10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number 1-10485 TYLER TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2303920 (State or other jurisdiction of ( I.R.S. employer incorporation or organization) identification no.) 2800 WEST MOCKINGBIRD LANE DALLAS, TEXAS 75235 (Address of principal executive offices) (Zip code) (214) 902-5086 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of shares of common stock of registrant outstanding at August 9, 2000: 46,679,447 2 TYLER TECHNOLOGIES, INC. INDEX
Page No. Part I - Financial Information (Unaudited) Item 1. Financial Statements Condensed Consolidated Balance Sheets ................................... 3 Condensed Consolidated Statements of Operations ......................... 4 Condensed Consolidated Statements of Cash Flows.......................... 5 Notes to Condensed Consolidated Financial Statements .................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................... 16 Part II - Other Information Item 1. Legal Proceedings ....................................................... 23 Item 4. Submission of Matters to a Vote of Security Holders...................... 23 Item 6. Exhibits and Reports on Form 8-K......................................... 23 Signatures ................................................................................ 24
Page 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TYLER TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value and number of shares)
(Unaudited) June 30, December 31, 2000 1999 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 1,873 $ 2,424 Accounts receivable (less allowance for losses of $1,387 in 2000 and $1,257 in 1999) 39,514 39,464 Income taxes receivable 3,326 3,392 Prepaid expenses and other current assets 3,583 3,301 Deferred income taxes 2,436 2,438 --------- --------- Total current assets 50,732 51,019 Property and equipment, net 21,141 21,789 Other assets: Investment securities available-for-sale 7,375 33,713 Goodwill and other intangibles, net 167,942 160,665 Other receivables 3,214 3,358 Sundry 3,028 1,991 --------- --------- $ 253,432 $ 272,535 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,651 $ 5,163 Accrued liabilities 10,376 13,786 Current portion of long-term obligations 31,961 3,747 Deferred revenue 24,052 24,303 --------- --------- Total current liabilities 70,040 46,999 Long-term obligations, less current portion 50,755 67,446 Deferred income taxes 13,112 13,869 Other liabilities 5,065 5,317 Commitments and contingencies Shareholders' equity: Preferred stock, $10.00 par value; 1,000,000 shares authorized, none issued -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 48,042,969 and 44,709,169 shares issued at 6/30/00 and 12/31/99, respectively 481 447 Additional paid-in capital 160,595 151,298 Accumulated deficit (32,313) (24,615) Accumulated other comprehensive income - unrealized (loss) gain on securities available-for-sale (8,408) 17,931 Treasury stock, at cost: 1,363,522 and 1,418,482 shares at 6/30/00 and 12/31/99, respectively (5,895) (6,157) --------- --------- Total shareholders' equity 114,460 138,904 --------- --------- $ 253,432 $ 272,535 ========= =========
See accompanying notes. Page 3 4 TYLER TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three months ended Six months ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Software licenses $ 4,131 $ 6,419 $ 8,567 $ 10,034 Professional services 17,349 11,068 34,713 19,073 Maintenance 9,258 5,927 18,256 10,399 Hardware and other 1,401 3,513 3,094 6,234 -------- -------- -------- -------- Total revenues 32,139 26,927 64,630 45,740 Cost of revenues: Software licenses 735 835 1,437 1,466 Professional services and maintenance 17,363 9,503 34,926 16,800 Hardware and other 989 2,313 2,013 4,212 -------- -------- -------- -------- Total cost of revenues 19,087 12,651 38,376 22,478 -------- -------- -------- -------- Gross profit 13,052 14,276 26,254 23,262 Selling, general and administrative expenses 12,655 9,649 24,947 15,117 Litigation defense costs 90 -- 1,264 -- Amortization of intangibles 2,652 1,552 5,359 2,648 -------- -------- -------- -------- Operating income (loss) (2,345) 3,075 (5,316) 5,497 Interest expense 2,020 927 3,896 1,756 -------- -------- -------- -------- (Loss) income from continuing operations before income tax (benefit) provision (4,365) 2,148 (9,212) 3,741 Income tax (benefit) provision (454) 1,446 (2,001) 2,426 -------- -------- -------- -------- (Loss) income from continuing operations (3,911) 702 (7,211) 1,315 Loss from disposal of discontinued operations, net of income taxes (68) (780) (487) (1,345) -------- -------- -------- -------- Net loss $ (3,979) $ (78) $ (7,698) $ (30) ======== ======== ======== ======== Basic and diluted earnings (loss) per common share: Continuing operations $ (0.09) $ 0.02 $ (0.16) $ 0.04 Discontinued operations (0.00) (0.02) (0.01) (0.04) -------- -------- -------- -------- Net earnings (loss) per common share $ (0.09) $ (0.00) $ (0.17) $ (0.00) ======== ======== ======== ======== Weighted average common shares outstanding: Basic 44,894 38,539 44,092 36,648 Diluted 44,894 39,944 44,092 37,946
See accompanying notes. Page 4 5 TYLER TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended June 30, ------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $ (7,698) $ (30) Adjustments to reconcile net loss from operations to net cash (used) provided by operations: Depreciation and amortization 8,773 4,298 Deferred income taxes (848) (455) Discontinued operations - noncash charges and changes in operating assets and liabilities -- (665) Changes in operating assets and liabilities, exclusive of effects of acquired companies and discontinued operations (5,117) (2,663) -------- -------- Net cash (used) provided by operating activities (4,890) 485 -------- -------- Cash flows from investing activities: Additions to property and equipment (2,189) (2,123) Investment in database and other software development costs (5,769) (1,997) Cost of acquisitions, net of cash acquired (3,073) (22,412) Capital expenditures of discontinued operations -- (534) Proceeds from disposal of discontinued operations, net of transactions costs -- 11,291 Issuance of notes receivable -- (1,000) Other (524) (94) -------- -------- Net cash used by investing activities (11,555) (16,869) -------- -------- Cash flows from financing activities: Net borrowings on revolving credit facility 9,581 16,703 Payments on notes payable (1,461) (1,354) Payments of principal on capital lease obligations (665) (201) Proceeds from sale of common stock, net of issuance costs 9,270 -- Proceeds from notes receivable -- 643 Sale of treasury shares to employee benefit plan 19 20 Debt issuance cost (850) (100) -------- -------- Net cash provided by financing activities 15,894 15,711 -------- -------- Net decrease in cash and cash equivalents (551) (673) Cash and cash equivalents at beginning of period 2,424 1,558 -------- -------- Cash and cash equivalents at end of period $ 1,873 $ 885 ======== ========
See accompanying notes Page 5 6 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (1) Basis of Presentation The accompanying unaudited information for Tyler Technologies, Inc. ("Tyler" or the "Company") includes all adjustments which are, in the opinion of the Company's management, of a normal or recurring nature and necessary for a fair summarized presentation of the condensed consolidated balance sheet at June 30, 2000, and the condensed consolidated results of operations and cash flows for the periods presented. Such financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The consolidated results of operations for interim periods may not necessarily be indicative of the results of operations for any other interim period or for the full year and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (2) Acquisitions On January 3, 2000, the Company acquired all of the outstanding common stock of Capitol Commerce Reporter, Inc. ("CCR") of Austin, Texas for approximately $3.0 million in cash, $1.2 million in assumed debt and $2.8 million in five-year, 10% subordinated notes and financed the cash portion of the acquisition utilizing funds available under its bank credit agreement. The Company accounted for the acquisition of CCR using the purchase method of accounting and its results of operations are included in the Company's condensed consolidated financial statements since the date of acquisition. The purchase price has been preliminarily allocated to the assets and liabilities based on their estimated respective fair values. The purchase price exceeded the estimated fair value of CCR's identifiable net assets by approximately $6.8 million. Goodwill is being amortized over ten years. Since January 1, 1999, the Company has also acquired the entities described below in transactions which were accounted for by the purchase method of accounting and the cash portion of the consideration was financed utilizing funds available under its bank credit agreement. Results of operations of the acquired entities are included in the Company's condensed consolidated financial statements from their respective dates of acquisition.
Date Company Acquired Acquired ---------------- -------- Eagle Computer Systems, Inc. ("Eagle") March 1, 1999 Micro Arizala Systems, Inc. ("FundBalance") April 1, 1999 Process Incorporated ("MUNIS") April 21, 1999 Gemini Systems, Inc. ("Gemini") May 1, 1999 Pacific Data Technologies, Inc. ("Pacific Data") July 16, 1999 Cole-Layer-Trumble Company ("CLT") November 4, 1999
The following unaudited pro forma information (in thousands, except per share data) presents the consolidated results of operations as if all of the Company's acquisitions occurred on January 1, 1999, after giving effect to certain adjustments, including amortization of intangibles, interest and income tax effects. Because CCR was acquired January 3, 2000, historical results of operations for the six months ended June 30, 2000 are the same as pro forma results of operations and are not presented herein. The pro forma information does not purport to represent what the Company's results of operations actually would have been had such transactions or events occurred on the dates specified, or to project the Company's results of operations for any future period. Page 6 7 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited)
Six months ended June 30, 1999 ------------------ Revenues.............................................. $ 73,320 Income from continuing operations..................... $ 2,234 Net income............................................ $ 889 Net income per diluted share.......................... $ 0.02
(3) Commitments and Contingencies As discussed in Note 17 of the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, the Company, through certain of its subsidiaries, is involved in various environmental claims and claims for work-related injuries and physical conditions arising from a formerly-owned subsidiary that was sold in December 1995. See the Company's Annual Report on Form 10-K for the year ended December 31, 1999, for further information. Except as summarized herein and detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, there are no other material legal proceedings pending to which the Company or its subsidiaries are parties or to which any of its properties are subject. (4) Revenue Recognition The Company's software systems and services segment derives revenue from software licenses, postcontract customer support ("PCS"), and services. PCS includes telephone support, bug fixes, and rights to upgrade on a when-and-if available basis. Services range from installation, training, and basic consulting to software modification and customization to meet specific customer needs. In software arrangements that include rights to multiple software products, specified upgrades, PCS, and/or other services, the Company allocates the total arrangement fee among each deliverable based on the relative fair value of each of the deliverables as determined based on vendor specific objective evidence. The Company recognizes revenue from software transactions in accordance with Statement of Position 97-2, "Software Revenue Recognition", as amended as follows: Software Licenses - The Company recognizes the revenue allocable to software licenses and specified upgrades upon delivery and installation of the software product or upgrade to the end user, unless the fee is not fixed or determinable or collectibility is not probable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. If collectibility is not considered probable, revenue is recognized when the fee is collected. Arrangements that include software services, such as training or installation, are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. A majority of the Company's software arrangements involve off-the-shelf software, and the other elements are not considered essential to the functionality of the software. For those software arrangements in which services are not considered essential, the software license fee is recognized as revenue after delivery and installation have occurred, training has commenced, customer acceptance is reasonably assured, the fee is billable and the remaining services other than training are considered nominal. Page 7 8 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Software Services - When software services are considered essential, revenue under the entire arrangement is recognized as the services are performed using the percentage-of-completion contract accounting method. When software services are not considered essential, the fee allocable to the service element is recognized as revenue as the services are performed. Computer Hardware Equipment - Revenue allocable to equipment based on vendor specific evidence of fair value is recognized when the equipment is delivered and collection is probable. Postcontract Customer Support - PCS agreements are generally entered into in connection with initial license sales and subsequent renewals. Revenue allocated to PCS is recognized on a straight-line basis over the period the PCS is provided. All significant costs and expenses associated with PCS are expensed as incurred. Contract Accounting - For arrangements that include customization or modification of the software, or where software services are otherwise considered essential, or for real estate mass appraisal projects, revenue is recognized using contract accounting. Revenue from these arrangements is recognized on a percentage-of-completion method with progress-to-completion measured based primarily upon labor hours incurred or units completed. Deferred revenue consists primarily of payments received in advance of revenue being earned under software licensing, software and hardware installation, support and maintenance contracts. Through its information and property records services segment, the Company provides computerized indexing and imaging of real property records, records management and micrographic reproduction, as well as information management outsourcing and professional services required by county and local government units and agencies. The Company provides title plant update services to title companies and sales of copies of title plants. The Company recognizes service revenue when services are performed and equipment sales when the products are shipped. Title Plants - Sales of copies of title plants are usually made under long-term installment contracts. The contract with the customer is generally bundled with a long-term title plant update service arrangement. The bundled fees are payable on a monthly basis over the respective contract period and revenue is recognized on an as-billable basis over the terms of the arrangement. The Company also receives royalty revenue relating to the current activities of two former subsidiaries. Royalty revenue is recognized as earned upon receipt of royalty payments. (5) Litigation Defense Costs In December 1999, a competitor of one of the Company's operating subsidiaries filed a lawsuit against the subsidiary, an employee of the subsidiary, and the Company alleging that the employee, who had previously been an employee of the competitor, had taken confidential and proprietary trade secrets upon leaving the employ of the competitor. The lawsuit proceeded on an accelerated court schedule and was tried before a judge in March 2000. After a trial on the merits, the trial court issued a favorable ruling on behalf of the Company and its subsidiary and awarded no monetary damages to the competitor. Incremental direct legal costs relating to the defense of these matters were $1.3 million, which are included in litigation defense costs in the accompanying consolidated condensed financial statements for the six months ended June 30, 2000. Page 8 9 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (6) Discontinued Operations Two of the Company's non-operating subsidiaries are involved in various claims for work related injuries and physical conditions and for environmental claims relating to a formerly-owned subsidiary that was sold in 1995. For the three and six months ended June 30, 2000, the Company expensed $68,000 (net of taxes of $37,000) and $487,000 (net of taxes of $263,000), respectively, for trial and related costs. Also, as discussed in Note 17 to the Company's 1999 Form 10-K, the Company entered into a Standstill Agreement in March 2000 with the plaintiffs alleging claims for work related injuries and physical conditions. In December 1998, the Company entered into a letter of intent to sell its non-core automotive parts retailer, Forest City Auto Parts Company ("Forest City"). Accordingly, this segment has been accounted for as a discontinued operation. The measurement date for recording the estimated loss on disposition of the segment was in December 1998. The Company estimated the loss on the disposal of Forest City to be $8.9 million which was reported in its 1998 financial statements. The estimated loss included anticipated operating losses from the measurement date of December 31, 1998 to the date of disposal and associated transaction costs. The Company recorded an additional loss during the six months ended June 30, 1999 of $565,000 (net of taxes of $364,000) to reflect higher than expected transaction costs and operating losses. (7) Sale of Copies of Title Plants During the three months ended June 30, 1999, the Company reported and recognized $1.9 million of revenue and $86,000 of interest income in connection with sales of copies of title plants. For the six months ended June 30, 1999, the Company reported and recognized $3.6 million of revenue and $98,000 of interest income in connection with sales of copies of title plants. Each of the contracts included the sale of copies of title plants combined with five and ten year title plant update service agreements to provide monthly update services. The Company previously sold update services separately to these customers. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 entitled, "Revenue Recognition in Financial Statements" ("SAB 101"), in which the SEC staff clarified certain revenue recognition matters. The Company previously unbundled the incremental value ascribed to the delivery and sale of the ownership privilege, while SAB 101 requires transactions of this nature to remain bundled and the associated revenues to be recognized ratably over the service period. As disclosed in Note 16 to the Consolidated Financial Statements included in the Company's 1999 Form 10-K, the Company changed its accounting in the fourth quarter of 1999 effective to the beginning of the year. The effect of the accounting change was to reduce revenue by $1.7 million and to reduce net income by $1.2 million ($0.03 per diluted share) from amounts previously reported for the three months ended June 30, 1999. For the six months ended June 30, 1999, the effect of the accounting change on amounts previously reported was to reduce revenue by $3.4 million and to reduce net income by $2.3 million ($0.06 per diluted share). The accompanying consolidated condensed financial statements as of and for the three and six months ended June 30, 1999 have been restated to reflect the change. Page 9 10 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (8) Earnings Per Share Basic earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated in the same manner as basic earnings (loss) per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding assuming the exercise of all employee stock options and warrants that would have had a dilutive effect on earnings (loss) per share. The Company incurred losses from continuing operations for the three months and six months ended June 30, 2000. As a result, the denominator was not adjusted for dilutive securities in 2000 as the effect would be antidilutive. The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings (loss) per share for each of the periods presented (in thousands, except per share data):
Three months ended Six months ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 --------- -------- --------- -------- Numerators for basic and diluted earnings per share: Income (loss) from continuing operations ............ $ (3,911) $ 702 $ (7,211) $ 1,315 ======== ======= ======== ======= Denominator: Denominator for basic earnings per share- Weighted-average common shares outstanding .......... 44,894 38,539 44,092 36,648 Effect of dilutive securities: Employee stock options .............................. -- 313 -- 228 Warrants ............................................ -- 1,092 -- 1,070 -------- ------- -------- ------- Dilutive potential common shares ........................ -- 1,405 -- 1,298 -------- ------- -------- ------- Denominator for diluted earnings per share- Adjusted weighted-average shares and assumed conversion ...................... 44,894 39,944 44,092 37,946 ======== ======= ======== ======= Basic and diluted earnings (loss) per share from continuing operations ............................... $ (0.09) $ 0.02 $ (0.16) $ 0.04 ======== ======= ======== =======
(9) Income Tax Provision For the three and six months ended June 30, 2000, the Company had a loss from continuing operations before income taxes of $4.4 million and $9.2 million, respectively, and an income tax benefit of $454,000 and $2.0 million, respectively. The resulting effective tax rates for the three and six month periods were 10% and 22%, respectively. For the three and six months ended June 30, 1999, the Company had income from continuing operations of $2.1 million and $3.7 million, respectively, and an income tax provision of $1.4 million and $2.4 million, respectively. The effective tax rates for the three and six months were 67% and 65%, respectively. The effective tax rates are due to non-deductible items such as goodwill amortization as compared to the relative amount of pretax earnings or loss. Page 10 11 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (10) Investment Securities Available-for-Sale Pursuant to an agreement in August 1999 with two major shareholders of H.T.E., Inc. ("HTE"), the Company exchanged its common stock in a series of transactions which had a fair value of $15.8 million for 5.6 million shares of HTE common stock. This investment is classified as a non-current asset since it was made for a continuing business purpose. Although the Company owns approximately 32% of HTE's outstanding common stock, HTE management has taken the position that, under Florida law, all of the shares acquired by the Company constitute "control shares" and therefore do not have voting rights until such time as a majority of the shareholders of HTE, other than the Company, restore voting rights to those shares. Management of the Company believes that only the shares acquired in excess of 20% of the outstanding shares of HTE constitute "control shares" and therefore believes it currently has the right to vote all HTE shares it owns up to at least 20% of the outstanding shares of HTE. The Company accounts for its investment in HTE pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". These securities are classified as available-for-sale and are recorded at fair value as determined by quoted market prices. Unrealized holding gains and losses, net of the related tax effect, on securities available-for-sale are excluded from earnings and are reported as a separate component of shareholders' equity until realized. At June 30, 2000, the cost, fair value and gross unrealized holding loss amounted to $15.8 million, $7.4 million and $8.4 million respectively, based on a quoted market price of $1.31 per share. At August 9, 2000, the fair value of the investment securities available-for-sale was $7.0 million based on a quoted market price of $1.25 per share. If the uncertainty regarding the voting shares is resolved in the Company's favor, the Company will retroactively adopt the equity method of accounting for this investment. Therefore, the Company's results of operations and retained earnings for periods beginning with the first 1999 acquisition will be retroactively restated to reflect the Company's investment in HTE for all periods in which it held an investment in the voting stock of HTE. Had the Company's investment in HTE been accounted for under the equity method, the Company's investment at June 30, 2000 would have been $12.6 million and the equity in loss of HTE for the three and six months ended June 30, 2000 would have been $576,000 and $1.8 million, respectively. At June 30, 2000, the Company has an unrealized loss on its investment in HTE of $8.4 million. A decline in the market value of any available for sale security below cost that is deemed to be other than temporary results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. At this time, management of the Company does not believe the decline in the market value is other than temporary. (11) Long-term Obligations The Company has a credit facility totaling $80.0 million, of which approximately $71.8 million remained outstanding at June 30, 2000. This credit facility is with a syndicated group of banks and had an original maturity date of October 1, 2002. The credit facility contains covenants that limit, among other items, the level of the Company's funded debt and require minimum coverage of fixed charges and earnings levels. As of June 30, 2000, and as a result of the operating performance for certain accounting periods then ended, the Company was not in compliance with certain covenants of the credit Page 11 12 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) facility. Prior to the issuance of these condensed financial statements, the Company and its lenders amended certain aspects of the credit facility such that the Company would be in compliance with all covenants for the one year period as of and subsequent to June 30, 2000. The amended credit facility provides for reduction in the aggregate credit line to $77.5 million, with further reductions to $65.0 million at September 30, 2000, to $55.0 million at November 30, 2000 and by an additional $1.5 million monthly beginning on December 31, 2000. The remaining credit facility will mature October 2, 2001. Accordingly, the Company classified $27.3 million of the outstanding debt as a current liability in the accompanying condensed consolidated balance sheet at June 30, 2000. In connection with amending the credit facility, the Company will pay additional bank fees of $300,000 in August 2000, $300,000 on January 1, 2001 and $400,000 on July 1, 2001. The amended credit facility provides for interest at the lead bank's prime rate plus a margin of 2% as of August 1, 2000, increasing to 3% as of January 1, 2001, 3 1/2% as of April 1, 2001 and 4% as of July 1, 2001. In light of the Company's current projected earnings and cash flow, management believes the Company will meet or exceed the restrictive covenants for the one year period as of and subsequent to June 30, 2000. Management plans to reduce the outstanding balance of the debt through a combination of cash generated from operations and sales of non-strategic assets. Management of the Company has identified certain non-core operating assets which are not strategic to its future operations for sale and have had a number of conversations with potentially interested buyers. In addition, the Company is exploring opportunities to raise additional capital through the sale of subordinated senior notes with warrants. Although management believes it will be successful in repaying the amounts payable under the revised credit facility when those amounts come due, there can be no assurance that the Company will be successful in its attempt to consummate any of the aforementioned strategic alternatives. (12) Comprehensive Income (Loss) SFAS No. 130, "Reporting Comprehensive Income" establishes standards for reporting and displaying comprehensive income and its components in an annual financial statement that is displayed with the same prominence as other annual financial statements. The statement also requires the accumulated balance of other comprehensive income to be displayed separately from retained earnings and additional paid-in capital in the equity section of the condensed consolidated balance sheet. For the three and six months ended June 30, 2000, the Company had comprehensive loss of $14.7 million and $34.0 million, respectively, including an unrealized loss of $10.7 million and $26.3 million, respectively, associated with unrealized loss on securities classified as available-for-sale. Total comprehensive loss for the three and six months ended June 30, 1999 was the same as the Company's reported net loss. (13) Segment and Related Information The Company has two reportable segments: software systems and services and information and property records services. The software systems and services segment provides municipal and county governments with software systems and related services to meet their information technology and automation needs, including real estate appraisal services. The largest component of the information and property records services business is the computerized indexing and imaging of real property records maintained by county clerks and recorders, in addition to the provision of other information management outsourcing services, records management, micrographic reproduction and title plant update services and sales of copies of title plants to title companies. Page 12 13 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) The Company evaluates performance based on several factors, of which the primary financial measure is business segment operating profit (loss). The Company defines segment operating profit (loss) as income before noncash amortization of intangible assets associated with their acquisition by Tyler, interest expense, non-recurring items and income taxes. The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. There were no intersegment transactions, thus no eliminations are necessary. The Company's reportable segments are strategic business units that offer different products and services. They are separately managed as each business requires different marketing and distribution strategies. The Company derives a majority of its revenue from domestic customers. The information and property records services segment conducts minor operations in Germany, which are not significant and are not separately disclosed. Summarized financial information concerning the Company's reportable segments is set forth below based on the nature of the products and services offered (in thousands): Page 13 14 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ================================================================================ 2000
Information Software & Property Systems Records Continuing & Services Services Other Operations ----------- ----------- -------- ---------- ------------------------------------------------------------------------------------- Assets as of June 30 .... $121,741 $110,969 $ 20,722 $253,432 Revenues for the periods ended June 30: Three months............ $ 21,235 $ 10,904 $ -- $ 32,139 Six months............. $ 42,608 $ 22,022 $ -- $ 64,630 Segment operating profit (loss) for the periods ended June 30: Three months........... $ 1,069 $ 1,625 $ (2,297) $ 397 Six months............. $ 2,175 $ 3,392 $ (4,260) $ 1,307
================================================================================ 1999
Information Software & Property Systems Records Continuing & Services Services Other Operations ----------- ----------- -------- ---------- ------------------------------------------------------------------------------------- Assets as of June 30..... $ 97,449 $ 93,517 $ 14,561 $205,527 Revenues for the periods ended June 30: Three months........... $ 17,400 $ 9,527 $ -- $ 26,927 Six months............. $ 27,691 $ 18,049 $ -- $ 45,740 Segment operating profit (loss) for the periods ended June 30: Three months........... $ 4,108 $ 2,547 $ (2,028) $ 4,627 Six months............. $ 6,605 $ 5,049 $ (3,509) $ 8,145
================================================================================ Page 14 15 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited)
For the periods ended June 30 Three months Six months Reconciliation of reportable segment operating ----------------------- ----------------------- profit to the Company's consolidated totals 2000 1999 2000 1999 --------------------------------------------------- -------- -------- -------- -------- Total segment operating profit for reportable segments .......................... $ 397 $ 4,627 $ 1,307 $ 8,145 Interest expense .................................. (2,020) (927) (3,896) (1,756) Litigation defense costs .......................... (90) -- (1,264) -- Goodwill and intangibles amortization ............. (2,652) (1,552) (5,359) (2,648) ------- ------- ------- ------- (Loss) income from continuing operations before income tax (benefit) provision ............... $(4,365) $ 2,148 $(9,212) $ 3,741 ======= ======= ======= =======
(14) Equity Private Placement In May 2000, the Company sold 3.3 million shares of common stock and 333,380 warrants pursuant to a private placement agreement with Sanders Morris Harris Inc. for approximately $10.0 million in gross cash proceeds, before deducting commissions and offering expenses of approximately $730,000. Each warrant is convertible into one share of common stock at an exercise price of $3.60 per share. The warrants expire in May 2005. The common stock sold in this transaction is not registered and may only be sold pursuant to Rule 144 of the Securities Act of 1933, generally after being held for at least one year. The Company intends to use the proceeds from the offering for the development of its previously announced e-government initiatives and for the development of its national data repository and Internet portal for public information, NationsData.com. (15) New Accounting Pronouncements Not Yet Adopted In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133" was issued by the Financial Accounting Standards Board ("FASB"). The Statement defers for one year the effective date of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The rule now will apply to all fiscal years beginning after June 15, 2000. FASB Statement No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's consolidated financial statements and related disclosures. Page 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than historical or current facts, including, without limitation, statements about the business, financial condition, business strategy, plans and objectives of management, and prospects of the Company are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. Such risks and uncertainties include, without limitation, the ability of the Company to successfully integrate the operations of acquired companies, technological risks associated with the development of new products and the enhancement of existing products, changes in the budgets and regulating environments of the Company's government customers, the ability to attract and retain qualified personnel, changes in product demand, the availability of products, changes in competition, economic conditions, changes in tax risks, availability of capital, and other risks indicated in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, and in many cases, the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this Quarterly Report, the words "believes," "plans," "estimates," "expects," "anticipates," "intends," "continue," "may," "will," "should", "projects", "forecast", "might", "could" or the negative of such terms and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. GENERAL The Company is a provider of technology, software, data warehousing, web hosting services, electronic document management systems, information management outsourcing services, title plant and property record database information, and real estate appraisal services for local governments. In mid 1997, the Company embarked on a multi-phase strategy and growth plan focused on the specialized information management needs of local government. Since that time, the Company has experienced growth both internally and as a result of a number of acquisitions. By the close of 1999, the Company considered itself an important provider of information management solutions in the local government marketplace, providing a broad array of products for city and county government operations from law enforcement, to courts, financial systems, appraisal and taxation, records management, and utility billing. From 1998 through January 2000, the Company has made a significant number of acquisitions. All of the Company's acquisitions have been accounted for using the purchase method of accounting for business combinations, and the results of operations of the acquired entities are included in the Company's historical consolidated financial statements from their respective dates of acquisition. Because of the significance of these acquisitions in the following analysis of results of operations, the Company has provided pro forma amounts in the following analysis of results of operations as if all of the Company's acquisitions had occurred as of the beginning of 1999. Page 16 17 ANALYSIS OF RESULTS OF OPERATIONS REVENUES For the three and six months ended June 30, 2000, the Company had revenues from continuing operations of $32.1 million and $64.6 million, respectively, compared to $26.9 million and $45.7 million for the three and six months ended June 30, 1999, respectively. On a pro forma basis, total revenues for the three and six months ended June 30, 1999 were $36.8 million, and $73.3 million, respectively, compared to $32.1 million and $64.6 million for the three and six months ended June 30, 2000. Management believes the decline in revenues on a pro forma basis was primarily because of Year 2000 ("Y2K") related factors. Local governments appear to have reduced spending for software applications and systems for a variety of reasons, including anticipation of Y2K problems and delaying new systems projects while they recover from their intensive efforts to become Y2K compliant in the prior year. Many customers and potential customers appeared to have instituted Y2K "lockdowns" and did not install new systems in the first six months of 2000. Additionally, the 1999 pro forma revenues benefited somewhat from accelerated Y2K compliance related sales. Pro forma software license revenue for the three months ended June 30, 2000 declined $3.1 million from $7.2 million in the prior year period. For the six months ended June 30, 2000, pro forma revenues from software licenses decreased $5.4 million from $13.9 million in the comparable prior year. Pro forma software license revenue comparisons were negatively impacted by the Y2K factors described above. For the three months ended June 30, 2000, professional services revenue on a pro forma basis was $17.4 million compared to $17.6 million in the prior year period. Pro forma professional services for the six months ended June 30, 2000 declined $1.3 million compared to the prior year period primarily due to lower real estate appraisal services revenue. Revenue from real estate appraisal services varies from period to period based on customers' re-appraisal cycles. Although professional services revenue in the first six months of 2000 included approximately $3.1 million from large contracts with Cook County, Recorder of Deeds in Chicago ("Cook County") and with the Department of the Illinois Secretary of State's office ("State of Illinois"), the effect of these increases was largely offset by several large contracts installed in 1999 for judicial information management and court systems and property appraisal and tax systems. Revenue related to both the Cook County and State of Illinois contracts included in the results of operations for the three and six months ended June 30, 2000 was approximately $1.6 million and $3.1 million, respectively. The Cook County contract, which was valued at approximately $4.5 million, was substantially complete as of June 30, 2000. The State of Illinois contract to install and manage a new digital imaging system and perform related services, including technology updates, back records conversion, digital microfilm productions and process workflow implementation, for all divisions of the Business Services Department is valued at approximately $5.3 million. Installation of the State of Illinois contract began in May 2000 and the majority of this revenue is expected to be earned by early 2001. For the three months ended June 30, 2000, $430,000 of revenue was earned relating to this contract. For the three months ended June 30, 2000, pro forma maintenance revenue increased 11%, or $922,000, compared to $8.3 million for the same period in 1999. Year-to-date pro forma maintenance has increased 10%, or $1.7 million, compared to $16.5 million for the six months ended June 30, 1999. Maintenance revenue increases are due to a larger customer base of installed software and services products. Maintenance services are provided for the Company's software products, including real estate appraisal products, and third party software and hardware. The renewal rate for real estate appraisal system maintenance agreements is not as high as other software and hardware maintenance agreements and will vary somewhat from period to period. Excluding real estate maintenance agreements, pro forma maintenance revenue increased approximately 19% and 21% for the three and six months ended June 30, 2000, respectively, compared to the comparable prior year periods. As a percent of revenue, total maintenance revenue on a pro forma basis was approximately 29% and 28% for the three and six months ended June 30, 2000, respectively, compared to approximately 23% for both the three and six months ended June 30, 1999. Page 17 18 For the three and six months ended June 30, 2000, pro forma hardware and other revenues declined $2.3 million and $3.7 million, respectively, from $3.7 million and $6.8 million for the three and six months ended June 30, 1999, respectively. Pro forma hardware revenue is down from prior year periods mainly due to the Y2K related factors described above and Company efforts to focus sales on higher margin products and services. For the remainder of 2000, the Company anticipates slower revenue growth compared to 1999 as a result of the Y2K-related slowdown in new orders and as the Company pursues long-term development of its e-commerce growth strategy. In 2000, the Company plans to emphasize its long-term growth opportunities in e-commerce by developing Internet accessible solutions for its current installed customer base, as well as the broader local government market. COST OF REVENUES For the three and six months ended June 30, 2000, cost of revenues from continuing operations were $19.1 million and $38.4 million, respectively, compared to $12.7 million and $22.5 million for the three and six months ended June 30, 1999, respectively. On a pro forma basis, total cost of revenues for the three months ended June 30, 1999 was $19.2 million compared to $19.1 million for the three months ended June 30, 2000. For the six months ended June 30, 1999, pro forma cost of revenues was $39.4 million compared to $38.4 million for the three months ended June 30, 2000. The cost of revenues decline is primarily due to lower revenues. In addition, cost of revenues in 2000 also includes subcontracting expenses for the Cook County contract, higher head count as a result of prior year sales volume increases and salary adjustments. Personnel cost, which in the short term is somewhat fixed in nature, is the largest component of cost of revenues, and contributed to a lower gross margin for the three and six months ended June 30, 2000. The gross margin was also negatively impacted by a product mix that included less software license revenue in 2000 compared to 1999. On a pro forma basis, the overall gross margin was 41% for both the three and six months ended June 30, 2000 compared to 48% and 46% for the three and six months ended June 30, 1999, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the three and six months ended June 30, 2000, were $12.7 million and $24.9 million, respectively, compared to $9.6 million and $15.1 million in the comparable prior year periods. On a pro forma basis, selling, general and administrative expenses as a percent of revenues was 40% compared to 32% for the three months ended June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000, pro forma selling, general and administrative expense as a percent of revenue was 39% compared to 30% for the six months ended June 30, 1999. Lower sales volume combined with increased travel expense, costs associated with consolidating certain finance and administrative functions and higher personnel costs negatively impacted selling, general and administrative expense comparisons. For the three and six months ended June 30, 2000, selling, general and administrative expenses included approximately $1.2 million and $2.4 million, respectively, of additional expenses associated with the Company's national data repository ("Database") activities and its preliminary sales efforts. LITIGATION DEFENSE COSTS In December 1999, a competitor of one of the Company's operating subsidiaries filed a lawsuit against the subsidiary, an employee of the subsidiary, and the Company alleging that the employee, who had previously been an employee of the competitor, had taken confidential and proprietary trade secrets upon leaving the employ of the competitor. The lawsuit proceeded on an accelerated court schedule and was tried before a judge in March 2000. After a trial on the merits, the trial court issued a favorable ruling on Page 18 19 behalf of the Company and its subsidiary and awarded no monetary damages to the competitor. Incremental direct legal costs relating to the defense of these matters was approximately $90,000 and $1.3 million for the three and six months ended June 30, 2000, respectively, which is included in litigation defense costs in the accompanying consolidated condensed financial statements. In addition, the Company devoted significant internal resources to the litigation defense, the costs of which are included in selling, general and administrative expenses. AMORTIZATION OF INTANGIBLES The Company has accounted for all acquisitions using the purchase method of accounting for business combinations. Unallocated purchase price over the fair value of net identifiable assets of the acquired companies ("goodwill") and intangibles associated with acquisition is amortized using the straight-line method of amortization over their respective useful lives beginning when a company is first acquired. Amortization expense increased for the three and six months ended June 30, 2000 compared to the same periods of 1999 due to inclusion of goodwill and other intangible amortization for companies acquired after June 30, 1999. INTEREST EXPENSE Interest expense increased substantially for the three and six months ended June 30, 2000 compared to the same periods in 1999. The Company incurred debt to finance acquisitions and their related transaction costs and capital expenditures including construction of the Database. In connection with construction of the Database and certain internally developed software projects, the Company capitalized $228,000 and $328,000 of interest cost in the three and six months ended June 30, 2000. In addition to higher debt levels, the average effective interest rate for the three and six months ended June 30, 2000, was 9.5% and 9.2%, respectively, compared to 7.3% and 7.2% for the same periods in 1999. INCOME TAX PROVISION In the three months ended June 30, 2000, the Company had a loss from continuing operations before income taxes of $4.4 million and an income tax benefit of $454,000, resulting in an effective tax rate of 10%. For the six months ending June 30, 2000, the Company had a loss from continuing operations before income taxes of $9.2 million and an income tax benefit of $2.0 million, resulting in an effective tax rate of 22%. These effective tax rates are due to non-deductible items such as goodwill amortization as compared to the relative amount of pretax earnings or loss. DISCONTINUED OPERATIONS The Company recorded a net loss from disposal of discontinued operations of $68,000 and $487,000 for the three and six months ended June 30, 2000, respectively compared to net losses of $780,000 and $1.3 million for the three and six months ended June 30, 1999. Discontinued operations in 2000 consist of Swan Transportation ("Swan"), whose operations were discontinued in 1995, and TPI of Texas, Inc. ("TPI"), which sold substantially all of its assets and liabilities in 1995. The 1999 loss from discontinued operations includes Forest City, which was disposed of in March 1999. In the three months ended June 30, 2000, TPI and Swan together recorded a charge of $68,000 for trial and related costs, net of taxes of $37,000. For the six months ended June 30, 2000, these charges totaled $487,000, net of taxes of $263,000. The Company estimated the loss on the disposal of Forest City to be $8.9 million, which was reported in its 1998 Form 10-K. The estimated loss included anticipated operating losses from the measurement date of December 31, 1998 to the date of disposal and associated transaction costs. The Company recorded an additional loss during the six months ended June 30, 1999 of $565,000 (net of taxes of $364,000) to reflect higher than expected transaction costs and operating losses. Page 19 20 NET INCOME (LOSS) AND OTHER MEASURES Net loss was $4.0 million and $7.7 million for the three and six months ended June 30, 2000, respectively, compared to net loss of $78,000 and $30,000 for the three and six months ended June 30, 1999. Net loss from continuing operations was $3.9 million and $7.2 million for the three and six months ended June 30, 2000 compared to net income of $702,000 and $1.3 million for the three and six months ended June 30, 1999, respectively. For the three and six months ended June 30, 2000, diluted loss per share from continuing operations was $0.09 and $0.16, respectively, compared to diluted earnings per share from continuing operations of $0.02 and $0.04 for the three and six months ended June 30, 1999, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA") from continuing operations for the three and six months ended June 30, 2000, respectively, was $2.3 million and $4.7 million compared to $5.6 million and $9.8 million for the comparable prior year periods. EBITDA consists of income from continuing operations before interest, litigation defense costs, income taxes, depreciation and amortization. Although EBITDA is not calculated in accordance with generally accepted accounting principles, the Company believes that EBITDA is widely used as a measure of operating performance. Nevertheless, the measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities, or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. EBITDA is not necessarily indicative of amounts that may be available for reinvestment in the Company's business or other discretionary uses. In addition, since all companies do not calculate EBITDA in the same manner, this measure may not be comparable to similarly titled measures reported by other companies. Cash flows used by operating activities for the six months ended June 30, 2000 were $4.9 million, compared to cash flows provided by operating activities of $485,000 for the six months ended June 30, 1999. FINANCIAL CONDITION AND LIQUIDITY In October 1999, the Company entered into a three-year $80.0 million revolving credit agreement ("credit facility") with a group of banks. At June 30, 2000, approximately $71.8 million remained outstanding. This credit facility had an original maturity date of October 1, 2002. The credit facility contains covenants that limit, among other items, the level of the Company's funded debt and require minimum coverage of fixed charges and earnings levels. As of June 30, 2000, and as a result of the operating performance for certain accounting periods then ended, the Company was not in compliance with certain covenants of the credit facility. Prior to the issuance of these condensed financial statements, the Company and its lenders amended certain aspects of the credit facility such that the Company would be in compliance with all covenants for the one year period as of and subsequent to June 30, 2000. The amended credit facility provides for a reduction in the aggregate credit line to $77.5 million, with further reductions to $65.0 million at September 30, 2000, to $55.0 million at November 30, 2000 and by an additional $1.5 million monthly beginning on December 31, 2000. The remaining credit facility will mature October 2, 2001. Accordingly, the Company classified $27.3 million of the outstanding debt as a current liability in the accompanying condensed consolidated balance sheet at June 30, 2000. In connection with amending the credit facility, the Company will pay additional bank fees of $300,000 in August 2000, $300,000 on January 1, 2001 and $400,000 on July 1, 2001. The amended credit facility provides for interest at the lead bank's prime rate plus a margin of 2% as of August 1, 2000, increasing to 3% as of January 1, 2001, 3 1/2% as of April 1, 2001 and 4% as of July 1, 2001. For the three and six months ended June 30, 2000, the effective average interest rate for the borrowings was approximately 9.5% and 9.2%, respectively. The credit facility is secured by substantially all of the Company's real and personal property and by a pledge of the common stock of present and future significant operating subsidiaries. The credit facility is also guaranteed by such subsidiaries. In light of the Company's current projected earnings and cash flow, management believes the Company will meet or exceed the restrictive covenants for the one year period as of and subsequent to June 30, 2000. Management plans to reduce the outstanding balance of the debt through a combination of cash generated from operations and sales of non-strategic assets. Management of the Company has identified certain non-core operating assets which are not strategic to its future operations for sale and have had a number of conversations with potentially interested buyers. In addition, the Company is exploring opportunities to raise additional capital through the sale of subordinated senior notes with warrants. Although management believes it will be successful in repaying the amounts payable under the revised credit facility when those amounts come due, there can be no assurance that the Company will be successful in its attempt to consummate any of the aforementioned strategic alternatives. Page 20 21 For the six months ended June 30, 2000, the Company made capital expenditures of $8.0 million. These expenditures included $5.8 million relating to the construction of the Database and other software development. The remaining expenditures were primarily for computer equipment and building expansions required for internal growth. In connection with the construction of the Database and other software development, the Company capitalized interest costs of $228,000 and $328,000 for the three and six months ended June 30, 2000. During the six months ended June 30, 2000, the Company incurred expenditures of approximately $400,000 in conjunction with various business combination opportunities. In January 2000, the Company acquired all of the outstanding common stock of Capitol Commerce Reporter, Inc. ("CCR") for approximately $3.0 million cash, $1.2 million in assumed debt and $2.8 million in five-year, 10% subordinated notes in a business combination accounted for as a purchase. CCR is based in Austin, Texas and provides public records research, documents retrieval, filing and information services. These expenditures were primarily funded by borrowings of approximately $9.6 million under the Company's revolving credit facility. In May 2000, the Company sold 3.3 million shares of common stock and 333,380 warrants pursuant to a private placement agreement with Sanders Morris Harris Inc. for approximately $10.0 million in gross cash proceeds before deducting commissions and offering expenses of approximately $730,000. Each warrant is convertible into one share of common stock at an exercise price of $3.60 per share. The warrants expire in May 2005. The common stock sold in this transaction is not registered and may only be sold pursuant to Rule 144 of the Securities Act of 1933, generally after being held for at least one year. Tyler intends to use the proceeds from the offering for new product development, including the development of its previously announced e-government initiatives and for the development of its national data repository and Internet portal for public information, NationsData.com. Page 21 22 On November 4, 1999 the Company acquired selected assets and assumed selected liabilities of Cole-Layer-Trumble Company, a division of a privately held company. A portion of the consideration consisted of restricted shares of Tyler common stock and included a price protection on the sale of the Company's common stock which expires no later than November 4, 2001. The price protection is equal to the difference between the actual sale proceeds of the Tyler common stock and $6.25 on a per share basis, but is limited to $2.8 million. The subsequent payment, if any, of the contingent consideration will not change the recorded cost of the acquisition. Page 22 23 Part II. OTHER INFORMATION Item 1. Legal Proceedings For a discussion of legal proceedings see Part I, Item 1. "Financial Statements - Notes to Condensed Consolidated Financial Statements - Commitments and Contingencies" on page 7 of this document. Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting of stockholders on June 28, 2000. The following are the results of certain matters voted upon at the meeting: (a) With respect to the election of new directors and directors whose terms expired on June 28, 2000 shares were voted as follows:
Nominee Number of Votes for Number of Votes Withheld ------- ------------------- ------------------------ Ernest H. Lorch 31,045,858 4,470,186 Frederick R. Meyer 31,005,050 4,510,994 William D. Oates 31,048,700 4,467,344 C.A. Rundell, Jr. 30,972,303 4,543,741 Louis A. Waters 30,073,504 5,442,540 John M. Yeaman 30,087,759 5,428,285
(b) With respect to the amendments to the Company's Stock Option Plan ("the Plan") to increase the number of shares of the Company's Stock which may be issued under the Plan from 4,300,000 shares to 5,500,000 shares. The votes were as follows: For 27,746,484 Against 4,496,971 Abstain 3,272,589
Item 6. Exhibits and Reports on Form 8-K (a) Exhibit
Number Exhibit ------ ------- 4.4 Purchase Agreement dated May 19, 2000, between Tyler Technologies, Inc., and Sanders Morris Harris Inc. 4.5 Warrant to purchase common stock of Tyler Technologies, Inc. 4.6 Amendment #3 to the Credit Agreement dated October 1, 1999 27 Financial Data Schedule
(b) There were no reports filed on Form 8-K during the second quarter of 2000. Item 3 of Part I and Items 2, 3, and 5 of Part II were not applicable and have been omitted. Page 23 24 Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TYLER TECHNOLOGIES, INC. By: /s/ Theodore L. Bathurst ------------------------ Theodore L. Bathurst Vice President and Chief Financial Officer (principal financial officer and an authorized signatory) By: /s/ Terri L. Alford ------------------------ Terri L. Alford Controller (principal accounting officer and an authorized signatory) Date: August 16, 2000 Page 24 25 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.4 Purchase Agreement dated May 19, 2000, between Tyler Technologies, Inc., and Sanders Morris Harris Inc. 4.5 Warrant to purchase common stock of Tyler Technologies, Inc. 4.6 Amendment #3 to the Credit Agreement dated October 1, 1999 27 Financial Data Schedule