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