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, 2003
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)
(972) 713-3700
(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 October 28, 2003:
40,728,660
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Revenues:
Software licenses $ 8,400 $ 6,469 $ 20,017 $ 17,047
Software services 9,191 7,064 26,438 17,888
Maintenance 11,704 10,204 34,337 29,788
Appraisal services 7,440 9,309 21,547 28,080
Hardware and other 1,139 1,928 3,995 4,698
------------- ------------- ------------- -------------
Total revenues 37,874 34,974 106,334 97,501
Cost of revenues:
Software licenses 2,041 1,349 5,104 3,812
Software services and maintenance 14,090 13,161 41,937 36,912
Appraisal services 5,422 6,637 15,309 19,299
Hardware and other 851 1,515 3,007 3,724
------------- ------------- ------------- -------------
Total cost of revenues 22,404 22,662 65,357 63,747
------------- ------------- ------------- -------------
Gross profit 15,470 12,312 40,977 33,754
Selling, general and administrative expenses 9,678 8,181 28,840 24,672
Amortization of acquisition intangibles 680 832 2,190 2,497
------------- ------------- ------------- -------------
Operating income 5,112 3,299 9,947 6,585
Realized gain on sale of investment in H.T.E., Inc. -- -- 23,233 --
Legal fees associated with investment in H.T.E., Inc. -- (365) -- (650)
Interest income (expense) 141 (12) 287 20
------------- ------------- ------------- -------------
Income before income tax provision 5,253 2,922 33,467 5,955
Income tax provision 2,020 1,183 10,957 2,364
------------- ------------- ------------- -------------
Net income $ 3,233 $ 1,739 $ 22,510 $ 3,591
============= ============= ============= =============
Earnings per common share:
Basic $ 0.08 $ 0.04 $ 0.52 $ 0.08
============= ============= ============= =============
Diluted $ 0.07 $ 0.04 $ 0.50 $ 0.07
============= ============= ============= =============
Weighted average common shares outstanding:
Basic 40,464 47,173 43,078 47,401
============= ============= ============= =============
Diluted 43,181 49,372 45,218 49,833
============= ============= ============= =============
</Table>
See accompanying notes.
1
TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
<Table>
<Caption>
September 30,
2003 December 31,
(Unaudited) 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,561 $ 13,744
Short-term investments available-for-sale 24,701 --
Accounts receivable (less allowance for losses
of $1,021 in 2003 and $690 in 2002) 30,002 33,510
Prepaid expenses and other current assets 3,881 4,009
Deferred income taxes 1,197 1,197
------------- -------------
Total current assets 74,342 52,460
Property and equipment, net 6,226 6,819
Other assets:
Investment in H.T.E., Inc. -- 27,196
Goodwill 46,298 46,298
Software, net 22,593 21,933
Customer base and other acquisition intangibles, net 13,982 14,655
Sundry 824 484
------------- -------------
$ 164,265 $ 169,845
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,157 $ 2,390
Accrued liabilities and other current liabilities 12,845 11,186
Net current liabilities of discontinued operations 667 442
Income taxes currently payable 5,186 --
Deferred revenue 28,554 26,208
------------- -------------
Total current liabilities 49,409 40,226
Long-term obligations, less current portion -- 2,550
Deferred income taxes 4,418 8,413
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 shares issued in 2003 and 2002 481 481
Additional paid-in capital 155,631 156,898
Accumulated deficit (18,444) (40,954)
Accumulated other comprehensive income - unrealized
gain on securities available-for-sale, net of income taxes 24 7,418
Treasury stock, at cost: 7,463,559 and 1,928,636 shares
in 2003 and 2002, respectively (27,254) (5,187)
------------- -------------
Total shareholders' equity 110,438 118,656
------------- -------------
$ 164,265 $ 169,845
============= =============
</Table>
See accompanying notes.
2
TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<Table>
<Caption>
Nine months ended September 30,
-------------------------------
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 22,510 $ 3,591
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 7,029 6,355
Realized gain on sale of investment in H.T.E., Inc. (23,233) --
Other non-cash charges -- 311
Discontinued operations - non-cash charges and
changes in operating assets and liabilities 98 (273)
Changes in operating assets and liabilities, exclusive of
effects of discontinued operations 13,223 4,359
------------- -------------
Net cash provided by operating activities 19,627 14,343
------------- -------------
Cash flows from investing activities:
Proceeds from sale of investment In H.T.E., Inc. 39,333 --
Purchases of short-term investments (27,664) --
Proceeds from sales of short-term investments 3,000 --
Investment in software development costs (5,217) (5,493)
Additions to property and equipment (1,187) (2,017)
Proceeds from dispositions related to discontinued operations 127 1,792
Other (627) (15)
------------- -------------
Net cash provided (used) by investing activities 7,765 (5,733)
------------- -------------
Cash flows from financing activities:
Purchase of treasury shares (24,104) (4,000)
Payments on notes payable (3,124) (399)
Payment of debt of discontinued operations -- (324)
Proceeds from exercise of stock options 653 1,616
Debt issuance costs -- (240)
------------- -------------
Net cash used by financing activities (26,575) (3,347)
------------- -------------
Net increase in cash and cash equivalents 817 5,263
Cash and cash equivalents at beginning of period 13,744 5,271
------------- -------------
Cash and cash equivalents at end of period $ 14,561 $ 10,534
============= =============
</Table>
See accompanying notes.
3
Tyler Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Tables in thousands, except per share data)
(1) Basis of Presentation
We prepared the accompanying condensed consolidated financial
statements following the requirements of the Securities and Exchange
Commission ("SEC") and accounting principles generally accepted in the
United States, or GAAP, for interim reporting. As permitted under those
rules, certain footnotes or other financial information that are
normally required by GAAP can be condensed or omitted for interim
periods. Balance sheet amounts are as of September 30, 2003 and
December 31, 2002 and operating result amounts are for the three and
nine months ended September 30, 2003 and 2002, and include all normal
and recurring adjustments that we considered necessary for the fair
summarized presentation of our financial position and operating
results. As these are condensed financial statements, one should also
read the financial statements and notes included in our latest Form
10-K for the year ended December 31, 2002. Revenues, expenses, assets
and liabilities can vary during each quarter of the year. Therefore,
the results and trends in these interim financial statements may not be
the same as those for the full year.
Although we have a number of operating subsidiaries, separate segment
data has not been presented as they meet the criteria set forth in SFAS
(Statement of Financial Accounting Standards) No. 131, "Disclosures
About Segments of an Enterprise and Related Information" to be
presented as one segment.
In addition, certain other amounts for the previous year have been
reclassified to conform to the current year presentation.
(2) Discontinued Operations
Discontinued operations includes our former information and property
records services segment for which our Board of Directors approved a
formal plan of disposal in December 2000 and two non-operating
subsidiaries related to a formerly owned subsidiary that we sold in
December 1995. The business units within the discontinued information
and property records services segment were sold in 2000 and 2001. In
June 2002, we renegotiated the proceeds from a May 2001 sale
transaction and received cash of approximately $800,000 and a
subordinated note receivable amounting to $200,000 to fully settle a
promissory note and other contingent consideration in connection with
the original sale transaction. In August 2003 we received $127,000 to
fully settle this promissory note. In June 2002, we also sold the
building of a business unit included in the information and property
records service segment. Net proceeds from the sale totaled $961,000.
In our opinion and based upon information available at this time, we
believe that our remaining net liabilities related to discontinued
operations are adequate.
One of our non-operating subsidiaries was involved in various claims
for work-related injuries and physical conditions relating to a
formerly-owned subsidiary that we sold in 1995. See Note 10 -
Commitments and Contingencies.
(3) Cash, Cash Equivalents and Short-term Investments
Cash equivalents include items almost as liquid as cash, such as money
market investments and certificates of deposits with insignificant
interest rate risk and original maturities of three months or less at
the time of purchase. For purposes of the statements of cash flows, we
consider all investments with original maturities of three months or
less to be cash equivalents.
Short-term investments include investments in short-term mutual
corporate and municipal bond funds. Interest and dividends earned on
these funds are reinvested in the funds. During the three and nine
months ended September 30, 2003, we have made investments in the
aforementioned funds of $12.6 million and $27.7 million, respectively.
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", we determine the appropriate
classification of debt and equity securities at the time of purchase
and re-evaluate the classification as of each balance sheet date. At
September 30, 2003, we classified these investments in bond funds as
available-for-sale securities pursuant to SFAS No. 115. Investments
which are classified as available-for-sale are recorded at fair value
and unrealized holding gains and losses, net of the related tax effect,
if any, are not reflected in earnings but are reported as a separate
component of other comprehensive income (loss) until realized.
Unrealized gains were $24,000, which is after income taxes of $13,000,
for the three and nine months ended September 30, 2003.
4
(4) Investment in H.T.E., Inc.
On March 25, 2003, we received cash proceeds of $39.3 million in
connection with a transaction to sell all of our 5.6 million shares of
H.T.E., Inc. ("HTE") common stock to SunGard Data Systems Inc. for
$7.00 cash per share, pursuant to a Tender and Voting Agreement dated
February 4, 2003. Our original cost basis in the HTE shares was $15.8
million. After transaction and other costs, we recorded a realized
gross gain of $23.2 million ($16.2 million after income taxes of $7.0
million, including the utilization for tax purposes and reduction in
valuation allowance for accounting purposes related to a capital loss
carryforward amounting to $1.1 million on a tax effected basis).
Our 5.6 million shares of HTE represented an ownership interest of
approximately 35%. Under GAAP a 20% investment in the voting stock of
another company creates the presumption that the investor has
significant influence over the operating and financial policies of that
company, unless there is evidence to the contrary. As disclosed in our
previous filings, Tyler's management concluded that no such influence
existed. Thus, we accounted for our investment in HTE pursuant to the
provisions of SFAS No. 115 and our investment in HTE was previously
classified as an available-for-sale security. As of December 31, 2002,
we had an unrealized holding gain of $11.4 million ($7.4 million after
income tax of $4.0 million), which was included as a component of other
comprehensive income.
(5) Shareholders' Equity
In April 2003, we commenced a modified "Dutch Auction" tender offer to
purchase up to 4.2 million shares of our common stock at a price not
greater than $4.00 and not less than $3.60 per share. In accordance
with the SEC rules, we had the right to purchase an additional amount
of shares not to exceed 2% of our outstanding shares (approximately
907,000 shares) without amending or extending our offer. Approximately
6.0 million shares of common stock were properly tendered and not
withdrawn at prices at or below $4.00 per share. We exercised our right
to purchase an additional 2% of our outstanding shares without amending
or extending our offer. As a result, in May 2003, we purchased 5.1
million shares of our common stock at a cash purchase price of $4.00
per share and estimated transaction costs of approximately $150,000,
for a total cost of $20.6 million. The final shares purchased reflect a
pro-ration factor equal to 85% of the shares tendered.
During the nine months ended September 30, 2003, we also repurchased
912,800 shares of our common stock for an aggregate purchase price of
$3.5 million. We currently have authorization from our Board of
Directors to repurchase up to 1.98 million additional shares of Tyler
common stock.
In August 2003, Sanders Morris Harris Inc. (SMH) exercised its warrant
to purchase 333,380 shares of our common stock. The exercise price per
share was $3.60 payable either in cash or by the surrender of shares
subject to the warrant with a value equal to the aggregate exercise
price as determined by the market price of our stock on the date of
exercise. On August 27, 2003, SMH exercised the full amount of the
warrant by way of cashless exercise and was issued, on a net basis,
145,413 shares of our common stock from our treasury.
(6) Income Tax Provision
For the three and nine months ended September 30, 2003, we had an
income tax provision of $2.0 million and $11.0 million, respectively.
The income tax provision for the nine months ended September 30, 2003,
included $7.0 million (after utilization of a capital loss carryforward
amounting to $1.1 million on a tax effected basis) related to the
realized gain from the sale of our investment in HTE. See Note 4 -
Investment in H.T.E., Inc. We had an effective income tax rate of 38.5%
and 32.7% for the three months and nine months ended September 30,
2003, respectively, compared to an effective income tax rate of 40.5%
and 39.7% for the three and nine months ended September 30, 2002. The
effective income tax rates are estimated based on projected pre-tax
income for the entire fiscal 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 the utilization of the capital loss carryforward
in 2003, state income taxes and non-deductible meals and entertainment
costs.
5
(7) Earnings Per Share
The following table details the reconciliation of basic earnings per
share to diluted earnings per share:
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Numerator for basic and diluted earnings per share:
Net income ................................................... $ 3,233 $ 1,739 $ 22,510 $ 3,591
========== ========== ========== ==========
Denominator:
Weighted-average basic common shares outstanding ................. 40,464 47,173 43,078 47,401
Assumed conversion of dilutive securities:
Employee stock options ..................................... 1,576 1,290 1,251 1,430
Warrants ................................................... 1,141 909 889 1,002
---------- ---------- ---------- ----------
Potentially dilutive common shares ............................... 2,717 2,199 2,140 2,432
---------- ---------- ---------- ----------
Weighted-average common shares outstanding, assuming full dilution
43,181 49,372 45,218 49,833
========== ========== ========== ==========
Basic earnings per share ......................................... $ 0.08 $ 0.04 $ 0.52 $ 0.08
========== ========== ========== ==========
Diluted earnings per share ....................................... $ 0.07 $ 0.04 $ 0.50 $ 0.07
========== ========== ========== ==========
</Table>
(8) Stock Compensation
In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," we elected to account for our stock-based compensation
under Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," as amended and related interpretations
including FIN 44 (FASB Interpretation No. 44), "Accounting for Certain
Transactions Involving Stock Compensation," an interpretation of APB
Opinion No. 25, issued in June 2000. In December 2002, SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure"
was issued to amend SFAS No. 123. This statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. Accordingly, under APB No. 25's intrinsic value
method, compensation expense is determined on the measurement date;
that is, the first date on which both the number of shares the option
holder is entitled to receive, and the exercise price, if any, are
known. Compensation expense, if any, is measured based on the award's
intrinsic value - the excess of the market price of the stock over the
exercise price on the measurement date. The exercise price of all of
our stock options granted equals the market price on the measurement
date. Therefore we have not recorded any compensation expense related
to grants of stock options.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 for awards granted after December 31, 1994, as
if we had accounted for our stock-based awards to employees under the
fair value method of SFAS No. 123, and is as follows:
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income ................................................ $ 3,233 $ 1,739 $ 22,510 $ 3,591
Add stock-based employee compensation cost included
in net income, net of related tax benefit .............. -- -- -- --
Deduct total stock-based employee compensation
expense determined under fair-value-based method
for all rewards, net of related tax benefit ............ 581 562 1,514 1,550
------------- ------------- ------------- -------------
Pro forma net income ...................................... $ 2,652 $ 1,177 $ 20,996 $ 2,041
============= ============= ============= =============
Pro forma net income per basic share ...................... $ 0.07 $ 0.02 $ 0.49 $ 0.04
============= ============= ============= =============
Pro forma net income per diluted share .................... $ 0.06 $ 0.02 $ 0.46 $ 0.04
============= ============= ============= =============
</Table>
6
(9) Comprehensive Income
The components of comprehensive income (loss) are as follows:
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net income ...................................................................... $ 3,233 $ 1,739 $ 22,510 $ 3,591
Other comprehensive income:
Change in fair value of short-term investments
(net of deferred tax expense of $13) ....................................... 24 -- 24 --
Reclassification adjustment for unrealized gain related to investment in
H.T.E., Inc. (net of deferred tax expense of $3,995) ....................... -- -- (7,418) --
Change in fair value of investment in H.T.E., Inc. (net of deferred tax benefit
of $2,222 for the three months ended September 30, 2002 and deferred tax
expense of $1,556 for the nine months ended September 30, 2002) ........... -- (4,127) -- 7,435
-------- -------- -------- --------
Total comprehensive income (loss) ............................................... $ 3,257 $ (2,388) $ 15,116 $ 11,026
======== ======== ======== ========
</Table>
(10) Commitments and Contingencies
One of our non-operating subsidiaries, Swan Transportation Company
("Swan"), has been and is currently involved in various claims raised
by hundreds of former employees of a foundry that was once owned by an
affiliate of Swan and Tyler. These claims are for alleged work related
injuries and physical conditions resulting from alleged exposure to
silica, asbestos, and/or related industrial dusts during the
plaintiff's employment at the foundry. We sold the operating assets of
the foundry on December 1, 1995. As a non-operating subsidiary of
Tyler, the assets of Swan consist primarily of various insurance
policies issued to Swan during the relevant time periods and restricted
cash of $330,000 at September 30, 2003. Swan tendered the defense and
indemnity obligations arising from these claims to its insurance
carriers, who, prior to December 20, 2001, entered into settlement
agreements with approximately 275 of the plaintiffs, each of whom
agreed to release Swan, Tyler, and its subsidiaries and affiliates from
all such claims in exchange for payments made by the insurance
carriers.
On December 20, 2001, Swan filed a petition under Chapter 11 of the
U.S. Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. The bankruptcy filing by Swan was the result of
extensive negotiations between Tyler, Swan, their respective insurance
carriers, and an ad hoc committee of plaintiff attorneys representing
substantially all of the then known plaintiffs. Swan filed its plan of
reorganization in February 2002. The principal features of the plan of
reorganization include: (a) the creation of a trust, which is to be
funded principally by fifteen insurance carriers pursuant to certain
settlement agreements executed pre-petition between Swan, Tyler, and
such carriers; (b) the implementation of a claims resolution procedure
pursuant to which all present and future claimants may assert claims
against such trust for alleged injuries; (c) the issuance of certain
injunctions under the federal bankruptcy laws requiring any such claims
to be asserted against the trust and barring such claims from being
asserted, either now or in the future, against Swan, Tyler, all of
Tyler's affected affiliates, and the insurers participating in the
funding of the trust; and (d) the full and final release of each of
Swan, Tyler, all of Tyler's affected affiliates, and the insurers
participating in the funding of the trust from any and all claims
associated with the once-owned foundry by all claimants that assert a
claim against, and receive compensation from, the trust.
The confirmation hearings on Swan's plan of reorganization were held on
December 9, 2002. The plan of reorganization received the affirmative
vote of approximately 99% of the total votes cast. All objections to
the plan were resolved prior to the confirmation hearing, and the terms
and conditions of the plan (including the issuance of the injunctions)
are therefore not subject to appeal.
The confirmation order for the plan of reorganization was signed by the
bankruptcy court and district court judges and entered by the United
States Bankruptcy Court for the District of Delaware on July 22, 2003.
The confirmation order discharges, releases, and extinguishes all of
the foundry-related obligations and liabilities of Tyler, Swan, their
affected affiliates, and the insurers participating in the funding of
the trust. Further, the confirmation order includes the issuance of
injunctions that channel all present and future foundry-related claims
into the trust and forever bar any such claims from being asserted,
either now or in the future, against Swan, Tyler, their affected
affiliates, and the participating insurers. In order to receive the
benefits described above, we have agreed, among other things, to
transfer all of the capital stock of Swan to the trust (net assets of
Swan at September 30, 2003 were $309,000) so that the trust can
directly pursue claims against insurers who have not participated in
the funding of the trust. The original confirmation order required us
to contribute $1.5 million in cash to the trust, payable as follows:
$750,000 within ten days of the confirmation order becoming a final
order; $500,000 on the first anniversary date that
7
the confirmation order became a final order; and $250,000 on the second
anniversary date that the confirmation order became a final order. In
the third quarter of 2003 we reached an agreement with the creditors'
committee to revise the funding arrangement and satisfy our funding
obligations to the trust with a lump sum payment of $1.48 million in
cash to the trust, which is due within ten days of the confirmation
order becoming a final order. The confirmation order became final on
August 21, 2003; however, the creditors' committee has requested that
all parties delay funding of the trust until such time as it receives a
favorable ruling from the IRS that the trust is a qualified settlement
fund, which is expected to occur during the fourth quarter of 2003.
Accordingly, we expect to transfer the stock of Swan and make our cash
contribution to the trust during the fourth quarter of 2003.
(11) Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FIN 46, "Consolidation of Variable Interest Entities", which
requires the consolidation of variable interest entities. FIN 46 is
applicable to variable interest entities created after January 31,
2003. Variable interest entities created prior to February 1, 2003 must
be consolidated effective July 1, 2003. We adopted FIN 46 in the
quarter ended June 30, 2003, and it did not have a material impact on
our financial position or results of our operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 requires that certain financial instruments,
which under previous guidance were accounted for as equity, must now be
accounted for as liabilities. The financial instruments affected
include mandatory redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares in
exchange for cash or other assets and certain obligations that can be
settled with shares of stock. SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 was adopted in the quarter
ended June 30, 2003 and it did not have any impact on our financial
position or results of our operations.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
The statements in this discussion that are not historical statements
are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements include statements about our business, financial condition,
business strategy, plans and the objectives of our management, and
future prospects. In addition, we have made in the past and may make in
the future other written or oral forward-looking statements, including
statements regarding future operating performance, short- and long-term
revenue and earnings growth, the timing of the revenue and earnings
impact for new contracts, backlog, the value of new contract signings,
business pipeline, and industry growth rates and our performance
relative thereto. Any forward-looking statements may rely on a number
of assumptions concerning future events and be subject to a number of
uncertainties and other factors, many of which are outside our control,
which could cause actual results to differ materially from such
statements. These include, but are not limited to: our ability to
improve productivity and achieve synergies from acquired businesses;
technological risks associated with the development of new products and
the enhancement of existing products; changes in the budgets and
regulating environments of our government customers; competition in the
industry in which we conduct business and the impact of competition on
pricing, revenues and margins; with respect to customer contracts
accounted for under the percentage-of-completion method of accounting,
the performance of such contracts in accordance with our cost and
revenue estimates; our ability to maintain health and other insurance
coverage and capacity due to changes in the insurance market and the
impact of increasing insurance costs on the results of operations; the
costs to attract and retain qualified personnel, changes in product
demand, the availability of products, economic conditions, changes in
tax risks and other risks indicated in our filings with the Securities
and Exchange Commission. The factors described in this paragraph and
other factors that may affect Tyler, its management or future financial
results, as and when applicable, are discussed in Tyler's filings with
the Securities and Exchange Commission, on its Form 10-K for the year
ended December 31, 2002. Except to the extent required by law, we are
not obligated to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
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 Tyler
or our management are intended to identify forward-looking statements.
GENERAL
Tyler provides integrated software systems and related services for
local governments. We develop and market a broad line of software
products and services to address the information technology (IT) needs
of cities, counties, schools and other local government entities. We
provide professional IT services to our customers, including software
and hardware installation, data conversion, training and product
modifications, along with continuing maintenance and support for
customers using our systems. We also provide property appraisal
outsourcing services for taxing jurisdictions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial
statements. These condensed consolidated financial statements have been
prepared following the requirements of accounting principles generally
accepted in the United States (GAAP) for interim periods and require us
to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on going basis, we evaluate
our estimates, including those related to revenue recognition and
amortization and potential impairment of intangible assets and
goodwill. As these are condensed financial statements, one should also
read our Form 10-K for the year ended December 31, 2002 regarding
expanded information about our critical accounting policies and
estimates.
9
ANALYSIS OF RESULTS OF OPERATIONS
The following table sets forth items from our unaudited condensed
consolidated financial statements and the percentage change in the
amounts between the periods presented. The amounts shown in the table
are in thousands, except per share data. Revenues and expenses can vary
during each quarter of the year. Therefore, the results and trends in
these interim financial statements may not be the same as those for the
full year.
<Table>
<Caption>
Three months ended September 30, Nine months ended September 30,
------------------------------------ -----------------------------------
% %
2003 2002 Change 2003 2002 Change
--------- --------- --------- --------- --------- ---------
Revenues:
Software licenses $ 8,400 $ 6,469 30 % $ 20,017 $ 17,047 17 %
Software services 9,191 7,064 30 26,438 17,888 48
Maintenance 11,704 10,204 15 34,337 29,788 15
Appraisal services 7,440 9,309 (20) 21,547 28,080 (23)
Hardware and other 1,139 1,928 (41) 3,995 4,698 (15)
--------- --------- --------- ---------
Total revenues 37,874 34,974 8 106,334 97,501 9
Cost of revenues:
Software licenses 2,041 1,349 51 5,104 3,812 34
Software services and maintenance 14,090 13,161 7 41,937 36,912 14
Appraisal services 5,422 6,637 (18) 15,309 19,299 (21)
Hardware and other 851 1,515 (44) 3,007 3,724 (19)
--------- --------- --------- ---------
Total cost of revenues 22,404 22,662 (1) 65,357 63,747 3
% of revenues 59.2% 64.8% 61.5% 65.4%
Gross profit 15,470 12,312 26 40,977 33,754 21
% of revenues 40.8% 35.2% 38.5% 34.6%
Selling, general and administrative expenses 9,678 8,181 18 28,840 24,672 17
% of revenues 25.6% 23.4% 27.1% 25.3%
Amortization of acquisition intangibles 680 832 (18) 2,190 2,497 (12)
--------- --------- --------- ---------
Operating income 5,112 3,299 55 9,947 6,585 51
Realized gain on sale of investment
in H.T.E., Inc. -- -- 23,233 --
Legal fees associated with investment
in H.T.E., Inc. -- (365) -- (650)
Interest income (expense) 141 (12) 287 20
--------- --------- --------- ---------
Income before income tax provision 5,253 2,922 33,467 5,955
Income tax provision 2,020 1,183 10,957 2,364
--------- --------- --------- ---------
Effective income tax rate 38.5% 40.5% 32.7% 39.7%
Net income $ 3,233 $ 1,739 $ 22,510 $ 3,591
========= ========= ========= =========
Diluted earnings per share $ 0.07 $ 0.04 $ 0.50 $ 0.07
========= ========= ========= =========
Cash flows provided by operating activities $ 13,876 $ 7,448 $ 19,627 $ 14,343
Cash, cash equivalents and
short-term investments at September 30 $ 39,262 $ 10,534
Capital expenditures:
Software development costs $ 1,767 $ 1,931 $ 5,217 $ 5,493
Property and equipment $ 414 $ 545 $ 1,237 $ 2,017
</Table>
10
REVENUES
The following table compares the components of revenue as a percent of
total revenues for the periods presented:
<Table>
<Caption>
Three months ended September 30, Nine months ended September 30,
---------------------------------- ----------------------------------
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Software licenses 22.2% 18.5% 18.8% 17.5%
Software services 24.3% 20.2% 24.9% 18.3%
Maintenance 30.9% 29.2% 32.3% 30.6%
Appraisal services 19.6% 26.6% 20.3% 28.8%
Hardware and other 3.0% 5.5% 3.7% 4.8%
--------------- --------------- --------------- ---------------
100.0% 100.0% 100.0% 100.0%
=============== =============== =============== ===============
</Table>
Software license revenues. Software license revenues increased $1.9
million, or 30% for the three months ended September 30, 2003, compared
to the same period last year. In addition, the third quarter of 2003
was the eighth consecutive quarter in which our software license
revenues increased compared to the same period in the prior year.
Software license revenues increased $3.0 million, or 17%, for the nine
months ended September 30, 2003, compared to the same period last year.
Third quarter and year-to-date software license revenues benefited by
the successful first phase installation of our new Odyssey Case
Management system ("Odyssey Courts") in the State of Minnesota and Lee
County, Florida. Software license revenue from these two contracts
totaled $3.4 million for the three and nine months ended September 30,
2003 compared to none in the prior year periods.
In addition, our financial and city solutions products provided
approximately $400,000 and $700,000 of our software license revenue
increases for the quarter and year-to-date periods, respectively. We
increased revenues from our financial and city solutions products by
increasing sales and implementation staff and releasing a new version
of one of our county tax products for customers in the Midwest.
Increases in our Odyssey Courts and financial and city solutions
products were offset by a decline in property appraisal and tax
software license revenues of $1.2 million for the quarter and $900,000
for the year-to-date period. Most of this decline related to one large
property appraisal and tax software installation in the third quarter
of 2002. Our property appraisal and tax software license volume varies
from period to period depending on the special needs and timing of our
customers. Local government taxing entities normally reappraise real
properties from time to time to update values for tax assessment
purposes and to maintain equity in the taxing process. While some of
these taxing jurisdictions contract with our property appraisal and tax
division to perform these reappraisals, it is not always necessary for
the customer to purchase new software in order to process the
appraisals. In some cases, a customer may simply add smaller appraisal
software modules to enhance the functionality of its existing software.
11
Software services revenues. For the three months ended September 30,
2003, software services revenues increased $2.1 million, or 30%,
compared to the same period in 2002. For the nine months ended
September 30, 2003, software services revenue increased $8.6 million,
or 48%, compared to the same period in 2002. Higher software services
revenues were attributable to the following factors:
o Services related to implementation of Odyssey Courts, our new
courts and justice product. The following table contains a
summary of revenue recognized from our Odyssey Courts
contracts:
<Table>
<Caption>
Three months ended Nine months ended Total
September 30, September 30, software Software
----------------------- ----------------------- services services revenues
2003 2002 2003 2002 per contracts recognized to date
---------- ---------- ---------- ---------- --------------- ------------------
Odyssey Courts $ 700 $ 600 $ 2,700 $ 600 $ 7,400 $ 4,600
</Table>
The $7.4 million total contract amount for Odyssey Courts
includes approximately $1.1 million of software services
that are at the discretion of the customer but we
currently expect the customer to exercise this option.
o Software services related to the increase in software
contracts signed in late 2002 and in the first half of 2003.
Typically, contracts for software licenses include services
such as installation of the software, converting the
customers' data to be compatible with the software and
training customer personnel to use the software. Increased
training staff has also allowed for faster implementation of
our backlog. Services related to financial and city solutions
software and property appraisal and tax software each
contributed approximately 40% and 33% of the quarter and
year-to-date increases, respectively.
Maintenance revenues. Maintenance revenues for the quarter ended September 30,
2003 increased $1.5 million, or 15%, compared to the prior year quarter.
Maintenance revenues for the nine months ended September 30, 2003, increased
$4.5 million, or 15%, compared to the nine months ended September 30, 2002. We
provide maintenance and support services for our software products and third
party software. The maintenance revenue increase was due to growth in our
installed customer base and slightly higher rates on certain product lines.
Appraisal services revenues. For the three and nine months ended September 30,
2003, appraisal services revenues decreased $1.9 million, or 20%, and $6.5
million, or 23%, respectively, compared to the same periods of 2002. The
decrease is related to the completion and progression of several major appraisal
contracts. During the nine months ended September 30, 2003, we signed a new six
year contract to provide Nassau County, New York Board of Assessors (Nassau
County Extension) with updated property assessments and additional property
appraisal and tax software. The following table contains the appraisal services
revenues for significant contracts for the periods presented:
<Table>
<Caption>
Appraisal revenue recorded
-----------------------------------------------------
Three months ended Nine months ended Total Appraisal
September 30, September 30, appraisal revenues
------------------------- ------------------------- revenues recognized Contract
2003 2002 2003 2002 per contract to date completion date
----------- ----------- ----------- ----------- ----------- ----------- ---------------------
Nassau County, New York
Board of Assessors $ -- $ 3,500 $ 300 $ 9,500 $ 29,500 $ 29,500 First quarter 2003
Lake County, Indiana 1,600 2,200 6,200 5,200 15,300 15,200 Estimated late 2003
Indiana Revaluations 100 1,000 1,000 4,100 10,700 10,400 Estimated late 2003
Nassau County Extension 1,500 -- 3,100 -- 25,300 3,100 Estimated fiscal 2009
Franklin County, Ohio 1,100 -- 1,300 -- 9,100 1,300 Estimated mid-2005
</Table>
12
COST OF REVENUES
Cost of software license revenues. For the three and nine months ended
September 30, 2003, cost of software license revenues increased
$692,000, or 51%, and $1.3 million, or 34%, respectively, compared to
the same prior year periods. During the third quarter, we commenced
amortizing the software development costs of our Odyssey Courts
product, as it was complete and ready for general release to the
public. Once a product is released, we begin to expense the costs
associated with its development over the estimated useful life of the
product. Amortization expense is determined on a product-by-product
basis at an annual rate not less than straight-line basis over the
product's estimated life. Development costs consist mainly of personnel
costs, such as salary and benefits paid to our developers, rent for
related office space and capitalized interest costs. Odyssey Courts
amortization is calculated using the straight-line method of
amortization over an estimated five-year useful life. However, we
allocate the annual straight-line amortization expense within the year
using the revenue-based amortization method, which is based on the
percentage of current quarter software revenues for Odyssey Courts to
the estimated annual software revenues for Odyssey Courts. In
accordance with the revenue-based method of amortization we are not
allowed to record less than the straight-line method on a cumulative
basis within the year. Since we estimate all 2003 Odyssey Courts
software license revenue to be recorded in the third quarter of 2003 we
also recorded the related amortization expense of approximately
$559,000 in the third quarter for the period September 1, 2003 (general
release date) through December 31, 2003. We do not anticipate recording
any additional Odyssey software license revenue in the fourth quarter
of 2003. In addition, during 2002, we had several products in the
development stage, which were released late 2002 and early 2003 and
contributed to the increase in amortization expense.
Cost of software services and maintenance revenues. For the three
months and nine months ended September 30, 2003, cost of software
services and maintenance revenues increased $929,000, or 7%, and $5.0
million, or 14%, respectively, compared to the same periods of 2002.
These increases are consistent with the higher software services
and maintenance revenues for the same periods, although software
services and maintenance revenues grew at a more rapid rate than the
cost of those revenues, which is reflective of more efficient
utilization of our support and maintenance staff and economies of
scale. As a percentage of related revenues, cost of software services
and maintenance was 67% for the third quarter of 2003 compared to 76%
for the third quarter of 2002. Cost of software services and
maintenance was 69% of related revenues for the nine months ended
September 30, 2003, compared to 77% for the same period of 2002.
Cost of appraisal services revenues. Costs of appraisal services
revenues decreased $1.2 million, or 18%, for the three months ended
September 30, 2003, compared to the same prior year period. For the
nine months ended September 30, 2003, cost of appraisal services
revenues decreased $4.0 million, or 21%, compared to the same period in
2002. The decrease is consistent with the decrease in appraisal
services revenues, which declined 20% and 23% for the three and nine
months ended September 30, 2003, respectively. We often hire temporary
employees to assist in appraisal projects whose term of employment
generally ends with the projects' completion. As a percentage of
related revenues, cost of appraisal services was 73% and 71% for the
three and nine months ended September 30, 2003 compared to 71% and 69%
for the same periods of 2002.
GROSS MARGIN
For the three and nine months ended September 30, 2003, our overall
gross margin increased to 41% and 39%, respectively, from 35% for the
same periods of 2002. This increase is mainly due to higher software
license revenues as a proportion of total revenues. Software license
revenue inherently has higher gross margins than other revenues such as
professional services and hardware. In addition, our overall gross
margin improved over the prior year periods due to higher software
services and maintenance revenues without a corresponding increase in
related personnel costs reflecting a more efficient utilization of our
support and maintenance staff and economies of scale.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, or SG&A, increased $1.5
million, or 18%, and $4.2 million, or 17%, for the three and nine
months ended September 30, 2003, respectively, compared to the same
periods in the prior year. For the three months ended September 30,
2003, SG&A as a percent of revenue increased to 26% from 23% for the
same prior year period. SG&A as a percent of revenue increased to 27%
from 25% for the nine months ended September 30, 2003, compared to the
same prior year period. SG&A in the third quarter of 2003 includes
increased bonus expense for key management personnel as a result of our
improved operating performance. Commission expense was also higher than
the prior year periods due to increased revenues. In addition, annual
salary adjustments, bonuses related to installation of Odyssey Courts,
additional advertising and marketing expenses and higher research and
development costs contributed to higher SG&A.
13
AMORTIZATION OF ACQUISITION INTANGIBLES
For the three and nine months ended September 30, 2003, amortization of
acquisition intangibles was approximately $680,000 and $2.2 million,
respectively, compared to $832,000 and $2.5 million for the same
periods in 2002. The decrease in amortization from the prior year is
related to certain of our acquisition intangibles becoming fully
amortized during the first nine months of 2003. Acquisition intangibles
are composed of the excess of the purchase price over the fair value of
net tangible assets acquired that is allocated to acquired and
amortizable software and customer base, with the remainder allocated to
goodwill that is not subject to amortization. The estimated useful
lives of acquired software and customer base are 5 years and 20 to 25
years, respectively.
REALIZED GAIN ON SALE OF INVESTMENT IN H.T.E., INC.
On March 25, 2003, we received cash proceeds of $39.3 million in
connection with a transaction to sell all of our 5.6 million shares of
H.T.E., Inc. ("HTE") common stock to SunGard Data Systems Inc. for
$7.00 cash per share. Our original cost basis in the HTE shares was
$15.8 million. After transaction and other costs, we recorded a gross
realized gain of $23.2 million ($16.2 million or $0.36 per diluted
share after income taxes of $7.0 million for the nine months ended
September 30, 2003). See Note 4 in the Notes to the Condensed
Consolidated Financial Statements.
LEGAL FEES ASSOCIATED WITH INVESTMENT IN H.T.E., INC.
During the three and nine months ended September 30, 2002, we incurred
approximately $365,000 and $650,000, respectively, of legal and other
costs associated with legal matters concerning various tort claims HTE
alleged against us and HTE's attempted redemption of our 5.6 million
shares for $1.30 per share. In September 2002, HTE released us from all
tort claims and a court declared HTE's reported redemption of our
shares was invalid. In March 2003, we sold for cash our entire
investment in HTE for $7.00 per share.
INTEREST INCOME (EXPENSE)
For the three months ended September 30, 2003, we had net interest
income of $141,000, compared to net interest expense of $12,000 for
same period of 2002. For the nine months ended September 30, 2003 and
September 30, 2002 we had net interest income of $287,000, and $20,000,
respectively. The increase in interest income is related to higher
invested cash balances, including $39.3 million in cash received upon
the sale of our investment in HTE in late March 2003, as well as cash
generated from operations. The cash received from the sale of HTE was
offset by payments totaling $24.1 million for repurchase of our common
stock in a modified Dutch Auction in May 2003 and on the open market
throughout 2003.
INCOME TAX PROVISION
For the three months ended September 30, 2003, we had an income tax
provision of $2.0 million. For the nine months ended September 30,
2003, we had an income tax provision of $11.0 million, which included
$7.0 million (after reduction in valuation allowance related to the
utilization of a capital loss carryforward amounting to $1.1 million on
a tax effected basis) relating to the realized gain from the sale of
our investment in HTE. We had an effective income tax rate of 38.5% for
the three months ended September 30, 2003 compared to an effective
income tax rate of 40.5% for the three months ended September 30, 2002.
For the nine months ended September 30, 2003, we had an effective
income tax rate of 38.5% (excluding the effect of the HTE gain)
compared to an effective rate of 39.7% for the same prior year period.
The effective income tax rates are estimated based on projected pre-tax
income for the entire fiscal 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 the utilization of the capital loss carryforward
in 2003, state income taxes and non-deductible meals and entertainment
costs.
14
NET INCOME
Net income was $3.2 million in the three months ended September 30,
2003, compared to $1.7 million for the three months ended September 30,
2002. Net income was $22.5 million in the nine months ended September
30, 2003, including a $16.2 million realized gain after income taxes
relating to the sale of our investment in HTE. This compares to net
income of $3.6 million in the nine months ended September 30, 2002. For
the third quarter of 2003, diluted earnings per share was $0.07
compared to $0.04 for the third quarter of 2002. For the nine months
ended September 30, 2003 and 2002, diluted earnings per share was $0.50
and $0.07, respectively. Diluted earnings per share for the nine months
ended September 30, 2003 included $0.36 per share related to our net
realized gain on the sale of our investment in HTE, after income taxes.
During the three and nine months, diluted earnings per share was
positively impacted by the repurchase of our shares of common stock on
the open market and through our modified Dutch Auction tender offer.
FINANCIAL CONDITION AND LIQUIDITY
As of September 30, 2003, our balance in cash and cash equivalents was
$14.6 million and we had short-term investments of $24.7 million,
compared to a cash balance of $13.7 million at December 31, 2002. Cash
and short-term investments increased primarily due to the $39.3 million
cash received in March 2003 as consideration in connection with the
transaction to sell our 5.6 million shares of HTE common stock to
SunGard Data Systems Inc. In addition, we have experienced strong
collections of our trade receivables, specifically the collection of
annual maintenance contract billings. A significant portion of our
financial and city solutions annual maintenance contracts are billed in
June and collected in the third quarter. At September 30, 2003, our
days sales outstanding ("DSOs") (accounts receivable divided by the
quotient of annualized quarterly revenues divided by 360 days) were 71
compared to DSOs of 84 at September 30, 2002.
On March 5, 2002, we entered into a $10.0 million revolving credit
agreement with a bank, which matures January 1, 2005. Our borrowings
are limited to 80% of eligible accounts receivable and interest is
charged at either the prime rate or at the London Interbank Offered
Rate plus a margin of 3%. The credit agreement is secured by our
personal property and the common stock of our operating subsidiaries.
The credit agreement is also guaranteed by our operating subsidiaries.
In addition, the credit agreement contains covenants that require us to
maintain certain financial ratios and other financial conditions and
prohibits us from making certain investments, advances, cash dividends
or loans. As of September 30, 2003, we are in compliance with those
covenants.
As of September 30, 2003, our bank has issued outstanding letters of
credit totaling $7.5 million under our credit agreement to secure
performance bonds required by some of our customer contracts. Our
borrowing base under the credit agreement is limited by the amount of
eligible receivables and was reduced by the letters of credit at
September 30, 2003. At September 30, 2003, we had no outstanding bank
borrowings under the credit agreement and after consideration of our
letters of credit we had an available borrowing base of $2.3 million.
In May 2003, we completed a modified "Dutch Auction" tender offer
whereby we purchased 5.1 million shares of our common stock at a cash
purchase price of $4.00 per share and incurred estimated transaction
costs of approximately $150,000, for a total cost of $20.6 million. In
addition, during the nine months ended September 30, 2003, we
repurchased in the open market 912,800 shares for an aggregate purchase
price of $3.5 million. We currently have authorization from our Board
of Directors to repurchase up to 1.98 million shares of Tyler common
stock. During the third quarter of 2003, we repurchased approximately
37,600 shares of our common stock.
During the three and nine months ended September 30, 2003, we purchased
$12.6 million and $27.7 million, respectively, of short-term
investments. The investments are principally low-risk funds that
consist primarily of short-term mutual corporate and municipal bond
funds. During the second quarter of 2003, we sold $3.0 million of our
short-term investments.
In August 2003, we received $127,000 to fully settle a promissory note.
The promissory note was received as consideration for the disposition
of a subsidiary in May 2001 that was included in our discontinued
information and property records services segment.
On March 28, 2003, we retired an outstanding $2.5 million 10%
promissory note payable. The note was due in January 2005 and paid
interest quarterly.
In June 2003, we made an estimated federal income tax payment in the
amount of $5.0 million. The payment was made primarily due to the $23.2
million realized gain on the sale of our investment in HTE common
stock, and also because of the increase in our estimated taxable income
for the tax year ending December 31, 2003.
During the nine months ended September 30, 2003, we received $653,000
from the exercise of options to purchase 339,500 shares of our common
stock under our employee stock option plan.
15
At September 30, 2003, our capitalization consisted entirely of $110.4
million of shareholders' equity, since we have no long-term debt
outstanding at September 30, 2003.
During the first nine months of 2003, we made capital expenditures of
$6.4 million, including $5.2 million for software development costs.
The other expenditures related to computer equipment and expansions
related to internal growth. Capital expenditures were funded from cash
generated from operations. For the remainder of 2003 we anticipate
capital spending will be approximately $2.6 million.
As part of the plan of reorganization of Swan Transportation Company,
one of our non-operating subsidiaries, we had agreed to contribute
approximately $1.5 million over the next three years to a trust that
was set up as a part of the reorganization. In the third quarter of
2003 we reached an agreement to revise the funding arrangement to fully
satisfy our funding obligations with a lump sum payment of $1.48
million in cash. We expect to make the payment during the fourth
quarter of 2003. See Note 10 in the Notes to the Condensed Consolidated
Financial Statements.
Absent acquisitions, we believe our current cash balances and expected
future cash flows from operations will be sufficient to meet our
anticipated cash needs for working capital, capital expenditures and
other activities through the next twelve months. If operating cash
flows are not sufficient to meet our needs, we may borrow under our
credit agreement.
Item 4. Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this
quarterly report, our Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO") believe, based on an evaluation performed
under the supervision and with the participation of management,
including our CEO and CFO, that the design and operation of our
disclosure controls and procedures (as defined in Rules 13a - 15(e)
under the Securities Exchange Act of 1934, as amended) are effective to
ensure that material information relating to Tyler Technologies, Inc. is
made known to them by others within our Company during the period in
which this Report on Form 10-Q was being prepared. There have been no
material changes in our internal controls over financial reporting that
occurred during the period covered by the quarterly report which
materially affected, or would be reasonably likely to affect, our
internal control over financial reporting.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibit 31.1 Certifications Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certifications Pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
16
(b) Reports on Form 8-K filed during the three months ended
September 30, 2003:
<Table>
<Caption>
Form 8-K Item
Report Date Reported Exhibits Filed
----------- -------- --------------
8/1/03 5 News release issued by Tyler Technologies,
Inc. dated August 1, 2003 announcing our
operating results for the three and six
months ended June 30, 2003
</Table>
Item 3 of Part I and Items 2, 3, 4 and 5 of Part II were not applicable and have
been omitted.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant 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: October 28, 2003
18