Document da31bvy1B2kqz05YmQe2qkLOe

SECURITIES AND EXCHANGE COMMISSION Washington, D,C 20549 Fora 104 ANNUM. REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANCE ACT OF 1934 For the fiscal year ended December 31, 1988 Conilsdon file number 1-5409 TILES CffiPOfiATION (Exact name of registrant as specified in its charter) Delaware (State of Incorporation) 75-1225029 (I.S.S. Eaployer Identification No.) 3200 San Jacinto Tower Dalles, Texas (Address of principal executive officee) 75201 (Zip Code) Registrant'a telephone miaber, including area code! (214) 7S4-7800 Securities registered pursuant to Section 12(b) of the Act: Title of each class Naan of each exchange on which registered Coeaon Stock, $0.10 par value Preferred Stock Purchase Rights 10-1/21 Subordinated Debenture* due 1998 New Park Stock Exchange Philadelphia Stock Exchange Naw York Stock Exchange Philadelphia Stock Exchange How York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Indicate by cheek aark 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 eonthe (or for such shorter period that the regiatrant was required to file such reports), and (2) has been subject to such filing requirements for the peat 90 days. Tea X No _____ The aggregate market value of the voting stock held by neo-affiliates of the registrant on February 21, 1989, was $134,706,298. The nuaber of shams of cannon stock of the registrant outstanding on February 21, 1989, vas 21.474,047. DOCUMENTS INCORPORATED IT REFERENCE Certain information required by Parts 1 and II of this Annual Report is incorporated by reference from the registrant's 1988 Annual Report to Shareholders and information required by Part III of this Annual Report la incorporated by reference from tbe registrant's definitive proxy statement for its annual neeting of shareholders to be held on April 19, 1989. PART I Item 1. Business. General. Tyler Corporation ("Tyler"), through its three operating subsidiaries. Atlas Powder Company, Reliance Universal Inc., and Tyler Pipe Industries, Inc., manufactures and distributes commercial and industrial explosives for the coal mining, quarrying, construction, metal mining and seismic exploration industries; manufactures and distributes specialty industrial coatings for industrial customers; and manufactures and distributes cast iron pipe, fittings and related building materials used primarily in commercial, industrial and residential construction and by municipalities. In August 1988 Tyler sold Hall-Mark Electronics Corporation, a distributor of electronic components and systems. Industry Segments. For financial information about industry segments of Tyler, reference is made to the "Industry Segments" note to the consolidated financial statements on page 31 of Tyler's 1988 Annual Report to Shareholders which is incorporated by reference. This information should be read in conjunction with the consolidated financial statements and accompanying notes. Principal Products and Services. Commercial and Industrial Explosives. Tyler, through Atlas Powder Company ("Atlas") and its subsidiaries, manufactures and distributes a complete line of commercial and industrial explosives for a variety of end users whose demands and requirements differ widely according to industry, location, blasting conditions and technical sophistication. Atlas also manufactures nitrated esters for use in propellants for the aerospace industry. The business was founded in 1912 and acquired by Tyler in July 1973. The major user of commercial and industrial explosives, on the basis of total tonnage, is the coal mining industry, followed by the quarrying, construction, metal mining and seismic exploration industries. With headquarters in Dallas, Atlas has production facilities in Joplin, Missouri and Tamaqua, Pennsylvania, where it manufactures nitroglycerine- based explosives, emulsions, electric and nonelectric detonators, other blasting supplies and anmonium nitrate. Atlas maintains 18 mix plants throughout the United States for mixing and storage of its ANFO (ammonium nitrate mixed with fuel oil) products. Emulsion blasting agents are manufactured at nine Atlas field locations in addition to the Joplin emulsion facility. Atlas' products are sold by salesmen and distributors nationwide. In recent years Atlas has continued to expand its distribution activities and currently owns and operates 16 explosives distributors. Principal raw materials used in the manufacture of Atlas' products include ammonia, fuel oil, ethylene glycol, glycerine, copper and ammonium nitrate. No shortages of raw materials appear imminent or likely at this time. Atlas' research and development laboratory is located in Tamagua, Pennsylvania. Its research and development program is a key contributor to Atlas' technical leadership position in explosives research, particularly in the area of emulsion technology. Atlas ranks first in sales of commercial and industrial explosives products within the United States. Product reliability and performance, technical assistance to end users, proximity of distributors to blasting operations and price are important factors affecting usage of commercial and industrial explosives. The commercial and industrial explosives business is somewhat seasonal to the extent that the quarrying and strip mining industries are affected by weather. Atlas' largest competitors are Ireco Incorporated, Austin Powder Company and Explosives Technology International (formerly a division of E.I. du Pont de Nemours}. Atlas also competes with several smaller concerns. Specialty Industrial Coatings. Tyler, through Reliance Universal Inc. ("Reliance") and its subsidiaries, manufactures and distributes specialty industrial coatings. The 69-year-old company, acquired by Tyler in 1981, is a major supplier of factory-applied coatings for wood, metal, plastic and paper products. Principal users of Reliance's products are manufacturers of furniture and cabinetry, wall paneling, major appliances, metal siding and building panels, office furnishings and equipment, food and beverage containers, paper publications and packaging products. Reliance also manufactures specialty resin polymers. With its corporate office and research center in Louisville, Kentucky, Reliance has 16 manufacturing plants and locations throughout the United States, Canada and Western Europe. Distribution of specialty industrial coatings is accomplished through company salesmen and technical servicemen. These salesmen and servicemen are highly trained and work closely with customers in developing the exact characteristics of the finish needed for a particular application. The finishes formulated by each operation's laboratory are produced only after orders have been -2- received from customers. There are few standard finishes, and only a limited amount of finished goods inventory is kept in stock. Research and development plays a key role in all product areas. In addition to new product development, research and development is also responsible for improving products and reducing ingredient costs. Raw materials and supplies for its specialty industrial coatings consist principally of solvents, pigments and synthetic resins. Reliance has no long-term supply contracts for these raw materials. Certain raw materials are in limited supply, but Reliance believes it will be able to obtain sufficient quantities necessary to support current levels of activity. The specialty coatings industry is highly competitive. Competition is based on product quality, customer service and price. Reliance competes with numerous manufacturers, including PPG Industries, Inc., The Sherwin-Williams Company, The Valspar Corporation, The Glidden Co. and Lilly Industrial Coatings, Inc. Reliance believes that it is one of the five largest manufacturers of specialty industrial coatings in the United States. Pipe and Fittings. Tyler, through Tyler Pipe Industries, Inc. ("Tyler Pipe") and its subsidiaries, manufactures and distributes cast iron pipe, fittings and related building materials used primarily in drain, waste and vent ("DWV") applications in commercial, industrial and residential construction and cast iron water and sewage fittings for use by municipalities. Tyler Pipe, which was founded in 1935 and acquired by Tyler in 1968, sells substantially all of its DWV products as finished products to wholesale plumbing and supply houses. Water and sewage fittings are sold primarily to waterworks jobbers and municipalities. The pipe and fittings business is seasonal to the extent that the construction industry is affected by weather. Tyler Pipe manufactures a complete line of cast iron DWV pipe and fittings in diameters from 1-1/2 inches to 15 inches. Tyler Pipe also manufactures fittings for use in water and sewage treatment systems in both gray and ductile iron. Gray iron fittings are currently manufactured in diameters from 2 inches to 30 inches, and ductile iron fittings are currently manufactured in diameters from 3 inches to 24 inches. Ductile iron is sometimes specified in certain applications because of its higher strength yet lighter weight. -3- Tyler Pipe has developed a number of products and manufacturing processes including introducing soil pipe in ten-foot lengths; developing the Ty-Seal gasket, a neoprene compression gasket, which replaced the lead and oakum joints used to connect cast iron pipe and fittings; and producing complete self-contained plumbing walls for use in modular construction. Tyler Pipe also was the first domestic manufacturer to use the unlined water-cooled cupola; to employ centrifugal casting machines utilizing one-piece metal molds for casting soil pipe; and to produce cast iron soil pipe fittings in permanent metal molds. Tyler Pipe has its headquarters and major foundry and manufacturing facility in Tyler, Texas. A second foundry is in Macungie, Pennsylvania. Tyler Pipe also has a plant in Marshfield, Missouri, where it manufactures stainless steel clamps and gaskets used to join soil pipe and fittings. The majority of sales are handled directly through offices maintained at the Tyler, Texas plant. Sales are made both through Tyler Pipe's sales representatives and independent manufacturers' representatives throughout the United States. Transportation costs, pricing, product quality and performance, and the ability to service customers promptly are material factors affecting sales of Tyler Pipe's products as are the general level and mix of spending in the construction industry. Tyler Pipe obtains iron, the basic raw material used in its products, by melting and refining iron and steel scrap to the required specifications. Most of the scrap material is purchased directly from scrap dealers in areas where Tyler Pipe's trucks make deliveries and is returned to the plants by its trucks as backhaul. Other basic materials used include coke, limestone, fluorspar, resin, bentonite, silicon, sand and core oils, all of which have been generally available from multiple sources. Tyler Pipe experienced no problems in obtaining these materials during 1988. No shortages of basic raw materials appear imminent or likely. Tyler Pipe has no material contractual arrangements with any of its suppliers of raw materials. In the sale and distribution of DWV pipe and fittings, Tyler Pipe competes with a number of companies, such as United States Pipe & Foundry Co., a division of Jim Walter Corp., Charlotte Pipe and several smaller companies whose sales are generally concentrated close to their plants in various regions of the United States. In water and sewage fittings, Tyler Pipe competes with United States Pipe & Foundry Co., American Cast Iron Pipe Company, Griffin Pipe Products Co., McWane Inc. and others. In addition, Tyler Pipe's pipe and fittings products compete with those made of other materials, including -4- vitrified clay, plastic, asbestos cement, steel, fiber and copper. Tyler Pipe is the largest manufacturer of cast iron soil pipe and fittings sold in the national market for DWV applications. Employees. At December 31, 1988, Tyler had 5,801 employees, of whom 1,476 were employed by Atlas, 1,576 by Reliance and 2,715 by Tyler Pipe. There were 638 employees covered by collective bargaining agreements with various unions. Tyler has experienced no significant work stoppages or strikes and generally has had good relations with its employees. Item 2. Properties. Tyler occupies offices, production, research, storage and maintenance facilities that contain approximately 4.2 million square feet of floor space. The principal plants, warehouses and offices, all of which are owned by Tyler or one of its subsidiaries, are described as follows; Location Joplin, Missouri Approximate Sq. Feet of Floor Space Primary Use Ammonium nitrate and nitric acid production facility used in the commercial and industrial explosives business. Tamagua, Pennsylvania 323,000 Research and production facility used in the commercial and industrial explosives business. Joplin, Missouri 280,000 Production facility used in the coiunercial and industrial explosives business. Columbus, Ohio 115,000 Offices, storage, laboratory and production facility used in the specialty industrial coatings business. Consists of a facility having an annual capacity of approximately 150,000 tons of ammonium nitrate and approximately 160,000 tons of nitric acid. -5- Location Approximate Sq. Feet of Floor Space Primary Use Louisville, Kentucky 193,000 Offices, storage, laboratory and production facility used in the specialty industrial coatings business. Mechelen, Belgium 138,000 Offices, storage, laboratory and production facility used in the specialty industrial coatings business. High Point, North Carolina 156,000. Offices, storage, laboratory and production facility used in the specialty industrial coatings business. Zion, Illinois 81,000 Offices, storage, laboratory and production facility used in the specialty industrial coatings business. Roanoke, Virginia 63,000 Offices, storage, laboratory and production facility used in the specialty industrial coatings business. Salem, Oregon 59,000 Offices, storage, laboratory and production facility used in the specialty industrial coatings business. Swan (Tyler), Texas 1,379,000 Offices, foundries, shops and warehouses used in the pipe and fittings business. Macungie, Pennsylvania 152,000 Offices, foundry and warehouse used in the pipe and fittings business. Marshfield, Missouri 55,000 Offices, plant and warehouse used in the pipe and fittings business. The machinery, equipment, buildings and facilities owned and leased by Tyler and its subsidiaries are generally well maintained and suitable for their operations. -6- Item 3. Legal Proceedings. On December 3, 1986, the Environmental Protection Agency ("EPA") instituted a suit against Atlas alleging that its explosives manufacturing facility near Tamaqua, Pennsylvania exceeded pollutant limitations in its wastewater discharge permits. In June 1988 the court entered an order confirming the settlement agreement reached between the EPA and Atlas. Pursuant to the settlement agreement and subsequent negotiations regarding compliance with the settlement agreement. Atlas has incurred $1,084,000 in penalties and may be subject to additional stipulated penalties for failure to comply with pollutant limitations and the construction schedule contained in the settlement agreement. Tyler expects that the outcome of those proceedings will not have a material adverse effect on its consolidated financial position or results of operations. In May 1983 Reliance received a letter from the EPA requesting its participation, along with other companies, in a voluntary cleanup program at a waste disposal site in Bullit County, Kentucky. The EPA has also named Reliance as a potentially responsible party for cleanup costs at waste sites in Illinois, Indiana and Oklahoma. Numerous companies were notified by the EPA in each of these proceedings. Tyler expects that the outcome of those proceedings will not have a material adverse effect on its consolidated financial position or results of operations. In January 1983 a small group of landowners in the vicinity of Tyler, Texas instituted a suit against Tyler Pipe. The landowners alleged that waste discharges from the Tyler Pipe plant had polluted a stream that runs through their properties. The suit, which is pending in state district court. Smith County, Texas, asks for actual damages in excess of $667,000 and $50 million in exemplary damages. Tyler Pipe has denied all of the plaintiffs' allegations and believes the claim for actual damages is speculative and the claim for exemplary damages is totally without merit. This suit has been dormant for several years. Tyler expects that the outcome of the suit will not have a material adverse effect on its consolidated financial position or results of operations. Tyler Pipe has been notified by the EPA that it is a potentially responsible party at the Novak Sanitary Landfill Superfund site in Lehigh County, Pennsylvania. A number of other potentially responsible parties have also been identified and notified by the EPA. Tyler Pipe is contesting its inclusion on the list of potentially responsible parties based upon the nonhazardous character of the wastes it sent to the -7- site. Tyler expects that the outcome of this proceeding will not have a material adverse effect on its consolidated financial position or results of operations. Other than ordinary routine litigation incidental to the business of Tyler and its subsidiaries and except as described or incorporated herein by reference, there are no material legal proceedings pending to which Tyler or any of its subsidiaries is a party or to which any of its or their properties is subject. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market forRegistrant's Common Stockholder Matters. Equity and Related Tyler's Common Stock is traded on both the New York and Philadelphia Stock Exchanges. At December 31, 1988, Tyler had over 13,000 shareholders and approximately 5,200 shareholders of record. The following information is incorporated by reference from the indicated pages of Tyler's 1988 Annual Report to Shareholders: (a) stock trading price range and dividends paid per share in each quarter for the last two years - page 33 and (b) restrictions on retained earnings available for dividends - page 27. Item 6. Selected Financial Data. The information required by this Item is incorporated by reference from Tyler's 1988 Annual Report to Shareholders, pages 14-15. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by this Item is incorporated by reference from the following portions of Tyler's 1988 Annual Report to Shareholders: Management's Discussion and Analysis of Operations - pages 20-21 and Financial Comment - pages 10-12. -8- Item 8. Financial Statements and Supplementary Data. The following consolidated financial statements and unaudited supplementary quarterly financial data are incorporated by reference from the indicated pages in Tyler's 1988 Annual Report to Shareholders. Pages of Annual Report to Shareholders Consolidated statements of income for each of the three years in the period ended December 31, 1988 22 Consolidated balance sheets at December 31, 1988 and 1987 23 Consolidated statements of shareholders* equity for each of the three years in the period ended December 31, 1988 24 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1988 25 Notes to consolidated financial statements 26-31 Report of independent public accountants 32 Unaudited supplementary quarterly financial data 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. -9- PART III The information required by Items 10 through 13 of Part III is incorporated by reference from the indicated pages of Tyler's definitive proxy statement for its annual meeting of shareholders to be held on April 19, 1989. Pages of Proxy Statement Item 10. Directors and Executive Officers of the Reqistrant. Item 11. Executive Compensation. 3-5 5-9, 12 Item 12. Security Ownership of Certain Beneficial Owners and Management. 1-3 Item 13. Certain Relationships and Related Transactions. 9 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as a part of this report: 1. Consolidated financial statements (see Item 8). 2. Consolidated financial statement schedules. Consolidated financial statement schedules for each of the three years in the period ended December 31, 1988: Page Reference V Property, plant and equipment S-l/S-3 VI Allowance for depreciation of property, plant and equipment S-4/S-6 VIII Allowance for losses S-7 X Supplementary income statement information S-8 -10- All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements, including the notes thereto. 3. Exhibits. 3.1 Restated Certificate of Incorporation of Tyler, as amended through December 2, 1987 (filed as Exhibit 3.1 to Tyler's Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference). 3.2 Tyler Bylaws, as amended through March 16, 1981 (filed as Exhibit 3.2 to Tyler's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by reference). 4.1 Form of loan agreement for lines of credit totaling $125,000,000, dated December 13, 1988. 4.2 Indenture dated as of July 1, 1987, between Tyler and The Bank of New York, relating to Tyler's 11% Senior Subordinated Debentures due July 15, 1997 (filed as Exhibit 4.1 to Tyler's Form 8-K dated July 15, 1987 and incorporated herein by reference). 4.3 Form of 11% Senior Subordinated Debentures due July 15, 1997 (filed as Exhibit 4.2 to Tyler's Form 8-K dated July 15, 1987 and incorporated herein by reference). 4.4 Supplemental Indenture dated as of January 14, 1988, between Tyler and The Bank of New York, relating to Tyler's 11% Senior Subordinated Debentures Due 1997 (filed as Exhibit 4.4 to Tyler's Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference). 4.5 Rights Agreement dated as of December 1, 1987, between Tyler and First RepublicBank Dallas, N.A., which includes the form of Rights Certificate as Exhibit B, as amended April 20, 1988 (filed, respectively, as Exhibit 4 in Tyler's Form B-A dated December 1, 1987, and -11- Exhibit 19.2 to Tyler's Form 10-Q for the quarter ended March 31, 1988 and incorporated herein by reference). 10.2 Tyler Stock Option Plan, as amended through January 31, 1986 (filed as Exhibit 10.2 to Tyler's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by reference). 10.3 Tyler Salary Continuation Agreement Exhibit 10.3 to Tyler's Form 10-K fiscal year ended December 31, incorporated herein by reference). (filed as for the 1986 and 10.4 Tyler Management Security Agreement Exhibit 10.4 to Tyler's Form 10-K fiscal year ended December 31, incorporated herein by reference). (filed as for the 1986 and 10.5 Agreement with H. Joseph Burchellregarding retirement benefits. 10.6 Reliance Supplemental Executive Retirement Plan (filed as Exhibit 10.6 to Tyler's Form 10-K for the fiscal year ended December 31, 1986 and incorporated herein by reference). 10.7 Reliance Long-Term Disability Plan Exhibit 10.7 to Tyler's Form 10-K fiscal year ended December 31, incorporated herein by reference). (filed as for the 1986 and 10.8 Split-dollar life insurance agreement with Joseph F. McKinney (filed asExhibit 10.8 to Tyler's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by reference). 10.9 Tyler Supplemental Retirement Plan (filed as Exhibit 10.9 to Tyler's Form 10-K for the fiscal year ended December 31, 1986 and incorporated herein by reference). 10.11 Consulting Agreement dated as of January 1, 1987, between Tyler and Frederick R. Meyer (filed as Exhibit 10.11 to Tyler's Form 10-K for the fiscal year ended December 31, 1986 and incorporated herein by reference). -12- 10.12 Form of Phantom Stock Award Agreement (filed as Exhibit 10.12 to Tyler's Form 10-K for the fiscal year ended December 31, 1986 and incorporated herein by reference). 10.13 Reliance Restated Executive Security Plan (filed as Exhibit 10.13 to Tyler's Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference). 10.14 Form of indemnification Agreement (included as Exhibit B to Tyler's 1987 Proxy Statement and incorporated herein by reference). 10.15 Merger Agreement dated June 27, 1988, among Tyler, Hall-Mark Electronics Corporation, RFS Hall-Mark Holding Corporation, and RFS Hall-Mark Acquisition Corporation, as amended August 2, 1988 (filed as Exhibit 2 to Tyler's Form 10-Q for the quarter ended June 30, 1988 and incorporated herein by reference). 13 1988 Annual Report to Shareholders. With the exception of the information incorporated by reference into Items 1, 5, 6, 7 and 8 of this Form 10-K, the 1988 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. 22 Subsidiaries of Tyler. 24 Consent of Arthur Young & Company (see page 16). Tyler will furnish copies of these exhibits to shareholders upon written request and payment of $0.15 per page. (b) Reports on Form 8-K. Tyler did not file any Current Reports on Form 8-K during the fourth quarter of 1988. -13- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 1989 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the dates indicated. Date: March gj_, 1989 By: J. F. Chairman of* th^ Board, President, antx Chief Executive Officer (principal executive Date: March g^_, 1989 Date: March 1989 Date: March 1989 Date: March 1989 Richard'w. Executive e Presi<jnt (a principal ec^tlve officer) By: David L. Smart I'4jS Vice President and Treasurer (a principal.financial officer) By: (r mi__________ Lxhda K. Hill Controller (a principal financial officer and principal accounting officer) By: __________________________ H. Joseph Burchell Director -14- SIGNATURES Pursuant to the requirements o Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TYLER CORPORATION Date: March ___, 1989 By: J. F. McKinney Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the dates indicated. Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March 1989 By: J. F. McKinney Chairman of the Board, President, and Chief Executive Officer (principal executive officer) By: Richard W. Margerison Executive Vice President (a principal executive officer) By: David L. Smart Vice President and Treasurer (a principal financial officer) By: Linda K. Hill Controller (a principal financial officer and principal accounting office: By: eph Burchell tor -14- Date: March jj[, 1989 By: Date: March , 1989 Date: March , 1989 Date: March __ 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 0S94G By: C- Jackson Grayson, Jr. Director By: Samuel S. Greeley Director By: Thomas W. Landry Director By: Perry J. Lewis Director By: F. R. Meye r Director By: Neil J. O'Brien Director By: C. A. Rundell, Jr. Director By: Fred R. Sullivan Director By: John A. Warner Director -15- Date: March ___, 1989 Date: March __ , 1989 Date: March __ , 1989 Date: March __ , 1989 Date: March , 1989 By: ________________________ Charles J. Fisher Director By: _________________________________ C. Jackson Grayson, Jr. Director By: _______ _________________ Samuel S. Greeley Director By: _______________________ Thomas W. Landry Director Date: March JJ, 1989 Date: March , 1989 Date: March ___, 1989 Date: March __ , 1989 Date: March __ . 1989 0594G By Neil J. O'Brien Director C. A. Rundell, Jr. Director By: _______________________ Fred R. Sullivan Director By: ____________________ John A. Warner Director -15- Date: March 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 Date: March , 1989 Date: MarchJj[, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March __ , 1989 0594G By: Charles J . Fisher Director By: C. Jackson Grayson, Jr. Director By: Samuel S. Greeley Director By: Thomas W. Landry Director By: Perry J. Lewis Director By: F. R. Meyer Director By: Neil Jf O'Brien Director By: __________________________ C. A. Rundell, Jr. Director By: _______________________ Fred R. Sullivan Director By: ____________________ John A. Warner Director -15- Date: March 1989 Date: March , 1989 Date: March 1989 Date: March , 1989 Date: March . 1989 Date: March 1989 Date: March r 1989 Date: March I4~, 1989 Date: March 1989 Date: March , 1989 0594G By: Charles J. Fisher Di rector By: C. Jackson Grayson, Jr. Director By: Samuel S. Greeley Director By: Thomas w. Landry Director By: Perry J. Lewis Director By: F. R. Meyer Director By: Neil J. O'Brien Director By: C. A. Rundell, KSt. Director _________ By: Fred R. Sullivan Director By: John A. Warner Director -15- Date: March ___. 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March , 1989 Date: March , 1989 Date: March 2. 1989 Date: March , 1989 0594G By: ________________________ Charles J. Fisher Director By: C. Jackson Grayson, Jr. Director By: _________ .______________ Samuel S. Greeley Director By: _______________________ Thomas W. Landry Director By: ____________________ Perry J. Lewis Director By: ________________ F. R. Meyer Director By Neil J. O'Brien Director By C. A. Rundell, Jr. Director 7~L <'*' ^ (UA. ^1>-c- ' By Fred R. Sullivan Director By John A. Warner Director -15- Date: March 1989 Date: March __ , 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March ___, 1989 Date: March , 1989 Date: March /$, 1989 0594G By: Charles J. Fisher Director By: _________________________________ C. Jackson Grayson, Jr. Director By: _________ .______________ Samuel S. Greeley Director By: _______________________ Thomas W. Landry Director By: ____________________ Perry J. Lewis Director By: ________________ F. R. Meyer Director By: ______________________ Neil J. O'Brien Director By: __________________________ C. A. Rundell, Jr. Director By Fred R. Sullivan Director By: Fjprhn A. Warner )i rector -15- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in this Annual Report on Form 10-K of Tyler Corporation of our report dated January 27, 1989 included in the 1988 Annual Report to Shareholders of Tyler Corporation. We also consent to the addition of the financial statement schedules, listed in Item 14(a)2 of this Annual Report on Form 10-K, to the consolidated financial statements covered by our report dated January 27, 1989, incorporated herein by reference. We also consent to the incorporation by reference in the Registration Statement (Form S-8, File No. 2-90263), in Post-Effective Amendment No. 1 to the Registration Statement (Form S-8, File No. 2-82631), in the Registration Statement (Form S-8, File No. 2-80024), and in the Registration Statement (Form S-3, File No. 33-11305), pertaining to the Tyler Corporation Stock Option Plan, the Tyler Corporation Savings and Investment Plan, the Reliance Universal Inc. Savings and Investment Plan, and the registration covering up to $200,000,000 of debt securities, respectively, and in the related Prospectuses and Prospectus Supplements of our report dated January 27, 1989, with respect to the consolidated financial statements and consolidated financial statement schedules of Tyler Corporation included or incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1988. ARTHUR YOUNG & COMPANY Dallas, Texas March 17, 1989 -16- i a. o 3 ml I * i&fiC TO 1 o L 8 >. c a& g 8O: o* RA < -< O c o 3 a a 1 TYLER CORPORATION NOTE: B a la n c e * have bean r e ita te d to e x c lu d e H a ll-M a rk E le c tro n ic s u h le h was s o ld In Auguat 1988. 2 o s--1 & a? <>_> ?a * s IT i oij 2 s s u m I a. 3 UJ < UJ &f&ie z <O0k u a 1Ug fmt/ t> os <*r s a s i s4/ i< CM Ii ' S S CM Ok s u g TYLER CORPORATION NOTES B a la n c e e h a v e b e e n r e s t a t e d t o e x c lu d e H a ll- M a r k E le c t r o n lc a w h ic h waa a o td I n A u g u s t 1 9 8 8 . S-2 o- *-- W I4c* St i s &s TYLER CORPORATION NOTE: B alances have ban re s ta te d to e x c lu d e H a ll-M a rk E le c tro n ic s w h ich was s o ld In A ugust 1988. S-3 TYLER CORPORATION S-4 s Q Vu go n R* "C9 V* ~c 1 5 Io L > S S 8- Vso ss a 1 *o i mu ! g I oT | EUJ f >0 g1 o o o aeg * I I u ? ? s ? 2r s & 38S 8 > O 3 S-5 TYLER CORPORATION S-6 TYLER CORPORATION SCHEDULE VIII - ALLOWANCE FOR LOSSES Years Ended December 31, 1986, 1987 and 1988 1986 Balance at beginning of year $ Additions charged to costs and expenses Collections of accounts previously charged off Deductions for accounts charged off _ Balance at end of year $ 4.466.000 2.955.000 229,000 (4,350.0001 3,300,000 1987 Balance at beginning of year $ Additions charged to costs and expenses Collections of accounts previously charged off Deductions for accounts charged off __ Balance at end of year $ 3.300.000 2.660.000 219,000 (2,549,0001 3,630,000 1988 Balance at beginning of year $ Additions charged to costs and expenses Collections of accounts previously charged off Deductions for accounts charged off _ Balance at end of year $ 3.630.000 2.205.000 80,000 (2,752,0001 3,163,000 NOTE: Balances have been restated to exclude Hall-Mark Electronics which was sold in August 1988. S-7 TYLER CORPORATION SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION Years Ended December 31, 1986, 1987 and 1988 Item___________________________ 1986 1987_______ 1988 Maintenance and repairs $ 26,415,000 $ 26.056,000 $ 27,245,000 NOTE Balances have been restated to exclude Hall-Mark Electronics which was sold in August 1988. Exhibit Number 4.1 10.5 13 22 EXHIBIT INDEX Exhibit Sequentially Numbered Page Revolving Credit and Term Loan Agreement dated as of December 13, 1988. Agreement with H. Joseph Burchell regarding retirement benefits. 1988 Annual Report to Shareholders. With the exception of the information incorporated by reference into Items 1, 5, 6, 7 and 8 of this Form 10-K, the 1988 Annual Report to shareholders is not to be deemed filed as part of this Form 10-K. Subsidiaries of Tyler Corporation. 7y%3t>ob SECURITIES AND EXCHANGE COMMISSION Washington, O.C. 20549 Fori M ANNUAL REPOST PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal jrear ended December 3L, 1988 Corals*Ion file nmaber i-;54G9 TYLffi C08P08ATI0S (Exact none of registrant as specified in its charter) Delaware (State of Incorporation) 75-1225029 (I.R.S. Employer Identification Ha.) 3200 Sen Jacinto Tower Dallas. Texas (Address of principal executive officea) 75201 (Zip Code) Registrant's telephone nuzaber, Including area codes (214) 7S4-7800 Securities registered pursuant to Section 12(b) of the Act: Title of each class Naae of each exchange on which registered Coraon Stock, $0.10 par value Preferred Stock Purchase Rights 10-1/2X Subordinated Debentures due 1998 New Torfc Stock Exchange Philadelphia Stock Exchange New York Stock Exchange Philadelphia Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check rack whether the registrant (1) baa filed all reports rwjuirsd to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 ranthe (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requlrewnta for the pset 90 days. Yes I No____ The aggregate racket value of the voting stock held by non-affiliates of the registrant on February 21, 1989, was $134,708,296. The masher of shares of maran stock of the registrant outstanding on February 21, 1989, was 21.474,047. DOCUMENTS INCORPORATED RT REFERENCE Certain information required by Parte I and 11 of this Annual Report la incorporated by reference Irom the registrant's 1988 Annual Report to Shareholders and information required by Part III of this Annual Report in incorporated by reference froa the registrant'! definitive proxy atatsswnt for ita annual neeting of shareholders to be held on April 19, 1989. m COMSOUIKTED STATEMENTS OF INCOME Years ended December 31 1968 Net sales............................................................................................. ... $664,645,000 NB7 $624,117,000 1966 $577,092,000 Costs and expenses Cost erf sales................................................................................... ... Selling, administrative and general expenses............................... ... Interest expense ............................................................................. Income from continuing operations before income tax .................... 522,638,000 106,253,000 11,973,000 640,864,000 23,781,000 475.610.000 101.760.000 6,431,000 583,801300 40,316,000 438,988,000 96,916,000 2,310,000 538,214,000 38,878,000 Income tax (benefit) Current.......................................................................................... Deferred......................................................................................... Income from continuing operations.................................................. 9,816,000 (610,000) 9,206,000 14,575,000 12,674,000 4,134,000 16308,000 23308,000 12,805,000 4,986,000 17,791,000 21,087,000 Discontinued operations Income (loss) from discontinued operations, after income tax (benefit)...................................................................................... Gain cn disposal of discontinued operations, after income tax__ Income (loss) from discontinued operations ..................................... Income before extraordinary charge .................................................. Extraordinary chaige, afto income tax benefit................................ 79,000 6334,000 6,413,000 20,988300 (6,659,000) (6,659,000) 16,849,000 (4,831,000) (9,142,000) (9,142,000) 11,945,000 Net income.......................................................................................... ... $ 20,968,000 $ 12,018,000 $ 11,945,000 Earnings per common share Continuing operations ................................................................. ... Discontinued operations ................................................................ Income before extraordinary charge .............................................. Extraordinary charge...................................................................... $ Net earnings....................................................................................... $ .77 34 1.11 $ 1.11 $ 1.33 (.37) .96 (.28) $ .68 $ 1.16 (.50 .66 .66 Average shares................................................................................. 19309300 17,642,000 18,208,000 See accompanying note. 22 CONSOLIDATED BALANCE SHEETS December 31 ASSETS Current assets Cash and cash equivalents .................................................................. Accounts receivable (less allowance for losses of $3,163,000 in 1988 and $3430000 in 1967)........................................................ Inventories........................................................................................... Prepaid expense .................................................................................. Total current assets.......................................................................... Net assets of discontinued electronic components distribution segment Property, plant and equipment, at cost.................................................. Less allowance for depredation.......................................................... Other assets Cost in excess of net assets of businesses acquired............................ Sundry................................................................................................ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable............................................. Accrued liabilities............................................. Accrued interest .............................................. Income tax....................................................... Current maturities of long-term debt .............. Total current liabilities.................................. Defored income tax ........................................... Long-term debt, less current maturities.............. Subordinated debt................................................ Sharehcfcfas' equity Common stock, $JO parvalue, 50,000,000 shares authorized, 25,914,188 shares issued ...................................................... Capital surplus ........................................................................ Retained earnings.................................................................... Less 4,447,917 treasury shares in 1988and 8,602,937 treasury shares in 1967 at cost............................................................ Total shareholders' equity ................................................... See accompanying notes. 23 1988 1967 $ 3,403,000 $ 3,629,000 94.115.000 68.073.000 5,443,000 171,034,000 75436.000 68.091.000 4,356,000 151,412.000 -- 187,920,000 262.837.000 142.422.000 120,415,000 249.451.000 128.414.000 121,037,000 41,617,000 15,432400 57449,000 41.961.000 11461.000 53422,000 $348/498400 $513,691,000 $ 36,576,000 41457400 6,410400 2486400 6444,000 93,473400 $ 36,141,000 37,387,000 6,686,000 3.806.000 6.563.000 90,583,000 21,158400 65491400 117414400 23,454,000 103406.000 117.348.000 2491,000 9,470400 67,170400 79431400 27469400 51,562,000 2,591,000 15459,000 224,408,000 242,858,000 63,857,000 179,001,000 $348/498400 $513,691,000 i CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31,1988, 1987 oni 1986 Balance at December 31,1985................................................... Issuanceof treasury shares upon exercise of stock options.. Sale of treasury shares to employee benefit plans ............... Purchase of common stock................................................... Federal income tax benefit from exercise of nonqualified stock options..................................................................... Redemption of detachable common stock purchase warrants........................................................................... Net income........................................................................... Dividend ($.40 per share) ..................................................... Comma) Stock JJOPar Value $2,591,000 -- -- -- -- -- Capital Surplus Retained Earnings $31,668,000 (459,000) 14,000 -- $214,991,000 -- -- -- Treasury Stock $(49,115,000) 827,000 2,600,000 (10,784,000) 8,000 (14,999,000) -- -- i<--_ 11,945,000 (7,298,000) -- -- Balance at Decemba 31,1986................................................... Issuance of treasury shares upon exerciseof stock options.. Sale of treasury shares to employee benefit pians............... Purchase of common stock................................................... Net income........................................................................... Dividend ($.41 per share)...................................................... 2,591,000 -- -- -- -- -- 16,232,000 (60,000) (313,000) -- -- -- 219,638,000 -- -- -- 12,018,000 (7,248,000) (56,472,000) 132,000 3,077,000 (10,594,000) -- -- Balance at December 31,1987................................................... Issuance of treasury shares upon exodseofstock options... Sale of treasury shares to employee benefit plans .............. Purchase of common stock................................................... Federal income tax benefit from exercise of nonqualified stock options..................................................................... Net income............................................................................ Dividend ($10l235 per share)................................................. 2,591,000 -- -- -- -- -- 15,859,000 (351,000) (6,241,000) -- 224,408,000 -- -- -- (63,857,000) 2J99ftOO 41,209,000 (7,120,000) 203,000 -- -- 20,968,000 (178,226,000) -- -- Balance at December 31,1988................................................... $2,591,000 $ 9,470,000 S 67,170,000 5(27,669,000) See accompanying notes. 24 CONSOLIDATED STATEMENTS OF CASH FLOWS Years anted December 31 1968 1987 1986 Cash flaws from operating activities Income from continuing opoations................................................... Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Depreciation and amortization....................................................... Provision (or losses on accounts receivable.................................... Deferred income tax....................................................................... Increase in accounts receivable ...................................................... (Increase) decrease in inventories........ (Increase) decrease in prepaid expense Increase (decrease) in accounts payable Increase in accrued liabilities............... Increase (decrease) in income tax........ $ 14,575,000 18,971,000 2,205,000 (2,296,000) (20,984,000) 18,000 (1,067,000) 435,000 3,994,000 (1,520,000) Net cash provided by continuing operations............................... 14,3114)00 $ 23,508,000 18,647,000 2,660,000 4,233,000 (10,914,000) (6,335,000) 555,000 (3,349,000) 3,707,000 2,446,000 35,1584)00 $21,087,000 18.892.000 2.955.000 1.292.000 (4.369.000) 1.052.000 (415,000) .16.996.000 1 120.000 3,578,000 62.188.000 Income (loss) from discontinued operations....................................... Adjustments to reconcile income (loss) from discontinued operations to net cash used by discontinued operations: Gain on sale of electronic components distribution segment before income tax......................................................................... Increase in net assets of electronic components distribution segment........................................................................................ Depravation and amortization......................................................... Net cash used by discontinued opoatians.................................. Tax benefit of early extinguishment of 12%% subordinated notes..... Net cash provided (used) by operating activities ........................ 6,413,000 (9,22240) (17,534,000) 3,1904)00 (17,153,000) -- 0842,000) (6,6594)00) (9.142.000) -- (23,989,000) 5,053,000 (25,595,000) 3,221,000 12,784,000 (32.081.000) 4,253,000 (36.970.000) 25,218,000 Cash Sows hum investing activities Proceeds from sale of etectrcnic components distribution segment, after expenses.................................................................................. Additions to property, plant and equipment....................................... Undepreciated value of asset disposals............................................... Reduction of investment in tax benefit transfer lease.......................... Other.................................................................................................... Net cash provided (used) in investing activities............ 211,486,000 (21,625,000) 3,681,000 (4,147,000) 189,395,000 -- (20,986,000) 3,075,000 (1,887,000) (19,798,000) (24.625.000) 5.788.000 2.579.000 (677,000) (16.935.000) Cash Bows from financing activities Long-term bonowings........................................................... Reduction of long-term debt................................................... Issuance of 11% senior subordinated debentures.................. Early extinguishment of 12%% subordinated notes.............. Retirement of 10%% subordinated debentures...................... Issuance of common stock ..................................................... Purchase of treasury shares................................................... Sale of treasury shares to employee benefit plans................. Redemption of detachable common stock purchase warrants Cash divkiends ...................................................................... _ (38,352,000) -- -- -- 1,951,000 (7,120,000) 34,968,000 (178,226,000) 39,671,000 (10,258,000) 96,629,000 (100,000,000) (3,750,000) 72,000 (10,594,000) 2,764,000 (7,248,000) 40,500,000 (13,130,000) (3.265.000) 376,000 (10.784.000) 2.614.000 (14.999.000) (7.298.000) Net cash provided (used) by financing activities........... (186,7794)00) 7,286,000 (5.986.000) Net increase (decrease) in cash and cash equivalents................ Cash and cash equivalents at beginning of jrear ....................... (226,000) 3,629,000 272,000 3,357,000 2.297.000 1.060.000 Cash and cash equivalents at end of year .................................. $ 3,403,000 $ 3,629,000 $ 3,357,000 See accompanying notes. 25 r NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Significant Accounting Fblides The consolidated financial statements indude the accounts of the Company and its subsidiaries, all of which are wholly owned. Cost in excess of net assets of businesses acquired after October 1970 is amortized over 40 years. Cost in excess of net assets of businesses acquired before OctobCT 31,1970, of $30,374,000 is not amortized. Accumulated amortization at December 31,1988 and 1987 was $2,492/100 and $2,148,000, respectively. Inventories are valued at the lower of cost or market. Costs for inventories are determined principally by the last-in, first-out (LIFO) method. Depredation, for financial statement purposes, is prodded principally by the straight-line method over the estimated useful lives of the various assets For income tax purposes, accelerated depredation is used with recognition of deferred income tax for die resulting timing diffe'ences. Pension plans are in effect which provide income and death benefits for substantially all employees of the Company. The benefits are generally based on final average salary and years of service. The Company's policy is to fund net pension cost accrued. However; the Company will not contribute an amount less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 or more than die maximum tax deductible amount The Company's investment in a tax benefit transfer lease is included in sundry assets and is amortized over the period the tax benefit is utilized by the Company. The tax benefit purchased had no material effect on net income in 1988,1987 and 1986. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company paid interest of $24,900,000 in 1988, $27,180/100 in 1987 and $23,708,000 in 1986 which indudes interest charged to the results of discontinued operations. In December 1987 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. %--Accounting for Income Taxes (FAS No. 96) which is effective January 1,1990. FAS No 96 requires a change from the deferred bo the liability method of computing income tax. Deferred tax is adjusted for changes in tax rates and laws under the liability method. In addition, drferred tax is recorded for the tax effects of book and tax differences in the net assets of companies acquired in transactions accounted for as a purchase. The Company expects the cumulative effect of applying FAS No. 96 will not be material to results of operations in the period in which FAS No. 96 is first adopted. Inventories ___________________________________ ____________ 1987 Finished goods ........................... $59,790,000 $59,775,000 Woric in process........................... 4,606,000 4,397,000 Raw materials and supplies.......... 33,574,000 30,497,000 Less allowance Id slate inventories at LIFO cost.............................. 97,972,000 94,669.000 29,899,000 26,578,000 $68,073,000 $68,091,000 Current replacement cost approximates the amounts shown above before the allowance to state inventories at LIFO cost Property, Plant and Equipment Depredation LKb (itijwam)___________________________MBS1987 Land....................... Buildings and leasehold improvements...... 10 to 40 Machinery and equipment ............. 5to20 Transportation equipment ............. 3to10 $ 9,734,000 $ 10,177,000 59,073,000 56,217,000 175,293,000 164X190,000 18,737,000 18,967,000 $262,837,000 $249,451,000 26 Long-Term Debt 8%% unsecured note due in annual installments of $3,000,000 ............................. Revolving bank lines of credit... 10% installment notes due in annual installments of $3,4524100............................. Other notes at varying rates...... Less current maturities............. 1968 1987 $ 3,000,000 $ 6,000,000 65,000,000 96,000,000 3,452^00 183,000 6,785,000 1,083,000 71,635,000 109,B68,000 6.544,000 6,563,000 8654)91,000 $103,305,000 The Company has agreements with certain banks for revolving lines of credit totalling $125,000X100. The Company has the option to fix interest rates at 1% over the London Interbank Offered Rate (LIBOR) or the certificate of deposit rate, or such other rate agreed to by the Company and any of its banks, or to allow it to fluctuate at the prime rate. Borrowings under the revolving lines of credit are secured by the outstanding common stock of the Company's subsidiaries. Unless extended by the Company with the consent of the banks, the outstanding borrowings are to be reduced at a rate of 5% per quarter commencing on June 30,1990. During 1988 borrowings under these agreements were at an average rate of approximately 9%. Scheduled repayments of long-term debt during the five years following December 31,1988, areas fallows: 1969--$6^544,000; 1990-$9,838,000; 1991 $13,003,000; 1992-$13X00X100; 1993-$13,000X00. The Company's loan agreements limit retained earnings currently available for dividends to $14,639X00. Subordinated Debt MW1987 11% senior subordinated debentures dueJuly 15,1997, net of debt discount and issuance axis of $3,353,000 in 1988 and 53,286000 in 1987 . 10%% subordinated debentures duejunel, 1998.................... $ 96,647,000 20,567,000 $ 96,714,000 20,634,000 $117,214,000 $117,348,000 During a period of temporarily higher leverage beginning in August 1988, die Company has added 1% to the interest rate on its subordinated debt for a period of two and one-half years or five semiannual payments. The additional interest is being charged to expense using the effective interest method ewer the term of the subordinated debt. The 11% senior subordinated debentures may be redeemed at 107.33% on July 15,1990, and at declining premiums thereafter to 19%, at which time they may be redeemed at par No redemption may occur prior to 1992 out of the proceeds from a borrowing having an annual interest rate less than 11%. The proceeds of the 11% senior subordinated debentures were used to redeem $100,000,000 of 12%% subordinated notes. The subordinated notes were issued with six million detachable common stock purchase warrants which were called in 1986 at the call price of $2.50 per warrant. The notes were called on November 2.1967, by the Company at par Since the notes were issued at a discount with warrants attached, their call resulted in an extraordinary charge to earnings of $4,831X100, after tax benefit of $3,221X100. Sinking fund payments on the 10%% subordinated debentures beginning in 1992 are calculated to retire 75% of the issue (mar to maturity. The debentures may be redeemed at par Discontinued Operations On August 2,1968, the Company completed the sale of Hall-Mark Electronics to a new corporation controlled by Rtordan Freeman & Spogli, a Los Angeles based merchant banking firm. The net assets of the discontinued electronic components distribution segment at December 31,1967, consisted principally cf working capital (including accounts receivable, inventories, accounts payable and accrued liabilities); property, plant and equipment, and intangibles and other assets. 27 i Net cash proceeds from the sale, after deducting related expenses, were approximately $211,486000. The cash proceeds included $18,750,000 received by die Company from the sale of $30/100,000 principal amount of 11-year 13% junior subordinated notes with warrants received from the purchase- at dosir^. Operating results of the discontinued electronic components distribution segment for the seven months ended July 31,1988, and for 1987 and 1986 were as follows: W8819871986 Net sales .......... $3314)91,000 $475,390,000 $384,319,030 Income (less) before income tax ................ Income tax (benefit)......... Income (loss) from operations .... $ $ 5134)00 $(10,229,000) $(16,341,000) 434,000 (3,570,000) (7,199,000) 79,000 $ (6,659,000) $ (9,142,000) Interest has been charged to discontinued operations based on average intercompany balances of the electronic components distribution segment owed to the Company at its average effective borrowing rate during each period. Income tax has been charged (credited) to discontinued operations based on the income tax (benefit) resulting from inclusion of the discontinued segment in the Company's consolidated federal income tax return. The income tax (benefit) differs from the amount which would be piwided by applying the statutory income tax rate to income (loss) before income tax for 1968,1967 and 1986due primarily to permanent differaKes resulting from excess book over tax amortization and differences in bock and tax bases of certain assets. The income tax of $2,888,000 an the gain on disposal of discontinued operations differs from the amount which would be provided by applying the statutory income tax rate to the pretax gain primarily as a result of differences in book and tax bases of the related assets, and settlements of an employment agreement and amounts due upon termination of a nonqualified retirement plan not deductible for tax purposes. Income Tax As a result of five application of Accounting Principles Board Opinion Na 16 in accounting for the acquisition of industrial explosives and specialty industrial coatings businesses, the book basis of inventories exceeded die tax basis by $5,768,000 at December 31,1968, and $6007,000 at December 31,1967. Taxable income for federal income tax purposes was higher than income for financial statement purposes as a result of the difference in bases by $239,000 in 1988, $4,000 in . 1967 and $92,000 in 1966. Income tax expense differs from the amount which would be piwided by applying the statutory income tax rate to income from continuing operations before income tax for 1988,1987 and 1966 primarily as a result of permanent differences including excess book over tax amortization and differences in book and tax bases of certain assets and state income taxes. State income tax expense was $1,729,000 in 1968, $1,531/100 in 1987 and $1,066/100 in 1986 The tax effects of timing differences that exceeded 5% of the amount resulting from multiplying consolidated income from continuing operations before income tax by the statutory income tax rate were (1) excess tax over book depreciation and amortization of $637/100 in 1988 and $1/138,000 in 1966; (2) utilization of tax benefit from the tax benefit transfer lease of $2,802,000 in 1987 and $3,251/XX) in 1966; (3) deductions for book in excess of tax of $500,000 in 1988 and $864/XXI in 1967 related to different bases of inventories; and (4) settlements currently deductible but previously accrued for book purposes of $1,944,000 in 1987. 28 The Company paid income tax of $17,144,000 in 1988, $5,503,000 in 1987 and $6618,000 in 1986 In addition, the Company received refunds of prior years' income tax of $814,000 in 1987 and $6600,000 in 1966 Leases The Company leases certain facilities and transportation, computer and other equipment used in its operations under noncanceflable operating lease agreements having an initial term of more than one year and expiring at various dates through 2005. Most leases contain renewal options and some contain purchase options The leases generally provide that the Company pay taxes, maintenance, insurance and certain other operating expenses Rent expense was approximately $15,303,000 in 1988, $14,003,000 in 1987 and $12,568,000 in 1986 Minimum rental payments under the leases described above are as fallows: 1989 ........ 1990 ........ 1991 ........ 1992 ........ 1993 ........ Late years $11,490,000 9.567.000 5.650.000 3.471.000 1.723.000 1.366.000 $33,267,000 Employee Benefit Plans Substantially all employees are participants in nan-ccrrtributary pension plans. The components of net pension cost for 1988 and 1987 as determined under KAS Na 87 were: Service cast.................................... Interest cost.................................... Actual return on plan assets.......... Net amortization and defienal......... Net pension cost............................. 1988T9B7 $ 3,976,000 $3,946,000 7,368,000 7,025,000 (15,667,000) (6,725,000) 7,558,000 (898,000) $ 3,05,000 $3,348,000 Pension expense of $3,632,000 in 1986 was determined in accordance with Accounting Principles Board Opinion No. 8 The following table sets forth the funded status of tite plans and amounts recognized in the Company's balance sheet December 31, 1968 January L 1988 Actuarial present value of benefit obligation Vfcsted benefits ................. Nomested benefits............ Accumulated benefit obligation.............................. Effect of projected future compensation increases......... Projected benefit oblation ...... Plan assets at fan value, primarily listed stocks and bonds and group annuity contracts .............................. $ 74,825,000 $ 67,428,000 6,158,000 5,971,000 80,963,000 73,399,000 17,587,000 98,570,000 21,546,000 94,945,000 114^324)00 102,656,000 Plan assets in access of projected benefit obligation ... 15,6624)00 7,711,000 Unrecognized net (gain) loss from past experience different from that assumed and effect of charges in assumptions ... Prior servioe cost not yet recognized in net penaon cost....................................... Unrecognized net asset at date ofinitial application of EASNoi 87 ........................... Accrued pension cost................ (8,2304)00) 82,000 1,157,000 (10,2164)00) (10,383,000) $ (1,6274)00) $ (2,590,000) The pension plans held 251,200 shares of the Company's stock at December 31,196& The weighted average discount rate and rate of increase in compensation used in determining the actuarial present value of the projected benefit obligation were approximately 8% and 6%, respectively. The expected long-term rate of return on assets was approximately 7%. 29 i Cost related to the Company's savings and investment plan was $2,387,000 in 1968, $2,058,000 in 1967 and $2,084000 in 1986. The plan provides that the Company will contribute not less than 50% of the eligible amount of employee contributions. Additional discretionary contributions may' be made provided the Company or its subsidiaries has profits from which to pay its contributions Shareholders' Equity On August 3,1988, the Company declared a special $10 per share dividend which was paid to shareholders of record on August 15,1988. The Company has authorized 990,022 shares of $10 par value voting preferred stock. The board of directors designated 260,000 shares as Series B Junior Participating Preferred Stock (Series B Preferred Stock) which are reserved for issuance upon exercise of the Company's stock purchase rights. One stock purchase right accompanies each outstanding share of common stock. Each right may be exercised to purchase 1/100 of a share of Series B Preferred Stock far $50. Each share of Series B Preferred Stock will have a minimum preferential quarterly dividend of 100 times the dividend declared on common stock and a minimum liquidation preference of $100 per share. Upon liquidation or any merger or other business combination in which common stock is exchanged, the holders of the Series B Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. The stock purchase rights may be exercised only after public announcement that a person or group acquired 20% or more of the Company's common stock or public announcement of an offer for 30% or more of the Company's common stock. The rights, which do not haw voting rights, will expire on December 4,1990, unless activated prior to that date, in which case the rights will expire an December 4,1997. The rights may be redeemed by die Company at a price of $.01 per right at any time prior to 15 days (or such longer period as the board of directors may determine) after the acquisition of 20% of the Company's common stock. If the Company is acquired ma merger or other business combination after tie rights become activated, each right will entitle its holder to purchase, at the exercise price of $50, shares of common stock in the acquiring company having a market value of $100. If the Company is the surviving corporation, each right will entitle the holder to purchase; at the exercise price of $50, shares of common stock of the Company having a market value of $100. The Tyler Corporation Stock Option Plan provides for the granting of nonqualified and incentive stock options, as defined by the Internal Revenue Code, to key employees of the Company and its subsidiaries at prices which represent fair market value at dates of grant. In August 1988 tire stock option prices and, in same instances, the number of shares subject to stock options were adjusted by the special dividend of $10 per share to reflect the dedine in market value of the Company's stock. Following is a summary of option transactions during 1968 and 1987 after adjustment of the stock option price and the number erf shares subject to stock options as described above: _______ __________ 1W81*7 Stag Option Price Shares Option Price Outstanding at beginning of year.............. 539,592 110 to $6.75 531,602 $. 10 to $6.75 Granted ........... 313,500 37to 637 56,000 2.50to 3.87 Cancelled ......... (62388) .10 to 6.75 (40,010) .10 to 6.75 Exercised.......... (216,404) .10 to 6.75 (10,000) .10 Outstanding at end of yearand icsaved for issuance....... 571300 $.10 to $6.75 539,592 $.10 to $6.75 Exercisable at end of year ... 283300 Reserved far italic options ...... 93,162 455,217 344.274 30 Industry Segments The Company sells products and services to industrial customers through its three principal operating units. Selected financial information is presented below far 1988,1987 and 1986 (000 omitted). Segment Net Sales M8819871986 Segment Operating FWtts 1988 1987 WB6 Industrial explosives ............................................................ Specialty industrial coatings................................................. Pipe and fittings.................................................................... Segment totals.................................................................. $196,273 289,138 179,234 $664,645 $180,824 255,127 188,166 $624,117 $161,997 225,952 189,143 $577,092 $15,745 21,259 6,551 43.555 $15,613 20,926 17,919 54,458 $13,089 13,993 20,625 47,707 Interest expense .................................................................................................................................. Unallocated corporate expense ..................................................................................................... Income from continuing uptaabons before income tax.............................................................. (11,973) (6,431) (2,310) (7,801) (7,711) (6,519) $23,781 $40,316 $38,878 Capital Expenditures (Net) 198819871986 Industrial explosives ............................................................. Specialty industrial coatings................................................. Pipe and fittings.................................................................... Otter .................................................................................... $ 6,344 2,457 9,011 132 $ 5,402 $ 8,640 4,419 4,473 7,782 8,687 308 (2,963) Total continuing operations................................................ Discontinued operations ....................................................... 17,944 1,531 17,911 4,066 18,837 3,423 Consolidated..................................................................... $ 19,475 $ 21,977 $ 22,260 Dqawiatkn and Amortization 1988 1987 1986 $ 4,904 $ 4,767 $ 4,265 5,375 4,477 4,847 8,189 7,961 6,501 503 1,442 1,279 18,971 18,647 18,892 3,190 5,063 4,253 $22,161 $23,700 $23,145 Tangible Assets 1988 1987 1986 Industrial explosives ............................................................ Specialty industrial coatings................................................. Pipe and fittings.................................................................... Other .................................................................................... Total continuing opsatxns................................................ Discontinued operations, net ................................................ $ 91,520 110,228 86,264 18469 306481 -- $ 84.046 107,433 85,097 7,234 283,810 161,715 $ 76,379 98,369 84,653 7,795 267,196 141,679 Consolidated..................................................................... $306481 $445,525 $408,875 ______ Intangible Assets 1988 1987 1996 $-- 114*3 30474 -- 41417 -- $-- 11,587 30474 -- 41,961 26,205 $-- 11,931 30,374 -- 42,305 27,305 $41417 $68,166 $69,610 menuiMfe Assets 1988__________1987__________1986 Industrial eqpiooves ............................................................. Specialty industrial coatings................................................. Pipe and fittings................................................................ Otter.................................................................................... $ 91,520 121,471 116438 18469 $ 84,046 119,020 115,471 7,234 $ 764^ 110400 115,027 7,795 Total continuing operations................................................ 348,498 Disoontinixd operations, net ................................................ -- 325,771 187,920 309,901 168,984 Conscfidated................................................................. $348,498 $513,691 $478,485 31 REPORT CF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Shareholders erf Tyler Corporation We have audited the accompanying consolidated balance sheets erf Tyler Corporation at December 31,1988 and 1987, and tine related consolidated statements of income^ shareholders' equity and cash flows for each of the three years in the period ended December 31,1988. 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, an 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 consolidated financial position of Tyler Corporation at December 31,1968 and 1967, and the consolidated results erf operations and cash flows far each of the three years in the period ended December 31,1968, in conformity with generally accepted accounting principles. Dallas, Texas January 27,1989 32