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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 1-10485
TYLER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2303920
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
2121 SAN JACINTO STREET 75201
SUITE 3200 (Zip code)
DALLAS, TEXAS
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 754-7800
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THE FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. YES [X] NO [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT ON MARCH 10, 1998 WAS $263,358,245.
THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING ON
MARCH 10, 1998 WAS 33,981,709.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT IS
INCORPORATED BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR
ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 28, 1998.
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TYLER CORPORATION
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . 26
Item 8. Financial Statements and Supplementary Data (see Index to
Financial Statements below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 28
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
TYLER CORPORATION FORM 10-K PAGE 1
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PART I
ITEM 1. BUSINESS.
GENERAL
In February 1998, Tyler Corporation ("Tyler" or the "Company")
acquired Business Resources Corporation ("Resources"), The Software Group, Inc.
("TSG"), and Interactive Computer Designs, Inc. ("INCODE"). These acquisitions
represent the implementation of Tyler's recently announced strategy to build an
integrated information management services, systems, and outsourcing company
servicing local governments. Resources, TSG and INCODE provide information
management solutions to approximately 200 county governments and 225 cities,
principally located in the Southwestern United States.
The Company believes that the information management industry today is
fragmented and that the county government and related markets are primarily
served by small, private companies. Given these industry characteristics and
the ability to identify suitable acquisition candidates and complete
acquisitions, the Company intends to pursue a consolidation strategy that, if
successful, could lead to significant revenue growth for the Company. The
acquisitions of Resources, TSG and INCODE will position the Company to grow
rapidly through consolidating acquisitions and give it the opportunity to
obtain a larger share of the county and city information management market. The
Company intends to pursue aggressively this consolidation strategy through an
acquisition program focused on entry into new geographic markets, expansion
within existing geographic markets and development of related services and
systems.
The Company also continues to operate through Forest City Auto Parts
Company ("Forest City"), a retailer of automotive parts and supplies. Forest
City specializes in selling mechanical and electrical hard parts, such as brake
parts, rack-and-pinion steering and fuel injectors, to do-it-yourself
customers. Forest City also stocks a wide variety of maintenance items, fluids
and accessories.
Effective October 15, 1997, Tyler sold all of the capital stock of its
former subsidiary, Institutional Financing Services, Inc. ("IFS") to I.F.S.
Acquisition Corporation.
INFORMATION MANAGEMENT SOLUTIONS
Overview
County and local governments have recognized the value of information
management services and systems to improve revenue collection, provide
increased access to information and streamline delivery of government services.
As a result, information management services and systems have become primary
vehicles for county and local governments, and their respective agencies,
seeking to
TYLER CORPORATION FORM 10-K PAGE 2
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improve the delivery of goods and services to their constituents. From
integrated tax systems to integrated criminal justice information systems, many
county and local governments have benefited significantly from the
implementation of jurisdiction-wide systems. These systems allow different
agencies to share data and provide a more comprehensive approach to information
management. Individual county and local government agencies also have
information management requirements, many of which must be tailored to the
services being provided. The annual expenditure by county governments for
information technologies and resources, excluding personnel costs, was
estimated in a Syracuse University study in 1992 at over $23 billion, with
approximately $10 billion spent annually on information management services and
data processing.
County governments were created over three centuries ago primarily to
serve the needs of rural areas. Today, county governments are the fastest
growing form of government. There are over 3,000 county governments in the
United States, plus 30 city-county governments, and county governments are
experiencing growth in expenditures estimated at approximately 5% to 10% per
year. Texas, with 254 counties, has the largest number of any state. Overall
spending by county governments nationwide increased dramatically from
approximately $115 billion in the fiscal year ended in 1989 to approximately
$148 billion in the fiscal year ended in 1992.
Traditionally, counties performed state-mandated duties, including
property assessment, record keeping (i.e., property and vital statistics), road
maintenance, administration of election and judicial functions and the
provision of welfare assistance. Today, a host of emerging and urgent issues
are confronting counties, each of which demands a service response. These
areas include solid waste disposal, clean air and water, transportation,
criminal justice and corrections, administration and finance, public safety,
health and human services and public works. Transfers of responsibility from
the federal and state governments, while empowering county and local
governments to address issues and problems directly, also place additional
service and financial requirements on these governmental units. In addition,
county governments are typically comprised of numerous individual agencies,
each fulfilling different missions and each having its own information
management requirements.
While all of these needs are not addressed by the Company's
subsidiaries, they are indicative of the environment in which the Company's
customers operate. The information management business serving county and
local governments is highly fragmented and the Company competes with several
competitors, some of whom may have greater resources than the Company, in most
areas of its information management business.
TYLER CORPORATION FORM 10-K PAGE 3
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Information Management Outsourcing Services
Resources provides a wide range of information management outsourcing
services, primarily to county and local governments. The largest component of
Resources' business is the computerized indexing and imaging of real property
records maintained by county clerks and recorders. Other services Resources
provides include records management and micrographic reproduction, as well as
information management and outsourcing and professional services required by
other county and local government units and agencies. Resources also provides
title plant update services to title companies in Texas.
Resources was formed in 1993 to serve as a holding company to acquire
businesses that provide information management outsourcing services to local
and county governments. In December 1994, Resources acquired Government
Records Services, Inc. ("GRS"), its subsidiary that provides property records
management services, and other business interests from American Title Group,
Inc., in connection with the sale of that title insurance holding company to an
unaffiliated party. GRS was founded in 1990 by four current Resources
employees each of whom has worked in the government services business for over
20 years. These key employees have long-term, established relationships with
Resources' customers and GRS has strong name recognition in Texas among county
and local governments. In August 1995, Resources acquired the business and
assets of a company that provides government information services to tax
appraisal districts in Texas. In September 1995, Resources acquired the
government outsourcing services business of BRC Holdings, Inc. ("Holdings"), in
Texas, Oklahoma, Louisiana and New Mexico, making it the largest provider of
those services in Texas. On July 31, 1997, Resources acquired the title
services division of Holdings and began providing title services to title
insurance companies throughout Texas, principally in the Dallas-Fort Worth
metropolitan area.
Property Records Services. County and local governments are
responsible for recording and indexing real property transactions, maintaining
archival copies of the filed documents and making those records available for
public inspection and copying. Historically, these governmental units have
used manual methods to record deeds and other title documents and to maintain
alphabetical indexes of transactions. Resources provides microfilm and optical
recording and computer indexing services to county and local governments
(primarily county clerk and recorder offices) to organize and automate the
recording and indexing of deeds and other title documents. Many of the records
that are filed in a county clerk's office are permanent records that form the
basis of land ownership in the county (e.g., deeds, deeds of trust, liens,
miscellaneous property records and plats). Therefore, in addition to being
accessible to the public, these records must be protected by a fail-safe backup
procedure in the event of vandalism, fire or flood. These records are recorded
by making archival quality paper copies, microfilm
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copies or imaging. Each record filed in the county clerk's or recorder's
office pertaining to a parcel of land in the county is recorded in one of these
methods and a county may have used different methods over time. In addition,
these documents vary by county and within a county as to shape, size, quality
and legibility.
Recording Services. Resources' archival print recording service
creates a high-quality film image of original documents on a custom-designed
microfilm camera owned by Resources and located in county offices. Either
Resources, or trained county government personnel, film the valuable records in
a format suitable for creating a two-sided paper copy. The film is then
processed in Resources' Kodak-certified laboratory and printed double-sided on
archive quality, rag content paper using high fusing temperatures to
permanently bond the print to the paper. The finished pages are then returned
to the county to be placed in binders for public access and use. The original
microfilm is stored in the Resources' archival film storage vault allowing
Resources to access the microfilm and reproduce pages on short notice or
reproduce entire volumes in the event of a natural or other disaster resulting
in a destruction or loss of records.
Resources' 20/20 Perfect Vision System allows an imaging system to be
integrated with an indexing application as well as a cashiering system. This
system is designed to manage the document workflow in the county clerk's or
county recorder's office. The imaging, indexing and cashiering applications
can stand alone, but are more powerful when integrated because of shared
information across the applications.
Indexing Services. In order to provide better service to the public
and to increase the ease of information access, many county clerk offices
maintain their grantor/grantee (i.e., buyer/seller) indices for property
records in computerized form. To accomplish this, information relating to the
grantor, grantee and property description must by keyed into a database from
the recorded documents.
Resources provides two types of computerized indexing services: (i)
data entry performed by Resources personnel at a central location, allowing the
county either to reduce the number of employees required for records
management, or to utilize employees on other tasks; and (ii) to a lesser
extent, data entry performed by a customer using Resources' microcomputers in
the customer's offices. With each type of indexing service, Resources provides
periodic merged updates of the cumulative grantor/grantee indices for each
county, using centralized computer and software systems located in Dallas,
Texas.
Resources has a large staff of qualified and well-trained data entry
operators specializing in creating consistent, quality indices. Based on its
property records experience, Resources believes that accuracy and consistency
are the keys to a reliable index. Resources requires its personnel to adhere
to strict data entry standards. Accuracy is ensured by having each document
entered twice in a process called "key verification" in which two operators
separately key the same information from a document
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and any discrepancies between the entries are then verified both visually and
by means of several computerized edits.
As discussed above, the indexing application can be integrated with
imaging and cashiering applications through Resources' 20/20 Perfect Vision
System to manage the document workflow in the county clerk's or county
recorder's office.
Re-creation Services. Resources also provides record re-creation
services to a number of customers. These services provide image-enhanced,
archival-quality reprints of old records, including photostatic prints, with
microfilm backup copies for improved security in case of loss by fire, theft,
water damage, or other catastrophe.
Other Services. Resources provides information management outsourcing
and professional services to numerous units and agencies of county and local
governments other than county clerks and recorders. These services concentrate
on establishing and maintaining a recurring revenue base built upon a
foundation of quality service.
Information is a critical part of government, and the increasing
difficulty of effectively managing that information has caused many
governmental units to consider outsourcing alternatives. Through its
information management outsourcing services, Resources provides direct and
complete facilities management of a county or local government's financial,
judicial, law enforcement, personnel, tax, clerical and administrative
information by, in effect, becoming its information systems department.
Outsourcing, typically negotiated under a multi-year contract, provides a
government entity with a more reliable method of controlling its data
processing budget while receiving greater automation benefits. Outsourcing
also typically results in controllable, long-term relationships with customers
and recurring annual revenues for Resources.
Under a typical outsourcing services contract, Resources assumes the
role of a customer's information systems department during the term of the
contract. In addition to operating and maintaining all centralized systems,
Resources also assumes responsibility for local area networks, client/server
systems, and personal computers, which often involve multiple users in multiple
offices. Software applications are also integrated for the benefit of the
customer. Resources' employees may either perform these services from
Resources' Dallas, Texas, office or from the customer's facilities, providing
essentially the same function as the customer's former in-house information
systems personnel. Also, Resources' management personnel become part of a
strategic planning committee along with the customer's representatives to set
the goals and objectives to be achieved during the contract.
Resources also provides professional services to appraisal districts,
counties, cities, and school districts. Under a professional services
agreement, Resources provides a variety of hardware and specialized software
for the customer's use to assist these government entities in automating their
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property tax appraisal, assessment, and collections, and voter registration
processing. In addition to installing Resources' products in the customer's
locations, training, maintenance and support are provided on an ongoing basis
along with optional services, including laser printing of tax rolls, appraisal
rolls and voter certificates, media conversions and data entry activities.
Resources receives monthly service fees from customers for the use of these
systems, resulting in recurring annual revenues.
Title Plant Services. Title companies in Texas are required to
maintain extensive files of real property data called "title plants." Title
plants contain the information needed to perform title searches in order to
underwrite title insurance policies. In Texas, a title plant must include at
least a 25-year history of all land transactions and documents affecting each
lot and tract of land in a particular county, which must be indexed so that the
transactions and documents can be searched by reference to the lot or tract.
Resources provides certain title insurance companies, primarily in the
Dallas-Fort Worth metropolitan area, with a variety of title plant update
services, including providing daily updates of their title plants. These
updates are offered in various formats, ranging from paper copies of each deed,
deed of trust, lien, plat, or other title document to installation of
microcomputer-based title plant storage products in the customer's office.
Resources owns title plants for Collin, Denton, Rockwall and Tarrant Counties
in Texas, and may from time to time sell copies of these title plants to title
companies or other firms that need title search capabilities.
A recently approved Constitutional amendment in Texas, which permits
second liens on homes to secure general home equity loans, is expected to
result in increased demand for title plant services.
Sales and Marketing. Resources markets its services through its
direct sales and marketing personnel. Resources typically enters into
long-term contracts with larger governmental units and title companies.
Although most Resources customers are small and do not have long-term
contracts, they have long-term, continuing relationships with Resources and its
sales and marketing personnel. Many of Resources' county government customers
and title plant customers have been served by Resources and its predecessors
for more than 20 years, with some customers dating back to 1962. Customer
turnover is extremely low.
Customers. No single customer accounted for 10% or more of Resources'
total revenues in 1997. The five largest customers of Resources accounted for
a total of 23% of Resources' total revenues in 1997. These customers are
currently under long-term contracts with Resources expiring in 1998 through
2002. Three of these five contracts permit early termination by the customer
in the following respective
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circumstances: (i) upon 10 days' notice to Resources for any reason; (ii) at
the end of a budget year; and (iii) upon 30 days' notice if required for the
"public good" or because of change in applicable laws.
Information Software Systems and Services
TSG and/or INCODE provide county and local governments with software,
systems and services to serve their information technology and automation
needs. TSG and INCODE integrate their own products with computer equipment
from hardware vendors, third-party database management applications and office
automation software. TSG assists counties with all aspects of software and
hardware selection, network design and management, installation and training
and on- going support and related services. INCODE provides similar services
to municipal governments.
TSG was formed in 1981 and currently services approximately 1,000
county and local government units and agencies, primarily in Texas. INCODE was
also formed in 1981 and provides information management systems and services to
250 municipal government sites throughout Texas, Oklahoma and Missouri, as well
as certain additional cities in contiguous states.
Services. TSG and INCODE provide the following services to county and
local governments:
Judicial Information Management. TSG offers a complete suite of
information management products designed to meet the needs of various aspects
of the judicial system. While each of these products may be installed on a
stand- alone basis, most of the products are generally installed in the
different government offices located in and around a county courthouse to take
full advantage of the benefits of an integrated system of products. The
ability to share information between government offices eliminates some of the
duplicate input and record keeping and helps increase the efficiency of the
offices.
Court System. TSG's Courts system is comprised of several integrated
products designed to track and manage the information involved in criminal and
civil cases. The criminal and civil case management applications track cases,
process fines and fees, generate judgment and sentencing paperwork in
conjunction with criminal cases, generate numerous citations, notices and forms
required in a civil case and generally track the status of each criminal and
civil case in the court system. TSG's court administration application manages
court calendars, coordinates judges' schedules and generates court dockets.
The criminal justice information application accommodates local and state level
reporting and electronic submission of case dispositions. An application
designed for Justices of the Peace processes traffic tickets and other limited
jurisdiction court matters. Finally, TSG's applications for the district
attorney or prosecutor of a county automate the investigation, tracking, and
filing of cases.
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INCODE also offers a comprehensive municipal court management system
designed to fully automate the processing of citations, fees, warrants, bonds,
and other tasks related to a city's municipal court operations.
Law Enforcement System. The applications comprising TSG's Law
Enforcement system are designed to automate all aspects of a sheriffs' agency.
Applications for jail management include booking and releases, as well as the
jail commissary. The medical processing application tracks inmates' medical
histories and generates invoices to inmates or third parties. TSG's incident
and offense reporting application tracks officers' activities, categorizes
reporting obligations, and prepares state and federal Uniform Crime Reports.
Finally, the warrant tracking application helps a county sheriffs' office track
outstanding and closed arrest warrants. In addition, TSG offers a Computer
Aided Dispatch/Emergency 911 system to track calls and the status of emergency
response vehicles, interface with local and state searches and generally assist
dispatchers in processing emergency situations.
Other Judicial Information Products. TSG markets a variety of other
specialized products in conjunction with the Courts system and the Law
Enforcement system. Both systems are image-enabled using TSG's ableIMAGE
application and the Law Enforcement system is video-enabled using ableVIDEO. A
jury selection application assists election officials in the selection and
notification of jurors, processing of jury payments, and management of juror
histories. TSG's hot check processing application assists in the collection of
bad checks, tracking of payments and fines and issuance of disbursements to
vendors. Applications relating to adult and juvenile probation track
probationers, collect fines and fees, maintain probation history and generate
required state reporting.
Utility Customer Information System. INCODE offers integrated
applications designed to automate the billing and collections of the various
metered utilities (i.e., water, gas, electricity) and non-metered services
(i.e., sanitation, sewer) provided by municipal governments. This system
allows INCODE customers to track invoicing, cash collections, work orders and
automated meter readings.
Property Appraisal and Tax. TSG has a comprehensive system for the
automation of Texas Central Appraisal Districts and assessors' and appraisers'
offices in Oregon and Washington. The Automated Central Appraisal District
system (the "ACAD system") is designed to automate the appraisal and assessment
of real and personal property including record keeping, mass appraisal, inquiry
and protest tracking, appraisal and tax roll generation, tax statement
processing and electronic state level reporting. The ACAD system can also be
image- and video-enabled using TSG's ableIMAGE and ableVIDEO products for the
storage of the many property related documents involved (including exemption
applications, personal property renditions, and agricultural or special use
application), as well as for the on-line storage of electronic photographs of
properties for use in defending values in protest situations.
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TSG's ACAD system can be used in connection with TSG's Automated Tax
Collection system (the "ATC system"), which supports tax billing and collection
agencies, including counties and city, school tax offices, as well as special
collection agencies. The ATC system supports billing, collections, lock box
operations, mortgage company electronic payments, and provides daily, monthly
and annual audit and distribution reporting.
Specialized Products. TSG markets an integrated fund accounting
system that conforms to government auditing and financial reporting
requirements and generally accepted accounting principles. This system
includes modules for accounts payable, budgetary accounting (general ledger),
payroll/personnel, purchase order, fixed assets, revenues, bank manager and
human resources. This system can operate in any government agency, although it
is primarily installed in county auditor and county treasurer offices. INCODE
provides a similar product which is mainly installed in city governments and
municipal utility districts and authorities.
TSG also offers other specialized products that allow the government
offices in and around a courthouse to further integrate and automate their
operations. Through the child support application, TSG customers are able to
track child support cases, payments, and disbursements. The voter registration
application tracks registered voters, generates voter cards, prepares precinct
rolls in support of elections and interfaces with other state systems. TSG
also offers an absentee voting application to assist in the management and
tracking of absentee voters, as well as an election night system to assist in
the tabulation of election results from various precincts. A motor vehicle
registration application is available from TSG to process fees and issue motor
vehicle registrations. Finally, TSG's indexing application allows government
officials to index all official public records such as deeds, birth and death
certificates and commissioner's court minutes.
INCODE also offers similar products that allow city governments to
further integrate and automate their operations. Through its city hall
application, INCODE customers are able to maintain the records for cemeteries,
ambulance billing and fleet maintenance. In addition, INCODE markets a suite
of applications designed to automate the various responsibilities of the code
enforcement department of a city, including tracking of citizen complaints,
permits and inspections and business licenses.
Imaging and Voice Products. TSG markets a variety of products that
interface with and enhance its other products. TSG's ableIMAGE is an
electronic document imaging system that integrates the scanning, retrieval, and
display of document images into all of TSG's applications where needed. For
example, the ableIMAGE application integrates with both the Court and Law
Enforcement systems by allowing court related paperwork and documents to be
scanned and stored as part of an electronic case folder designed to improve
access to documents and reduce the need to distribute paper copies.
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TSG's ableVIDEO application allows a customer to add an electronic
video imaging system which integrates the capture and display of pictures with
all of TSG's applications. For example, the Law Enforcement system
applications are video image-enabled using ableVIDEO to provide video mug shots
of inmates at critical locations for identification and to allow investigators
to compile electronic video line-ups.
The Interactive Voice Response system developed by TSG interfaces with
the ACAD system to allow retrieval of basic property information and interfaces
with the child support system to allow retrieval of child support payment
information using any touch-tone telephone.
In addition, appropriate TSG products support bar coding for tracking
of civil and criminal case folders, tracking of inmates, quick check-in of
jurors, and rapid processing of tax statements.
Internet Web Development. TSG has developed ableSERVE and a variety
of other specialized application database interfaces to allow the public
records portion of information contained in the various TSG systems to be made
available to the public via the Internet. TSG also provides both web site
development and web server hosting services for county customers.
Sales and Marketing. TSG's sales are primarily performed by its
direct sales and marketing personnel who are presently organized into five
sales territories within the states of Texas and Georgia. Sales for other
states and national account opportunities are managed by TSG's marketing
manager except for the states of Oregon and Washington which are currently
handled by TSG's Northwest Manager. Other in-house staff focus on add-on
sales, forms, supplies and professional services.
TSG's sales of most new systems are typically to other offices or
organizations in counties already using TSG applications and systems, but sales
are also generated from referrals from adjoining counties, relationships
established between sales representatives and county officials, contacts at
trade shows, direct mailings and direct contact from a prospect already
familiar with TSG. TSG is active in virtually all state-level county
government associations, including annual meetings, trade shows and educational
events. In addition, TSG generally hosts customer luncheons at larger,
statewide meetings such as the Texas Association of Appraisal Districts and the
Texas County and District Clerks Association. TSG also hosts a user's group
meeting for all TSG customers about once every 18 months, which provides an
opportunity for customers to learn more about TSG products and an opportunity
for feedback.
INCODE's sales are primarily performed by its direct sales and
marketing personnel who are presently organized into four sales territories
within the states of Texas, Oklahoma, Missouri, New Mexico, Colorado, Kansas,
and Louisiana. INCODE's marketing manager is responsible for sales in other
states. Other in-house staff focuses on add-on sales of products and services
to existing customers.
TYLER CORPORATION FORM 10-K PAGE 11
13
Sales leads are derived from various sources including referrals from
customers, consultants, and auditors, regional software demonstration seminars,
direct mail, the Internet, telemarketing and trade shows and conferences.
INCODE also hosts an annual Education Forum, which provides an opportunity for
customers to learn more about INCODE products and services.
Customers. TSG's customers consist primarily of county government
offices, including the auditor, treasurer, tax assessor/collector, county
clerk, district clerk, county and district court judges, probation officers,
sheriffs' office and appraisal districts. No single customer (county
government office) accounted for more than 5%, and no single county accounted
for more than 10%, of total revenues for the fiscal year ending October 31,
1997. Due to the nature of TSG's sales as installation of countywide systems,
a county customer representing a significant portion of revenues in one year is
generally not a source of significant revenues the following year. Contracts
for products and services are generally implemented over six months to one year
with annually renewing service and software update agreements thereafter.
Currently, approximately one-third of TSG's revenues are attributable to
ongoing support and maintenance agreements. Although by the terms of these
agreements either TSG or the customer are entitled to terminate upon 90- days'
notice after the first anniversary of the agreement, historically most
agreements are automatically renewed annually.
INCODE's market is primarily small to mid-sized municipal governments,
typically a city government in the 3,000 to 35,000 population range. The
average population of new customer sites is increasing. INCODE added a city
with a population of 110,000 to its customer base in 1997. In addition to city
government customers, INCODE has approximately twenty municipal utility
districts as customers. No single customer (municipal governmental entity)
accounted for more than 5% of total revenues for the year ended December 31,
1997.
Customer turnover for both TSG and INCODE is very low.
Competition
A number of local and regional businesses provide or offer at least
some of the products and services provided by the Company through Resources,
TSG or INCODE. In addition to third-party vendors, Resources, TSG and INCODE
occasionally compete with centralized information service departments of county
or local governments to provide products or services to other departments and
often must persuade the end-user department to discontinue the service by its
own personnel and outsource the service. The ability of TSG and INCODE to
offer an integrated system of applications for several offices is often a
factor in their favor. In addition, county and local governments are often
required to put their contracts up for competitive bid on a periodic basis.
Competition may be increased
TYLER CORPORATION FORM 10-K PAGE 12
14
if a customer seeks bids on only one aspect of its system (such as imaging or
indexing or voter registration) rather than bidding all of the services as an
integrated whole. Single function bidding generally results in more bidders
and more intense price competition. GRS and TSG are Qualified Information
Systems Vendors for the Texas General Services Commission on state purchasing
contracts and, as a result, in some cases county governments offices may
contract with GRS or TSG directly without a bid process.
For Resources, competition typically is based on price, service and
technological capabilities or the ability to modify the products and services
to be provided to accommodate the requirements of the customer. For TSG and
INCODE, competition typically is based on confidence in the supplier, service,
technological capabilities or the ability to modify and price.
As a result of various acquisitions and sales of businesses by
Resources, it has contractual commitments not to compete in the property
records services business in the Southeastern United States until September
1998. Additionally, in connection with Resources' acquisition of the title
services division of Holdings in July 1997, Resources acquired the Dallas,
Texas, data processing center of Holdings and agreed to provide to Holdings
certain data entry services for customers of property records services provided
by Holdings. Resources also agreed not to solicit these customers, which are
located primarily in the Northeastern and Southeastern United States, prior to
August 1999.
AUTOMOTIVE AFTERMARKET PARTS
Forest City, headquartered in Cleveland, Ohio, is a retailer of
automotive parts and supplies. The company specializes in selling mechanical
and electrical hard parts, such as rack-and-pinion steering and fuel injectors
to do- it-yourself customers. Forest City also stocks a wide variety of
maintenance items, fluids and accessories. Known for extensive inventories,
Forest City's stores use the slogan, "Stop looking! The odds are we have it."
Each Forest City location maintains inventories which average 20,000
parts for both domestic and foreign cars and light trucks. Company stores
carry deeper inventories than most competitors and stock items that best suit
the vehicle mix in their area. Major Forest City suppliers include Allied
Signal Inc., Kem Manufacturing Company, TRW Inc. and Tenneco Automotive.
Inventories carried by Forest City are generally available from multiple
sources.
Quality customer service provided by knowledgeable store personnel is
fundamental to the company's strategy. Through on-the-job and formal training
programs, Forest City's employees learn to assist customers in diagnosing
specific problems and selecting the correct parts. The company's use of
incentive compensation and opportunities for promotion allow Forest City to
hire and motivate high-quality individuals.
TYLER CORPORATION FORM 10-K PAGE 13
15
Forest City was founded in 1927 and served the Akron area with one
store until 1961. At the end of 1981, the company had 31 locations in
operation. Forest City ended 1997 with 71 locations, including ten new stores
added in October 1997 in the Chicago and Milwaukee areas. Open seven days a
week, each location operates extended hours to provide maximum customer
convenience.
Sources estimate total annual sales attributable to the do-it-yourself
portion of the auto-parts aftermarket at approximately $30 billion. Auto-parts
retailing is a fragmented market with major competitors in Forest City's
markets including AutoZone, Inc., Parts America, a division of Western Auto,
Murray's Discount Auto Stores, Inc., Pep Boys - Manny, Moe & Jack and Trak Auto
Corp. Additional competition comes from jobbers who sell principally to
wholesale accounts and, to a lesser extent, from discount and general
merchandise stores.
The auto-parts retailing industry is intensely competitive. Factors
contributing to competitive pressures are the slowing growth of the
do-it-yourself market as a result of longer-lived automobile parts, increased
complexity of modern cars and higher incidences of leasing. Virtually all cars
and trucks now have computer-controlled engines, as well as complex electronic
fuel injection and ignition systems.
Employees. At December 31, 1997, the Company had 787 employees, of
which 779 were employed by Forest City. The number of employees at December
31, 1997, does not include the employees added with the acquisitions of
Resources, TSG and INCODE on February 19, 1998.
ITEM 2. PROPERTIES.
At December 31, 1997, the Company occupied approximately 420,000
square feet of floor space which is primarily utilized in retail facilities.
As of December 31, 1997, Forest City operated 71 stores in Illinois,
New York, Ohio, Pennsylvania and Wisconsin, most of which were leased,
generally under leases of less than seven years' duration. Store sizes range
from 4,300 to 7,000 square feet with the typical store located in a
free-standing building of approximately 6,000 square feet.
Property descriptions are as of December 31, 1997, and do not include
properties added with the acquisitions of Resources, TSG and INCODE on February
19, 1998.
ITEM 3. LEGAL PROCEEDINGS.
The New Jersey Department of Environmental Protection and Energy
("NJDEPE") has alleged that a site where a former affiliate of Tyler Pipe
Industries, Inc. (a wholly-owned subsidiary of the Company known as TPI of
Texas, Inc. ("TPI")), Jersey-Tyler Foundry Company ("Jersey-Tyler"), once
operated a foundry contains lead and possible other priority pollutant metals
and may need on-site and off-site remediation. The site was used for foundry
operations from the early part of this century to 1969
TYLER CORPORATION FORM 10-K PAGE 14
16
when it was acquired by Jersey-Tyler. Jersey-Tyler operated the foundry from
1969 to 1976, at which time the foundry was closed. In 1976, Jersey-Tyler sold
the property to other persons who have operated a salvage yard on the site.
Based on a remedial investigation conducted by TPI, the NJDEPE has demanded TPI
remediate the foundry site and the contamination in the adjacent stream and
nearby lake. TPI has offered to conduct a feasibility study to assess
remediation options, including costs, but has not agreed to commit to further
action at this time. TPI never held title to the site and denies liability.
In connection with the sale of the assets of TPI to Ransom Industries,
Inc. (formerly known as Union Acquisition Corporation) (the "Buyer"), an
affiliate of McWane, Inc., on December 1, 1995, pursuant to an Acquisition
Agreement among the Company, TPI and the Buyer (the "Acquisition Agreement"),
the Buyer agreed to manage and direct the prosecution or defense of these
matters on behalf of TPI. In addition, the Buyer agreed to reimburse TPI the
first $3,000,000 of certain costs and expenses incurred in connection with the
investigation or remediation of the site, and one-half of such expenses in
excess of $3,000,000. Under any circumstances, however, the maximum amount
that the Buyer agreed to reimburse TPI in connection with this matter is
$6,500,000. As of December 31, 1997, the Buyer has reimbursed TPI
approximately $500,000 which represents principally all the expenses to-date
associated with the investigation of the site. The Buyer, 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 have initially denied
coverage. TPI expects to proceed against such insurance carriers seeking
coverage of remediation costs. Recoveries from predecessor companies and
insurance companies are shared by TPI and the Buyer.
Pursuant to the Acquisition Agreement, the Buyer agreed to manage and
direct the prosecution or defense of certain matters on behalf of TPI, and to
reimburse related costs and expenses. The Buyer 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 the Buyer agreed to reimburse TPI in connection with all of these
matters excluding Jersey-Tyler is $8,000,000. The Buyer did not agree to
reimburse TPI for, among other things, (a) liabilities relating to the use,
handling, manufacture or sale of products containing asbestos or silica, (b)
claims of individuals for health problems such as (but not limited to)
silicosis, or (c) offsite environmental liabilities. Although it is impossible
to predict the outcome of legal or regulatory proceedings, 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 the Buyer pursuant to the Acquisition Agreement or have been
adequately provided for in the financial statements.
TYLER CORPORATION FORM 10-K PAGE 15
17
Between 1968 and December 1995, TPI owned and operated foundries. TPI
is, and expects to continue to be, involved in different types of litigation
for which it will not be reimbursed by the Buyer. Beginning in February 1997,
over fifty former employees of TPI have filed a series of separate personal
injury lawsuits which allege that they were exposed to silica, asbestos and/or
other industrial dusts during their employment at TPI. Named as defendants
with TPI and Swan Transportation Company ("Swan"), another wholly-owned
subsidiary of the Company, are major suppliers of asbestos, sand and industrial
respirator devices. These codefendants have been sued under product liability
theories of recovery. The plaintiffs seek to recover money damages for the
personal injuries they allegedly suffered as a result of their occupational
exposure to silica, asbestos and other industrial dusts. No discovery has
taken place, and it is not possible to predict the outcome at this time. While
the Company plans to defend this litigation vigorously, the ultimate outcome is
uncertain.
On September 25, 1997, a former employee of a Forest City store
brought suit against Forest City and the Company in the Supreme Court of Erie
County, New York. The plaintiff alleges that employees of Forest City falsely
accused her of falsifying overtime entries, terminated her employment on that
basis, filed a criminal report based upon the false overtime entries and forced
her to sign a restitution agreement. Based upon these allegations, the
plaintiff is suing for slander, intentional abuse of the criminal law
enforcement process and intentional and negligent infliction of emotional
distress. The plaintiff is seeking compensatory damages of at least $1,500,000
and punitive damages of at least $3,000,000. The Company believes the claims
are without merit and intends to vigorously defend this action.
Other than ordinary course, routine litigation incidental to the
business of the Company and except as described herein, there are no material
legal proceedings pending to which the Company or its subsidiaries are parties
or to which any of its properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
TYLER CORPORATION FORM 10-K PAGE 16
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Tyler common stock is traded on the New York Stock Exchange. At
December 31, 1997, Tyler had approximately 3,500 stockholders of record. A
number of the Company's stockholders hold their shares in street name;
therefore, there are substantially more than 3,500 beneficial owners of its
common stock.
The following table sets forth for the calendar periods indicating the
high and low sales price per share of Tyler common stock as reported on the New
York Stock Exchange.
High Low
---- ---
1996: First Quarter . . . . . . . . . . . . . . $ 3 $ 2 1/4
Second Quarter . . . . . . . . . . . . . . 2 7/8 2 1/8
Third Quarter . . . . . . . . . . . . . . 2 3/4 1 3/8
Fourth Quarter . . . . . . . . . . . . . . 2 1/4 1 3/8
1997: First Quarter . . . . . . . . . . . . . . $ 2 3/8 $ 1 1/2
Second Quarter . . . . . . . . . . . . . . 2 1/4 1 3/8
Third Quarter . . . . . . . . . . . . . . 3 3/4 2
Fourth Quarter . . . . . . . . . . . . . . 5 7/8 3 3/8
1998: First Quarter (through
March 10, 1998) . . . . . . . . . . . . . $ 8 3/4 $ 5 5/16
No cash dividends were paid in 1997 or 1996.
TYLER CORPORATION FORM 10-K PAGE 17
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ITEM 6. SELECTED FINANCIAL DATA.
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
(DOLLARS AND AVERAGE SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net sales ............................... $ 76,429 $ 85,074 $ 86,893 $ 91,849 $ 84,464
Costs and expenses:
Cost of sales ........................ 43,947 49,275 (1) 51,126 53,626 46,566
Selling, general and administrative .. 29,887 41,162 (1) 34,531 36,229 33,695
Amortization of goodwill ............. -- 1,101 1,112 1,111 1,092
Depreciation and amortization ........ 2,057 1,368 1,060 895 770
Interest (income) expense, net ....... (830) (277) 1,003 678 85
Goodwill and other intangibles
impairment charge ................. -- 14,789 (2) -- -- --
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before taxes .............. 1,368 (22,344) (1,939) (690) 2,256
Income tax (benefit) .................... 197 (3,037) (497) (24) 1,308
-------- -------- -------- -------- --------
Income (loss) from continuing
operations ........................... $ 1,171 $(19,307) $ (1,442) $ (666) $ 948 (3)
======== ======== ======== ======== ========
Earnings (loss) per common share
from continuing operations(4) ........ $ .06 $ (.97) $ (.07) $ (.03) $ .05 (3)
======== ======== ======== ======== ========
Weighted average number of common
shares outstanding ................... 20,498 19,876 19,869 19,925 20,556
AS OF DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Total assets ..................................... $ 54,895 $ 59,390 $123,512 $197,800 $143,171
Long-term debt ................................... -- -- -- 63,500 --
Shareholders' equity ............................. 31,403 32,041 93,362 110,298 117,964
(1) Cost of sales and selling, general and administrative include pretax
restructuring and other charges of $612 and $6,638, respectively (see Note
11 in Notes to Consolidated Financial Statements).
(2) Pretax charge for write-off of goodwill and other intangibles at Forest
City (see Note 12 in Notes to Consolidated Financial Statements).
(3) Before cumulative effect of change in accounting principles for income tax
resulting in a credit of $1,127, or $.05 per share.
(4) Earnings (loss) per share represents basic earnings per share. When the
effect of dilutive shares are considered, there is no change from basic
earnings per share (see Note 9 in the Notes to Consolidated Financial
Statements).
TYLER CORPORATION FORM 10-K PAGE 18
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The continuing operations information discussed below excludes the results
of operations of IFS sold in October 1997 and TPI sold in December 1995.
Interest expense has been charged to discontinued operations based on net
assets associated with IFS and TPI at the average borrowing rate during each
period. Income tax (benefit) has been charged (credited) to discontinued
operations based on the income tax (benefit) resulting from inclusion of the
discontinued operations segment in the Company's consolidated federal income
tax return. Continuing operations at December 31, 1997, 1996 and 1995
principally consisted of Forest City. The Company's results of operations do
not include the results of operations of Resources, TSG or INCODE, which were
acquired in February 1998.
Subsidiary operating profits, as used herein, exclude amortization and
write-off of goodwill and other intangibles arising from acquisitions and
restructuring and other charges recorded in the fourth quarter of 1996.
1997 COMPARED TO 1996
Tyler reported income from continuing operations of $1.2 million, or $.06
per diluted share in 1997, compared to a loss of $19.3 million, or $.97 per
diluted share in 1996. Loss from continuing operations in 1996 includes pretax
charges of $14.8 million to write off goodwill and other intangibles at Forest
City and $7.3 million of restructuring and other charges.
Forest City's same store sales were down 9% in 1997 and operating profit
declined to $3.5 million in 1997 from $3.8 million in 1996 before restructuring
and other fourth-quarter charges. Although gross margin on a yearly basis was
down slightly at 42.5% in 1997 compared to 42.8% in 1996 before restructuring
and other charges, the fourth quarter 1997 gross margin declined to 41.2%.
Both the decline in the fourth quarter margin and sales for the year reflect
increased competition in the markets Forest City serves.
Selling, general and administrative expenses in 1996 included $1.1 million
of goodwill and other intangibles amortization and $3.0 million of
restructuring and other charges. In December 1996, the company wrote-off all
goodwill and other intangibles. Excluding these charges, Forest City's
selling, general and administrative expenses as a percent of sales in 1997 were
flat compared to 1996.
TYLER CORPORATION FORM 10-K PAGE 19
21
Forest City completed a transaction on October 8, 1997, which added ten
stores, primarily in the Chicago and Milwaukee areas. The company purchased
existing inventory at a discount and assumed leases on these stores. The cost
of this transaction, which includes the cost of additional inventory purchased
after the acquisition, was approximately $3.2 million. These additional stores
are expected to impact Forest City's operations in a positive manner.
Historically, same-store sales comparisons have been more favorable in the
Chicago and Milwaukee areas as opposed to other markets served by Forest City.
The auto-parts retailing industry is intensely competitive. Factors
contributing to competitive pressures are the slowing growth of the
do-it-yourself market as a result of longer-lived automobile parts, increased
complexity of modern cars and higher incidences of leasing. Virtually all cars
and trucks now have computer-controlled engines, as well as complex electronic
fuel injection and ignition systems.
As a result of the changes in the market place, the auto-parts retailing
industry is quickly consolidating. This consolidation trend led to lower sales
volume in 1997 and is expected to continue in 1998 with the larger retailers
gaining market share at the expense of jobbers, smaller independent operators
and less specialized mass merchandisers, which lack the economies of scale in
purchasing and distribution available to larger retail chains. Although this
trend is expected to negatively impact sales volume in 1998, Forest City
anticipates limiting the impact on operating margin by more closely monitoring
payroll and other store costs. In an effort to lower inventory costs, in the
fourth quarter of 1997, Forest City negotiated several new vendor contracts,
which resulted in slightly lower costs and more favorable payment terms.
As part of a new strategy to limit the negative sales impact of new competition,
Forest City opened its first new built-to-specifications store in February 1998.
The new 5,800 square foot free-standing store, which replaced an outdated
facility in Akron, Ohio, is the prototype for future Forest City stores. In
addition, the company plans to build a similar new store in the Chicago area in
April 1998 and remodel at least three of their more profitable stores to
resemble the new prototype. Furthermore, Forest City intends to remodel other
stores as soon as it becomes known that a major competitor plans to enter or
expand in the company's markets. Despite these efforts, the Company cannot
provide any assurances that this trend will not negatively impact earnings. In
addition, in 1998, Forest City will review the performance of existing stores,
which may result in the relocation or closure of some unprofitable stores.
After excluding restructuring and other charges recorded in the fourth
quarter of 1996, corporate expense in 1997 declined approximately 9% compared
to 1996, primarily due to reduced employee costs.
TYLER CORPORATION FORM 10-K PAGE 20
22
The Company's income tax expense of $.2 million in 1997 was less than the
amount computed by applying the statutory rate to its income from continuing
operations due to the utilization of capital losses and the effect of state
income taxes.
1996 COMPARED TO 1995
For the year ended December 31, 1996, Tyler Corporation had a pretax loss
from continuing operations of $22.3 million. Sales fell 2% for the year. The
pretax loss from continuing operations includes a pretax charge of $14.8
million to write off goodwill and other intangibles at Forest City and $7.3
million of restructuring and other charges.
The continued decline in the financial results of Forest City in the second
half of 1996 and a related strategic and operational review resulted in an
evaluation of goodwill and other intangibles for possible impairment. The
underlying factors contributing to the decline in financial results included
changes in the marketplace and increased competition. The Company calculated
the present value of expected cash flows to estimate the fair value of Forest
City.
In the fourth quarter of 1996, the Company recorded $1.7 million of
restructuring and other pretax charges in relation to a restructuring plan to
reduce costs and increase future operating efficiency by reducing the work
force, closing and relocating Forest City stores and reducing corporate office
space requirements. Also in the fourth quarter, the Company recorded pretax
charges of $3.7 million, which included vendor restocking charges for on-hand
inventory items at Forest City, the noncash write-off of certain fixed assets
and software, which Forest City decided in the fourth quarter of 1996 that it
would no longer utilize in its business, and other obligations relating to the
termination of former employees. In addition, the Company terminated its
defined benefit pension plan in the fourth quarter of 1996 resulting in a net
charge of $1.9 million.
Total restructuring and other charges recorded in the fourth quarter of 1996
were $7.3 million of which $.6 million is included in cost of sales and $6.7
million is included in selling, general and administrative expenses.
Same-store sales at Forest City advanced 5% in the first half of 1996;
however, competitors aggressively opened new stores in Forest City's markets in
the third quarter resulting in a 4% decline in same-store sales comparison for
the second half.
Forest City's operating profit declined from $4.0 million in 1995 to $3.8
million in 1996 before restructuring and other fourth-quarter 1996 charges.
Gross margin was up 1.6% in the year-to-year comparisons. Installation of an
electronic point-of-sale system ("POS") early in 1996, tightened security in
the stores and a management program targeting stores with gross margins below a
minimum standard contributed to this increase. While better productivity
lowered operating payroll as a percentage of sales
TYLER CORPORATION FORM 10-K PAGE 21
23
by 1.5%, these savings were more than offset by higher costs associated with
the new information systems.
After excluding restructuring and other charges, Tyler had much lower
corporate expense for 1996 compared to 1995. Savings came from a gain through
sale of an asset and lower personnel expense. This reduction, coupled with
interest income as opposed to interest expense in 1995, lowered the pretax loss
for 1996.
LIQUIDITY
Tyler ended 1997 with cash and cash equivalents of $8.9 million, a decrease
of $6.5 million from year-end 1996. The Company received $5.8 million in
October 1997 from the sale of IFS and recorded a receivable of $2.6 million for
the remaining purchase price. The $2.6 million receivable was subsequently
collected in January 1998.
In October 1997 the Company added ten stores to the Forest City network of
retail automotive parts stores. Forest City purchased existing inventory at a
discount and assumed leases on these stores, primarily in the Chicago and
Milwaukee areas. The cost of this transaction, which included the cost of
additional inventory purchased after the acquisition, was approximately $3.2
million.
In September 1997, Richmond Partners, Ltd., a Houston-based investment
partnership of which Louis A. Waters is the managing general partner, invested
$3.5 million in a package of Tyler securities consisting of two million common
shares and a warrant to acquire two million common shares with an exercise
price of $2.50 per common share. Mr. Waters is currently Chairman of the Board
of the Company.
In connection with Bruce W. Wilkinson's resignation as a director and
President and Chief Executive Officer of the Company effective October 8, 1997,
the Company purchased 447,609 shares of the Company's common stock owned by Mr.
Wilkinson for $1.5 million. Mr. Wilkinson purchased these shares in the second
quarter of 1997 as a condition of his employment. In addition, the Company
also made payments to Mr. Wilkinson of approximately $.3 million relating to
various stock compensation plans.
In 1996, several benefit plans maintained for certain key employees of the
Company and TPI were terminated which resulted in a final settlement payment of
$1.3 million in January 1997. This amount was accrued at December 31, 1996.
The Company also made payments of approximately $1.1 million in connection with
workforce reductions which were included in restructuring and other charges in
the fourth quarter of 1996.
In February 1998, the Company entered into a three-year bank credit
agreement in an amount not to exceed $50.0 million, including a $5.0 million
sublimit for the issuance of standby and commercial
TYLER CORPORATION FORM 10-K PAGE 22
24
letters of credit (the "Senior Credit Facility"). The proceeds of the Senior
Credit Facility are intended to be used to fund acquisitions and meet
short-term working capital needs and capital expenditures which may arise from
time to time. Borrowings under the Senior Credit Facility bear interest at
either the bank's prime rate plus a margin of zero to .25% or the London
Interbank Offered Rate plus a margin of 1% to 2%, depending on the Company's
ratio of indebtedness to earnings before interest, taxes, depreciation and
amortization. The credit facility is secured by a pledge of the common stock
of all present and future operating subsidiaries and is guaranteed by all such
subsidiaries. Under the terms of the Senior Credit Facility, the Company is
required to maintain certain financial ratios and other financial conditions.
The Senior Credit Facility also prohibits the Company from incurring certain
additional indebtedness, limits certain investments, advances or loans and
restricts substantial asset sales, capital expenditures and cash dividends.
On February 19, 1998, the Company acquired Resources, TSG and INCODE. The
combined purchase price for these companies was 12.2 million shares of Tyler
common stock and approximately $41.3 million of cash and debt assumption, which
includes $5.7 million loaned to Resources for working capital purposes on
December 29, 1997. The Company financed the acquisitions utilizing funds
available under its Senior Credit Facility.
The Company is from time to time engaged in discussions with respect to
selected acquisitions and expects to continue to assess these and other
acquisition opportunities as they arise. The Company may also require
additional financing if it decides to make additional acquisitions. There can
be no assurance, however, that any such opportunities will arise, any such
acquisitions will be consummated or that any needed additional financing will
be available when required on terms satisfactory to the Company.
Tyler entered into a tax-benefit transfer lease in 1983 pursuant to which it
is obligated to make income tax payments totaling $4.5 million over the next
four years beginning in 1998. This obligation is included in deferred income
taxes at December 31, 1997.
Management believes adequate cash resources will be available for the next
12 months to fund capital spending programs and working capital needs.
TYLER CORPORATION FORM 10-K PAGE 23
25
CAPITALIZATION
Historically, Tyler's capital structure has varied depending on the
Company's strategies and actions. Acquisitions for cash and repurchases of
Tyler common stock generally have increased debt, while cash-generating
capabilities of Tyler's operating subsidiaries and dispositions of companies or
assets have provided funds to reduce debt.
Total capitalization at the end of 1997 consisted of $31.4 million in
shareholders' equity. The Company had $2.0 million of letters of credit
outstanding at December 31, 1997, which were released in January 1998.
While the Company has no material commitments for capital expenditures,
Tyler anticipates that 1998 spending for Forest City could exceed last year's
level of $1.2 million. In addition, the combined capital expenditures of
Resources, BRC and INCODE could exceed $2.5 million.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Thus, a date using
"00" is recognized as the year 1900 rather than 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
The majority of the Company's computer hardware and software susceptible to
this condition is utilized by Forest City, specifically in its electronic POS
and perpetual inventory systems, which were installed in early 1996. In
conjunction with the purchase of the hardware and software, the vendor agreed
to sustain the cost of converting the systems to be Year 2000 compliant.
The project is estimated to be completed not later than second quarter of
1998. The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of Forest City.
Forest City has yet to commence discussions with its suppliers and customers
concerning their status with regard to the Year 2000 Issue. Forest City will
begin these inquiries during 1998. As Forest City does not place significant
reliance on any single supplier or customer, management believes that a
supplier or customer negatively impacted by the Year 2000 Issue will not have a
material adverse effect on operations.
With regard to the acquisitions of Resources, TSG and INCODE, which occurred
subsequent to December 31, 1997, the Company does not anticipate significant
operational problems. The companies
TYLER CORPORATION FORM 10-K PAGE 24
26
have either completed or substantially completed their conversions to be Year
2000 compliant. Thus, the Company does not anticipate the Year 2000 Issue to
have a material impact on the normal operations of the companies.
IFS DIVESTITURE
Effective October 15, 1997, the Company sold all of the capital stock of its
subsidiary, IFS, which provided products for fund-raising programs, to I.F.S.
Acquisition Corporation for approximately $8.4 million. This sale resulted in
a loss on disposal of approximately $2.5 million. The estimated loss on
disposal includes estimates regarding the value of certain assets that are
subject to change. Management does not expect these estimates to have a
significant impact on the estimated loss on disposal. Proceeds consisted of
approximately $5.8 million in cash received at closing and approximately $2.6
million received in January 1998. The results of IFS are included in the
Company's consolidated financial statements as discontinued operations.
TYLER PIPE DIVESTITURE
On December 1, 1995, the Company sold substantially all of its assets to
the Buyer, and the Buyer assumed substantially all the liabilities of TPI. In
the same transaction, the Company sold all of the outstanding capital stock of
Swan (which was repurchased in May 1997) to the Buyer. The results of these
entities and the effect of subsequent changes in estimates of retained
contingent liabilities are included as discontinued operations. The assets TPI
sold and the liabilities the Buyer assumed included all those relating to TPI's
business of manufacturing and marketing cast iron pipe and fittings, excluding
cash and certain other assets and liabilities. Swan was a motor- carrier
company that provided transportation services to TPI prior to the closing.
Based on a July 1, 1995, balance sheet, the Buyer paid a net amount of $66.1
million for the assets of TPI and the stock of Swan, of which $58.5 million was
received on December 1, 1995, and the net remaining payment was received in
January 1996. In addition, Tyler Pipe Industries, Inc. distributed cash of
approximately $17.7 million to the Company from July 1, 1995, through December
1, 1995.
Between 1968 and December 1995, TPI, together with its predecessors and
subsidiaries, 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. See "Legal
Proceedings." Costs associated with investigation of such matters are included
in other liabilities at December 31, 1997 and 1996.
TYLER CORPORATION FORM 10-K PAGE 25
27
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
historical or current facts, including, without limitation, statements about
the business, financial condition, business strategy, plans and objectives of
management and prospects of the Company are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, such forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from these expectations. Such risks and uncertainties include,
without limitation, changes in product demand, turnover in the sales force, the
availability of products, changes in competition, economic conditions, various
inventory risks due to changes in market conditions, decrease in demand for
information management services or record services generally or by governmental
authorities, new technological developments, decrease in demand for aftermarket
automotive parts, 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 actual results to
differ materially from those indicated by the forward-looking statements. When
used in this report, the words "believes," "plans," "estimates," "expects,"
"anticipates," "intends," and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, together with the
report of independent auditors, are included on pages 33 through 55 of this
report. Financial statement schedules have been omitted because the required
information is contained in the consolidated financial statements or related
notes, or such information is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
TYLER CORPORATION FORM 10-K PAGE 26
28
PART III
The information required by Items 10 through 13 of Part III is incorporated
herein by reference from the indicated sections of Tyler's definitive proxy
statement for its annual meeting of stockholders to be held on April 28, 1998
(the "Proxy Statement"). Only those sections of the Proxy Statement that
specifically address the items set forth herein are incorporated by reference.
Such incorporation by reference does not include the Compensation Committee
Report or the Stock Performance Graphs, included in the Proxy Statement.
Headings in
Proxy Statement
---------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. "Directors and Executive Officers"
ITEM 11. EXECUTIVE COMPENSATION. "Executive Compensation"
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS "Security Ownership of Directors and
AND MANAGEMENT. Executive Officers"
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. "Certain Transactions"
TYLER CORPORATION FORM 10-K PAGE 27
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) The consolidated financial statements listed in the "Index to
Financial Statements" included in the Table of Contents on page 1
are filed as part of this report.
(2) Financial statement schedules have been omitted because the
required information is contained in the consolidated financial
statements or related notes, or such information is not
applicable.
(3) Exhibits
Certain of the exhibits to this report are hereby incorporated by
reference, as specified:
3.1 Restated Certificate of Incorporation of Tyler Three, as amended
through May 14, 1990, and Certificate of Designation of Series A Junior
Participating Preferred Stock (filed as Exhibit 3.1 to the Company's
Form 10-Q for the quarter ended June 30, 1990, and incorporated
herein).
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
(filed as Exhibit 3.1 to the Company's Form 8-K, dated February 19,
1998, and incorporated herein).
*3.3 Amended and Restated By-Laws of Tyler Corporation, dated November 4,
1997.
4.1 Rights Agreement, dated as of March 14, 1993, by and between Tyler
Corporation and The First National Bank of Boston, as Rights Agent,
which includes the form of Rights Certificate as Exhibit B thereto
(filed as Exhibit 4 to the Company's Form 8-K, dated January 29, 1993,
and incorporated herein).
4.2 Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the
Company's registration statement no. 33-33505 and incorporated herein).
*4.3 Credit agreement among Tyler Corporation and NationsBank of Texas,
N.A., dated February 13, 1998.
10.1 Form of Indemnification Agreement for directors and officers (filed as
Exhibit 10.1 to the Company's Form 10- Q for the quarter ended March
31, 1992, and incorporated herein).
10.2 Stock Option Plan amended and restated as of February 7, 1997 (filed as
Exhibit 4.1 to the Company's registration statement no. 33-34809 and
incorporated herein).
10.3 Split-dollar life insurance agreement with Joseph F. McKinney (filed as
Exhibit 10.5 to the Company's registration statement no. 33-33505 and
incorporated herein).
10.4 Supplemental Retirement Plan (filed as Exhibit 10.6 to the Company's
registration statement no. 33-33505 and incorporated herein).
10.5 Indemnification Agreement, dated December 20, 1989 (filed as Exhibit
2.3 to the Company's registration statement no. 33-33505 and
incorporated herein).
TYLER CORPORATION FORM 10-K PAGE 28
30
10.6 Agreement and Plan of Merger among Tyler Corporation, T1 Acquisition
Corporation, Business Resources Corporation and William D. Oates dated
October 8, 1997 (filed as Exhibit 10.25 to the Company's Form 8-K,
dated October 16, 1997, and incorporated herein).
10.7 Agreement and Plan of Merger among Tyler Corporation, T2 Acquisition
Corporation, The Software Group, Inc., Brian B. Berry and Glenn A.
Smith dated October 8, 1997 (filed as Exhibit 10.26 to the Company's
Form 8-K, dated October 16, 1997, and incorporated herein).
10.8 Second Amended and Restated Agreement and Plan of Merger, dated as of
December 29, 1997, and effective as of October 8, 1997, among the
Company, T1 Acquisition Corporation, Business Resources Corporation,
and William D. Oates (filed as Exhibit 10.1 to the Company's Form 8-K,
dated February 19, 1998, and incorporated herein).
10.9 Amended and Restated Agreement and Plan of Merger, dated as of December
29, 1997, and effective as of October 8, 1997, among the Company, T2
Acquisition Corporation, The Software Group, Inc., and Brian B. Berry
and Glenn A. Smith (filed as Exhibit 10.2 to the Company's Form 8-K,
dated February 19, 1998, and incorporated herein).
10.10 Amendment Number One, dated February 19, 1998, and effective as of
October 8, 1997, to the Amended and Restated Agreement and Plan of
Merger among the Company, T2 Acquisition Corporation, The Software
Group, Inc. and Brian B. Berry and Glenn A. Smith (filed as Exhibit
10.3 to the Company's Form 8-K, dated February 19, 1998, and
incorporated herein).
10.11 Acquisition Agreement dated as of November 20, 1995, by and among the
Registrants, Tyler Pipe Industries, Inc. and Ransom Industries, Inc.,
formerly known as Union Acquisition Corporation (filed as Exhibit 2.1
to the Company's Form 8-K, dated December 14, 1995, and incorporated
herein).
10.12 Purchase Agreement between Tyler Corporation, Richmond Partners, Ltd.
and Louis A. Waters, dated August 20, 1997 (filed as Exhibit 10.24 to
the Company's Form 8-K, dated September 2, 1997, and incorporated
herein).
10.13 Consulting Agreement between the Company and Joseph F. McKinney, dated
October 7, 1996 (filed as Exhibit 10.20 to the Company's Form 10-K for
the year ended December 31, 1996, and incorporated herein).
10.14 Employment agreement between the Company and Bruce W. Wilkinson, dated
March 28, 1997 (filed as Exhibit 10.21 to the Company's Form 10-Q for
the quarter ended March 31, 1997, and incorporated herein).
*10.15 Employment agreement between the Company and C.A. Rundell, Jr., dated
October 8, 1997.
*10.16 Employment agreement between the Company and Brian K. Miller, dated
December 1, 1997.
*10.17 Employment agreement between the Company and Harold W. Parkison, dated
January 6, 1997.
*21 Subsidiaries of Tyler
TYLER CORPORATION FORM 10-K PAGE 29
31
*23 Consent of Ernst & Young LLP
Tyler will furnish copies of these exhibits to shareholders upon
written request and payment for copying charges of $0.15 per page.
* Filed herewith.
(b) Reports on Form 8-K
Form 8-K Item Financial Statements
Reported Date Reported Filed
------------- -------- --------------------
10/16/97 5
7 (c) Exhibits
10/30/97 2
7(b) Pro Forma Condensed Consolidated
Balance Sheet as of June 30, 1997
Pro Forma Condensed Consolidated
Income Statements for the year ended
December 31, 1996 and the six months
ended June 30, 1997
12/31/97 5
7(c) Restated Selected Financial Data,
Management's Discussion and Analysis
of Financial Condition and Results of
Operations and consolidated financial
statements as of December 31, 1995 and
1996, and for the three years in the
period ended December 31, 1996
TYLER CORPORATION FORM 10-K PAGE 30
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TYLER CORPORATION
Date: March 25, 1998 By: /s/ Louis A. Waters
---------------------------------
Louis A. Waters
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 25, 1998 By: /s/ Louis A. Waters
---------------------------------
Louis A. Waters
Chairman of the Board
Date: March 25, 1998 By: /s/ C. A. Rundell, Jr.
---------------------------------
C. A. Rundell, Jr.
President, Chief Executive
Officer, and Director
(principal executive officer)
Date: March 25, 1998 By: /s/ James E. Russell
---------------------------------
James E. Russell
Vice President, Chief
Financial Officer, and
Director (principal financial
officer)
Date: March 25, 1998 By: /s/ Brian K. Miller
---------------------------------
Brian K. Miller
Vice President and
Chief Accounting Officer
(principal accounting officer)
TYLER CORPORATION FORM 10-K PAGE 31
33
Date: March 25, 1998 By: /s/ Ernest H. Lorch
---------------------------------
Ernest H. Lorch
Director
Date: March 25, 1998 By: /s/ F. R. Meyer
---------------------------------
F. R. Meyer
Director
Date: March 25, 1998 By: /s/ William D. Oates
---------------------------------
William D. Oates
Director
TYLER CORPORATION FORM 10-K PAGE 32
34
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Tyler Corporation
We have audited the accompanying consolidated balance sheets of Tyler
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Tyler Corporation at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Dallas, Texas
March 6, 1998
TYLER CORPORATION FORM 10-K PAGE 33
35
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
1997 1996 1995
------------- ------------- -------------
Net sales .................................................. $ 76,429,000 $ 85,074,000 $ 86,893,000
Costs and expenses
Cost of sales ........................................... 43,947,000 49,275,000 51,126,000
Selling, general and administrative expenses ............ 31,944,000 43,631,000 36,703,000
Interest (income) expense, net .......................... (830,000) (277,000) 1,003,000
Goodwill and other intangibles impairment
charge ............................................... -- 14,789,000 --
------------- ------------- -------------
75,061,000 107,418,000 88,832,000
Income (loss) from continuing operations before
income tax (benefit) .................................... 1,368,000 (22,344,000) (1,939,000)
Income tax (benefit)
Current ................................................. 1,695,000 570,000 (1,040,000)
Deferred ................................................ (1,498,000) (3,607,000) 543,000
------------- ------------- -------------
197,000 (3,037,000) (497,000)
------------- ------------- -------------
Income (loss) from continuing operations ................... 1,171,000 (19,307,000) (1,442,000)
Discontinued operations
Income (loss) from discontinued operations,
after income tax (benefit) ........................... (2,051,000) (42,023,000) 1,100,000
Loss on disposal of discontinued operations,
after income tax ..................................... (2,468,000) -- (16,631,000)
------------- ------------- -------------
Loss from discontinued operations ....................... (4,519,000) (42,023,000) (15,531,000)
------------- ------------- -------------
Net loss ................................................... $ (3,348,000) $ (61,330,000) $ (16,973,000)
============= ============= =============
Basic and diluted earnings (loss) per common share:
Continuing operations ................................... $ .06 $ (0.97) $ (0.07)
Discontinued operations ................................. (.22) (2.12) (0.78)
------------- ------------- -------------
Net loss per common share ............................... $ (.16) $ (3.09) $ (0.85)
============= ============= =============
Weighted average shares .................................... 20,498,000 19,876,000 19,869,000
See accompanying notes.
TYLER CORPORATION FORM 10-K PAGE 34
36
CONSOLIDATED BALANCE SHEETS
December 31
1997 1996
------------ ------------
ASSETS
Current assets
Cash and cash equivalents ......................................... $ 8,877,000 $ 15,419,000
Accounts receivable (less allowance for losses of $42,000 in
1997 and 1996) ................................................. 201,000 137,000
Note receivable from I.F.S. Acquisition Corporation ............... 2,628,000 --
Merchandise inventories ........................................... 22,901,000 17,323,000
Income tax receivable ............................................. 516,000 907,000
Prepaid expense ................................................... 394,000 301,000
Deferred income tax benefit ....................................... 762,000 1,804,000
------------ ------------
Total current assets ........................................... 36,279,000 35,891,000
Net assets of discontinued operations ................................ -- 10,857,000
Property, plant and equipment, at cost ............................... 10,339,000 9,427,000
Less allowance for depreciation ................................... 4,759,000 3,755,000
------------ ------------
5,580,000 5,672,000
Other assets
Sundry ............................................................ 2,881,000 1,970,000
Note receivable from Business Resources Corporation ............... 5,700,000 --
Other receivables ................................................. 4,455,000 5,000,000
------------ ------------
13,036,000 6,970,000
------------ ------------
$ 54,895,000 $ 59,390,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable .................................................. $ 5,615,000 $ 3,313,000
Accrued wages and commissions ..................................... 788,000 1,597,000
Accrued taxes other than federal income taxes ..................... 1,009,000 1,360,000
Other accrued liabilities ......................................... 4,375,000 6,236,000
------------ ------------
Total current liabilities ...................................... 11,787,000 12,506,000
Deferred income tax .................................................. 3,168,000 5,708,000
Other liabilities .................................................... 8,537,000 9,135,000
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value, 50,000,000 shares authorized,
23,309,277 shares issued in 1997; 21,309,277 issued in 1996 ... 233,000 213,000
Capital surplus ................................................... 51,216,000 48,520,000
Retained deficit .................................................. (13,431,000) (10,083,000)
------------ ------------
38,018,000 38,650,000
Less 1,552,965 treasury shares in 1997 and 1,428,828 treasury
shares in 1996, at cost ........................................ 6,615,000 6,609,000
------------ ------------
Total shareholders' equity .................................. 31,403,000 32,041,000
------------ ------------
$ 54,895,000 $ 59,390,000
============ ============
See accompanying notes.
TYLER CORPORATION FORM 10-K PAGE 35
37
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
Common Stock Treasury Stock
------------------------- Retained --------------------------
Capital Earnings
Shares Amount Surplus (Deficit) Shares Amount
------------ --------- ----------- ------------ ----------- -----------
Balance at December 31, 1994 .......... 21,309,277 $ 213,000 $48,587,000 $68,220,000 (1,450,178) $(6,722,000)
Issuance of treasury shares upon
exercise of stock options ...... -- -- (57,000) -- 12,770 75,000
Net sale of treasury shares to
employee benefit plan ........... -- -- -- -- 3,625 11,000
Federal income tax benefit related
to exercise of stock options .... -- -- 8,000 -- -- --
Net loss ........................... -- -- -- (16,973,000) -- --
------------ --------- ----------- ------------ ----------- -----------
Balance at December 31, 1995 .......... 21,309,277 213,000 48,538,000 51,247,00 (1,433,783) (6,636,000)
Net sale of treasury shares to
employee benefit plan ........... -- -- (18,000) -- 4,955 27,000
Net loss ........................... -- -- -- (61,330,000) -- --
------------ --------- ----------- ------------ ----------- -----------
Balance at December 31, 1996 .......... 21,309,277 213,000 48,520,000 (10,083,000) (1,428,828) (6,609,000)
Issuance of treasury shares upon
exercise of stock options ...... -- -- (309,000) -- 198,472 682,000
Issuance of treasury shares for
employee stock grants .......... -- -- (442,000) -- 150,000 942,000
Sale of common stock and warrant .. 2,000,000 20,000 3,480,000 -- -- --
Redemption of rights ............... -- -- (220,000) -- -- --
Purchase of treasury shares ........ -- -- -- -- (472,609) (1,630,000)
Federal income tax benefit related
to exercise of stock options .... -- -- 187,000 -- -- --
Net loss ........................... -- -- -- (3,348,000) -- --
------------ --------- ----------- ------------ ----------- -----------
Balance at December 31, 1997 .......... 23,309,277 $ 233,000 $51,216,000 $(13,431,000) (1,552,965) $(6,615,000)
============ ========= =========== ============ =========== ===========
See accompanying notes.
TYLER CORPORATION FORM 10-K PAGE 36
38
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
1997 1996 1995
---------- ------------ ------------
Cash flows from operating activities
Net loss ....................................................... $ (3,348,000) $(61,330,000) $(16,973,000)
Adjustments to reconcile loss from operations to net cash
provided (used) by operations:
Depreciation and amortization ............................... 2,057,000 2,469,000 2,172,000
Goodwill and other intangibles impairment charge ............ -- 14,789,000 --
Other noncash charges ....................................... -- 11,150,000 --
Provision for losses on accounts receivable ................. -- 42,000 --
Deferred income tax (benefit) ............................... (1,498,000) (4,189,000) 953,000
(Increase) decrease in accounts receivable .................. (64,000) 253,000 (158,000)
(Increase) decrease in inventories .......................... (5,578,000) 324,000 572,000
(Increase) decrease in prepaid expenses ..................... (93,000) 124,000 195,000
(Increase) decrease in income tax receivable ................ 391,000 3,341,000 (1,091,000)
Increase (decrease) in accounts payable ..................... 2,170,000 (1,100,000) 533,000
Increase (decrease) in accrued liabilities .................. (4,290,000) (3,322,000) 1,208,000
Decrease in other liabilities ............................... (53,000) (161,000) (300,000)
Discontinued operations - noncash charges and working
capital changes .......................................... 3,555,000 44,916,000 29,115,000
---------- ------------ ------------
Net cash provided (used) by operating .................... (6,751,000) 7,306,000 16,226,000
---------- ------------ ------------
Cash flows from investing activities
Net proceeds from sale of pipe and fittings segment and products
for fund raising programs segment, after expenses ........... 5,847,000 7,599,000 58,540,000
Additions to property, plant and equipment ..................... (1,165,000) (1,034,000) (1,744,000)
Cost of acquisitions, net of cash acquired ..................... -- (1,320,000) --
Proceeds from disposal of property, plant and equipment ........ 36,000 69,000 1,538,000
Investing activities of discontinued operations ................ 8,000 (1,538,000) (8,612,000)
Note receivable from Business Resources Corporation ............ (5,700,000) -- --
Other .......................................................... (1,332,000) 1,664,000 (1,639,000)
---------- ------------ ------------
Net cash provided (used) by investing activities ......... (2,306,000) 5,440,000 48,083,000
---------- ------------ ------------
Cash flows from financing activities
Long-term debt repayments ...................................... -- -- (62,700,000)
Issuance of common stock ....................................... 3,500,000 -- 26,000
Net sale of treasury shares to employee benefit plans .......... 645,000 9,000 11,000
Purchase of treasury shares .................................... (1,630,000) -- --
---------- ------------ ------------
Net cash provided (used) by financing activities ......... 2,515,000 9,000 (62,663,000)
---------- ------------ ------------
Net increase (decrease) in cash and cash equivalents .............. (6,542,000) 12,755,000 1,646,000
Cash and cash equivalents at beginning of year .................... 15,419,000 2,664,000 1,018,000
---------- ------------ ------------
Cash and cash equivalents at end of year .......................... $ 8,877,000 $ 15,419,000 $ 2,664,000
=========== ============ ============
See accompanying notes.
TYLER CORPORATION FORM 10-K PAGE 37
39
Notes To Consolidated Financial Statements
Tyler Corporation provides products and services to customers through
its operating subsidiary, Forest City Auto Parts Company ("Forest City"),
which specializes in selling mechanical automotive aftermarket parts to do-it-
yourself customers. Forest City is headquartered in Cleveland, Ohio and
operates 71 retail store locations in Illinois, New York, Ohio, Pennsylvania
and Wisconsin.
(1) Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Tyler Corporation (the "Company") and its subsidiaries,
all of which are wholly-owned. The Company's continuing operations consist
principally of the operations of Forest City.
INVENTORIES. Inventories are valued at the lower of cost or market.
Costs of inventories are determined by the first-in, first-out method.
DEPRECIATION. Depreciation for financial statement purposes is
provided principally by the straight-line method over the estimated useful
lives of the various assets. Depreciation expense was $1,221,000, $1,368,000
and $1,060,000 for 1997, 1996 and 1995, respectively. For income tax purposes,
accelerated depreciation is used with recognition of deferred income tax for
the resulting temporary differences.
REVENUE RECOGNITION. Substantially all revenue is recognized when
products are delivered to customers.
STATEMENTS OF CASH FLOWS. For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with
maturities of three months or less which includes overnight repurchase
agreements, to be cash equivalents. Excess cash during the year was invested
at an average rate of approximately 5%. Interest paid in 1997 and 1996 was
$5,000 and $65,000, respectively. Interest paid in 1995 was $6,935,000, which
includes interest charged to the results of discontinued operations.
USE OF ESTIMATES. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
TYLER CORPORATION FORM 10-K PAGE 38
40
ADOPTION OF ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial
Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive
Income", and Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information". Both Statements are effective for the Company for
the year ending December 31, 1998. The Company does not anticipate that the
adoption of these standards will have a material impact on the financial
statements.
(2) Discontinued Operations
Effective October 15, 1997, the Company sold all of the capital stock
of its subsidiary which provided products for fund-raising programs,
Institutional Financing Services, Inc. ("IFS"), to I.F.S. Acquisition
Corporation for approximately $8,400,000, resulting in a loss on disposal of
approximately $2,500,000. This estimated loss on disposal includes estimates
regarding the value of certain assets that are subject to change. Management
does not expect these estimates to have a significant impact on the estimated
loss on disposal. Proceeds consisted of approximately $5,800,000 in cash
received at closing and approximately $2,600,000 received in January 1998.
On December 1, 1995, the Company sold all the outstanding capital
stock of Swan Transportation Company ("Swan") to Ransom Industries, Inc.
(formerly known as Union Acquisition Corporation) (the "Buyer"). In the same
transaction, Tyler Pipe Industries, Inc., (subsequently renamed TPI of Texas,
Inc.) ("TPI"), a wholly-owned subsidiary of the Company, sold substantially all
of its assets to the Buyer, and the Buyer assumed substantially all the
liabilities of TPI. The results of these entities and the effects of
subsequent changes in estimates of retained contingent liabilities are included
as discontinued operations. The assets TPI sold and the liabilities the Buyer
assumed included all those relating to TPI's business of manufacturing and
marketing cast iron pipe and fittings, excluding cash and certain other assets
and liabilities. Swan was a motor-carrier company that provided transportation
services to TPI prior to the closing.
Based on a July 1, 1995, balance sheet, the Buyer paid a net amount of
$66,139,000 for the stock of Swan and assets of TPI 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, TPI distributed approximately
$17,700,000 to the Company from July 1, 1995, through closing.
TYLER CORPORATION FORM 10-K PAGE 39
41
Operating results of the discontinued pipe and fittings segment and
the products for fund-raising programs segment for the years ended December 31,
1997, 1996 and 1995 are as follows:
1997 1996 1995
------------ ------------ ------------
Net sales ..................... $ 21,913,000 $ 43,299,000 $256,197,000
Income (loss) before income
tax (benefit) .............. (3,131,000) (43,993,000) 2,613,000
Income tax (benefit) .......... (1,080,000) (1,970,000) 1,513,000
------------ ------------ ------------
Net income (loss) from
discontinued operations .... $ (2,051,000) $(42,023,000) $ 1,100,000
============ ============ ============
Interest has been charged to discontinued operations based on net
assets of the pipe and fittings segment and the products for fund-raising
programs segment. Interest expense allocated to discontinued operations in
1995 was $4,546,000. Income tax (benefit) has been charged (credited) to
discontinued operations based on the income tax (benefit) resulting from
inclusion of the discontinued segments in the Company's consolidated federal
income tax return.
The income tax (benefit) differs from the amount which would be
provided by applying the statutory income tax rate to income (loss) before
income tax (benefit) due primarily to differences resulting from excess book
over tax amortization and differences in book and tax bases of inventory and
fixed assets.
Discontinued operations for the products for fund-raising programs
segment in the fourth quarter of 1996 includes a goodwill impairment charge of
$37,316,000 related to the 1994 acquisition of IFS by the Company. The
continued decline in the financial results in the second half of 1996 and a
related strategic and operational review resulted in an evaluation of goodwill
and other intangibles for possible impairment. The underlying factors
contributing to the decline in financial results included changes in the
marketplace and increased competition. The Company calculated the present
value of expected cash flows to estimate the fair value of IFS. In addition,
IFS also recorded $198,000 of restructuring and other charges in the fourth
quarter of 1996, in connection with a restructuring plan to discontinue a
small product line. Also in the fourth quarter of 1996, IFS recorded charges
of $2,449,000 which included a provision for uncollectable accounts receivable
and the write-down of excess inventory remaining after fourth-quarter sales
declines.
Included in the discontinued operations' income before income tax in
1995 are losses relating to IFS's foreign operations of $782,000.
TYLER CORPORATION FORM 10-K PAGE 40
42
Income tax of $4,157,000 on the loss on disposal of the discontinued
pipe and fittings segment differs from the amount which would be provided by
applying the statutory income tax rate to the pretax loss primarily as a result
of excess book over tax amortization and differences in book and tax bases of
inventory, fixed assets and goodwill.
No current tax benefit was provided on the loss on disposal of the
products for fund-raising programs due to the character of the loss.
The Company recorded a pretax charge from other discontinued
operations of $2,000,000 in 1996 for the investigation of certain claims and
contingent claims (see Note 13).
(3) Acquisitions
Pursuant to the 1994 IFS acquisition agreement, the Company made a
$1,208,000 payment in the third quarter of 1996 to former shareholders and
executives of IFS. The amount was accrued at December 31, 1995.
In connection with the 1991 acquisition of Forest City, the Company
was obligated to make payments up to a specified amount on or before March 31,
1996, if certain profit objectives were met, some of which would be paid as
bonuses to certain executives of Forest City. As a result, the Company made a
final payment of $1,320,000 in the first quarter of 1996 to former shareholders
and certain other executives of Forest City. The amount paid was accrued at
December 31, 1995. In addition, the Company paid $660,000 in 1994 for 1993
performance, $660,000 in 1993 for 1992 performance and $660,000 in 1992 for
1991 performance for a total of $3,300,000 since the acquisition. Each payment
included both additional purchase price and bonus components and was recorded
accordingly in the year earned. Of the total amount paid, $2,160,000 was paid
to former shareholders and considered additional purchase price with additional
goodwill recorded. The remaining $1,140,000 was considered special incentive
bonuses to certain executives of Forest City as designated by the former
shareholders and provided for in the sales agreement. These bonus amounts were
expensed as earned and included in selling, general and administrative
expenses.
TYLER CORPORATION FORM 10-K PAGE 41
43
(4) Related Party Transaction
Effective October 8, 1997, the Company entered into an agreement to
acquire Business Resources Corporation ("Resources") and received shareholder
approval for the transaction on February 19, 1998 (see Note 16). In connection
with this transaction, the Company loaned Resources $5,700,000 on December 29,
1997, for working capital purposes. The unsecured loan bears interest at 8.5%
and matures on September 30, 1999.
(5) Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
Estimated
Useful Lives
(in years) 1997 1996
------------ --------- ---------
Land .............................. $ 457,000 $ 457,000
Buildings and leasehold
improvements ................... 7 to 30 4,169,000 3,825,000
Machinery and transportation
equipment ...................... 4 to 10 5,713,000 5,145,000
----------- -----------
$10,339,000 $ 9,427,000
=========== ===========
(6) Bank Debt
The Company had outstanding letters of credit aggregating $2,000,000
at December 31, 1997, relating to guarantees of performance to a third party
for potential environmental remediation. The outstanding letters of credit
were secured by cash collateral and were released and canceled in February
1998.
In February 1998, the Company entered into a three year bank credit
agreement for revolving lines of credit totaling $50,000,000 (see Note 16).
TYLER CORPORATION FORM 10-K PAGE 42
44
(7) Income Tax
The provision (benefit) for income tax consists of the following at
December 31:
1997 1996 1995
----------- ----------- -----------
Current:
Federal ....................................... $ 1,860,000 $ 570,000 $(1,040,000)
State ......................................... (165,000) -- --
----------- ----------- -----------
1,695,000 570,000 (1,040,000
Deferred ......................................... (1,498,000) (3,607,000) 543,000
----------- ----------- -----------
$ 197,000 $(3,037,000) $ (497,000)
=========== =========== ===========
The income tax provision (benefit) differs from amounts computed by
applying the statutory tax rate to income (loss) from continuing operations as
follows:
Years ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
Income tax (benefit) at statutory rate .................. $ 479,000 $(7,820,000) $ (678,000)
State income tax, net of federal
income tax benefit ................................... (107,000) -- --
Life insurance .......................................... -- 534,000 (5,000)
Excess book amortization ................................ 13,000 134,000 139,000
Goodwill and other intangibles
impairment charge .................................... -- 4,075,000 --
Utilization of capital loss ............................. (188,000) -- --
Other, net .............................................. -- 40,000 47,000
----------- ----------- -----------
$ 197,000 $(3,037,000) $ (497,000)
=========== =========== ===========
TYLER CORPORATION FORM 10-K PAGE 43
45
Significant components of deferred tax assets and liabilities as of
December 31 are as follows:
1997 1996
------------ ------------
Deferred income tax assets:
Inventories ...................................... $ (400,000) $ 316,000
Insurance reserves ............................... 98,000 98,000
Operating expenses not currently deductible ...... 2,082,000 2,771,000
Employee benefit plans ........................... 148,000 139,000
Net operating loss ............................... 1,763,000 --
Capital loss ..................................... 11,723,000 --
Other ............................................ 169,000 147,000
------------ ------------
Total deferred income tax assets .............. $ 15,583,000 $ 3,471,000
------------ ------------
Deferred income tax liabilities:
Tax-benefit transfer lease ....................... (4,512,000) (5,370,000)
Property, plant and equipment .................... (1,594,000) (1,748,000)
Other ............................................ (160,000) (257,000)
------------ ------------
Total deferred income tax liabilities ......... $ (6,266,000) $ (7,375,000)
------------ ------------
Net deferred income tax assets (liabilities)
before valuation allowance .................... 9,317,000 (3,904,000)
Less valuation allowance ......................... 11,723,000 --
------------ ------------
Net deferred income tax liabilities ................. $ (2,406,000) $ (3,904,000)
============ ============
The Company received refunds of prior years' income taxes of $95,000
in 1997 and $4,693,000 in 1996. The Company paid income taxes, net of refunds
received, of $803,000 in 1995.
TYLER CORPORATION FORM 10-K PAGE 44
46
(8) Leases
The Company leases certain offices, retail stores, transportation,
computer and other equipment used in its operations under noncancellable
operating lease agreements expiring at various dates through 2010. Most leases
contain renewal options and some contain purchase options. The leases
generally provide that the Company pay taxes, maintenance, insurance and
certain other operating expenses.
Rent expense was approximately $2,213,000 in 1997, $2,405,000 in 1996
and $2,349,000 in 1995. Minimum rental payments under the leases described
above are as follows:
Year ended December 31:
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,954,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,454,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032,000
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,725,000
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239,000
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,949,000
---------------
$ 14,353,000
===============
(9) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Years ended December 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ ------------
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations ........... $ 1,171,000 $(19,307,000) $ (1,442,000)
============ ============ ============
Denominator:
Denominator for basic earnings per share -
weighted average shares ............................ 20,498,000 19,876,000 19,869,000
Effect of dilutive securities:
Employee stock options ............................. 222,000 -- --
Warrant ............................................ 268,000 -- --
------------ ------------ ------------
Dilutive potential common shares ...................... 490,000 -- --
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversion .............................. 20,988,000 19,876,000 19,869,000
============ ============ ============
Basic and diluted earnings (loss) per share from
continuing operations ........................... $ .06 $ (.97) $ (.07)
============ ============ ============
TYLER CORPORATION FORM 10-K PAGE 45
47
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share", in the fourth quarter of 1997 and restated prior
years as necessary.
The Company incurred losses from continuing operations in 1996 and
1995. As a result, the denominator was not adjusted for dilutive securities in
1996 and 1995 as the effect would be antidilutive.
Options to purchase 50,000 shares of common stock at $5.25 per share
were outstanding from December 1997, but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares and, therefore, the effect
would be antidilutive.
On February 19, 1998, the Company issued approximately 12,200,000
shares of common stock in connection with acquisitions (see Note 16).
(10) Employee Benefit Plans
Forest City maintains a profit-sharing plan for the benefit of its
eligible employees. The amount of Forest City's contribution to the
profit-sharing plan is determined by its board of directors but may not exceed
15% of the aggregate compensation paid by Forest City to eligible employees for
any plan year. Forest City's annual contribution to the profit-sharing plan
was $90,000 in 1997, 1996 and 1995.
Prior to TPI's sale of assets to the Buyer on December 1, 1995, the
Company maintained a defined benefit pension plan (the "Plan") which provided
income and death benefits for certain employees of the Company and employees of
TPI. The benefits were generally based on final average salary and years of
service. The Company's policy was to fund net pension cost accrued. However,
the Company would not contribute an amount less than the minimum funding
requirements of the Employee Retirement Income Security Act of 1974 or more
than the maximum tax-deductible amount.
In connection with TPI's sale of assets to the Buyer and pursuant to
the terms of the acquisition agreement among the Company, TPI and the Buyer
(the "Acquisition Agreement"), the Company froze benefit accruals for all TPI
employees on December 1, 1995, and transferred the benefit obligation relating
to the TPI employees and the related assets to a new plan established by the
Buyer (the "Buyer Plan") in April 1996. The assets transferred to the Buyer
Plan consisted principally of publicly traded stocks and bonds, U.S. government
securities and 251,200 shares of the Company's common stock. The assets
remaining in the Company's Plan were invested in short-term fixed income
securities. As a result, the Company recognized an accrued curtailment gain in
1995 of approximately $2,700,000. The curtailment gain reduced the loss on
disposal of discontinued operations in 1995.
TYLER CORPORATION FORM 10-K PAGE 46
48
Subsequent to the asset and obligation transfer to the Buyer Plan, the
Company terminated the Plan on June 30, 1996, and determined that the remaining
Plan assets exceeded the obligation relating to the remaining participants. As a
result, the Plan was amended to provide a "pro rata benefit increase" as
described in section 4980(d)(3) of the Internal Revenue Code of 1986. This
amendment allows the excise tax associated with the excess asset reversion to be
20% rather than 50%. The Company received a favorable determination letter from
the IRS in November 1996 relating to the termination of the Plan including the
terms of the pro rata benefit increase. As a result of the amendment and
termination of the Plan, the Company received cash and recorded income from
reversion of excess assets from a defined benefit pension plan of approximately
$2,300,000 and accrued an excise tax liability of approximately $465,000 in
December 1996. In addition, the Company also recorded a settlement loss of
approximately $3,700,000 and reduced the related prepaid pension asset in
accordance with Statement of Financial Accounting Standards No. 88 - "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination of Benefits." These two events, the income reversion and the
settlement of the pension plan, resulted in a net charge of $1,865,000. Final
distributions were paid to all remaining participants in the form of lump-sum
settlements. No assets or liabilities of the Plan remained at December 31, 1996.
In addition, no pension cost was recorded in 1996.
Prior to TPI's sale of assets to the Buyer on December 1, 1995, the
Company maintained several other benefit plans for certain key employees of the
Company and TPI. These plans were also terminated in 1996. Approximately 55%
of these benefits were funded by insurance policies which were redeemed in
1996. The Company made final settlement payments of approximately $2,400,000
in 1996 and an additional $1,300,000 remained accrued at December 31, 1996,
which was paid in January 1997.
Prior to TPI's sale of assets to the Buyer on December 1, 1995, the
Company maintained a savings and investment plan primarily for the employees of
TPI 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 TPI employee account balances to a new plan established
by the Buyer in the first quarter of 1996 and received governmental approval in
November 1996 to terminate the remaining savings and investment plan. All
account balances were distributed by year end. Substantially all expenses in
1995 relating to the savings and investment plan are included in discontinued
operations.
TYLER CORPORATION FORM 10-K PAGE 47
49
(11) Restructuring and Other Fourth-Quarter Charges
In the fourth quarter of 1996, the Company recorded $1,731,000 of
restructuring and other charges in connection with a restructuring plan to
reduce costs and increase future operating efficiency by reducing the work
force, closing and relocating Forest City stores and reducing corporate office
space requirements. Also in the fourth quarter of 1996, the Company recorded
charges of $3,654,000 which included obligations relating to the termination of
former employees, vendor restocking charges for on-hand inventory items at
Forest City and the noncash write-off of certain fixed assets and software
which Forest City decided in the fourth quarter that it would no longer utilize
in its business. In addition, the Company terminated its defined benefit
pension plan in December 1996 resulting in a net charge of approximately
$1,865,000 (see Note 10).
The total restructuring and other charges recorded in the fourth
quarter of 1996 were $7,250,000 of which $612,000 is included in cost of sales
and $6,638,000 is included in selling, general and administrative expenses.
See Note 2 for additional information regarding restructuring and
other fourth-quarter charges.
(12) Goodwill and Other Intangibles Impairment Charge
Prior to December 1996, goodwill was amortized over 40 years. In
December 1996, the Company recognized a goodwill and other intangibles
impairment charge of $14,789,000 related to the 1991 acquisition of Forest
City. The continued decline in the financial results of Forest City in the
second half of 1996 and a related strategic and operational review resulted in
an evaluation of goodwill and other intangibles for possible impairment. The
underlying factors contributing to the decline in financial results included
changes in the marketplace and increased competition. The Company calculated
the present value of expected cash flows to estimate the fair value of the
operating company.
See Note 2 for additional information regarding goodwill and other
intangibles impairment charge.
(13) Commitments and Contingencies
The New Jersey Department of Environmental Protection and Energy
("NJDEPE") has alleged that a site where a former affiliate of TPI,
Jersey-Tyler Foundry Company ("Jersey-Tyler"), once
TYLER CORPORATION FORM 10-K PAGE 48
50
operated a foundry contains lead and possible other priority pollutant metals
and may need on-site and off-site remediation. The site was used for foundry
operations from the early part of this century to 1969, when it was acquired by
Jersey-Tyler. Jersey-Tyler operated the foundry from 1969 to 1976, at which
time the foundry was closed. In 1976, Jersey-Tyler sold the property to other
persons who have operated a salvage yard on the site. Based on a remedial
investigation conducted by TPI, the NJDEPE has demanded TPI remediate the
foundry site and the contamination in the adjacent stream and nearby lake. TPI
has offered to conduct a feasibility study to assess remediation options,
including costs, but has not agreed to commit to further action. TPI never
held title to the site and denies liability.
Based upon preliminary engineering estimates, management currently
estimates the cost associated with the investigation or remediation of the New
Jersey site to be approximately $6,500,000. This amount is accrued and is
included in other liabilities in the accompanying consolidated balance sheet.
The New Jersey site has been under active investigation by the NJDEPE since
1992 and such investigation is expected to continue for several more years.
The proposed feasibility study has not yet begun or been authorized by the
NJDEPE. Loss estimates are based on the application of reasonable remediation
options. The Company believes that the NJDEPE will select the most cost
effective, environmentally sound remediation alternative. Factors such as
additional engineering and analytical services required and/or the amount of
soil which must be excavated and disposed of, if any, or other cost relating to
the disposal of soil could impact the loss estimate.
In connection with TPI's sale of substantially all its assets to the
Buyer, on December 1, 1995, pursuant to the Acquisition Agreement, the Buyer
agreed to manage and direct the prosecution or defense of these matters on
behalf of TPI. In addition, the Buyer agreed to reimburse TPI for the first
$3,000,000 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 the Buyer agreed to
reimburse TPI in connection with this matter is $6,500,000. As of December 31,
1996, management estimated total cost to investigate or remediate the New
Jersey site to be $7,000,000. In accordance with the above-mentioned
provisions of the Acquisition Agreement, the Company recorded a $5,000,000
receivable due from the Buyer for its portion of the estimated costs as of
December 31, 1996. This amount is presented as other receivables in the
accompanying consolidated balance sheets. As of December 31, 1997,
approximately $500,000 of expenses in connection with the investigation of the
New Jersey site, have been paid by TPI and as provided for in the Acquisition
Agreement, the Buyer has reimbursed this amount to TPI. Accordingly,
management currently estimates the total cost remaining in connection with the
investigation or remediation of the New Jersey site to be approximately
$6,500,000 and the related receivable from the Buyer to be approximately
$4,500,000.
TYLER CORPORATION FORM 10-K PAGE 49
51
The Buyer, 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 have initially denied coverage. TPI expects to proceed against such
insurance carriers seeking coverage of remediation costs. Recoveries from
predecessor companies and insurance companies are shared by TPI and the Buyer.
Pursuant to the Acquisition Agreement, the Buyer agreed to manage and
direct the prosecution or defense of certain other matters on behalf of TPI and
to reimburse related costs and expenses. The Buyer 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 the Buyer agreed to reimburse TPI in connection with all of these matters,
excluding Jersey-Tyler, is $8,000,000. Although it is impossible to predict
the outcome of legal or regulatory proceedings, 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 the Buyer pursuant to the Acquisition Agreement or have been
adequately provided for in the financial statements.
The Buyer did not agree to reimburse TPI for, among other things, (a)
liabilities relating to the use, handling, manufacture or sale of products
containing asbestos or silica, (b) claims of 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 for which it will not be reimbursed by the Buyer. Beginning in
February 1997, over fifty former employees of TPI have filed a series of
separate personal injury lawsuits which allege that they were exposed to
silica, asbestos and/or other industrial dusts during their employment at TPI.
Named as defendants with TPI and Swan, another wholly-owned subsidiary of the
Company, are major suppliers of asbestos, sand and industrial respirator
devices. These co-defendants have been sued under product liability theories
of recovery. The plaintiffs seek to recover money damages for the personal
injuries they allegedly suffered as a result of their occupational exposure to
silica, asbestos and other industrial dusts. No discovery has taken place, and
it is not possible to predict the outcome at this time. In light of the
current litigation, and based on a preliminary assessment of claims and
contingent claims that may result in future litigation involving TPI, a pretax
charge from discontinued operations of $2,000,000 was recorded in 1996 for such
matters. This amount is included in other liabilities in the accompanying
balance sheets at December 31, 1997 and 1996. Since TPI retained the
responsibilities for these liabilities and in connection with these matters,
the Company repurchased all the outstanding capital stock of Swan from the
Buyer for its net book value of
TYLER CORPORATION FORM 10-K PAGE 50
52
approximately $400,000 in may 1997. Prior to the repurchase, Swan had disposed
of all its trucking assets. While the Company plans to defend this litigation
vigorously, the ultimate outcome is uncertain.
On September 25, 1997, a former employee of a Forest City store
brought suit against Forest City and the Company in the Supreme Court of Erie
County, New York. The plaintiff alleges that employees of Forest City falsely
accused her of falsifying overtime entries, terminated her employment on that
basis, filed a criminal report based upon the false overtime entries and forced
her to sign a restitution agreement. Based upon these allegations, the
plaintiff is suing for slander, intentional abuse of the criminal law
enforcement process and intentional and negligent infliction of emotional
distress. The plaintiff is seeking compensatory damages of at least $1,500,000
and punitive damages of at least $3,000,000. The Company believes the claims
are without merit and intends to defend this action vigorously.
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.
TYLER CORPORATION FORM 10-K PAGE 51
53
(14) Shareholders' Equity
The Company has authorized 1,000,000 shares of $10 par value voting
preferred stock. The board of directors has designated 250,000 shares as
Series A Junior Participating Preferred Stock which were reserved for issuance
upon exercise of the Company's stock purchase rights. In December 1997, the
board of directors authorized the redemption of the preferred stock purchase
rights in connection with proposed acquisitions (see Note 16). The rights were
redeemed in January 1998 at $.01 per share. Prior to this redemption, each
share of the Company's common stock included a stock purchase right. These
rights, which did not have voting rights, could be exercised only after public
announcement that a person or group had acquired 20% or more of the Company's
common stock or public announcement of an offer for 30% or more of the
Company's common stock. The Company had the right to redeem the rights at a
price of $.01 per right at any time prior to 15 days (or such longer period as
the board of directors may have determined) after the acquisition of 20% of the
Company's common stock. Upon exercise each right could have been used to
purchase 1/100 of a share of Series A Junior Participating Preferred Stock for
$21. Each share of Series A Junior Participating Preferred Stock would have
had a minimum preferential quarterly dividend of 100 times the dividend
declared on common stock, minimum liquidation preference of $100 per share and
other preferential common stock conversion features in connection with mergers
or other business combinations.
As of December 31, 1997, the Company had a warrant outstanding to
purchase 2,000,000 shares of the Company's common stock at $2.50 per share.
The warrant expires in September 2007.
TYLER CORPORATION FORM 10-K PAGE 52
54
(15) Stock Option Plan
The Tyler Corporation Stock Option Plan provides for the granting of
non-qualified and incentive stock options, as defined by the Internal Revenue
Code, to key employees of the Company and its subsidiaries for up to 1,800,000
shares of the Company's common stock at prices which represent fair market
value at dates of grant. All options granted have ten year terms and generally
vest over, and become fully exercisable, at the end of, four to five years of
continued employment.
The following table summarizes the transactions of the Company's stock
option plan for the three-year period ended December 31, 1997:
Number of Weighted-Average
Shares Exercise Prices
---------- ------------------
Options outstanding at January 1, 1995 .......................... 232,168 $ 2.95
Granted .................................................... 10,000 2.75
Canceled ................................................... (109,524) 4.05
Exercised .................................................. (12,770) 1.37
----------
Options outstanding at December 31, 1995 ........................ 119,874 2.10
Granted .................................................... 225,000 1.85
Canceled ................................................... (14,605) 3.23
----------
Options outstanding at December 31, 1996 ........................ 330,269 1.88
Granted ................................................... 1,516,666 2.36
Canceled .................................................. (952,530) 1.80
Exercised ................................................. (198,472) 1.87
----------
Options outstanding at December 31, 1997 ........................ 695,933 $ 3.04
==========
Reserved for future options at December 31, 1997 ................ 705,382
==========
Exercisable options
December 31, 1995 .......................................... 103,549 $ 1.81
December 31, 1996 .......................................... 150,702 $ 1.98
December 31, 1997 .......................................... 144,777 $ 2.71
TYLER CORPORATION FORM 10-K PAGE 53
55
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING NUMBER OF AVERAGE PRICE NUMBER OF AVERAGE PRICE OF
RANGE OF EXERCISE CONTRACTUAL OUTSTANDING OF OUTSTANDING EXERCISABLE EXERCISABLE
PRICES LIFE OPTIONS OPTIONS OPTIONS OPTIONS
- ----------------- ----------- ------------ ------------- ----------- -----------------
$1.50 - $2.125 5 years 288,333 $ 1.83 94,116 $ 2.13
$2.75 - $3.6875 10 years 352,000 $ 3.68 45,061 $ 3.66
$4.875 - $5.25 9.5 years 55,600 $ 5.21 5,600 $ 4.88
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), became effective for the Company in
1996. As allowed by FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", which does not recognize compensation expense on the issuance of
its stock options because the option terms are fixed and the exercise price
equals the market price of the underlying stock on the grant date.
As required by FAS 123, the Company has determined the pro forma
information as if the Company had accounted for stock options granted since
January 1, 1995, under the fair value method of FAS 123. The Black-Scholes
option pricing model was used with the following weighted-average assumptions
for 1997, 1996 and 1995 respectively: risk-free interest rates of 6.49%, 6.32%
and 7.62%; dividend yield of 0%; expected common stock market price volatility
factor of .39, .37 and .32; and a weighted-average expected life of the options
of seven years. The weighted-average fair value of options granted in 1997,
1996 and 1995 was $1.24, $.94 and $1.40 per share, respectively.
Had compensation expense been recorded based on the fair values of the
stock option grants, the Company's 1997 pro forma income from continuing
operations would have been $751,000, or $.04 per share. The pro forma effect
of these options on net earnings and earnings per share in 1996 and 1995 was
not material. These proforma calculations only include the effects of 1995,
1996 and 1997 grants. Accordingly, the impacts are not necessarily indicative
of the effects on reported net income of future years.
TYLER CORPORATION FORM 10-K PAGE 54
56
(16) Subsequent Events
In February 1998, the Company entered into a three year bank credit
agreement in an amount not to exceed $50,000,000, including a $5,000,000
sublimit for the issuance of standby and commercial letters of credit (the
"Senior Credit Facility"). The proceeds of the Senior Credit Facility are
intended to be used to fund acquisitions and meet short-term working capital
needs and capital expenditures which may arise from time to time. Borrowings
under the Senior Credit Facility bear interest at either the bank's prime rate
plus a margin of zero to .25% or the London Interbank Offered Rate plus a
margin of 1% to 2% depending on the Company's ratio of indebtedness to earnings
before interest, taxes, depreciation and amortization. The Senior Credit
Facility is secured by a pledge of the common stock of all present and future
operating subsidiaries and will be guaranteed by all such subsidiaries. Under
the terms of the Senior Credit Facility the Company is required to maintain
certain financial ratios and other financial conditions. The Senior Credit
Facility also prohibits the Company from incurring certain additional
indebtedness, limits certain investments, advances or loans and restricts
substantial asset sales, capital expenditures and cash dividends.
On February 19, 1998, the Company's shareholders authorized an
increase in the number of authorized shares of the Company's common stock from
50,000,000 to 100,000,000 shares.
On February 19, 1998, the Company acquired Resources, The Software
Group, Inc. ("TSG") and Interactive Computer Designs, Inc. ("INCODE") for
approximately 12,200,000 shares of Tyler common stock and approximately
$41,300,000 of cash and debt assumption. The Company financed the acquisitions
utilizing funds available under the Senior Credit Facility. Resources and TSG
are based in Dallas, Texas, and INCODE is located in Lubbock, Texas. All three
companies provide information management solutions to county and local
governments, principally located in the Southwestern United States.
TYLER CORPORATION FORM 10-K PAGE 55
57
INDEX TO EXHIBITS
Exhibit No. Description
----------- ----------------------------------------------------------
3.3 Amended and Restated By-Laws of Tyler Corporation, dated
November 4, 1997.
4.3 Credit agreement among Tyler Corporation and NationsBank
of Texas, N.A., dated February 13, 1998.
10.15 Employment agreement between the Company and C.A. Rundell,
Jr., dated October 8, 1997.
10.16 Employment agreement between the Company and Brian K.
Miller, dated December 1, 1997.
10.17 Employment agreement between the Company and Harold W.
Parkinson, dated January 6, 1997.
21 Subsidiaries of Tyler
23 Consent of Ernst & Young LLP
27 Financial Data Schedule