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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Tyler Technologies Corp | NYSE:TYL | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
8.01 | 1.54% | 528.92 | 528.95 | 517.90 | 521.65 | 155,212 | 23:35:31 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 29, 2016 (November 16, 2015)
TYLER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Delaware |
|
1-10485 |
|
75-2303920 |
(State or other jurisdiction of incorporation or organization) |
|
(Commission File Number) |
|
(I.R.S. Employer Identification No.) |
5101 TENNYSON PARKWAY
PLANO, TEXAS 75024
(Address of principal executive offices)
(972) 713-3700
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
As previously reported under Item 2.01 of the Current Report on Form 8-K of Tyler Technologies, Inc. (‘‘Tyler’’), filed on November 16, 2015 (the ‘‘Original 8-K’’), Tyler completed its acquisition of all the outstanding shares of the New World Systems Corporation. (‘‘NWS’’) on November 16, 2015. This Form 8-K/A amends and supplements the Form 8-K to provide the required financial statements and pro forma financial information that were not filed with the Form 8-K and that are permitted to be filed by this amendment.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The following financial information related to NWS is attached as Exhibit 99.1 and 99.2 to this Form 8-K/A.
|
(i) |
Audited financial statements of NWS as of December 31, 2014 and 2013 and for the three years in the period ended December 31, 2014 including the notes to such financial statements and the independent auditors report thereon, are attached as Exhibit 99.1: |
|
(ii) |
Unaudited condensed financial statements of NWS as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014 including the notes to such financial statements thereon, are attached as Exhibit 99.2; |
(b) Pro Forma Financial Information
The required unaudited pro forma condensed combined financial information for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015 are included in this Form 8-K/A.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of September 30, 2015, by and among Tyler Technologies, Inc., Brinston Acquisition, LLC, New World Systems Corporation, and Larry D. Leinweber, as the Principal Shareholder identified therein and the Shareholders’ Representative identified therein. (filed as Exhibit 2.1 to our Form 8-K, dated October 1, 2015, and incorporated by reference herein).
23.1 Consent of PricewaterhouseCoopers, LLP, Independent Auditors
99.1 Audited financial statements of NWS as of December 2014 and 2013 and for the three years ended December 31, 2014 and the notes related thereto.
99.2 Unaudited condensed financial statements of NWS as of and for the nine months ended September 30, 2015 and 2014 and the notes related thereto.
99.3 Non-GAAP Measures
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
Tyler |
|
|
New World Systems |
|
|
Pro Forma |
|
|
|
|
Combined |
|
||||
|
|
Historical |
|
|
Historical |
|
|
Adjustments |
|
|
|
|
Tyler |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
238,614 |
|
|
$ |
65,618 |
|
|
$ |
(252,271 |
) |
|
a, c, e |
|
$ |
51,961 |
|
Accounts receivable, net |
|
|
129,228 |
|
|
|
28,570 |
|
|
|
— |
|
|
|
|
|
157,798 |
|
Short-term investments |
|
|
9,124 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
9,124 |
|
Prepaid expenses |
|
|
18,044 |
|
|
|
3,249 |
|
|
|
— |
|
|
|
|
|
21,293 |
|
Other current assets |
|
|
6,821 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
6,821 |
|
Deferred income taxes |
|
|
9,674 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
9,674 |
|
Total current assets |
|
|
411,505 |
|
|
|
97,437 |
|
|
|
(252,271 |
) |
|
|
|
|
256,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, long-term portion |
|
|
1,072 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
1,072 |
|
Property and equipment, net |
|
|
68,092 |
|
|
|
21,386 |
|
|
|
4,820 |
|
|
j |
|
|
94,298 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
125,932 |
|
|
|
— |
|
|
|
516,057 |
|
|
a,b,g,h,i,j |
|
|
641,989 |
|
Other intangibles, net |
|
|
35,701 |
|
|
|
— |
|
|
|
264,233 |
|
|
b |
|
|
299,934 |
|
Cost method investment |
|
|
15,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
15,000 |
|
Non-current investments and other assets |
|
|
21,080 |
|
|
|
— |
|
|
|
2,174 |
|
|
a |
|
|
23,254 |
|
|
|
$ |
678,382 |
|
|
$ |
118,823 |
|
|
$ |
535,013 |
|
|
|
|
$ |
1,332,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,385 |
|
|
|
4,654 |
|
|
|
— |
|
|
|
|
|
9,039 |
|
Accrued liabilities |
|
|
37,199 |
|
|
|
16,870 |
|
|
|
(3,639 |
) |
|
a,f,e |
|
|
50,430 |
|
Current-portion of long-term debt |
|
|
— |
|
|
|
318 |
|
|
|
(318 |
) |
|
c |
|
|
— |
|
Deferred revenue |
|
|
200,890 |
|
|
|
52,645 |
|
|
|
(17,322 |
) |
|
h |
|
|
236,213 |
|
Total current liabilities |
|
|
242,474 |
|
|
|
74,487 |
|
|
|
(21,279 |
) |
|
|
|
|
295,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit line |
|
|
— |
|
|
|
— |
|
|
|
145,000 |
|
|
a |
|
|
145,000 |
|
Other long-term liabilities |
|
|
— |
|
|
|
759 |
|
|
|
(759 |
) |
|
c |
|
|
— |
|
Deferred revenues |
|
|
— |
|
|
|
5,020 |
|
|
|
(1,523 |
) |
|
h |
|
|
3,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
4,813 |
|
|
|
— |
|
|
|
95,218 |
|
|
i |
|
|
100,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
431,095 |
|
|
|
38,557 |
|
|
|
318,356 |
|
|
l |
|
|
788,008 |
|
|
|
$ |
678,382 |
|
|
$ |
118,823 |
|
|
$ |
535,013 |
|
|
|
|
$ |
1,332,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
Historical |
|
|
New World Systems |
|
|
Pro Forma |
|
|
|
|
Combined |
|
||||
|
|
Tyler |
|
|
Historical |
|
|
Adjustments |
|
|
|
|
Tyler |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses and royalties |
|
$ |
44,576 |
|
|
$ |
14,306 |
|
|
$ |
— |
|
|
|
|
$ |
58,882 |
|
Subscriptions |
|
|
81,273 |
|
|
|
3,603 |
|
|
|
— |
|
|
|
|
|
84,876 |
|
Software services |
|
|
101,765 |
|
|
|
20,879 |
|
|
|
— |
|
|
|
|
|
122,644 |
|
Maintenance |
|
|
177,829 |
|
|
|
48,123 |
|
|
|
(579 |
) |
|
h |
|
|
225,373 |
|
Appraisal services |
|
|
19,337 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
19,337 |
|
Hardware and other |
|
|
7,326 |
|
|
|
1,582 |
|
|
|
— |
|
|
|
|
|
8,908 |
|
Total revenues |
|
|
432,106 |
|
|
|
88,493 |
|
|
|
(579 |
) |
|
|
|
|
520,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
1,183 |
|
|
|
553 |
|
|
|
— |
|
|
|
|
|
1,736 |
|
Acquired software |
|
|
1,464 |
|
|
|
— |
|
|
|
14,757 |
|
|
b |
|
|
16,221 |
|
Software services, maintenance and subscriptions |
|
|
207,819 |
|
|
|
15,855 |
|
|
|
104 |
|
|
j |
|
|
223,778 |
|
Appraisal services |
|
|
12,397 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
12,397 |
|
Hardware and other |
|
|
5,278 |
|
|
|
1,256 |
|
|
|
— |
|
|
|
|
|
6,534 |
|
Total cost of revenues |
|
|
228,141 |
|
|
|
17,664 |
|
|
|
14,861 |
|
|
|
|
|
260,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
203,965 |
|
|
|
70,829 |
|
|
|
(15,440 |
) |
|
|
|
|
259,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
90,810 |
|
|
|
32,796 |
|
|
|
(254 |
) |
|
b,f |
|
|
123,352 |
|
Research and development expense |
|
|
21,307 |
|
|
|
19,337 |
|
|
|
— |
|
|
|
|
|
40,644 |
|
Amortization of customer and trade name intangibles |
|
|
3,585 |
|
|
|
— |
|
|
|
6,316 |
|
|
b |
|
|
9,901 |
|
Operating income |
|
|
88,263 |
|
|
|
18,696 |
|
|
|
(21,502 |
) |
|
|
|
|
85,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
621 |
|
|
|
(19 |
) |
|
|
(3,011 |
) |
|
d |
|
|
(2,409 |
) |
Income before income taxes |
|
|
88,884 |
|
|
|
18,677 |
|
|
|
(24,513 |
) |
|
|
|
|
83,048 |
|
Income tax provision |
|
|
32,633 |
|
|
|
135 |
|
|
|
(2,289 |
) |
|
k |
|
|
30,479 |
|
Net income |
|
$ |
56,251 |
|
|
$ |
18,542 |
|
|
$ |
(22,224 |
) |
|
|
|
$ |
52,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.46 |
|
Diluted |
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
33,787 |
|
|
|
|
|
|
|
2,136 |
|
|
g |
|
|
35,923 |
|
Diluted weighted average common shares outstanding |
|
|
36,163 |
|
|
|
|
|
|
|
2,136 |
|
|
g |
|
|
38,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
56,251 |
|
|
$ |
18,542 |
|
|
$ |
(22,224 |
) |
|
|
|
$ |
52,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
Historical |
|
|
New World Systems |
|
|
Pro Forma |
|
|
|
|
Combined |
|
||||
|
|
Tyler |
|
|
Historical |
|
|
Adjustments |
|
|
|
|
Tyler |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses and royalties |
|
$ |
49,065 |
|
|
$ |
22,159 |
|
|
$ |
— |
|
|
|
|
$ |
71,224 |
|
Subscriptions |
|
|
87,848 |
|
|
|
3,854 |
|
|
|
— |
|
|
|
|
|
91,702 |
|
Software services |
|
|
113,821 |
|
|
|
28,143 |
|
|
|
(6,452 |
) |
|
h |
|
|
135,512 |
|
Maintenance |
|
|
212,696 |
|
|
|
60,313 |
|
|
|
(12,960 |
) |
|
h |
|
|
260,049 |
|
Appraisal services |
|
|
21,802 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
21,802 |
|
Hardware and other |
|
|
7,869 |
|
|
|
1,913 |
|
|
|
— |
|
|
|
|
|
9,782 |
|
Total revenues |
|
|
493,101 |
|
|
|
116,382 |
|
|
|
(19,412 |
) |
|
|
|
|
590,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses and royalties |
|
|
1,900 |
|
|
|
826 |
|
|
|
— |
|
|
|
|
|
2,726 |
|
Acquired software |
|
|
1,858 |
|
|
|
— |
|
|
|
19,676 |
|
|
b |
|
|
21,534 |
|
Software services, maintenance and subscriptions |
|
|
236,363 |
|
|
|
22,823 |
|
|
|
138 |
|
|
j |
|
|
259,324 |
|
Appraisal services |
|
|
14,284 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
14,284 |
|
Hardware and other |
|
|
5,325 |
|
|
|
1,552 |
|
|
|
— |
|
|
|
|
|
6,877 |
|
Total cost of revenues |
|
|
259,730 |
|
|
|
25,201 |
|
|
|
19,814 |
|
|
|
|
|
304,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
233,371 |
|
|
|
91,181 |
|
|
|
(39,226 |
) |
|
|
|
|
285,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
108,260 |
|
|
|
42,776 |
|
|
|
165 |
|
|
b |
|
|
151,201 |
|
Research and development expense |
|
|
25,743 |
|
|
|
19,779 |
|
|
|
— |
|
|
|
|
|
45,522 |
|
Amortization of customer and trade name intangibles |
|
|
4,546 |
|
|
|
— |
|
|
|
8,421 |
|
|
b |
|
|
12,967 |
|
Operating income |
|
|
94,822 |
|
|
|
28,626 |
|
|
|
(47,812 |
) |
|
|
|
|
75,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net |
|
|
355 |
|
|
|
50 |
|
|
|
4,019 |
|
|
d |
|
|
4,424 |
|
Income before income taxes |
|
|
94,467 |
|
|
|
28,576 |
|
|
|
(51,831 |
) |
|
|
|
|
71,212 |
|
Income tax provision |
|
|
35,527 |
|
|
|
180 |
|
|
|
(8,931 |
) |
|
k |
|
|
26,776 |
|
Net income |
|
$ |
58,940 |
|
|
$ |
28,396 |
|
|
$ |
(42,900 |
) |
|
|
|
$ |
44,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.26 |
|
Diluted |
|
$ |
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
33,011 |
|
|
|
|
|
|
|
2,136 |
|
|
g |
|
|
35,147 |
|
Diluted weighted average common shares outstanding |
|
|
35,401 |
|
|
|
|
|
|
|
2,136 |
|
|
g |
|
|
37,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
58,940 |
|
|
$ |
28,396 |
|
|
$ |
(42,900 |
) |
|
|
|
$ |
44,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: January 29, 2016 |
|
TYLER TECHNOLOGIES, INC. |
|
|
|
|
By: |
/s/ Brian K. Miller |
|
|
Brian K. Miller |
|
|
Executive Vice President and Chief Financial Officer |
|
|
principal financial officer) |
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Tables in thousands)
(1) Basis of Pro Forma Presentation
On November 16, 2015, Tyler Technologies, Inc. (“Tyler”) acquired New World Systems Corporation (“NWS”). The acquisition has been accounted for using the purchase method of accounting, which requires the total purchase price to be allocated to the assets acquired based on their estimated fair values. The excess purchase price over the amounts assigned to tangible and intangible assets acquired and liabilities assumed is recognized as goodwill. The actual purchase price allocation will be subject to the completion of a valuation of the assets and the liabilities as of the date the acquisition. Therefore, such allocation and the resulting effect on our consolidated financial statements may differ from the pro forma accounts included herein, and such differences may be material.
The unaudited pro forma condensed combined balance sheet is presented as if the acquisition had occurred as of September 30, 2015. The unaudited pro forma condensed combined income statements are presented as if the acquisition had occurred on January 1, 2014.
The historical condensed consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination. The unaudited pro forma condensed combined financial statements are based on the historical financial statements of Tyler and NWS after giving effect to the merger, as well as the assumptions and adjustments described in the accompany notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed consolidated balance sheet and the condensed consolidated statements of operations are provided for informational purposes only and are not indicative of Tyler’s financial position or results of operations had the transaction been consummated on January 1, 2014 or the financial position or results of operations for any future date or period. This information should be read in conjunction with Tyler’s historical financial statements and related notes included in the Tyler’s Annual Report on Form 10-K for the year ended December 31, 2014 and its Quarterly Report on Form 10-Q for the nine months ended September 30, 2015 and the audited financial statements of NWS as of December 31, 2014 and 2013 and for the three years in the period ended December 31, 2014 and the unaudited condensed financial statements of NWS as of September 30, 2015 and for the nine months ended September 30, 2015, filed as exhibits 99.1 and 99.2, respectively.
The combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of NWS as a result of restructuring activities and other planned cost savings initiatives following the completion of the business combination.
(2) |
Financing transactions |
Total merger consideration consisted of (1) $360.0 million in cash, subject to post-closing working capital adjustments, and (2) 2,136,207 shares of Tyler Common Stock valued at $362.8 million. Tyler financed the cash portion of the merger with approximately $215.0 million from cash on hand and borrowings of $145.0 million under a $300.0 million revolving credit facility.
(3) |
Purchase Price Allocation |
Tyler has performed a preliminary valuation analysis of the fair value of NWS’s assets and liabilities. The fair value of identifiable assets was determined primarily using the “income approach,” which requires a forecast of all the expected future cash flows. The following table summarizes the allocation of the preliminary purchase price as of the merger date.
Cash |
$ |
26,521 |
|
Accounts receivable |
|
28,570 |
|
Prepaid and other |
|
3,249 |
|
Property, plant and equipment |
|
26,207 |
|
Identifiable intangible assets |
|
264,233 |
|
Goodwill |
|
516,057 |
|
Accounts payable |
|
(4,654 |
) |
Accrued expenses |
|
(3,331 |
) |
Deferred revenue |
|
(38,820 |
) |
Deferred tax liabilities, net |
|
(95,218 |
) |
Total consideration |
$ |
722,814 |
|
The goodwill to be recognized is primarily attributable to the assembled workforce, a reduction in costs and other synergies, an increase in product development capabilities, and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisition is not expected to be deductible for tax purposes.
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when Tyler has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property and equipment; (2) changes in allocations to intangible assets such as software, customer relationships, trademark, as well as goodwill; and (3) other changes to assets and liabilities, including deferred revenues for maintenance and professional services.
(4) |
Pro Forma Adjustments |
|
a) |
Adjustment represents cash paid of $360.0 million (including accrued working capital holdbacks of $4.0 million) that would have been paid had closing occurred on September 30, 2015. Cash paid was comprised of $213.2 million cash on hand and borrowings of $145.0 million under a $300.0 million revolving credit line facility. Cash paid also includes $2.2 million for debt issuance costs related to the credit facility. |
|
b) |
The assets acquired and liabilities assumed of NWS have been adjusted to their estimated fair values as of the acquisition date, as reflected in the preliminary purchase price allocation in Note 2. The following table summarizes the estimated fair values of NWS identifiable intangible assets and their estimated useful lives: |
|
|
|
|
|
|
|
|
|
Amortization Expense |
|
|||||
|
Estimated |
|
|
Estimated |
|
|
Year ended |
|
|
Nine months ended |
|
||||
|
fair value |
|
|
useful life |
|
|
December 31, 2014 |
|
|
September 30, 2015 |
|
||||
Software |
$ |
137,730 |
|
|
|
7 |
|
|
$ |
19,676 |
|
|
$ |
14,757 |
|
Customer relationships |
|
115,810 |
|
|
|
15 |
|
|
$ |
7,721 |
|
|
$ |
5,791 |
|
Trademark |
|
7,000 |
|
|
|
10 |
|
|
$ |
700 |
|
|
$ |
525 |
|
Less: NWS ' historical amortization expense |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Pro Forma adjustment |
|
|
|
|
|
|
|
|
$ |
28,096 |
|
|
$ |
21,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expense |
|
|||||
|
Estimated |
|
|
Estimated |
|
|
Year ended |
|
|
Nine months ended |
|
||||
|
fair value |
|
|
useful life |
|
|
December 31, 2014 |
|
|
September 30, 2015 |
|
||||
Real Estate Intangibles |
|
3,693 |
|
|
* |
|
|
|
165 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Useful life is the remaining life of six sub-rental arrangements |
|
These preliminary estimates of fair value and estimated useful lives may differ from final amounts after a detailed valuation analysis is completed and the differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. A 10% change in the calculation of the intangible assets would cause a corresponding increase or decrease in the balance of identifiable intangible assets and annual amortization expense of approximately $2.2 million, assuming an overall weighted-average useful life of 12 years.
|
c) |
Represents the effects of extinguishing NWS’s outstanding debt of $1.1 million prior to the consummation of the acquisition. |
|
d) |
Represents the net increase to interest resulting from interest and related financing costs on new debt to finance the acquisition of NWS and extinguishment of NWS’ existing debt and the amortization of related debt issuance costs as follows : |
|
Year ended |
|
|
Nine months ended |
|
||
|
December 31, 2014 |
|
|
September 30, 2015 |
|
||
Elimination of interest expense - NWS debt |
$ |
(63 |
) |
|
$ |
(50 |
) |
Interest expense on new 2.2% debt |
|
3,227 |
|
|
|
2,420 |
|
Amortization of new debt issuance costs |
|
855 |
|
|
|
641 |
|
Pro forma adjustments to interest expense |
$ |
4,019 |
|
|
$ |
3,011 |
|
A change in the interest rate of 1/8th % would cause interest expense related to the acquisition of NWS to increase or decrease by approximately $200,000.
|
e) |
Adjustment represents cash payments of approximately $38.0 million (approximately $13.5 million was accrued as of September 30, 2015), by NWS subsequent to September 30, 2015 for annual distributions to shareholders, final contributions to the profit sharing plan and 2015 annual bonuses, which were as a result of the acquisition and were payable upon the closing of the business combination. |
|
f) |
Represents fees for legal, accounting, financial advisory, due diligence, tax, valuation and other various services necessary to complete the acquisition that are non-recurring in nature. These fees totaled $6.3 million of which $379,000 was included in the Tyler and NWS historical financials statements for the nine months ended September 30, 2015 and $5.9 million was incurred and paid subsequent to September 30, 2015. |
|
g) |
Represents the issuance of 2,136,207 shares of unregistered common stock of Tyler at $169.84 per share, which was the closing price on November 16, 2015. |
|
h) |
Represents the estimated adjustment to decrease the assumed deferred revenue obligations to fair value. The calculation of fair value is preliminary and subject to change. The fair value was determined based on the estimated costs to fulfill the remaining maintenance and professional services obligations plus a normal profit margin. After the acquisition, this adjustment will have a continuing impact and for the year ended December 31, 2014, would reduce revenue related to the assumed performance obligations by $6.5 million as the professional services are provided during 2014. The pro forma adjustments to reduce maintenance revenue for the nine months ended September 30, 2015 and year ended December 31, 2014, by $579,000 and $13.0 million, respectively, reflect the difference between prepayments related to maintenance arrangements and the fair value of the assumed performance obligations as they are satisfied, assuming the transaction was consummated on January 1, 2014. |
|
i) |
Reflects the adjustment to increase net deferred tax liabilities resulting from the fair-value adjustments to acquired intangible assets, property and equipment and deferred revenue. |
|
j) |
Adjust depreciation expense as a result of a $4.8 million adjustment to record land and buildings at fair value for the following periods: |
|
Year ended |
|
|
Nine months ended |
|
||
|
December 31, 2014 |
|
|
September 30, 2015 |
|
||
Estimated depreciation and amortization expense |
$ |
988 |
|
|
$ |
1,388 |
|
Historical depreciation and amortization expense |
|
850 |
|
|
|
1,284 |
|
Pro forma adjustments to depreciation and amortization expense |
$ |
138 |
|
|
$ |
104 |
|
|
k) |
Reflects the income tax effect of pro forma adjustments based on the estimated blended federal and state statutory tax rate of 37.6% and 36.7% for the year ended December 31, 2014 and the nine months ended September 30, 2015, respectively. The pro forma provision for income taxes does not necessarily reflect the amounts that would have resulted had Tyler and NWS filed consolidated returns for the periods presented. |
|
l) |
Represents the elimination of the historical equity of NWS, including accrued transaction expenses subsequent to September 30, 2015 and the issuance of common shares to finance the acquisition. |
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (No. 333-205983 and No. 333-182318) of Tyler Technologies, Inc. of our report dated March 18, 2015 relating to the financial statements of New World Systems Corporation, which appears in this Current Report on Form 8-K/A of Tyler Technologies, Inc.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 29, 2016
Exhibit 99.1
New World Systems
Corporation
Financial Statements
December 31, 2014, 2013 and 2012
New World Systems Corporation
Index
December 31, 2014. 2013 and 2012
Independent Auditor’s Report1
Financial Statements
Balance Sheets2
Statements of Income3
Statements of Stockholders’ Equity4
Statements of Cash Flows5
Notes to Financial Statements6–13
To the Board of Directors of
New World Systems Corporation
We have audited the accompanying financial statements of New World Systems Corporation, which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2014.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New World Systems Corporation as of December 31, 2014 and 2013 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 18, 2015
New World Systems Corporation
Balance Sheets
December 31, 2014 and 2013
Assets |
2014 |
|
|
2013 |
|
||
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
48,018,002 |
|
|
$ |
75,720,549 |
|
Accounts receivable, trade (net of allowance for doubtful accounts |
|
31,754,334 |
|
|
|
28,786,273 |
|
of $800,000 and $874,947 in 2014 and 2013, respectively) |
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
2,814,430 |
|
|
|
1,515,175 |
|
Total current assets |
|
82,586,766 |
|
|
|
106,021,997 |
|
|
|
|
|
|
|
|
|
Land and land improvements |
|
4,244,603 |
|
|
|
— |
|
Building |
|
8,821,671 |
|
|
|
— |
|
Computer/office equipment and software |
|
5,408,304 |
|
|
|
6,944,075 |
|
Furniture and fixtures |
|
2,250,888 |
|
|
|
1,458,941 |
|
Leasehold improvements |
|
227,813 |
|
|
|
227,813 |
|
|
|
20,953,279 |
|
|
|
8,630,829 |
|
Less: Accumulated depreciation and amortization |
|
(5,043,013 |
) |
|
|
(7,086,175 |
) |
Net property and equipment |
|
15,910,266 |
|
|
|
1,544,654 |
|
Total assets |
$ |
98,497,032 |
|
|
$ |
107,566,651 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
326,291 |
|
|
|
352,837 |
|
Accounts payable |
|
763,361 |
|
|
|
706,938 |
|
Accrued liabilities |
|
6,509,727 |
|
|
|
8,630,228 |
|
Customer deposits |
|
1,275,831 |
|
|
|
886,860 |
|
Deferred revenues |
|
47,107,646 |
|
|
|
44,171,530 |
|
Total current liabilities |
|
55,982,856 |
|
|
|
54,748,393 |
|
Long-term liabilities |
|
|
|
|
|
|
|
Long-term debt and notes payable |
|
530,025 |
|
|
|
808,062 |
|
Deferred revenues |
|
6,175,416 |
|
|
|
5,034,779 |
|
Other long term liabilities |
|
419,386 |
|
|
|
437,810 |
|
Total liabilities |
|
63,107,683 |
|
|
|
61,029,044 |
|
Stockholders' equity |
|
|
|
|
|
|
|
Common stock, no par value, 5,000,000 shares authorized; |
|
|
|
|
|
|
|
3,222,250 and 3,186,800 shares issued and outstanding |
|
|
|
|
|
|
|
at December 31, 2014 and 2013, respectively |
|
1,795,080 |
|
|
|
1,100,750 |
|
Notes receivable, employee stock |
|
(9,540 |
) |
|
|
(32,378 |
) |
Retained earnings |
|
33,603,809 |
|
|
|
45,469,235 |
|
Total stockholders' equity |
|
35,389,349 |
|
|
|
46,537,607 |
|
Total liabilities and stockholders' equity |
$ |
98,497,032 |
|
|
$ |
107,566,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
2
New World Systems Corporation
Statements of Income
Years Ended December 31, 2014, 2013 and 2012
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
$ |
22,159,377 |
|
|
$ |
23,936,196 |
|
|
$ |
15,423,885 |
|
Subscriptions |
|
|
3,853,587 |
|
|
|
2,670,403 |
|
|
|
1,891,507 |
|
Software services |
|
|
28,142,551 |
|
|
|
24,610,954 |
|
|
|
26,486,773 |
|
Maintenance |
|
|
60,312,760 |
|
|
|
56,990,421 |
|
|
|
54,083,857 |
|
Hardware and other |
|
|
1,912,930 |
|
|
|
2,599,870 |
|
|
|
982,967 |
|
Total revenues |
|
|
116,381,205 |
|
|
|
110,807,844 |
|
|
|
98,868,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
825,772 |
|
|
|
209,200 |
|
|
|
591,859 |
|
Software services, maintenance and subscriptions |
|
|
22,823,249 |
|
|
|
20,327,347 |
|
|
|
20,420,204 |
|
Hardware and other |
|
|
1,552,952 |
|
|
|
1,831,805 |
|
|
|
887,790 |
|
Total cost of revenues |
|
|
25,201,973 |
|
|
|
22,368,352 |
|
|
|
21,899,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
91,179,232 |
|
|
|
88,439,492 |
|
|
|
76,969,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
42,776,335 |
|
|
|
40,585,746 |
|
|
|
36,177,938 |
|
Research and development expense |
|
|
19,779,000 |
|
|
|
19,933,000 |
|
|
|
18,346,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
28,623,897 |
|
|
|
27,920,746 |
|
|
|
22,444,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net |
|
|
(50,216 |
) |
|
|
(38,626 |
) |
|
|
57,098 |
|
Income before income taxes |
|
|
28,573,681 |
|
|
|
27,882,120 |
|
|
|
22,501,796 |
|
Income tax provision |
|
|
180,000 |
|
|
|
140,000 |
|
|
|
128,235 |
|
Net income |
|
$ |
28,393,681 |
|
|
$ |
27,742,120 |
|
|
$ |
22,373,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
New World Systems Corporation
Statements of Stockholders’ Equity
Years Ended December 31, 2014, 2013 and 2012
|
|
|
|
|
|
|
|
|
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable, |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Employee |
|
|
Retained |
|
|
|
|
|
|||||||
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Earnings |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012 |
|
3,215,300 |
|
|
$ |
633,406 |
|
|
$ |
(135,382 |
) |
|
$ |
38,801,073 |
|
|
$ |
39,299,097 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,373,561 |
|
|
|
22,373,561 |
|
Stockholders' distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33,492,891 |
) |
|
|
(33,492,891 |
) |
Issuance of common stock |
|
59,000 |
|
|
|
1,214,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1,214,000 |
|
Repurchase of common stock |
|
(46,000 |
) |
|
|
(113,900 |
) |
|
|
46,124 |
|
|
|
(643,600 |
) |
|
|
(711,376 |
) |
Collection of notes receivable, employee stock |
|
— |
|
|
|
— |
|
|
|
32,542 |
|
|
|
— |
|
|
|
32,542 |
|
Balance at December 31, 2012 |
|
3,228,300 |
|
|
|
1,733,506 |
|
|
|
(56,716 |
) |
|
|
27,038,143 |
|
|
|
28,714,933 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,742,120 |
|
|
|
27,742,120 |
|
Stockholders' distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,264,953 |
) |
|
|
(9,264,953 |
) |
Issuance of common stock |
|
9,000 |
|
|
|
120,060 |
|
|
|
— |
|
|
|
— |
|
|
|
120,060 |
|
Repurchase of common stock |
|
(50,500 |
) |
|
|
(752,816 |
) |
|
|
— |
|
|
|
(46,075 |
) |
|
|
(798,891 |
) |
Collection of notes receivable, employee stock |
|
— |
|
|
|
— |
|
|
|
24,338 |
|
|
|
— |
|
|
|
24,338 |
|
Balance at December 31, 2013 |
|
3,186,800 |
|
|
|
1,100,750 |
|
|
|
(32,378 |
) |
|
|
45,469,235 |
|
|
|
46,537,607 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28,393,681 |
|
|
|
28,393,681 |
|
Stockholders' distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(40,213,032 |
) |
|
|
(40,213,032 |
) |
Issuance of common stock |
|
41,950 |
|
|
|
734,965 |
|
|
|
— |
|
|
|
— |
|
|
|
734,965 |
|
Repurchase of common stock |
|
(6,500 |
) |
|
|
(40,635 |
) |
|
|
— |
|
|
|
(46,075 |
) |
|
|
(86,710 |
) |
Collection of notes receivable, employee stock |
|
— |
|
|
|
— |
|
|
|
22,838 |
|
|
|
— |
|
|
|
22,838 |
|
Balance at December 31, 2014 |
|
3,222,250 |
|
|
$ |
1,795,080 |
|
|
$ |
(9,540 |
) |
|
$ |
33,603,809 |
|
|
$ |
35,389,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
New World Systems Corporation
Statements of Cash Flows
Years Ended December 31, 2014, 2013 and 2012
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
28,393,681 |
|
|
$ |
27,742,120 |
|
|
$ |
22,373,561 |
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
850,480 |
|
|
|
819,012 |
|
|
|
794,806 |
|
Loss (gain) on sale of property and equipment |
|
(2,276 |
) |
|
|
(4,360 |
) |
|
|
16,893 |
|
Provision for losses - accounts receivable |
|
(74,947 |
) |
|
|
(859,268 |
) |
|
|
1,034,215 |
|
Share based compensation expense |
|
900,632 |
|
|
|
— |
|
|
|
839,400 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
(2,945,173 |
) |
|
|
(1,663,608 |
) |
|
|
1,116,919 |
|
Prepaid expenses and other current assets |
|
(1,247,197 |
) |
|
|
590,508 |
|
|
|
(649,410 |
) |
Accounts payable |
|
10,114 |
|
|
|
(297,080 |
) |
|
|
(104,580 |
) |
Accrued liabilities |
|
(2,304,593 |
) |
|
|
2,313,175 |
|
|
|
(3,674,041 |
) |
Customer deposits |
|
388,971 |
|
|
|
(200,777 |
) |
|
|
312,823 |
|
Deferred revenues |
|
4,076,754 |
|
|
|
5,062,122 |
|
|
|
1,761,298 |
|
Net cash provided by operating activities |
|
28,046,446 |
|
|
|
33,501,844 |
|
|
|
23,821,884 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of property and equipment |
|
(15,174,059 |
) |
|
|
(1,022,271 |
) |
|
|
(621,317 |
) |
Proceeds from sale of property and equipment |
|
6,554 |
|
|
|
4,481 |
|
|
|
5,255 |
|
Net cash used in investing activities |
|
(15,167,505 |
) |
|
|
(1,017,790 |
) |
|
|
(616,062 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of stock |
|
— |
|
|
|
120,060 |
|
|
|
374,600 |
|
Repurchase of common stock |
|
— |
|
|
|
— |
|
|
|
(61,875 |
) |
Collection of notes receivable, employee stock |
|
22,838 |
|
|
|
24,338 |
|
|
|
32,542 |
|
Repayments of long-term debt |
|
(391,294 |
) |
|
|
(452,336 |
) |
|
|
(353,166 |
) |
Stockholder distributions |
|
(40,213,032 |
) |
|
|
(11,608,798 |
) |
|
|
(31,149,046 |
) |
Net cash used in financing activities |
|
(40,581,488 |
) |
|
|
(11,916,736 |
) |
|
|
(31,156,945 |
) |
Net (decrease) increase in cash and cash equivalents |
|
(27,702,547 |
) |
|
|
20,567,318 |
|
|
|
(7,951,123 |
) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
75,720,549 |
|
|
|
55,153,231 |
|
|
|
63,104,354 |
|
End of year |
$ |
48,018,002 |
|
|
$ |
75,720,549 |
|
|
$ |
55,153,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
$ |
62,873 |
|
|
$ |
64,160 |
|
|
$ |
38,144 |
|
Cash paid for income taxes |
|
186,138 |
|
|
|
125,864 |
|
|
|
149,758 |
|
Supplemental disclosures of noncash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
Issuance of long term debt for the repurchase of common stock |
$ |
86,710 |
|
|
$ |
798,891 |
|
|
$ |
603,377 |
|
Vested performance units converted to shares of common stock |
|
734,965 |
|
|
|
— |
|
|
|
— |
|
Property and equipment in accounts payable |
|
46,309 |
|
|
|
— |
|
|
|
— |
|
Repurchase of common stock through release of receivable for employee stock |
|
— |
|
|
|
— |
|
|
|
46,124 |
|
The accompanying notes are an integral part of these financial statements.
5
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
Nature of Business
New World Systems Corporation (the “Company”) designs, develops and licenses proprietary copyrighted software applications and provides related management services and support. The Company is also a reseller of computer equipment. Its customers are primarily governmental organizations located throughout the United States.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Deposits with the Company’s bank may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand.
Product sales and services are provided on credit to the Company’s customers. Product sales are executed in accordance with specific contract terms and usually require a significant down payment. The Company performs ongoing credit evaluations of its customers and requires no collateral. An allowance for losses is maintained at a level deemed appropriate based on such factors as known disputed items, receivable balance and aging, and historical loss and collection experience. The allowance is charged when receivables are determined to be uncollectible.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents, consisting of money market funds, represent approximately 41% as of December 31, 2014. All of the Company’s cash and cash equivalents are held by two financial institutions and exceed FDIC limits at one financial institution.
Property and Equipment
Property and equipment are stated at cost. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is credited or charged against income. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets from three to 39.5 years. Maintenance and repairs are charged to current operations as incurred, whereas major improvements are capitalized.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board - Accounting Standards Codification 985-605. The Company recognizes revenue when it has persuasive evidence of an arrangement, the title to the product has transferred or the services have been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured.
Software license fee revenue and subscription revenue is derived from the licensing of computer software. Maintenance and software services revenue is derived from software maintenance and from telephone support, installation, customer training and other services. Hardware revenue is derived from the delivery of hardware such as computers, servers and other hardware. The Company’s software licenses are sold as part of an arrangement that includes maintenance and support, installation, training and other services.
6
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
|
· |
Subscriptions – Subscriptions consist of revenues derived from term license arrangements. The Company accounts for these arrangements under ASC 985-605. The term license arrangements bundle the license and maintenance into a single fee that is recognized ratably over the term of the arrangement. |
|
· |
Maintenance – Revenue from maintenance and support arrangements is deferred and recognized ratably over the term of the maintenance and support arrangements. |
|
· |
Software Services – Revenue from customer training, installation and other services is recognized as the services are provided to customers or upon contractual expiration of such services. |
Multiple-Element Arrangements – The Company enters into arrangements with customers that may include a combination of software products, system hardware, maintenance and support (which includes unspecified upgrades), installation, customer training, and other services. The Company allocates the total arrangement fee among the various elements of the arrangement based on the fair value of each of the undelivered elements determined by vendor-specific objective evidence (“VSOE”). For arrangements in which the Company has the fair value of all undelivered elements but not of a delivered element, the Company recognizes revenue using the residual method. In software arrangements for which the Company does not have VSOE for all elements, revenue is deferred until the earlier of when VSOE is determined for the undelivered elements (residual method) or when all elements for which the Company does not have vendor-specific objective evidence of fair value have been delivered. The fair value of installation and customer education services and maintenance and support services is established based upon sold separately pricing for the services or stated renewal rate.
Customer billings occur according to contract billing terms. At December 31, 2014 and 2013, there was approximately $14,146,000 and $11,045,000, respectively, of unbilled accounts receivable included in the accounts receivable balances.
Deferred Revenue
The Company collects software maintenance fees and other amounts in advance of performance of the related service. Revenue is recognized as the services are provided. This prepaid revenue is shown on the Company’s balance sheet as a liability under generally accepted accounting principles. The liability will be recognized as revenue as services are rendered. These amounts are not refundable. Such arrangements benefit the Company by providing upfront cash and a more predictable future revenue stream.
Real Estate Activities
Rental income from tenants leasing space in the building owned by the Company is included in administrative expenses. Rental income is recognized on a straight-line basis over the term of the lease. Rental income was approximately $266,000 for the year ended December 31, 2014. Real estate expenses related to the leased space were approximately $216,000 for the year ended December 31, 2014. There was no rental income or related expenses in 2013 or 2012.
7
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
Advertising costs are expensed when incurred. Advertising and trade show expenses for the years ended December 31, 2014, 2013 and 2012 totaled approximately $1,414,200, $1,380,000 and $1,168,000, respectively.
Fair Value of Financial Instruments
The Company measures financial assets at fair value on a recurring basis. Fair value is a market based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable are recorded at carrying value, which approximates fair value due to the short-term maturities of these assets and liabilities.
Income Taxes
The Company has elected to include its taxable income with that of its stockholders under the provisions of Subchapter S of the Internal Revenue Code. No federal income tax provision has been included in the financial statements since the income or loss from operations is required to be reported by the stockholders of the Company on their respective income tax returns. The Company records state income tax expense on income attributable to states that do not recognize the Company’s S-Corp status. These amounts are recorded at the applicable statutory rate.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. |
Debt |
Long-term debt consists of notes payable to former stockholders and employees as part of stock redemption agreements. Obligations are payable in monthly installments and bear an interest rate of 6%.
Annual maturities of long-term debt as of December 31, 2014 are as follows:
2015 |
$ |
326,291 |
|
2016 |
|
255,178 |
|
2017 |
|
211,366 |
|
2018 |
|
63,481 |
|
2019 |
|
— |
|
|
|
856,316 |
|
Less Short-term portion |
|
(326,291 |
) |
Long-term debt, net of current portion |
$ |
530,025 |
|
8
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
At December 31, 2014 and 2013, accrued liabilities consist of the following:
|
2014 |
|
|
2013 |
|
||
|
|
|
|
|
|
|
|
Bonuses |
$ |
3,070,502 |
|
|
$ |
4,986,162 |
|
Salaries, wages |
|
1,658,547 |
|
|
$ |
1,462,026 |
|
Commissions |
|
944,623 |
|
|
|
1,116,634 |
|
Settlement |
|
— |
|
|
|
450,000 |
|
Software |
|
243,660 |
|
|
|
— |
|
Taxes |
|
264,862 |
|
|
|
294,766 |
|
Other accrued liabilities |
|
327,533 |
|
|
|
320,640 |
|
|
$ |
6,509,727 |
|
|
$ |
8,630,228 |
|
|
|
|
|
|
|
|
|
4. |
Income Taxes |
The provision for income taxes consists of the following:
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Current - State Taxes |
$ |
180,000 |
|
|
$ |
140,000 |
|
|
$ |
128,235 |
|
Deferred |
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
$ |
180,000 |
|
|
$ |
140,000 |
|
|
$ |
128,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For uncertainty in tax positions the Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority.
After reviewing its operations and all relevant tax issues, the Company believes it has no liability for uncertain tax positions. Consequently, the Company recorded no adjustment during the years ended December 31, 2014 and 2013 related to uncertain tax positions.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign jurisdictions, where applicable. As of December 31, 2014, there are no tax years prior to the S-corporation election in 2008 that remain subject to examination for an entity level tax by the major tax jurisdictions under the statute of limitations (with limited exceptions).
5. |
Lease Commitments |
The Company leases its primary operating facility and various other offices, under agreements ending at various dates through 2017 which call for minimum annual rentals, plus annual adjustments for increases in the building’s operating expenses. The Company also leases vehicles under various operating leases.
9
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
Total rent expense for all facilities and vehicles for the years ended December 31, 2014, 2013 and 2012 was approximately $883,000, $903,000 and $890,000, respectively.
Minimum future rental payments under operating leases are as follows:
2015 |
$ |
733,325 |
|
2016 |
|
5,280 |
|
2017 |
|
2,200 |
|
|
$ |
740,805 |
|
During 2014 the Company purchased land and a building for use as its corporate headquarters for a purchase price of approximately $14.3 million. The acquisition was accounted for as an asset purchase, as the primary purpose of the purchase was for the corporate use. Approximately 40% of the building (net book value of approximately $8.8 million at December 31, 2014) is rented to tenants, which is incidental to the primary purpose of the acquisition. Future minimum rental payments from these tenants is as follows:
2015 |
$ |
1,096,192 |
|
2016 |
|
1,384,199 |
|
2017 |
|
1,398,029 |
|
2018 |
|
1,407,570 |
|
2019 |
|
1,323,604 |
|
Thereafter |
|
7,924,421 |
|
|
$ |
14,534,015 |
|
|
|
|
|
6. |
Contingent Liabilities |
The Company is subject to various legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of any liability which may result with respect to these actions will not materially affect the financial position or results of operations of the Company.
The Company enters into a variety of agreements in the normal course of business. Some of these agreements may contain indemnifications or guarantees. In the opinion of management, the amount of any liability which may result with respect to these agreements will not materially affect the financial position or results of operations of the Company.
7. |
Profit-Sharing Plan |
The Company has a profit-sharing plan, which includes the provisions of Section 401(k) of the Internal Revenue Code. The plan covers substantially all eligible employees and provides for employee-elected deferrals not to exceed 20% of compensation subject to limitations under the Internal Revenue Code. The Company may provide discretionary matching contributions and profit-sharing contributions. The matching contributions are provided for an amount not to exceed the lesser of $1,500 or 25% of compensation contributed as elected deferrals for each participant. Profit-sharing and matching contributions are determined at the discretion of the Board of Directors. For the years ended December 31, 2014, 2013 and 2012, respectively, the Company expensed approximately $504,400, $458,000 and $431,000 for matching contributions and $1,026,900, $1,305,000 and $847,700 for profit-sharing contributions.
10
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
The New World Systems Performance Incentive Plan (“PIP”) is a discretionary plan under which selected members are issued a specific number of PIP incentive units. These units vest over time. At the completion of the vesting period, the Company will repurchase the units with cash or through the issuance of notes or stock at a value equal to the formula value under the Employee Stock Purchase Plan. As of December 31, 2014, 75,750 units were outstanding. At December 31, 2014 and 2013, $419,386 and $437,810, respectively, was included in long-term liabilities related to this agreement.
9. |
Employee Stock Purchase Plan |
Under terms of the Employee Stock Purchase plan, as amended, certain employees, officers and directors selected by the Board of Directors may be offered the opportunity to purchase shares of the Company’s common stock. The Board of Directors shall determine the number of shares to be sold, the dates on which such purchases may be made and the price of the shares issued or redeemed.
A total of 600,000 shares are authorized under the plan. Consideration for shares of common stock purchased under the plan is paid in cash or by a full recourse promissory note. Interest on outstanding notes averages 6% per annum. In the event of termination of a purchaser’s employment within five years or in the event the purchaser attempts to sell or transfer such shares, the Company shall have the right to purchase such shares at the price paid by the purchaser, adjusted to reflect stock splits or capital changes, if any. In the event of termination after the shares are vested, the Company shall have the right to purchase such shares at the formula value as specified in the plan.
During 2014, there were 41,950 shares converted from the PIP plan and issued under this plan at an average formula value of $17.52 per share. During the same time period, 6,500 shares were redeemed by the Company at an average formula value of $13.34 per share.
During 2013, there were 9,000 shares issued under the plan at an average formula value of $13.34 per share. During the same time period, 50,500 shares were redeemed by the Company at an average formula value of $15.82 per share.
During 2012, there were 59,000 shares issued under the plan at an average formula value of $20.58 per share. During the same period, 46,000 shares were redeemed by the Company at a formula value of $16.47 per share.
The price per share was based upon the formula specified in the plan at the time of the transaction. There was no compensation cost recognized for the years ended December 31, 2014, 2013 and 2012.
At December 31, 2014 there were 295,250 shares outstanding under the Employee Stock Purchase Agreement. Using the formula contained in the Employee Stock Purchase Agreement and based upon fiscal year 2012 through 2014 financial results, the formula value of outstanding shares if fully vested would be approximately $4,912,960. At December 31, 2014, 202,300 shares of the 295,250 shares outstanding were vested. The remaining 92,950 unvested shares are eligible for vesting at various dates from 2015 to 2023.
11
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
Costs related to research, design and development of products are charged to research and development expense as incurred. Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. The Company uses the working model approach to determine technological feasibility. The Company’s products are released soon after technological feasibility has been established. As a result, the Company has not capitalized any software development costs because such costs have not been significant. Research and development expenses approximated $19,779,000, $19,933,000 and $18,346,500 for the years ended December 31, 2014, 2013 and 2012, respectively, and are comprised of direct compensation costs for new and ongoing development and an allocated portion of the Company’s overhead.
11. |
New Accounting Pronouncements |
Revenue from Contracts with Customers
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This ASU is the result of a convergence project between the FASB and the International Accounting Standards Board. The core principle behind ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The guidance in the ASU supersedes existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2017 with early application not permitted. The ASU allows two methods of adoption; a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements.
On April 1, 2015, the FASB voted for a one-year deferral of the effective date of the new standard and will issue an exposure draft proposing the deferral, with a 30-day comment period. The proposal would now require application of the new standard no later than annual reporting periods beginning after December 15, 2018, including interim reporting periods therein; however, under the proposal, public entities would be permitted to elect to early adopt the new standard as of the original effective date. We currently expect to adopt the new standard in fiscal year 2018 in accordance with the revised effective date.
The Company is currently assessing the financial impact of adopting the new standard and the methods of adoption; however, given the scope of the new standard, we are currently unable to provide a reasonable estimate regarding the financial impact or which method of adoption of the new standard we will elect.
Disclosure of Uncertainties about an Entities Ability to Continue as a going concern
In August 2014, the FASB amended existing guidance related to the disclosures about an entity’s ability to continue as a going concern. These amendments are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. These amendments provide guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by
12
New World Systems Corporation
Notes to Financial Statements
December 31, 2014, 2013 and 2012
organizations in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition
12. |
Subsequent Events |
Subsequent events are events or transactions that occur after the statement of financial condition date but before financial statements are issued or are available to be issued.
The Company has performed an evaluation of subsequent events through March 18, 2015, the date which the report was available for issuance.
On January 9, 2015 the Company paid $3,300,000 as a stockholder distribution, for tax purposes in the normal course of business.
13
Exhibit 99.2
New World Systems
Corporation
Financial Statements
For the Nine Months Ended September 30, 2015
Condensed Financial Statements
Balance Sheets1
Statements of Income2
Statements of Stockholders’ Equity3
Statements of Cash Flows4
Notes to Financial Statements5–7
New World Systems Corporation
Balance Sheets (unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2015 |
|
|
2014 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
65,617,557 |
|
|
$ |
48,018,002 |
|
Accounts receivable (less allowance for losses of $1,000,000 at September 30, 2015 and $800,000 at December 31, 2014) |
|
|
28,569,639 |
|
|
|
31,754,334 |
|
Prepaid expenses and other current assets |
|
|
3,249,350 |
|
|
|
2,814,430 |
|
Total current assets |
|
|
97,436,546 |
|
|
|
82,586,766 |
|
|
|
|
|
|
|
|
|
|
Land and land improvements |
|
|
4,244,603 |
|
|
|
4,244,603 |
|
Building |
|
|
8,821,671 |
|
|
|
8,821,671 |
|
Computer/office equipment and software |
|
|
6,099,632 |
|
|
|
5,408,304 |
|
Furniture and fixtures |
|
|
1,696,301 |
|
|
|
2,250,888 |
|
Leasehold improvements |
|
|
227,813 |
|
|
|
227,813 |
|
Construction in progress |
|
|
6,033,515 |
|
|
|
— |
|
|
|
|
27,123,535 |
|
|
|
20,953,279 |
|
Less: Accumulated depreciation and amortization |
|
|
(5,737,507 |
) |
|
|
(5,043,013 |
) |
Net property and equipment |
|
|
21,386,028 |
|
|
|
15,910,266 |
|
Total assets |
|
$ |
118,822,574 |
|
|
$ |
98,497,032 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,653,127 |
|
|
|
763,361 |
|
Accrued liabilities |
|
|
16,870,471 |
|
|
|
6,509,727 |
|
Current maturities of long-term debt |
|
|
317,610 |
|
|
|
326,291 |
|
Customer deposits |
|
|
1,593,988 |
|
|
|
1,275,831 |
|
Deferred revenue |
|
|
51,051,143 |
|
|
|
47,107,646 |
|
Total current liabilities |
|
|
74,486,339 |
|
|
|
55,982,856 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Long-term debt and notes payable |
|
|
324,609 |
|
|
|
530,025 |
|
Deferred revenues |
|
|
5,020,072 |
|
|
|
6,175,416 |
|
Other long term liabilities |
|
|
434,170 |
|
|
|
419,386 |
|
Total liabilities |
|
|
80,265,190 |
|
|
|
63,107,683 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Common stock, no par value; 5,000,000 shares authorized; 3,219,250 and 3,222,250 shares issued and outstanding at September 30, 2015 and December 31, 2014 |
|
|
1,794,749 |
|
|
|
1,795,080 |
|
Notes receivable, employee stock |
|
|
(3,761 |
) |
|
|
(9,540 |
) |
Retained earnings |
|
|
36,766,396 |
|
|
|
33,603,809 |
|
Total stockholders' equity |
|
|
38,557,384 |
|
|
|
35,389,349 |
|
Total liabilities and stockholders' equity |
|
$ |
118,822,574 |
|
|
$ |
98,497,032 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
1
New World Systems Corporation
Statements of Income (unaudited)
|
|
Nine months ended September 30, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
Revenues: |
|
|
|
|
|
|
|
|
Software licenses |
|
$ |
14,306,245 |
|
|
$ |
13,501,795 |
|
Subscriptions |
|
|
3,603,465 |
|
|
|
2,809,930 |
|
Software services |
|
|
20,879,118 |
|
|
|
20,405,534 |
|
Maintenance |
|
|
48,122,740 |
|
|
|
44,705,800 |
|
Hardware and other |
|
|
1,581,490 |
|
|
|
1,611,316 |
|
Total revenues |
|
|
88,493,058 |
|
|
|
83,034,375 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
Software licenses |
|
|
553,383 |
|
|
|
556,327 |
|
Software services, maintenance and subscriptions |
|
|
15,854,872 |
|
|
|
14,824,902 |
|
Hardware and other |
|
|
1,255,906 |
|
|
|
1,323,324 |
|
Total cost of revenues |
|
|
17,664,161 |
|
|
|
16,704,553 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
70,828,897 |
|
|
|
66,329,822 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
32,796,225 |
|
|
|
30,717,002 |
|
Research and development expense |
|
|
19,336,602 |
|
|
|
16,509,654 |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
18,696,070 |
|
|
|
19,103,166 |
|
|
|
|
|
|
|
|
|
|
Other expense, net |
|
|
19,211 |
|
|
|
41,476 |
|
Income before income taxes |
|
|
18,676,859 |
|
|
|
19,061,690 |
|
Income tax provision |
|
|
135,000 |
|
|
|
135,000 |
|
Net income |
|
$ |
18,541,859 |
|
|
$ |
18,926,690 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
2
New World Systems Corporation
Statements of Stockholders’ Equity (unaudited)
|
|
|
|
|
|
|
|
|
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable, |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Employee |
|
|
Retained |
|
|
|
|
|
|||||||
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Earnings |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
$ |
3,186,800 |
|
|
$ |
1,100,750 |
|
|
$ |
(32,378 |
) |
|
$ |
45,469,235 |
|
|
$ |
46,537,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,926,689 |
|
|
|
18,926,689 |
|
Stockholder distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,411,210 |
) |
|
|
(14,411,210 |
) |
Issuance of common stock |
|
16,500 |
|
|
|
289,080 |
|
|
|
— |
|
|
|
— |
|
|
|
289,080 |
|
Repurchase of common stock |
|
(6,500 |
) |
|
|
(40,635 |
) |
|
|
— |
|
|
|
(46,075 |
) |
|
|
(86,710 |
) |
Collection of notes receivable, employee stock |
|
— |
|
|
|
— |
|
|
|
19,235 |
|
|
|
— |
|
|
|
19,235 |
|
Balance at September 30, 2015 |
$ |
3,196,800 |
|
|
$ |
1,349,195 |
|
|
$ |
(13,143 |
) |
|
$ |
49,938,639 |
|
|
$ |
51,274,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable, |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Employee |
|
|
Retained |
|
|
|
|
|
|||||||
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Earnings |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015 |
$ |
3,222,250 |
|
|
$ |
1,795,080 |
|
|
$ |
(9,540 |
) |
|
$ |
33,603,809 |
|
|
$ |
35,389,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,541,859 |
|
|
|
18,541,859 |
|
Stockholder distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,329,682 |
) |
|
|
(15,329,682 |
) |
Repurchase of common stock |
|
(3,000 |
) |
|
|
(331 |
) |
|
|
— |
|
|
|
(49,590 |
) |
|
|
(49,921 |
) |
Collection of notes receivable, employee stock |
|
— |
|
|
|
— |
|
|
|
5,779 |
|
|
|
— |
|
|
|
5,779 |
|
Balance at September 30, 2015 |
$ |
3,219,250 |
|
|
$ |
1,794,749 |
|
|
$ |
(3,761 |
) |
|
$ |
36,766,396 |
|
|
$ |
38,557,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
New World Systems Corporation
Statements of Cash Flows (unaudited)
|
|
Nine months ended September 30, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,541,859 |
|
|
$ |
18,926,690 |
|
Adjustments to reconcile net income to cash provided by operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,283,667 |
|
|
|
597,388 |
|
Loss (gain) on sale of property and equipment |
|
|
(435 |
) |
|
|
1,726 |
|
Provision for losses - accounts receivable |
|
|
200,000 |
|
|
|
(74,947 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
289,080 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
2,984,695 |
|
|
|
3,421,304 |
|
Prepaid expenses and other current assets |
|
|
(434,920 |
) |
|
|
(1,153,599 |
) |
Accounts payable |
|
|
609,819 |
|
|
|
(309,455 |
) |
Accrued liabilities |
|
|
10,375,528 |
|
|
|
7,670,578 |
|
Customer deposits |
|
|
318,157 |
|
|
|
35,083 |
|
Deferred revenue |
|
|
2,788,153 |
|
|
|
4,142,832 |
|
Net cash provided by operating activities |
|
|
36,666,523 |
|
|
|
33,546,680 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(3,479,047 |
) |
|
|
(769,962 |
) |
Net cash used by investing activities |
|
|
(3,479,047 |
) |
|
|
(769,962 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Collection of notes receivable, employee stock |
|
|
5,779 |
|
|
|
19,235 |
|
Repayments of long-term debt |
|
|
(264,018 |
) |
|
|
(308,909 |
) |
Stockholder distributions |
|
|
(15,329,682 |
) |
|
|
(14,411,210 |
) |
Net cash used by financing activities |
|
|
(15,587,921 |
) |
|
|
(14,700,884 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
17,599,555 |
|
|
|
18,075,834 |
|
Cash and cash equivalents at beginning of period |
|
|
48,018,002 |
|
|
|
75,720,549 |
|
Cash and cash equivalents at end of period |
|
$ |
65,617,557 |
|
|
$ |
93,796,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
39,001 |
|
|
|
49,203 |
|
Cash paid for income taxes |
|
|
88,406 |
|
|
|
193,249 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Issuance of long term debt for the redemption of common stock |
|
|
49,921 |
|
|
|
86,710 |
|
Redemption of common stock |
|
|
(49,921 |
) |
|
|
(86,710 |
) |
Property and equipment in accounts payable |
|
|
3,279,947 |
|
|
|
47,180 |
|
Vested performance units converted to shares of common stock |
|
|
— |
|
|
|
220,110 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
New World Systems Corporation
Notes to Financial Statements (unaudited)
The accompanying unaudited financial statements include those of New World Systems Corporation (the "Company). Such unaudited financial data as of September 30, 2015 and for the nine months ended September 30, 2015 and September 30, 2014 have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America, and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end balance sheet data were derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto.
In the opinion of management, all adjustments necessary to state fairly the Company's statement of financial position as of September 30, 2015 and results of operations and cash flows for the nine months ended September 30, 2015 and September 30, 2014 have been made. The results of operations and cash flows for any interim period are not necessarily indicative of the operating results and cash flows for the full fiscal year or any future periods.
2.Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents, consisting of money market funds, represent approximately 84% of total cash and cash equivalents at September 30, 2015. All of the Company’s cash and cash equivalents are held by two financial institutions and exceed FDIC limits at one financial institution.
Fair Value of Financial Instruments
The Company measures financial assets at fair value on a recurring basis. Fair value is a market based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable are recorded at carrying value. Carrying values approximate fair value due to the short-term maturities of these assets and liabilities.
Long-term debt consists of notes payable to former stockholders and employees as part of stock redemption agreements. Carrying values approximate fair value.
The accompanying notes are an integral part of these financial statements.
5
New World Systems Corporation
Notes to Financial Statements (unaudited)
At September 30, 2015 and December 31, 2014, accrued liabilities consisted of the following:
|
September 30, |
|
|
|
|
December 31, |
|
||
|
2015 |
|
|
|
|
2014 |
|
||
|
|
|
|
|
|
|
|
|
|
Bonuses |
$ |
13,538,604 |
|
|
|
|
$ |
3,070,502 |
|
Salaries, wages |
|
1,599,941 |
|
|
|
|
|
1,658,547 |
|
Commissions |
|
749,127 |
|
|
|
|
|
944,623 |
|
Conference expenses |
|
489,519 |
|
|
|
|
|
— |
|
Software |
|
— |
|
|
|
|
|
243,660 |
|
Taxes |
|
40,040 |
|
|
|
|
|
264,862 |
|
Other accrued liabilities |
|
453,240 |
|
|
|
|
|
327,533 |
|
|
$ |
16,870,471 |
|
|
|
|
$ |
6,509,727 |
|
|
|
|
|
|
|
|
|
|
|
4.Income Taxes
The Company has elected to include its taxable income with that of its shareholders under the provisions of Subchapter S of the Internal Revenue Code. No federal income tax provision has been included in the financial statements since the income or loss from operations is required to be reported by the shareholders of the Company on their respective income tax returns. The Company records state income tax expense on income attributable to states that do not recognize the Company’s S-Corp status. The amount is estimated based on prior year’s experience.
5.Commitments and Contingencies
Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are a party.
6.New Accounting Pronouncements
Revenue from Contracts with Customers
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This ASU is the result of a convergence project between the FASB and the International Accounting Standards Board. The core principle behind ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The guidance in the ASU supersedes existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2017 with early application not permitted. The ASU allows two methods of adoption; a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements.
On August 12, 2015, the FASB voted for a one-year deferral of the effective date of the new standard. The FASB requires application of the new standard no later than annual reporting
The accompanying notes are an integral part of these financial statements.
6
New World Systems Corporation
Notes to Financial Statements (unaudited)
periods beginning after December 15, 2018, including interim reporting periods therein; however, public entities would be permitted to elect to early adopt the new standard as of the original effective date. We currently expect to adopt the new standard in fiscal year 2018 in accordance with the revised effective date.
The Company is currently assessing the financial impact of adopting the new standard and the methods of adoption; however, given the scope of the new standard, we are currently unable to provide a reasonable estimate regarding the financial impact or which method of adoption of the new standard we will elect.
Disclosure of Uncertainties about an Entities Ability to Continue as a going concern
In August 2014, the FASB amended existing guidance related to the disclosures about an entity’s ability to continue as a going concern. These amendments are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. These amendments provide guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition
7. Net Property and Equipment
Construction in progress is comprised of costs related to the construction of an office building. Depreciation of these assets begins when the building is ready for its intended use.
8.Subsequent event
On November 16, 2015, the shareholders of NWS sold the Company to Tyler Technologies, Inc. for $360.0 million in cash and approximately 2.1 million shares of Tyler's common stock.
The Company has performed an evaluation of subsequent events through January 29, 2016, the date the report was available for issuance.
The accompanying notes are an integral part of these financial statements.
7
Exhibit 99.4
Use of Non-GAAP Financial Measures
The Company has provided in this Current Report on Form 8-K/A financial information that has not been prepared in accordance with generally accepted accounting principles (“GAAP”). This information includes non-GAAP net income and non-GAAP earnings per diluted share. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP measures are provided to enhance investors’ overall understanding of the acquisition and its impact on the Company’s financial performance. The Company believes that the non-GAAP financial measures presented herein are useful because they will allow for meaningful comparison of Tyler’s pro forma combined results in the periods presented with such results in future periods. The usefulness of the non-GAAP financial measures presented herein is limited by the fact that the adjustments are merely estimates of what the performance would have been with the adjustments discussed herein.
Non-GAAP financial measures discussed below add back write-downs of acquisition-related deferred revenue, write-downs of acquisition-related real estate income, share-based compensation expense, the employer portion of payroll tax related to employee stock transactions, acquisition-related costs, and amortization of intangibles arising from business combinations. These non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies.
The reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures is shown below.
TYLER TECHNOLOGIES, INC. |
|
|||||||
PRO FORMA RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES |
|
|||||||
(Amounts in thousands, except per share amounts) |
|
|||||||
(Unaudited) |
|
|||||||
|
|
Nine Months |
|
|
Twelve Months |
|
||
|
|
Ended |
|
|
Ended |
|
||
Reconciliation of non-GAAP net income and earnings per share |
|
September 30, 2015 |
|
|
December 31, 2014 |
|
||
Pro forma GAAP net income |
|
$ |
52,569 |
|
|
$ |
44,436 |
|
Pro forma non-GAAP adjustments included in total revenues: |
|
|
|
|
|
|
|
|
Add: Acquisition-related deferred revenue write-down |
|
|
579 |
|
|
|
19,411 |
|
Add: Acquisition-related real estate write-down |
|
|
125 |
|
|
|
165 |
|
Pro forma non-GAAP adjustments included in cost of revenues: |
|
|
|
|
|
|
|
|
Add: Share-based compensation expense |
|
|
2,349 |
|
|
|
2,177 |
|
Pro forma non-GAAP adjustments included in selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
Add: Share-based compensation expense |
|
|
12,110 |
|
|
|
12,642 |
|
Add: Employer portion of payroll tax related to employee stock transactions |
|
|
333 |
|
|
|
514 |
|
Add: Non-recurring compensation related to acquisitions |
|
|
13,007 |
|
|
|
15,870 |
|
Add: Acquisition-related costs |
|
|
379 |
|
|
|
— |
|
Add: Amortization of acquired software |
|
|
16,221 |
|
|
|
21,534 |
|
Add: Amortization of customer and trade name intangibles |
|
|
9,901 |
|
|
|
12,967 |
|
Pro forma non-GAAP adjustments subtotal |
|
|
55,004 |
|
|
|
85,280 |
|
Less: Tax impact related to non-GAAP adjustments |
|
|
(18,334 |
) |
|
|
(28,899 |
) |
Pro forma non-GAAP net income |
|
$ |
89,239 |
|
|
$ |
100,817 |
|
|
|
|
|
|
|
|
|
|
Shares used in computing Pro forma non-GAAP diluted earnings per share |
|
|
38,299 |
|
|
|
37,537 |
|
Pro forma non-GAAP earnings per diluted share |
|
$ |
2.33 |
|
|
$ |
2.69 |
|
1 Year Tyler Technologies Chart |
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