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Home My WebLink AboutIDC 1989-02-10 Minutes .-, '___._~~_u__~_"__._"_~_~.~_.______~____~ FIRST SoaUuv-e4é COMPANY INVESTMENT BANKERS 500 FIRST CITY CENTER 1700 PACIFIC AVENUE DALLAS, TEXAS 75201 MARY K. MACAULAY (214) 953-4000 VICE PRESiDENT February 10, 1989 President and Board of Directors North Richland HiUs Industrial Development Corporation P.O. Box 18609 North Richland HiUs, Texas 76118 RE: NORTH RICHLAND HILLS INDUSTRIAL DEVELOPMENT CORPORATION VARIABLE RATE DEMAND REVENUE BONDS, SERIES 198( (TECNOL, INC. PROJECT) $4,903,000 Mrs. Bartek and Gentlemen: A meeting of the North Richland Hills Industrial Development Corporation has been scheduled for 5:00 p.m. Monday, February 27, 1989, at the City Hall for the authorization of bonds on behalf of the above referenced Project. Attached please find our letter of recom m enda tion. Should you have any questions or comments, please call. Sincerely, \yy)X~ \r\0C0-u4 Mary Macaulay MKM:mt Enclosure ..~-. ~'-'--'--"''"-'-'''"-''"~'--~-"'''----~~-~~--,---- FIRST SoaUuv-e4é COMPANY INVESTMENT BANKERS 500 FIRST CITY CENTER 1700 PACIFIC AVENUE DALLAS, TEXAS 75201 C. RADER McCULLEY CHAIRMAN (214) 953-4000 February 10, 1989 President and Board of Directors North Richland Hills Industrial Development Corporation P.O. Box 18609 North Richland Hills, Texas 76118 Re: North Richland Hills Industrial Development Corporation Variable Rate Demand Revenue Bonds, Series 1989 (Tecnol, Inc. Project) $4,903,000 Dear Mrs. Bartek and Gentlemen: You have advised us that you are giving consideration to the issuance of an amount not to exceed $4,903,000 in Variable Rate Demand Revenue Bonds, Series 1989 (T ecnol, Inc. Project) (the "Bonds"), with the proceeds to be loaned to Tecnol, Inc. ("Tecnol" or the "Company"), a Texas corporation, to refund a like amount of Revenue Bonds, Series 1985 (Tecnol, Inc. Project) (the "Prior Bonds"). The proceeds of the Prior Bonds were used to finance the cost of a medical products manufacturing and warehouse facility (the "Facility") located in North Richland HiUs, Texas. The Company will be unconditionally obligated to make installment payments to a trustee bank (the "Trustee") at times and in amounts sufficient to enable the Trustee to pay principal, premium, if any, and interest on all Bonds as such become due. We have been further advised that NCNB National Bank of North Carolina ("NCNB" or the "Bank") has agreed to issue an irrevocable transferrable direct pay letter of credit (the "Letter of Credit") as further security for the Bonds. You have requested that we undertake a review and analysis of Tecnol and provide you with our opinion regarding the financial condition of the Company as relating to this proposed loan and that we review the financial condition of NCNB relating to obligations under the Letter of Credit. We are pleased to comply with this request. For the purpose of this review and analysis, we have examined financial statements for the 52 week periods ended November 27, 1987 through November 29, 1985 as audited by Arthur Young &: Company, Certified Public Accountants, financial statements for the 52 weeks ended November 30, 1984 as audited by Coopers &: Lybrand, Certified Public Accountants, and unaudited financial statements for the 52 weeks ended December 2, 1988. We set out as attached exhibits summary financial statements for these five years. While we have no reason to believe otherwise, we have relied upon the information provided to be factual and accurate and containing no omissions or misstatements of any material fact. We have not visited the Facility nor have we interviewed the management of the Company. The opinion expressed herein is based on the financial position of the Company at December 2, 1988 and FIRST 8~ COMPANY President and Board of Directors North Richland Hills Industrial Development Corporation February 10, 1989 Page 2 upon financial, economic and other indicators as they exist at this time. Some of the major factors we have considered in our analysis are set out below: 1. Tecnol is a Texas corporation formed in 1976 to make use of ultrasonic technology in providing medical products and supplies to the health care industry. Much of the Company originated from Precept, Inc., another health care company which was founded by Van Hubbard, present Chairman of the Board of Tecnol, and operated by many of the same individuals now managing and operating Tecnol. 2. During fiscal 1987, Tecnol has reported preliminary earnings of $4.1 million from revenues of $33.5 million. This compares to audited fiscal 1986 results when the Company earned $2.8 million on revenues of $24.6 million. The preliminary 1988 results represent a 45.5 percent increase in net earnings and a 36.1 percent increase in revenues over results for the same period in 1987. 3. At December 2, 1988, Tecnol reported total current assets of $10.5 million and total current liabilities of $3.5 million. This translates into a current ratio of 3.0x times and net working capital of $7.0 million. These liquidity measures continue a steady upward trend shown throughout the five-year period reviewed. Also at December 2, 1988, Tecnol reported total assets of $22.5 million and total capital of $17.9 million. Total capital consisted of $11.3 million, or 63.1 percent, stockholders' equity and $6.6 million, or 36.9 percent, long-term debt. As described above, the Bonds will be used to refund a like amount of the Prior Bonds and therefore will not cause any change in the capital structure of the Company as reported at December 2, 1988. 4. Preliminary reports of earnings generated before interest and taxes during fiscal 1988 by Tecnol were sufficient to cover interest expenses 15.1x times. The issuance of the Bonds is for the express purpose of refunding a like amount of the Prior Bonds and likely will cause a slight increase in the reported interest coverage ratio of fiscal 1988. 5. NCNB is the lead bank and a wholly-owned subsidiary of NCNB Corp. (the "Holding Company"), a bank holding company headquartered in Charlotte, North Carolina with shares of common stock traded on the New York Stock Exchange. At December 31, 1987, the latest period for which such information is available, the Bank reported total assets of $15.9 billion, net loans and leases of $9.1 billion, total deposits of $10.6 billion and total stockholder's equity of $812.6 million. The Holding Company owns two other commercial banking institutions, NCNB Florida Bancorp, Inc. and NCNB South Carolina, and is currently the trustee with an option to acquire NCNB National Bank of Texas. At June 30, 1988, the Holding Company reported total assets of $28.6 billion, net loans and leases of $17.7 billion, total deposits of $19.7 billion and stockholders' equity of $1.6 billion. .-....~._-_.."'~,._~------~_.._~.__..~._----"-~---- FIRST 8~ COMPANY President and Board of Directors North Richland Hills Industrial Development Corporation February 10, 1989 Page 3 It is our opinion, based on the foregoing review and analysis, that Tecnol, Inc. possesses the financial resources and integrity to assure that the proposed loan, including interest thereon, wiU be paid as principal and interest payments become due. In addition, based upon our review and analysis of the Bank, it is our opinion that NCNB National Bank of North Carolina possesses the financial resources and integrity to fulfill the obligations outlined in the Letter of Credit. It is our recommendation that the North Richland Hills Industrial Development Corporation should proceed with the issuance of the Bonds. Sincerely, C..Ka£b-r~~ C. Rader McCulley CRM:mt '_'~~~_"_'~~~"_-'_^"~~"'-_'~,_.~-----~.~~.~"--,~..,_.--~- TECNOL, INC. CONSOLIDATED BALANCE SHEET FOR THE YEARS ENDED .---.------------------------------------------------------------- DECEMBER 2, NOVEMBER 27, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, (unaudi ted) ASSETS 1988 1987 1986 1985 1984 -------- -------- -------- ------..- --..----- CURRENT ASSETS: CASH & TEMPORARY CASH INVESTMENTS 5206,968 51,163,421 $1,400,000 5 534,354 ACCOUNTS RECEIVABLE, NET 5,323,952 3,541,798 2,878,669 1,946,658 1,567,467 ACCRUED INTEREST RECEIVABLE { 1,131 15,688 FEDERAL INCOME TAX RECEIVABLE { 230,983 INVENTORIES 4,826,787 2,183,920 1,621,347 1,958,276 1,510,673 PREPAID EXPENSES 168,372 81,828 147,952 53,336 19,766 -...-------- --------..- ---...------ ...--------... ..--...---...... TOTAL CURRENT ASSETS 10,526,079 6,972,098 6,294,639 3,958,270 3,132,260 RESTRICTED TEMPORARY INVESTMENTS { 145,599 3,338,199 PROPERTY AND EQUIPMENT: LAND 1,372,356 1,270,356 1,270,356 BUILDING 4,871,462 AUTOMOTIVE EQUIPMENT 59,063 421,254 549,938 578,043 459,979 MANUFACTURING EQUIPMENT 7,204,128 5,837,729 4,413,101 3,940,703 3,233,488 OFFICE FURNITURE AND EQUIPMENT 870,146 596,675 428,993 332,849 280,248 LEASEHOLD IMPROVEMENTS 300,914 184,551 184,551 165,843 139,207 CONSTRUCTION-IN-PROGRESS 825,425 4,228,339 1,104,158 21,407 ------..--- ----..--..-- ---------- -..-------- ---------- TOTAL PROPERTY AND EQUIPMENT 15,503,494 12,538,904 7,951,097 5,038,845 4,112,922 LESS ACCUMULATED DEPRECIATION 3,910,302 3,549,568 2,881,778 2,114,989 1,495,355 ..--------- ---------- ---..-..--..- ..-----.....- ....---....-- NET PROPERTY AND EQUIPMENT 11,593,192 8,989,336 5,069,319 2,923,856 2,617,567 PATENTS AND TRADEMARKS 180,268 128,925 114,739 95,630 { OTHER 211,014 47,726 36,458 71,054 61,024 ---------- ---....----- ---....----- ..-....--.....-- -------..-- TOTAL ASSETS 522,510,553 516,283,684 514,853,354 57,048,810 55,810,851 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ~<........~_.~~'-~~.-.~-----_._~"--""--~~-,--~~-"-- TECNOL, INC. CONSOLIDATED BALANCE SHEET FOR THE YEARS ENDED ~----~-----------_..~-..._----~--_._---_._~----.__._-~------~~-.._---- DECEMBER 2, NOVEMBER 27, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, (unaudited) LIABILITIES & STOCKHOLDERS" EQUITY 1988 1987 1986 1985 1984 -----------------..._~--------_.._.._- -...---...-- ------..- -----.-- -------- ...------ CURRENT LIABILITIES: BANK OVERDRAFTS 5 5 5350,292 5553,012 5291,829 NOTES PAYABLE 290,163 ACCOUNTS PAYABLE, TRADE 1,830,442 962,362 673,521 482,761 82,225 ACCRUED LIABILITIES 760,624 743,681 607,345 241,399 122,749 FEDERAL INCOME TAXES PAYABLE 307,082 140,282 335,852 285,947 DEFERRED FEDERAL INCOME TAX 327,878 468,842 CURRENT PORTION OF LONG-TERM DEBT 628,587 406,838 341,357 286,027 433,146 ..---...--.... -........----- ------..--- -----~---- --..-.----- TOTAL CURRENT LIABILITIES 3,526,735 2,581,041 2,441,357 1,899 ,051 1,506,059 LONG-TERM DEBT 6,622,075 5,340,636 5,527,986 485,411 1,084,663 DEFERRED FEDERAL INCOME TAX 1,038,785 1,038,785 835,569 504,535 389,216 STOCKHOLDERS' EQUITY: COMMON STOCK 1,733,980 1,486,480 1,159,630 965,893 776,194 CONTRIBUTED CAPITAL 117,322 117,322 117, 322 117,322 117,322 RETAINED EARNINGS 11 ,715 , 299 7,600,001 4,771,490 3,076,598 1,947,397 ESOP LOAN (273,001) LESS: TREASURY STOCK @ COST (1,970,642) (1,880,581 ) (10,000) ---------- ---------- ------...--- .-----..-..- ..--------- TOTAL STOCKHOLDERS' EQU ITY 11,322,958 7,323,222 6,048,442 4,159,813 2,830,913 ---------- ---------- ---------- -----....--- ..--------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 522,510,553 $16,283,684 514,853,354 57,048,810 55,810,851 ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- --------- TECNOL, I NC. CONSOLIDATED INCOME STATEMENT FOR THE YEARS ENDED -..--...-------..-..--.....---...-......-..-----...---...--..----...--...--.....--------.....- DECEMBER 2, NOVEMBER 27, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, (unaudited) 1988 1987 1986 1985 1984 --..----- -------- --...----- .------- --.......--- NET SALES 533,511,722 524,614,527 518,589,490 513,803,736 510,444,462 COST OF GOODS SOLD 17,412,601 12,272,149 9,497,926 7,521,829 5,970,228 ---..--..-..-- -..----..---- ..----.....---- ----.....-....-- -------..--- GROSS PROFIT 16,099,121 12,342,378 9,091,564 6,281,907 4,474,234 COSTS & EXPENSES: SELLING EXPENSES 7,727,707 5,811,350 4,497,556 3,253,951 2,632,107 GENERAL & ADMINISTRATIVE 2,032,996 1,242,165 794,992 269,834 { DEPRECIATION AND AMORTIZATION { 883,375 845,490 690,116 522,645 -----...-..--- ----..------ ---..-----..... ----------- ..-..-----....- TOTAL COSTS & EXPENSES 9,760,703 7,936,890 6,138,038 4,213,901 3,154,752 ....-----....-.. --.....------- ----------- -----.-..--- ...---------- OPERATING INCOME 6,338,418 4,405,488 2,953,526 2,068,006 1,319,482 OTHER INCOME (EXPENSE): INTEREST INCOME 56,153 78,035 21,999 1,567 { INTEREST EXPENSE (426,750) (17,194) (47,821) (122,340) (206,175 ) OTHER, NET 42,151 57,718 7,832 (11,756) 261,808 -..-------.- ---------.- -.....-------- ..-..-------- ----------- INCOME BEFORE INCOME TAXES 6,009,972 4,524,047 2,935,536 1,935,477 1,375,115 PROVISION FOR INCOME TAXES 1,894,674 1,695,536 1,240,644 806,276 548,838 ---.......----- ----------- ----------- ----------- ----------- NET INCOME 54,115,298 52,828,511 51,694,892 51,129,201 5826,277 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- TECNOL, INC. COST ANALYSIS FOR THE YEARS ENDED -----...-..---.-----.------------------------...---...--...--------------- DECEMBER 2, NOVEMBER 27, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, (unaudited) 1988 1987 1986 1985 1984 -..------ -------- -------- -------- ---.._--- NET SALES 100.0% 100.0% 100.0% 100.0% 100.0% COST OF GOODS SOLD 52.0 49.9 51.1 54.5 57.2 GROSS PROF IT 48.0 50.1 48.9 45.5 42.8 COSTS & EXPENSES: SELLING EXPENSES 23.0 23.6 24.2 23.6 25.2 GENERAL & ADMINISTRATIVE 6.1 5.0 4.3 1.9 { DEPRECIATION AND AMORTIZATION { 3.6 4.5 5.0 5.0 TOTAL COSTS & EXPENSES 29.1 32.2 33.0 30.5 30.2 OPERATING INCOME 18.9 17.9 15.9 15.0 12.6. OTHER INCOME: INTEREST INCOME 0.2 0.3 0.1 0.0 { INTEREST EXPENSE ( 1.3) (0.1 ) (0.2) (0.9) (1. 9) OTHER, NET 0.1 0.3 0.0 (0.1) 2.5 INCOME BEFORE INCOME TAXES 17.9 18.4 15.8 14.0 13.2 PROVISION FOR INCOME TAXES 5.6 6.9 6.7 5.8 5.3 NET INCOME 12.3% 11. 5% 9.1% 8.2% 7.9% ------ ------ ------ ------ ------ TECNOL, INC. FINANCIAL ANALYSIS FOR THE YEARS ENDED ----------------------.----.....-.---------...------------------------- DECEMBER 2, NOVEMBER 27, NOVEMBER 28, NOVEMBER 29, NOVEMBER 30, (unaudited) 1988 1987 1986 1985 1984 ---..-...-- ---..---- ----....-- ---..--..- -------. LIQUIDITY ----...---- CURRENT RATIO (X) 3.0 2.7 2.6 2.1 2.1 QUICK RATIO (X) 1.6 1.9 1.9 1.1 1.1 CASH FLOW (000) 57,336,918 55,288,863 53,799,016 $2,758,122 $1,842,127 IJORKING CAPITAL (000) 6,999,344 4,391,057 3,853,282 2,059,219 1,626,201 LEVERAGE -------... CAPITAL STRUCTURE: LONG-TERM DEBT 36.9% 42.2% 47.8% 10.4% 27.7% COMMON SHAREHOLDERS' EQUITY 63.1 57.8 52.2 89.6 72.3 TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% TOTAL DEBT TO EQUITY (x) 0.9 1.1 1.3 0.6 0.9 TIMES INTEREST EARNED (x) 15.1 264.1 62.4 16.8 7.7 PROFITABILITY --..--..--....-..- GROSS MARGIN 48.0% 50.1% 48.9% 45.5% 42.8% OPERATING MARGIN 18.9 17.9 15.9 15.0 12.6 NET MARGIN 12.3 11.5 9.1 8.2 7.9 RETURN ON EQUITY 36.3% 38.6% 28.0% 27.1% 29.2% RETURN ON TOTAL CAPITAL 22.9 22.3 14.6 24.3 21.1 RETURN ON TOTAL ASSETS 18.3 17.4 11.4 16.0 14.2