1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10485
TYLER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2303920
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2121 SAN JACINTO STREET
SUITE 3200, DALLAS, TEXAS 75201
(Address of principal executive offices)
(Zip code)
(214) 754-7800
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----------
Number of shares of common stock of registrant outstanding at
November 11, 1996: 19,875,454May 9, 1997: 19,882,921
Page 1
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYLER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30March 31 December 31 September 30March 31
1997 1996 1995 19951996
------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 8,931,00019,140,000 $ 3,247,00015,773,000 $ 1,768,00012,647,000
Accounts receivable (less allowance
for losses of: 9/30/3/31/97 - $1,371,000;
12/31/96 - $385,000;
12/$1,364,000; 3/31/9596 -
$396,000; 9/30/95 -
$641,000) 4,970,000 16,250,000 6,900,000
Amount due from Union
Acquisition Corporation -- 7,599,000 --$441,000) 5,945,000 11,633,000 8,915,000
Merchandise inventories 25,355,000 22,258,000 26,675,00020,465,000 20,127,000 22,044,000
Income tax receivable 1,632,000 4,361,000 5,108,000618,000 907,000 4,374,000
Prepaid expense 4,949,000 5,529,000 2,154,000856,000 963,000 5,274,000
Deferred income tax benefit 3,438,000 3,438,000 1,406,000 1,406,000 3,981,000
------------ ------------ ------------
Total current assets 47,243,000 60,650,000 46,586,000
Net assets of discontinued operations (1) -- -- 95,405,00050,462,000 52,841,000 54,660,000
Property, plant and equipment, at cost 18,592,000 16,062,000 17,151,00014,962,000 14,502,000 16,260,000
Less allowance for depreciation 7,554,000 6,376,000 6,480,0006,882,000 6,369,000 6,714,000
------------ ------------ ------------
11,038,000 9,686,000 10,671,0008,080,000 8,133,000 9,546,000
Other assets
Goodwill and other intangibles 52,633,000 54,265,000 55,855,000-- -- 53,688,000
Sundry 2,439,000 4,036,000 3,702,0001,908,000 1,970,000 3,397,000
------------ ------------ ------------
55,072,000 58,301,000 59,557,0001,908,000 1,970,000 57,085,000
------------ ------------ ------------
$113,353,000 $128,637,000 $212,219,000$ 60,450,000 $ 62,944,000 $121,291,000
============ ============ ============
See accompanying notes.
- 2 -
3
TYLER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
September 30March 31 December 31 September 30March 31
1997 1996 1995 19951996
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,337,0006,621,000 $ 7,587,0005,779,000 $ 8,882,0006,773,000
Accrued liabilities 6,010,000 15,972,000 12,182,00011,602,000 14,853,000 9,659,000
------------ ------------ ------------
Total current liabilities 14,347,000 23,559,000 21,064,00018,223,000 20,632,000 16,432,000
Deferred income tax 5,922,000 6,136,000 8,058,000 8,058,000 8,084,000
Other liabilities 2,282,000 3,658,000 4,216,000
Long-term debt -- -- 72,500,0001,229,000
Other liabilities - TPI of Texas 4,123,000 4,135,000 2,296,000
Commitments and contingencies (2)(1)
Shareholders' equity
Common stock ($.01 par value, 50,000,000
shares authorized, 21,309,277 shares
issued) 213,000 213,000 213,000
Capital surplus 48,516,000 48,520,000 48,538,000
48,538,000 48,530,000
Retained (deficit) earnings 46,551,000 51,247,000 64,259,000(9,944,000) (10,083,000) 51,161,000
------------ ------------ ------------
95,302,000 99,998,000 113,002,00038,785,000 38,650,000 99,912,000
Less treasury shares, at cost: (9/30/(3/31/97 -
1,426,356; 12/31/96 - 1,433,823; 12/1,428,828;
3/31/9596 - 1,433,783;
9/30/95 - 1,437,408)1,433,823) 6,603,000 6,609,000 6,636,000 6,636,000 6,647,000
------------ ------------ ------------
Total shareholders' equity 88,666,000 93,362,000 106,355,00032,182,000 32,041,000 93,276,000
------------ ------------ ------------
$113,353,000 $128,637,000 $212,219,000$ 60,450,000 $ 62,944,000 $121,291,000
============ ============ ============
See accompanying notes.
- 3 -
4
TYLER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
NineThree Months Ended September 30
------------------------------March 31
----------------------------
1997 1996 1995
------------ ------------
Net sales $ 83,237,00026,497,000 $ 87,772,00030,764,000
Costs and expenses
Cost of sales 42,282,000 45,473,00012,216,000 14,204,000
Selling, general and administrative
expenses 47,375,000 50,543,00014,226,000 16,817,000
Interest (income) expense,, net (219,000) 2,085,000(163,000) (70,000)
------------ ------------
89,438,000 98,101,00026,279,000 30,951,000
------------ ------------
Loss from continuing operationsIncome (loss) before
income tax benefit (6,201,000) (10,329,000)(benefit) 218,000 (187,000)
Income tax benefit (1,505,000) (5,264,000)
------------ ------------
Loss from continuing operations (4,696,000) (5,065,000)
Income from discontinued operations,
net of income tax (1) -- 1,104,000(benefit) 79,000 (101,000)
------------ ------------
Net lossincome (loss) $ (4,696,000)139,000 $ (3,961,000)(86,000)
============ ============
Earnings (loss) per common share
Continuing operations $ (.24) $ (.26)
Discontinued operations -- .06
------------ ------------
Net lossearnings per common share $ (.24).01 $ (.20).00
============ ============
Average shares outstanding during
the period 19,882,000 19,875,000 19,868,000
See accompanying notes.
- 4 -
5
TYLER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS
(Unaudited)
Three Months Ended September 30
-------------------------------March 31
---------------------------
1997 1996 1995
------------ ------------
Net sales $ 25,879,000 $ 29,010,000
Costs and expenses
Cost of sales 13,847,000 15,763,000
Selling, general and administrative
expenses 15,641,000 16,725,000
Interest (income) expense, net (73,000) 764,000
------------ ------------
29,415,000 33,252,000
------------ ------------
Loss from continuing operations
before income tax benefit (3,536,000) (4,242,000)
Income tax benefit (66,000) (1,766,000)
------------ ------------
Loss from continuing operations (3,470,000) (2,476,000)
Income from discontinued operations,
net of income tax (1) -- 220,000
------------ ------------
Net loss $ (3,470,000) $ (2,256,000)
============ ============
Earnings (loss) per common share
Continuing operations $ (.18) $ (.13)
Discontinued operations -- .02
------------ ------------
Net loss per common share $ (.18) $ (.11)
============ ============
Average shares outstanding during
the period 19,875,000 19,872,000
See accompanying notes.
- 5 -
6
TYLER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30
------------------------------
1996 1995
------------ ------------
Cash flows from operating activities
Net lossincome (loss) $ (4,696,000)139,000 $ (3,961,000)(86,000)
Adjustments to reconcile net lossincome (loss)
to net cash provided by operations
Depreciation and amortization 3,075,000 3,462,000689,000 1,023,000
Provision for losses on
accounts receivable 150,000 143,00067,000 60,000
Deferred income tax benefit (214,000) --
Decrease in accounts receivable 11,130,000 12,498,000
Increase5,621,000 7,275,000
(Increase) decrease in inventories (3,097,000) (1,729,000)
Decrease (increase)(338,000) 214,000
(Increase) decrease in income tax receivable 2,729,000 (5,108,000)289,000 (13,000)
Decrease in prepaid expense 580,000 863,000107,000 255,000
Increase (decrease) in accounts payable 750,000 879,000842,000 (814,000)
Decrease in accrued liabilities (8,642,000) (5,283,000)
Decrease in income tax payable -- (947,000)(3,251,000) (4,993,000)
Decrease in other liabilities (168,000) (875,000)
Discontinued operations-noncash charges
and working capital changes -- 1,233,000(12,000) (133,000)
------------ -----------------------
Net cash provided by operations 1,811,000 1,175,0003,939,000 2,788,000
------------ -----------------------
Cash flows from investing activities
Net amount due from Union
Acquisition Corporation -- 7,599,000 --
Additions to property, plant and
equipment (3,230,000) (1,008,000)(462,000) (664,000)
Cost of acquisition (2,528,000) -- (1,320,000)
Proceeds from disposal of property,
plant and equipment 435,000 22,000
Investing activities of discontinued
operations -- (8,588,000)2,000 358,000
Other 1,597,000 (748,000)(114,000) 639,000
------------ -----------------------
Net cash (used) provided (used)
by investing activities 3,873,000 (10,322,000)(574,000) 6,612,000
------------ -----------------------
Cash flows from financing activities
Long-term borrowings -- 9,000,000
Issuance of common stock 2,000 --
18,000
------------ -----------------------
Net cash provided by
financing activities 2,000 --
9,018,000
------------ -----------------------
Net increase (decrease) in cash and cash equivalents 5,684,000 (129,000)3,367,000 9,400,000
Cash and cash equivalents at beginning
of period 15,773,000 3,247,000
1,897,000
------------ -----------------------
Cash and cash equivalents at end of period $ 8,931,00019,140,000 $ 1,768,00012,647,000
============ =======================
Supplemental disclosures
Interest paid $ 60,0004,000 $ 4,552,0001,000
Income tax (received) paid $ (4,414,000)4,000 $ 2,039,000(268,000)
See accompanying notes.
- 65 -
76
Tyler Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Discontinued Operations
On December 1, 1995, Tyler Corporation (the "Company") sold all the
outstanding capital stock of Swan Transportation Company ("Swan") to
Ransom Industries, Inc., formerly known as Union Acquisition
Corporation ("Union"), an Alabama corporation. In the same
transaction, Tyler Pipe Industries, Inc. ("Tyler Pipe"), a wholly
owned subsidiary of the Company, sold substantially all of its assets
to Union, and Union assumed substantially all the liabilities of Tyler
Pipe. The results of these entities are included as discontinued
operations. The assets Tyler Pipe sold and the liabilities Union
assumed included all those relating to Tyler Pipe's business of
manufacturing and marketing cast iron pipe and fittings, excluding
cash and certain other assets and liabilities. Swan is a
motor-carrier company that provided transportation services to Tyler
Pipe prior to the closing.
Based on a July 1, 1995 balance sheet, Union paid a net amount of
$66,139,000 for the stock of Swan and assets of Tyler Pipe of which
$58,540,000 was received at closing on December 1, 1995, and the net
remaining payment was received in January 1996. In addition, Tyler
Pipe distributed cash of approximately $17,700,000 to the Company from
July 1, 1995 through closing.
The net assets of discontinued operations at September 30, 1995,
consist principally of working capital (including accounts receivable,
inventories, accounts payable and accrued liabilities), property,
plant and equipment, and intangibles and other assets of Tyler Pipe.
Net sales of discontinued operations for the three and nine months
ended September 30, 1995, were $57,409,000 and $166,837,000,
respectively. Results of discontinued operations include interest
expense on debt associated with discontinued operations of $716,000
and $2,473,000, respectively, for the three and nine months ended
September 30, 1995.
Income tax of $227,000 and $1,143,000, respectively, for the three and
nine months ended September 30, 1995, has been provided on
discontinued operations based on the income tax resulting from
inclusion of the discontinued segment in the Company's consolidated
federal income tax return.
Subsequent to the closing, Tyler Pipe was renamed TPI of Texas, Inc.
("TPI"). TPI is subject to various environmental laws and regulations
and, as such, is involved in environmental matters related to its
manufacturing operations conducted prior to the sale. TPI is also
involved in legal actions and claims arising in the ordinary course of
business. Certain contingent liabilities related to these matters
were retained by TPI in the transaction. See "Commitments and
Contingencies" footnote.
- 7 -
8
(2) Commitments and Contingencies
The New Jersey Department of Environmental Protection and Energy
("NJDEPE") has alleged that a site where a former affiliate of TPI of Texas,
Inc. ("TPI"), Jersey-Tyler Foundry Company ("Jersey-Tyler"),a former affiliate of TPI, once operated a
foundry contains lead and possible other priority pollutant metals and may need
on-site and off-site remediation. The foundry was operated on the site from
the early part of this century to 1969 when it was acquired by Jersey-Tyler.
Jersey- TylerJersey-Tyler operated the foundry from 1969 to 1976, at which time the foundry
was closed. Subsequently, the property was sold to other persons who have
operated a salvage yard on the site. TPI has performedBased on a remedial investigation
and submitted the
results toconducted by TPI, the NJDEPE for review. Whilehas demanded TPI and other potentially responsible
parties remediate the foundry site and the contamination in the adjacent stream
and nearby lake. TPI has proposed that it conduct a feasibility study to
assess its remediation options, including costs, but does not committedintend to commit
to further action it is probable that the NJDEPE will seek to require
TPI to remediate the site. TPI denies liability because it never
owned the property.at this time.
In connection with theTPI's sale of the assets of TPI
to Union, an affiliate of McWane,Ransom Industries, Inc.
("Ransom"), on December 1, 1995, pursuant
to an acquisition agreementunder the terms of the Acquisition Agreement
among the Company, TPI and UnionRansom (the "Acquisition Agreement"), UnionRansom agreed
to manage and direct the prosecution or defense of these mattersthis matter on behalf of
TPI. In addition, UnionRansom agreed to reimburse TPI the first $3,000,000 of
certain costs and expenses incurred in connection with the investigation or
remediation of the New Jersey site, and one-half of such expenses in excess of
$3,000,000. Under any circumstances, however, the maximum amount that UnionRansom
agreed to reimburse TPI in connection with this matter is $6,500,000. Union,Ransom,
on behalf of TPI, is proceeding against predecessor owners and operators of the
site, as well as others, to bear their share of the cost of the investigation
and any other costs, including any remediation costs incurred by TPI. Some
costs may also be covered by insurance although the insurance carriers are expected to denyhave
initially denied coverage. TPI expects Union,Ransom, on itsTPI's behalf, to proceed
against such insurance carriers seeking coverage of remediation costs.
Environmental consultants have been engaged to
estimate the extent of environmental contamination.
In June 1992 Anaheim Foundry Co. ("Anaheim") sued TPI in federal
district court- 6 -
7
Ransom also agreed in the Central District of California alleging that TPI
violated various antitrust laws and making other common law claims of
anticompetitive business practices. On October 30, 1996, the parties
agreed to an order of dismissal and TPI paid $125,000, which was
previously accrued, to Union to resolve any obligation it had under
the Acquisition Agreement as it related to this lawsuit.
- 8 -
9
On January 18, 1988, the Environmental Protection Agency ("EPA")
notified TPI that it is a potentially responsible party at the Novak
Sanitary Landfill Superfund site in Lehigh County, Pennsylvania (the
"Novak Site"). TPI has recently negotiated a settlement agreement
with other potentially responsible parties at the Novak Site.
Although there is some possibility that the matter could be reopened
and Tyler continues to be required to guarantee its portion of the
cleanup costs, the settlement agreement should resolve TPI's liability
for the site. The settlement agreement is based in part on TPI's
payment of $213,500 and certain amounts previously paid. TPI will be
reimbursed by Union for these amounts, pursuant to the Acquisition
Agreement.
Pursuant to the Acquisition Agreement, Union agreed to manage and direct the
prosecution or defense of certain other matters on behalf of TPI
including but not limited to the Anaheim suit and remediation of the
Novak Site, and to
reimburse related costs and expenses. UnionRansom agreed to reimburse TPI the first
$750,000 of all costs and expenses incurred in connection with each such matter
and one-half of such expenses in excess of $750,000. The maximum amount that
UnionRansom agreed to reimburse TPI in connection with all of these matters,
excluding Jersey- TylerJersey-Tyler, is $8,000,000. Although it is impossible to predict
the outcome of legal or regulatory proceedings, based on the Company's negotiations and
activities before theTPI's sale of TPI's business,assets, the Company believes that substantially
all of the costs, expenses and damages, if any, resulting from the legal
proceedings and environmental matters described above will be reimbursed by
UnionRansom pursuant to the Acquisition Agreement.
In connection withAgreement or have been adequately provided
for in the financial statements.
Ransom did not agree to reimburse TPI for, among other things, (a)
liabilities relating to the use, handling, manufacture or sale of assetsproducts
containing asbestos or silica, (b) claims of Tyler Pipe,individuals for health problems
such as (but not limited to) silicosis, or (c) offsite environmental
liabilities. Between 1968 and December 1995, TPI owned and operated foundries.
TPI is, and expects to continue to be, involved in different types of
litigation, including environmental claims and claims for work-related injuries
and physical conditions. In January 1997 two lawsuits were filed involving
silicosis claims. Based on the available facts, the Company retained some additional legal exposure. However,is not able to
make a determination as to the Company
believes thatlikelihood of a favorable outcome or to estimate
the resolutionrange of potential loss for any potential legal proceedings would
not be material.asserted or unasserted claims arising from
any of the sources described in this paragraph.
In June 1995 Forest City Auto Parts Company ("Forest City") was sued by a former executive in the Court of
Common Pleas of Cuyahoga County, Ohio alleging that Forest City terminated the
plaintiff because of his age and making other common law claims arising out of
his termination. In March 1997 the plaintiff in this case, Forest City, the
Company and the other related parties settled this lawsuit by mutual agreement
- 7 -
8
under the terms of the settlement. The plaintiff, seeks damages in excess of $16,000,000. Althoughamong other things, released
Forest City, maintains insurance to cover claims of this nature, such
insurance wouldthe Company and the related parties from all claims. The
settlement did not cover awards, if any, of punitive and certain
other damages. Forest City is defending this lawsuit vigorously. The
case has subsequently been moved to federal district court in
Cleveland. The discovery process has not been completed and based onsignificantly affect the Company's consolidated financial
position or results of discovery to date the outcome of this lawsuit is uncertain.operations.
Other than ordinary course, routine litigation incidental to the
business of the Company and except as described herein, there are no other
material legal proceedings pending to which the Company or its subsidiaries are
parties or to which any of its properties are subject.
- 98 -
109
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary Statement Regarding RisksGeneral
On March 31, 1997, Tyler Corporation announced the appointment of Bruce
W. Wilkinson as chief executive officer. On April 28, 1997, Richard W.
Margerison resigned as president and Uncertainties That May Affect Future
Resultschief operating officer of the Company and
the board of directors appointed Bruce W. Wilkinson president and a director of
the Company. C.A. Rundell, Jr. continues as chairman of the board of the
Company.
The Company's first priority will be to improve near-term operating
performance at IFS and Forest City Auto Parts. Simultaneously, we will look
for acquisition opportunities. We are reexamining our acquisition criteria at
this time so as to assure a coherent and focused strategy is developed.
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of the Company. The
actual results of the Company could differ materially from those indicated by
the forward-looking statements because of various risks and uncertainties
including, without limitation, changes in product demand, turnover in the sales
force, the availability of products, changes in competition, economic
conditions, interest rate
fluctuations, various inventory risks due to changes in market conditions,
changes in tax and other governmental rules and regulations applicable to the
Company and other risks indicated in the Company's filings with the Securities
and Exchange Commission. These risks and uncertainties are beyond the ability
of the Company to control, and in many cases, the Company cannot predict the
risks and uncertainties that could cause its actual results to differ
materially from those indicated by the forward-looking statements. When used
in this Quarterly Report on Form 10-Q, the words "believes", "estimates",
"plans", "expects", "anticipates""believes," "estimates,"
"plans," "expects," "anticipates," "intends" and similar expressions as they
relate to the Company or its management are intended to identify forward-lookingforward-
looking statements.
Analysis of Results of Continuing Operations
For the three months ended September 30, 1996, Tyler Corporation recorded a
loss from continuing operations before income tax benefit of $3.5 million
compared to a $4.2 million loss last year. Sales declined 11% to $25.9
million. For the nine-month period, Tyler had a loss from continuing
operations before income tax benefit of $6.2 million versus a $10.3 million
loss in 1995. Sales were $83.2 million, down 5%.
Same-store sales at Forest City Auto Parts were off 4.1% for the quarter ended
September 30, 1996, compared to last year and up 1.6% year to date. Sales
comparisons to last year have become more difficult as competitors have
aggressively opened new stores in Forest City's markets.- 9 -
10
In the last three
months, several major competitors have opened approximately 25 new stores near
existing Forest City locations. Operating profit advanced 38% for the nine
months ended September 30, 1996, compared to last year. A higher gross margin
was partially offset by operating expenses associated with the new
point-of-sale ("POS") computer system. Forest City is continuing to install a
perpetual inventory system in its stores. Thus far lines comprising
approximately 45% of inventory value are up and running on the perpetual system
in all 62 stores. The balance of the company's products should be installed on
the new system by early 1997.
-10-
11
IFS domestic sales were 27% and 16% below last year for the quarter and nine
months ended September 30, 1996, respectively. Competition in fund raising has
intensified with attendant pricing pressures on the profit percentages offered
to school sponsors. IFS is responding to competitive inroads by emphasizing
full-service programs offering higher profit percentages to school sponsors.
The company posted a significantly larger domestic operating loss due to higher
selling and operating expenses on lower sales for the quarter and nine months
ended September 30, 1996.
The Company had much lower corporate expense for the nine-month period compared
to last year. Savings related to a gain produced through the sale of an asset
and a lower personnel expense contributed to the cost reductions.
The effective tax benefit rate declined from 51% in 1995 to 24% in 1996 due to
the Company's expectations of significantly lower profits in the fourth quarter
of 1996 and a large permanent difference relating to the settlement of certain
employee benefit plans.
In May 1996, the Company entered into a one-year, $14.0 million credit facility
with its bank. The purpose of this credit facility is primarily to fund
seasonal working capital requirements at IFS. As of November 1996, no
borrowings are outstanding except certain letters of credit. Interest rates
are negotiated with the participating banks and are based on current market
conditions as evidenced by LIBOR and Eurodollar rates. The Company had $8.9
million in cash and approximately $2.7 million letters of credit outstanding at
September 30, 1996.
We expect the fourth quarter of 1996 to be significantly below last year at
both IFS and Forest City. Our emphasis in the coming months will be on
evaluating both IFS and Forest City for opportunities to strengthen their
operations. Specifically, we are studying the value of the underlying assets
which we anticipate could lead to restructuring charges and write-downs of
goodwill in the fourth quarter. We will be exploring all available avenues to
enhance shareholders' returns.
On October 7, 1996, Joseph F. McKinney announced his retirement as chairman of
the board and chief executive officer of Tyler Corporation. The board of
directors elected C.A. Rundell, Jr., a 30-year director of Tyler, to serve as
interim chairman and chief executive officer, and we have commenced a search
for a permanent chief executive officer. The board also appointed James
Russell to the executive committee and named Fred Meyer chairman of the
executive committee of the board.
Perry J. Lewis resigned from the board of directors effective August 20, 1996.
In his letter of resignation, he indicated that other commitments prevented him
from devoting the time to Tyler he felt the shareholders deserved.
-11-
12
September 30, 1996 vs. December 31, 1995
Cash and cash equivalents increased $5.7 million primarily due to the
settlement of outstanding amounts at December 31, 1995, related to the sale of
Tyler Pipe which was offset somewhat by seasonal working capital increases at
IFS. In January 1996, the Company received the net remaining payment of $7.6
million from Union for the sale of Tyler Pipe. The Company also received an
income tax refund of $4.1 million in August 1996, associated with the loss on
the sale of Tyler Pipe. Historically, IFS generates approximately 60% of its
sales in the fall. Working capital builds from July through December with
subsequent liquidations when the company collects accounts receivable for fall
sales.
In connection with the 1991 acquisition of Forest City, the Company made a
final payment of $1.3 million in the first quarter of 1996 to former
shareholders and executives of Forest City as the result of achieving certain
cumulative profit objectives. The amount paid was accrued at December 31,
1995.
Pursuant to the 1994 IFS acquisition agreement, the Company made a payment of
$1.2 million in the third quarter of 1996 to former shareholders and executives
of IFS. The amount paid was accrued at December 31, 1995.
Other assets and accrued liabilities each include a decline of approximately
$2.1 million relating to the settlement of certain employee benefit plans which
were primarily funded through insurance policies that the Company redeemed in
1996.
Capital expenditures included interim financing of approximately $1.6 million
for expanding an IFS warehouse. These amounts were refunded in October 1996,
when construction was completed and IFS entered into a sale-leaseback
transaction. The new lease covers the original warehouse and the expansion for
a 10-year term with annual lease payments of approximately $800,000. Prior to
the expansion the annual lease payments relating to warehouse facilities were
approximately $700,000.
September 30, 1996 vs. September 30, 1995
Working capital at September 30, 1996, rose $7.4 million from September 30,
1995, principally due to the cash retained from the sale of Tyler Pipe which
eliminated the Company's debt, collection of an income tax refund of $4.1
million relating to the loss on the sale and significantly lower accrued
liabilities.
Accounts receivable and inventories have declined from September 30,1995 levels
mainly due to lower 1996 fall sales activity. In addition Forest City has
closed three unprofitable stores and relocated one store since September 1995
which contributed slightly to the inventory decline.
-12-
13
In connection with the sale of Tyler Pipe to Union on December 1, 1995, and
pursuant to the terms of the acquisition agreement among the Company, Tyler
Pipe and Union, the Company froze benefit accruals for all Tyler Pipe employees
and agreed to transfer the benefit obligation relating to the Tyler Pipe
employees and the related assets to a new plan established by Union ("the Union
Plan"). As a result, in April of 1996 the Company transferred the Tyler Pipe
employees' obligation and related asset amounts to the Union Plan. The
Company's prepaid pension expense at September 30, 1996 and December 31, 1995
also increased approximately $2.5 million. The Company received governmental
approval in November 1996 to terminate the defined benefit pension plan and
expects to record a loss upon settlement of the plan of approximately $3.0 to
$4.0 million in the fourth quarter of 1996. Because the plan is overfunded,
the Company does not anticipate any cash contributions will be necessary to
terminate the Plan.
Prior to the sale of Tyler Pipe to Union on December 1, 1995, the Company
maintained a savings and investment plan primarily for the employees at Tyler
Pipe and certain other employees of the Company. As a result of the sale, the
Company ceased substantially all contributions as of December 1, 1995. The
Company transferred all Tyler Pipe employee account balances to a new plan
established by Union in the first quarter of 1996 and received governmental
approval in November 1996 to terminate the remaining savings and investment
plan. Tyler anticipates all account balances to be distributed by year end.
Substantially all expenses relating to the savings and investment plan are
included in discontinued operations.
The deferred income tax benefit decline from September 30, 1995 is due to
recognizing benefit of foreign abandonment losses recorded in 1994 and deferred
tax related to the pension plan curtailment gain recorded in December 1995.
Accrued liabilities at September 30, 1995 were higher than 1996 due to $1.4
million interest on related bank debt, $1.7 million for certain employee
benefit plans and $1.3 million of accrued earnout subsequently paid to former
shareholders and executives of Forest City. In addition, declining sales
levels at IFS have resulted in lower accrued liabilities associated with sales
volume such as sales commissions, contributions to the defined contribution
profit sharing plan, sales prize obligations and certain other sales related
expenses.
-13-
14
********************
The above unaudited information in the opinion of the Company's management, the unaudited information
includes all adjustments which the Company considers necessary for a fair
summarized presentation of the condensed consolidated balance sheets at September 30,March
31, 1997 and 1996, and 1995, the condensed consolidated results of operations for the
three months ended March 31, 1997 and nine months ended September 30, 1996, and 1995, and the condensed consolidated cash
flows for the ninethree months ended September 30, 1996March 31, 1997 and 1995.1996. The consolidated
results of operations for the ninethree months ended September 30, 1996,March 31, 1997, are not
necessarily indicative of the results of operations for the full year.
Analysis of Results of Operations
Tyler Corporation posted pretax income of $218,000 for the three months
ended March 31, 1997, compared to a pretax loss of $187,000 in 1996. Sales
were $26.5 million, down 14% from the prior year.
Same-store sales at Forest City Auto Parts declined 12% as competitors
continued to open new stores in its markets. Despite the sales shortfall,
operating profit improved slightly on a 1.4% improvement in gross margin
coupled with lower operating payroll. Forest City completed installation of an
electronic point-of-sale system in early 1996 and a perpetual inventory system
for all hard-parts inventories in late 1996. Both of these systems and a
management program targeting stores for attention and improvement with gross
margins below a minimum standard contributed to the gross margin increase.
Sales at IFS fell 14% in the first quarter of 1997 versus the comparable
1996 period. The majority of the sales drop is attributable to turnover in the
sales force in 1996 and 1997. The fund-raising industry is consolidating
somewhat with fewer fund-raising companies and distributors than five years
ago. In this environment, competitors are actively recruiting salespersons
from IFS and other field sales organizations to act as distributors. In an
effort to minimize losses associated with sales declines, the company is
reducing head count and controlling fixed cost. The company posted a small
operating loss in the first quarter versus earning $134,000 in 1996.
-10-
11
After elimination of a nonrecurring gain through sale of an asset in
1996, corporate expense declined 40% in the year-to-year comparison principally
as a result of lower personnel costs and rent expense.
Selling, general and administrative costs in the first quarter of 1996
includes $577,000 relating to amortization of goodwill and other intangibles at
Forest City and IFS. In December 1996 the Company wrote-off all goodwill and
other intangibles. The effective tax rate declined from 54% in 1996 to 36% in
1997. The 1996 tax rate was unusually high due to non-deductible goodwill
amortization and a one-time taxable gain associated with termination of an
employee benefit plan.
Liquidity and Capital Resources
As of March 31, 1997, the Company had $19.1 million in cash and cash
equivalents and no debt. Both operating companies are potentially strong cash
generators. We believe adequate cash resources will be available to fund our
annual seasonal increase in working capital at IFS and capital spending
requirements. We will not increase our investment in these underperforming
operations unless we are convinced that a superior return on asset opportunity
exists.
March 31, 1997 vs. December 31, 1996
Cash and cash equivalents increased $3.4 million mainly due to seasonal
working capital decreases occurring at IFS. Historically, IFS generates
approximately 60% of its sales in the fall, with working capital increasing in
the last six months of the year and subsequent liquidations occurring in the
first half of the following year.
The Company made final settlement and excise tax payments of
approximately $1.8 million in the first quarter of 1997 relating to several
employee benefit plans terminated in the fourth quarter of 1996. The decline
in accrued liabilities also reflects severance payments of $400,000.
-11-
12
March 31, 1997 vs. March 31, 1996
Cash flow, combining the $139,000 income with depreciation and
amortization charges of $689,000, is relatively flat with $937,000 in the first
three months of 1996. Working capital at March 31, 1997, was down $6.0 million
from March 31, 1996, primarily due to the collection of an income tax refund of
$4.1 million in the third quarter of 1996. An additional decline occurred in
the fourth quarter of 1996 when the Company terminated its defined benefit
pension plan resulting in a $2.3 million cash reversion and a noncash reduction
in prepaid pension cost of $3.7 million.
Other liabilities declined $1.2 million from March 31, 1996, due to a
final payment in the third quarter of 1996 to former shareholders and
executives at IFS.
In January 1997 two lawsuits were filed involving silicosis claims.
Costs associated with investigation of such matters are included in other
liabilities - TPI of Texas at March 31, 1997. (See "Commitments and
Contingencies.")
-12-
13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
10.21 Employment agreement between the Company and Bruce
W. Wilkinson, dated March 28, 1997.
27 Financial Data Schedule
(b) There were no reports filed on Form 8-K during the thirdfirst quarter
of 1996.
-14-1997.
-13-
1514
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TYLER CORPORATION
By: /s/Linda K. Hill
---------------------------------------------------------------------------------
Linda K. Hill, Vice President,
Controller, Treasurer and
Assistant Secretary -
principal financial officer,
principal accounting officer
and an authorized signatory
Date: November 14, 1996
-15-May 12, 1997
-14-
16
EXHIBIT15
INDEX TO EXHIBITS
Exhibit
Number ExhibitEXHIBIT
NUMBER DESCRIPTION
- ------- ------------------
12 Ratio of Earnings to Fixed Charges10.21 Employment agreement between the Company and Bruce W. Wilkinson,
dated March 28, 1997.
27 Financial Data Schedule