<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 8-K
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT to SECTION 13 or 15 (d) of the
Securities Exchange Act of 1934
Date to Report (Date of earliest event reported):
FEBRUARY 19, 1998
TYLER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-10485 75-2303920
(State or other jurisdiction (Commission file (IRS employer
incorporation) number) identification number)
2121 SAN JACINTO STREET
SUITE 3200
DALLAS, TEXAS 75201
(Address of principal executive offices)
(214) 754-7800
(Registrant's telephone number,
including area code)
<PAGE> 2
The undersigned hereby amends the following items, financial statements,
exhibits or other portions of its Current Report on Form 8-K filed March 5,
1998, as set forth in the pages attached hereto:
Item 7(a). Amended to include audited consolidated financial
statements of Business Resources Corporation for the following
periods:
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Amended to include financial statements of The Software Group,
Inc. for the following periods:
Balance Sheets at October 31, 1997 and 1996
Statements of Operations for the years ended October 31, 1997,
1996 and 1995 (unaudited)
Statements of Stockholders' Equity for the years ended October
31, 1997, 1996 and 1995 (unaudited)
Statements of Cash Flows for the years ended October 31, 1997,
1996 and 1995 (unaudited)
Notes to Financial Statements
Item 7(b). Amended to include pro forma financial information.
Item 7(c). Exhibits
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
TYLER CORPORATION
Date: May 4, 1998 By: /s/ BRIAN K. MILLER
---------------------------
Brian K. Miller
Chief Accounting Officer and Treasurer
(principal financial
officer and principal
accounting officer and an
authorized signatory)
<PAGE> 3
ITEM 7(a)
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Business Resources Corporation:
We have audited the accompanying consolidated balance sheets of Business
Resources Corporation and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 financial position of Business Resources
Corporations and subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
April 2, 1998
<PAGE> 5
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
---- ---------------------------
Assets Historical Pro forma
---------- ----------
(unaudited)
Current assets: (note 1)
<S> <C> <C> <C>
Cash and cash equivalents $ 247,398 676,656 676,656
Accounts receivable, less allowance for doubtful accounts of $54,000 and
$199,100 at December 31, 1996 and 1997, respectively 2,335,869 2,176,217 2,176,217
Other current receivables (note 5) -- 497,123 497,123
Current portion of notes receivable (note 5) 250,000 -- --
Employee advances -- 239,416 239,416
Deferred income taxes (note 8) -- -- 73,667
Prepaid expenses and other 141,175 142,884 142,884
----------- ----------- -----------
Total current assets 2,974,442 3,732,296 3,805,963
Notes receivable, less current portion (note 5) 687,500 -- --
Noncurrent portion of other receivables (note 5) -- 606,630 606,630
Property and equipment, net (note 2) 6,227,234 6,320,781 6,320,781
Intangible assets, net of accumulated amortization of $482,809 and
$720,426 at December 31, 1996 and 1997, respectively (note 1 (f)) 1,243,844 6,774,827 6,774,827
Deferred income taxes (note 8) -- -- 175,584
Other assets, net 117,425 69,475 69,475
----------- ----------- -----------
$11,250,445 17,504,009 17,753,260
=========== =========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 527,512 580,902 580,902
Accrued expenses (note 3) 945,378 2,020,097 2,020,097
Current installments of obligations under capital leases (note 7) 177,156 197,241 197,241
Current portion of long-term debt (note 6) 1,843,817 2,140,363 2,140,363
Deferred income taxes (note 8) 38,920 --
----------- ----------- -----------
Total current liabilities 3,532,783 4,938,603 4,938,603
Deferred income taxes (note 8) 164,358 -- --
Obligations under capital leases, excluding current installments (note 7) 252,841 215,620 215,620
Note payable to Tyler Corporation (note 11) -- 5,700,000 5,700,000
Long-term debt, excluding current portion (note 6) 3,883,785 6,579,002 6,579,002
----------- ----------- -----------
Total liabilities 7,833,767 17,433,225 17,433,225
----------- ----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 100,000 former class common shares authorized
at December 31, 1996 only, 87,650 Class A shares authorized, issued and
outstanding at December 31, 1997 only, 12,350 Class B shares authorized at
December 31, 1997 only, 10,000 Class B shares issued and outstanding at
December 31, 1997 only 877 977 977
Additional paid-in capital 2,660,179 1,570,336 1,570,336
Retained earnings (accumulated deficit) 755,622 (1,500,529) (1,251,278)
----------- ----------- -----------
Total stockholders' equity 3,416,678 70,784 320,035
Commitments (note 7)
----------- ----------- -----------
$11,250,445 17,504,009 17,753,260
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Services $ 7,003,776 13,313,509 17,916,186
Equipment sales 267,553 792,285 309,460
Royalties 272,863 622,986 671,622
----------- ----------- -----------
Total revenues 7,544,192 14,728,780 18,897,268
----------- ----------- -----------
Cost of revenues:
Cost of equipment 137,390 588,291 280,722
Cost of service 5,953,210 7,873,009 10,470,310
----------- ----------- -----------
Total cost of revenue 6,090,600 8,461,300 10,751,032
----------- ----------- -----------
Gross margin 1,453,592 6,267,480 8,146,236
Selling, general and administrative 2,686,585 2,790,025 7,195,622
Stock compensation expense (note 13) -- -- 2,625,000
----------- ----------- -----------
Operating income (loss) (1,232,993) 3,477,455 (1,674,386)
Other income (expense):
Interest income 48,750 82,501 55,335
Interest expense (205,542) (545,432) (651,192)
----------- ----------- -----------
(156,792) (462,931) (595,857)
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (1,389,785) 3,014,524 (2,270,243)
Income tax expense (benefit) (note 8) (444,105) 1,124,818 (14,092)
----------- ----------- -----------
Income (loss) from continuing operations (945,680) 1,889,706 (2,256,151)
Discontinued operations (note 9):
Loss from discontinued operations, net of income tax
benefit of $422,004 (819,182) -- --
Gain from disposal of discontinued operation, net of
income taxes of $379,471 736,621 -- --
----------- ----------- -----------
Loss from discontinued operations (82,561) -- --
----------- ----------- -----------
Net income (loss) $(1,028,241) 1,889,706 (2,256,151)
=========== =========== ===========
Pro forma income data - unaudited (note 1):
Net loss as reported $(2,256,151)
Pro forma adjustments to provide for income taxes 820,684
-----------
Pro forma net loss $(1,435,467)
===========
Per share amounts:
Basic earnings (loss) per share (historical):
Income (loss) from continuing operations $ (10.79) 21.55
Discontinued operations (.94) --
----------- -----------
Net income (loss) $ (11.73) 21.55
=========== ===========
Pro forma basic loss per share $ (16.29)
===========
Weighted average common shares outstanding for basic
earnings (loss) per share computation 87,650 87,650 88,088
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Common shares Common stock
---------------------------------------- -----------------------------------
Former Former
Class A Class B Class Class A Class B Class
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 -- -- 87,650 $ -- -- 877
Contribution from shareholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 -- -- 87,650 -- -- 877
Net income -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1996 -- -- 87,650 -- -- 877
Distribution to shareholder - cash
(note 13) -- -- -- -- -- --
Distribution to shareholder - property
(note 13) -- -- -- -- -- --
Recapitalization (note 13) 87,650 -- (87,650) 877 -- (877)
Stock awards to employees
of 10,000 shares of Class B
common shares (note 13) -- 10,000 -- -- 100 --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1997 87,650 10,000 -- $ 877 100 --
========== ========== ========== ========== ========== ==========
<CAPTION>
Retained
Additional earnings Total
paid-in (accumulated stockholders'
capital deficit) equity
------- -------- ------
<S> <C> <C> <C>
Balances at December 31, 1994 2,509,579 (105,843) 2,404,613
Contribution from shareholder 150,600 -- 150,600
Net loss (1,028,241) (1,028,241)
---------- ---------- ----------
Balances at December 31, 1995 2,660,179 (1,134,084) 1,526,972
Net income 1,889,706 1,889,706
---------- ---------- ----------
Balances at December 31, 1996 2,660,179 755,622 3,416,678
Distribution to shareholder - cash
(note 13) (3,300,000) -- (3,300,000)
Distribution to shareholder - property
(note 13) (414,743) -- (414,743)
Recapitalization (note 13) -- -- --
Stock awards to employees
of 10,000 shares of Class B
common shares (note 13) 2,624,900 -- 2,625,000
Net loss (2,256,151) (2,256,151)
---------- ---------- ----------
Balances at December 31, 1997 1,570,336 (1,500,529) 70,784
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,028,241) 1,889,706 (2,256,151)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 653,450 1,322,360 1,623,040
Compensation expense related to stock awards (note 13) -- -- 2,625,000
Write-off of notes receivable 203,876 -- --
Deferred income taxes (486,638) 709,612 (172,151)
Gain from disposal of discontinued operations (1,116,092) -- --
(Gain) loss on sale of equipment 133,196 (31,400) --
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Accounts receivable (1,197,318) (425,514) (909,475)
Prepaid expenses and other (6,100) (123,516) (1,709)
Accounts payable 563,826 (201,503) (55,825)
Accrued expenses 1,491,683 (704,309) 1,039,327
Other assets (20,365) (36,854) 47,950
----------- ----------- -----------
Net cash provided by (used in) operating activities (808,723) 2,398,582 1,940,006
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired (611,170) (50,000) 8,801
Purchases of property and equipment (2,459,273) (1,960,216) (1,300,872)
Purchase of title plant -- -- (110,000)
Proceeds from sale of equipment -- 122,444 --
Issuance of note receivables (6,600) (10,000) (239,416)
Proceeds received on notes receivable 66,000 260,000 937,500
----------- ----------- -----------
Net cash used in investing activities (3,011,043) (1,637,772) (703,987)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 5,750,000 170,000 5,721,960
Principal payments on notes payable (1,563,989) (987,557) (3,046,947)
Principal payments on capital leases (47,548) (168,327) (181,774)
Distribution to shareholder -- (3,300,000)
----------- ----------- -----------
-----------
Net cash provided by (used in) financing activities 4,138,463 (985,884) (806,761)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 318,697 (225,074) 429,258
Cash and cash equivalents at beginning of year 153,775 472,472 247,398
----------- ----------- -----------
Cash and cash equivalents at end of year $ 472,472 247,398 676,656
=========== =========== ===========
Supplemental disclosures:
Cash paid during the year for interest $ 139,852 627,439 648,355
=========== =========== ===========
Cash paid during the year for income taxes $ -- 325,000 248,305
=========== =========== ===========
Noncash financing activities:
Issuance of note payable relating to acquisition of title services
division (see note 12) $ -- -- 6,000,000
=========== =========== ===========
Equipment acquired under capital leases $ -- -- 164,638
=========== =========== ===========
Noncash distribution of property to shareholder (note 13) $ -- -- 414,743
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997
(1) General and Summary of Significant Accounting Policies
(a) Description of Business
Business Resources Corporation and subsidiaries (the "Company")
are engaged in providing a full complement of advanced information
management systems and integrated applications, including data
processing outsourcing, for county and municipal governments. The
majority of the Company's customers are located in the
Southwestern United States. Government Record Services, Inc.
("GRS") is the largest subsidiary and conducts primarily all
business operations for the Company. GRS provides a comprehensive
set of computerized client/server systems on a number of computer
hardware platforms to fully automate all functions relating to
county government operations.
(b) Principles of Consolidation
The consolidated financial statements include the operations of
Business Resources Corporation and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents consists of short-term highly liquid investments
with original maturities of three months or less. Cash equivalents
consisted of a money market account in the amount of approximately
$117,600 at December 31, 1997.
(d) Property and Equipment
Property and equipment are recorded at cost and are depreciated
over estimated lives ranging from 5 to 20 years using the
straight-line method. Property and equipment held under capital
leases and leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or
estimated useful life of the asset.
(e) Income Taxes
Effective January 1, 1997, the Company converted from being taxed
as a C Corporation to an S Corporation. The tax consequence of all
profits and losses subsequent to the conversion date are the
responsibility of the shareholders of the Company.
The unaudited pro forma provision for income taxes for the year
ended December 31, 1997 presented on the consolidated statement of
operations represents the estimated taxes that would have been
recorded had the Company been a C Corporation for income tax
purposes for the year.
(Continued)
<PAGE> 10
2
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Prior to January 1, 1997, the Company used the asset and liability
method of accounting for deferred income taxes. Deferred tax
assets and liabilities are recognized with respect to tax
consequences attributable to the differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be in effect when such amounts
are realized or settled. The resulting deferred tax assets and
liabilities are adjusted to reflect changes in tax laws or rates
in the period of enactment.
(f) Intangible Assets
Intangible assets consists of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1996 1997
---- ----
<S> <C> <C>
Goodwill $ 430,117 688,717
Noncompete agreements 1,094,887 1,094,887
Other 201,649 201,649
Purchased title plant (note 12) -- 5,510,000
----------- -----------
1,726,653 7,495,253
Less accumulated amortization (482,809) (720,426)
----------- -----------
$ 1,243,844 6,774,827
=========== ===========
</TABLE>
Goodwill, which represents the excess of purchase price over fair
value of identifiable net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited,
generally up to 40 years. Goodwill amortization of $7,892, $27,285
and $30,705 was recorded for the years ended December 31, 1995,
1996 and 1997, respectively. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can
be recovered through undiscounted future operating cash flows. The
amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
A title plant constitutes a historical record of all matters
affecting title to parcels of land in a particular geographic
region. In accordance with SFAS No. 61, "Accounting for Title
Plant," the capitalized costs of the title plant are not
depreciated unless circumstances indicate that the value of the
title plant has been impaired.
(Continued)
<PAGE> 11
3
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The cost of noncompete agreements are amortized straight-line over
the lives of the respective contracts. Amortization expense
related to the noncompete agreements amounted to $127,104,
$151,330 and $168,635 for the years ended December 31, 1995, 1996
and 1997, respectively.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position,
results of operations, or liquidity.
(h) Revenue
The Company recognizes service revenue when services are performed
and equipment sales when the products are shipped. Royalties
relate to the current activities of Professional Real Estate Tax
Services, Inc. and American Business Corporation (dba Reliable Tax
Service) which were sold in 1995, and are recognized as earned
upon receipt of royalty payments by the Company.
Deferred revenue represent advance billings for title record
services, which are billed one month in advance. The deferred
revenue is recognized as the services are performed.
(i) 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 amounts reported in
the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
(j) Earnings Per Share
Basic earnings per share has been computed by dividing income
available to common shareholders by the weighted-average number of
shares of common stock outstanding for the year. Diluted earnings
per share is computed by dividing earnings available for common
(Continued)
<PAGE> 12
4
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
shareholders by the weighted average number of shares outstanding
plus the number of additional shares that would have been
outstanding if potentially dilutive securities had been issued. No
dilutive securities were issued or outstanding for any periods
presented.
(k) Pro forma Balance Sheet (Unaudited)
In contemplation of the proposed acquisition of the Company by
Tyler Corporation, the Company had terminated its S Corporation
status effective January 1, 1998 (note 13).
The December 31, 1997 pro forma consolidated balance sheet
(unaudited) has been adjusted to reflect the establishment of
deferred income tax assets of $249,251 that would have been
required if the Company had terminated its S Corporation status as
of December 31, 1997.
(l) Stock-Based Compensation
The Company accounts for its stock-based employee compensation
plan using the intrinsic value based method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, (APB No. 25). As such, compensation expense
is recorded on the award date to the extent the current market
price of the underlying stock exceeds the purchase price.
(2) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
Useful ---------------------
life 1996 1997
---- ---- ----
<S> <C> <C> <C>
Computer hardware and software (note 7) 5 years $ 3,124,415 4,693,799
Furniture and fixtures 10 years 3,334,089 3,134,302
Leasehold improvements 20 years 1,492,101 1,582,719
----------- -----------
7,950,605 9,410,820
Less accumulated depreciation and amortization (1,723,371) (3,090,039)
----------- -----------
$ 6,227,234 6,320,781
=========== ===========
</TABLE>
(3) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
---- ----
<S> <C> <C>
Deferred rent (notes 7 and 11) $ 262,538 306,793
Accrued bonuses -- 303,000
Deferred revenue -- 699,159
Other 682,840 711,145
--------------- ---------------
$ 945,378 2,020,097
=============== ===============
</TABLE>
(Continued)
<PAGE> 13
5
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate
their fair value because of the short maturity of these instruments.
Based upon the borrowing rates available to the Company for bank loans
with similar terms and average maturities, the fair value of the notes
payable and long-term debt was $5,623,237 and $14,420,949 at December 31,
1996 and 1997, respectively. The corresponding carrying value is
$5,727,602 and $14,419,365, respectively.
(5) Notes and Other Receivables
Notes receivable at December 31, 1996 consists of five-year unsecured
notes bearing interest at 8%, payable in quarterly installments with a
total balance due of $937,500 ($687,500 long-term). The notes receivable
resulted from the sale of Professional Real Estate Tax Services, Inc. and
American Business Corporation (dba Reliable Tax Service) in 1995. All of
these notes were fully repaid prior to December 31, 1997.
At December 31, 1997, other receivables of $1,103,753 ($606,630
noncurrent) represents amounts due from various governmental units for
services performed that are not currently billable to the customer solely
due to the payment terms of their respective service agreement. Revenue
related to the services has been recognized as all of the related
services have been performed, and there are no future obligations or
uncertainties remaining. The amount of other receivables with payment
terms greater than one year are discounted to present value. The
unamortized discount is amortized over the payment term. The Company has
evaluated the fiscal funding of the governmental agencies for which the
services have been performed and have determined the likelihood of
non-collection of the receivables as remote. The amounts are being paid
monthly, up to 84 months, and are noninterest bearing. The noninterest
bearing receivables have been discounted based upon an imputed interest
rate range of 7.8% to 8.8% and the unamortized discount as of December
31, 1997 was $99,842.
(Continued)
<PAGE> 14
6
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
------------------------
1996 1997
---- ----
<S> <C> <C>
Revolving credit facility $ 500,000 --
8% promissory note payable, payable in quarterly installments
through September 2000, collateralized by certain assets 317,941 242,165
8% promissory note payable, payable in quarterly installments
through September 2005, collateralized by certain assets 1,209,812 1,110,073
Installment notes, interest at the prime rate plus .5% (9% at
December 31, 1997), due 1996-2000, collateralized by certain
assets 2,926,831 1,150,939
6.1% unsecured installment note payable, annual installments August
1997 - August 2002 230,906 209,986
7% promissory note payable, payable in annual installments, fully
repaid in 1997 170,000 --
10% unsecured installment notes payable, monthly installments
through May 2004 313,318 283,302
9% promissory note payable, payable in monthly installments through
February 2001, collateralized by certain assets and the capital
stock of Title Records Corporation and Government Records
Services, Inc., wholly-owned subsidiaries of the Company (note
12) -- 5,625,501
Other 58,794 97,399
----------- -----------
Total 5,727,602 8,719,365
Less current portion (1,843,817) (2,140,363)
----------- -----------
Total long-term debt $ 3,883,785 6,579,002
=========== ===========
</TABLE>
In November 1995, the Company entered into a revolving credit facility
with a bank providing for borrowings of up to $500,000. In April 1996,
the Company entered into an amended agreement that provides for
borrowings of up to $1,000,000. The credit facility matured on April 10,
1997 and was renewed. Borrowings under the amended agreement are due on
April 10, 1998 and bear interest at prime rate (8.5% at December 31,
1997). The amount outstanding relating to the revolving line of credit at
December 31, 1996 and 1997 was $500,000 and $-0-, respectively. The
agreement contains various financial covenants and is secured by certain
assets of the Company.
(Continued)
<PAGE> 15
7
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 2,140,363
1999 1,577,645
2000 1,706,775
2001 2,476,110
2002 256,892
Thereafter 561,580
-----------
$ 8,719,365
===========
</TABLE>
(7) Leases
Capital leases consist principally of leases for various computer
equipment. The gross amounts of property and equipment and related
accumulated amortization recorded under capital leases are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1997
---- ----
<S> <C> <C>
Furniture and fixtures $ 130,426 130,426
Computer hardware and software 509,474 674,112
--------------- ---------------
639,900 804,538
Less accumulated amortization (209,903) (391,679)
--------------- ---------------
$ 429,997 412,859
=============== ===============
</TABLE>
The Company has also entered into various operating leases, including an
operating lease with a shareholder of the Company for its office building
(see note 11). In connection with the merger agreement with Tyler
Corporation (note 13), the shareholder contributed the building to T1
Acquisition Corporation (a wholly-owned subsidiary of Tyler which was
established in connection with the merger), effective February 19, 1998.
Consequently, the future minimum lease payments do not include any
obligations relating to the office building. Rent expense incurred in
connection with operating leases was approximately $454,000, $633,000 and
$758,800 for the years ended December 31, 1995, 1996 and 1997,
respectively. The Company records rent expense relating to the building
lease on a straight-line basis over the lease term. As a result of
certain lease escalations, the Company has recorded deferred rent of
approximately $263,000 at December 31, 1996 and $306,800 at December 31,
1997, respectively.
(Continued)
<PAGE> 16
8
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum payments, by year and in the aggregate, under the capital
leases and operating leases consisted of the following at December 31,
1997:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31 leases lease
----------------------- ------ -----
<S> <C> <C>
1998 $ 253,885 171,060
1999 97,434 --
2000 80,281 --
2001 70,725 --
2002 24,329 --
Subsequent to 2002 -- --
--------- ---------
Total minimum lease payments 526,654 171,060
=========
Less amounts representing interest (at rates ranging from 6% to 8%) (113,793)
---------
Present value of minimum capital lease payments 412,861
Less current installments of obligations under capital leases (197,241)
---------
Obligations under capital leases, excluding current installments $ 215,620
=========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation and amortization expense.
(8) Income Taxes
Effective January 1, 1997, the Company converted from a C Corporation to
an S Corporation for U.S. Federal income tax purposes. Pursuant to the
U.S. Federal Tax Codes, the tax consequences of all profits and losses
subsequent to January 1, 1997 are the responsibilities of the
shareholders of the Company.
Total income tax expense (benefit) for the years ended December 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Income (loss) from continuing operations $ (444,105) 1,124,818
Discontinued operations (42,533) --
--------------- ---------------
$ (486,638) 1,124,818
=============== ===============
</TABLE>
In accordance with SFAS 109, "Accounting for Income Taxes," the
elimination of any deferred tax assets and liabilities as a result of a
change in tax status are to be recorded as a component of current year's
income tax expense and benefit. Consequently, the Company recorded an
income tax benefit of $203,278 associated with the elimination of such
deferred taxes which existed as of January 1, 1997. The historical
provision for income taxes for the year ended December 31, 1997 of
$(14,092) consists of approximately $31,000 of state income taxes, the
elimination of existing
(Continued)
<PAGE> 17
9
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
deferred tax liabilities at January 1, 1997 of approximately $203,000
(the effective date when the Company changed form C Corporation to S
Corporation status) and a charge of $158,000 to 1997 operations for a
revision of 1996 estimated income taxes primarily attributable to tax
effected temporary differences and prior year rate adjustments.
Income tax expense (benefit) attributable to income (loss) from
continuing operations before income taxes consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1995:
U.S. Federal $ -- (444,105) (444,105)
=============== =============== ===============
Year ended December 31, 1996:
U.S. Federal $ 364,379 622,745 987,124
State taxes 50,827 86,867 137,694
--------------- --------------- ---------------
$ 415,206 709,612 1,124,818
=============== =============== ===============
</TABLE>
Income tax expense (benefit) attributable to income (loss) from
continuing operations differs from the amount computed by applying the
U.S. federal tax rate of 34% to pretax income (loss) from continuing
operations as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Computed "expected" tax expense $ (472,527) 1,024,938
Effect of state and local taxes, net of federal benefit -- 90,435
Other 28,422 9,445
--------------- ---------------
$ (444,105) 1,124,818
=============== ===============
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996
are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Deferred rent $ 96,509
Other 55,594
------------
Total deferred tax assets 152,103
------------
Deferred tax liabilities:
Realized gain on sale of assets, recognized
on installment basis for tax purposes (340,715)
Other (14,666)
------------
Total deferred tax liabilities (355,381)
------------
Net deferred tax liabilities $ (203,278)
============
</TABLE>
(Continued)
<PAGE> 18
10
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary
differences and other tax attributes. In assessing the reliability of
deferred tax assets, the Company considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized.
(9) Discontinued Operations
In 1995, the Company elected to discontinue operations relating to
several lines of business. A description of discontinued operations and
the income (loss) from discontinued operations for the year ended
December 31, 1995 follows:
<TABLE>
<S> <C>
Computer Election Systems, Inc.: Provider of ballot cards for elections. The
related assets were sold in 1995 in exchange for certain assets of Business
Records Corporation (see note 10). Revenue was $250,345 for the year ended
December 31, 1995 $(213,035)
Professional Real Estate Tax Services, Inc. and American Business Corporation dba
Reliable Tax Service: Primarily engaged in the business of providing tax
certificates. The related assets were sold in 1995 in exchange for notes
receivable (see note 5). Revenue was $1,248,252 for the year ended December
31, 1995 578,224
San Antonio Data, Inc.: Primarily engaged in the business of updating information
for a title plant in Bexar County. The Company's stock was exchanged for the
stock of Professional Real Estate Tax Services, Inc. Revenue was $35,980 for
the year ended December 31, 1995 (470)
Nashoba Corporation: Primarily engaged in the business of ranching and sale of
cattle. The related assets were sold to the sole shareholder of the Company
in 1995 (see note 11). Revenue was $103,116 for the year ended December 31,
1995 (447,280)
----------
$ (82,561)
==========
</TABLE>
Operating results for 1995 from each discontinued line of business have
been reclassified and included in discontinued operations.
(10) Acquisition
In September 1995, the Company acquired certain assets of an unrelated
third party, Business Records Corporation in exchange for the assets of
its land records business in the Southeastern United States and the
assets of Computer Election Systems, Inc., a provider of ballot cards for
(Continued)
<PAGE> 19
11
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
elections, and two notes payable in the total amount of $1,730,000. The
operations acquired from Business Records Corporation provide services to
county and municipal governments similar to those provided by GRS and
have been included in the operating results since the date of purchase.
For financial reporting purposes, the transaction has been accounted for
under the purchase method of accounting with the total purchase price of
approximately $2,337,000 allocated to the net assets acquired at the
estimated fair values of assets acquired and liabilities assumed.
Approximately $100,000 was recorded to goodwill as a result of the
transaction.
The following summarizes the unaudited consolidated pro forma data as
though the acquisition of Business Records Corporation had occurred as of
the beginning of 1995:
<TABLE>
<CAPTION>
1995
--------------------
Historical Pro forma
---------- ---------
(Unaudited)
<S> <C> <C>
Revenues from continuing operations $ 7,544,192 10,644,193
Net loss (1,028,241) (775,240)
Basic loss per share (11.73) (8.84)
</TABLE>
(11) Related Party Transactions
In 1995, the Company entered into a 246 month lease agreement with a
shareholder of the Company for its current office building. The lease
agreement was scheduled to expire in December 2015. Rent expense under
the lease agreement amounted to approximately $454,000 for the year ended
December 31, 1995 and $632,700 for the years ended December 31, 1996 and
1997. The shareholder contributed the office building to T1 Acquisition
Corporation (a wholly-owned subsidiary of Tyler Corporation), in
connection with the merger agreement (see note 13).
Tyler Corporation loaned the Company $5,700,000 for working capital
purposes on December 30, 1997. The note payable was made in connection
with the merger agreement (note 13). The note is unsecured and bears an
interest rate of 8.5%, interest payable quarterly and matures on
September 30, 1999.
(Continued)
<PAGE> 20
12
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Acquisition
Effective July 31, 1997, the Company (through Title Records Corporation,
a wholly-owned subsidiary) acquired certain assets of the title services
division of Business Records Corporation. The acquisition was accounted
for as a purchase business combination and accordingly, the purchase
price of $6,000,000 was allocated to the acquired assets based upon the
estimated fair values of the underlying assets. The purchase price was
allocated, as follows:
<TABLE>
<S> <C>
Computer hardware and software $ 319,000
Property and equipment 181,000
Intangible assets:
Title plant 5,400,000
Goodwill 258,600
------------
Total purchase price $ 6,158,600
============
</TABLE>
Purchased title plant represents the allocation of purchase price based
on estimated fair value of certain assets acquired from Business Records
Corporation on July 31, 1997. A title plant constitutes a historical
record of all matters affecting title to parcels of land in a particular
geographic region. In accordance with SFAS No. 61, "Accounting for Title
Plant," the capitalized costs of the title plant are not depreciated
unless circumstances indicate that the value of the title plant has been
impaired.
The Company financed the acquisition through the issuance of a note
payable to Business Records Corporation for $6,000,000 (note 6).
The following summarizes the unaudited consolidated pro forma data as
though the acquisition of Business Records Corporation had occurred as of
the beginning of the respective periods:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------
1996 1997
------------------ -------------------
Historical Pro forma Historical Pro forma
---------- --------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues from continuing operations $ 14,728,780 19,805,780 18,897,268 21,653,268
Net income (loss) 1,889,706 3,358,706 (2,256,151) (1,221,151)
Net income (loss) per basic and dilutive
earnings per share 21.55 38.32 (16.29) (13.86)
</TABLE>
(Continued)
<PAGE> 21
13
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Subsequent Events
On February 19, 1998, the Company and the sole Class A shareholder of the
Company completed an agreement with Tyler Corporation ("Tyler"), a
publicly-held company listed on the New York Stock Exchange, whereby the
Company merged into a new-formed subsidiary of Tyler (the "Merger").
Under the terms of the Merger and other related transactions, and as
adjusted for the recapitalization discussed below, the principal
shareholder, who owns 87,650 shares of issued and outstanding common
stock, received $15,250,000 in cash and 8,765,000 shares of common stock
of Tyler. The sole Class A shareholder also contributed the office
building to T1 Acquisition Corporation (a wholly-owned subsidiary of
Tyler Corporation), effective February 19, 1998. Certain key employees,
who owned 12,350 shares of the Company's remaining issued and outstanding
stock, received 1,235,000 shares of common stock of Tyler.
In December 1997, the Company recapitalized its capital structure to
increase its authorized shares of common stock from 1,000 shares to
100,000 shares. The effects of the recapitalization have been applied
retroactively for all periods presented in the accompanying consolidated
financial statements. Of the 97,650 shares issued and outstanding as of
December 31, 1997, 87,650 shares consisted of class A common stock and
10,000 shares consisted of class B common stock. The class A and class B
common stock have substantially equivalent rights, except that the class
B stock was non-voting. On December 15, 1997, the Company issued 10,000
shares of class B common stock to key employees of the Company and its
subsidiaries. The issuance of such shares was not subject to future
service requirements. The Company recorded compensation expense related
to this issuance in December 1997 in the amount of $2,625,000 based upon
the estimated fair value of the shares at the award date, which was
estimated to be $262 per share. On January 2, 1998, the Company issued
the remaining authorized 2,350 shares of class B common stock to other
key employees. The Company will record compensation expense related to
this transfer in January 1998. The effects of this issuance to employees
will be recorded in the preacquisition results of operations of the
Company and will not impact the net assets of the Company.
On December 31, 1997, the Company paid dividends of $3,300,000 relating
to 1997 federal tax liabilities and distributed property with a net book
value of $414,743 to the Company's sole Class A shareholder. No gain or
loss was recorded as a result of these transactions. The Company
terminated its S Corporation status effective January 1, 1998.
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Software Group, Inc.:
We have audited the accompanying balance sheets of The Software Group, Inc. as
of October 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Software Group, Inc., as of
October 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
December 19, 1997
<PAGE> 23
THE SOFTWARE GROUP, INC.
Balance Sheets
October 31, 1996 and 1997
<TABLE>
<CAPTION>
Assets 1996 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,782,874 2,807,322
Accounts receivable, net of allowance of $30,000 at 1996
and $90,000 at 1997 1,071,892 1,660,554
Contracts in progress 193,170 48,938
Prepaid expenses and other current assets 35,798 37,351
Deferred income taxes (note 9) 297,075 332,435
Income tax receivable 63,769 --
---------- ----------
Total current assets 3,444,578 4,886,600
Property, plant and equipment, net (note 2) 601,056 548,834
Other assets, net 12,967 12,967
Deferred income taxes (note 9) -- 44,839
---------- ----------
$4,058,601 5,493,240
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 189,078 138,271
Accrued expenses (note 6) 302,289 222,326
Income tax payable -- 565,094
Deferred revenue (note 5) 901,923 1,246,094
---------- ----------
Total current liabilities 1,393,290 2,171,785
---------- ----------
Deferred income taxes (note 9) 14,304 --
---------- ----------
Total liabilities 1,407,594 2,171,785
---------- ----------
Redeemable common stock, at redemption value (note 10) 426,635 --
---------- ----------
Stockholders' equity:
Common stock, no par value, 5,000,000 shares authorized; issued 2,010,818
shares in 1996 and 1,921,000 shares in 1997 less redeemable common stock
shown separately of
89,818 in 1996 and none in 1997 733,500 733,500
Retained earnings 1,490,872 2,587,955
---------- ----------
Total stockholders' equity 2,224,372 3,321,455
Commitments (notes 8 and 10)
---------- ---------
Total liabilities and stockholders' equity $4,058,601 5,493,240
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 24
THE SOFTWARE GROUP, INC.
Statements of Operations
Years ended October 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Revenues:
Service and support revenue $ 5,107,837 5,759,062 6,170,148
Software license fees 2,505,023 2,302,614 2,134,265
Hardware sales 3,180,484 2,990,073 3,266,398
------------ ------------ ------------
Total revenues 10,793,344 11,051,749 11,570,811
Cost of revenues:
Cost of services and support 3,800,096 3,174,075 2,864,257
Cost of hardware 1,927,801 1,982,118 1,703,980
------------ ------------ ------------
Total cost of revenues 5,727,897 5,156,193 4,568,237
------------ ------------ ------------
Gross margin 5,065,447 5,895,556 7,002,574
Selling, general and administrative 5,030,701 5,053,721 5,312,680
------------ ------------ ------------
Operating income 34,746 841,835 1,689,894
Other income (expense):
Interest income 39,024 55,922 87,155
Other (11,436) (11,434)
------------ ------------ ------------
Income before taxes 62,334 886,323 1,777,049
Income tax expense (note 9) 36,257 338,863 657,508
------------ ------------ ------------
Net income 26,077 547,460 1,119,541
Adjustment to fair market value of shares subject to
redemption (note 10) 94,308 -- 22,458
------------ ------------ ------------
Net income available to common shareholders $ (68,231) 547,460 1,097,083
============ ============ ============
Income per share $ (.03) .26 .53
============ ============ ============
Average common and common share equivalent
shares used in per share computation $ 2,143,067 2,145,029 2,078,069
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 25
THE SOFTWARE GROUP, INC.
Statements of Stockholders' Equity
Years ended October 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Common Total
shares Common Retained stockholders'
issued stock earnings equity
------ ----- -------- ------
<S> <C> <C> <C> <C>
Balance at October 31, 1994 (unaudited) 2,010,818 $ 308,500 1,061,913 1,370,413
Compensatory stock option
grants (note 1) (unaudited) -- 425,000 -- 425,000
Change in market value of redeemable
stock (unaudited) -- -- (94,308) (94,308)
Net income (unaudited) -- -- 26,077 26,077
---------- ---------- ---------- ----------
Balance at October 31, 1995 2,010,818 733,500 993,682 1,727,182
Dividends -- -- (50,270) (50,270)
Net income -- -- 547,460 547,460
---------- ---------- ---------- ----------
Balance at October 31, 1996 2,010,818 733,500 1,490,872 2,224,372
Net income -- -- 1,119,541 1,119,541
Change in market value of
redeemable stock -- -- (22,458) (22,458)
Redemption of common stock (89,818) -- -- --
---------- ---------- ---------- ----------
Balance at October 31, 1997 1,921,000 $ 733,500 2,587,955 3,321,455
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 26
THE SOFTWARE GROUP, INC.
Statements of Cash Flows
Years ended October 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,077 547,460 1,119,541
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 249,109 261,899 246,026
Loss on sale of equipment 11,402 11,434 --
Deferred income taxes (245,590) 127,359 (94,503)
Compensation expense related to stock options 425,000 -- --
Changes in operating assets and liabilities:
Accounts receivable 142,903 (493,959) (588,662)
Contracts in progress -- (193,170) 144,232
Prepaid expenses and other 11,505 12,578 62,216
Accounts payable (112,403) 88,975 (50,807)
Accrued expenses 13,379 92,001 (79,953)
Income taxes payable (11,163) (46,711) 565,094
Deferred revenue (24,692) 273,388 344,171
----------- ----------- -----------
Net cash provided by operating activities 485,527 681,254 1,667,355
----------- ----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment (294,933) (229,916) (193,804)
Sale of investments 246,835 -- --
----------- ----------- -----------
Net cash used by investing activities (48,098) (229,916) (193,804)
----------- ----------- -----------
Cash flows from financing activities:
Dividends -- (50,270) --
Redemption of ESOP stock (note 10) -- -- (449,093)
----------- ----------- -----------
Net cash used in financing activities -- (50,270) (449,093)
----------- ----------- -----------
Net increase in cash and cash equivalents 437,429 401,068 1,024,458
Cash and cash equivalents at beginning of year 944,377 1,381,806 1,782,874
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,381,806 1,782,874 2,807,332
=========== =========== ===========
Supplemental cash flow information - income taxes paid $ 261,834 328,774 186,918
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 27
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
(Information as of and for the year ended October 31, 1995 is unaudited)
(1) Summary of Significant Accounting Policies
(a) General Information
The Company's business consists predominantly of selling computer
hardware, software and support services to governmental entities
within the United States. The Company has a range of products to
serve the automation needs of local government clients, including
appraisal districts, tax offices, court rooms, jails, sheriff
departments and financial administrative offices. The Company was
formed in 1981 as a C Corporation, and is incorporated in the
state of Texas.
(b) Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid investments
with original maturities of three months or less. Cash equivalents
at October 31, 1996 and 1997 consisted of money market accounts in
the amount of $1,573,800 and $2,659,314, respectively.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation on
equipment is calculated on a straight-line basis for furniture and
fixtures and using accelerated depreciation methods for other
equipment over the estimated useful lives of the assets.
(d) Revenue Recognition
The Company sells off-the-shelf software packages, and in a
variety of instances, computer equipment and related peripherals,
installation, and training. The Company recognizes revenue,
including those arrangements which entail a customer-specific
installation solution, when all of the elements have been
delivered, training completed, all significant contractual
obligations satisfied and collection of the related receivable for
the entire arrangement is probable. The Company also provides
maintenance, which is deferred based on vendor specific evidence
of fair value, and recognized ratably over the service period.
Incremental training is billable on a time and material basis and
is recognized as revenue when the related services are performed.
To the extent computer hardware and the related peripherals are
drop shipped to a customer before the end of an accounting period,
the Company records contracts in progress for the corresponding
cost of such equipment.
(Continued)
<PAGE> 28
2
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
(e) Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk include accounts receivable. The
Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management
expectations.
(f) Software Development Costs
In accordance with the provisions of Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed," software
development costs are expensed prior to the establishment of
technological feasibility of the software development project.
Costs incurred after that point are capitalized until the product
is available for general release. No such costs have been
capitalized at October 31, 1996 and 1997.
(g) Use of Estimates
The preparation of 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.
(h) Income Taxes
The Company's income taxes are accounted for under the asset and
liability method for financial reporting purposes and the cash
method for income tax purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating losses and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(i) Impairment of Long-Lived Assets and Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of on November 1, 1995. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the
(Continued)
<PAGE> 29
3
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Adoption of this statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
(j) Net Income Per Common Share
Per share information was calculated based on the weighted average
number of shares of common stock and common stock equivalents,
outstanding during the respective periods. The common stock
equivalents relate to stock options and were computed using the
treasury stock method.
(k) Unaudited Financial Information
Interim information for the year ended October 31, 1995, including
such information in the notes to the financial statements, is
unaudited. This information has been prepared on the same basis as
the annual financial statements and, in the opinion of the
Company's management, reflects all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair
presentation of the results of such period.
(l) Stock Option Plan
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded
on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation" allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made subsequent to October 31,
1995 and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123. There were no stock
options granted subsequent to October 31, 1995. Consequently, no
pro forma disclosure is required.
(Continued)
<PAGE> 30
4
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
(2) Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
Useful
life 1996 1997
---- ---- ----
<S> <C> <C> <C>
Furniture and fixtures 3-7 years $ 979,707 1,080,965
Computer hardware and software 3-7 years 365,912 425,462
Transportation equipment 3-5 years 241,497 278,132
------------ ----------
1,587,116 1,784,559
Less accumulated depreciation (986,060) (1,235,725)
------------ ---------
$ 601,056 548,834
============ ==========
</TABLE>
(3) Lines of Credit
Under a loan agreement with First Bank McKinney dated January 31, 1996,
the Company has a revolving line of credit secured by accounts receivable
and personal guarantees with a maximum limit of $400,000. Interest is due
at maturity, and the rate is 10%. The line of credit matured on January
31, 1997 and was not renewed. There was no outstanding balance on this
line of credit as of October 31, 1996.
(4) Financial Instruments
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate
their fair value because of their short maturity.
(5) Deferred Revenue
Deferred revenues represents billings on quarterly and annual rental
agreements and maintenance contracts with certain counties. Only one
month's revenue had been earned on the fourth quarter billings as of
October 31, 1996 and 1997. Similar accounting is used for billings other
than quarterly.
(Continued)
<PAGE> 31
5
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
(6) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
October 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Accrued vacation $ 119,937 115,535
Other 182,352 106,791
-------------- --------------
$ 302,289 222,326
============== ==============
</TABLE>
(7) Stock Option Plan
The Company has a stock option plan (the "Option Plan") pursuant to which
the Company's Board of Directors may grant stock options to officers, key
employees and consultants. The Plan authorizes grants of options to
purchase up to 300,000 shares of authorized but unissued common stock.
The Company accounts for stock-based compensation using the intrinsic
value method prescribed by APB No. 25 "Accounting for Stock Issued to
Employees," (APB No. 25) and related interpretations. Accordingly, the
Company is to record expense in an amount equal to the excess of the
market price of common stock on the grant date over the option exercise
price. Such expense is recognized at the grant date for options fully
vested.
In 1992, the Company granted 50,000 fully vested stock options with an
exercise price of $.50 per share, which had not been exercised at October
31, 1997.
In addition, in 1995, the Company granted 100,000 fully vested stock
options with an exercise price of $.50 per share, which had not been
exercised at October 31, 1997. The Company recorded $425,000 in
compensation expense during the year ended October 31, 1995 in connection
with the 1995 grant. The 150,000 stock options were fully vested and
outstanding at October 31, 1997. There were no grants in 1996 or 1997.
(8) Leases
The Company has entered into an operating lease for its office building.
Rent expense incurred in connection with operating leases was $129,673,
$155,608 and $155,608 for the years ended October 31, 1995, 1996 and
1997, respectively.
(Continued)
<PAGE> 32
6
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
Future minimum payments, by year and in the aggregate, under the
operating lease consisted of the following at October 31, 1997:
<TABLE>
Year ending October 31,
-----------------------
<S> <C>
1998 $ 155,608
1999 155,608
Thereafter --
---------
$ 311,216
=========
</TABLE>
(9) Income Taxes
The provision for income taxes for the years ended October 31, 1995, 1996
and 1997 consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Current tax expense:
Federal $ 250,671 186,910 691,238
State and local 31,176 24,594 60,973
------------ ------------ ------------
281,847 211,504 752,211
Deferred tax (benefit) expense:
Federal (216,284) 125,364 (86,841)
State and local (29,306) 1,995 (7,862)
------------ ------------ ------------
(245,590) 127,359 (94,703)
------------ ------------ ------------
$ 36,257 338,863 657,508
============ ============ ============
</TABLE>
Income tax expense for the years ended October 31, 1995, 1996 and 1997
differs from the amount computed by applying the U.S. federal income tax
rate of 34 percent to pretax income as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Computed "expected" tax expense $ 21,193 301,350 604,197
State and local taxes, net of federal income
tax benefit 1,870 26,589 53,311
Other differences 13,194 10,924 --
------------ ------------ ------------
$ 36,257 338,863 657,508
============ ============ ============
</TABLE>
(Continued)
<PAGE> 33
7
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at October 31, 1996
and 1997 are presented below:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred revenue $ -- 59,221
Deferred rentals 14,685 18,269
Accounts receivable reserve 10,200 32,400
Accrued vacation 53,501 42,748
Tax benefit attributed to stock options 256,225 256,225
------------ ------------
Total deferred tax assets 334,611 408,863
------------ ------------
Deferred tax liabilities:
Contracts in progress and other (38,090) (18,107)
Depreciation (13,750) (13,482)
------------ ------------
Total deferred tax liabilities (51,840) (31,589)
------------ ------------
Net deferred tax assets $ 282,771 377,274
============ ============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which these temporary differences become
deductible. Management considers scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Management believes it is more likely than not
that the Company will fully realize the benefits of these deferred tax
assets.
(10) Retirement Plans
In November of 1983, the Company established The Software Group, Inc.
Employee Stock Ownership Plan (ESOP). The ESOP owned 89,818 shares of the
Company's common stock at October 31, 1995 and 1996. The ESOP plan covers
all eligible employees meeting age and length of service requirements.
Under the terms of the ESOP, contributions are at the discretion of the
Board of Directors up to the maximum allowable for tax purposes. The
Company contributed $5,000 to the ESOP for the year ended October 31,
1995. No contributions were made to the ESOP for the years ended October
31, 1996 and 1997.
Under the provisions of the Company's ESOP, the Company is required to
repurchase upon the death, disability, retirement, or termination of a
participant, all shares of common stock issued to such participant under
terms of the ESOP, if so requested by the participant or his/her estate.
Other provisions of the ESOP require the Company to repurchase a portion
of the participant's total shares under specified terms and/or
conditions. Repurchases under the ESOP are to be made at the value as
determined by the most recent valuation date (as defined by the ESOP)
over a period not to exceed six years.
(Continued)
<PAGE> 34
8
THE SOFTWARE GROUP, INC.
Notes to Financial Statements
Accounting standards under rules and regulations issued by the Securities
and Exchange Commission require that common stock subject to "put rights"
(which are exercisable under certain circumstances with the ESOP) be
presented separately from common stock which is not subject to "put
rights" in order to distinguish it from permanent capital in the legal
sense. Further, such accounting standards require the Company to present
such ESOP shares on the balance sheet at the amount which would be paid
if redeemed. Accordingly, on the balance sheet at October 31, 1996, the
89,818 shares in 1996 of common stock owned by the ESOP are classified as
redeemable common stock at redemption values of $426,635. A change in the
fair market value of shares subject to redemption is also reflected as an
adjustment to retained earnings. At October 31, 1995 and 1996, the ESOP
per share fair market value was $4.75.
The ESOP was terminated effective January 31, 1997, and the shares of the
stock were redeemed at a value of $5.00 per share, for a total redemption
value of $449,093. The Company subsequently retired the redeemed shares
which resulted in a corresponding decrease of 89,818 shares issued.
In 1990, the Company added a 401(k) retirement plan. The 401(k)
provisions cover all eligible employees of the Company who meet age and
length of service requirements. Employee contributions are by salary
reduction and are at the employee's discretion within the limits imposed
by the 401(k) document provisions and the Internal Revenue Code. Employer
contributions are discretionary and can be up to 2% of the total employee
compensation. In fiscal year 1996, the employer matched employee
contributions fifty cents on the dollar. Total employer contributions to
the 401(k) plan were $62,933 and $54,428 for the years ended October 31,
1996 and 1997, respectively.
(11) Definitive Merger Agreement
On October 8, 1997, the Company reached a definitive agreement to be
acquired by the Tyler Corporation. Tyler Corporation will acquire the
stock of the Company in exchange for cash and shares of Tyler
Corporation. The acquisition is contingent upon regulatory and
shareholder approvals.
<PAGE> 35
ITEM 7(b)
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth unaudited pro forma condensed consolidated
information for Tyler Corporation (the "Company"). The unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1997, gives effect to the acquisition of Business Resources Corporation
("Resources") (including Resources' acquisition of certain assets of BRC
Holdings, Inc. ("Title Acquisition")) and the Software Group, Inc. ("TSG") as if
each had occurred on January 1, 1997. The unaudited pro forma condensed
consolidated balance sheet as of December 31, 1997, has been prepared as if the
acquisitions of Resources and TSG had occurred on December 31, 1997.
The unaudited pro forma condensed consolidated financial information
does not purport to present the actual results of operations or financial
position of the Company had the transactions and events assumed therein in fact
occurred on the dates indicated, nor is it necessarily indicative of the results
of operations that may be achieved in the future. The unaudited pro forma
condensed consolidated financial information is based on certain assumptions and
adjustments described in the notes thereto and should be read in conjunction
therewith. The unaudited pro forma condensed consolidated financial information
should also be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of the Company, Resources and TSG.
<PAGE> 37
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESOURCES
--------------------------------- PRO FORMA
HISTORICAL PRO FORMA HISTORICAL PRO FORMA COMBINED
COMPANY HISTORICAL ADJUSTMENTS ADJUSTED TSG (1) ADJUSTMENTS COMPANY
------- ---------- ----------- -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $76,429 18,897 2,756 (8) 21,653 11,571 -- 109,653
Costs and expenses:
Costs of revenues 43,947 10,751 213 (9) 11,036 4,568 -- 59,551
72 (10)
Selling, general and administrative 31,944 9,821 -- 9,821 5,313 (3,594)(2) 40,825
(2,400)(4)
(1,386)(13)
1,127 (14)
Amortization of goodwill -- -- -- -- -- 1,864 (15) 1,864
Interest (income) expense (830) 595 868 (11) 1,463 (87) 1,994 (16) 2,540
------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 1,368 (2,270) 1,603 (667) 1,777 2,395 4,873
Income tax (benefit) 197 (14) (233)(12) (247) 658 1,491 (17) 2,099
------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 1,171 (2,256) 1,836 (420) 1,119 904 2,774
====================================================================================
Income per share from continuing operations $ 0.06 .09
======= =======
Weighted average number of basic common
shares outstanding 20,498 12,000 (6) 32,498
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements.
<PAGE> 38
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
RESOURCES
--------------------------------- PRO FORMA
HISTORICAL PRO FORMA HISTORICAL PRO FORMA COMBINED
COMPANY HISTORICAL ADJUSTMENTS ADJUSTED TSG (1) ADJUSTMENTS COMPANY
------- ---------- ----------- -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 8,877 677 -- 677 2,807 (7,148)(6) 5,013
(200)(4)
Accounts receivable, net 201 2,176 -- 2,176 1,661 -- 4,038
Merchandise inventories 22,901 -- -- -- -- -- 22,901
Note receivable 2,628 -- -- -- -- -- 2,628
Other current assets 1,672 879 74(5) 953 419 -- 3,044
-----------------------------------------------------------------------------------------
Total current assets 36,279 3,732 74 3,806 4,887 (7,348) 37,624
Property, plant and equipment, net 5,580 6,321 1,031(3) 7,352 549 2,995 (6) 16,476
Intangible assets -- 6,775 -- 6,775 15,825 (6) 82,850
53,463 (6)
6,587 (7)
200 (4)
Note receivable from Resources 5,700 -- -- -- -- (5,700)(18) --
Other receivables 4,455 607 -- 607 -- -- 5,062
Other assets 2,881 69 176(5) 245 57 -- 3,183
-----------------------------------------------------------------------------------------
$ 54,895 17,504 1,281 18,785 5,493 66,022 145,195
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,615 2,601 (307)(3) 2,294 361 800 (6) 9,070
Current portion of long-term debt -- 2,140 -- 2,140 -- -- 2,140
Deferred revenue -- -- -- -- 1,246 -- 1,246
Other current liabilities 6,172 197 -- 197 565 -- 6,934
-----------------------------------------------------------------------------------------
Total current liabilities 11,787 4,938 (307) 4,631 2,172 800 19,390
Note Payable to Tyler Corporation -- 5,700 -- 5,700 -- (5,700)(18) 0
Long-term debt -- 6,579 -- 6,579 -- 21,165 (6) 27,744
Deferred income taxes 3,168 -- -- -- -- 6,587 (7) 9,755
Other liabilities 8,537 216 -- 216 -- 8,753
Shareholders' equity 31,403 71 1,338(3) 1,659 3,321 43,170 (6) 79,553
250(5)
-----------------------------------------------------------------------------------------
$ 54,895 17,504 1,281 18,785 5,493 66,022 145,195
=========================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements.
<PAGE> 39
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(Unaudited)
(1) RESOURCES ACQUISITION. Effective on February 19, 1998, Business Resources
Corporation, a Texas corporation ("Resources"), merged with and into T1
Acquisition Corporation ("T1"), a Texas corporation and wholly owned
subsidiary of Tyler Corporation (the "Company"), pursuant to a Second
Amended and Restated Agreement and Plan of Merger (the "Resources Merger
Agreement"), dated as December 29,1997, and effective as of October 8,
1997, among the Company, T1, Resources, and William D. Oates, the principal
shareholder of Resources. T1 is the surviving corporation and changed its
name to Business Resources Corporation ("Resources") effective on February
19, 1998. The shareholders of Resources received aggregate consideration of
$15,250 in cash and 10,000 shares of common stock, $.01 par value per
share, of the Company (the "Tyler Common Stock").
TSG ACQUISITION. Effective on February 19, 1998, The Software Group, Inc.,
a Texas corporation ("TSG"), merged with and into T2 Acquisition
Corporation ("T2"), a Texas corporation and wholly owned subsidiary of the
Company, pursuant to an Amended and Restated Agreement and Plan of Merger
(the "TSG Merger Agreement"), dated as of December 29, 1997, and effective
as of October 8, 1997, among the Company, T2, TSG, and Brian B. Berry and
Glenn A. Smith, the principal shareholders of TSG. T2 is the surviving
corporation and changed its name to The Software Group, Inc. ("TSG"),
effective on February 19, 1998. The shareholders of TSG received aggregate
consideration of $12,000 in cash and 2,000 shares of Tyler common stock,
including adjustments for cash payments for fractional shares. Pursuant to
the terms of the TSG Merger Agreement, the TSG Merger Agreement was
thereafter amended on February 19, 1998, but effective as of October 8,
1997, by Amendment No. One thereto to change the form of the merger to a
merger of TSG with and into T2.
The Company financed the cash portion of the consideration in both of the
foregoing transactions under a senior credit facility in the amount of
$50,000,000 entered into on February 13, 1998, with NationsBank of Texas,
N.A.
The fiscal year end for TSG is October 31. Accordingly, the balance sheet
presented for TSG is as of October 31, 1997. The historical statements of
operations presented for TSG are for the twelve months ended October 31,
1997.
(2) Adjustments to Resources for non-recurring expenses recorded in 1997:
<TABLE>
<S> <C>
Lease obligation relating to a facility not currently used in
Resources' business $ 193
Settlement of obligations relating to previous Resources' acquisitions 248
Compensation expense associated with the transfer of 12,350 shares
of class B non-voting stock from Resources to
employees of Resources (including payroll taxes of $80) 2,705
Consulting expenses associated with selling Resources 318
Miscellaneous bonuses 130
------
$3,594
======
</TABLE>
The pro forma balance sheet includes and the pro forma statement of
operations excludes these non-recurring charges.
(3) Represents the transfer of the office building, effective February
19, 1998, from the principal shareholder of Resources at its net book value
of $1,031 to T1, less deferred rent expense related to the lease
termination of $307, resulting in a credit to equity of $1,338.
(4) Pursuant to the Resources' Merger Agreement and the TSG Merger Agreement,
in December 1997, Resources (i) paid a $3,300 dividend to its principal
shareholder and (ii) paid cash bonuses to
<PAGE> 40
employees and a consultant of Resources totaling $2,400, and in February
1998, TSG paid cash bonuses to employees of TSG totaling $200. The pro
forma balance sheet includes and the pro forma statement of operations
excludes those non-recurring cash bonuses described in (ii) above.
(5) To record the reinstatement of existing deferred tax assets of $250 related
to Resources changing from a C corporation to an S corporation, effective
January 1, 1997, and then revoking its S corporation status concurrent with
the merger.
(6) The acquisitions of Resources and TSG have been accounted for using the
purchase method of accounting. The purchase price and allocation of
purchase price to the assets acquired and liabilities assumed are
summarized below:
PURCHASE PRICE:
<TABLE>
<CAPTION>
RESOURCES(a) TSG TOTAL
------------ ---------- ----------
<S> <C> <C> <C>
Cash $ 15,250 $ 12,000 $ 27,250
Long-term debt, excluding current portion,
outstanding 12,279 -- 12,279
Estimated transaction costs 1,200 663 1,863
Fair value of common stock issued (12,000 shares at
$4.0125(f) per share) 40,125 8,025 48,150
---------- ---------- ----------
$ 68,854 $ 20,688 $ 89,542
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Resources Resources/
Purchase Historical TSG
Price as TSG Acquisitions Net Pro Forma
Allocation Adjusted Historical Financing Adjustment
---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Current assets $ 8,693 $ (3,806) $ (4,887) $ (7,148)(d) $ (7,148)
Property, plant and
equipment 10,896 (b) (7,352) (549) -- 2,995
Intangible assets 22,600 (c) (6,775) -- -- 15,825
Other receivables 607 (607)
Other assets 302 (245) (57) -- --
Goodwill 53,463 (g) -- -- -- 53,463
-- -- --
Current liabilities (6,803) 4,631 2,172 (800)(d) (800)
Note payable to
Tyler -- 5,700 -- (5,700)(18) --
Long-term debt -- 6,579 -- (27,744)(e) (21,165)
Other liabilities (216) 216 -- -- --
Shareholders' equity -- 1,659 3,321 (48,150)(f) (43,170)
-------- ---------- ---------- ---------- ----------
$ 89,542 $ -- $ -- $ (89,542) $ --
======== ========== ========== ========== ==========
</TABLE>
<PAGE> 41
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(CONTINUED)
ALLOCATION OF PURCHASE PRICE:
(a) The purchase price for Resources does not include certain potential
additional consideration, as the contingencies regarding such
additional consideration are not presently determinable beyond
reasonable doubt.
(b) This amount represents the fair value of the office building, land,
and improvements as well as the net book value of furniture and
equipment for Resources and TSG, which approximates fair value.
(c) Represents the fair value of the following intangible assets:
<TABLE>
<CAPTION>
RESOURCES TSG TOTAL
----------- ---------- ---------
<S> <C> <C> <C>
Title plant (non-depreciable asset) $ 13,100 $ -- $ 13,100
Work force (10 year and 5 year estimated lives for
Resources and TSG, respectively) 2,200 600 2,800
Customer list (35 year and 20 year estimated lives
for Resources and TSG, respectively) 1,300 2,300 3,600
Software (5 year estimated life) 1,000 2,100 3,100
---------- ---------- ----------
$ 17,600 $ 5,000 $ 22,600
========== ========== ==========
</TABLE>
The increase in the fair value of the title plant from the preliminary
allocation for the July 31, 1997, acquisition by Resources is
attributable to the bargain purchase price and the economic events
that occurred subsequent to that date, including (i) improved
relationships with customers following the Title Acquisition and (ii)
anticipated increased demand for title plants and updating services
resulting from the passage of a state constitutional amendment
permitting home equity lending in Texas.
(d) Represents cash paid from the Company to Resources and TSG and
estimated transaction costs totaling $29,113, net of additional bank
debt of $21,165 and transaction cost expected to be paid after
December 31, 1997 of $800.
(e) Represents total long-term debt related to these Acquisitions, which
includes $6,579 in assumed long-term debt, excluding current portion,
from Resources and $21,165 in additional bank debt.
(f) Represents the issuance of 12,000 shares of common stock at an average
price of $4.0125 per share. The average price was calculated using the
average of the closing prices of the Company's
<PAGE> 42
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(CONTINUED)
Common Stock for the five consecutive trading days beginning two
trading days prior to the public announcement by the Company of these
acquisitions.
(g) Represents the excess purchase price over the fair value of the assets
acquired. Including the effect of the adjustments in notes (4) and
(7), goodwill is estimated at $45,933 and $14,317 for Resources and
TSG, respectively. Goodwill will be amortized over 40 years and 20
years for Resources and TSG, respectively.
(7) To record a $6,587 deferred tax liability and related goodwill related to
the tax effect of the difference between the financial statement carrying
amount and the tax basis of the acquired assets assuming a tax rate for the
Company of 35%.
(8) To give effect to the Title Acquisition as if it occurred on January 1,
1997.
(9) Represents the adjustments on Resources to cost of revenues for the year
ended December 31, 1997:
<TABLE>
<S> <C>
Title Acquisition (8) $ 846
Office rent expense
(633)
-----
$ 213
=====
</TABLE>
(10) Represents adjustments on Resources to record incremental depreciation and
amortization expense for the year ended December 31, 1997:
<TABLE>
<S> <C>
Title Acquisition property and equipment (title plant is not
depreciated) (8) $ 64
Unrelated real property (18)
Office building (3) 26
-------
$ 72
=======
</TABLE>
(11) Adjustments on Resources to record incremental interest expense for the
year ended December 31, 1997:
<TABLE>
<S> <C>
Title Acquisition indebtedness of $6,000 at
an approximate interest rate of 8.5% (8) $ 295
Dividends and management bonus aggregating $5,700 at
an approximate interest rate of 8.5% (4) 485
Office building indebtedness of $1,031 at an approximate
interest rate of 8.5% (3) 88
------
$ 868
======
</TABLE>
<PAGE> 43
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
(CONTINUED)
(12) The net adjustment to tax expense for Resources for the year ended December
31, 1997 on the pro forma adjustments were estimated at 37%. Resources
changed from C corporation to S corporation status effective January 1,
1997. These adjustments were to adjust from S corporation to C corporation
status for federal income tax purposes.
(13) Represents lower compensation expense for management subsequent to the
acquisition of Resources and TSG. Amounts have been determined based upon
specific employees' revised employment agreements.
(14) Adjustments to depreciation and amortization expense for the year ended
December 31, 1997:
<TABLE>
<S> <C>
Office building and improvements $ 41
Amortization of intangible assets other than goodwill 1,112
---------------
1,153
Less: Resources' adjustments(10) (26)
---------------
$ 1,127
===============
</TABLE>
(15) Amortization of goodwill is calculated as follows for the year ended
December 31, 1997:
<TABLE>
<S> <C>
Resources $ 1,148
TSG 716
---------
$ 1,864
=========
</TABLE>
(16) Interest expense is calculated as follows for the year ended December 31,
1997:
<TABLE>
<S> <C>
Long-term debt outstanding, including current portion $ 29,884
Interest expense at 8.5% $ 2,540
Less: Company historical, Resources pro forma and TSG
historical interest expense and income (546)
---------
$ 1,994
=========
</TABLE>
(17) Represents tax expense related to adjustments to selling, general and
administrative expenses, which is offset by higher interest expense, based
on an effective tax rate of 35%.
(18) The Company loaned Resources $5,700 on December 29, 1997, for working
capital purposes.
<PAGE> 44
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Business Resources Corporation:
We consent to the incorporation by reference in the registration statement (No.
33-34809) on Form S-8 of Tyler Corporation of our report dated April 2, 1998,
with respect to the consolidated balance sheets of Business Resources
Corporation and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, which
report appears in the Form 8-K of Tyler Corporation dated May 4, 1998.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
May 4, 1998
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
The Software Group, Inc.:
We consent to the incorporation by reference in the registration statement (No.
33-34809) of Form S-8 of Tyler Corporation of our report dated December 19,
1997, with respect to the balance sheets of The Software Group, Inc. as of
October 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended, which report
appears in the Form 8-K of Tyler Corporation dated May 4, 1998.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
May 4, 1998
