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, 1999 Commission file number 0-13875
LANCER CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1591073
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
6655 Lancer Blvd., San Antonio, Texas 78219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 310-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 14(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuers of classes of
common stock, as of the latest practicable date.
Title Shares outstanding as of
August 5, 1999
Common stock, par value $.01 per share 9,124,857
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 1,136,754 $ 1,118,848
Receivables:
Trade accounts and notes 23,633,136 20,866,928
Other 745,588 565,254
----------------- -----------------
24,378,724 21,432,182
Less allowance for doubtful accounts (299,000) (326,000)
----------------- -----------------
Net receivables 24,079,724 21,106,182
----------------- -----------------
Inventories 44,635,982 46,128,697
Prepaid expenses 709,812 559,472
Income taxes receivable - 211,760
Deferred tax asset 127,392 117,241
----------------- -----------------
Total current assets 70,689,664 69,242,200
----------------- -----------------
Property, plant and equipment, at cost:
Land 1,259,938 1,259,938
Buildings 21,880,079 21,769,690
Machinery and equipment 20,248,803 19,699,040
Tools and dies 7,819,602 7,017,936
Leaseholds, office equipment and vehicles 8,466,375 8,148,299
Assets in progress 2,083,857 1,200,506
----------------- -----------------
61,758,654 59,095,409
Less accumulated depreciation and amortization (26,123,106) (24,596,773)
----------------- -----------------
Net property, plant and equipment 35,635,548 34,498,636
----------------- -----------------
Long-term receivables ($416,457 and $370,569 due
from affiliates, respectively) 755,138 619,800
Long-term investments 4,240,626 3,317,131
Intangibles and other assets, at cost, less
accumulated amortization 5,123,914 5,162,200
----------------- -----------------
$ 116,444,890 $ 112,839,967
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------- --------------------
(Unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $ 9,756,303 $ 8,854,438
Current installments of long-term debt 4,290,846 4,794,400
Line of credit with bank 24,100,000 22,300,000
Deferred licensing and maintenance fees 619,178 466,327
Accrued expenses and other liabilities 4,958,643 5,528,425
Income taxes payable 410,159 -
-------------------- --------------------
Total current liabilities 44,135,129 41,943,590
Deferred tax liability 3,198,991 2,938,628
Long-term debt, excluding current installments 17,009,504 17,568,150
Deferred licensing and maintenance fees 2,145,790 2,131,624
-------------------- --------------------
Total liabilities 66,489,414 64,581,992
-------------------- --------------------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued - -
Common stock, $.01 par value:
50,000,000 shares authorized; 9,121,482
issued and outstanding 91,215 91,215
Additional paid-in capital 11,912,993 11,912,993
Accumulated other comprehensive loss (3,785,887) (2,581,558)
Retained earnings 41,737,155 38,835,325
-------------------- --------------------
Total shareholders' equity 49,955,476 48,257,975
-------------------- --------------------
$ 116,444,890 $ 112,839,967
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<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,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 38,072,256 $ 37,128,197 $ 74,300,200 $ 73,320,452
Cost of sales 30,497,559 27,515,400 58,657,980 54,381,140
----------------- ----------------- ----------------- -----------------
Gross profit 7,574,697 9,612,797 15,642,220 18,939,312
Selling, general and
administrative expenses 5,355,458 5,220,986 10,548,639 10,218,895
----------------- ----------------- ----------------- -----------------
Operating income 2,219,239 4,391,811 5,093,581 8,720,417
----------------- ----------------- ----------------- -----------------
Other (income) expense:
Interest expense 896,301 1,004,576 1,804,253 1,936,609
Other (income) expense, net (994,791) 3,428 (1,536,551) 54,644
----------------- ----------------- ----------------- -----------------
(98,490) 1,008,004 267,702 1,991,253
----------------- ----------------- ----------------- -----------------
Income before income taxes 2,317,729 3,383,807 4,825,879 6,729,164
----------------- ----------------- ----------------- -----------------
Income tax expense:
Current 764,180 1,006,692 1,706,483 1,948,188
Deferred 103,870 227,613 217,566 505,846
----------------- ----------------- ----------------- -----------------
868,050 1,234,305 1,924,049 2,454,034
----------------- ----------------- ----------------- -----------------
Net earnings $ 1,449,679 $ 2,149,502 $ 2,901,830 $ 4,275,130
================= ================= ================= =================
Common shares and equivalents outstanding:
Basic 9,121,482 9,121,241 9,121,482 9,015,769
Diluted 9,283,841 9,336,111 9,313,484 9,283,229
Earnings per share:
Basic $ 0.16 $ 0.24 $ 0.32 $ 0.47
Diluted $ 0.16 $ 0.23 $ 0.31 $ 0.46
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
---------------------- ----------------------
Cash flow from operating activities:
<S> <C> <C>
Net earnings $ 2,901,830 $ 4,275,130
Adjustments to reconcile net earnings to net cash provided (used) by
operating activities :
Depreciation and amortization 1,827,776 1,618,568
Deferred licensing and maintenance fees 167,017 (268,280)
Deferred income taxes 250,252 659,525
(Gain) loss on sale and disposal of assets (8,414) 23,851
(Earnings) loss on investments in affiliates (1,580,903) 17,039
Changes in assets and liabilities:
Receivables (3,094,856) (6,398,049)
Prepaid expenses (150,340) (104,655)
Income taxes receivable 205,204 (5,176)
Inventories 1,994,684 (5,186,269)
Other assets (329,108) (61,438)
Accounts payable 760,938 2,255,851
Accrued expenses (455,704) 706,240
Income taxes payable 404,761 663,196
Other long-term liabilities - 25,203
---------------------- ----------------------
Net cash provided (used) by operating activities 2,893,137 (1,779,264)
---------------------- ----------------------
Cash flow from investing activities:
Proceeds from sale of assets 11,610 -
Acquisition of property, plant and equipment (2,433,833) (2,970,170)
Acquisition of subsidiary company (1,718,335) -
Cash proceeds from long-term investments 759,408 62,189
---------------------- ----------------------
Net cash used in investing activities (3,381,150) (2,907,981)
Cash flow from financing activities: ---------------------- ----------------------
Net borrowings under line of credit agreements 1,800,000 5,700,000
Retirement of long-term debt, net of proceeds (1,109,433) (2,047,200)
Proceeds from exercise of stock options - 196,912
---------------------- ----------------------
Net cash provided by financing activities 690,567 3,849,712
---------------------- ----------------------
Effect of exchange rate changes on cash (184,648) 9,608
---------------------- ----------------------
Net increase (decrease) in cash 17,906 (827,925)
Cash at beginning of period 1,118,848 1,850,779
---------------------- ----------------------
Cash at end of period $ 1,136,754 $ 1,022,854
====================== ======================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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, 1998 Annual Report on Form 10-K.
Certain amounts in the consolidated financial statements for prior years have
been reclassified to conform with the current year's presentation.
2. Inventory
The cost of the inventory and its components at interim reporting dates are
determined based on various factors including estimated gross profit
percentages, historical percentages and price changes. Year-end inventory
adjustments are based upon valuation of ending inventory. Inventory components
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Raw material and supplies $ 15,361 $ 13,107
Work in process 14,281 11,371
Finished Goods 14,994 21,651
--------------- ---------------
$ 44,636 $ 46,129
=============== ================
</TABLE>
3. Earnings Per Share
The Company calculates earnings per share in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 128. 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 162,359 and 214,870
shares for the three months ended June 30, 1999 and 1998, and 192,002 and
267,460 shares for the six months ended June 30, 1999 and 1998, respectively.
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 Company's net earnings.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are the components of comprehensive income (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net earnings $ 1,450 $ 2,150 $ 2,902 $ 4,275
Foreign currency translation gain (loss) 31 (644) (1,306) (645)
Unrealized gain (loss) on investment (net of tax) (12) - 102 -
--------------- -------------- -------------- ---------------
Comprehensive income $ 1,469 $ 1,506 $ 1,698 $ 3,630
=============== ============== ============== ===============
</TABLE>
Accumulated other comprehensive loss on the accompanying consolidated balance
sheets includes foreign currency translation adjustments and unrealized gain on
investment.
5. 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's
reportable segments are based on the geographic area of the final customer as
indicated by the following (dollars in thousands):
<TABLE>
<CAPTION>
Latin All
Domestic America Pacific Brazil Other Corporate Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
Three months ended June 30, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 25,477 3,177 3,319 481 5,618 - $ 38,072
Operating income (loss) 3,928 379 295 (149) 780 (3,014) $ 2,219
Three months ended June 30, 1998
Total revenues $ 20,153 5,242 3,990 1,527 6,216 - $ 37,128
Operating income (loss) 4,872 458 412 (22) 1,399 (2,727) $ 4,392
Six months ended June 30, 1999
Total revenues $ 48,679 6,986 6,592 825 11,218 - $ 74,300
Operating income (loss) 8,451 780 598 (553) 1,728 (5,910) $ 5,094
Six months ended June 30, 1998
Total revenues $ 37,927 11,684 7,629 3,716 12,364 - $ 73,320
Operating Income 8,931 1,840 833 87 2,596 (5,567) $ 8,720
</TABLE>
All intercompany revenues are eliminated in computing revenues and operating
income. The corporate component of operating income represents corporate general
and administrative expenses.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial Condition and
Resultsof 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, 1999 and 1998
Net sales for the quarter ended June 30, 1999 were $38.1 million, a 3% increase
over sales in the second quarter of 1998. Sales in the Company's North America
region rose 26%, led by strong sales of frozen beverage dispensers. Latin
America sales (excluding sales by the Company's Brazilian subsidiary) declined
39% from sales in the second quarter last year. Sales in Brazil fell 69% in the
quarter. These sales declines reflect the poor economic conditions in Brazil and
several other key markets in South and Central America.
Gross margin in the second quarter of 1999 was 19.9%, compared to 25.9% in the
second quarter last year. The decline in margin is primarily attributable to a
change in the Company's sales mix, specifically higher sales of frozen beverage
dispensers and lower sales of fountain equipment. The Company buys the frozen
beverage dispenser from a joint venture in which the Company owns a 50%
interest. The Company's share of the joint venture's earnings is presented as
other income in the Company's income statement.
Selling, general and administrative expenses were $5.4 million (14.1% of net
sales) in the quarter ended June 30, 1999, compared with $5.2 million (14.1% of
net sales) in the same period last year. Salary expense rose in support of
marketing and product development activities.
Quarterly interest expense fell to $0.9 million from $1.0 million last year
because of a decline in average borrowings. Other income, net, in the quarter
rose to $1.0 million from approximately zero in 1998 due to strong production of
frozen beverage equipment by a joint venture half-owned by the Company. The
Company's second quarter effective tax rate increased from 36.5% in 1998 to
37.5% this year because of the non-deductibility of losses at the Company's
Brazilian subsidiary. Net earnings for the second quarter of 1999 were $1.4
million versus $2.1 million for the second quarter of 1998.
Comparison of the Six-Month Periods ended June 30, 1999 and 1998
Net sales for the six months ended June 30, 1999 were $74.3 million, up 1% from
sales in the first half of 1998. North America sales rose 28% on strong sales of
frozen beverage dispensers. Sales in the Company's Latin America region
(excluding Brazil) declined 40%, while Brazilian sales fell 78%. These sales
declines reflect the poor economic conditions in Brazil and certain other key
markets in South and Central America.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
Gross margin for the first half of 1999 was 21.1%, compared to 25.8% for the
same period of 1998. The decline in margin is primarily attributable to a change
in the Company's sales mix, specifically higher sales of frozen beverage
dispensers and lower sales of fountain equipment. The Company buys the frozen
beverage dispenser from a joint venture in which the Company owns a 50%
interest. The Company's share of the joint venture's earnings is presented as
other income in the Company's income statement.
Selling, general and administrative expenses rose from $10.2 million (13.9% of
net sales) in the first six months of 1998 to $10.5 million (14.2% of net sales)
in the first half of 1999. Salary expense rose in support of marketing and
product development activities.
Interest expense for the first six months of 1999 declined to $1.8 million from
$1.9 million for the same period last year because of lower average borrowings.
Other income, net, was $1.5 million in the first half of 1999, compared to other
expense, net, of $0.1 million in the same period of 1998. Increased earnings
from the Company's 50% interest in a joint venture that produces frozen beverage
dispensers caused the improvement. Non-deductible losses incurred by the
Company's Brazilian subsidiary caused the Company's effective tax rate to rise
to 39.9% in the first half of 1999 from 36.5% in the first half of 1998. Net
earnings were $2.9 million for the first six months of 1999, compared to $4.3
million for the same period last year.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from operations and
amounts available under the Company's existing lines of credit. The Company has
met, and currently expects that it will continue to meet, substantially all of
its working capital and capital expenditure requirements, as well as its debt
service requirements, with funds provided by operations and borrowings under its
credit facilities. During the second quarter of 1999, the Company and its Banks
amended certain financial covenants contained in the credit agreement that
governs the Company's primary credit facilities. The Company is in compliance
with the financial covenants contained in the credit agreement.
Cash provided by operating activities was $2.9 million in the first half of
1999, compared with cash used in operating activities of $1.8 million in the
first half of 1998. The Company made capital expenditures of $2.4 million,
primarily for production tooling and equipment. During the second quarter of
1999, the Company acquired certain assets of Allbar Manufacturing for
approximately $1.7 million. The Company financed most of the purchase with bank
debt denominated in Australian dollars and the remainder with cash on hand.
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 1998 Form 10-K.
The Internal Revenue Service is examining the Company's U.S. income tax return
for 1995. Management does not believe that any significant adjustments will be
required.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that costs of start-up activities, including
organizational costs, be expensed as incurred. Adoption of this SOP during the
three months ended March 31, 1999 did not have a material effect on the
consolidated financial statements of the Company.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
Year 2000
The Year 2000 ("Y2K") issue arose because some computer programs use two-digit
date fields to designate a year. Some of these programs with two-digit date
fields will not recognize the year 2000, or may confuse it with the year 1900.
This date recognition problem could cause erroneous calculations, or could cause
entire systems to malfunction.
The Company has adopted a two-phase approach to the Year 2000 threat. In the
Assessment Phase, the Company generated a comprehensive inventory of the
Company's date-oriented systems, and determined which were not Y2K compliant.
The Renovation/Replacement Phase involves correcting or replacing non-compliant
systems. The Company has completed substantially all of the Assessment Phase.
The Renovation/Replacement Phase is being executed as non-compliant systems are
identified. The Company believes that it has corrected high-priority
non-compliant systems, and expects to have corrected medium-priority
non-compliant systems by September 30, 1999.
In the second quarter of 1998, the Company initiated correspondence with its
suppliers to determine their Y2K readiness. The Company plans to monitor the
readiness of its key suppliers throughout 1999. The Company intends to determine
the Y2K readiness of its key customers during 1999. The Coca-Cola Company was
the Company's largest customer in 1998, accounting for 23% of sales.
The Company's primary information technology ("IT") system is a BaaN ERP system
that was installed in 1996, and upgraded in 1998. The Company believes the BaaN
system, and other major IT systems, are Y2K compliant. Among non-IT systems, the
Company has replaced a non-compliant payroll system, and is in the process of
replacing its non-compliant timekeeping system. The Company has spent
approximately 75% of the $200,000 it expects to spend on all of the Company's
Y2K issues.
The Company believes there is low risk of any internal critical system not being
Y2K-compliant by the end of 1999. The Company continues to assess its risk
exposure attributable to external factors and suppliers. Although the Company
has no reason to conclude that any specific supplier represents a risk, the most
likely worst-case Y2K scenario would entail production disruption due to
inability of suppliers to deliver critical parts. The Company is unable to
quantify such a scenario, but it could potentially result in a material adverse
impact on the results of operations, liquidity or financial position of the
Company. The Company does not now have a formal contingency plan to deal with
non-performance by suppliers. The Company intends, however, to monitor the Y2K
readiness of key suppliers throughout 1999, and to develop a contingency plan
for any supplier whose lack of preparedness may jeopardize the Company's
operations.
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, 1998.
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 Company's financial position or results of operations.
<PAGE>
LANCER CORPORATION AND SUBSIDIARIES
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders of the Company held on May 27,
1999, the shareholders elected seven members of the Board of Directors of the
Company to serve until the next annual meeting of the shareholders.
The vote for nominated directors was as follows:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
- ------------------------ ------------------ -------------------
<S> <C> <C>
Alfred A. Schroeder 8,543,767 14,588
George F. Schroeder 8,543,767 14,588
Walter J. Beigler 8,543,767 14,588
Jean M. Braley 8,543,767 14,588
Charles K. Clymer 8,543,767 14,588
Micheal E. Smith 8,543,767 14,588
E.T. Summers 8,543,767 14,588
</TABLE>
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.39 Fourth Amendment to Credit Agreement dated March 15,
1999 between Lancer Corporation and The Frost National Bank
and NationsBank, N.A.
(b) Reports on Form 8-K
None
<PAGE>
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 12, 1999 By: /S/ George F. Schroeder
George F. Schroeder
President and CEO
August 12, 1999 By: /S/David E. Green
David E. Green
Chief Financial Officer
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of March 15, 1999, 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 of the Credit
Agreement described below (in such capacity, the "Agent"), NATIONSBANK, N.A., a
national banking association, successor to THE BOATMEN'S NATIONAL BANK OF ST.
LOUIS, a national banking association, 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 modify certain of the
covenants contained in Section 6.1(b) 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.
B. Amendments. The Credit Agreement is hereby amended as follows:
<PAGE>
1. Section 6.1(b) is hereby amended to read in its entirety as
follows:
(b) the ratio of (i) EBIT of the Companies determined on a
consolidated basis to (ii) the interest expense of the
Companies determined on a consolidated basis, for the
four-quarter period ending as of the end of such Fiscal
Quarter, to be less 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 the foregoing ratio 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; or
Fiscal Quarters Ended On or About Ratio
3/15/99 through 9/30/99 2.75 to 1.00
10/1/99 through 7/15/01 3.00 to 1.00
4. Exhibit M -- Compliance Certificate is hereby amended to
incorporate the following change to the "Minimum Ratio" for
purposes of Section 6.1(b) of the Credit Agreement
(EBIT/INTEREST RATIO COMPANIES) as set forth therein:
Fiscal Quarters Ended On or About Ratio
3/15/99 through 9/30/99 2.75 to 1.00
10/1/99 through 7/15/01 3.00 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.
<PAGE>
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).
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.
<PAGE>
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.
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, or within forty-five
days thereafter, 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, if any.
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:Treasurer
<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:Treasurer
GUARANTORS:
LAN-LEASING, INC.
By:/s/Scott Adams
Name:Scott Adams
Title:Vice President
LANCER CAPITAL CORPORATION
By:/s/Scott Adams
Name:Scott Adams
Title:Treasurer
LANCER INTERNATIONAL SALES, INC.
By:/s/Scott Adams
Name:Scott Adams
Title:Treasurer
<PAGE>
LANCER PARTNERSHIP, LTD., a Texas
limited partnership
By: Lancer Capital Corporation, a Delaware
corporation, general partner
By:/s/Scott Adams
Name:Scott Adams
Title:Treasurer
AGENT/BANKS:
THE FROST NATIONAL BANK,
Individually and as the Agent
By:/s/Beth Weakley
Name:Beth Weakley
Title:Sr. VicePresident
NATIONSBANK, N.A.,
a national banking association,
successor to THE BOATMEN'S
NATIONAL BANK OF ST. LOUIS
By:/s/Steven A. Liton
Name:Steven A. Liton
Title:VicePresident
<PAGE>
ANNEX B
1. Each Borrower, Parent Company and each Guarantor shall have provided
to the Agent a certificate signed by the secretary of such corporation, which
secretary's office and signature shall be confirmed by another officer of such
corporation, dated as of the effective date of this Amendment attaching thereto
or containing therein, and certifying as to the following: (i) corporate
resolutions, as in effect and neither revoked nor rescinded, duly adopted by the
board of directors of such corporation authorizing the execution, delivery and
performance of this Amendment and all other documents, instruments and
agreements in connection therewith (the "Amendment Documents") to which it is or
will be a party, and the transactions contemplated thereby; and (ii) names,
incumbency and specimen signatures of the officers of such corporation
authorized to execute and deliver the Amendment Documents to which such
corporation is a party.
2. Each Guarantor shall have executed and delivered to each Bank a
Reaffirmation of Guaranty.
3. All other documents requested by the Agent in connection with this
Amendment.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated Balance Sheets and consolidated Statements of Income found on page
2 to 4 of the company form 10-Q for the year-to-Date and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,137
<SECURITIES> 0
<RECEIVABLES> 23,633
<ALLOWANCES> 299
<INVENTORY> 4,636
<CURRENT-ASSETS> 70,690
<PP&E> 61,759
<DEPRECIATION> 26,123
<TOTAL-ASSETS> 116,445
<CURRENT-LIABILITIES> 44,135
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 49,864
<TOTAL-LIABILITY-AND-EQUITY> 116,445
<SALES> 74,300
<TOTAL-REVENUES> 75,837
<CGS> 58,658
<TOTAL-COSTS> 69,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,804
<INCOME-PRETAX> 4,826
<INCOME-TAX> 1,924
<INCOME-CONTINUING> 2,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2902
<EPS-BASIC> .32
<EPS-DILUTED> .31
</TABLE>
