Business Profile: Joseph F. McKinney;NEWLN:Tyler Corp. chief likes his companies diverse and ready to make the cash flow


DALLAS -- Joseph F. McKinney came into his first million dollars at the age of 29 and ran it into near bankruptcy three years later. Now at the age of 53 he runs a corporate empire poised to hit the billion-dollar sales mark next year.

McKinney hasn't stopped running. But today he does that in jogging shoes along with the executives of his Tyler Corp. conglomerate. A physical fitness enthusiast, McKinney says a healthy body improves self-image and thus company productivity.


One of three sons of a small Philadelphia businessman who went bust in the hosier business when McKinney was a child, the multimillionaire looks more like a professional football lineman than a Jesuit-educated Harvard M.B.A.

The looks are as deceptive as the low-profile demeanor that hides the hard-core businessman inside.

'Bonum est diffusivum sui (Good tends to diffuse itself),' is McKinney's message to the more than 9,000 employees of his corporation that includes the Atlas Powder Co., Hall-Mark Electronics Corp, both of Dallas; Reliance Universal Inc. of Louisville, Ky.; Thurston Aviation, Inc. of Charlotte, N.C.; and the corporate flagship, Tyler Pipe Industries, Inc., of Tyler, Texas.


The McKinney message, as diligently applied to the business as to his passion for physical fitness, has reached all levels of the corporate ladder.

Less than 7 percent of McKinney's employees are unionized. The management has 'overwhelmingly defeated at least 15 elections' to organize the rest of the employees who together own 30 percent of the corporation. The corporation, company officials claim, has one of the best safety records despite the hazardous nature of its activities.

A portion of the corporate headquarters on the two top floors of the brand new 33-story San Jacinto Tower in downtown Dallas is a gymnasium where the employees can been seen working out all hours of the day. Free parking is provided employees.

McKinney's answers during an interview are pure Harvard-ese but liberally interspersed with phrases learned 'not at the Harvard school but the hard knocks school.'

'Diversification that gives you ample room to constantly re-deploy your assets and cash,' McKinney says in explaining how he built an empire that includes such diverse activities as pipes and fittings, electronic components distribution, aviation, chemical coatings, trucking, and industrial explosives.

'Asset turnover times profit margin gives you return on assets. Specifically, if you turn your assets two times a year and you have a 13 percent pretax profit margin, then you have exceeded your internal goal of a 25 percent return on assets.'


Then comes the language learned at the school of hard knocks.

'If you find that it takes $1.25 to increase your sale by $1, then stay away from it. Cash is the most versatile of all business assets. It is the best reward for a successful return on assets.'

That acumen is what brought Tyler Corp. to its present status.

In recent years, the company has been among the Fortune 500 leading U.S. industrial companies and generally has been in the top 10 percent of that group in terms of return on year-end shareholders' equity.

For the first nine months of 1984, earnings from continuing operations advanced 82 percent to $2.31 per share, compared with $1.27 in 1983.

McKinney learned his hard knocks at the business feet of Jim Ling, once known as the king of conglomerates who started with some $2,000 to build what is now the LTV Corp.

Working as a securities analyst in Philadelphia, McKinney came in contact with Ling in the 1950s. That acquaintance helped bring the young man to Dallas. The two started the Electro-Science Investors, a venture capital firm that got heavily involved in high technology.

McKinney made his first million, which he now calls 'only paper money,' in 1960 when he was barely 29.


'I allowed myself to be impressed by the appreciation of the stocks without examining the justification for the appreciation,' McKinney said. The predictable collapse of the firm came three years later and McKinney found himself in the hole for nearly $800,000.

The banks began hounding him and McKinney started running in panic.

'The telephone would ring and I would hide under the bed covers,' he said.

Despite the urgings of his friends to seek refuge in Chapter 11, McKinney remembered the advice of his father who had met a similar fate but had 'worked 20 hours a day to pay back every penny he owed.'

McKinney returned to his securities business and once again crossed the path of his mentor, Ling. This time Ling asked his help to dispose of three military suppliers from the LTV Corp.

Aided by 'Dumb Irish luck,' McKinney founded the Saturn Industries and used the company stock to settle the LTV liabilities.

In building Saturn, McKinney stuck to one credo in the next 25 years: the subsidiaries he acquired must be leaders in the field with excellent cash flow, managed by top people and in a position to sell to diverse customers.

He bought the C&H Transportation Co. in 1966 for about $10 million. The company began transporting heavy equipment and machinery and money started pouring in. C&H made so much money in the next three years that McKinney was able to acquire the second firm, Tyler Pipe, for $43 million.


Tyler Pipe, that would become the company's flagship, was an instant success, so much that even in the midst of the 1980s recession it returned more than 30 percent on assets while its competitors were falling by the wayside.

C&H Transportation was sold early this year for about $85 million.

'Like my dad, who is a very honorable and admirable man, I just hung in there after Electro-Science. He never took bankrutpcy. He had been orphaned at the age of 7. I learned a great deal from my dad. I have never made that mistake again,' McKinney said.

'I knew nothing about the businesses I was acquiring. I still don't know much about my companies. But I do know how to identify a CEO - mostly by his track record -- and I know how to motivate him, stimulate him.

'We like companies that are already large. Because they have already achieved some size, they have proved something. They have the ability of management and can absorb additional pressures.'

McKinney said his other objective is to institute a highly autonomous style of management.

'We let the guy run the company the same way he did before we acquired him instead of superimposing our view. Then give him enough stock so he will have a proprietary interest.


'Our philosopny of diversification is consistent with our autonomous style. We will never consider an unfriendly takeover because it is not consistent with our philosphy.'

McKinney is the largest single shareholder of his corporation but in numerical terms it is only 5 to 6 percent of the total shares. An additional 25 to 30 percent is owned by employees through the company's savings and investment plan and by the directors.

What is his next acquisition?

McKinney is evasive, but gives three conditions: that the new business be far removed from any of the existing subsidiaries, be resilient to withstand the vagaries of the economy, and be one which, after the acquisition, would raise the public question: 'But that purchase doesn't make sense.'

'Also, it has to be one heck of a deal. Got any in mind and how much?' Mckinney asks with a smile.

How does he control his executives?

'I don't yell or give them hell. I don't like to be a hot shot. Once in a while they may need a re-education session.'

The physical fitness regimen of McKinney is not compulsory but knowing McKinney's commitment to it, his executives learn to accept it as an occupational hazard. The gym in the corporate office stands as a constant reminder.


McKinney issues an annual reminder about physical fitness by sponsoring the Tyler Cup Invitational, a two-mile foot race that attracts the cream of the Fortune 500.

McKinney loves to quote his fitness mentor, Dr. Kenneth Cooper, the father of aerobics:

'The most common first symptom of a heart attack is sudden death.'

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