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 September 30, 2001
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.)
5949 SHERRY LANE
SUITE 1400
DALLAS, TEXAS 75225
(Address of principal executive offices)
(Zip code)
(214) 547-4000
(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 November 6, 2001:
47,223,764
TYLER TECHNOLOGIES, INC.
INDEX
<Table>
<Caption>
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......................... 13
Part II - Other Information
Item 1. Legal Proceedings........................................... 18
Signatures.................................................................... 19
</Table>
2
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)
<Table>
<Caption>
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,042 $ 8,217
Accounts receivable (less allowance for losses of $1,135 in 2001
and $1,505 in 2000) 33,237 36,599
Income taxes receivable 1,029 323
Prepaid expenses and other current assets 2,619 2,465
Deferred income taxes 1,731 1,469
--------- ---------
Total current assets 42,658 49,073
Net non-current assets of discontinued operations -- 3,450
Property and equipment, net 7,016 6,175
Other assets:
Investment securities available-for-sale 9,552 5,092
Goodwill and other intangibles, net 83,118 84,700
Sundry 418 577
--------- ---------
$ 142,762 $ 149,067
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,125 $ 4,299
Accrued liabilities 8,751 11,745
Current portion of long-term obligations 186 353
Net current liabilities of discontinued operations 310 3,542
Deferred revenue 24,531 21,066
--------- ---------
Total current liabilities 35,903 41,005
Long-term obligations, less current portion 2,908 7,747
Deferred income taxes 3,551 4,193
Net non-current liabilities of discontinued operations 763 --
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;
48,147,969 and 48,042,969 shares issued
in 2001 and 2000, respectively 481 480
Additional paid-in capital 157,887 158,776
Accumulated deficit (49,141) (49,212)
Accumulated other comprehensive income -
unrealized loss on securities available-for-sale (6,231) (10,691)
Treasury stock, at cost: 924,205 and 863,522 shares
in 2001 and 2000, respectively (3,359) (3,231)
--------- ---------
Total shareholders' equity 99,637 96,122
--------- ---------
$ 142,762 $ 149,067
========= =========
</Table>
See accompanying notes.
3
<Table>
<Caption>
TYLER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Software licenses $ 4,940 $ 5,192 $ 13,126 $ 12,978
Professional services 12,413 9,107 39,075 27,126
Maintenance 10,037 8,142 29,746 23,874
Hardware and other 1,045 1,283 4,737 3,204
-------- -------- -------- --------
Total revenues 28,435 23,724 86,684 67,182
Cost of revenues:
Software licenses 1,030 394 2,655 1,320
Professional services and maintenance 16,822 12,975 51,770 38,256
Hardware and other 663 1,028 3,586 2,666
-------- -------- -------- --------
Total cost of revenues 18,515 14,397 58,011 42,242
-------- -------- -------- --------
Gross profit 9,920 9,327 28,673 24,940
Selling, general and administrative expenses 7,508 7,660 22,870 24,694
Recovery of certain acquisition costs previously expensed -- -- (235) --
Amortization of acquisition intangibles 1,721 1,425 5,177 5,176
-------- -------- -------- --------
Operating income (loss) 691 242 861 (4,930)
Interest expense 77 1,780 359 3,628
-------- -------- -------- --------
Income (loss) from continuing operations before
income tax provision (benefit) 614 (1,538) 502 (8,558)
Income tax provision (benefit) 363 (332) 393 (2,377)
-------- -------- -------- --------
Income (loss) from continuing operations 251 (1,206) 109 (6,181)
Loss from disposal of discontinued operations, net of income taxes (23) (1,352) (38) (4,075)
-------- -------- -------- --------
Net income (loss) $ 228 $ (2,558) $ 71 $(10,256)
======== ======== ======== ========
Basic and diluted earnings (loss) per common share:
Continuing operations $ 0.01 $ (0.02) $ 0.00 $ (0.14)
Discontinued operations (0.01) (0.03) (0.00) (0.09)
-------- -------- -------- --------
Net earnings (loss) per common share $ 0.00 $ (0.05) $ 0.00 $ (0.23)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic 47,171 46,654 47,167 44,953
Diluted 48,396 46,654 47,667 44,953
</Table>
See accompanying notes.
4
TYLER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<Table>
<Caption>
Nine months ended September 30,
-------------------------------
2001 2000
------------ -----------
Cash flows from operating activities:
Net income (loss) $ 71 $(10,256)
Adjustments to reconcile net income (loss) from operations
to net cash provided (used) by operations:
Depreciation and amortization 8,006 7,019
Deferred income taxes (286) (1,193)
Non-cash interest expense 177 1,703
Discontinued operations - noncash charges and
changes in operating assets and liabilities (860) 1,615
Changes in operating assets and liabilities, exclusive of
effects of discontinued operations (946) (2,700)
-------- --------
Net cash provided (used) by operating activities 6,162 (3,812)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (2,270) (1,376)
Software development costs (4,717) (5,215)
Assets acquired for discontinued operations (1,353) (3,596)
Cost of acquistions subsequently discontinued -- (3,073)
Proceeds from sale of discontinued operations 3,675 14,019
Other 55 (1,043)
-------- --------
Net cash used by investing activities (4,610) (284)
-------- --------
Cash flows from financing activities:
Net payments on revolving credit facility (4,750) (739)
Payments on notes payable (277) (763)
Proceeds from sale of common stock, net of issuance costs -- 9,270
Payment of debt of discontinued operations (842) (3,821)
Sale of treasury shares to employee benefit plan 258 19
Debt issuance costs (116) (1,300)
-------- --------
Net cash (used) provided by financing activities (5,727) 2,666
-------- --------
Net decrease in cash and cash equivalents (4,175) (1,430)
Cash and cash equivalents at beginning of period 8,217 1,987
-------- --------
Cash and cash equivalents at end of period $ 4,042 $ 557
======== ========
</Table>
See accompanying notes
5
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
September 30, 2001, and the condensed consolidated results of operations and
cash flows for the periods presented. Such financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, the financial
statements do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. 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, 2000.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. As a result
of the implementation of a new management information system, the Company
has been able to more accurately allocate certain costs between cost of
revenues and selling, general and administrative expenses. Accordingly,
certain amounts for the prior periods have been reclassified to conform to
the 2001 presentation. The Company also reclassified certain balance sheet
accounts of discontinued operations as of December 31, 2000.
(2) Discontinued Operations
On September 29, 2000, the Company sold for a cash sale price of $14.4
million certain net assets of Kofile, Inc. and another subsidiary, the
Company's interest in a certain intangible work product, and a building and
related building improvements. Effective December 29, 2000, the Company sold
for cash its land records business unit, consisting of Business Resources
Corporation ("Resources"), to an affiliate of Affiliated Computer Services,
Inc. ("ACS") (the "Resources Sale"). The Resources Sale was valued at
approximately $71.0 million. Concurrent with the Resources Sale, management
of the Company with the Board of Directors' approval adopted a formal plan
of disposal for the remaining businesses and assets of the information and
property records services segment. This restructuring program was designed
to focus the Company's resources on its software systems and services
segment and to reduce debt. The businesses and assets divested or identified
for divesture have been classified as discontinued operations in the
accompanying consolidated financial statements with prior periods' financial
statements restated to report separately their operations in compliance with
Accounting Principle Board ("APB") Opinion No. 30.
The Company's formal plan of disposal provides for the remaining businesses
and assets of the information and property records services segment to be
disposed of by December 29, 2001. As of December 29, 2000, one of the
remaining assets consisted of a start-up company engaged in constructing a
Web-enabled national repository of public records data. Another remaining
business was Capitol Commerce Reporter, Inc. ("CCR"), which was purchased in
January 2000 and provides public records research, principally UCCs in
Texas. The interdependency of these operations with those of Resources
resulted in the Company's decision to discontinue the development of the
database and other related products and exit the land records business
following the Resources Sale. During the three months ended December 31,
2000, the Company charged discontinued operations for the estimated loss on
the disposal on the remaining businesses. The anticipated operating losses
to the disposal dates include the effects of the settlement of certain
employment contracts, losses on real property leases, severance costs and
similar closing related costs. The amounts the Company will ultimately
realize could differ materially from the amounts assumed in arriving at the
loss on disposal of the discontinued operations.
On May 16, 2001, the Company sold all of the common stock of another
business which had previously been designated as a discontinued operation.
In connection with the sale, the Company received cash proceeds of $575,000,
approximately 60,000 shares of Company common stock, a promissory note of
$750,000 payable in 58 monthly installments at an interest rate of 9%, and
other contingent consideration. On September 21, 2001, the Company sold all
of the common stock of CCR. The sale price of the common stock consisted of
$3.1 million in cash and future payments contingent on the retention of
certain customers subsequent to the sale. Since the gains or losses on these
sales were estimated as of the measurement date of December 29, 2000, no
additional adjustments to the estimated loss on the disposals of the
discontinued businesses are considered appropriate at this time.
6
Revenues from the information and property records services segment amounted
to $10.7 million and $31.9 million for the three and nine months ended
September 30, 2000, respectively.
Two of the Company's non-operating subsidiaries are involved in various
claims for work-related injuries and physical conditions relating to a
formerly owned subsidiary that was sold in 1995. For the three and nine
months ended September 30, 2001, the Company recorded net losses in
discontinued operations, net of related tax effect, of $23,000 and $38,000
respectively, and $82,000 and $569,000 for the three and nine months ended
September 30, 2000, respectively, primarily for trial and related costs. The
estimated net liability for the settlements of the remaining work related
injuries and physical condition claims have been included in the net assets
of discontinued operations in the accompanying condensed consolidated
balance sheet as of September 30, 2001.
(3) Acquisitions, Dispositions and Related Matters
The following unaudited pro forma information (in thousands, except per
share data) presents the consolidated results of operations as if the
Company's disposition and related proceeds of the information and property
records services segment occurred on January 1, 2000, after giving effect to
certain pro forma adjustments regarding interest expense and income tax
effects. 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.
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
2001 2000
----- -----
Revenues ........................................... $ 86,684 $ 67,182
Income (loss) from continuing operations ........... $ 109 $ (3,823)
Income (loss) from continuing operations per diluted
share .............................................. $ 0.00 $ (0.09)
</Table>
During the year ended December 31, 1999, the Company charged continuing
operations for a note receivable and related accrued interest which
management deemed was not collectible. The note was received in
contemplation of an acquisition of all the outstanding common stock of CPS
Systems, Inc. During the three months ended June 30, 2001, the Company
received cash of approximately $235,000 in connection with the note through
CPS Systems, Inc.'s bankruptcy proceedings.
On November 4, 1999, the Company purchased Cole Layer Trumble Company
("CLT") from a privately held company (the "Seller"). A portion of the
consideration consisted of the issuance of 1,000,000 restricted shares of
Tyler common stock and included a price protection on the sale of the stock.
The price protection, which expired on November 4, 2001, is equal to the
difference between the actual sales proceeds of the Tyler common stock and
$6.25 on a per share basis, but is limited to $2.75 million. During the
three months ended September 30, 2001, the Seller submitted to Tyler a claim
under the price protection provision for $1.8 million in connection with the
sale of 472,000 shares of Tyler common stock. A second claim dated October
31, 2001 was made for the remaining $985,000. Contingent consideration of
this nature does not change the recorded costs of the acquisition and the
claim is first recorded when submitted. Accordingly, the $1.8 million claim
submitted during the third quarter, net of the deferred tax benefit of
$617,000, has been charged to paid-in capital during the third quarter.
The CLT purchase agreement contained a number of post-closing adjustments
and, in addition, certain CLT customers inadvertently submitted post-closing
cash receipts to the Seller. As a result of this activity, the Company had
previously recorded a $1.3 million receivable related to this activity which
remained unpaid and which represents post-closing adjustments which have not
been disputed by the Seller. Upon the filing of the first price protection
claim, the Company reduced the net receivable to zero and has deferred the
excess until other post-closing adjustments submitted by the Company and
disputed by the Seller are resolved.
Additionally, as part of the consideration for the purchase, the Company
assigned to the Seller, without recourse, notes receivable obtained in
connection with the Company's sale of Forest City Auto Parts Company
("FCAP"). FCAP has since filed for relief under Chapter 7 of the United
States Bankruptcy Code. Although the Company did not retain any credit risk
in connection with this assignment, the Seller has withheld payments of
amounts due to the Company as a result of the above-mentioned post closing
adjustments to the Company and has requested payment by the Company for the
principal of the assigned notes receivable with post-sale accrued interest.
Management believes the Seller's position regarding recourse to Tyler on
these notes is without merit.
7
(4) Commitments and Contingencies
Two of the Company's non-operating subsidiaries which are classified as
discontinued operations, Swan Transportation Company ("Swan") and TPI of
Texas, Inc. ("TPI"), have been and/or are currently involved in various
claims raised by approximately 750 former TPI employees for work-related
injuries and physical conditions resulting from alleged exposure to silica,
asbestos, and/or related industrial dusts during their employment by TPI.
Swan was the parent company of TPI, which owned and operated a foundry in
Tyler, Texas for approximately 28 years. As non-operating subsidiaries of
the Company, the assets of Swan and TPI consist primarily of various
insurance proceeds and policies issued to each company during the relevant
time periods. Swan and TPI have tendered the defense and indemnity
obligations arising from these claims to their insurance carriers. To date,
certain of the insurance carriers have entered into settlement agreements
with over 275 plaintiffs, each of which agreed to release Swan, TPI, the
Company, and its subsidiaries and affiliates from all such claims in
exchange for payments made by or on behalf of the insurance carriers.
Although management does not currently anticipate any adjustments to the
recorded liabilities, because of the inherent uncertainties discussed above,
it is reasonably possible that the amounts recorded as liabilities for TPI
and Swan related matters, which are included in net liabilities of
discontinued operations in the accompanying condensed consolidated balance
sheet, could change in the near term by amounts that would be material to
the consolidated financial statements.
(5) Revenue Recognition
The Company derives revenue from software licenses, postcontract customer
support ("PCS" or "maintenance"), 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,
customer acceptance is reasonably assured, the fee represents an enforceable
claim and is probable of collection and the remaining services such as
training are considered nominal.
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, and 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
8
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.
(6) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except per share amounts):
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Numerators for basic and diluted earnings per share:
Income (loss) from continuing operations ........... $ 251 $ (1,206) $ 109 $ (6,181)
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share-
Weighted-average common shares outstanding ..... 47,171 46,654 47,167 44,953
Effect of dilutive securities:
Employee stock options ......................... 949 -- 408 --
Warrants ....................................... 276 -- 92 --
-------- -------- -------- --------
Dilutive potential common shares ................... 1,225 -- 500 --
-------- -------- -------- --------
Denominator for diluted earnings per share-
Adjusted weighted-average
shares and assumed conversion ................. 48,396 46,654 47,667 44,953
======== ======== ======== ========
Basic and diluted earnings (loss) per share from
continuing operations .......................... $ 0.01 $ (0.02) $ 0.00 $ (0.14)
======== ======== ======== ========
</Table>
(7) Income Tax Provision
For the three months ended September 30, 2001, the Company had income from
continuing operations before income taxes of $614,000 and an income tax
provision of $363,000, resulting in an effective tax rate of 59%. For the
same period in 2000, the Company's loss from continuing operations before
income taxes and income tax benefit was $1.5 million and $332,000,
respectively. The resulting effective benefit rate was 22%. For the nine
months ended September 30, 2001, the Company had income from continuing
operations before income taxes of $502,000 and an income tax provision of
$393,000, resulting in an effective tax rate of 78%. For the nine months
ended September 30, 2000, the Company had a loss from continuing operations
before income taxes of $8.6 million and an income tax benefit of $2.4
million. The effective income tax rates are estimated based on projected
taxable income for the year and the resulting amount of income taxes. The
effective income tax rates for the periods presented, were different from
the statutory United States Federal income tax rate of 35% primarily due to
non-deductible items such as goodwill amortization as compared to the
relative amount of pretax earnings or loss.
(8) Investment Securities Available-for-Sale
Pursuant to an agreement with two major shareholders of H.T.E., Inc.
("HTE"), the Company acquired approximately 32% of HTE's common stock in two
separate transactions in 1999. On August 17, 1999, the Company exchanged
2,325,000 shares of its common stock for 4,650,000 shares of HTE common
stock. This initial investment was recorded at $14.0 million. The second
transaction occurred on December 21, 1999, in which the Company exchanged
484,000 shares of its common stock for 969,000 shares of HTE common stock.
The additional investment was recorded at $1.8 million. The investment in
HTE common stock is classified as a non-current asset since it was made for
a continuing business purpose.
Florida state corporation law restricts the voting rights of "control
shares", as defined, acquired by a third party in certain types of
acquisitions, which restrictions may be removed by a vote of the
shareholders. The courts have not interpreted the Florida "control share"
statute. HTE has taken the position that, under the Florida statute, all of
the shares acquired by the Company constitute "control shares" and therefore
do not have voting rights until such time as shareholders of HTE, other than
the Company, restore
9
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 has the right to vote
all HTE shares it owns up to at least 20% of the outstanding shares of HTE.
On November 16, 2000, the shareholders of HTE, other than Tyler, voted to
deny the Company its right to vote the "control shares" of HTE.
Accordingly, the Company accounts for its investment in HTE pursuant to the
provisions of Statements 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 available-for-sale securities are
excluded from earnings and are reported as a separate component of
shareholders' equity until realized. Realized gains and losses from the sale
of available-for-sale securities are determined on a specific identification
basis.
The cost, fair value and gross unrealized holding losses of the investment
securities available-for-sale amounted to the following, based on the quoted
market price for HTE common stock (amounts in millions, except per share
amounts) are presented below. In accordance with SFAS No. 115, the Company
used quoted market value price per share in calculating fair value to be
used for financial reporting purposes. SFAS No. 115 does not permit the
adjustment of quoted market prices in the determination of fair value and,
accordingly, the ultimate value the Company could realize because its
significant investment could vary materially from the amount presented. 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.
<Table>
<Caption>
Quoted Market
Price Gross Unrealized
Per Share Cost Fair Value Holding Losses
------------- ------ ---------- ----------------
September 30, 2001 $ 1.70 $ 15.8 $ 9.6 $ (6.2)
December 31, 2000 0.91 15.8 5.1 (10.7)
September 30, 2000 1.31 15.8 7.4 (8.4)
November 6, 2001 1.81 15.8 10.2 (5.6)
</Table>
On October 29, 2001, HTE attempted a cash redemption of all of the 5,619,000
shares of common stock of HTE owned by Tyler for an aggregate redemption
price of $7.3 million. Management of HTE contends that its ability to redeem
the shares of common stock owned by Tyler and the manner of calculation of
fair value by HTE is in accordance with Florida state statutes for "control
shares". On October 30, 2001, HTE filed a complaint in a civil court in
Seminole County, Florida requesting the court to enter a declaratory
judgment declaring that HTE's redemption of the Tyler 5,619,000 "control
shares" of common stock at a redemption price of $1.30 per share was lawful
and to effect the redemption and cancel Tyler's control shares. Management
of Tyler believes that the attempted redemption of the shares owned by Tyler
was invalid and contrary to Florida law and takes exception to the manner in
which fair value was calculated. Accordingly, management of Tyler continues
to conclude it has both the intent and the ability to hold the investment
for a period of time sufficient to allow for the anticipated recovery in
fair value. At this time, management of the Company does not believe the
decline in the market value is other than temporary. In making this
determination, management considered, among other items, the conditions in
the local government software industry, the financial condition of the
issuer, and recent favorable public statements by the issuer concerning its
future prospects. In addition, for a period of time during the third quarter
of 2001, the quoted market value price per share of HTE was above Tyler's
cost basis.
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 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. Under the
equity method, the original investment is recorded at cost and is adjusted
periodically to recognize the investor's share of earnings or losses after
the respective dates of acquisition. The Company's investment in HTE would
include the unamortized excess of the Company's investment over its equity
in the net assets of HTE. This excess would be amortized on a straight-line
basis over the estimated economic useful life of ten years up to the date of
adopting SFAS 142, "Goodwill and Other Intangible Assets" (see Note 11 - New
Accounting Pronouncements). Had the Company's investment in HTE been
accounted for under the equity method, after the affects of amortization of
the excess purchase price over the book value of the shares, the Company's
investment at September 30, 2001 would have been $11.1 million and the
equity in loss of HTE for the three and nine months ended September 30, 2001
would have been $390,000 and $906,000,
10
respectively. At September 30, 2000, the Company's investment would have
been $12.2 million and the equity in loss of HTE for the three and nine
months ended September 30, 2000 would have been $392,000 and $2.2 million,
respectively.
(9) Long-term Obligations
In December 2000, the Company amended its revolving credit agreement with a
group of banks (the "Senior Credit Facility") to provide for total
borrowings of up to $15.0 million and a maturity date of July 1, 2002. The
Senior Credit Facility was subsequently amended in May and again in
September of 2001 to provide for total borrowings of up to $7.0 million to
reflect the sale of certain assets. Borrowings under the Senior Credit
Facility, as amended, bear interest at the lead bank's prime rate plus a
margin of 3.0%, which margin increases by 0.50% on January 1, 2002.
Borrowings under the Senior Credit Facility are further limited to 80% of
eligible accounts receivable. At September 30, 2001, the Company had no
outstanding borrowings and an unused available borrowing capacity of $7.0
million under the Senior Credit Facility. The interest rate at September 30,
2001 was 9.0%. The effective average interest rates for borrowings during
the three and nine months ended September 30, 2001 were 9.7% and 10.3%,
respectively, and 10.8% and 9.8% for the three and nine months ended
September 30, 2000, respectively.
The Senior 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 Senior Credit Facility is
also guaranteed by such subsidiaries. Under the terms of the Senior Credit
Facility, the Company is required to maintain certain financial ratios and
other financial conditions. The Senior Credit Facility also prohibits the
Company from making certain investments, advances or loans and restricts
substantial asset sales, capital expenditures and cash dividends. At
September 30, 2001, the Company is in compliance with its various covenants
under the Senior Credit Facility, as amended.
(10) Comprehensive Income (Loss)
The following table sets forth the components of total comprehensive income
(loss) for the periods presented (in thousands):
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------
2001 2000 2001 2000
--------- --------- -------- --------
Net income (loss) $ 228 $ (2,558) $ 71 $(10,256)
Other comprehensive income (loss):
Unrealized gain (loss) on investment
securities available-for-sale (4,608) -- 4,460 (26,339)
-------- -------- -------- --------
Total comprehensive income (loss) $ (4,380) $ (2,558) $ 4,531 $(36,595)
======== ======== ======== ========
</Table>
(11) New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets
will continue to be amortized over their estimated useful lives. The Company
will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. The Company's annual
amortization for acquisition intangibles amounts to approximately $6.9
million. Such amortization includes, among other items, goodwill and
assembled workforce which will no longer be amortized. The Company is also
exploring other amortizable costs to determine if they qualify for
non-amortization. After consideration of the deferred tax effects for
certain of these intangible assets, application of the non-amortization
provisions of SFAS No. 141 for the goodwill and assembled workforce is
expected to result in an increase in net income of approximately $2.5
million to $3.0 million per year. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined
what the effect of these tests will be on the earnings and financial
position of the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. Under SFAS No. 144, an impairment loss
is recognized only if the carrying amount of a long-lived asset to be held
and used is not recoverable from its undiscounted cash flows and the loss is
measured as the difference between the carrying amount and the fair value of
the asset. Long-lived assets to be disposed of by sale are to be measured at
the lower of their carrying amount or fair value, less cost to sell, and
depreciation related to such long-lived assets is required to be
discontinued.
11
In addition, SFAS No. 144 retains the basic provisions of APB Opinion No. 30
for the presentation of discontinued operations in the income statement but
broadens that presentation to include a component of an entity rather than a
segment of a business. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early application
encouraged. The provisions of this Statement generally are to be applied
prospectively. The Company has not determined the effect of this new
standard; however, due to the similarities with existing accounting
standards regarding impairment losses, the impact is not expected to be
material in the determination of carrying amounts for long-lived assets.
(12) Segment and Related Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", establishes standards for reporting information about
operating segments. Although the Company has several operating subsidiaries,
separate segment data has not been presented as they meet the criteria set
forth in SFAS No. 131 for aggregation.
12
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 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 provides counties, cities and other local government entities
with software systems and services to serve their information technology and
automation needs. The Company's software products are integrated with
computer equipment from hardware vendors, third-party database management
applications and office automation software. In addition, the Company
assists local governments with all aspects of software and hardware
selection, network design and management, installation and training and on
going support and related services. The Company also provides mass appraisal
outsourcing services to taxing jurisdictions, including physical inspection
of properties, data collection and processing, computer analysis for
property valuation and preparation of tax rolls.
The Company discontinued the operations of its former information and
property records services segment in December 2000. (See Note 2 to the
Condensed Consolidated Financial Statements for discussion of discontinued
businesses).
ANALYSIS OF RESULTS OF OPERATIONS
REVENUES
Revenues from continuing operations increased 20% to $28.4 million for the
quarter ended September 30, 2001, from $23.7 million for the same period in
the prior year. For the nine months ended September 30, 2001, revenues were
$86.7 million, a 29% increase from $67.2 million of revenue for the nine
months ended September 30, 2000.
Software license revenues for the first, second and third quarters of 2001,
were $3.6 million, $4.6 million and $4.9 million, respectively. Software
license revenue decreased $252,000, or 5%, for the three months ended
September 30, 2001, from $5.2 million for the three months ended September
30, 2000. The decline was mainly due to lower tax and appraisal software
sales, offset by increased sales to new customers and in new territories,
primarily the Midwestern United States, sales of upgraded financial and
utility software modules for cities, and the continued sales of a
third-party program that provided additional functionality to certain of the
Company's proprietary software. Software license revenues for the nine
months ended September 30, 2001 were $13.1 million, compared to $13.0
million in the nine months ended September 30, 2000.
Professional services revenues grew 36% to $12.4 million for the three
months ended September 30, 2001, from $9.1 million for the three months
ended September 30, 2000. Professional services revenue increased from $27.1
million for the nine months ended September 30, 2000 to $39.1 million for
the nine months ended September 30, 2001. Included in professional services
revenues for the three and nine months ended September 30, 2001, was
appraisal outsourcing services revenue of $8.0 million and $25.4 million,
respectively, compared to $5.2 million and $14.2 million for the same
periods in the prior year. The 54% and 79%
13
increases for the three and nine month periods, respectively, in appraisal
outsourcing services revenue were primarily due to the Company's continued
progress on its contract with Nassau County, New York Board of Assessors
("Nassau County"). The contract to provide outsourced assessment services
for Nassau County, together with tax assessment administration software and
training is valued at a total of approximately $34.0 million. Implementation
of the Nassau County contract began in September 2000 and is expected to be
completed by Spring 2003. During the three and nine months ended September
30, 2001, the Company recorded $3.5 million and $11.0 million of
professional services revenue related to Nassau County, respectively.
For the three months ended September 30, 2001, maintenance revenue increased
23%, or $1.9 million, from $8.1 million for the same period in 2000.
Year-to-date maintenance revenue advanced 25% or $5.9 million from $23.9
million for the nine months ended September 30, 2000. Higher maintenance
revenue was due to an increase in the Company's base of installed software
and systems products and maintenance rate increases for several product
lines. Maintenance and support services are provided for the Company's
software and related products.
Hardware and other revenues decreased $238,000 in the third quarter of 2001
from $1.3 million in the third quarter of 2000. Hardware and other revenues
increased $1.5 million for the nine months ended September 30, 2001 from
$3.2 million for the same period of 2000. The change in hardware revenue is
a result of the timing of installations of equipment on customer contracts
and is dependent on the contract size and on varying customer hardware
needs.
COST OF REVENUES
For the three months ended September 30, 2001, cost of revenues was $18.5
million, compared to $14.4 million for the three months ended September 30,
2000. For the nine months ended September 30, 2001, cost of revenues was
$58.0 million, compared to $42.2 million for the same period of 2000. The
increase in cost of revenues was primarily due to the increase in revenues.
Overall gross margins were 35% and 33% for the three and nine months ended
September 30, 2001, respectively, compared to 39% and 37% for the three and
nine months ended September 30, 2000, respectively. Historically, gross
margins are higher for software licenses than for professional services due
to personnel costs associated with professional services. Overall gross
margins were lower because the Company's 2001 revenue mix included more
professional services compared to 2000 for both the third quarter and
year-to-date periods. In addition, software license costs increased compared
to the three and nine months ended September 30, 2000, due to higher third
party software costs and software development amortization. The Company
released several new products beginning in the second quarter of 2000, at
which time amortization of the related software development costs commenced.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months and nine
months ended September 30, 2001, were $7.5 million and $22.9 million,
respectively, compared to $7.7 million and $24.7 million in the comparable
prior year periods. Selling, general and administrative expenses as a
percentage of revenues were 26% for the three and nine months ended
September 30, 2001, and 32% and 37% for the same respective periods of 2000.
The selling, general and administrative expenses as a percent of sales
comparisons were positively impacted primarily by higher sales volume. The
decline in selling, general and administrative expense was due to a
reduction in corporate costs following the sale of the information and
property records services segment, lower acquisition-related costs such as
legal and travel expenses and lower research and development costs which
were expensed.
AMORTIZATION OF ACQUISITION 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 are amortized using the
straight-line method of amortization over their respective useful lives,
commencing at the acquisition date.
INTEREST EXPENSE
Interest expense was $77,000 and $1.8 million for the three months ended
September 30, 2001 and 2000, respectively. Interest expense was $359,000 and
$3.6 million for the nine months ended September 30, 2001 and 2000,
respectively. Interest expense declined mainly due to a significant
reduction in bank debt as the proceeds from the disposal of the Company's
former information and property records service segment (see Note 2) were
used to pay down debt. In addition, in connection with certain internally
developed software projects, the Company capitalized $150,000 and $450,000
of interest costs during the three and nine months
14
ended September 30, 2001, respectively, compared to $150,000 and $238,000
for the three and nine months ended September 30, 2000, respectively.
INCOME TAX PROVISION
For the three months ended September 30, 2001, the Company had income from
continuing operations before income taxes of $614,000 and an income tax
provision of $363,000, resulting in an effective tax rate of 59%. For the
nine months ended September 30, 2001, the Company had income from continuing
operations before income taxes of $502,000 and an income tax provision of
$393,000, resulting in an effective tax rate of 78%. The effective income
tax rates are estimated based on projected income for the year and the
resulting amount of income taxes. The effective income tax rates for the
three and nine months ended September 30, 2001 were different from the
statutory United States Federal income tax rate of 35% primarily due to
non-deductible items such as goodwill amortization as compared to the
relative amount of pretax earnings or loss.
DISCONTINUED OPERATIONS
On September 29, 2000, the Company sold for a cash sale price of $14.4
million certain net assets of Kofile, Inc. and another subsidiary, the
Company's interest in a certain intangible work product, and a building and
related building improvements. Effective December 29, 2000, the Company sold
for cash its land records business unit, consisting of Business Resources
Corporation, to an affiliate of ACS (the "Resources Sale"). The Resources
Sale was valued at approximately $71.0 million. Concurrent with the
Resources Sale, management of the Company with the Board of Directors'
approval adopted a formal plan of disposal for the remaining businesses and
assets of the information and property records services segment. This
restructuring program was designed to focus the Company's resources on its
software systems and services segment and to reduce debt. The business and
assets divested or identified for divesture have been classified as
discontinued operations in the accompanying consolidated financial
statements with prior periods' financial statements restated to report
separately their operations in compliance with Accounting Principle Board
("APB") Opinion No. 30.
The Company's formal plan of disposal provides for the remaining businesses
and assets of the information and property records services segment to be
disposed of by December 2001. As of December 29, 2000, one of the remaining
assets consisted of a start-up company engaged in constructing a Web-enabled
national repository of public records data. Another remaining business was
Capitol Commerce Reporter, Inc. ("CCR"), which was purchased in January 2000
and provides public records research, principally UCCs in Texas. The
interdependency of these operations with those of Resources resulted in the
Company's decision to discontinue the development of the database and other
related products and exit the land records business following the Resources
Sale. During the three months ended December 31, 2000, the Company charged
discontinued operations for the estimated loss on the disposal on the
remaining businesses. The anticipated operating losses from the measurement
date of December 29, 2000, to the disposal dates include the effects of the
settlement of certain employment contracts, losses on real property leases,
severance costs and similar closing related costs. The amounts the Company
will ultimately realize could differ materially from the amounts assumed in
arriving at the loss on disposal of the discontinued operations.
On May 16, 2001, the Company sold all of the common stock of another
business that had previously been designated as a discontinued operation. In
connection with the sale, the Company received cash proceeds of $575,000,
approximately 60,000 shares of Company common stock, a promissory note of
$750,000 payable in 58 monthly installments at an interest rate of 9%, and
other contingent consideration. Because the note receivable is highly
dependent upon future operations of the buyer, the Company will record its
value as cash is received. On September 21, 2001, the Company sold all of
the common stock of CCR. The sale price of the common stock consisted of
$3.1 million and future payments contingent on the retention of certain
customers subsequent to the sale. Since the gains or losses on these sales
were estimated as of the measurement date of December 29, 2000, no
additional adjustments to the estimated loss on the disposals of the
discontinued businesses are considered appropriate at this time.
Revenues from the information and property records services segment amounted
to $10.7 million and $31.9 million for the three and nine months ended
September 30, 2000, respectively.
Two of the Company's non-operating subsidiaries are involved in various
claims for work-related injuries and physical conditions relating to a
formerly owned subsidiary that was sold in 1995. For the three and nine
months ended September 30, 2001 the Company recorded net losses, net of
related tax effect, of $23,000 and $38,000 respectively, compared to $82,000
and $569,000 for the three and nine months ended September 30, 2000,
respectively, primarily for trial and related costs (See Note 4 Commitments
and Contingencies).
15
NET INCOME AND OTHER MEASURES
The Company had net income of $228,000 and $71,000 for the three and nine
months ended September 30, 2001, respectively, compared to net losses of
$2.6 million and $10.3 million for the three and nine months ended September
30, 2000, respectively. Income from continuing operations was $251,000 and
$109,000 for the three and nine months ended September 30, 2001,
respectively, compared to net losses of $1.2 million and $6.2 million for
the three and nine months ended September 30, 2000, respectively. For the
three and nine months ended September 30, 2001, diluted earnings (loss) per
share from continuing operations was $0.01 and $0.00, respectively, compared
to $(0.02) and $(0.14) for the same periods of 2000.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
from continuing operations for the three and nine months ended September 30,
2001, was $3.5 million and $8.6 million, respectively, compared to a EBITDA
of $2.2 million and $2.1 million for the comparable prior year periods.
EBITDA consists of income or loss from continuing operations before
interest, income taxes, depreciation, amortization and recovery of
acquisition costs previously expensed. Although EBITDA is not calculated in
accordance with accounting principles generally accepted in the United
States, 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 accounting
principles generally accepted in the United States. 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 provided by operating activities for the nine months ended September
30, 2001 was $6.2 million compared to cash used by operating activities of
$3.8 million for the nine months ended September 30, 2000.
FINANCIAL CONDITION AND LIQUIDITY
In December 2000, the Company amended its revolving credit agreement with a
group of banks (the "Senior Credit Facility") to provide for total
borrowings of up to $15.0 million and a maturity date of July 1, 2002. The
Senior Credit Facility was subsequently amended in May and again in
September of 2001 to provide for total borrowings of up to $7.0 million to
reflect the sale of certain assets. Borrowings under the Senior Credit
Facility, as amended, bear interest at the lead bank's prime rate plus a
margin of 3.0%, which margin increases by 0.50% on January 1, 2002.
Borrowings under the Senior Credit Facility are further limited to 80% of
eligible accounts receivable. At September 30, 2001, the Company had no
outstanding borrowings and an unused available borrowing capacity of $7.0
million under the Senior Credit Facility. The interest rate at September 30,
2001 was 9.0%. The effective average interest rates for borrowings during
the three and nine months ended September 30, 2001 were 9.7% and 10.3%,
respectively, and 10.8% and 9.8% for the three and nine months ended
September 30, 2000, respectively.
In addition, at September 30, 2001, the Company's continuing operations had
certain promissory notes payable, and other installment notes totaling $3.1
million (including current portion of $186,000). Fixed interest rates on the
promissory and installment notes ranged from 6.1% to 10.0%. The Company made
principal payments of $277,000 on these notes during the nine months ended
September 30, 2001.
For the nine months ended September 30, 2001, the Company made capital
expenditures of $7.0 million for continuing operations. These expenditures
included $4.7 million relating to software development. The remaining
expenditures were primarily for computer equipment and expansions required
to support internal growth. The Company also purchased a formerly leased
building for $1.3 million in connection with an existing obligation of the
discontinued information and property records service segment. The building,
which is held for sale, is included in net assets of discontinued operations
on the condensed consolidated balance sheet at September 30, 2001. These
expenditures were primarily funded with cash from the previously described
dispositions of the property records segment and with cash generated from
operations.
On May 16, 2001, the Company sold all of the common stock of one of the
remaining businesses that was previously designated as a discontinued
operation. In connection with the sale, the Company received cash proceeds
of $575,000, a promissory note of $750,000 payable in 58 monthly
installments at an interest rate of 9%, and other contingent consideration.
On September 21, 2001, the Company sold all of the common stock of CCR,
which had been classified as a discontinued operation. The sale price of the
common stock consisted of $3.1 million in cash and future payments
contingent on the retention of certain customers subsequent to the sale.
16
On November 4, 1999, the Company purchased Cole Layer Trumble Company
("CLT") from a privately held company (the "Seller"). A portion of the
consideration consisted of the issuance of 1,000,000 restricted shares of
Tyler common stock and included a price protection on the sale of the stock.
The price protection, which expired on November 4, 2001, is equal to the
difference between the actual sales proceeds of the Tyler common stock and
$6.25 on a per share basis, but is limited to $2.75 million. During the
three months ended September 30, 2001, the Seller submitted to Tyler a claim
under the price protection provision for $1.8 million in connection with the
sale of 472,000 shares of Tyler common stock. A second claim dated October
31, 2001 was made for the remaining $985,000. Contingent consideration of
this nature does not change the recorded costs of the acquisition and the
claim is first recorded when submitted. Accordingly, the $1.8 million claim
submitted during the third quarter, net of the deferred tax benefit of
$617,000, has been charged to paid-in capital during the third quarter.
The CLT purchase agreement contained a number of post-closing adjustments
and, in addition, certain CLT customers inadvertently submitted post-closing
cash receipts to the Seller. As a result of this activity, the Company had
previously recorded a $1.3 million receivable related to this activity which
remained unpaid and which represents post-closing adjustments which have not
been disputed by the Seller. Upon the filing of the first price protection
claim, the Company reduced the net receivable to zero and has deferred the
excess until other post-closing adjustments submitted by the Company and
disputed by the Seller are resolved.
Additionally, as part of the consideration for the purchase, the Company
assigned to the Seller, without recourse, notes receivable obtained in
connection with the Company's sale of Forest City Auto Parts Company
("FCAP"). FCAP has since filed for relief under Chapter 7 of the United
States Bankruptcy Code. Although the Company did not retain any credit risk
in connection with this assignment, the Seller has withheld payments of
amounts due to the Company as a result of the above-mentioned post closing
adjustments to the Company and has requested payment by the Company for the
principal of the assigned notes receivable with post-sale accrued interest.
Management believes the Seller's position regarding recourse to Tyler on
these notes is without merit.
Absent any acquisitions, the Company anticipates that cash flows from
operations, working capital and unused borrowing capacity under its existing
bank credit agreement will provide sufficient funds to meet its needs for
the following twelve months.
17
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: Note (4)
- Commitments and Contingencies and Note (8) - Investment Securities
Available-For-Sale" on pages 8 and 9, respectively, of this report.
Item 3 of Part I and Items 2, 3, 4, 5 and 6 of Part II were not applicable and
have been omitted.
18
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: November 8, 2001
19