Tyler Technologies Annual Report 2002

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FY2002 Annual Report · Tyler Technologies

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T Y L E R

T E C H N O L O G I E S

2 0 0 2

A N N U A L R E P O R T

Each day, governments in 1,899 cities and towns, 620

counties and 49 states rely on software, services and

support from Tyler Technologies’ divisions : Courts

and Justice, Financial and City Solutions, Property

Appraisal and Tax, and Recording Systems. Why?

Because Tyler Works.

These are tough times, make no mis-

In a difﬁcult environment we have

take about it.

not backed off our strategic initia-

tives. To the contrary, we’ve

An uncertain economy, corporate

strengthened our competitive posi-

governance breakdowns, and

tion – expanding geographically,

conﬂicts around the world. An

adding sales resources, and improv-

apparent reluctance in 2002 to invest

ing the competitiveness of our prod-

in new productivity tools produced

ucts. Built on the critical mass we

gloomy results for the overall soft-

achieved in 2001, our record results

ware industry -- of less than 3%

in 2002 are a testament to the ﬁnan-

growth, according to International

cial and operational leverage inher-

Data Corporation.

ent in our business model. Revenues

grew by 13% and we met or exceeded

Against that backdrop we’re extreme-

our key earnings targets. The out-

ly proud of the results achieved by

look for the year 2003 and beyond is

the Tyler team.

for sustained growth in revenues

and proﬁts. Why? Because Tyler’s

ing year. As a result, we expect to see

business model works.

a somewhat lower overall growth rate

Tyler works: Continued demand for our
products and services. Despite concerns
over state and local government

budgets, our results in the past year

with a more strategic revenue mix.

Tyler works: New business signed at a
good pace. During 2002, we success-
fully penetrated new geographic

give us reason to continue to be opti-

markets and signed contracts with

mistic about the market for our local

larger cities, counties and a state.

government software and services.

Our broad product line now opens

Our position in the market continued

more opportunities for cross-selling

to strengthen, and our revenue mix

and additional business with exist-

shifted to a greater proportion of

ing customers. Signiﬁcant new con-

higher margin software-related rev-

tracts in 2002 include:

enues. Our software license revenues

were exceptionally strong in 2002,

That we’re in tough times is not exactly

breaking news. So we’re extremely proud of the

Tyler team whose efforts resulted in 13% revenue growth.

with 25% growth over 2001. We also

posted solid growth in software serv-

ices and maintenance revenues. Our

appraisal services revenues have

nearly doubled in the last two years,

growing from $20.9 million in 2000 to

$37.3 million in 2002. While we have

strengthened our position as the

nation’s leading provider of these

services with our highly successful

project in Nassau County, NY, we

. The State of Minnesota
. Allegheny County (Pittsburgh),

Pennsylvania

. Lee County, Florida
. Fairfax County, Virginia
. City and County of Denver,

Colorado

. Wayne County (Detroit), Michigan,

Airport Authority

. Lake County (Gary), Indiana

don’t expect that our appraisal serv-

ices revenues will continue to grow at

the same rate. We believe that soft-

Tyler works: Innovative product develop-
ment. In 2002 we signed our ﬁrst two
contracts for Tyler’s Odyssey court

ware – related revenues will be the

case management system. This new

primary driver of growth in the com-

Web-based courts system is being

installed statewide in Minnesota as well

approximately $39.3 million, against

as in Lee County, FL. In addition to

a cost basis of about $16 million. We

our new-generation courts and justice

expect the transaction to close in

products, Tyler is devoting signiﬁcant

the ﬁrst quarter of 2003. The cash

development resources to Orion, our

proceeds from this investment pro-

new Web-based appraisal system,

vide additional ﬂexibility to take

and to the enhancement of our ﬁnan-

advantage of opportunities to build

cial and recording suites of products.

value for our shareholders, includ-

Tyler works: Our core strengths remain key
to our success and to our customers. An
exceptionally customer-oriented staff

and a deep and experienced manage-

ment team played a large role in

Tyler’s 2002 success. A wider array of

products and services that work well

ing further stock repurchases.

Tyler works: By the numbers – 
ﬁnancial highlights:
. Revenues grew 13% to $133.9 million.

. Software license revenues grew

We are the only company in our industry that does it all.

positive impacts on the communities we serve and reinforce our reputation

for—and anticipates—our customers’

25%. 2002’s fourth quarter was our

needs. This translates into an ever-

best quarter ever for software

growing, broad base of loyal cus-

license revenues at $7.2 million.

tomers. In a market that requires the

right technology and a mandate to

. Software services revenues were up

operate more efﬁciently – from the

19% to $25.7 million.

courthouse to the statehouse.

Tyler works: Building shareholder value.
Our balance sheet is solid. During

2002, we used free cash ﬂow to

. Gross margin improved more than

two percentage points to 35.8%.

. SG&A expense declined to 25.3% of

repurchase 1.5 million shares of our

revenues from 25.9% in 2001

stock and authorized the repurchase

of up to one million additional

shares. We agreed at year-end to

sell our 35% stake in HTE, Inc., for

. EBITDA grew 41% to $18.6 million.

. Pretax income from continuing

operations grew to $10.0 million

services offer greater efﬁciencies for

from $1.8 million in 2001.

almost every aspect of the day to day

. Income from continuing operations

management of local government.

Coast to coast. We continue to reinforce

rose to $6.2 million, or 12 cents per

our reputation for getting the job

share, up from $272,000, or one cent

done right regardless of the complexity.

per share, last year.

. After income from discontinued

We are the only company in our indus-

try that does it all. We will continue

operations of $1.8 million, we had

to bring new products to the market

net income of $8.0 million, or 16

that create positive impacts on the

cents per share.

communities we serve. These products

. We ended the year with nearly $14

will increase opportunities to grow

revenues and proﬁts. Our team is

million in cash and no bank debt.

committed; their customer focus is

For the year 2002 free cash ﬂow

intense. Tyler works.

We will continue to bring new products to the market that create

for getting the job done right.

(cash generated from operations

minus capital expenditures) was

over $10 million.

. Our year-end backlog of signed

contracts remained solid at $89.1

million.

We anticipate another very success-

ful year in 2003, notwithstanding

the uncertainties ahead. Having all

the right components in place for proﬁt-

able growth should increase value

for all stakeholders. Local govern-

ments’ mandate to be more efﬁcient

continues. Tyler’s products and

Stuart Reeves,
Chairman

John Yeaman,
President & CEO

C O U R T S A N D J U S T I C E

10,000 lakes, one software platform.

The state of Minnesota was search-

states and courts around the world.

ing for a solution; one that would

“Courts as far away as Australia will

have a direct impact on justice and

be watching,” says Glenn Smith of

public safety, according to Dale

Tyler Technologies. “We have all the

Good, Chief Information Ofﬁcer for

pieces now – domain expertise, talent

the Judicial Branch of Minnesota’s

and ﬁnancial resources.”

state government. This was an $11

million opportunity that played di-

Odyssey consolidates the judiciary’s

rectly to Tyler’s strengths. And after

case processing and tracking func-

a rigorous selection process Tyler

tions, and behaves like applications

was chosen.

already familiar to users. That

makes training easier and users pro-

Tyler’s Odyssey court case manage-

ductive even faster. As a Web-based

ment system will be installed in all

system, Odyssey has the added

87 counties in Minnesota. The new

beneﬁt of centralized – and therefore

court system will link each county’s

easier and more efﬁcient – support

court records and set, Tyler believes,

because it takes the software applica-

a new standard for the other 49

tion off individual desktops.

For the citizens of Minnesota,

Dale Good of the Minnesota Supreme

Odyssey will improve the vigilance

Court’s IT division says their initial

and tracking of predators and

skepticism about the ability of an

criminals, county to county,

off-the-shelf software product to

statewide. Information about their

meet their requirements, versus

criminal records and whereabouts

developing one from scratch, has

now becomes a statewide resource

been satisﬁed. “Odyssey is

linked to numerous databanks.

conﬁgurable and extendable, which

Odyssey also keeps better track of

makes it ﬂexible enough to satisfy

juveniles; who they are, and where

our needs,” according to Mr. Good.

they are. Odyssey transforms

He adds that Tyler’s in-depth

courts into information–enabled

knowledge and understanding of the

enterprises. Judges will have more

way courts operate also contributed

pertinent information, more quick-

to being awarded the contract.

ly to make sounder decisions.

which makes it flexible enough to satisfy our needs.

Odyssey is configurable and extendable,

More vigilance. Swifter justice. Safer

The $11 million contract for Odyssey

children. These are expected out-

is just the beginning; Tyler is already

comes from the use of Odyssey.

discussing related opportunities. As

more courts recognize the need for

When Minnesota ﬁrst issued its

data to be shared quickly and accu-

request for proposal (RFP), Tyler

rately between courts and across

was in the process of developing

jurisdictions, Tyler is prepared to

its new-generation system based

meet their needs with a state-of-the-

on the National Center for State

art solution.

Courts’ latest standards. Tyler rec-

ognized the value and potential of

the Minnesota opportunity but was

not far enough along in Odyssey’s

development to respond to the RFP.

However, when the system devel-

oped by Minnesota’s previous soft-

ware vendor failed a scalability test,

Tyler was ready with Odyssey.

Dale Good, Chief Information Ofﬁcer
Judicial Branch, State of Minnesota

P R O P E R T Y A P P R A I S A L A N D T A X

In 1997, homeowners in New York’s

Nassau County, upset at valuations

of their properties, ﬁled a lawsuit

against the county that resulted in a

court-ordered reassessment of resi-

dential property taxes. For Charles

O’Shea, then campaigning for Chair-

man of the Board of Assessors, it

would mean a monumental task of

enormous political sensitivity; no

Chairman had been required to under-

take a reassessment in over 60 years.

“It would have had dire political con-

sequences had it not gone well,”

recalls Mr. O’Shea. “Remember,

we’re talking about over 415,000

parcels of property, including 360,000

A monumental task.

residential properties belonging to a

2003 through 2009. “No fair-minded

very vocal, very educated population

person can look at the work that was

that can be very critical under the

done here in Nassau County, involv-

best of circumstances.” The property

ing 415,000 parcels, under the dead-

tax division of Tyler Technologies,

lines imposed, and not conclude that

Cole Layer Trumble (CLT), was up to

the result was something the county

the challenge.

could be proud of,” he says.

Bruce Nagel, head of CLT, believes

CLT, from a ﬁeld of 12, was the

they were chosen for such a highly

unanimous choice in 2000 of the

visible project because of their track

Nassau County proposal committee.

record. He pointed out that CLT was

The $34 million contract utilized

No fair-minded person can look at the work that was done

involving 415,000 parcels, under the deadlines imposed,

and not be pleased.

CLT’s Integrated Assessment

System (IAS), a computer assisted

not the lowest bidder. Mr. O’Shea

mass appraisal software system. 150

believes that the strength and size of

local inspectors were hired in one

Tyler Technologies prepared CLT to

month for the two-year project.

undertake such a complex commit-

Because of the project’s high proﬁle

ment. He said, “CLT had the best

nature CLT took all the necessary

proposal, experience and ability to

steps to keep the electorate fully

handle a big job under tough time

informed and up to date; CLT had

constraints. Their professionalism was

fulltime public information people

very evident. They could take the heat.”

on the job and created a Web site to

Results show the right decision was

the progress. Timely information

made. Mr. O’Shea has said that sta-

was crucial in building and sustain-

tistical tests used to measure the

ing the conﬁdence of the citizens of

keep citizens constantly apprised of

accuracy and uniformity of the prop-

Nassau County.

erty values indicate that this reassess-

ment is the best job ever performed in

According to Mr. O’Shea, Tyler’s CLT

a large assessing jurisdiction. A strong

professionals performed, “the best

foundation has now been built for the

reassessment of a large assessing

required annual updates for the years

jurisdiction in the history of the U.S.”

Charles O’Shea,
Chairman
Nassau County
Board
of Assessors

R E C O R D I N G S Y S T E M S

Chester County, for the record.

When Terence Farrell ran for

Chester County (Pennsylvania)

Recorder of Deeds in 1999, he prom-

ised citizens that he would modern-

ize the land records computer sys-

tem. Mr. Farrell kept his campaign

promise – and more. With the help of

Tyler Technologies, Mr. Farrell and

his team developed a land records

systems that did what it was sup-

posed to do – and saved taxpayers

$200,000 per year and won national

recognition for Chester County.

“Going into the job I knew that the

decision I made for a new system

would be the most important deci-

sion in my term as Recorder,” Mr.

Farrell says. When he began his cam-

dreds of thousands of dollars com-

paign the old system, less than two

pared to the old system, even as our

years old, was broken. “You name it,”

document volume increased.”

Mr. Farrell says, “the system had the

problem. There was a clear need to

Today the land records database is

move into the 21st century.”

integrated with other county records,

allowing access to other departments

Meeting with vendors at trade shows,

that need the data. The system elim-

traveling and evaluating for months

inates redundancy and makes

the efforts of what 15 other counties

searching for records easier and

in three states were doing, Mr.

more efﬁcient for the 15 county agen-

Farrell and his staff studied every

cies it serves on a daily basis. The

possible option. Other counties in the

Urban and Regional Information

same purchasing board cooperative

as Chester County, and already

Literally tons of paperwork have been

eliminated, which not only speeds up processing,

but saves tax dollars by being more efficient.

clients of Tyler’s records software

Systems Association honored the

division (Eagle), gave positive refer-

performance of Chester County’s

ences. “We evaluated all the respons-

system at its annual conference in

es from their RFP process and were

2002. “Eagle’s software is the heart

satisﬁed that Eagle was the logical

of the system,” says Mr. Farrell.

Terence Farrell, Recorder of Deeds
Chester County Pennsylvania

choice,” says Mr. Farrell. The ﬁnal

step involved evaluations from

Chester County’s Department of

Computer and Information Services;

they were satisﬁed.

From three ﬁnalists, Eagle was

awarded the contract because of a

combination of functionality, tech-

nology, dependability and price.

“Eagle was not the least expensive,”

Mr. Farrell said, “but their pricing

structure allowed us to save hun-

F I N A N C I A L A N D C I T Y S O L U T I O N S

In 1999, the City of South Portland,

Maine decided to decentralize the

functions of payroll, human

resources, general ledger, accounts

payable and receivable, purchase

orders, tax billing and parking tick-

ets. The city would change the way

they had always conducted business,

from manual entries to, for many,

using computers for the ﬁrst time.

First, a consulting ﬁrm was hired to

conduct a complete analysis of each

city department’s needs. Their con-

clusion was that the 10-year-old sys-

MUNIS elected..

tem’s life cycle had ended and the

have been nightmares. This went as

hardware was barely hanging on.

well as it possibly could considering

what they were undertaking in a

Notices were sent to over 100

very tight timeframe. I would have to

software vendors that a request

say no one could do a better job in

for proposal (RFP) was being pre-

their business.”

pared; 40 requested the RFP, and

11 then responded to the RFP.

The full suite of Tyler ﬁnancial soft-

Mr. Coombs decided to try some-

ware products, created by Tyler’s

thing different in the selection

MUNIS division, has made employees

process. Instead of the ﬁnance

of the City of South Portland much

department management, he let

more efﬁcient, productive and organized,

the users make the decision.

says Mr. Coombs. Employees have

After four full days of demos

been freed to perform other important

from the ﬁnalists, the committee

tasks and headcount has stabilized.

of 20 departmental users made a

unanimous decision in Tyler’s favor.

Implementation went as well as it could

considering what they were undertaking in a very tight timeframe.

I would have to say no one could do a better job in their business.

Robert Coombs, Finance Director
City of South Portland, Maine

“Intuitive, easy to use, and has all the

functionality,” is how Robert Coombs,

Finance Director for the City of

South Portland, describes Tyler’s

MUNIS software. “A successful

implementation would mean buy-in

from the people who would be using

it. 50-50 would have worked, but the

vote for Tyler was unanimous, even

though technically it did not have

the most bells and whistles,” he says.

“Implementation went amazingly

well,” according to Mr. Coombs.

“Implementations for other systems

F I N A N C I A L A N D C I T Y S O L U T I O N S

It’s all about reputation.

Choosing Tyler Technologies’ InVision

municipal software was an easy deci-

sion for Goose Creek, according to

Ron Faretra, Finance Director for the

City of Goose Creek, South Carolina.

“I wanted their entire customer list

and they gave it to me. That was

important. Not every vendor would do

it.” From the initial list of 15 possible

vendors, the ﬁnal step in the process

was checking references. Mr. Faretra’s

staff checked 25 of Tyler’s customers.

“It was amazing,” he says. “We

high percentage are MBAs and CPAs.

wanted to know what they thought

They really know what they’re talk-

of the software. But 23 of the 25

ing about. I don’t have to tell them

talked about [Tyler’s] customer sup-

the software needs to do this or that.

port and we didn’t even ask. It was

They tell me.”

all very positive.” That’s no surprise

to Tyler’s InVision municipal soft-

Goose Creek, 50 square miles and the

ware sales team; they send the entire

home of 30,000 people, has recently

customer list to all prospects,

built a new state-of-the-art adminis-

conﬁdent that every day virtually all

tration facility, managed by the most

of their customers are pleased.

Not only are they good people,

but they really know what they’re talking about. I don’t have to tell

them what the software needs to do. They tell me.

“Our reputation is our most signiﬁcant

senior city administrator in all of

asset,” says Dustin Womble, presi-

South Carolina, 25-year veteran

dent of Tyler’s municipal software

Dennis C. Harmon. “We are well-

division, known as INCODE. “Local

known and a lot of other cities

governments are inherently risk-

[administrators] come to tour,” says

adverse. These decision makers place

Mr. Faretra. “People ask about soft-

a tremendous value on the experi-

ware more than I ever thought, and

ences of their peers. In the last 20

I am happy to tell them about

years of business, over 99% of clients

InVision. It keeps accurate and timely

that purchased INCODE software

billing for utilities and provides bet-

products and services remain INCODE

ter ﬁnancial records for the commu-

clients. This fact carries more weight

nity. We can budget and plan better.”

with potential clients than any mar-

keting point or software feature.”

“Besides being light years ahead of

most of their competition in function-

ality and technology,” Mr. Faretra

says, “the experience of their cus-

tomer support people is invaluable.

Not only are they good people, but a

Ron Faretra, Finance Director
City of Goose Creek, South Carolina

We ended the year with nearly $14 million in cash

and no bank debt, and we’re profitable. Our growth

continues to be driven by a strong local government

software and services market and products that do

well for our customers. Our business model works.

Now for the numbers:

R E P O R T O F E R N S T & Y O U N G L L P , I N D E P E N D E N T A U D I T O R S

T H E B O A R D O F D I R E C T O R S A N D S H A R E H O L D E R S

T Y L E R T E C H N O L O G I E S , I N C .

We have audited the accompanying consolidated balance sheets of Tyler Technologies, Inc. as of December 31,
2002 and 2001, and the related consolidated statements of operations, shareholders' equity, and cash ﬂows for
each of the three years in the period ended December 31, 2002. These ﬁnancial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these ﬁnancial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the ﬁnancial statements. An audit also includes assessing the accounting princi-
ples used and signiﬁcant estimates made by management, as well as evaluating the overall ﬁnancial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the ﬁnancial statements referred to above present fairly, in all material respects, the consolidated
ﬁnancial position of Tyler Technologies, Inc. at December 31, 2002 and 2001, and the consolidated results of
their operations and their cash ﬂows for each of the three years in the period ended December 31, 2002, in con-
formity with accounting principles generally accepted in the United States.

As discussed in Note 7 in the Notes to the Consolidated Financial Statements, the Company changed its
method of accounting for goodwill.

Dallas, Texas
February 21, 2003

C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S

For the years ended December 

IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Revenues:

Software licenses
Software services
Maintenance
Appraisal services
Hardware and other

Total revenues

Cost of revenues:

Software licenses
Software services and maintenance
Appraisal services
Hardware and other

Total cost of revenues

2 0 0 2

2 0 0 1

2 0 0 0

$ 24,278
25,703
40,667
37,319
5,930

133,897

5,482
50,175
25,512
4,746

85,915

$ 19,491
21,538
36,587
34,727
6,473

118,816

4,130
46,024
23,894
4,749

78,797

$ 19,312
19,425
29,108
20,909
5,179

93,933

2,605
38,355
14,681
4,017

59,658

Gross proﬁt

47,982

40,019

34,275

Selling, general and administrative expenses
Amortization of acquisition intangibles

33,914
3,329

30,830
6,898

32,805
6,903

Operating income (loss)

10,739

2,291

(5,433)

Legal fees associated with afﬁliated investment
Interest expense
Interest income

Income (loss) from continuing operations before

income taxes

Income tax provision (beneﬁt)

Income (loss) from continuing operations

Discontinued operations:

Loss from operations, after income taxes
Gain (loss) on disposal, after income taxes

Gain (loss) from discontinued operations

Net income (loss)

Basic income (loss) per common share:

Continuing operations
Discontinued operations

Net income (loss) per common share

Diluted income (loss) per common share:

Continuing operations
Discontinued operations

Net income (loss) per common share

Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding

See accompanying notes

704
187
(193)

10,041
3,869

6,172

--
1,817

1,817

$ 7,989

0.13
0.04

0.17

0.12
0.04

0.16

47,136
49,493

--
630
(151)

1,812
1,540

272

--
(3)

(3)

--
4,914
(30)

(10,317)
(2,810)

(7,507)

(4,251)
(12,839)

(17,090)

269

$(24,597)

0.01
(0.00)

0.01

0.01
(0.00)

0.01

47,181
47,984

$ (0.17)
(0.37)

$ (0.54)

$ (0.17)
(0.37)

$ (0.54)

45,380
45,380

C O N S O L I D A T E D B A L A N C E S H E E T S

December 

IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS

A S S E T S
Current assets:

Cash and cash equivalents
Accounts receivable (less allowance for losses of $690 in 2002

and $1,275 in 2001)
Income taxes receivable
Prepaid expenses and other current assets
Deferred income taxes

Total current assets

Net assets of discontinued operations

Property and equipment, net

Other assets:

Investment security available - for - sale
Goodwill
Customer base, net
Software, net
Other acquisition intangibles
Sundry

L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y
Current liabilities:
Accounts payable
Accrued liabilities
Net current liabilities of discontinued operations
Deferred revenue

Total current liabilities

Long-term obligations, less current portion
Deferred income taxes

Commitments and contingencies

Shareholders' equity:

Preferred stock, $10.00 par value; 1,000,000 shares authorized,

none issued

Common stock, $0.01 par value; 100,000,000 shares authorized;

48,147,969 shares issued in 2002 and 2001

Additional paid-in capital
Accumulated deﬁcit
Accumulated other comprehensive income (loss), net of tax
Treasury stock, at cost; 1,928,636 and 920,205 shares in 2002

and 2001, respectively

Total shareholders' equity

See accompanying notes

2 0 0 2

2 0 0 1

$ 13,744

5,271

33,510
--
4,009
1,197

52,460

35,256
151
3,318
1,329

45,325

1,000

6,819

6,967

27,196
46,298
14,645
21,933
10
484

11,238
43,292
15,518
19,982
3,419
234

$ 169,845

$ 146,975

2,390
11,186
442
26,208

40,226

2,550
8,413

2,036
9,774
581
27,215

39,606

2,910
3,575

481
156,898
(40,954)
7,418

481
157,242
(48,943)
(4,545)

(5,187)

(3,351)

118,656

100,884

$ 169,845

$ 146,975

C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S ' E Q U I T Y

For the years ended December , ,  and 

IN THOUSANDS

C O M M O N S T O C K

S H A R E S

A M O U N T

A D D I T I O N A L
P A I D - I N
C A P I T A L

A C C U M U L A T E D
O T H E R
C O M P R E H E N S I V E
I N C O M E ( L O S S )

A C C U M U L A T E D
D E F I C I T

T R E A S U R Y S T O C K

S H A R E S

A M O U N T

T O T A L
S H A R E H O L D E R S ’
E Q U I T Y

Balance at December 31, 1999

44,709

447

$151,298

$ 17,931

$ (24,615)

(1,418) $ (6,157) $ 138,904

Comprehensive loss:

Net loss
Unrealized loss on investment

security

Total comprehensive loss

Issuance of shares pursuant

to stock compensation plans

Shares issued for private investment

Balance at December 31, 2000

--
3,334

48,043

Comprehensive income:

Net income
Unrealized gain on investment

security

Total comprehensive income

Issuance of shares pursuant

to stock compensation plans
Federal income tax beneﬁt related
to exercise of stock options

Shares received from sale of
discontinued business

Adjustment in connection with

previous acquisition

105

--
33

(24,597)

(28,622)

(24,597)

(28,622)

(53,219)

555
--

2,926
--

1,167
9,270

--
--

(1,759)
9,237

--
--

480

158,776

(10,691)

(49,212)

(863)

(3,231)

96,122

221

(1,788)

269

6,146

269

6,146

6,415

230

(60)

(128)

(1,788)

Balance at December 31, 2001

48,148

481

157,242

(4,545)

(48,943)

(920)

(3,351)

100,884

Comprehensive income:

Net income
Unrealized gain on investment

security, net of tax

Total comprehensive income

Issuance of shares pursuant

to stock compensation plans

Treasury stock purchases
Federal income tax beneﬁt related
to exercise of stock options

--
--

(542)
--

198

7,989

11,963

--
--

7,989

11,963

19,952

491
(1,500)

2,164
(4,000)

1,622
(4,000)

198

Balance at December 31, 2002

48,148

481 $156,898

7,418

$ (40,954)

(1,929) $ (5,187) $ 118,656

See accompanying notes

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S

For the years ended December 

IN THOUSANDS

Cash ﬂows from operating activities:

Net income (loss)
Adjustments to reconcile net income (loss)

to net cash provided (used) by operations:

Depreciation and amortization
Non-cash interest and other charges
Provision for losses – accounts receivable
Deferred income tax provision (beneﬁt)
Discontinued operations – noncash charges and

changes in operating assets and liabilities

2 0 0 2

2 0 0 1

2 0 0 0

7,989

269

$ (24,597)

8,522
348
727
3,384

10,910
361
1,681
1,258

9,686
2,069
1,438
(2,890)

(2,458)

(2,590)

8,215

Changes in operating assets and liabilities, exclusive of

effects of acquired companies and discontinued operations:

Accounts receivable
Income tax receivable
Prepaid expenses and other current assets
Other receivables
Accounts payable
Accrued liabilities
Deferred revenue

1,019
151
(279)
--
354
1,095
(1,007)

(258)
172
(853)
--
(2,263)
(2,092)
6,149

Net cash provided (used) by operating activities

19,845

12,744

Cash ﬂows from investing activities:

Additions to property and equipment
Software development costs
Cost of acquisitions, net of cash acquired
Cost of acquisitions subsequently discontinued
Capital expenditures of discontinued operations
Proceeds from disposal of discontinued operations

and related assets

Other

Net cash (used) provided by investing activities

Cash ﬂows from ﬁnancing activities:

Net payments on revolving credit facility
Payments on notes payable
Payment of debt of discontinued operations
Issuance of common stock
Repurchase of common stock
Proceeds from exercise of stock options
Debt issuance costs

Net cash used by ﬁnancing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

(2,508)
(7,210)

--
--
--

1,807
(63)

(7,974)

--
(456)
(324)
--
(4,000)
1,622
(240)

(3,398)

8,473
5,271

(3,101)
(6,225)
(2,750)

(1,353)

3,675
48

(9,706)

(4,750)
(354)
(992)
--
--
230
(118)

(5,984)

(2,946)
8,217

(7,052)
2,571
48
85
697
1,370
1,234

(7,126)

(2,645)
(6,714)

(3,073)
(2,201)

79,821
213

65,401

(56,250)
(836)
(2,925)
9,270
--
19

(1,300)

(52,022)

6,253
1,964

Cash and cash equivalents at end of year

$ 13,744

5,271

8,217

See accompanying notes

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December ,  and 

TABLE IN THOUSANDS, EXCEPT PER SHARE DATA

( 1 ) S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S

D E S C R I P T I O N O F B U S I N E S S

We provide integrated software systems and related
services for local governments. We develop and mar-
ket a broad line of software products and services to
address the information technology (“IT”) needs of
cities, counties, schools and other local government
entities. In addition we provide professional IT serv-
ices to our customers, including software and hard-
ware installation, data conversion, training and
product modiﬁcations, along with continuing main-
tenance and support for customers using our sys-
tems. We also provide property appraisal outsourc-
ing services for taxing jurisdictions.

We discontinued the operations of our information
and property records services segment in 2000. See
Note 3 - Discontinued Operations.

P R I N C I P L E S O F C O N S O L I D A T I O N

The consolidated ﬁnancial statements include our par-
ent company and our subsidiaries, all of which are
wholly-owned. All signiﬁcant intercompany balances
and transactions have been eliminated in consolidation.

C A S H A N D C A S H E Q U I V A L E N T S

Cash equivalents include items almost as liquid as
cash, such as money market investments with matu-
rity periods of three months or less when purchased.
For purposes of the statements of cash ﬂows, we
consider all investments with original maturities
of three months or less to be cash equivalents.

R E V E N U E R E C O G N I T I O N

We earn revenue from software licenses, postcontract
customer support (“PCS” or “maintenance”), hard-
ware, software related services and appraisal services.
PCS includes telephone support, bug ﬁxes, and rights
to upgrades on a when-and-if available basis. We pro-
vide services that range from installation, training,
and basic consulting to software modiﬁcation and
customization to meet speciﬁc customer needs. In
software arrangements that include rights to multi-
ple software products, speciﬁed upgrades, PCS,
and/or other services, we allocate the total arrange-

ment fee among each deliverable based on the rela-
tive fair value of each. Fair values are estimated
using vendor speciﬁc objective evidence.

We recognize revenue from software transactions in
accordance with Statement of Position (“SOP”) 97-2,
“Software Revenue Recognition,” as amended by
SOP 98-4 and SOP 98-9 as follows:

Software Licenses. We recognize the revenue allocable
to software licenses and speciﬁed upgrades upon
delivery of the software product or upgrade to the
customer, unless the fee is not ﬁxed or determinable
or collectibility is not probable. If the fee is not ﬁxed
or determinable including payment terms three
months or more from shipment, revenue is recog-
nized 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 product's functionality.

A majority of our software arrangements involve
“off-the-shelf” software. We consider software to
be off-the-shelf software if it can be added to an
arrangement with minor changes in the underlying
code and it can be used by the customer for the cus-
tomer’s purpose upon installation. For off-the-shelf
software arrangements, we recognize the software
license fee as revenue after delivery has occurred,
customer acceptance is reasonably assured, that por-
tion of the fee represents an enforceable claim and is
probable of collection and the remaining services
such as training are not considered essential to the
product's functionality.

For arrangements that include customization or
modiﬁcation of the software, or where software serv-
ices are otherwise considered essential, we recognize
revenue using contract accounting. We use the per-
centage-of-completion method to recognize revenue
from these arrangements. We measure progress-to-
completion primarily using labor hours incurred, or
value added. The percentage of completion methodol-
ogy generally results in the recognition of reasonably
consistent proﬁt margins over the life of a contract
since we have the ability to produce reasonably
dependable estimates of contract billings and con-
tract costs. We generally use the level of proﬁt mar-

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

gins that are most likely to occur on a contract. If
the most likely proﬁt margins cannot be precisely
determined, the lowest probable level of proﬁt in
the range of estimates is used for the contract until
the results can be estimated more precisely. These
arrangements are often implemented over an extend-
ed time period and occasionally require us to revise
total cost estimates. Amounts recognized in revenue
are calculated using the progress-to-completion
measurement after giving effect to any changes in
our cost estimates. Changes to total estimated con-
tract costs, if any, are recorded in the period they are
determined. Estimated losses on incompleted con-
tracts are recorded in the period in which we ﬁrst
determine that a loss is apparent.

Software Services. Some of our software arrangements
include services considered essential for the customer
to use the software for the customer’s purposes. For
these software arrangements, both the software
license revenue and the services revenue are recog-
nized as the services are performed using the per-
centage-of-completion contract accounting method.
When software services are not considered essential,
the fee allocable to the service element is recognized
as revenue as we perform the services.

Appraisal Services. For our real estate appraisal
projects, we recognize revenue using contract
accounting. We measure progress-to-completion
primarily using units completed and these arrange-
ments are often implemented over a one to three
year time period.

Computer Hardware Equipment. Revenue allocable to
equipment based on vendor speciﬁc objective evi-
dence of fair value is recognized when we deliver the
equipment and collection is probable.

Postcontract Customer Support. Our customers gener-
ally enter into PCS agreements when they purchase
the software license. Our PCS agreements are gener-
ally renewable every year. 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.

Deferred revenue consists primarily of payments
received in advance of revenue being earned under
software licensing, software services and hardware
installation, support and maintenance contracts.
Unbilled revenue is not billable at the balance sheet

dates but is recoverable over the remaining life of
the contract through billings made in accordance
with contractual agreements.

U S E O F E S T I M A T E S

The preparation of our consolidated ﬁnancial state-
ments in conformity with accounting principles gen-
erally accepted in the United States (“GAAP”)
requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the ﬁnancial statements and the reported
amounts of revenues and expenses during the report-
ing period. Signiﬁcant items subject to such esti-
mates and assumptions include the application of the
percentage of completion method, the carrying
amount of intangible assets and valuation allowances
for receivables and deferred income tax assets.
Actual results could differ from those estimates.

P R O P E R T Y A N D E Q U I P M E N T

Property, equipment and purchased software are
recorded at original cost and increased by the cost of
any signiﬁcant improvements after purchase. We
record maintenance and repairs as expense when
incurred. Depreciation and amortization is calculated
using the straight-line method over the shorter of
the asset’s estimated useful life or the term of the
lease in the case of leasehold improvements. For
income tax purposes, we use accelerated depreciation
methods as allowed by tax laws.

I N T E R E S T C O S T

We capitalize interest cost as a component of capital-
ized software development costs. We capitalized
interest costs of $269,000 during 2002, $578,000 dur-
ing 2001 and $586,000 during 2000.

R E S E A R C H A N D D E V E L O P M E N T C O S T S

We record all research and development costs as
expense when incurred. We expensed research and
development costs of $611,000 during 2002, $412,000
during 2001 and $973,000 during 2000.

I N C O M E T A X E S

Income taxes are accounted for under the asset and
liability method. Deferred taxes arise because of dif-

ferent treatment between ﬁnancial statement
accounting and tax accounting, known as “temporary
differences.” We record the tax effect of these tempo-
rary differences as “deferred tax assets” (generally
items that can be used as a tax deduction or credit in
the future periods) and “deferred tax liabilities”
(generally items that we received a tax deduction for,
which have not yet been recorded in the income
statement). The deferred tax assets and liabilities are
measured using enacted tax rules and laws that are
expected to be in effect when the temporary differ-
ences are expected to be recovered or settled. A valu-
ation allowance would be established to reduce
deferred tax assets if it is likely that a deferred tax
asset will not be realized.

S T O C K C O M P E N S A T I O N

In accordance with Statement of Financial Accounting
Standards (“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
FASB Interpretation No. 44, “Accounting for
Certain Transactions involving Stock Compen-
sation,” an interpretation of APB Opinion No. 25,
issued in March 2000. Under APB No. 25’s intrin-
sic value method, compensation expense is deter-
mined 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 exer-
cise 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 measure-
ment 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.

The weighted-average fair value per stock option granted was $3.61 for 2002, $1.28 for 2001 and $2.02 for 2000.
We estimated the fair values using the Black-Scholes option pricing model and the following assumptions for
the periods presented:

YEARS ENDED DECEMBER 31,

2 0 0 2

2 0 0 1

2 0 0 0

Expected dividend yield
Risk-free interest rate
Expected stock price volatility
Expected term until exercise (years) 7 7 7

0%
5.1%
78.0%

0%
4.9%
77.0%

0%
6.1%
73.0%

Pro forma information regarding net income (loss) and earnings (loss) 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:

YEARS ENDED DECEMBER 31,

Net income (loss)
Add stock-based employee compensation cost included

in net income (loss), net of related tax beneﬁt

Deduct total stock-based employee compensation expense determined

2 0 0 2

2 0 0 1

2 0 0 0

$ 7,989

269

$ (24,597)

under fair-value-based method for all rewards, net of related tax beneﬁt

(1,394)

(1,188)

(1,399)

Pro forma net income (loss)

$ 6,595

(919)

$ (25,996)

Pro forma net income (loss) per basic share

Pro forma net income (loss) per diluted share

0.14

0.13

$ (0.02)

(0.57)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

C O M P R E H E N S I V E I N C O M E ( L O S S )

Changes in accumulated other comprehensive income (loss) follows:

Net income (loss)
Other comprehensive income (loss):

Change in fair value of securities available-for-sale (net of

deferred tax expense of $3,995 for 2002)

Total comprehensive income (loss)

YEARS ENDED DECEMBER 31,

2 0 0 2

7,989

2 0 0 1

269

2 0 0 0

$ (24,597)

11,963

6,146

(28,622)

$ 19,952

6,415

$ (53,219)

We did not record a tax beneﬁt in connection with the change in the unrealized gain (loss) for 2001 or 2000
since we could not conclude it was more likely than not that the tax beneﬁt would be realized on the cumula-
tive unrealized holding loss.

S E G M E N T A N D R E L A T E D I N F O R M A T I O N

Although we have a number of operating subsidiaries,
separate segment data has not been presented as
they meet the criteria for aggregation as permitted
by SFAS No. 131, “Disclosures About Segments of
an Enterprise and Related Information.”

G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S

Our business acquisitions result in the allocation of
the purchase price to goodwill and other intangible
assets. We allocate the cost of acquired companies
ﬁrst to identiﬁable assets based on estimated fair
values. The excess of the purchase price over the fair
value of identiﬁable assets acquired, net of liabilities
assumed, is recorded as goodwill.

On January 1, 2002 we adopted the provisions of SFAS
No. 141, “Business Combinations,” and SFAS No. 142,
“Goodwill and Other Intangible Assets.” SFAS No. 141
eliminates the pooling of interest method of accounting
for business combinations initiated after June 30,
2001. The adoption of SFAS No. 141 did not impact
our results of operations or ﬁnancial position.

With the adoption of SFAS No. 142 goodwill and
intangible assets not subject to amortization are test-
ed annually for impairment, and are tested for
impairment more frequently if events and circum-
stances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the
carrying amount exceeds the asset’s fair value.

Prior to the adoption of SFAS No. 142, goodwill was
amortized on a straight-line basis over the expected
periods to be beneﬁted and assessed for recoverability

by determining whether the amortization of the
goodwill balance over its remaining life could be
recovered through undiscounted future operating
cash ﬂows of the acquired operation. All other intan-
gible assets were amortized on a straight-line basis.
The amount of goodwill and other intangible asset
impairment, if any, was measured by the amount by
which the carrying amount of the assets exceeded
the fair value of the assets. Fair value was deter-
mined based on projected discounted future operat-
ing cash ﬂows using a discount rate reﬂecting our
average cost of funds.

I M P A I R M E N T O F L O N G - L I V E D A S S E T S

SFAS No. 144 provides a single accounting model for
long-lived assets to be disposed of. SFAS No. 144 also
changes the criteria for classifying an asset as held
for sale; and broadens the scope of businesses to be
disposed of that qualify for reporting as discontinued
operations and changes the timing of recognizing
losses on discontinued operations. We adopted SFAS
No. 144 on January 1, 2002. The adoption of SFAS
No. 144 did not affect our results of operations or
ﬁnancial position.

In accordance with SFAS No. 144, long-lived assets,
such as property, plant, and equipment, and pur-
chased intangibles subject to amortization, are
reviewed for impairment whenever events or
changes in circumstances indicate that the amount
we have recorded for an asset may not be recover-
able. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash ﬂows
expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash

ﬂows, an impairment charge is recognized by the
amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets to be dis-
posed of would be separately presented in the bal-
ance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities of a dis-
posed group classiﬁed as held for sale would be pre-
sented separately in the appropriate asset and liability
sections of the balance sheet.

Prior to the adoption of SFAS No. 144, we accounted
for long-lived assets in accordance with SFAS No.
121, “Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.”

C O S T S O F C O M P U T E R S O F T W A R E

Software development costs have been accounted
for in accordance with SFAS No. 86, “Accounting
for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed.” Under SFAS No.
86, capitalization of software development costs
begins upon the establishment of technological fea-
sibility and prior to the availability of the product
for general release to customers. We capitalized
software development costs of approximately $7.2
million during 2002, $6.2 million during 2001 and
$6.7 million during 2000. Software development
costs primarily consist of personnel costs, rent for
related ofﬁce space and capitalized interest cost.
We begin to amortize capitalized costs when a
product is available for general release to cus-
tomers. Amortization expense is determined on a
product-by-product basis at a rate not less than
straight-line basis over the product's remaining
estimated economic life. Amortization of software
development costs was approximately $2.8 million
during 2002, $1.7 million during 2001 and
$622,000 during 2000.

F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S

We used the following methods and assumptions to
estimate the fair value of each class of ﬁnancial
instruments at the balance sheet date:

Our available-for-sale investments are recorded at
fair value based on quoted market prices.

• Long-term obligations: Cost/carrying values

approximates fair value either due to the variable
nature of their stated interest rates or the stated
interest rates approximate market rates. These
estimated fair value amounts have been determined
using available market information or other
appropriate valuation methodologies.

• We do not have any derivative ﬁnancial instruments,
including those for speculative or trading purposes.

C O N C E N T R A T I O N S O F C R E D I T R I S K A N D
U N B I L L E D R E C E I V A B L E S

Concentrations of credit risk with respect to receiv-
ables are limited due to the wide variety of cus-
tomers and markets into which our products and
services are provided, as well as their dispersion
across many different geographic areas. Historically
our credit losses have not been signiﬁcant. As a
result, as of December 31, 2002, we do not believe we
have any signiﬁcant concentrations of credit risk.

Our property appraisal outsourcing service contracts
can range up to three years in duration. In connec-
tion with these percentage of completion contracts
and for certain software service contracts, we may
perform the work prior to when the services are bill-
able and/or payable pursuant to the contract. We
have recorded retentions and unbilled receivables
(costs and estimated proﬁt in excess of billings) of
approximately $6.2 million and $7.5 million at
December 31, 2002 and 2001, respectively, in connec-
tion with such contracts. Retentions are included in
trade accounts receivable and amounted to $2.6 mil-
lion at December 31, 2002, of which $168,000 is
expected to be collected in excess of one year.

One customer accounted for approximately 10%
during 2002 and 13% during 2001, of our total con-
solidated revenues. No single customer accounted
for greater than 10% of total consolidated revenues
during 2000.

• Cash and cash equivalents, accounts receivables,
trade accounts payables, deferred revenues and
certain other assets: Costs approximate fair value
because of the short maturity of these instruments.

R E C L A S S I F I C A T I O N S

Pursuant to Financial Accounting Standards Board
Emerging Issues Task Force (“EITF”) Issue No. 01-

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

14, “Income Statement Characterization of
Reimbursements Received for ‘Out-of-Pocket’
Expenses Incurred,” customer reimbursements for
out-of-pocket expenses are to be included in net rev-
enues and the related costs in cost of revenues.
Because these additional net revenues are offset by
the associated reimbursable expenses included in
cost of revenues, the adoption of EITF No. 01-14 in
2002 did not impact income (loss) from continuing
operations or net income (loss) for all periods pre-
sented. Net revenues and cost of revenues for 2001
and 2000 were recast to reclassify certain reim-
bursable expenses to conform to the current year
presentation in accordance with EITF No. 01-14.
See Note 17 – Quarterly Financial Information.

In addition, certain other amounts for previous years
have been reclassiﬁed to conform to the current year
presentation.

( 2 ) A C Q U I S I T I O N S

On November 4, 1999, we acquired selected assets
and assumed selected liabilities of Cole Layer
Trumble Company (“CLT”) from a privately held
company (“Seller”). Part of the purchase price con-
sisted of the issuance of 1.0 million restricted
shares of Tyler common stock and included a price
protection on the sale of the stock. The price pro-
tection, which expired November 4, 2001, was equal
to the difference between the actual sale proceeds
of the Tyler common stock and $6.25 on a per share
basis. The price protection was limited to $2.75 mil-
lion. During the year ended December 31, 2001, we
received a claim from the Seller under the price
protection provision, which qualiﬁed for the maxi-
mum amount of the price protection. Contingent
consideration of this nature does not change the
recorded costs of the acquisition and the claim is
ﬁrst recorded when submitted. Accordingly, the
claim submitted in 2001 of $2.75 million, net of
the deferred tax beneﬁt of $963,000, was charged
to paid-in capital during 2001. The purchase agree-
ment contained a number of post-closing adjust-
ments which resulted in a receivable of approxi-
mately $1.4 million due to us from the Seller.
During the year ended December 31, 2001 and
concurrent with the settlement of the price protec-
tion provision, we paid the Seller $1.35 million in
cash on a net basis and eliminated the $1.4 million
receivable due to us. We entered into a mutual
release agreement with the Seller to fully settle

the price protection and related purchase agree-
ment provisions.

In January 2000 we paid $3.0 million in cash (among
other consideration) for Capital Commerce Reporter,
Inc. (“CCR”) which was included in our information
and property records services segment that was dis-
continued in December 2000.

We have used the purchase method of accounting for
all of our business combinations. Results of opera-
tions of acquired entities are included in our consoli-
dated ﬁnancial statements from the respective dates
of acquisition.

( 3 ) D I S C O N T I N U E D O P E R A T I O N S

Discontinued operations includes the operating
results of the information and property records serv-
ices segment which we discontinued in December
2002, two non-operating subsidiaries relating to a
formerly owned subsidiary that we sold in December
1995 and an automotive parts distributor that we
sold in March 1999.

On September 29, 2000, we sold certain net assets of
Koﬁle, Inc. and another subsidiary, our interest in a
certain intangible work product, and a building and
related building improvements (“Koﬁle Sale”) for a
cash sale price of $14.4 million. Effective December
29, 2000, we sold for cash our land records business
unit, consisting of Business Resources Corporation
(“Resources”), to an afﬁliate of Afﬁliated Computer
Services, Inc. (the “Resources Sale”). The Resources
Sale was valued at approximately $71.0 million.
Concurrent with the Resources Sale, our manage-
ment with our Board of Directors’ approval adopted
a formal plan of disposal for the remaining businesses
and assets of the information and property records
services segment. This restructuring program was
designed to focus our resources on our software sys-
tems and services segment and to reduce debt. The
businesses and assets divested or identiﬁed for dives-
ture were classiﬁed as discontinued operations in the
accompanying consolidated ﬁnancial statements in
2000 and the prior periods’ ﬁnancial statements
were restated to report separately their operations in
compliance with APB Opinion No. 30. The net gain
on the Koﬁle Sale and the Resources Sale amounted
to approximately $1.5 million (net of an income tax
beneﬁt of $2.4 million).

Our formal plan of disposal provided for the remain-
ing businesses and assets of the information and
property records services segment to be disposed of
by December 29, 2001. The estimated loss on the dis-
posal of these remaining businesses and assets at
December 29, 2000 amounted to $13.6 million (after
an income tax beneﬁt of $3.8 million). This loss con-
sisted of an estimated loss on disposal of the busi-
nesses of $11.5 million (net of an income tax beneﬁt
of $2.7 million) and a provision of $2.1 million (after
an income tax beneﬁt of $1.1 million) for anticipated
operating losses from the measurement date of
December 29, 2000 to the estimated disposal dates.

On May 16, 2001, we sold all of the common stock of
one of the businesses in the discontinued information
and property records services segment. In connection
with the sale, we received cash proceeds of $575,000,
approximately 60,000 shares of Tyler common stock,
a promissory note of $750,000 payable in 58 monthly
installments at an interest rate of 9%, and other con-
tingent consideration. On September 21, 2001, we
sold all of the common stock of CCR for $3.1 million
in cash.

We renegotiated certain aspects of the May 16,
2001 sale transaction and as a result of this rene-
gotiation in March 2002, we received additional
cash of approximately $800,000 and a subordinated
note receivable amounting to $200,000, to fully settle
the promissory note and other contingent consider-
ation received in connection with this previous
sale. The subordinated note is payable in 16 equal
quarterly principal payments with interest at a
rate of 6%. Because the subordinated note receiv-
able is highly dependent upon future operations of
the buyer, we are recording its value when the cash
is received which is our historical practice. During
2002, we received payments of $46,000 on the sub-
ordinated note.

During the year ended December 31, 2002, the IRS
issued temporary regulations that in effect allowed
us to deduct for tax purposes losses attributable to
the March 1999 sale of our automotive parts sub-
sidiary that were previously not allowed. The tax
beneﬁt of allowing the deduction of this loss amounted
to approximately $970,000. In addition, we renegoti-
ated a note receivable and certain contingent consid-
eration in connection with a subsidiary sold in 2001

and received proceeds of approximately $846,000 in
2002. We initially assigned no value for accounting
purposes to the note receivable and contingent con-
sideration when the loss on the disposal of the dis-
continued operation was ﬁrst established in 2000 and
when the note was ﬁrst received in 2001. In addition,
we settled in the fourth quarter of 2002 our asbestos
litigation for an amount that was approximately
$200,000 less than the liability initially established
for this matter (See Note 16 – Commitments and
Contingencies). The aggregate effects of these
events, net of the related tax effects, and other
minor adjustments to the reserve for discontinued
operations resulted in a credit to discontinued opera-
tions of $1.8 million in 2002. In our opinion and
based on information available at this time, we
believe that our net liabilities related to discontinued
operations are adequate.

The income tax expense or beneﬁt associated with
the gains or losses on the respective sales of the
businesses in the information and property records
services segment differs from the statutory income
tax rate of 35% due to the elimination of deferred
taxes related to the basis difference between amounts
reported for income taxes and ﬁnancial reporting
purposes and the utilization of available capital loss
carryforwards which were fully reserved in the valu-
ation account prior to the respective sales.

Net assets of discontinued operations of the informa-
tion and property records services segment and two
of our non-operating subsidiaries included in the
consolidated balance sheets as of December 31, 2002
and 2001 includes the following:

2 0 0 2

2 0 0 1

Restricted asbestosis

settlement cash with
offsetting amount
in current liabilities

Accounts receivable
Deferred taxes
Other current liabilities primarily
consisting of asbestosis settlement
obligations (see Note 16)

$ 1,325
--
1,705

$ 2,310
100
2,192

(3,472)

(5,183)

Net current liabilities

(442)

(581)

Property and equipment held

for sale

1,000

Net (liability) assets

(442) $

419

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

The condensed statements of operations relating to the
information and property records services segment for
the year ended December 31, 2000 is presented below:

Revenues
Costs and expenses
Loss before income tax beneﬁt
Income tax beneﬁt

Net loss

2 0 0 0
$ 39,680
44,635
(4,955)
(704)

$ (4,251)

Other. One of our non-operating subsidiaries is
involved in various claims for work-related injuries
and physical conditions relating to a formerly owned
subsidiary that was sold in 1995. We recorded net
losses, net of related tax effect, of $3,000 during 2001
and $748,000 in 2000 for trial and related costs. See
Note 16 – Commitments and Contingencies.

( 4 ) R E L A T E D P A R T Y T R A N S A C T I O N S

On September 29, 2000, we sold for cash of $14.4 mil-
lion certain net assets of Koﬁle and another subsidiary,
our interest in a certain intangible work product, and a
building and related building improvements to invest-
ment entities beneﬁcially owned by a principal share-
holder of Tyler, who was also a director at the time.

From time to time, we charter aircraft from busi-
nesses in which a member of management is an

owner. We recorded rental expense related to such
arrangements with a non-corporate ofﬁcer manage-
ment member of $69,000 during 2002, $83,000
during 2001 and $81,000 during 2000.

During 2000, we chartered an aircraft from a former
director. The rental expense related to these charters
was $325,000.

As disclosed in Note 11 – Shareholders' Equity, we
purchased 1.5 million shares of our common stock
from a former director in 2002.

We have three ofﬁce building lease agreements with
various shareholders and non-corporate ofﬁcer man-
agement members. Total rental expense related to
such leases was $1.2 million during 2002, $1.1 mil-
lion during 2001 and $679,000 during 2000.

Total future minimum rental under noncancelable
related party operating leases as of December 31,
2002, are as follows:

2003
2004
2005
2006
2007
Thereafter

$ 1,204
1,198
1,136
1,149
1,179
2,778

( 5 ) P R O P E R T Y A N D E Q U I P M E N T

Property and equipment consists of the following at December 31:

Land
Transportation equipment
Computer equipment and purchased software
Furniture and ﬁxtures
Building and leasehold improvements

Accumulated depreciation and amortization

Property and equipment, net

U S E F U L
L I V E S ( Y E A R S )

--
5
3-7
3-7
3-35

2 0 0 2
$ 115
385
8,909
3,797
1,751
14,957
(8,138)

2 0 0 1
$ 115
390
7,542
3,515
1,338
12,900
(5,933)

$ 6,819

$ 6,967

Depreciation and amortization expense was $2.4 million during 2002, $2.3 million during 2001 and $2.0 million
during 2000.

( 6 ) I N V E S T M E N T S E C U R I T Y A V A I L A B L E - F O R - S A L E

Pursuant to an agreement with two major sharehold-
ers of H.T.E., Inc. (“HTE”), we acquired approxi-
mately 5.6 million shares of HTE’s common stock in
exchange for approximately 2.8 million shares of our
common stock. The exchange occurred in two
transactions, one in August 1999 and the other in
December 1999. The 5.6 million shares represent a
current ownership interest of approximately 35% of
HTE. The cost of the investment was recorded at
$15.8 million and is classiﬁed as a non-current asset.

Florida state corporation law restricts the voting
rights of “control shares,” as deﬁned, acquired by a
third party in certain types of acquisitions. These
restrictions may be removed by a vote of the share-
holders of HTE. On November 16, 2000, the share-
holders of HTE, other than Tyler, voted to deny
Tyler its right to vote the “control shares” of HTE.
When we acquired the HTE shares, HTE took the
position that all of our shares were “control shares”
and therefore did not have voting rights. We disputed
this contention and asserted that the “control
shares” were only those shares in excess of 20% of
the outstanding shares of HTE, and it was only those
shares that lacked voting rights. At the time of our
acquisition, no court had interpreted the Florida
“control share” statute.

On October 29, 2001, HTE notiﬁed us that,
pursuant to the Florida “control share” statute, it
had redeemed all 5.6 million shares of HTE common
stock owned by us for a cash price of $1.30 per share.
On October 29, 2001, we notiﬁed HTE that its pur-
ported redemption of our HTE shares was invalid
and contrary to Florida law, and in any event, the
calculation by HTE of fair value for our shares was
incorrect. On October 30, 2001, HTE ﬁled a com-
plaint in a civil court in Seminole County, Florida
requesting the court to enter a declaratory judgment
declaring HTE’s purported redemption of all of our
HTE shares at a redemption price of $1.30 per share
was lawful and to effect the redemption and cancel
our HTE shares. We removed the case to the United
States District Court, Middle District of Florida,
Orlando Division, and requested a declaratory judg-
ment from the court declaring, among other things,

that HTE’s purported redemption of any or all of our
shares was illegal under Florida law and that we had
the ability to vote up to 20% of the issued and out-
standing shares of HTE common stock owned by us.

On September 18, 2002, the court issued an order
declaring that HTE’s purported redemption was
invalid. On September 24, 2002, we entered into a
settlement agreement with HTE in which HTE
agreed that it would not attempt any other redemp-
tion of our shares. In addition, HTE agreed to dis-
miss and release us from the tort claims it alleged
against us as disclosed in previous ﬁlings. On
December 11, 2002, the court issued a further order
declaring that all of our HTE shares are “control
shares” and therefore none of our shares have voting
rights. The court further ruled that voting rights
would be restored to our HTE shares if we were to
sell or otherwise transfer our HTE shares to an
unafﬁliated third party in a transaction that did not
constitute a “control share acquisition.” During 2002
we incurred approximately $704,000 of legal and
other related costs associated with these matters
which are classiﬁed as non-operating expenses.

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. Our management has
concluded that we do not have such inﬂuence.
Accordingly, we account for our investment in HTE
pursuant to the provisions of 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 for HTE common
stock. Unrealized holding gains and losses, net of the
related tax effect, are excluded from earnings and are
reported as a separate component of shareholders’
equity until the securities are sold. Realized gains and
losses from the sale of available-for-sale securities are
determined on a speciﬁc identiﬁcation basis. A decline
in the market value of any available-for-sale security
below cost that we consider to be other than tempo-
rary results in a reduction in the cost basis to fair
value. The impairment is charged to earnings and a
new cost basis for the security is established.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

The cost, fair value and gross unrealized holding gains (losses) of the investment securities available-for-sale,
based on the quoted market price for HTE common stock (amounts in millions, except per share amounts) are
presented below. In accordance with SFAS No. 115, we used quoted market price per share in calculating fair
value to be used for ﬁnancial reporting purposes.

December 31, 2002
December 31, 2001
February 21, 2003

Q U O T E D M A R K E T
P E R S H A R E

$ 4.84
2.00
6.93

C O S T

F A I R V A L U E

$ 15.8
15.8
15.8

$ 27.2
11.2
38.9

G R O S S U N R E A L I Z E D
H O L D I N G
G A I N S ( L O S S E S )

$ 11.4
(4.6)
23.1

On February 4, 2003, we entered into an agreement
with SunGard Data Systems, Inc. (“SDS”) in which
we agreed to tender all of our HTE shares in the ten-
der offer to be commenced by SDS for the acquisition
of HTE. On February 5, 2003, SDS and HTE
announced a deﬁnitive agreement for the acquisition
of all of the shares of HTE for $7.00 per share in
cash. SDS and HTE also announced that the con-
summation of the transaction is subject to customary
conditions, including the tender of at least a majority
of the outstanding shares of HTE in the tender offer
and the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. SDS and HTE further announced
that certain shareholders owning approximately

( 7 ) G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S

49.6% of the total outstanding shares of HTE had
agreed to tender their shares. According to the
press release issued by SDS and HTE, the acquisi-
tion is expected to close in the ﬁrst quarter of 2003.
Assuming the acquisition is consummated, we will
receive approximately $39.3 million in gross cash
proceeds from the sale of our HTE shares. There can
be no assurance that the acquisition of HTE by SDS
will be consummated on the terms as disclosed, if at
all. If SDS does not acquire HTE, we will continue
to classify our investment as an available-for-sale
security in accordance with SFAS No. 115 and as a
non-current asset since the investment was initially
made for a continuing business purpose.

Goodwill, other intangible assets and related accumulated amortization consists of the following at December 31:

Gross carrying amount of acquisition intangibles:

Goodwill
Customer base
Software acquired
Workforce
Non-compete agreements

Accumulated amortization

Acquisition intangibles, net

Post acquisition software development costs
Accumulated amortization

Post acquisition software costs, net

2 0 0 2

2 0 0 1

$ 46,298
17,997
12,158
--
163
76,616
(13,066)
$ 63,550

$ 51,063
17,997
12,158
6,191
163
87,572
(20,314)
$ 67,258

$ 24,560
(5,224)
$ 19,336

$ 17,369
(2,416)
$ 14,953

Total amortization expense was $6.1 million during 2002, $8.6 million during 2001 and $7.5 million during 2000.

As discussed in Note 1 – Summary of Signiﬁcant Accounting Policies, on January 1, 2002, we adopted the
provisions of SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”

Under SFAS No. 142, assembled workforce, net of related deferred taxes, is subsumed into goodwill upon the

adoption of the Statement as of January 1, 2002. If we had accounted for goodwill (including workforce) under
the non-amortization approach of SFAS No. 142, our net income (loss) and related per share amounts would have
been as follows for the years ended December 31, 2001 and 2000:

Reported net income (loss)
Add back goodwill amortization, net of income taxes

Adjusted net income (loss)

Basic and diluted net income (loss) per share
Goodwill amortization, net of income taxes, per share

Basic and diluted net income (loss) per share

2 0 0 1
269
2,960

2 0 0 0
$(24,597)
2,934

$ 3,229

$(21,663)

0.01
0.06

0.07

(0.54)
0.06

(0.48)

SFAS No. 142’s transitional goodwill impairment
evaluation required us to perform an assessment of
whether there was an indication that goodwill was
impaired as of the date of adoption. To accomplish
this, we identiﬁed our reporting units and deter-
mined the carrying value of each reporting unit by
assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. We determined
the fair value of each reporting unit and compared it

to the carrying amount of the reporting unit and
concluded there was no impairment. In addition to
the transitional goodwill impairment test, we are
required to perform, at least annually, a goodwill
impairment test and designate a consistent date for
such annual testing. We determined the fair value of
each reporting unit and compared it to the carrying
amount of the reporting unit at March 31, 2002 and
concluded there was no impairment.

The allocation of acquisition intangible assets following our adoption of SFAS No. 142 is summarized in the
following table:

AS OF DECEMBER 31, 2002

Intangibles no longer amortized:

Goodwill

Amortizable intangibles:

Customer base
Software acquired
Non-compete agreements

G R O S S
C A R R Y I N G
A M O U N T

$ 46,298

17,997
12,158
163

W E I G H T E D
A V E R A G E
A M O R T I Z A T I O N
P E R I O D

A C C U M U L A T E D
A M O R T I Z A T I O N

21 years
5 years
4 years

The changes in the carrying amount of goodwill for the year ended December 31, 2002 are as follows:

Balance as of December 31, 2001

(cost of $51,063 and accumulated amortization of $7,771)

Goodwill adjustments during 2002 relating to workforce

(cost of $6,191 and accumulated amortization of $2,808 at January 1,
2002), net of deferred taxes of $377, being subsumed into goodwill
upon the adoption of SFAS No. 142 on January 1, 2002

Balance as of December 31, 2002

3,352
9,561
153

$ 43,292

3,006

$ 46,298

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

( 7 ) G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S ( C O N T I N U E D )

Estimated annual amortization expense relating to acquisition intangibles is as follows:

YEARS ENDING DECEMBER 31,
2003
2004
2005
2006
2007

( 8 ) A C C R U E D L I A B I L I T I E S

Accrued liabilities consists of the following at December 31:

Accrued wages and commissions
Other accrued liabilities
Current portion of long-term obligations

Total accrued liabilities

( 9 ) L O N G - T E R M O B L I G A T I O N S

Long-term obligations consists of the following at December 31:

$ 2,800
1,500
900
900
900

2 0 0 2
7,667
3,079
440

2 0 0 1
7,071
2,580
123

$ 11,186

9,774

2 0 0 2
2,520
470

2,990
440

2 0 0 1
2,800
233

3,033
123

2,550

2,910

10% promissory notes payable due January 2005
Other

Total obligations

Less current portion

Total long-term obligations

Long-term debt outstanding at December 31, 2002
matures as follows: 2003 - $440,000; 2004 - $30,000;
and the remainder in 2005.

We paid interest of $377,000 in 2002, $814,000 in
2001 and $8.8 million in 2000.

On March 5, 2002, we entered into a revolving bank
credit agreement. Our credit agreement matures
January 1, 2005 and provides for total availability of
up to $10.0 million. Borrowings bear interest at
either prime rate or at the London Interbank
Offered Rate plus a margin of 3% and are limited to
80% of eligible accounts receivable. The credit agree-
ment is secured by substantially all of our personal
property, by a pledge of the common stock of our
operating subsidiaries, and is also guaranteed by

our operating subsidiaries. The credit agreement
requires us to maintain certain ﬁnancial ratios and
other ﬁnancial conditions and prohibits us from
making certain investments, advances, cash divi-
dends or loans.

At December 31, 2002, our bank has issued outstand-
ing letters of credit totaling $3.7 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 December 31,
2002. At December 31, 2002, we had no outstanding
bank borrowings under the credit agreement and
had an available borrowing base of $6.3 million.

( 1 0 ) I N C O M E T A X

The income tax provision (beneﬁt) on income (loss) from continuing operations consisted of the following:

YEARS ENDED DECEMBER 31,
Current:
Federal
State

Deferred

2 0 0 2

2 0 0 1

2 0 0 0

--
485

485
3,384

--
282

282
1,258

--
80

80
(2,890)

3,869

1,540

$ (2,810)

Reconciliation of the U.S. statutory income tax rate to our effective income tax expense (beneﬁt) rate for continu-
ing operations follows:

YEARS ENDED DECEMBER 31,
Income tax expense (beneﬁt) at statutory rate
State income tax, net of federal income tax beneﬁt
Non-deductible amortization
Non-deductible business expenses
Other, net

2 0 0 2
3,514
315
--
40
--

2 0 0 1
634
183
635
83
5

2 0 0 0

$ (3,611)
52
640
110
(1)

3,869

$ 1,540

$ (2,810)

The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:

Deferred income tax assets:

Net operating loss carryforward
Capital loss carryfoward
Basis difference on investment security
Operating expenses not currently deductible
Employee beneﬁt plans
Minimum tax credits
Research tax credits
Other

Net deferred income tax assets before valuation allowance

Less valuation allowance

Net deferred income tax assets

Deferred income tax liabilities:

Basis difference on investment security
Property and equipment
Intangible assets
Other

Total deferred income tax liabilities

Net deferred income tax liabilities

2 0 0 2

2 0 0 1

3,734
1,114
--
865
345
268
78
--

6,404
(1,114)

5,290

(3,995)
(1,148)
(7,363)

(12,506)

3,667
--
1,591
967
299
268
78
100

6,970
(1,690)

5,280

(1,069)
(6,442)
(15)

(7,526)

$ (7,216)

$ (2,246)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

( 1 0 ) I N C O M E T A X ( C O N T I N U E D )

( 1 1 ) S H A R E H O L D E R S ’ E Q U I T Y

At December 31, 2002, we had available approxi-
mately $10.7 million of net tax operating loss carry-
forwards for federal income tax purposes. These car-
ryforwards, which may provide future tax beneﬁts,
expire from 2011 through 2022. During the year
ended December 31, 2002, we claimed a deduction
for the write off of preferred stock which was
deemed worthless for tax purposes. The preferred
stock had an initial tax value of $3 million and was
received in connection with the sale of our discontin-
ued automotive parts subsidiary which was sold in
March 1999. At December 31, 2002, we had available
approximately $3.2 million of capital loss carryfor-
wards for federal income tax purposes which expire
December 31, 2006.

Although realization is not assured, we believe it is
more likely than not that all the deferred tax assets,
except for the asset relating to the capital loss carry-
forward will be realized. Accordingly, we believe no
valuation allowance is required for the remaining
deferred tax assets. However, the amount of the
deferred tax asset considered realizable could be
adjusted in the future if estimates of reversing tax-
able temporary differences are revised.

We paid income taxes, net of refunds received, of
$455,000 in 2002 and $273,000 in 2001. In 2000 we
received a refund of prior years' income taxes of
$2.7 million.

In May 2000, we sold 3.3 million shares of common
stock and 333,380 warrants in a private placement
for approximately $10.0 million in gross cash pro-
ceeds, 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.

As of December 31, 2002, we have an additional war-
rant outstanding to purchase 2.0 million shares of
our common stock at $2.50 per share. This warrant
expires in September 2007.

In August 2002, we consummated an agreement to
purchase 1.1 million of our common shares from
William D. Oates, a former director of Tyler, for a
cash purchase price of $4.0 million. In October 2002,
we repurchased an additional 400,000 of our shares
as part of the initial agreement by assigning our
rights and obligations under a Data License and
Update Agreement associated with our discontinued
information property records service business to
eiStream. eiStream is an afﬁliate of William D. Oates.
The repurchase of all 1.5 million shares was charged
to treasury stock to the extent cash was paid.

In August 2002, our Board of Directors approved a
plan to repurchase up to 1.0 million shares of our
common stock. Subsequent to December 31, 2002
and through February 21, 2003, we have repur-
chased 339,000 shares for an aggregate purchase
price of $1.4 million.

( 1 2 ) S T O C K O P T I O N P L A N

We have a stock option plan that provides for granting stock options to key employees and directors. Options
become fully exercisable after three to eight years of continuous employment and expire ten years after the
grant date. Once exercisable, the employee can purchase shares of our common stock at the market price on
the date we granted the option. As of December 31, 2002 there were 1.2 million shares available for future
grants under the plan from the original 6.5 million shares approved by the stockholders.

The following table summarizes our stock option plan’s transactions for the three-year period ended December
31, 2002:

Options outstanding at December 31, 1999

Granted
Forfeited
Exercised

Options outstanding at December 31, 2000

Granted
Forfeited
Exercised

Options outstanding at December 31, 2001

Granted
Forfeited
Exercised

Options outstanding at December 31, 2002

Exercisable options:
December 31, 2000
December 31, 2001
December 31, 2002

N U M B E R O F S H A R E S
3,418
498
(417)
(5)

W E I G H T E D - A V E R A G E
E X E R C I S E P R I C E S
5.55
$
2.76
6.16
3.88

3,494

2,185
(933)
(108)

4,638

280
(322)
(491)

4,105

1,385
1,504
1,910

5.08

1.70
5.18
2.13

3.54

4.86
5.65
3.29

3.49

5.04
5.20
4.26

The following table summarizes information concerning outstanding and exercisable options at December 31, 2002:

R A N G E O F
E X E R C I S E P R I C E S

W E I G H T E D A V E R A G E
R E M A I N I N G
C O N T R A C T U A L L I F E

N U M B E R O F
O U T S T A N D I N G
O P T I O N S

W E I G H T E D A V E R A G E
P R I C E O F O U T S T A N D I N G
O P T I O N S

N U M B E R O F
E X E R C I S A B L E
O P T I O N S

$ 0.00 - $2.19
2.19 - 3.28
3.28 - 4.38
4.38 - 5.47
5.47 - 6.56
6.56 - 7.66
7.66 - 8.75
9.84 - 10.19

8.3 years
8.4
7.1
6.5
6.0
5.1
5.8
5.3

2,018
140
527
720
448
216
6
30

$1.64
2.62
4.02
5.24
6.18
7.63
7.75
10.19

634
38
283
432
321
173
5
24

W E I G H T E D
A V E R A G E P R I C E
O F E X E R C I S A B L E
O P T I O N S

$ 1.63
2.63
3.99
5.26
6.22
7.63
7.75
10.19

We previously granted an employee 50,000 shares of restricted common stock with a fair value of $303,000 at the
grant date. We recorded annual compensation expense of $151,500 for the year ended December 31, 2000, based
on the service period provided for in the agreement and the vesting period over which the restrictions lapse.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

( 1 3 ) E A R N I N G S ( L O S S ) P E R S H A R E

Basic earnings and diluted earnings (loss) per common share data was computed as follows:

Numerator:

Income (loss) from continuing operations for basic and

diluted earnings per share

Denominator:

Denominator for basic earnings per share –
Weighted-average shares
Effect of dilutive securities:
Employee stock options
Warrants

Potentially dilutive common shares

Denominator for diluted earnings per share –

Adjusted weighted-average shares

Y E A R S E N D E D D E C E M B E R 3 1 ,

2 0 0 2

2 0 0 1

2 0 0 0

6,172

272

$ (7,507)

47,136

47,181

45,380

1,386
971

2,357

593
210

803

--
--

49,493

47,984

45,380

Basic earnings (loss) per common share from continuing operations

Diluted earnings (loss) per common share from continuing operations

0.13

0.12

0.01

(0.17)

Stock options issuable under the stock option plan representing common stock equivalents of 1.3 million during 2002,
2.3 million during 2001 and 3.5 million during 2000 had exercise prices greater than the average quoted market price
of our common stock. These common stock equivalents were outstanding during 2002, 2001 and 2000 but were not
included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.
Additionally, warrants to purchase 333,380, and 2.3 million shares of our common stock for 2001 and 2000, respective-
ly, were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

( 1 4 ) L E A S E S

( 1 5 ) E M P L O Y E E B E N E F I T P L A N S

We lease ofﬁces, transportation, computer and other
equipment for use in our operations. Most of these
leases are noncancelable operating lease agreements
and expire at various dates through 2012. In addi-
tion to rent, the leases generally require us to pay
taxes, maintenance, insurance and certain other
operating expenses.

Rent expense was approximately $3.4 million in
2002, $2.8 million in 2001 and $2.1 million in 2000.

Future minimum lease payments under all non-
cancelable leases at December 31, 2002 are:

F I S C A L Y E A R
2003
2004
2005
2006
2007
Thereafter

O P E R A T I N G L E A S E S
3,504
$
3,171
2,972
2,682
2,572
9,538

Total future minimum lease payments

$ 24,439

We provide a deﬁned contribution plan for the major-
ity of our employees meeting minimum service
requirements. The employees can contribute up to
15% of their current compensation to the plan subject
to certain statutory limitations. We contribute up to a
maximum of 2% of an employee’s compensation to
the plan. We made contributions to the plan and
charged continuing operations $881,000 during 2002,
$868,000 during 2001, and $761,000 during 2000.

( 1 6 ) C O M M I T M E N T S A N D C O N T I N G E N C I E S

One of our non-operating subsidiaries, Swan
Transportation Company (“Swan”), has been and is
currently involved in various claims raised by hun-
dreds 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 phys-
ical conditions resulting from alleged exposure to sil-
ica, 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 peri-
ods and restricted cash of $1.3 million at December
31, 2002. 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 sub-
stantially 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 pur-
suant 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 reor-
ganization were held on December 9, 2002. The plan
of reorganization received the afﬁrmative vote of
approximately 99% of the total votes cast. All objec-
tions to the plan were resolved prior to the conﬁrma-
tion hearing, and the ﬁnal conﬁrmation order will
therefore not be subject to appeal. The conﬁrmation
order will discharge, release, and extinguish 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 will include 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
December 31, 2002 were $309,000) so that the trust
can directly pursue claims against insurers who have
not participated in the funding of the trust. In addi-
tion, we have agreed to contribute $1.5 million in
cash to the trust, which is due as follows: $750,000
within ten days of the conﬁrmation order becoming a
ﬁnal order; $500,000 on the ﬁrst anniversary of the
date the conﬁrmation order becomes a ﬁnal order;
and $250,000 on the second anniversary of the date
the conﬁrmation order becomes a ﬁnal order. The
conﬁrmation order will become a ﬁnal order thirty
days after execution by both the bankruptcy and dis-
trict court judges, which is expected to occur by the
end of the ﬁrst quarter of 2003. Our ultimate settle-
ment obligation under the plan of reorganization of
$1.5 million is approximately $200,000 less than the
remaining carrying amount of the liability initially
recorded for this matter. Accordingly, $200,000
($130,000 net of tax) was included in the $1.8 million
credit recorded for discontinued operations in 2002.
See Note 3 – Discontinued Operations.

We initially provided for estimated claim settlement
costs when minimum levels can be reasonably esti-
mated. If the best estimate of claim costs could only
be identiﬁed within a range and no speciﬁc amount
within that range could be determined more likely
than any other amount within the range, the mini-
mum of the range was accrued. Based on an initial
assessment of claims and contingent claims that may
result in future litigation, a reserve for the minimum
amount of $2.0 million for claim settlements was ini-
tially recorded in 1996. Legal and related profession-
al services costs to defend litigation of this nature
have been expensed as incurred.

Other than ordinary course, routine litigation inci-
dental to our business and except as described here-
in, there are no material legal proceedings pending
to which we or our subsidiaries are parties or to
which any of our properties are subject.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )

( 1 6 ) C O M M I T M E N T S A N D C O N T I N G E N C I E S ( C O N T I N U E D )

See Note 6 – Investment Securities Available-for-Sale, for discussion of litigation in connection with HTE’s attempted cash redemp-
tion of all shares of HTE common stock currently owned by Tyler.

( 1 7 ) Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N ( u n a u d i t e d )

The following tables contain selected ﬁnancial information from unaudited consolidated statements of operations for each quarter
of 2002 and 2001.

Revenues (1)
Gross proﬁt
Income (loss) from continuing

2 0 0 2

2 0 0 1

Q U A R T E R E N D E D

D E C 3 1
$ 36,396
14,228

S E P T 3 0
$ 34,974
12,312

J U N E 3 0
$ 33,605
11,708

M A R 3 1
$ 28,922
9,734

D E C 3 1
$ 31,463
11,346

S E P T 3 0
$ 28,658
9,920

J U N E 3 0
$ 31,237
10,132

M A R 3 1
$ 27,458
8,621

operations before income taxes

4,086

2,922

2,116

Income (loss) from

continuing operations

Income (loss) from discontinued

2,581

1,739

1,290

operations

1,817

917

562

1,310

163

614

251

745

372

(857)

(514)

(23)

(1)

(14)

Net income (loss)

4,398

1,739

1,290

562

198

228

371

(528)

Diluted earnings (loss) from

continuing operations

0.05

0.04

0.03

0.01

0.00

0.01

(0.01)

Diluted earnings (loss) from
discontinued operations

Net earnings (loss) per

diluted share

Shares used in computing

0.04

0.00

(0.01)

(0.00)

0.09

0.04

0.03

0.01

0.00

0.01

(0.01)

diluted earnings (loss) per share

48,482

49,372

50,405

49,725

48,915

48,396

47,425

47,179

(1) Previously reported amounts for revenues and cost of revenues for quarterly periods prior to October 1, 2002 have been reclassiﬁed to
report certain reimbursable customer expenses as revenues and as cost of revenue in accordance with EITF 01-14 as discussed in Note 1 –
Summary of Signiﬁcant Accounting Policies. We increased quarterly revenues and the related cost of revenues from the previously reported
amounts for the following three-month periods ended:

$ 186

260

223

259

266

289

281

March 31, 2001

June 30, 2001

September 30, 2001

December 31, 2001

March 31, 2002

June 30, 2002

September 30, 2002

S E L E C T E D F I N A N C I A L D A T A

FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share data)

Statement of Operations Data (1)
Revenues (2)
Costs and expenses:

Cost of revenues (2)

Selling, general and administrative expenses

Amortization of acquisition intangibles (3)

Operating income (loss)

Legal fees associated with afﬁliated investment

Interest (income) expense, net

Income (loss) from continuing operations before income taxes

Income tax provision (beneﬁt)

Income (loss) from continuing operations

Income (loss) from continuing operations per diluted share

2 0 0 2

2 0 0 1

2 0 0 0

1 9 9 9

1 9 9 8

$ 133,897

$ 118,816

$ 93,933

$ 71,416

$ 23,440

85,915

33,914

3,329

10,739

704

(6)

10,041

3,869

6,172

0.12

78,797

30,830

6,898

2,291

479

1,812

1,540

272

0.01

59,658

32,805

6,903

(5,433)

4,884

(10,317)

(2,810)

37,027

29,404

4,966

1,797

(1,778)

188

13,143

11,680

1,499

(2,882)

234

(3,116)

(652)

$ (7,507) $ (1,966) $

(2,464)

(0.17) $

(0.05) $

(0.08)

Weighted average diluted shares outstanding

49,493

47,984

45,380

39,105

32,612

Other Data:
EBITDA (4)

Statement of Cash Flows Data:
Cash ﬂows from operating activities
Cash ﬂows from investing activities
Cash ﬂows from ﬁnancing activities

Balance Sheet Data: (1)
AS OF DECEMBER 31

Total assets
Long-term obligations, less current portion
Shareholders' equity

$ 18,557

$ 13,203

4,253

6,130

(890)

$ 19,845
(7,974)
(3,398)

$ 12,744
(9,706)
(5,984)

$ (7,126) $
65,401
(52,022)

715
(24,743)
24,955

1,758
(36,787)
27,893

$ 169,845
2,550
118,656

$ 146,975
2,910
100,884

$ 150,712
7,747
96,122

$ 243,260
61,530
138,904

$ 124,328
37,189
76,346

(1) For the years 1998 through 2002, results of operations include the results of the continuing companies that were formerly the
software systems and services segment, from the respective dates we acquired the companies, and exclude the results of opera-
tions of the discontinued information and property records services segment and automotive parts segment. Prior years’ selected
ﬁnancial data has been restated to reﬂect discontinuation of the information and property records services segment in 2000 and
the automotive parts segment in 1998. See Note 3 in Notes to Consolidated Financial Statements.

(2) Pursuant to Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income Statement
Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” customer reimbursements for out-of-pock-
et expenses are to be included in net revenues and the related costs in cost of revenues. Because these additional net revenues
are offset by the associated reimbursable expenses included in cost of revenues, the adoption of EITF No. 01-14 in 2002 did not
impact income (loss) from continuing operations for all periods presented. Net revenues and cost of revenues for 2001 and 2000
were recast to reclassify certain reimbursable expenses to conform to the current year presentation in accordance with EITF No.
01-14. Periods prior to 2000 were not recast because reimbursable expenses were immaterial. See Note 17 in Notes to
Consolidated Financial Statements.

(3) Effective January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets.” Under the new standard, goodwill and intangible assets with indeﬁnite useful lives are no longer amor-
tized but instead tested for impairment at least annually. In accordance with the new standard, results of operations for years
prior to 2002 are reported under the previous accounting standards for goodwill and intangible assets. Amortization expense net
of income taxes, related to goodwill (including assembled workforce subsumed into goodwill) no longer expensed under the new
standard was $2,960 in 2001, $2,934 in 2000, $2,199 in 1999 and $836 in 1998.

S E L E C T E D F I N A N C I A L D A T A ( C O N T I N U E D )

(4) EBITDA consists of income from continuing operations before interest, income taxes, depreciation and amortization. EBITDA
is not calculated in accordance with accounting principles generally accepted in the United States, but we believe that it is widely
used as a measure of operating performance. EBITDA should only be considered together with other measures of operating per-
formance such as operating income, cash ﬂows from operating activities, or any other measure for determining operating per-
formance or liquidity that is calculated in accordance with accounting principles generally accepted in the United States. EBITDA
is not necessarily an indication of amounts that may be available for us to reinvest or for any other discretionary uses and does
not take into account our debt service requirements and other commitments. In addition, since all companies do not calculate
EBITDA the same way, it may not be comparable to other companies’ similarly titled measures. The following reconciles to
EBITDA from income (loss) from continuing operations before income taxes for the periods presented:

FOR THE YEARS ENDED DECEMBER 31,
Income (loss) from continuing operations

before income taxes

Amortization of acquisition intangibles
Depreciation and amortization included in cost of

revenues and selling, general and administrative expenses

Interest (income) expense, net

EBITDA

2 0 0 2

2 0 0 1

2 0 0 0

1 9 9 9

1 9 9 8

$ 10,041
3,329

1,812
6,898

$ (10,317) $ (1,778) $

6,903

4,966

(3,116)
1,499

5,193
(6)

4,014
479

2,783
4,884

1,145
1,797

493
234

$ 18,557

$ 13,203

4,253

6,130

(890)

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

F O R W A R D - L O O K I N G S T A T E M E N T S

In addition to historical information, this Annual
Report contains forward-looking statements. The
forward-looking statements are made in reliance
upon safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The forward-looking
statements are subject to certain risks and uncertain-
ties that could cause actual results to differ material-
ly from those reﬂected in the forward-looking state-
ments. Readers are cautioned not to place undue
reliance on these forward-looking statements, which
reﬂect management’s opinions only as of the date
hereof. We undertake no obligation to revise or pub-
licly release the results of any revision to these for-
ward-looking statements. Readers should carefully
review the risk factors described in our Form 10-K and
other documents we ﬁle from time to time with the SEC.

When used in this Annual Report, the words “beli-
eves,” “plans,” “estimates,” “expects,” “anticipates,”
“intends,” “continue,” “may,” “will,” “should,” “proj-
ects,” “forecasts,” “might,” “could” or the negative
of such terms and similar expressions are intended
to identify forward-looking statements.

G E N E R A L

We provide integrated information management
solutions and services for local governments. We
have a broad line of software products and services
to address the information technology (“IT”) needs
of virtually every area of operation for cities, coun-
ties, schools and other local government entities.
Most of our customers have our software installed
in-house. For customers who prefer not to physically
acquire the software and hardware, we provide out-
sourced hosting for some of our applications at one
of our data centers through an applications service
provider (“ASP”) arrangement. We provide profes-
sional IT services to our customers, including soft-
ware and hardware installation, data conversion,
training and, at times, product modiﬁcations. In
addition, we provide outsourced property appraisal
services for taxing jurisdictions. We also provide con-
tinuing customer support services to ensure proper
product performance and reliability.

C R I T I C A L A C C O U N T I N G P O L I C I E S A N D E S T I M A T E S

Our discussion and analysis of ﬁnancial condition
and results of operations is based upon our consoli-

dated ﬁnancial statements, which have been pre-
pared in accordance with accounting principles gen-
erally accepted in the United States (“GAAP”). The
preparation of these ﬁnancial statements requires
us to make estimates and judgments that affect the
reported amounts of assets and liabilities at the date
of the ﬁnancial statements, the reported amounts of
revenues and expenses during the reporting period,
and related disclosure of contingent assets and
liabilities. The Notes to the Consolidated Financial
Statements contained herein describe our signiﬁcant
accounting policies used in the preparation of the
consolidated ﬁnancial statements. On an on going
basis, we evaluate our estimates, including, but not
limited to, those related to intangible assets, bad
debts and our long-term service contracts. We base
our estimates on historical experience and on vari-
ous other assumptions that we believe to be reason-
able under the circumstances, the results of which
form the basis for making judgments about the car-
rying values of assets and liabilities that are not
readily apparent from other sources. Actual results
may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies
affect signiﬁcant judgments and estimates used in the
preparation of our consolidated ﬁnancial statements:

Revenue Recognition. We recognize revenues in
accordance with the provisions of the American
Institute of Certiﬁed Public Accountants Statement
of Position (“SOP”) 97-2, “Software Revenue
Recognition,” as amended by SOP 98-4 and SOP
98-9, as well as Technical Practice Aids issued from
time to time by the American Institute of Certiﬁed
Public Accountants, and in accordance with the
SEC Staff Accounting Bulletin No. 101 “Revenue
Recognition in Financial Statements.” Our revenues
are derived from software licenses, hardware, post-
contract customer support/maintenance and services
that typically range from installation, training and
basic consulting to software modiﬁcation and cus-
tomization to meet speciﬁc customer needs. For mul-
tiple element software arrangements, which do not
entail the performance of services that are consid-
ered essential to the functionality of the software, we
generally record revenue when the delivered products
or performed services result in a legally enforceable
claim. We maintain allowances for doubtful accounts,
sales adjustments and estimated cost of product war-
ranties, which are provided at the time the revenue

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C 0 N T I N U E D )

Intangible Assets and Goodwill. Our business acquisi-
tions typically result in the creation of goodwill and
other intangible asset balances, and these balances
affect the amount and timing of future period amor-
tization expense, as well as expense we could possibly
incur as a result of an impairment charge. The cost
of acquired companies is allocated to identiﬁable tan-
gible and intangible assets based on estimated fair
value, with the excess allocated to goodwill.
Accordingly, we have a signiﬁcant balance of acquisi-
tion date intangible assets, including software, cus-
tomer base and goodwill. In addition, we capitalize
software development costs incurred subsequent to
the establishment of technological feasibility on a
speciﬁc software project. Certain of these intangible
assets are amortized over their estimated useful
lives. All intangible assets with deﬁnite and
indeﬁnite lives are reviewed for impairment annually
or whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. Recoverability of goodwill is gen-
erally measured by a comparison of the carrying
amount of an asset to its fair value generally deter-
mined by estimated future net cash ﬂows expected to
be generated by the asset. Recoverability of other
intangible assets is generally measured by compari-
son of the carrying amount to estimated undiscount-
ed future cash ﬂows. The assessment of recoverabili-
ty or of the estimated useful life for amortization
purposes will be affected if the timing or the amount
of estimated future operating cash ﬂows is not
achieved. Events or changes in circumstances that
indicate the carrying amount may not be recoverable
include, but are not limited to, a signiﬁcant decrease
in the market value of the business or asset
acquired, a signiﬁcant adverse change in the extent
or manner in which the business or asset acquired is
used or a signiﬁcant adverse change in the business
climate. In addition, products, capabilities, or tech-
nologies developed by others may render our soft-
ware products obsolete or non-competitive.

is recognized. Since most of our customers are gov-
ernmental entities, we rarely incur a loss resulting
from the inability of a customer to make required
payments. Occasionally, customers may become dis-
satisﬁed with the functionality of the software prod-
ucts and/or the quality of the services and request a
reduction of the total contract price or similar con-
cession. While we engage in extensive product and
service quality assurance programs and processes,
our allowances for these contract price reductions
may need to be revised in the future. In connection
with our customer contracts and the adequacy of
related allowances and measures of progress towards
contract completion, our project managers are
charged with the responsibility to continually review
the status of each customer on a speciﬁc contract
basis. Also, management at our corporate ofﬁces as
well as at our operating companies review on at least
a quarterly basis signiﬁcant past due accounts
receivable and the adequacy of related reserves.
Events or changes in circumstances that indicate
that the carrying amount for the allowances for
doubtful accounts, sales adjustments and estimated
cost of product warranties may require revision,
include, but are not limited to, deterioration of a cus-
tomer's ﬁnancial condition, failure to manage our
customer's expectations regarding the scope of the
services to be delivered, and defects or errors in new
versions or enhancements of our software products.

For those minimal number of software arrangements
that include customization of the software, which is
considered essential to its functionality, and for sub-
stantially all of our real estate appraisal outsourcing
projects, we recognize revenue and proﬁt as the
work progresses using the percentage-of-completion
method. This method relies on estimates of total
expected contract revenue, billings and collections
and expected contract costs. We follow this method
since reasonably dependable estimates of revenue
and costs applicable to various stages of a contract
can be made. At times, we perform additional and/or
non-contractual services for little to no incremental
fee, to satisfy customer expectations. If changes
occur in delivery, productivity or other factors used
in developing our estimates of expected costs or rev-
enues, we revise our cost and revenue estimates, and
any revisions are charged to income in the period in
which the facts that give rise to that revision ﬁrst
become known.

A N A L Y S I S O F R E S U L T S O F O P E R A T I O N S A N D O T H E R

2002 Compared to 2001

The following table includes items from our audited consolidated ﬁnancial statements and the relevant percent-
age change in the amounts between the periods presented. The amounts shown in the table are in thousands,
except the per share data:

Y E A R S E N D E D D E C E M B E R 3 1 ,

2 0 0 2

2 0 0 1

% C H A N G E

Revenues:

Software licenses
Software services
Maintenance
Appraisal services
Hardware and other

Total revenues

Cost of revenues:

Software licenses
Software services and maintenance
Appraisal services
Hardware and other

Total cost of revenues
% of revenues

Gross proﬁt

% of revenues

Selling, general and administrative expenses

% of revenues

Amortization of acquisition intangibles

Operating income

Legal fees associated with afﬁliated investment
Interest (income) expense
Income before income taxes
Income tax provision

Effective income tax rate

Income from continuing operations

Diluted earnings per share from

continuing operations

25%
19
11
7
(8)

33
9
7
(0)

(52)

369

$ 24,278
25,703
40,667
37,319
5,930

$ 19,491
21,538
36,587
34,727
6,473

133,897

118,816

5,482
50,175
25,512
4,746

85,915

4,130
46,024
23,894
4,749

78,797

64.2%

66.3%

47,982

35.8%

33,914

25.3%

3,329

10,739

704
(6)
10,041
3,869

40,019

33.7%

30,830

25.9%

6,898

2,291

--
479
1,812
1,540

38.5%

85.0%

6,172

272

0.12

0.01

Cash ﬂows provided by operating activities

$ 19,845

$ 12,744

Cash balance at December 31

Capital expenditures:

Software development costs
Property and equipment

13,744

5,271

7,210
2,508

6,225
3,101

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C 0 N T I N U E D )

Maintenance revenues. For the year ended December
31, 2002, maintenance revenue increased $4.1 mil-
lion, or 11%, from $36.6 million for 2001. We provide
maintenance and support services for our software
products, third party software and hardware. The
maintenance revenue increase was due to growth in
our installed customer base and slightly higher rates.
During 2001, we received and recorded as revenue a
one-time settlement of approximately $650,000 from
a third party provider of maintenance services relat-
ing to past services. Excluding this settlement, main-
tenance revenue increased approximately 13% for
the year ended December 31, 2002 compared to the
prior year.

Appraisal services revenues. Appraisal services rev-
enues increased $2.6 million, or 7%, for the year
ended December 31, 2002, compared to 2001. The
increase was primarily related to our contract with
Lake County, Indiana, which was ﬁrst awarded in
December 2001. The contract to provide professional
services and technology to reassess real property in
Lake County is valued at $15.9 million, of which
$14.4 million relates to appraisal services, and is
expected to be completed by late 2003. During 2002,
appraisal services revenue also included $12.1 mil-
lion of appraisal revenue related to our contract with
the Nassau County, New York Board of Assessors
(“Nassau County”), which was comparable to the
amount recognized in 2001. Substantially all of the
work related to the Nassau County contract had
been completed as of December 31, 2002.

C O S T O F R E V E N U E S

Cost of software license revenues. For the year ended
December 31, 2002, cost of software license revenues
increased $1.4 million, or 33%, compared to the prior
year, primarily due to higher amortization expense
of software development costs. In 2001, we had sev-
eral products in the development stage, which were
released beginning in the third quarter of 2001. Once
a product is available for general release, we begin to
expense the costs associated with the development
generally over the estimated useful life of the product.
Development costs mainly consist of personnel costs,
such as salary and beneﬁts paid to our software
developers, rent for related ofﬁce space and capital-
ized interest costs.

R E V E N U E S

The following table compares the components of
revenue as a percentage of total revenues for the
periods presented:

YEARS ENDED DECEMBER 31,
Software licenses
Software services
Maintenance
Appraisal services
Hardware and other

2 0 0 2
18.1%
19.2
30.4
27.9
4.4

2 0 0 1
16.4%
18.1
30.8
29.2
5.5

100.0%

Software license revenues. Software license revenues
increased $4.8 million, or 25%, for the year ended
December 31, 2002, compared to 2001. During 2002,
we recognized approximately $2.4 million in license
revenues from four customers for real estate appraisal
software, while we recorded minimal license revenues
from appraisal software in 2001. The remainder of the
increase in software license revenues was related to
expansion of our ﬁnancial and city solutions software
products into the midwest and the western United
States, and was aided by the release of several new
ﬁnancial and city solutions products and enhance-
ments. Our ﬁnancial and city solutions software
products automate accounting systems for cities,
counties, school districts, public utilities and not-for-
proﬁt organizations.

Software services revenues. For the year ended
December 31, 2002, software services revenues
increased $4.2 million, or 19%, compared to 2001.
The increase in software services is primarily related
to higher software license sales. Typically, contracts
for software licenses include services such as instal-
lation of the software, conversion of customer data to
be compatible with the new software and training
customer personnel to use the software. In addition,
software services revenues for 2002 included approx-
imately $1.9 million for services performed under an
$11.0 million contract signed with the State of
Minnesota in July 2002 to install our new Odyssey
court case management system. The Minnesota con-
tract includes both software license and software
services but no license revenues were recognized
under the contract in 2002. Approximately 70% of
the installation is expected to be performed by late
2003. The remainder of the installation is expected
to be performed from 2004 through 2006.

Cost of software service and maintenance revenues. For
the year ended December 31, 2002, cost of software
services and maintenance revenues increased $4.2
million, or 9%, compared to 2001. This increase is
consistent with the higher software services and
maintenance revenues for the same period, although
software services and maintenance revenues grew at
a higher rate than the cost of those revenues, which
is reﬂective of more efﬁcient utilization of our sup-
port and maintenance staff and economies of scale.
As a percentage of related revenues, cost of software
services and maintenance was 76% in 2002 compared
to 79% in 2001.

Cost of appraisal services revenues. For the year ended
December 31, 2002, cost of appraisal service revenue
increased approximately $1.6 million, or 7%, com-
pared to the year ended December 31, 2001. This
increase is consistent with the increase in appraisal
services revenue, which also rose 7% compared to the
prior year. Cost of appraisal services revenues as a
percentage of appraisal services revenue was 68% for
2002 compared to 69% for 2001.

G R O S S P R O F I T

For the years ended December 31, 2002 and 2001,
our overall gross margin was 36% and 34%, respec-
tively. The 2002 gross margin beneﬁted from a prod-
uct mix that included more software license revenues
and higher maintenance revenues than the prior
year. Software license revenues have lower associated
costs than other revenues such as software and
appraisal services, third party software and hard-
ware. In addition, utilization of our personnel that
provide services and support has improved, which
has increased our overall gross proﬁt. The increase
in our gross proﬁt was offset slightly by higher soft-
ware development amortization during 2002.

S E L L I N G , G E N E R A L A N D A D M I N I S T R A T I V E E X P E N S E S

Selling, general and administrative expenses, or
SG&A, increased $3.1 million, or 10%, for the year
ended December 31, 2002 compared to the prior year.
As a percentage of revenues, SG&A was 25% in 2002
compared to 26% in 2001. The $3.1 million increase
in SG&A was related primarily to higher costs with
respect to sales commissions, and increases in health
and other insurance expenses.

A M O R T I Z A T I O N O F A C Q U I S I T I O N I N T A N G I B L E S

Our amortization of acquisition intangibles for the
year ended December 31, 2001 amounted to $6.9
million, including $3.6 million for amortization of
goodwill and workforce costs. Effective January 1,
2002, we adopted Statement of Financial Account-
ing Standards (“SFAS”) No. 142, “Goodwill and
Other Intangible Assets.” As a result of adopting
SFAS No. 142, we ceased amortizing goodwill and
workforce after December 31, 2001. The remaining
amortization consisted of those costs allocated to
our customer base and acquisition date software.
See further discussion of the effect of adopting
SFAS No. 142 in Note 7 in Notes to the Consolidated
Financial Statements.

I N T E R E S T ( I N C O M E ) E X P E N S E

Our cash balances have increased signiﬁcantly during
2002 due to cash generated from operations, the
receipt of proceeds from the sale of certain discontin-
ued businesses and the exercise of stock options.
In 2002 we invested excess cash in money market
investments. Offsetting interest income from these
money market investments was $255,000 of inter-
est expense for an outstanding $2.5 million note
payable. As a result, we had net interest income of
$6,000 for the year ended December 31, 2002 com-
pared to net interest expense of $479,000 for 2001.
In addition, during the years ended December
31, 2002 and 2001, we capitalized $269,000 and
$578,000, respectively, of interest costs related to
capitalized software development costs.

I N C O M E T A X P R O V I S I O N

We had an effective income tax rate of 39% for the
year ended December 31, 2002. For the year ended
December 31, 2001, we had an effective income tax
rate of 85%. Our effective income tax rate in both
years exceeded the federal statutory rate of 35% due
primarily to the net effect of state income taxes and
items that are non-deductible for federal income tax
purposes, including certain non tax-deductible good-
will amortization in periods prior to 2002.

D I S C O N T I N U E D O P E R A T I O N S

Discontinued operations consists of the operating
results of the information and property records serv-

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C 0 N T I N U E D )

ices segment which we discontinued in December
2000, two non-operating subsidiaries relating to a
formerly owned subsidiary that we sold in December
1995 and an automotive parts distributor that we
sold in March 1999.

On September 29, 2000, we sold certain net assets of
Koﬁle, Inc. and another subsidiary, our interest in a
certain intangible work product, and a building and
related building improvements (the “Koﬁle Sale”) for
a cash sale price of $14.4 million. Effective December
29, 2000, we sold for cash our land records business
unit, consisting of Business Resources Corporation
(“Resources”), to an afﬁliate of Afﬁliated Computer
Services, Inc. (“ACS”) (the “Resources Sale”.) The
Resources Sale was valued at approximately $71.0
million. Concurrent with the Resources Sale, our
management, with our Board of Directors’ approval,
adopted a formal plan of disposal for the remaining
businesses and assets of the information and property
records services segment. This restructuring pro-
gram was designed to focus our resources on our
software systems and services segment and to reduce
debt. The businesses and assets divested or identiﬁed
for divesture were classiﬁed as discontinued opera-
tions in the accompanying consolidated ﬁnancial
statements in 2000 and the prior periods’ ﬁnancial
statements were restated to report separately their
operations in compliance with APB Opinion No. 30.
The net gain on the Koﬁle Sale and the Resources
Sale amounted to approximately $1.5 million (net of
an income tax beneﬁt of $2.4 million).

On May 16, 2001, we sold all of the common stock of
one of the remaining businesses in the discontinued
information and property records services segment.
In connection with the sale, we received cash pro-
ceeds of $575,000, approximately 60,000 shares of

Tyler common stock, a promissory note of $750,000
payable in 58 monthly installments at an interest
rate of 9%, and other contingent consideration. On
September 21, 2001, we sold all of the common stock
of Capital Commerce Reporter, Inc. for $3.1 million
in cash.

We renegotiated certain aspects of the May 16, 2001
sale transaction and as a result of this renegotiation
in March 2002, we received additional cash of
approximately $800,000 and a subordinated note
receivable for $200,000, to fully settle the promissory
note and other contingent consideration received in
connection with this sale. The subordinated note is
payable in 16 equal quarterly principal payments
with interest at a rate of 6%. Because the subordi-
nated note receivable is highly dependent upon
future operations of the buyer, we are recording its
value when the cash is received which is our histori-
cal practice. During 2002, we received receipts of
$46,000 on the subordinated note.

During the year ended December 31, 2002, the IRS
issued temporary regulations, which in effect allowed
us to deduct for tax purposes losses attributable to
the March 1999 sale of our automotive parts sub-
sidiary that were previously not allowed. The tax
beneﬁt of allowing the deduction of this loss amount-
ed to approximately $970,000. In addition, we rene-
gotiated a note receivable and certain contingent
consideration in connection with a subsidiary sold in
2001 and received proceeds of approximately
$846,000 in 2002. We initially assigned no value for
accounting purposes to the note receivable and con-
tingent consideration when the loss on the disposal
of the discontinued operations was ﬁrst established
in 2000 and when the note was ﬁrst received in 2001.
In addition, we settled in the fourth quarter of 2002
our asbestos litigation for an amount that was
approximately $200,000 less than the liability initial-
ly established for this matter (See Note 16 in Notes
to Consolidated Financial Statements). The aggre-
gate effects of these events, net of the related tax
effects, and other minor adjustments to the reserve
for discontinued operations, resulted in a credit to
discontinued operations of $1.8 million in 2002. In
our opinion and based on information available at
this time, we believe the net liabilities related to dis-
continued operations are adequate.

The income tax expense or beneﬁt associated with
the gains or losses on the respective sales of the busi-

nesses in the information and property records serv-
ices segment differs from the statutory income tax
rate of 35% due to the elimination of deferred taxes
related to the basis difference between amounts
reported for income taxes and ﬁnancial reporting
purposes and the utilization of available capital loss
carryforwards which were fully reserved in the valu-
ation account prior to the respective sales.

One of our non-operating subsidiaries is involved in
various claims for work-related injuries and physical
conditions relating to a formerly-owned subsidiary
that we sold in 1995. For the years ended December
31, 2001 and 2000, we expensed and included in dis-
continued operations, net of related tax effect, $3,000
and $748,000, respectively, for trial and related costs
(See Note 16 in the Notes to the Consolidated
Financial Statements).

I N V E S T M E N T S E C U R I T Y A V A I L A B L E - F O R - S A L E

Pursuant to an agreement with two major sharehold-
ers of H.T.E., Inc. (“HTE”), we acquired approxi-
mately 5.6 million shares of HTE’s common stock
in exchange for approximately 2.8 million shares of
our common stock. The exchange occurred in two
transactions, one in August 1999 and the other in
December 1999. The 5.6 million shares represent a
current ownership interest of approximately 35% of
HTE. The cost of the investment was recorded at
$15.8 million and is classiﬁed as a non-current asset.

On October 29, 2001, HTE notiﬁed us that, pursu-
ant to the Florida “control share” statute, it had
redeemed all 5.6 million shares of HTE common

stock owned by us for a cash price of $1.30 per share.
On October 29, 2001, we notiﬁed HTE that its pur-
ported redemption of our HTE shares was invalid
and contrary to Florida law, and in any event, the
calculation by HTE of fair value for our shares was
incorrect. On October 30, 2001, HTE ﬁled a com-
plaint in a civil court in Seminole County, Florida
requesting the court to enter a declaratory judgment
declaring HTE’s purported redemption of all of our
HTE shares at a redemption price of $1.30 per share
was lawful and to effect the redemption and cancel
our HTE shares. We removed the case to the United
States District Court, Middle District of Florida,
Orlando Division, and requested a declaratory judg-
ment from the court declaring, among other things,
that HTE’s purported redemption of any or all of our
shares was illegal under Florida law and that we had
the ability to vote up to 20% of the issued and out-
standing shares of HTE common stock owned by us.

On September 18, 2002, the court issued an order
declaring that HTE’s purported redemption was
invalid. On September 24, 2002, we entered into a
settlement agreement with HTE in which HTE
agreed that it would not attempt any other redemp-
tion of our shares. In addition, HTE agreed to dismiss
and release us from the tort claims it alleged against
us as disclosed in previous ﬁlings. On December 11,
2002, the court issued a further order declaring that
all of our HTE shares are “control shares” and there-
fore none of our shares have voting rights. The court
further ruled that voting rights would be restored to
our HTE shares if we were to sell or otherwise trans-
fer our HTE shares to an unafﬁliated third party in a
transaction that did not constitute a “control share
acquisition.” During 2002, approximately $704,000 of
legal and other related costs associated with these
matters were charged to non-operating expenses.

Under GAAP, a 20% investment in the voting stock
of another company creates the presumption that
the investor has signiﬁcant inﬂuence over the operat-
ing and ﬁnancial policies of that company, unless
there is evidence to the contrary. Our management
has concluded that we do not have such inﬂuence.
Accordingly, we account for our investment in
HTE pursuant to the provisions of 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 for HTE
common stock.

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C 0 N T I N U E D )

On February 4, 2003, we entered into an agreement
with SunGard Data Systems, Inc. (“SDS”) in which
we agreed to tender all of our HTE shares in a ten-
der offer to be commenced by SDS for the acquisition
of HTE. On February 5, 2003, SDS and HTE
announced a deﬁnitive agreement for the acquisition
of all of the shares of HTE for $7.00 per share in
cash. SDS and HTE also announced that the con-
summation of the transaction is subject to customary
conditions, including the tender of at least a majority
of the outstanding shares of HTE in the tender offer
and the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. SDS and HTE further announced
that certain shareholders owning approximately
49.6% of the total outstanding shares of HTE had
agreed to tender their shares. According to the press
release issued by SDS and HTE, the acquisition is
expected to close in the ﬁrst quarter of 2003.
Assuming the acquisition is consummated, we will
receive approximately $39.3 million in gross cash
proceeds from the sale of our HTE shares. There can
be no assurance that the acquisition of HTE by SDS
will be consummated on the terms as disclosed, if at
all. If SDS does not acquire HTE, we will continue
to classify our investment as an available-for-sale
security in accordance with SFAS No. 115 and as a
non-current asset since the investment was initially
made for a continuing business purpose.

N E T I N C O M E

Net income was $8.0 million in 2002 compared to
$269,000 in 2001. For 2002 and 2001, diluted earn-
ings per share was $0.16 and $0.01, respectively. Net
income for 2002 included a gain on disposal of dis-
continued operations, net of taxes, of $1.8 million, or
$0.04 per diluted share, and net income for 2001
included a loss on discontinued operations, net of
taxes, of $3,000, or $0.00 per diluted share.

2001 Compared to 2000

R E V E N U E S

Revenues were $118.8 million for the year ended
December 31, 2001, a 26% increase from revenues of
$93.9 million for the prior year.

quarter. For the year ended December 31, 2001, soft-
ware license revenue was $19.5 million, compared to
$19.3 million for the year ended December 31, 2000.
The increase was due mainly to sales of third-party
software that provided additional functionality to
certain modules of our proprietary software, sales of
proprietary software to new customers and in new
geographic areas, primarily the midwestern United
States, and sales of upgraded ﬁnancial and utility
software modules to existing customers. The increase
was somewhat offset by lower tax and appraisal soft-
ware sales.

Software services revenues. Software services revenues
grew 11% to $21.5 million for the year ended
December 31, 2001, from $19.4 million for the year
ended December 31, 2000. The increase was due to
higher proprietary software sales, as we offer services,
such as installation of the software, conversion of the
customers’ data to be compatible with the software
and training of the customer personnel to use the
software. In addition, during 2001, we entered into
more service-intensive contracts, particularly related
to our tax products.

Maintenance revenues. For the year ended December
31, 2001, maintenance revenue increased 26%, to
$36.6 million, from $29.1 million for 2000. Higher
maintenance revenues were due to an increase in our
base of installed software and systems products and
maintenance rate increases for several product lines.
Maintenance and support services are provided for
our software and related products.

Appraisal services revenues. For the year ended
December 31, 2001, appraisal services revenues were
$34.7 million, compared to $20.9 million in the prior
year. The 66% increase for the year in appraisal
services revenues was primarily due to our continued
progress on our contract with Nassau County. The
contract to provide outsourced assessment services
for Nassau County, together with tax assessment
administration software and training, is valued at
approximately $34.0 million. Implementation of the
Nassau County contract began in September 2000.
For the year ended December 31, 2001, we recorded
$14.4 million of professional services revenue related
to Nassau County.

Software license revenues. Software license revenues
increased each quarter during 2001 from $4.0 million
in the ﬁrst quarter to $5.8 million in the fourth

Hardware and other revenues. Hardware and other
revenues increased $1.3 million for the year ended
December 31, 2001 from $5.2 million for the same

period of 2000. Approximately $700,000 of the
increase related to the Nassau County contract.
Other increases were due to timing of installations
of equipment on customer contracts and are depend-
ent on the contract size and on varying customer
hardware needs.

excess of the purchase price over the fair value of the
net identiﬁable assets of the acquired companies
(“goodwill”) was amortized using the straight-line
method of amortization over their respective esti-
mated useful lives. Amortization expense of acquisi-
tion intangibles was $6.9 million in 2001 and 2000.

C O S T O F R E V E N U E S

N E T I N T E R E S T E X P E N S E

For the year ended December 31, 2001, cost of rev-
enues was $78.8 million compared to $59.7 million
for the year ended December 31, 2000. The increase
in cost of revenues was primarily due to the increase
in revenues.

Gross margin was 34% for the year ended December
31, 2001, compared to 36% for the year ended
December 31, 2000. Overall gross margin was lower
because our 2001 revenue mix included more
appraisal services compared to 2000. Historically,
gross proﬁt is higher for software licenses than for
software and appraisal services due to personnel
costs associated with services. In addition, software
license costs increased during 2001 compared to
2000, due to increased amortization of software
development costs. We released several new products
during the second and third quarters of 2001, at
which time we began to amortize the related soft-
ware development costs.

S E L L I N G , G E N E R A L A N D A D M I N I S T R A T I V E E X P E N S E S

Selling, general and administrative expenses for the
year ended December 31, 2001 was $30.8 million
compared to $32.8 million in the prior year. Selling,
general and administrative expenses as a percent-
age of revenues declined to 26% in 2001 from 35%
in 2000 because such expenses are primarily ﬁxed
and therefore did not increase in proportion to our
revenue growth. The decline in selling, general and
administrative expenses was due to a reduction in
corporate costs following the sale of the information
and property records services segment, lower acqui-
sition-related costs such as legal and travel expens-
es and lower research and development costs which
are expensed.

A M O R T I Z A T I O N O F A C Q U I S I T I O N I N T A N G I B L E S

We accounted for all of our past acquisitions using
the purchase method of accounting for business com-
binations. Prior to the adoption of SFAS No. 142, the

Net interest expense was $479,000 for the year ended
December 31, 2001, compared to $4.9 million for the
year ended December 31, 2000. Interest expense
declined due to a signiﬁcant reduction in bank debt
with the proceeds from the disposal of our former
information and property records services segment.
In addition, during 2001 we capitalized $578,000 of
interest costs related to internally developed software
products, compared to $586,000 for 2000.

I N C O M E T A X P R O V I S I O N

For the year ended December 31, 2001, we had
income from continuing operations before income
taxes of $1.8 million and an income tax provision of
$1.5 million, resulting in an effective tax rate of 85%.
The high effective income tax rate is primarily
attributable to non tax-deductible goodwill amortiza-
tion. For 2000, we incurred a loss from continuing
operations before income tax beneﬁt of $10.3 million
and an income tax beneﬁt of $2.8 million, resulting
in an effective beneﬁt rate of 27%.

N E T I N C O M E

Net income was $269,000 in 2001 compared to a net
loss of $24.6 million in 2000. For 2001, diluted earn-
ings per share was $0.01 and, for 2000, diluted loss
per share was $0.54. Income from continuing opera-
tions was $272,000, or $0.01 per diluted share in
2001, compared to a loss from continuing operations
of $7.5 million, or $0.17 per diluted share in 2000.

A C C O U N T I N G P R O N O U N C E M E N T S N O T Y E T A D O P T E D

In June 2001, the Financial Accounting Standards
Board (“FASB”) issued SFAS No. 143, “Accounting
for Asset Retirement Obligations.” SFAS No. 143
requires us to record the fair value of an asset retire-
ment obligation as a liability in the period in which
it incurs a legal obligation associated with the retire-
ment of tangible long-lived assets that result from
the acquisition, construction, development, and/or

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C 0 N T I N U E D )

normal use of the assets. A corresponding asset is
also recorded and depreciated over the life of the
asset. After the initial measurement of the asset
retirement obligation, the obligation will be adjusted
at the end of each period to reﬂect the passage of
time and changes in the estimated future cash ﬂows
relating to the obligation. We are required to adopt
SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 is not expected to have a material
effect on our ﬁnancial statements.

In April 2002, the FASB issued SFAS No. 145,
“Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and
Technical Corrections”. SFAS No. 145 amends exist-
ing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classiﬁcation
of the gain or loss as extraordinary, as the use of
such extinguishments have become part of the risk
management strategy of many companies. SFAS No.
145 also amends SFAS No. 13 to require sale-lease-
back accounting for certain lease modiﬁcations that
have economic effects similar to sale-leaseback trans-
actions. The provisions of SFAS No. 145 related to
the rescission of Statement No. 4, are applied in
ﬁscal years beginning after May 15, 2002. Earlier
application of these provisions is encouraged. The
provisions of SFAS No. 145 related to Statement No.
13 were also effective for transactions occurring after
May 15, 2002, with early application encouraged.
The adoption of SFAS No. 145 is not expected to
have a material effect on our ﬁnancial statements.

In June 2002, the FASB issued SFAS No. 146,
“Accounting for Costs Associated with Exit or
Disposal Activities.” SFAS No. 146 addresses ﬁnan-
cial accounting and reporting for costs associated
with exit or disposal activities and nulliﬁes Emerging
Issues Task Force (“EITF”) Issue 94-3, “Liability
Recognition for Certain Employee Termination
Beneﬁts and Other Costs to Exit an Activity.” The
provisions of this Statement are effective for exit or
disposal activities that are initiated after December
31, 2002, with early application encouraged. The
adoption of SFAS No. 146 is not expected to have a
material effect on our ﬁnancial statements.

In November 2002, the FASB issued Interpretation
No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others,” an interpreta-
tion of FASB Statements No. 5, 57 and 107 and a

rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual ﬁnan-
cial statements about its obligations under guarantees
issued. The Interpretation also clariﬁes that a guaran-
tor is required to recognize, at inception of a guaran-
tee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement
provisions of the Interpretation are applicable to guar-
antees issued or modiﬁed after December 31, 2002
and are not expected to have a material effect on our
ﬁnancial statements. The disclosure requirements are
effective for ﬁnancial statements of interim and annu-
al periods ending after December 31, 2002.

In January 2003, the FASB issued Interpretation
No. 46, “Consolidation of Variable Interest Entities,
an interpretation of Accounting Research Bulletin
(“ARB”) No. 51.” This Interpretation addresses the
consolidation by business enterprises of variable
interest entities as deﬁned in the Interpretation.
The Interpretation applies immediately to variable
interests in variable interest entities created after
January 31, 2003, and to variable interests in
variable interest entities obtained after January
31, 2003. The application of this Interpretation
is not expected to have a material effect on our
ﬁnancial statements.

F I N A N C I A L C O N D I T I O N A N D L I Q U I D I T Y

On March 5, 2002, we entered into a new $10.0 mil-
lion revolving bank credit agreement which matures
January 1, 2005. Our borrowings are limited to 80%
of eligible accounts receivable and bear interest at
either the prime rate or at the London Interbank
Offered Rate plus a margin of 3%. The credit agree-
ment 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, we must maintain certain
ﬁnancial ratios and other ﬁnancial conditions and
cannot make certain investments, advances, cash
dividends or loans.

As of December 31, 2002, our bank has issued under
our credit agreement letters of credit totaling $3.7
million 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 December 31, 2002. At December 31,

2002, we had no outstanding bank borrowings under
the credit agreement and had an available borrowing
base of $6.3 million.

As of December 31, 2002, our cash balance was $13.7
million, compared to $5.3 million at December 31,
2001. Cash increased primarily due to cash received
from disposition of certain discontinued businesses
and assets of discontinued business, cash generated
from operations, exercise of stock options and
improved cash collections. At December 31, 2002, our
days sales outstanding (“DSO’s”) (accounts receiv-
able divided by the quotient of annualized quarterly
revenues divided by 360 days) were 85 compared to
DSO’s of 103 at December 31, 2001.

In March 2002, we received cash of approximately
$800,000 and a $200,000 subordinated note receiv-
able to fully settle an existing promissory note and
other contingent consideration in connection with
the sale in May 2001 of a business unit previously
included in the information and property records
services segment, which had been discontinued.

In June 2002, we sold the building of a business unit
previously included in the discontinued information
and property records service segment. Net proceeds
from the sale were approximately $961,000.

During the year ended December 31, 2002, we
received $1.6 million from the issuance of 491,000
treasury shares upon the exercise of stock options
under our employee stock option plan.

During 2002, we made capital expenditures of $9.7
million, including $7.2 million for software develop-
ment costs. The other expenditures related to com-
puter equipment and expansions related to internal
growth. Capital expenditures were funded principally
from cash generated from operations.

Excluding acquisitions, we anticipate that 2003
capital spending will be approximately $12.0 million,
approximately $9.0 million of which will be related to
software development. Capital spending in 2003 is
expected to be funded from existing cash balances
and cash ﬂows from operations.

On August 15, 2002, we consummated an agreement
to repurchase 1.1 million of our common shares from
William D. Oates, a former director of Tyler, for a
cash purchase price of $4.0 million.

We lease certain ofﬁces, transportation, computer
and other equipment used in our continuing opera-
tions under noncancelable operating lease agree-
ments expiring at various dates through 2012.
Most leases contain renewal options and some con-
tain purchase options. Following are the future
obligations under noncancelable leases and maturi-
ties of long-term obligations at December 31, 2002
(in millions):

2003
2004
2005
2006
2007
Thereafter

F U T U R E R E N T A L
P A Y M E N T S U N D E R
O P E R A T I N G L E A S E S
$ 3.5
3.2
3.0
2.7
2.5
9.5
$ 24.4

N O T E S
P A Y A B L E
A N D O T H E R
$ 0.5
0.0
2.5
--
--
--
$ 3.0

T O T A L
$ 4.0
3.2
5.5
2.7
2.5
9.5
$ 27.4

On February 4, 2003, we entered into an agreement
with SunGard Data Systems Inc. (“SDS”) in which
we agreed to tender all of our HTE shares in the ten-
der offer to be commenced by SDS for the acquisition
of HTE. On February 5, 2003, SDS and HTE
announced a deﬁnitive agreement for the acquisition
of all of the shares of HTE for $7.00 per share in
cash. Assuming the acquisition is consummated, we
will receive approximately $39.3 million in gross cash
proceeds from the sale of our HTE shares.

As part of the plan of reorganization of Swan
Transportation Company, one of our non-operating
subsidiaries, we have agreed to contribute approxi-
mately $1.5 million over the next three years to a
trust that was set up as part of the reorganization.
See Note 16 in the Notes to the Consolidated
Financial Statements.

From time to time, we have discussions relating to
acquisitions and we expect to continue to assess
these and other strategic acquisition opportunities as
they arise. We may also require additional ﬁnancing
if we decide to make additional acquisitions. There
can be no assurance, however, that any such oppor-

M A N A G E M E N T ' S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C 0 N T I N U E D )

tunities will arise, that any such acquisitions will be
consummated or that any needed additional ﬁnancing
will be available when required on terms satisfactory
to us. Absent any acquisitions, we anticipate that
existing cash balances, cash ﬂows from operations,
working capital and available borrowing capacity
under our revolving credit facility will provide
sufﬁcient funds to meet our needs for at least the
next year.

C A P I T A L I Z A T I O N

At December 31, 2002, our capitalization consisted of
$3.0 million of long-term obligations (including the
current portion of those obligations) and $118.7 mil-
lion of shareholders’ equity. Our total debt-to-capital
ratio (total debt divided by the sum of total share-
holders’ equity and total long-term obligations) was
2% at December 31, 2002.

C O R P O R A T E O F F I C E R S

T R A N S F E R A G E N T A N D R E G I S T R A R

John M. Yeaman
President and Chief Executive Officer

Theodore L. Bathurst
Vice President and Chief Financial Ofﬁcer

Brian K. Miller
Vice President – Finance and Treasurer

Equiserve Trust Company, N.A.
P.O. Box 43023
Providence, Rhode Island 02940-3023
816.843.4299
equiserve.com

I N D E P E N D E N T A U D I T O R S

H. Lynn Moore, Jr.
Vice President – General Counsel and Secretary

Ernst & Young LLP
Dallas, Texas

Rick L. Hoff
Chief Technology Ofﬁcer

Terri L. Alford
Controller

L E G A L C O U N S E L

Gardere Wynne Sewell LLP
Dallas, Texas

B O A R D O F D I R E C T O R S

I N V E S T O R I N F O R M A T I O N

The Company’s Annual Report on Form 10-K
is available on the Company’s Web site at
tylertechnologies.com. A copy of the Form 10-K
or other information may be obtained by
contacting the Investor Relations Department
at corporate headquarters.

I N V E S T O R R E L A T I O N S

Tyler Technologies, Inc.
972.713.3700
info@tylertechnologies.com

C O M M O N S T O C K

Listed on the New York Stock Exchange under
the symbol “TYL”

G. Stuart Reeves
Chairman of the Board
Retired Executive Vice President
Electronic Data Systems Corporation

Ben T. Morris
President and Chief Executive Ofﬁcer
Sanders Morris Harris

Glenn A. Smith
President – Courts & Justice Division
Tyler Technologies, Inc.

John M.Yeaman
President and Chief Executive Ofﬁcer
Tyler Technologies, Inc.

John S. Marr, Jr.
President – Large Financial Division
Tyler Technologies, Inc.

Michael D. Richards
Chairman and Chief Executive Ofﬁcer
Reunion Title Company

C O R P O R A T E H E A D Q U A R T E R S

5949 Sherry Lane, Suite 1400
Dallas, Texas 75225
972.713.3700
tylertechnologies.com

T Y L E R T E C H N O L O G I E S

5949 Sherry Lane

Suite 1400

Dallas, Texas 75225

972.713.3700

tylertechnologies.com