UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1998 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)
Registrants telephone number, including area code: (210) 310-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 14(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuers of classes of
common stock, as of the latest practicable date.
Title Shares outstanding as of
August 10, 1998
Common stock, par value $.01 per share 9,114,191
1
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- --------------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 1,022,854 $ 1,850,779
-------------------- --------------------
Receivables:
Trade accounts and notes 28,607,743 22,674,269
Refundable income taxes 6,582 1,483
Other 606,821 298,274
-------------------- --------------------
29,221,146 22,974,026
Less allowance for doubtful accounts (335,000) (335,000)
-------------------- --------------------
Net receivables 28,886,146 22,639,026
-------------------- --------------------
Inventories 49,268,993 44,414,567
Prepaid expenses 283,524 178,869
Deferred tax asset 212,722 220,849
-------------------- --------------------
Total current assets 79,674,239 69,304,090
-------------------- --------------------
Property, plant and equipment, at cost:
Land 1,259,938 1,259,938
Buildings 18,326,647 18,152,535
Machinery and equipment 18,685,074 17,839,310
Tools and dies 9,189,286 8,454,022
Leaseholds, office equipment and vehicles 7,078,222 6,776,193
Construction in progress 2,385,708 1,600,204
-------------------- --------------------
56,924,875 54,082,202
Less accumulated depreciation and amortization (23,759,149) (22,186,770)
-------------------- --------------------
Net property, plant and equipment 33,165,726 31,895,432
-------------------- --------------------
Long-term receivables 653,370 724,959
Long-term investments 3,194,393 3,273,621
Intangibles and other assets,
at cost, less accumulated amortization 5,280,140 5,470,886
-------------------- --------------------
$ 121,967,868 $ 110,668,988
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- -------------------
(Unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $ 14,237,588 $ 12,133,894
Current installments of long-term debt 3,997,200 4,444,400
Line of credit with bank 24,700,000 19,000,000
Deferred licensing and maintenance fees 520,274 538,554
Accrued expenses and other liabilities 6,374,587 5,718,003
Income taxes payable 825,427 185,472
-------------------- -------------------
Total current liabilities 50,655,076 42,020,323
Deferred tax liability 2,398,001 1,736,405
Other long-term liabilities 845,203 820,000
Long-term debt, excluding current installments 19,965,350 21,565,350
Deferred licensing and maintenance fees 1,315,597 1,565,597
-------------------- -------------------
Total liabilities 75,179,227 67,707,675
-------------------- -------------------
Shareholders' equity:
Preferred stock, without par value
5,000,000 shares authorized; none issued
- -
Common stock, $.01 par value:
50,000,000 shares authorized;9,106,065 and 8,902,236
issued and outstanding in 1998 and 1997, respectively 91,060 89,022
Additional paid-in capital 11,802,378 11,607,504
Accumulated other comprehensive loss -
Cumulative translation adjustment (2,372,433) (1,727,719)
Retained earnings 37,267,636 32,992,506
-------------------- -------------------
Total shareholders' equity 46,788,641 42,961,313
-------------------- -------------------
$ 121,967,868 $ 110,668,988
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 37,284,947 $ 32,294,556 $ 73,604,702 $ 62,692,715
Cost of sales 27,587,133 24,353,236 54,458,108 47,086,773
---------------- ---------------- --------------- ---------------
Gross profit 9,697,814 7,941,320 19,146,594 15,605,942
Selling, general and
administrative expenses 5,220,986 4,836,694 10,218,895 9,057,344
---------------- ---------------- --------------- ---------------
Operating income 4,476,828 3,104,626 8,927,699 6,548,598
---------------- ---------------- --------------- ---------------
Other income (expense):
Interest expense (1,004,576) (826,649) (1,936,609) (1,374,107)
Other income, net (88,445) 447,816 (261,926) 464,185
---------------- ---------------- --------------- ---------------
(1,093,021) (378,833) (2,198,535) (909,922)
---------------- ---------------- --------------- ---------------
Income before income taxes 3,383,807 2,725,793 6,729,164 5,638,676
---------------- ---------------- --------------- ---------------
Income tax expense:
Current 1,006,692 874,813 1,948,188 1,976,437
Deferred 227,613 49,786 505,846 70,913
---------------- ---------------- --------------- ---------------
1,234,305 924,599 2,454,034 2,047,350
---------------- ---------------- --------------- ---------------
Net earnings $ 2,149,502 $ 1,801,194 $ 4,275,130 $ 3,591,326
================ ================ =============== ===============
Common Shares and Equivalents Outstanding:
Basic 9,121,241 8,895,036 9,015,769 8,825,191
Diluted 9,336,111 9,380,837 9,283,229 9,306,839
Earnings Per Share:
Basic $ 0.24 $ 0.20 $ 0.47 $ 0.41
Diluted $ 0.23 $ 0.19 $ 0.46 $ 0.39
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
----------------------- -----------------------
Cash flow from operating activities:
<S> <C> <C>
Net earnings $ 4,275,130 $ 3,591,326
Adjustments to reconcile net income to net cash used in
operating activities (net of effects from purchase of
subsidiaries:)
Depreciation and amortization 1,618,568 1,252,915
Loss on sale and disposal of assets 23,851 -
Loss (gain) on long-term investments 79,228 (9,945)
Changes in assets and liabilities:
Receivables (6,398,049) (6,859,945)
Refundable income taxes (5,176) 400,296
Prepaid expenses (104,655) 110,733
Deferred taxes 659,525 25,905
Inventories (5,186,269) (6,195,946)
Other assets (61,438) 170,045
Accounts payable 2,255,851 6,377,066
Accrued expenses and other liabilities 706,240 243,655
Income taxes payable 663,196 293,403
Deferred license fees and maintenance fees (268,280) (311,326)
Other long-term liabilities 25,203 25,051
----------------------- -----------------------
Net cash used in operating activities (1,717,075) (886,767)
----------------------- -----------------------
Cash flow from investing activities:
Acquisition of property, plant and equipment (2,970,170) (5,024,484)
Acquisition of subsidiary companies - (3,924,166)
Additional investments in affiliates - (276,280)
----------------------- -----------------------
Net cash used in investing activities (2,970,170) (9,224,930)
----------------------- -----------------------
Cash flow from financing activities:
Net borrowings under line of credit agreements 5,700,000 7,400,000
Proceeds from long-term debt - 5,100,000
Retirement of long-term debt (2,047,200) (1,024,125)
Proceeds from exercise of stock options 196,912 142,206
----------------------- -----------------------
Net cash provided by financing activities 3,849,712 11,618,081
----------------------- -----------------------
Effect of exchange rate changes on cash 9,608 212,172
----------------------- -----------------------
Net increase (decrease) in cash (827,925) 1,718,556
Cash at beginning of period 1,850,779 1,016,425
----------------------- -----------------------
Cash at end of period $ 1,022,854 $ 2,734,981
======================= =======================
</TABLE>
Lancer issued debt of $3,986,000 and stock of $1,555,872 to the sellers of the
subsidiaries acquired in 1997.
The non-cash portion of these transactions is excluded from the above statement.
See accompanying notes to consolidated financial statements.
5
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 1997 Annual Report on Form 10-K.
Certain amounts in the consolidated financial statements for prior years have
been reclassified to conform with the current years presentation.
2. Inventory Components
The Company uses the gross profit method to determine cost of sales and
inventory for interim periods. Inventory components are estimated based on
historical relationships as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- --------------------
<S> <C> <C>
Finished Goods $ 18,353,596 $ 13,437,781
Work in process 25,046,397 28,980,250
Raw material and supplies 5,869,000 1,996,536
-------------------- --------------------
$ 49,268,993 $ 44,414,567
==================== ====================
</TABLE>
3. Earnings Per Share
The Company adopted the Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, in 1997, and accordingly, 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 267,460 and 481,648
shares for the six months ended June 30, 1998 and 1997 respectively. All
prior-period earnings per share data presented in the consolidated financial
statements have been restated to conform to the requirements of SFAS No. 128.
6
<PAGE>
4. Comprehensive Income
As of January 1, 1998, the Company has adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS 130 established new rules for the reporting and
display of comprehensive income and its components. The adoption of this
statement, however, has no impact on the Companys net income or stockholders
equity. SFAS 130 requires that Companys foreign currency translation
adjustments, which prior to the adoption were reported separately in
stockholders equity, be included in other comprehensive income.
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30,1998 June 30,1997
------------------- ------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Net earnings as reported $ 2,149,502 $ 1,801,194 $ 4,275,130 $ 3,591,326
Foreign currency translation (loss) (644,244) (124,882) (644,714) (166,180)
------------------- ------------------- ---------------------- ----------------------
Comprehensive income $ 1,505,258 $ 1,676,312 $ 3,630,416 $ 3,425,146
=================== ================== ====================== ======================
</TABLE>
Accumulated foreign currency translation adjustments on the accompanying
Consolidated Balance Sheets account for all of the Companys other comprehensive
income.
Item 2 - Managements Discussion and Analysis of Financial Condition and Results
of Operations
This document contains certain forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words anticipate,
believe, estimate, expect, forecast, plan, and intend and words or phrases of
similar import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward-looking statements. Such statements
reflect the current risks, uncertainties and assumptions which exist or must be
made as a result of certain factors including, without limitation, competitive
factors, general economic conditions, customer relations, relationships with
vendors, the interest rate environment, governmental regulation and supervision,
seasonality, distribution networks, product introductions and acceptance,
one-time events and other factors described herein and in other filings made by
the Company with the Securities and Exchange Commission. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, forecast, planned or intended. The Company does not intend to update
these forward-looking statements.
Results of Operations
Comparison of the Three-Month Periods Ended June 30, 1998 and 1997
Net sales for the quarter ended June 30, 1998 were $37.3 million, a 15.5%
increase from sales in the second quarter of 1997. The increase reflects strong
sales throughout the Americas and in Europe. Sales to customers outside the
United States were 45.5% of total sales in the second quarter of 1998, compared
to 55.1% of net sales in the same period last year.
Gross margin in the second quarter of 1998 was 26.0%, up from 24.6% in the
second quarter of 1997. The Companys emphasis on controlling overhead costs and
improving manufacturing efficiencies contributed to the improvement in gross
margin.
Selling, general and administrative expenses were $5.2 million in the three
months ended June 30, 1998, an increase of $0.4 million, or 8.3%, from the
second quarter of 1997. Expenses rose in support of the higher level of sales,
and because of Lancers new operation in Belgium which commenced in March 1997.
7
<PAGE>
Interest expense was $1.0 million in the second quarter of 1998, up from $0.8
million in the second quarter last year. The increased interest expense in 1998
was caused by higher borrowings related to capital spending and growth in
current assets during the past year. Lancers second quarter effective tax rate
increased to 36.5% in 1998 from 33.9% in 1997. The tax rate in the second
quarter of 1997 was unusually low because of the recognition of tax credits
relating to research and development expenditures in prior years. Net earnings
for the 1998 quarter were $2.1 million, up from $1.8 million in the second
quarter of 1997.
Comparison of the Six-Month Periods ended June 30, 1998 and 1997
Net sales for the six months ended June 30, 1998 were $73.6 million, a 17.4%
increase from sales in the same period of 1997. The increase reflects strong
sales in the Americas and in Europe, plus the inclusion of sales from the
Companys New Zealand operation, which was acquired in the second quarter of
1997. Sales to customers outside the United States were 48.1% in the first half
of 1998, compared to 50.3% in the same period of 1997.
Gross margin in the first six months of 1998 was 26.0%, up from 24.9% in the
first half of 1997. The Companys emphasis on controlling overhead costs and
improving manufacturing efficiencies contributed to the improvement in gross
margin.
Selling, general and administrative expenses were $10.2 million in the first
half of 1998, and increase of $1.2 million, or 12.8%, from the same period of
1997. Expenses rose in support of higher sales levels, and because of Lancers
new operations in Belgium and New Zealand.
Interest expense was $1.9 million in the first six months of 1998, up from $1.4
million in the first half of last year. The increased interest expense in 1998
was caused by higher borrowings related to capital spending and to growth in
current assets during the past year. The Companys effective tax rate was 36.5%
in the six months ended June 30, 1998, compared to 36.3% in the same period of
1997. The positive impact of tax credits, partially offset by nondeductible
losses incurred by certain of the Companys foreign subsidiaries, lowered the
effective tax rate in the 1997 period. Net earnings in the first half of 1998
were $4.3 million, up from $3.6 million in the same period last year.
Liquidity and Capital Resources
The Companys principal sources of liquidity are cash flows from operations and
amounts available under the Companys 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.
Net cash used in operating activities was $1.7 million in the first six months
of 1998, compared to $0.9 million in the same period of 1997. Capital spending
was $3.0 million in the first half of 1998. Lancer completed construction of a
32,000 square foot office addition to its primary facility in San Antonio during
the first quarter of 1998. The Company funded the capital expenditures and the
cash used in operations with borrowings under its credit facilities.
Effective July 15, 1998, the company increased its revolving facility from $25
million to $35 million, and amended certain financial covenants. The Company is
in compliance with the financial covenants contained in its credit agreement.
Accounting Matters
The Company maintains a DISC in order to defer income taxes on its foreign
sales. The Company continues to evaluate the benefit of converting the DISC to a
Foreign Sales Corporation. At the time of such conversion, the Company will be
required to provide for federal income taxes on $2.4 million of undistributed
earnings of the DISC. See 1997 Form 10-K.
The Internal Revenue Service is examining the Companys U.S. income tax return
for 1995. Management does not believe that any significant adjustments will be
required as a result of this examination.
8
<PAGE>
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which established
standards of accounting and reporting for derivative instruments and for hedging
activities. It requires that all derivatives be recognized as either assets and
liabilities in the statement of financial position and measures these
instruments at fair value. This statement is effective for financial statements
for periods beginning June 15, 1999. The Company believes that SFAS No. 133 will
not have a material impact on its financial statements and disclosures.
Year 2000
In 1997, Lancer implemented a BaaN ERP manufacturing system which is year 2000
compliant. The Company is also working with its vendors and processing banks to
ensure that their systems are year 2000 compliant. The Company does not expect
to incur any additional material expenses relating to year 2000 compliance.
Part II - Other Information
Item 1 - Legal Proceedings
The Company is a party to various lawsuits and claims generally incidental to
its business. In the opinion of management and independent legal counsel, the
ultimate disposition of these matters is not expected to have a significant
adverse effect on the Companys financial position or results of operations.
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders of the Company held on May 28, 1998, the
shareholders elected six members of the Board of Directors of the Company to
serve until the next annual meeting of the shareholders and ratifies the
appointment of KPMG Peat Marwick LLP as the Companys independent auditors for
the 1998 fiscal year.
The vote for nominated directors was as follows:
<TABLE>
<CAPTION>
Nominee For Against Abstain
- ----------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Alfred A. Schroeder 8,149,550 1,826 8,732
George F. Schroeder 8,149,550 1,826 8,732
Walter J. Beigler 8,149,550 1,826 8,732
Jean M. Braley 8,149,550 1,826 8,732
Charles K. Clymer 8,149,550 1,826 8,732
Micheal E. Smith 8,149,550 1,826 8,732
</TABLE>
The vote for ratifying the appointment KPMG Peat Marwick LLP was as follows:
<TABLE>
<CAPTION>
For Against Abstain
------------------- ------------------- -------------------
<S> <C> <C> <C>
8,147,035 1,225 11,848
</TABLE>
9
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.38 Third Amendment to Credit Agreement dated July 15,
1998 between Lancer Corporation and The Frost
National Bank and NationsBank, N.A.
(b) Reports on Form 8-K
None
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)
August 13, 1998 By: /s/ George F. Schroeder
George F. Schroeder
President and CEO
August 13, 1998 By: /s/ Christi A. Rohmer
Christi A. Rohmer
Vice President - Controller
10
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this Amendment) is entered into as of
July 15, 1998, among LANCER PARTNERSHIP, LTD., a Texas limited partnership
(Operating Subsidiary), and LANCER DE MEXICO, S.A. de C.V., formerly known as
NUEVA DISTRIBUIDORA LANCERMEX, S.A. de C.V., a corporation organized under the
laws of Mexico (Mexico Subsidiary) (Operating Subsidiary and Mexico Subsidiary
are hereinafter referred to individually as a Borrower and collectively as
Borrowers); LANCER CORPORATION, a Texas corporation (Parent Company);
LAN-LEASING, INC., a Delaware corporation, (Lan-Leasing), LANCER CAPITAL
CORPORATION, a Delaware corporation (Lancer Capital) and LANCER INTERNATIONAL
SALES, INC., a Texas corporation (Lancer International) (Lan-Leasing, Lancer
Capital, Lancer International and Operating Subsidiary, individually, a
Guarantor and collectively, the Guarantors); and THE FROST NATIONAL BANK, a
national banking association, individually and as agent for the Banks acting in
the manner and to the extent provided in Article 8 (in such capacity, the
Agent), NATIONSBANK, N.A., a national banking association, successor to THE
BOATMEN'S NATIONAL BANK OF ST. LOUIS, individually, and each of the lenders
which becomes a party hereto as provided in Section 10.7 (individually, a Bank
and collectively, the Banks).
Recitals
I. Borrowers, the Parent Company, the Agent and the other Banks have heretofore
entered into the Credit Agreement dated as of July 15, 1996 (as amended,
modified, restated and supplemented from time to time, the Credit Agreement).
II. Borrower has requested that the Banks agree to increase their aggregate
Revolving Commitments from $30,000,000 to $35,000,000 until July 15, 2001, and
to modify certain of the covenants contained in Section 6.1(g) of the Credit
Agreement.
III. The Banks are willing to agree to such requested change on the terms
and conditions set forth in this Amendment.
Agreements
In consideration of the foregoing premises, the mutual agreements contained
herein and other good and valuable consideration and reasonably equivalent
value, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
A. Definitions. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the respective meanings set forth in
the Credit Agreement.
1
<PAGE>
B. Amendments. The Credit Agreement is hereby amended as follows:
1. Extension of Increase in Revolving Commitments. To reflect the
increase in the aggregate Revolving Commitments of all Banks from
$30,000,000 to $35,000,000 until July 15, 2001, Annex A attached to the
Credit Agreement is hereby amended and replaced with Annex A attached to
this Amendment. All references in the Credit Agreement and other Loan
Documents to the Revolving Commitments of the Banks shall thereafter refer
to such revised amounts.
2. Renewal Revolving Notes. To evidence Revolving Loans made to
Operating Subsidiary by each Bank up to the amount of such Bank's Revolving
Commitment, as revised hereby, Operating Subsidiary shall execute and
deliver to each Bank a Renewal Revolving Note in the form attached hereto
as Exhibit A, payable to the order of such Bank and in a stated principal
amount equal to such Bank's Revolving Commitment, as revised hereby. On the
date hereof, Borrower shall execute and deliver to each Bank such a Renewal
Revolving Note as a renewal, modification and increase of the existing
Renewal Revolving Note issued to such Bank pursuant to the Credit
Agreement. All references in the Credit Agreement and the other Loan
Documents to the Revolving Notes of the Banks shall hereafter refer to the
Renewal Revolving Notes executed and delivered pursuant to this Amendment,
as further amended, modified, restated, supplemented, renewed, extended,
increased, refinanced and/or replaced from time to time.
3. Section 6.1(g) is hereby amended to read in its entirety as
follows:
(g) the ratio of (i) Total Funded Debt as of the end of any Fiscal
Quarter to (ii) Consolidated EBITDA for the four-quarter period ending as
of the end of such Fiscal Quarter, to be more than set out below opposite
the period in which such Fiscal Quarter ends; provided, however, for each
Fiscal Quarter in which an Acquisition is consummated, and each Fiscal
Quarter ending prior thereto, the financial information necessary to
determine Consolidated EBITDA shall be adjusted to reflect, on a pro forma
basis, such Acquisition as if it had occurred as of the beginning of the
first of such Fiscal Quarters included in the relevant four-quarter
measurement period:
Fiscal Quarters Ended On or About Ratio
Closing Date through 9/30/97 3.00 to 1.00
10/1/97 through 6/30/98 3.25 to 1.00
7/1/98 through 6/30/99 3.00 to 1.00
7/1/99 through 6/30/00 2.75 to 1.00
7/1/00 through 7/15/01 2.50 to 1.00
2
<PAGE>
4. Exhibit M -- Compliance Certificate is hereby amended to
incorporate the following change to the Maximum Ratio for purposes of
Section 6.1(g) of the Credit Agreement (Total Funded Debt to Consolidated
EBITDA) as set forth therein:
Fiscal Quarters Ended On or About Ratio
Closing Date through 9/30/97 3.00 to 1.00
10/1/97 through 6/30/98 3.25 to 1.00
7/1/98 through 6/30/99 3.00 to 1.00
7/1/99 through 6/30/00 2.75 to 1.00
7/1/00 through 7/15/01 2.50 to 1.00
C. In order to induce the Agent and the Banks to enter into this
Amendment, each Borrower hereby represents and warrants to the Agent and
the Banks that, as of the date of this Amendment, (a) the representations
and warranties set forth in the Credit Agreement and each other Loan
Document are true and correct as if made on and as of the date hereof
(other than those representations and warranties expressly limited by their
terms to a specific date), (b) no Default or Event of Default has occurred
and is continuing, and (c) no event has occurred since the date of the most
recent financial statements delivered pursuant to Section 5.1 of the Credit
Agreement that has caused a Material Adverse Effect.
D. Each Borrower hereby acknowledges and agrees that no facts events
status or conditions presently exist which, either now or with the passage
of time or the giving of notice or both, presently constitute or will
constitute a basis for any claim or cause of action against any of the
Banks, or any defense to the payment of any of the indebtedness evidenced
or to be evidenced by any of the Loan Documents.
E. Parent Company covenants and agrees that, as to the Parent Guaranty
executed and delivered by Parent Company in favor of the Banks as part of
the Loan Documents, (a) the Parent Guaranty is an unconditional guarantee
of payment and performance and not of collection, (b) the Parent Guaranty
represents the primary, absolute and unconditional obligation of Parent
Company and (c) the Parent Guaranty is a continuing guarantee and shall
remain in full force and effect until the termination of the obligations of
the Banks to make Loans and the indefeasible payment in full of the
Obligations (as defined in the Parent Guaranty).
F. Each of the undersigned Guarantors covenants and agrees that, as to
the Affiliate Guaranty executed and delivered by such Guarantor in favor of
the Banks as part of the Loan Documents, (a) such Affiliate Guaranty is an
unconditional guarantee of payment and performance and not of collection,
(b) such Affiliate Guaranty represents the primary, absolute and
unconditional obligation of such Guarantor, and (c) such Affiliate Guaranty
is a continuing guarantee and shall remain in full force and effect until
the termination of the obligations of the Banks to make Loans and the
indefeasible payment in full of the Obligations (as defined in each such
Affiliate Guaranty).
3
<PAGE>
G. As to the Stock Pledge Agreement executed and delivered by Parent
Company in favor of the Banks as a part of the Loan Documents, Parent
Company hereby ratifies and confirms the liens and security interests of
the Banks in and to all collateral covered by the Stock Pledge Agreement as
security for the prompt and full payment and performance of the obligations
secured by the Stock Pledge Agreement. In furtherance of the foregoing, all
liens and security interests of the Stock Pledge Agreement (which are
hereby acknowledged to be valid and subsisting) are hereby carried forward,
continued, extended, modified and renewed to secure the prompt and full
payment and performance of the obligations secured by the Stock Pledge
Agreement.
H. Each Loan Document is hereby amended and modified to the extent
necessary to give full force and effect to the terms of this Amendment, and
each such Loan Document shall hereafter be construed and interpreted after
giving full force and effect to the terms of this Amendment. As amended,
modified and supplemented pursuant to this Amendment, each Borrower, Parent
Company and each Guarantor hereby ratify, confirm and restate each Loan
Document and agrees that each such Loan Document to which it is a party
shall continue in full force and effect. Each of the Loan Documents now or
hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Credit Agreement, as amended hereby, or as further
evidence of or in connection with the Credit Agreement, as amended hereby,
are hereby amended to the extent necessary so that any reference in any
such documents, instruments or agreements to the Credit Agreement shall be
a reference to the Credit Agreement as amended hereby.
I. In the event that any one or more of the provisions contained in
this Amendment shall be determined invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any
such provision or provisions in every other respect and the remaining
provisions of this Amendment shall not be impaired in any way.
J. When required or implied by the context used, defined terms used
herein shall include the plural as well as the singular, and vice versa.
K This Amendment shall be governed by and construed in accordance with
the internal laws of the State of Texas and applicable federal laws of the
United States of America. This Amendment has been entered into in Bexar
County, Texas and shall be performable for all purposes in Bexar County,
Texas. The courts within the State of Texas shall have jurisdiction over
any and all disputes arising under or pertaining to this Amendment; and any
such dispute shall be heard in the county or judicial district of the
principal place of business of The Frost National Bank.
L. This Amendment shall be binding upon and inure to the benefit of
all parties hereto and their respective successors and assigns; provided,
however, that neither of the Borrowers nor any of their respective
successors or assigns may, without the prior written consent of all of the
Banks, assign any rights, powers, duties or obligations hereunder.
4
<PAGE>
M. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken
together shall constitute but one and the same instrument.
N. This Amendment constitutes a Loan Document.
O. Upon execution of this Amendment by the Banks, each Borrower,
Parent Company and each of the Guarantors shall deliver to the Agent, in
form and substance satisfactory to the Agent, the certificates and
documents described on Annex B.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized signatories as of the day
and year first above written.
OPERATING SUBSIDIARY:
LANCER PARTNERSHIP, LTD., a Texas
limited partnership
By: Lancer Capital Corporation, a Delaware
corporation, general partner
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
5
<PAGE>
MEXICO SUBSIDIARY:
LANCER DE MEXICO, S.A. de C.V.,
formerly known as NUEVA
DISTRIBUIDORA LANCERMEX, S.A. de C.V.
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
PARENT COMPANY:
LANCER CORPORATION
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
GUARANTORS:
LAN-LEASING, INC.
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
LANCER CAPITAL CORPORATION
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
LANCER INTERNATIONAL SALES, INC.
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
LANCER PARTNERSHIP, LTD., a Texas
limited partnership
By: Lancer Capital Corporation, a Delaware
corporation, general partner
By:/s/ Scott Adams
Name: Scott Adams
Title: Secretary
6
<PAGE>
AGENT/BANKS:
THE FROST NATIONAL BANK,
Individually and as the Agent
By:/s/ Steven A. Linton
Name: Steven A. Linton
Title: Asst. Vice President
NATIONSBANK, N.A., successor to THE
BOATMEN'S NATIONAL BANK OF ST. LOUIS
By:/s/ Suzanne Peterson
Name: Suzanne Peterson
Title: Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Thid schedule contains summary financial information extracted from Consolidated
Balance Sheets and Consolidated Statements of Income found on pages 2 and 4 of
the Company's 10-Q, and qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,023
<SECURITIES> 0
<RECEIVABLES> 29,221
<ALLOWANCES> 335
<INVENTORY> 49,269
<CURRENT-ASSETS> 79,674
<PP&E> 56,925
<DEPRECIATION> 23,759
<TOTAL-ASSETS> 121,968
<CURRENT-LIABILITIES> 50,655
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 46,698
<TOTAL-LIABILITY-AND-EQUITY> 121,968
<SALES> 73,605
<TOTAL-REVENUES> 73,605
<CGS> 54,458
<TOTAL-COSTS> 64,677
<OTHER-EXPENSES> 261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,937
<INCOME-PRETAX> 6,729
<INCOME-TAX> 2,454
<INCOME-CONTINUING> 4,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,275
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
