)		(1,240	)
Cash flow from financing activities:
			Net borrowings under line of credit agreements				200			1,200
			Retirement of long-term debt, net of proceeds				(377	)		(395	)
			Proceeds from exercise of stock options				14			6
	Net cash provided by financing activities						(163	)		811
Effect of exchange rate changes on cash							62			(79	)
Net increase (decrease) in cash							294			298
Cash at beginning of period							1,849			771
Cash at end of period						$	2,143		$	1,069

See accompanying notes to consolidated financial statements.

5

---

LANCER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

        All adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair presentation of financial position and results of operations. All intercompany balances and transactions have been eliminated in consolidation. It is suggested that the consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the December 31, 2001 Annual Report on Form 10-K.

        Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform with the current year's presentation.

2.    New Accounting Pronouncements

        Effective January 1, 2002 the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and other Intangible Assets." SFAS No. 142 provides guidance on how goodwill and other intangible assets that are acquired or have already been recognized in the financial statements should be accounted for. Under SFAS No. 142 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 will test goodwill for impairment using the two-step process described in SFAS. 142. The first step is to screen for potential impairment, if any, while the second step measures the amount of impairment, if any. The Company does not presently believe that a material impairment charge will result from the transitional impairment test, which the Company will complete during the second quarter of 2002. With the adoption of FSAS No. 142, the Company ceased the amortization of goodwill with a book value of $1.6 million as of January 1, 2002. The adoption did not have a material effect on comparable financial results for the quarter ended March 31, 2001. Had amortization of goodwill not been recorded during the quarter ended March 31, 2001, the net earnings would have been increased by approximately $28,000, net of taxes, basic earning per share would have remained unchanged and diluted earnings per share would have increased to $.10.

        Effective January 1, 2002 the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 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 adoption of SFAS No. 144 did not have a material impact on the Company's financial statements.

3.    Inventory Components

        Inventories are stated at the lower of cost or market on a first-in, first-out basis (average cost as to raw materials and supplies) or market (net realizable value). Inventory components are as follows (dollars in thousands):

6

---

4.    Earnings Per Share

        Basic earnings per share is calculated using the weighted average number of common shares outstanding and diluted earnings per share is calculated assuming the issuance of common shares for all potential dilutive common shares outstanding during the reporting period. The dilutive effect of stock options approximated 85,026 shares and 192,662 for the three months ended March 31, 2002 and 2001, respectively.

5.    Comprehensive Income

        The following are the components of comprehensive income (loss) (amounts in thousands):

			Three Months Ended
			March 31, 2002			March 31, 2001
Net earnings			$	503		$	871
Foreign currency gain (loss) arising during the period				309			(931	)
Unrealized (loss) gain on investment (net of tax)				(14	)		12
Unrealized loss on derivative instruments:
	Initial loss upon adoption of SFAS. No. 133			—			(51	)
	Reclassification adjustment for loss included in interest expense			5			10
Comprehensive income (loss)			$	803		$	(89	)

        Accumulated other comprehensive loss on the accompanying consolidated balance sheets includes foreign currency gains (losses), unrealized loss (gains) on investment and unrealized loss on derivative instruments.

6.    Income Taxes

        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.

7

---

7.    Segment and Geographic Information

        The Company and its subsidiaries are engaged in the manufacture and distribution of beverage dispensing equipment and related parts and components. The Company manages its operations geographically. Sales are attributed to a region based on the ordering location of the customer. (Amounts in thousands).

			North America			Latin America			Pacific			Brazil			Europe			Asia			Corporate			Total
Three months ended March 31, 2002
	Total revenues		$	22,225		$	1,641		$	3,495		$	130		$	2,579		$	310		$	—		$	30,380
	Operating income (loss)			2,930			(8	)		450			(98	)		731			44			(2,808	)		1,241
Three months ended March 31, 2001
	Total revenues		$	20,682		$	2,454		$	3,038		$	345		$	2,728		$	768		$	—		$	30,015
	Operating income (loss)			3,028			253			217			(41	)		639			81			(2,888	)		1,289

        All intercompany revenues are eliminated in computing revenues and operating income. The corporate component of operating income represents corporate general and administrative expenses.

8

---

LANCER CORPORATION AND SUBSIDIARIES

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

        This document contains certain "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company and its subsidiaries that are based on the beliefs of the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "forecast," "plan," and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions which exist or must be made as a result of certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, one-time events and other factors described herein and in other filings made by the Company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, forecast, planned or intended. The Company does not intend to update these forward-looking statements.

Critical Accounting Policies

        Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2001 for a discussion of the Company's Critical Accounting Policies.

Results of Operations

Comparison of the Three-Month Periods Ended March 31, 2002 and 2001

        Net sales for the three months ended March 31, 2002 were $30.4 million, up 1% from $30.0 million in the same period of 2001. Sales rose 7% in North America and 15% in the Pacific region. Sales declined 62% in Brazil, 33% in the rest of Latin America, and 60% in Asia. Market conditions throughout most of Latin America (particularly in Brazil) and Asia remain very poor.

        Gross margin was 23.7% in the first quarter of 2002, unchanged from the level in the first quarter of 2001. Slightly higher manufacturing spending offset mildly positive changes to the sales mix.

        Selling, general and administrative expenses were $6.0 million in the first quarter of 2002, up from $5.8 million in the same period last year. Higher payroll-related expenses caused most of the increase. SFAS No. 142, which the Company adopted on January 1, 2002, eliminates the amortization of goodwill. Goodwill expense was $42,000 in the first quarter of 2001.

        First quarter interest expense was $0.5 million in 2002, down from $1.1 million in 2001. $0.3 million of the decrease in interest expense was caused by the required mark-to-market adjustments of the Company's interest rate swap agreements. Lower average interest rates, combined with lower average borrowings caused the remainder of the decline. In the first quarter of 2002, the Company recorded a $0.1 million loss from its joint venture that produces frozen beverage equipment, compared to $0.1 million of income in the same period of 2001. Lower manufacturing volumes affected the joint venture's profitability in the 2002 period. Other income of $1.1 million in the first quarter of 2001 includes a $1.0 million gain relating to the cancellation of a project. The effective tax rate was 37.0% in the first quarter of 2002, compared to 38.7% in the first quarter of 2001. The lower rate in 2002 reflects the fact that a larger proportion of the Company's income was earned in lower tax jurisdictions. Net income for the first quarter of 2002 was $0.5 million, compared to $0.9 million in the first quarter of 2001.

9

---

Liquidity and Capital Resources

        The Company's principal sources of liquidity are cash flows from operations and amounts available under the Company's existing lines of credit. The Company has met, and currently expects that it will continue to meet, substantially all of its working capital and capital expenditure requirements, as well as its debt service requirements, with funds provided by operations and borrowings under its credit facilities. The Company is in compliance with, or has obtained waivers of, the financial covenants contained in the credit agreement that governs the Company's primary credit facilities.

        Cash provided by operating activities was $1.2 million in the first three months of 2002, compared to $0.8 million in the same period last year. Accounts receivable rose $2.6 million during the 2002 period in part because of changes in credit terms granted to several customers. The Company made capital expenditures of $0.5 million in the 2002 period, primarily for production tooling and equipment. Additionally, pursuant to a relocation agreement, the Company bought the home of an officer for $0.4 million. The capital spending was financed with net cash provided by operating activities.

Accounting Matters

        The Company maintains a DISC in order to defer income taxes on its foreign sales. 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.

        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.

Item 3—Quantitative and Qualitative Disclosures About Market Risk

        There have been no significant changes in the Company's market risk factors since December 31, 2001.

Part II—Other Information

Item 6—Exhibits and Reports on Form 8-K

(a)

Exhibits:

None

(b)

Reports on Form 8-K:

None

10

---

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LANCER CORPORATION

(Registrant)

May 10, 2002		By:		/s/  GEORGE F. SCHROEDER       George F. Schroeder President and CEO
May 10, 2002		By:		/s/  MARK L. FREITAS       Mark L. Freitas Vice President—Controller

11

---

QuickLinks

Part I—Financial Information
Item 1—Financial Statements

LANCER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data) ASSETS
LANCER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (Amounts in thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY
LANCER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except share data)
LANCER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
LANCER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LANCER CORPORATION AND SUBSIDIARIES

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3—Quantitative and Qualitative Disclosures About Market Risk
Part II—Other Information
Item 6—Exhibits and Reports on Form 8-K

SIGNATURES