-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OicbaLYDejlxJHZg5TS4EJG2U7fLDB97BAiyibsA3qERzNvAKUBLr4wyt689uCCt klMBx84yba8Ge+ebTthhkA== 0000950134-98-003780.txt : 19980505 0000950134-98-003780.hdr.sgml : 19980505 ACCESSION NUMBER: 0000950134-98-003780 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980219 ITEM INFORMATION: FILED AS OF DATE: 19980504 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYLER CORP /NEW/ CENTRAL INDEX KEY: 0000860731 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 752303920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-10485 FILM NUMBER: 98609146 BUSINESS ADDRESS: STREET 1: 2121 SAN JACINTO ST STREET 2: STE 3200 SAN JACINTO TOWER CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147547800 MAIL ADDRESS: STREET 1: 2121 SAN JACINTO STREET STREET 2: SUITE 3200 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: TYLER THREE INC DATE OF NAME CHANGE: 19600201 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 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) 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) 3 ITEM 7(a) 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 5 BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1996 and 1997
1996 1997 ---- --------------------------- Assets Historical Pro forma ---------- ---------- (unaudited) Current assets: (note 1) 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. 6 BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 1995, 1996 and 1997
1995 1996 1997 ---- ---- ---- 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. 7 BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 1995, 1996 and 1997
Common shares Common stock ---------------------------------------- ----------------------------------- Former Former Class A Class B Class Class A Class B Class ------- ------- ----- ------- ------- ----- 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 -- ========== ========== ========== ========== ========== ========== Retained Additional earnings Total paid-in (accumulated stockholders' capital deficit) equity ------- -------- ------ 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 ========== ========== ==========
See accompanying notes to consolidated financial statements. 8 BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1995, 1996 and 1997
1995 1996 1997 ---- ---- ---- 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. 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) 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:
December 31 --------------------- 1996 1997 ---- ---- 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 =========== ===========
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) 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) 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:
December 31 Useful --------------------- life 1996 1997 ---- ---- ---- 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 =========== ===========
(3) Accrued Expenses Accrued expenses consisted of the following:
December 31, -------------------------- 1996 1997 ---- ---- 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 =============== ===============
(Continued) 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) 14 6 BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) Long-term Debt Long-term debt consists of the following:
December 31 ------------------------ 1996 1997 ---- ---- 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 =========== ===========
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) 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: 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 ===========
(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:
December 31 -------------------------- 1996 1997 ---- ---- 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 =============== ===============
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) 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:
Capital Operating Year ending December 31 leases lease ----------------------- ------ ----- 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 =========
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:
1995 1996 ---- ---- Income (loss) from continuing operations $ (444,105) 1,124,818 Discontinued operations (42,533) -- --------------- --------------- $ (486,638) 1,124,818 =============== ===============
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) 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:
Current Deferred Total ------- -------- ----- 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 =============== =============== ===============
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:
1995 1996 ---- ---- 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 =============== ===============
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: 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) ============
(Continued) 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: 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) ==========
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) 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:
1995 -------------------- Historical Pro forma ---------- --------- (Unaudited) 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)
(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) 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: 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 ============
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:
Year ended December 31 --------------------------------------------------- 1996 1997 ------------------ ------------------- Historical Pro forma Historical Pro forma ---------- --------- ---------- --------- (Unaudited) (Unaudited) 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)
(Continued) 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. 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 23 THE SOFTWARE GROUP, INC. Balance Sheets October 31, 1996 and 1997
Assets 1996 1997 ---- ---- 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 ========== ==========
See accompanying notes to financial statements. 24 THE SOFTWARE GROUP, INC. Statements of Operations Years ended October 31, 1995, 1996 and 1997
1995 1996 1997 ---- ---- ---- (unaudited) 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 ============ ============ ============
See accompanying notes to financial statements. 25 THE SOFTWARE GROUP, INC. Statements of Stockholders' Equity Years ended October 31, 1995, 1996 and 1997
Common Total shares Common Retained stockholders' issued stock earnings equity ------ ----- -------- ------ 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 ========== ========== ========== ==========
See accompanying notes to financial statements. 26 THE SOFTWARE GROUP, INC. Statements of Cash Flows Years ended October 31, 1995, 1996 and 1997
1995 1996 1997 ---- ---- ---- (unaudited) 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 =========== =========== ===========
See accompanying notes to financial statements. 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) 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) 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) 30 4 THE SOFTWARE GROUP, INC. Notes to Financial Statements (2) Property and Equipment Property and equipment consisted of the following:
Useful life 1996 1997 ---- ---- ---- 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 ============ ==========
(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) 31 5 THE SOFTWARE GROUP, INC. Notes to Financial Statements (6) Accrued Expenses Accrued expenses consisted of the following:
October 31, ----------------------- 1996 1997 ---- ---- Accrued vacation $ 119,937 115,535 Other 182,352 106,791 -------------- -------------- $ 302,289 222,326 ============== ==============
(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) 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: Year ending October 31, ----------------------- 1998 $ 155,608 1999 155,608 Thereafter -- --------- $ 311,216 =========
(9) Income Taxes The provision for income taxes for the years ended October 31, 1995, 1996 and 1997 consisted of the following:
1995 1996 1997 ---- ---- ---- (unaudited) 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 ============ ============ ============
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:
1995 1996 1997 ---- ---- ---- (unaudited) 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 ============ ============ ============
(Continued) 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:
1996 1997 ---- ---- 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 ============ ============
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) 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. 35 ITEM 7(b) 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. 37 TYLER CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
RESOURCES --------------------------------- PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA COMBINED COMPANY HISTORICAL ADJUSTMENTS ADJUSTED TSG (1) ADJUSTMENTS COMPANY ------- ---------- ----------- -------- ------- ----------- ------- 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
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 38 TYLER CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 (IN THOUSANDS) (UNAUDITED)
ASSETS RESOURCES --------------------------------- PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA COMBINED COMPANY HISTORICAL ADJUSTMENTS ADJUSTED TSG (1) ADJUSTMENTS COMPANY ------- ---------- ----------- -------- ------- ----------- ------- 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 =========================================================================================
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 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: 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 ======
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 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:
RESOURCES(a) TSG TOTAL ------------ ---------- ---------- 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 ========== ========== ==========
Resources Resources/ Purchase Historical TSG Price as TSG Acquisitions Net Pro Forma Allocation Adjusted Historical Financing Adjustment ---------- -------- ---------- --------- ---------- 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) $ -- ======== ========== ========== ========== ==========
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:
RESOURCES TSG TOTAL ----------- ---------- --------- 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 ========== ========== ==========
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 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: Title Acquisition (8) $ 846 Office rent expense (633) ----- $ 213 =====
(10) Represents adjustments on Resources to record incremental depreciation and amortization expense for the year ended December 31, 1997: Title Acquisition property and equipment (title plant is not depreciated) (8) $ 64 Unrelated real property (18) Office building (3) 26 ------- $ 72 =======
(11) Adjustments on Resources to record incremental interest expense for the year ended December 31, 1997: 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 ======
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: Office building and improvements $ 41 Amortization of intangible assets other than goodwill 1,112 --------------- 1,153 Less: Resources' adjustments(10) (26) --------------- $ 1,127 ===============
(15) Amortization of goodwill is calculated as follows for the year ended December 31, 1997: Resources $ 1,148 TSG 716 --------- $ 1,864 =========
(16) Interest expense is calculated as follows for the year ended December 31, 1997: 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 =========
(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. 44 Index to Exhibits
Exhibit Number Description - -------- ----------- 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of KPMG Peat Marwick LLP
EX-23.1 2 CONSENT OF KPMG PEAT MARWICK LLP 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 EX-23.2 3 CONSENT OF KPMG PEAT MARWICK, LLP 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 -----END PRIVACY-ENHANCED MESSAGE-----