<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10485
TYLER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2303920
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2121 SAN JACINTO STREET
SUITE 3200, DALLAS, TEXAS 75201
(Address of principal executive offices)
(Zip code)
(214) 754-7800
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock of registrant outstanding at
November 3, 1997: 21,736,312
Page 1
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYLER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 19,232,000 $ 15,419,000
Accounts receivable (less allowance
for losses of $42,000 in 1997 and 1996) 216,000 137,000
Merchandise inventories 17,693,000 17,323,000
Income tax receivable 877,000 907,000
Prepaid expense 118,000 301,000
Deferred income tax benefit 1,804,000 1,804,000
------------ ------------
Total current assets 39,940,000 35,891,000
Net assets of discontinued operations 8,787,000 10,857,000
Property, plant and equipment, at cost 9,991,000 9,427,000
Less allowance for depreciation 4,486,000 3,755,000
------------ ------------
5,505,000 5,672,000
Other assets 2,039,000 1,970,000
------------ ------------
Total Assets $ 56,271,000 $ 54,390,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,852,000 $ 3,313,000
Other accrued liabilities 8,181,000 9,193,000
------------ ------------
Total current liabilities 15,033,000 12,506,000
Deferred income tax 5,064,000 5,708,000
Other liabilities 4,117,000 4,135,000
Commitments and contingencies (2)
Shareholders' equity
Common stock ($.01 par value, 50,000,000
shares authorized, 9/30/97-23,309,277
and 12/31/96-21,309,277 shares issued) 233,000 213,000
Capital surplus 51,513,000 48,520,000
Retained deficit (13,772,000) (10,083,000)
------------ ------------
37,974,000 38,650,000
Less treasury shares, at cost
(9/30/97-1,301,356 and 12/31/96-1,428,828) 5,917,000 6,609,000
------------ ------------
Total shareholders' equity 32,057,000 32,041,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 56,271,000 $ 54,390,000
============ ============
</TABLE>
See accompanying notes.
- 2 -
<PAGE> 3
TYLER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net sales $ 20,204,000 $ 22,394,000
Costs and expenses
Cost of sales 11,688,000 12,854,000
Selling, general and administrative
expenses 8,326,000 9,553,000
Interest income, net (229,000) (69,000)
-------------- --------------
19,785,000 22,338,000
-------------- --------------
Income before income tax 419,000 56,000
Income tax 151,000 56,000
-------------- --------------
Net income from continuing
operations 268,000 --
Estimated loss from discontinued
operations, net of tax (3) (498,000) (3,470,000)
Estimated loss on disposal of
discontinued operations (3) (2,500,000) --
-------------- --------------
Net loss $ (2,730,000) $ (3,470,000)
============== ==============
Earnings (loss) per common share
Continuing operations $ .01 $ .00
Discontinued operations (.14) (.18)
-------------- --------------
Net loss per share $ (.13) $ (.18)
============== ==============
Average shares outstanding during
the period 20,508,000 19,875,000
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
TYLER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net sales $ 58,172,000 $ 65,852,000
Costs and expenses
Cost of sales 33,216,000 37,799,000
Selling, general and administrative
expenses 24,313,000 27,538,000
Interest income, net (613,000) (214,000)
-------------- --------------
56,916,000 65,123,000
-------------- --------------
Income before income tax 1,256,000 729,000
Income tax 454,000 898,000
-------------- --------------
Net income (loss) from continuing
operations 802,000 (169,000)
Estimated loss from discontinued
operations, net of tax (3) (1,991,000) (4,527,000)
Estimated loss on disposal of
discontinued operations (3) (2,500,000) --
-------------- --------------
Net loss $ (3,689,000) $ (4,696,000)
============== ==============
Earnings (loss) per common share
Continuing operations $ .04 $ (.01)
Discontinued operations (.22) (.23)
-------------- --------------
Net loss per share $ (.18) $ (.24)
============== ==============
Average shares outstanding during
the period 20,145,000 19,875,000
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
TYLER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C>
Cash flows from operating activities
Net loss $ (3,689,000) $ (4,696,000)
Adjustments to reconcile net loss
to net cash provided by operations
Depreciation and amortization 1,483,000 1,622,000
Deferred income tax benefit (644,000) --
(Increase) decrease in accounts receivable (79,000) 252,000
(Increase) decrease in inventories (370,000) 134,000
(Increase) decrease in income tax receivable (420,000) 4,895,000
Decrease in prepaid expense 183,000 764,000
Increase in accounts payable 2,239,000 374,000
Decrease in accrued liabilities (2,424,000) (4,341,000)
Decrease in other liabilities (18,000) (183,000)
Discontinued operations-noncash charges
and working capital changes 5,217,000 3,467,000
------------ ------------
Net cash provided by operations 1,478,000 2,288,000
------------ ------------
Cash flows from investing activities
Net amount due from Union
Acquisition Corporation -- 7,599,000
Additions to property, plant and
equipment (734,000) (948,000)
Cost of acquisition -- (1,320,000)
Proceeds from disposal of property,
plant and equipment 15,000 57,000
Investing activities of disc. operations 15,000 (3,112,000)
Other (666,000) 1,597,000
------------ ------------
Net cash (used) provided
by investing activities (1,370,000) 3,873,000
------------ ------------
Cash flows from financing activities
Issuance of common stock 3,705,000 --
------------ ------------
Net cash provided by
financing activities 3,705,000 --
------------ ------------
Net increase in cash and cash equivalents 3,813,000 6,161,000
Cash and cash equivalents at beginning
of period 15,419,000 2,664,000
------------ ------------
Cash and cash equivalents at end of period $ 19,232,000 $ 8,825,000
============ ============
Supplemental disclosures
Interest paid $ 19,000 $ 60,000
Income tax received $ (49,000) $ (4,414,000)
</TABLE>
See accompanying notes.
- 5 -
<PAGE> 6
Tyler Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The unaudited information for Tyler Corporation ("Tyler" or the
"Company") includes all adjustments which are, in the opinion of the Company's
management, of a normal and recurring nature and necessary for a fair
summarized presentation of the condensed consolidated balance sheet at
September 30, 1997, and the condensed consolidated results of operations and
cash flows for the periods presented. The consolidated results of operations
for the nine months ended September 30, 1997, are not necessarily indicative of
the results of operations for the full year and should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
This Quarterly Report on Form 10-Q 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 exceptions. Such risks and uncertainties include,
without limitation, changes in product demand, the availability of products,
changes in competition, economic conditions, various inventory risks due to
changes in market conditions, changes in tax and other governmental rules and
regulations applicable to the Company and other risks indicated in the
Company's filings with the Securities and Exchange Commission. These risks and
uncertainties are beyond the ability of the Company to control, and in many
cases, the Company cannot predict the risks and uncertainties that could cause
its actual results to differ materially from those indicated by the
forward-looking statements. When used in this Quarterly Report, 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.
The December 31, 1996 balance sheet and the statements of operations
for all prior periods presented have been restated to reflect the sale of
Institutional Financing Service, Inc. effective October 15, 1997.
(2) Commitments and Contingencies
As discussed in the commitments and contingencies section of the notes
to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997,
the Company, through its subsidiaries, is involved in various environmental
claims and claims for work-related injuries and physical conditions arising
from a formerly-owned subsidiary. See the documents noted above for further
information.
- 6 -
<PAGE> 7
Approximately fifty former employees of subsidiaries of the Company
engaged in pipe, fittings and other activities have filed several suits against
TPI of Texas, Inc., and/or Swan Transportation Company and/or Tyler Sand
Company, all subsidiaries of the Company, seeking to recover damages for
exposure to asbestos and/or silica. No discovery has taken place, and it is
not possible to predict the outcome at this time.
Other than ordinary course, routine litigation incidental to the
business of the Company and except as described herein, and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, 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.
(3) Discontinued Operations
Effective October 15, 1997, the Company sold all of the capital
stock of its subsidiary, Institutional Financing Services, Inc. ("IFS"), to
I.F.S. Acquisition Corporation for approximately $8.0 million. Proceeds
consisted of $5.9 million cash paid at closing, and approximately $2.1 million
payable on January 31, 1998. As a result of the transaction, the Company
accrued the estimated net loss of $2.5 million on the sale of IFS at September
30, 1997. No current tax benefit has been provided due to the character of the
loss. The timing of the receipt of the $2.1 million noted above is subject to
a subordination agreement between the Company and the purchaser's lender, and
could be adversely affected should IFS not achieve certain financial
performance parameters.
The net assets of discontinued operations consist principally of
working capital (including accounts receivable, inventories, accounts payable
and accrued liabilities) and property, plant and equipment.
(4) Income Tax
The effective tax rate for the first nine months declined from over
100% in 1996 to 36% in 1997. The 1996 tax rate was unusually high due to
non-deductible goodwill amortization, a one-time taxable gain associated with
termination of an employee benefit plan and much lower pretax income.
- 7 -
<PAGE> 8
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
1997* 1996
------------- -------------
<S> <C> <C>
Net sales 21,750,000 17,385,000
Loss before income tax benefit (3,063,000) (6,930,000)
Income tax benefit (1,072,000) (2,403,000)
------------- -------------
Net loss from discontinued operations (1,991,000) (4,527,000)
</TABLE>
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1997* 1996
------------- -------------
<S> <C> <C>
Net sales 10,188,000 3,485,000
Loss before income tax benefit (728,000) (3,592,000)
Income tax benefit (230,000) (122,000)
------------- -------------
Net loss from discontinued operations (498,000) (3,470,000)
</TABLE>
* Includes estimated results of operations for the period September 26 through
October 15, 1997
- 8 -
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Tyler provides products and services through one operating subsidiary.
Forest City Auto Parts Company ("Forest City") specializes in selling
mechanical and electrical automotive aftermarket parts, maintenance items and
accessories to do-it-yourself customers. The auto-parts retailing industry is
very competitive in markets served by Forest City. Accordingly, Forest City
has been experiencing declining sales. Forest City completed a transaction on
October 8, 1997, which added ten stores, primarily in the Chicago and Milwaukee
areas. These additional stores are expected to impact the Company's results in
a positive manner. Historically, same-store sales comparisons are much more
favorable in the Chicago and Milwaukee areas than other markets served by
Forest City.
The Company recently announced the implementation of a new strategy to
build the Company and create shareholder value by signing definitive agreements
to acquire two companies, Business Resources Corporation of Dallas, Texas, and
The Software Group, Inc. of Plano, Texas. Both companies provide integrated
information management services, systems and outsourcing to approximately two
hundred county governments, principally in the Southwest.
Discontinued Operations
Effective October 15, 1997, the Company sold all of the capital stock
of its subsidiary, IFS, to I.F.S. Acquisition Corporation for
approximately $8.0 million. Proceeds consisted of $5.9 million cash paid at
closing, and approximately $2.1 million payable on January 31, 1998. As a
result of the transaction, the Company accrued an estimated net loss of $2.5
million on the sale of IFS at September 30, 1997. No current tax benefit has
been provided due to the character of the loss.
- 9 -
<PAGE> 10
The timing of the receipt of the $2,100,000 noted above is subject to a
subordination agreement between the Company and IFS's lender, and could be
adversely affected should IFS not achieve certain financial performance
parameters. Management does not currently anticipate any such delays in
payment.
The net assets of discontinued operations consist principally of
working capital (including accounts receivable, inventories, accounts payable
and accrued liabilities) and property, plant and equipment.
Analysis of Results of Operations
The discussion and analysis of results of operations excludes the
operations of IFS. All comparisons will be based on results from continuing
operations.
Tyler posted a net income from continuing operations of $.3 million,
or $.01 per share, for the three months ended September 30, 1997, compared with
break-even net income from continuing operations for the corresponding prior-
year period.
Net sales from continuing operations were $20.2 million for the 1997
third quarter versus a prior-year third-quarter sales level of $22.4 million,
a reduction of $2.2 million or 10%.
For the nine months ended September 30, 1997, the Company reported net
income from continuing operations of $.8 million, or $.04 per share, compared
with a net loss of $.2 million, or $.01 per share, for the corresponding 1996
period.
Net sales from continuing operations were $58.2 million for the nine
months ended September 30, 1997, versus a sales level of $65.9 million for the
1996 period, a reduction of $7.7 million, or 12%.
Same-store sales at Forest City declined 7% and 9% during the three
months and nine months ended September 30, 1997, respectively, due to continued
competitive pressures in the market areas served. The shortfall in sales was
mitigated by a slightly higher gross margin as well as a reduction in operating
expenses of over $2.6 million during the first nine months of 1997.
- 10 -
<PAGE> 11
Selling, general and administrative costs for the quarter and nine
months ended September 30, 1996 included $276,000 and $826,000 related to
amortization of goodwill and other intangibles at Forest City. In December
1996 the Company wrote-off all goodwill and other intangibles. The effective
tax rate for the first nine months declined from over 100% in 1996 to 36% in
1997. The 1996 tax rate was unusually high due to non-deductible goodwill
amortization, a one-time taxable gain associated with termination of an
employee benefit plan and much lower pretax income.
Financial Condition and Liquidity
At September 30, 1997, Tyler had $19.2 million in cash and cash
equivalents. The $3.8 million increase was primarily due to cash generated
from operations of $1.5 million and a $3.5 million purchase of 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 by Richmond Partners, Ltd., a Houston-based investment partnership of
which Louis A. Waters is the managing general partner. Mr. Waters is currently
the Chairman of the Board of the Company. The increases in cash and cash
equivalents were partially offset by capital expenditures and purchases of
software.
On October 8, 1997, the Company announced the signing of definitive
agreements to acquire two companies - Business Resources Corporation of Dallas,
Texas, and The Software Group, Inc. of Plano, Texas. These companies provide
integrated information management services, systems and outsourcing to
approximately two hundred county governments, principally in the Southwest.
The combined purchase price for these companies is twelve million shares of
Tyler common stock and $40 million of cash and debt assumption. The
transactions are subject to shareholder approval and are expected to be
completed by late December 1997 or early January 1998.
The Company believes acceptable bank financing will be obtained and,
together with current cash resources will support these acquisitions as well as
capital expenditures at Forest City.
In addition on October 8, 1997, a transaction adding ten stores to the
Forest City network of 60 retail automotive parts stores was completed by
Tyler. Forest City purchased inventory at a discount and assumed leases on
- 11 -
<PAGE> 12
these stores, primarily in the Chicago and Milwaukee areas. The cost of this
transaction is estimated at $2.5 million based on preliminary review of the
inventory. Actual costs will be finalized during the fourth quarter.
Effective October 8, 1997, Bruce W. Wilkinson resigned as a director
and President and Chief Executive Officer of the Company but will continue to
support the Company for a transition period. In connection with his
resignation the Company agreed to buy back 447,609 shares of common stock of
the Company for $1,544,251. Mr. Wilkinson had purchased these shares in the
second quarter of 1997 as a condition of his employment. In addition, the
Company also made payments of approximately $350,000 relating to various stock
compensation plans. The third quarter 1997 selling, general and administrative
expenses included approximately $260,000 in additional expenses related to
these transactions.
Approximately fifty former employees of subsidiaries of the Company
engaged in pipe, fittings and other activities have filed several suits against
TPI of Texas, Inc., and/or Swan Transportation Company and/or Tyler Sand
Company, all subsidiaries of the Company, seeking to recover damages for
exposure to asbestos and/or silica. No discovery has taken place, and it is
not possible to predict the outcome at this time. Costs associated with
investigation of such matters are included in other liabilities at September
30, 1997. (See "Commitments and Contingencies.")
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 changes the computation of earnings per share
and requires dual presentation of basic and diluted earnings per share. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company will adopt SFAS 128
in the fourth quarter of 1997 as required.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
- 12 -
<PAGE> 13
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. It requires: (i)
classification of the components of other comprehensive income by their nature
in a financial statement and (ii) the display of the accumulated balance of the
components of other comprehensive income separate from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS 130 is effective for years beginning after December 15, 1997
and is not expected to have a material impact on financial position or results
of operations.
SFAS 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operations segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company does
not believe the impact of SFAS 131 will be significant on its financial
reporting practices.
- 13 -
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of legal proceedings see Part I, Item 1 "Financial
Statements - Notes to Condensed Consolidated Financial Statements - Commitments
and Contingencies" on page 6 of this document.
Item 5. Other Information
Effective October 8, 1997, Louis A. Waters, an outside director of
the Company, was elected Chairman of the Board. In addition, C. A. Rundell,
Jr., previously the Company's Chairman of the Board, was elected to the
positions of President and Chief Executive Officer upon Bruce W. Wilkinson's
resignation from those offices.
Effective October 31, 1997, David P. Tusa resigned as the Company's
Senior Vice President and Chief Financial Officer for personal reasons. On
November 4, 1997, James E. Russell, a director of the Company, was elected to
the positions of Vice President and Chief Financial Officer to succeed Mr.
Tusa.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
Form 8-K dated September 2, 1997, relating to the appointment
by the Company's Board of Directors of Louis A. Waters as a
Director and a $3.5 million cash purchase of a package of
Tyler securities consisting of 2.0 million common shares and a
warrant to acquire 2.0 million common shares with an exercise
price of $2.50 by Richmond Partners, Ltd., a Houston-based
investment partnership of which Mr. Waters is the managing
general partner. Exhibits filed include the purchase
agreement between Tyler Corporation and Richmond Partners,
Ltd. and Louis A. Waters dated August 20, 1997.
Items 2, 3 and 4 of Part II were not applicable and have been omitted.
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TYLER CORPORATION
By: /s/ James E. Russell
--------------------------------------
James E. Russell, Vice President and
Chief Financial Officer (principal
financial officer)
By: /s/ Scott R. Creasman
--------------------------------------
Scott R. Creasman, Vice President and
Controller (principal accounting officer)
Date: November 5, 1997
- 15 -
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,232,000
<SECURITIES> 0
<RECEIVABLES> 216,000
<ALLOWANCES> 42,000
<INVENTORY> 17,693,000
<CURRENT-ASSETS> 39,940,000
<PP&E> 9,991,000
<DEPRECIATION> 4,486,000
<TOTAL-ASSETS> 56,271,000
<CURRENT-LIABILITIES> 15,033,000
<BONDS> 0
0
0
<COMMON> 233,000
<OTHER-SE> 31,824,000
<TOTAL-LIABILITY-AND-EQUITY> 56,271,000
<SALES> 58,172,000
<TOTAL-REVENUES> 0
<CGS> 33,216,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,000
<INCOME-PRETAX> 1,256,000
<INCOME-TAX> 454,000
<INCOME-CONTINUING> 802,000
<DISCONTINUED> (4,491,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,689,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
