Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this Annual Report:

(a)		(1	)		The financial statements are filed as part of this Annual Report.
							Page
					Reports of Independent Registered Public Accounting Firm		F-1
					Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014		F-3
					Consolidated Balance Sheets as of December 31, 2016 and 2015		F-4
					Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014		F-5
					Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014		F-6
					Notes to Consolidated Financial Statements		F-7
		(2	)		Financial statement schedules:
					There are no financial statement schedules filed as part of this Annual Report, since the required information is included in the financial statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.
		(3	)		Exhibits
					Certain of the exhibits to this Annual Report are hereby incorporated by reference, as specified:

Exhibit Number		Description
3.1		Restated Certificate of Incorporation of Tyler Three, as amended through May 14, 1990, and Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.1 to our Form 10-Q for the quarter ended June 30, 1990, and incorporated by reference herein).
3.2		Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to our Form 8-K, dated February 19, 1998, and incorporated by reference herein).
3.3		Amended and Restated By-Laws of Tyler Corporation, dated October 20, 2015 (filed as Exhibit 3.3 to our Form 10-Q for the quarter ended September 30, 2015, and incorporated by reference herein).
3.4		Certificate of Amendment dated May 19, 1999 to the Restated Certificate of Incorporation (filed as Exhibit 3.4 to our Form 10-K for the year ended December 31, 2000, and incorporated by reference herein).
4.1		Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our registration statement no. 33-33505 and incorporated by reference herein).
4.2		Credit Agreement dated November 16, 2015, among Tyler Technologies, Inc. and Wells Fargo Bank, N. A. as Administrative Agent and other lenders party hereto (filed as Exhibit 10.1 to our Form 8-K dated November 16, 2015, and incorporated by reference herein).
4.3		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).
10.2		Tyler Technologies, Inc. 2010 Stock Option Plan effective as of May 13, 2010 (filed as Exhibit 4.1 to our registration statement no. 333-168499 and incorporated by reference herein).
10.3		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John S. Marr Jr. dated February 5, 2013 (filed as Exhibit 10.3 to our Form 10-K for the year ended December 31, 2012 and incorporated by reference herein).

Exhibit Number		Description
10.4		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and Dustin R. Womble dated February 5, 2013 (filed as Exhibit 10.4 to our Form 10-K for the year ended December 31, 2012 and incorporated by reference herein).
10.5		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and Brian K. Miller dated February 5, 2013 (filed as Exhibit 10.5 to our Form 10-K for the year ended December 31, 2012 and incorporated by reference herein).
10.6		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and H. Lynn Moore dated February 5, 2013 (filed as Exhibit 10.6 to our Form 10-K for the year ended December 31, 2012 and incorporated by reference herein).
10.7		Employee Stock Purchase Plan (filed as Exhibit 10.1 to our registration statement 333-182318 dated June 25, 2012 and incorporated by reference herein).
*23		Consent of Independent Registered Public Accounting Firm.
*31.1		Rule 13a-14(a) Certification by Principal Executive Officer.
*31.2		Rule 13a-14(a) Certification by Principal Financial Officer.
*32		Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
*101		Instance Document
*101		Schema Document
*101		Calculation Linkbase Document
*101		Labels Linkbase Document
*101		Definition Linkbase Document
*101		Presentation Linkbase Document

*	— Filed herewith.

A copy of each exhibit may be obtained at a price of 15 cents per page, with a $10.00 minimum order, by writing Investor Relations, 5101 Tennyson Parkway, Plano, Texas, 75024.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		TYLER TECHNOLOGIES, INC.
Date: February 22, 2017		By:		/s/ John S. Marr
				John S. Marr
				Chief Executive Officer and Chairman of the Board
				(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below.

Date: February 22, 2017		By:		/s/ John S. Marr
				John S. Marr
				Chief Executive Officer and Chairman of the Board
				Director
				(principal executive officer)
Date: February 22, 2017		By:		/s/ Brian K. Miller
				Brian K. Miller
				Executive Vice President and Chief Financial Officer
				(principal financial officer)
Date: February 22, 2017		By:		/s/ W. Michael Smith
				W. Michael Smith
				Chief Accounting Officer
				(principal accounting officer)
Date: February 22, 2017		By:		/s/ Donald R. Brattain
				Donald R. Brattain
				Director
Date: February 22, 2017		By:		/s/ Glenn A. Carter
				Glenn A. Carter
				Director
Date: February 22, 2017		By:		/s/ Brenda A. Cline
				Brenda A. Cline
				Director

Date: February 22, 2017		By:		/s/ J. Luther King
				J. Luther King
				Director
Date: February 22, 2017		By:		/s/ Larry D. Leinweber
				Larry D. Leinweber
				Director
Date: February 22, 2017		By:		/s/ Daniel M. Pope
				Daniel M. Pope
				Director
Date: February 22, 2017		By:		/s/ Dustin R.Womble
				Dustin R. Womble
				Director
Date: February 22, 2017		By:		/s/ John M. Yeaman
				John M. Yeaman
				Director

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Tyler Technologies, Inc.

We have audited Tyler Technologies, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Tyler Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Tyler Technologies, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Tyler Technologies, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 22, 2017 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Dallas, Texas

February 22, 2017

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Tyler Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Tyler Technologies, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. 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 the standards of the Public Company Accounting Oversight Board (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 principles 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 financial position of Tyler Technologies, Inc. at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company has adopted ASU 2016-09 Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tyler Technologies, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2017 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Dallas, Texas

February 22, 2017

F-2

Tyler Technologies, Inc.

Consolidated Statements of Comprehensive Income

For the years ended December 31

(In thousands, except per share amounts)

	2016				2015				2014
Revenues:
Software licenses and royalties	$	74,306			$	59,008			$	49,065
Subscriptions	142,704				111,933				87,848
Software services	174,804				139,852				113,821
Maintenance	322,969				245,537				212,696
Appraisal services	26,287				25,065				21,802
Hardware and other	14,973				9,627				7,869
Total revenues	756,043				591,022				493,101
Cost of revenues:
Software licenses and royalties	2,964				1,632				1,900
Acquired software	22,235				4,440				1,858
Software services, maintenance and subscriptions	348,939				285,340				236,363
Appraisal services	16,411				15,922				14,284
Hardware and other	10,143				6,501				5,325
Total cost of revenues	400,692				313,835				259,730
Gross profit	355,351				277,187				233,371
Selling, general and administrative expenses	167,161				133,317				108,260
Research and development expense	43,154				29,922				25,743
Amortization of customer and trade name intangibles	13,731				5,905				4,546
Operating income	131,305				108,043				94,822
Other (expense) income, net	(1,998		)		381				(355		)
Income before income taxes	129,307				108,424				94,467
Income tax provision	19,450				43,555				35,527
Net income	$	109,857			$	64,869			$	58,940
Earnings per common share:
Basic	$	3.01			$	1.90			$	1.79
Diluted	$	2.82			$	1.77			$	1.66

See accompanying notes.

F-3

Tyler Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except par value and share amounts)

	December 31, 2016				December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	36,151			$	33,087
Accounts receivable (less allowance for losses of $3,396 in 2016 and $1,640 in 2015)	200,334				176,360
Short-term investments	20,273				13,423
Prepaid expenses	21,039				22,334
Income tax receivable	2,895				21,080
Other current assets	2,268				1,931
Total current assets	282,960				268,215
Accounts receivable, long-term	2,480				2,777
Property and equipment, net	124,268				101,112
Other assets:
Goodwill	650,237				653,666
Other intangibles, net	267,259				295,378
Cost method investment	15,000				15,000
Non-current investments and other assets	15,741				20,422
	$	1,357,945			$	1,356,570
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,295			$	6,789
Accrued liabilities	55,989				49,156
Deferred revenue	298,217				281,627
Total current liabilities	361,501				337,572
Revolving line of credit	10,000				66,000
Deferred revenue, long-term	2,140				3,115
Deferred income taxes	68,779				91,026
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 2016 and 2015	481				481
Additional paid-in capital	556,663				607,755
Accumulated other comprehensive loss, net of tax	(46		)		(46		)
Retained earnings	435,876				326,019
Treasury stock, at cost; 11,381,733 and 11,373,666 shares in 2016 and 2015, respectively	(77,449		)		(75,352		)
Total shareholders' equity	915,525				858,857
	$	1,357,945			$	1,356,570

See accompanying notes.

F-4

Tyler Technologies, Inc.

Consolidated Statements of Shareholders’ Equity

For the years ended December 31, 2016, 2015 and 2014

(In thousands)

	Common Stock							Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Treasury Stock							Total Shareholders' Equity
	Shares			Amount							Shares			Amount
Balance at December 31, 2013	48,148			$	481			$	182,176			$	(46	)		$	202,210			(15,310	)		$	(138,502	)		$	246,319
Net income	—			—				—				—				58,940				—			—				58,940
Issuance of shares pursuant to stock compensation plan	—			—				(17,449		)		—				—				855			32,129				14,680
Stock compensation	—			—				14,819				—				—				—			—				14,819
Issuance of shares pursuant to employee stock purchase plan	—			—				2,235				—				—				53			1,909				4,144
Federal income tax benefit related to exercise of stock options	—			—				19,415				—				—				—			—				19,415
Treasury stock purchases	—			—				—				—				—				(294	)		(22,817		)		(22,817		)
Issuance of shares for acquisition	—			—				193				—				—				17			1,280				1,473
Balance at December 31, 2014	48,148			481				201,389				(46		)		261,150				(14,679	)		(126,001		)		336,973
Net income	—			—				—				—				64,869				—			—				64,869
Issuance of shares pursuant to stock compensation plan	—			—				4,332				—				—				1,118			18,828				23,160
Stock compensation	—			—				20,182				—				—				—			—				20,182
Issuance of shares pursuant to employee stock purchase plan	—			—				3,879				—				—				43			792				4,671
Federal income tax benefit related to exercise of stock options	—			—				45,314				—				—				—			—				45,314
Treasury stock purchases	—			—				—				—				—				(5	)		(645		)		(645		)
Issuance of shares for acquisition	—			—				332,659				—				—				2,149			31,674				364,333
Balance at December 31, 2015	48,148			481				607,755				(46		)		326,019				(11,374	)		(75,352		)		858,857
Net income	—			—				—				—				109,857				—			—				109,857
Issuance of shares pursuant to stock compensation plan	—			—				(82,273		)		—				—				827			105,800				23,527
Stock compensation	—			—				29,747				—				—				—			—				29,747
Issuance of shares pursuant to employee stock purchase plan	—			—				1,434				—				—				47			4,802				6,236
Treasury stock purchases	—			—				—				—				—				(882	)		(112,699		)		(112,699		)
Balance at December 31, 2016	48,148			$	481			$	556,663			$	(46	)		$	435,876			(11,382	)		$	(77,449	)		$	915,525

See accompanying notes.

F-5

Tyler Technologies, Inc.

Consolidated Statements of Cash Flows

For the years ended December 31

(In thousands)

	2016				2015				2014
Cash flows from operating activities:
Net income	$	109,857			$	64,869			$	58,940
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	50,301				19,574				14,605
Share-based compensation expense	29,747				20,182				14,819
Provision for losses - accounts receivable	4,484				1,756				1,897
Deferred income tax benefit	(28,939		)		(7,956		)		(3,804		)
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	(30,227		)		(28,172		)		(8,912		)
Income tax receivable	18,185				24,255				29,117
Prepaid expenses and other current assets	2,229				(3,054		)		(3,696		)
Accounts payable	387				652				1,586
Accrued liabilities	10,717				490				6,326
Deferred revenue	25,118				41,731				31,961
Net cash provided by operating activities	191,859				134,327				142,839
Cash flows from investing activities:
Cost of acquisitions, net of cash acquired	(9,394		)		(339,961		)		(3,242		)
Purchase of cost method investment	—				(15,000		)		—
Purchase of marketable security investments	(20,316		)		(31,907		)		—
Proceeds from marketable security investments	16,837				900				808
Additions to property and equipment	(37,726		)		(12,501		)		(9,343		)
(Increase) decrease in other	(121		)		10				222
Net cash used by investing activities	(50,720		)		(398,459		)		(11,555		)
Cash flows from financing activities:
(Decrease) increase in net borrowings on revolving line of credit	(56,000		)		66,000				—
Purchase of treasury shares	(111,838		)		(645		)		(22,817		)
Contributions from employee stock purchase plan	6,236				4,671				4,144
Proceeds from exercise of stock options	23,527				23,160				14,680
Debt issuance costs	—				(2,134		)		—
Net cash (used) provided by financing activities	(138,075		)		91,052				(3,993		)
Net increase (decrease) in cash and cash equivalents	3,064				(173,080		)		127,291
Cash and cash equivalents at beginning of period	33,087				206,167				78,876
Cash and cash equivalents at end of period	$	36,151			$	33,087			$	206,167

See accompanying notes.

F-6

Tyler Technologies, Inc.

Notes to Consolidated Financial Statements

(Tables in thousands, except per share data)

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

We provide integrated software systems and related services for the public sector, with a focus on local governments. We develop and market a broad line of software solutions and services to address the information technology (“IT”) needs of cities, counties, schools and other local government entities. In addition, we provide professional IT services, including software and hardware installation, data conversion, training, and for certain customers, product modifications, along with continuing maintenance and support for customers using our systems. We also provide subscription-based services such as software as a service (“SaaS”) arrangements, which utilize the Tyler private cloud, and electronic document filing solutions (“e-filing”). In addition, we provide property appraisal outsourcing services for taxing jurisdictions.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include our parent company and a subsidiary, which is wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). We had no items of other comprehensive income (loss) during the years ended December 31, 2016, 2015 and 2014.

CASH AND CASH EQUIVALENTS

Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-producing investments. Investments with original maturities of three months or less are classified as cash and cash equivalents, which primarily consist of cash on deposit with several banks and money market funds. Cash and cash equivalents are stated at cost, which approximates market value.

REVENUE RECOGNITION

We earn revenue from software licenses, royalties, subscription-based services, software services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services.

Software Arrangements:

For the majority of our software arrangements, we provide services that range from installation, training, and basic consulting to software modification and customization to meet specific customer needs. If the arrangement does not require significant production, modification or customization or where the software services are not considered essential to the functionality of the software, revenue is recognized when all of the following conditions are met

•	persuasive evidence of an arrangement exists

•	delivery has occurred

•	our fee is fixed or determinable

•	collectability is probable

For multiple element arrangements, each element of the arrangement is analyzed and we allocate a portion of the total arrangement fee to the elements based on the relative fair value of the element using vendor-specific objective evidence of fair value (“VSOE”), regardless of any separate prices stated within the contract for each element. Fair value is considered the price a customer would be required to pay if the element was sold separately based on our historical experience of stand-alone sales of these elements to third-parties. For PCS, we use renewal rates for continued support arrangements to determine fair value. For software services, we use the fair value we charge our customers when those services are sold separately. We monitor our transactions to determine that we maintain and periodically revise VSOE to reflect fair value. In software arrangements in which we have the fair value of all undelivered elements but not of a delivered element, we apply the “residual method,” in compliance with Accounting Standards Codification (“ASC”) 985-605, Software Revenue Recognition. Under the residual method, if the fair value of all undelivered elements is determinable, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element(s) and is recognized as revenue assuming the other revenue recognition criteria are met. In software arrangements in which we do not have VSOE for all undelivered elements, revenue is deferred until fair value is determined or all elements for which we do not have VSOE have been delivered. Alternatively, if sufficient VSOE does not exist and the only undelivered element is

F-7

services that do not involve significant modification or customization of the software, the entire fee is recognized over the period during which the services are expected to be performed.

Software Licenses and Royalties

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 collectability is not probable. If the fee is not fixed or determinable, software license revenue is generally recognized as payments become due from the customer. If collectability 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 customer’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 portion of the fee represents a non-refundable 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 involve significant production, modification or customization of the software, or where software services are otherwise considered essential, we recognize revenue using contract accounting and apply the provisions of the Construction type and Production type Contracts as discussed in ASC 605-35. We generally use the percentage-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 method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we have the ability to produce reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit margin in the range of estimates is used until the results can be estimated more precisely. These arrangements are often implemented over an extended 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 contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent. For arrangements that include new product releases for which it is difficult to estimate final profitability except to assume that no loss will ultimately be incurred, we recognize revenue under the completed contract method. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete. Historically these amounts have been immaterial.

We recognize royalty revenue when earned under the terms of our third party royalty arrangements, provided the fees are considered fixed or determinable and realization of payment is probable. Currently, our third party royalties are variable in nature and such amounts are not considered fixed or determinable until we receive notice of amounts earned. Typically, we receive notice of royalty revenues earned on a quarterly basis in the immediate quarter following the royalty reporting period.

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 recognized as the services are performed using the percentage-of-completion contract accounting method. When software services are not considered essential, the fee allocable to the service element is recognized as revenue as we perform the services.

Computer Hardware Equipment

Revenue allocable to computer hardware equipment is recognized when we deliver the equipment and collection is probable.

Post-Contract Customer Support

Our customers generally enter into PCS agreements when they purchase our software licenses. PCS includes telephone support, bug fixes, and rights to upgrades on a when-and-if available basis. Our PCS agreements are typically renewable annually. 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.

F-8

Subscription-Based Services:

Subscription-based services consist of revenues derived from SaaS arrangements, which utilize the Tyler private cloud, and electronic filing transactions.

For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software. In cases where the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software, we recognize the license, professional services and hosting services revenues pursuant to ASC 985-605, Software Revenue Recognition.

For SaaS arrangements that do not meet the criteria for recognition under ASC 985-605, we account for the elements under ASC 605-25, Multiple Element Arrangements, using all applicable facts and circumstances, including whether (i) the element has stand-alone value, (ii) there is a general right of return and (iii) the revenue is contingent on delivery of other elements. We allocate contract value to each element of the arrangement that qualifies for treatment as a separate element based on VSOE, and if VSOE is not available, third-party evidence, and if third-party evidence is unavailable, estimated selling price. We recognize hosting services ratably over the term of the arrangement, which range from one to 10 years but are typically for a period of five to seven years. For professional services associated with SaaS arrangements that we determine do not have stand-alone value to the customer or are contingent on delivery of other elements, we recognize the services revenue ratably over the remaining contractual period once we have provided the customer access to the software and we may begin billing for hosting services. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.

Electronic filing transaction fees primarily pertain to documents filed with the courts by attorneys and other third-parties via our e-filing services and retrieval of filed documents via our access services. The elements for these arrangements are accounted for under ASC 605-25. For each document filed with a court, the filer generally pays a transaction fee and a court filing fee to us and we remit a portion of the transaction fee and the filing fee to the court. We record as revenue the transaction fee, while the portion of the transaction fee remitted to the courts is recorded as cost of sales as we are acting as a principal in the arrangement. Court filing fees collected on behalf of the courts and remitted to the courts are recorded on a net basis and thus do not affect the statement of comprehensive income. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period.

Costs of performing services under subscription-based arrangements are expensed as incurred, except for certain direct and incremental contract origination and set-up costs associated with SaaS arrangements. Such direct and incremental costs are capitalized and amortized ratably over the related SaaS hosting term.

Appraisal Services:

For our property appraisal projects, we recognize revenue using the proportional performance method of revenue recognition since many of these projects are implemented over one to three year periods and consist of various unique activities. Under this method of revenue recognition, we identify each activity for the appraisal project, with a typical project generally calling for bonding, office set up, training, routing of map information, data entry, data collection, data verification, informal hearings, appeals and project management. Each activity or act is specifically identified and assigned an estimated cost. Costs which are considered to be associated with indirect activities, such as bonding costs and office set up, are expensed as incurred. These costs are typically billed as incurred and are recognized as revenue equal to cost. Direct contract fulfillment activities and related supervisory costs such as data collection, data entry and verification are expensed as incurred. The direct costs for these activities are determined and the total contract value is then allocated to each activity based on a consistent profit margin. Each activity is assigned a consistent unit of measure to determine progress towards completion and revenue is recognized for each activity based upon the percentage complete as applied to the estimated revenue for that activity. Progress for the fulfillment activities is typically based on labor hours or an output measure such as the number of parcel counts completed for that activity. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

Allocation of Revenue in Statements of Comprehensive Income

In our statements of comprehensive income, we allocate revenue to software licenses, software services, maintenance and hardware and other based on the VSOE of fair value for elements in each revenue arrangement and the application of the residual method for arrangements in which we have established VSOE of fair value for all undelivered elements. In arrangements where we are not able to establish VSOE of fair value for all undelivered elements, revenue is first allocated to any undelivered elements for which VSOE of fair value has been established. We then allocate revenue to any undelivered elements for which VSOE of fair value has not been established based upon management’s best estimate of fair value of those undelivered elements and apply a residual method to

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determine the license fee. Management’s best estimate of fair value of undelivered elements for which VSOE of fair value has not been established is based upon the VSOE of similar offerings and other objective criteria.

Other

The majority of deferred revenue consists of unearned maintenance revenue that has been billed based on contractual terms in the underlying arrangement with the remaining balance consisting of payments received in advance of revenue being earned under software licensing, subscription-based services, software and appraisal services and hardware installation. Unbilled revenue is not billable at the balance sheet date but is recoverable over the remaining life of the contract through billings made in accordance with contractual agreements. The termination clauses in our contracts generally provide for the payment for the value of products delivered and services performed in the event of an early termination.

Prepaid expenses and other current assets include direct and incremental costs such as commissions associated with arrangements for which revenue recognition has been deferred. Such costs are expensed at the time the related revenue is recognized.

USE OF ESTIMATES

The preparation of our financial statements in conformity with accounting principles generally 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 reporting period. Significant items subject to such estimates and assumptions include the application of the percentage-of-completion and proportional performance methods of revenue recognition, the carrying amount and estimated useful lives of intangible assets, determination of share-based compensation expense and valuation allowance for receivables. Actual results could differ from estimates.

PROPERTY AND EQUIPMENT, NET

Property, equipment and purchased software are recorded at original cost and increased by the cost of any significant improvements after purchase. We expense maintenance and repairs 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.

RESEARCH AND DEVELOPMENT COSTS

We expensed research and development costs of $43.2 million during 2016, $29.9 million during 2015, and $25.7 million during 2014.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary 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 differences are expected to be recovered or settled. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be "realized."

SHARE-BASED COMPENSATION

We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation. See Note 9 – “Share-Based Compensation” for further information. During fourth quarter of 2016, we adopted Accounting Standards Update ("ASU") No. 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," See "New Accounting Pronouncements" below for further information.

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GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identifiable intangible assets, in connection with our business combinations. Upon acquisition, goodwill is assigned to the reporting unit that is expected to benefit from the synergies of the business combination, which is the reporting unit to which the related acquired technology is assigned. A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by executive management. We assess goodwill for impairment annually as of April, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable.

When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure the amount of potential impairment. In the second step, we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization.

Our annual goodwill impairment analysis, which we performed quantitatively during the second quarter of 2016, did not result in an impairment charge.

Other Intangible Assets

We make judgments about the recoverability of purchased intangible assets other than goodwill whenever events or changes in circumstances indicate that an impairment may exist. Customer base and acquired software each comprise approximately half of our purchased intangible assets other than goodwill. We review our customer turnover each year for indications of impairment. Our customer turnover has historically been very low. There have been no significant impairments of intangible assets in any of the periods presented. If indications of impairment are determined to exist, we measure the recoverability of assets by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets.

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically evaluate whether current facts or circumstances indicate that the carrying value of our property and equipment or other long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, we measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset or appropriate grouping of assets and the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance 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 disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There have been no significant impairments of long-lived assets in any of the periods presented.

COSTS OF COMPUTER SOFTWARE

We capitalize software development costs upon the establishment of technological feasibility and prior to the availability of the product for general release to customers. Software development costs primarily consist of personnel costs and rent for related office space. We begin to amortize capitalized costs when a product is available for general release to customers. 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. We have not capitalized any internal software development costs in any of the periods presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts receivables, accounts payables, short-term obligations and certain other assets at cost approximate fair value because of the short maturity of these instruments. The fair value of our revolving line of credit approximates book value as of December 31, 2016, because our interest rates reset approximately every 30 days or less. See Note 6 – “Revolving Line of Credit” for further discussion.

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As of December 31, 2016, we have $33.5 million in investment grade corporate and municipal bonds with maturity dates ranging from 2016 through mid-2018. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or from other observable market data. These investments are included in short-term investments and non-current investments and other assets.

As of December 31, 2016, we have $15.0 million invested in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The fair value of this investment is based on valuations using Level III, unobservable inputs that are supported by little or no market value activity and that are significant to the fair value of the investment.

CONCENTRATIONS OF CREDIT RISK AND UNBILLED RECEIVABLES

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable from trade customers, and investments in marketable securities. Our cash and cash equivalents primarily consists of operating account balances and money market funds, which are maintained at several major domestic financial institutions and the balances often exceed insured amounts. As of December 31, 2016, we had cash and cash equivalents of $36.2 million. We perform periodic evaluations of the credit standing of these financial institutions.

Concentrations of credit risk with respect to receivables are limited due to the size and geographical diversity of our customer base. Historically, our credit losses have not been significant. As a result, we do not believe we have any significant concentrations of credit risk as of December 31, 2016.

We maintain allowances for doubtful accounts and sales adjustments, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate that the carrying amount for the allowances for doubtful accounts and sales adjustments may require revision, include, but are not limited to, deterioration of a customer’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.

The following table summarizes the changes in the allowances for doubtful accounts and sales adjustments:

	Years Ended December 31,
	2016				2015				2014
Balance at beginning of year	$	1,640			$	1,725			$	1,113
Provisions for losses - accounts receivable	4,484				1,756				1,897
Collection of accounts previously written off	—				153				—
Deductions for accounts charged off or credits issued	(2,728		)		(1,994		)		(1,285		)
Balance at end of year	$	3,396			$	1,640			$	1,725

The termination clauses in most of our contracts provide for the payment for the value of products delivered or services performed in the event of early termination. Our property appraisal outsourcing service contracts can range up to three years and, in a few cases, as long as five years, in duration. In connection with these contracts, as well as certain software service contracts, we may perform work prior to when the software and services are billable and/or payable pursuant to the contract. We have historically recorded such unbilled receivables (costs and estimated profit in excess of billings) in connection with (1) property appraisal services contracts accounted for using proportional performance accounting in which the revenue is earned based upon activities performed in one accounting period but the billing normally occurs subsequently and may span another accounting period; (2) software services contracts accounted for using the percentage-of-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing for the software element of the arrangement may be based upon the specific phase of the implementation; (3) software revenue for which we have objective evidence that the customer-specified objective criteria has been met but the billing has not yet been submitted to the customer; (4) some of our contracts provide for an amount to be withheld from a progress billing (generally between 5% and 20% retention) until final and satisfactory project completion is achieved; and (5) in a limited number of cases, we may grant extended payment terms, generally to existing customers with whom we have a long-term relationship and favorable collection history.

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We have recorded unbilled receivables of $33.6 million and $29.7 million at December 31, 2016 and 2015, respectively. Included in unbilled receivables are retention receivables of $5.0 million and $4.7 million at December 31, 2016 and 2015, respectively, and these retentions become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables and retention receivables expected to be collected in excess of one year have been included with accounts receivable, long-term portion in the accompanying consolidated balance sheets.

INDEMNIFICATION

Most of our software license agreements indemnify our customers in the event that the software sold infringes upon the intellectual property rights of a third-party. These agreements typically provide that in such event we will either modify or replace the software so that it becomes non-infringing or procure for the customer the right to use the software. We have recorded no liability associated with these indemnifications, as we are not aware of any pending or threatened infringement actions that are possible losses. We believe the estimated fair value of these intellectual property indemnification clauses is minimal.

We have also agreed to indemnify our officers and board members if they are named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity. We maintain directors’ and officers’ liability insurance coverage to protect against any such losses. We have recorded no liability associated with these indemnifications. Because of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal.

RECLASSIFICATIONS

Certain amounts for previous years have been reclassified to conform to the current year presentation.

NEW ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements Adopted in 2016

Improvements to Employee Share-Based Payment Accounting. In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This standard is effective for our interim and annual reporting periods beginning December 15, 2016, and early adoption is permitted. We elected to early adopt this standard in fourth quarter of 2016. The impact of the early adoption was as follows:

•	The standard eliminates additional paid in capital ("APIC") pools and requires excess tax benefits and tax deficiencies to be recorded in the income statement as a discrete item when the awards vest or are settled. The adoption of this guidance on a prospective basis resulted in the recognition of excess tax benefits in our provision for income taxes.

•	The standard requires excess tax benefits to be recognized regardless of whether the benefit reduces taxes payable. The adoption of this guidance is applied on a modified retrospective basis; however, it did not have an impact on our retained earnings as of January 1, 2016, as we had previously recognized all our excess tax benefits.

•	As permitted, we have elected to continue to estimate forfeitures expected to occur to determine the amount of stock-based compensation cost to be recognized in each period. As such, the guidance relating to forfeitures did not have an impact on our retained earnings as of January 1, 2016.

•	The new guidance changes the calculation of common stock equivalents for earnings per share purposes.

•	As permitted, we elected to apply the statement of cash flows guidance that cash flows related to excess tax benefits be presented as an operating activity retrospectively.

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Adoption of the new standard resulted in the recognition of excess tax benefits in our provision for income taxes rather than APIC of $29.6 million for the period ended December 31, 2016. As of December 31, 2016, the change in the calculation of common stock equivalents added approximately 519,000 weighted average shares for the diluted earnings per share calculations. The impact to our previously reported quarterly results for fiscal year 2016 is as follows:

	Three Months Ended								Three Months Ended								Three Months Ended
	March 31, 2016								June 30, 2016								September 30, 2016
(In thousands, except per share amounts)	As Reported				As Adjusted				As Reported				As Adjusted				As Reported				As Adjusted
Income statements:
Income tax provision	$	10,495			$	9,350			$	11,323			$	5,188			$	14,155			$	989
Net income	$	17,079			$	18,224			$	18,872			$	25,007			$	22,264			$	35,430
Basic earnings per common share	$	0.47			$	0.50			$	0.52			$	0.69			$	0.61			$	0.97
Diluted earnings per common share	$	0.44			$	0.47			$	0.49			$	0.65			$	0.58			$	0.91
Diluted weighted average common shares outstanding	38,557				39,071				38,196				38,738				38,506				39,062
Statement of cash flows:
Net cash provided by operating activities	$	40,270			$	41,321			$	13,877			$	19,520			$	67,091			$	79,213
Net cash (used) provided by financing activities	$	(15,860	)		$	(16,911	)		$	5,668			$	25			$	(77,973	)		$	(90,095	)

Presentation of Financial Statements - Going Concern. In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. We adopted this standard in the fourth quarter of 2016 and its adoption did not have an impact on our consolidated financial statements.

Recent Accounting Guidance not yet Adopted

Revenue from Contracts with Customers. On May 28, 2014, the FASB issued 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 No. 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 price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. 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. We currently anticipate adopting the standard using the full retrospective method to restate each prior reporting period presented. Our ability to adopt using the full retrospective method is dependent on system readiness, including software procured from third-party providers, and the completion of our analysis of information necessary to restate prior period financial statements.

The new standard requires application no later than annual reporting periods beginning after December 15, 2017, including interim reporting periods therein; however, public entities are permitted to elect to early adopt the new standard. We are assessing the financial impact of adopting the new standard and the methods of adoption; however, we are currently unable to provide a reasonable estimate regarding the financial impact. We will adopt the new standard in fiscal year 2018.

We anticipate this standard will have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license fees,

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installation fees, and incremental cost of obtaining a contract. Specifically, under the new standard we expect software license fees under perpetual agreements will no longer be subject to 100% discount allocations from other elements in the contract. Discounts in arrangements will be allocated across all deliverables increasing license revenues and decreasing revenues allocated to other performance obligations. In addition, in most cases, net license fees (total license fees less any allocated discounts) will be recognized at the point in time that control of the software license transfers to the customer versus our current policy of recognizing revenue only to the extent billable per the contractual terms. Time-based license fees currently recognized over the license term will no longer be recognized over the period of the license and will instead be recognized at the point in time that control of the software license transfers to the customer. Installation fees will no longer be considered distinct performance obligations and therefore will be recognized over the term of the arrangement or life of the performance obligation. We expect revenue related to our SaaS offerings and professional services to remain substantially unchanged. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms and may vary in some instances from recognition at the time of billing. Application of the new standard requires that incremental costs directly related to obtaining a contract (typically sales commissions plus any associated fringe benefits) must be recognized as an asset and expensed over the expected life of the arrangement, unless that life is less than one year. Currently, we defer sales commissions and recognize expense over the relevant initial contractual term. With the adoption the new standard, we expect amortization periods to extend past the initial term.

Leases. On February 25, 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

•	A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

•	A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early application is permitted for all business entities upon issuance. We are assessing the financial impact of adopting the new standard; however, we are currently unable to provide a reasonable estimate regarding the financial impact. We expect to adopt the new standard in fiscal year 2019.

(2)ACQUISITIONS

2016

During 2016, we acquired a business for approximately $7.4 million in cash paid. This acquisition is immaterial to our consolidated financial statements. The operating results of this small acquisition are included with the operating results of the Enterprise Software segment since its date of acquisition. The purchase price allocation for this acquisition is reflected in the accompanying consolidated balance sheet as of December 31, 2016 and is preliminary.

2015

On November 16, 2015, we acquired all the capital stock of New World Systems Corporation (“NWS”), which provides public safety and financial solutions for local governments. The purchase price, net of cash acquired of $22.5 million, comprised of $337.5 million in cash, of which $4.0 million was accrued at December 31, 2015, and 2.1 million shares of Tyler common stock valued at $362.8 million, which was based on the closing price on November 16, 2015. We also incurred fees of approximately $5.9 million for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete the acquisition. These fees were expensed in 2015 and are included in selling, general and administrative expenses.

In 2016, we paid $2.0 million related to the working capital holdback of $4.0 million and reduced the accrued liability. Our final valuation of the fair market value of NWS’ assets and liabilities resulted in adjustments to the preliminary opening balance sheet. These adjustments related to a reduction in deferred revenue and related deferred income taxes and additional reserves for accounts receivable and contingencies resulting in a net decrease to goodwill of approximately $7.4 million.

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On May 29, 2015, we acquired all of the capital stock of Brazos Technology Corporation (“Brazos”), which provides mobile hand held solutions primarily to law enforcement agencies for field accident reporting and electronically issuing citations. The purchase price, net of cash acquired of $312,000 and including debt assumed of $733,000, was $6.1 million in cash and 12,500 shares of Tyler common stock valued at $1.5 million.

The operating results of NWS and Brazos are included with the operating results of the Enterprise Software segment since their dates of acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

(3)PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following at December 31:

	Useful Lives (years)			2016				2015
Land	—			$	9,958			$	8,146
Building and leasehold improvements	5-39			94,924				77,020
Computer equipment and purchased software	3-5			55,627				42,245
Furniture and fixtures	5			19,897				16,661
Transportation equipment	5			447				252
				180,853				144,324
Accumulated depreciation and amortization				(56,585		)		(43,212		)
Property and equipment, net				$	124,268			$	101,112

Depreciation expense was $13.4 million during 2016, $9.1 million during 2015, and $7.9 million during 2014.

In 2016, we purchased an office building in Falmouth, Maine, that was previously leased from an entity owned by an executive’s father and brother, for approximately $9.7 million, and paid $8.0 million for construction to expand a building in Yarmouth, Maine.

We own office buildings in Bangor, Falmouth and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; and Moraine, Ohio. We lease some space in these buildings to third-party tenants. These leases expire between 2017 and 2025 and are expected to provide rental income of approximately $1.6 million during 2017, $1.9 million during 2018, $1.9 million during 2019, $1.7 million during 2020, $1.4 million during 2021, and $5.2 million thereafter. Rental income from third-party tenants was $1.7 million in 2016, $913,000 in 2015, and $945,000 in 2014.

(4)GOODWILL AND OTHER INTANGIBLE ASSETS

Other intangible assets and related accumulated amortization consists of the following at December 31:

	2016				2015
Gross carrying amount of acquisition intangibles:
Customer related intangibles	$	186,231			$	181,671
Acquired software	176,096				172,666
Trade name	11,065				10,765
Leases acquired	3,694				3,694
	377,086				368,796
Accumulated amortization	(109,827		)		(73,418		)
Total intangibles, net	$	267,259			$	295,378

Total amortization expense for intangibles was $36.4 million in 2016, $10.3 million in 2015, and $6.4 million during 2014.

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The allocation of acquisition intangible assets is summarized in the following table:

	December 31, 2016											December 31, 2015
	Gross Carrying Amount				Weighted Average Amortization Period			Accumulated Amortization				Gross Carrying Amount				Weighted Average Amortization Period			Accumulated Amortization
Non-amortizable intangibles:
Goodwill	$	650,237			—			$	—			$	653,666			—			$	—
Amortizable intangibles:
Customer related intangibles	186,231				15 years			51,491				181,671				15 years			38,754
Acquired software	176,096				7 years			55,115				172,666				7 years			32,880
Trade name	11,065				12 years			2,740				10,765				12 years			1,747
Leases acquired	3,694				9 years			481				3,694				9 years			37

The changes in the carrying amount of goodwill for the two years ended December 31, 2016 are as follows:

	Enterprise Software				Appraisal and Tax				Total
Balance as of 12/31/2014	$	117,585			$	6,557			$	124,142
Goodwill acquired during 2015 related to the purchase of NWS	527,618				—				527,618
Goodwill acquired during 2015 related to the purchase of Brazos	1,906				—				1,906
Balance as of 12/31/2015	647,109				6,557				653,666
Goodwill acquired during 2016 related to a small acquisition	3,943				—				3,943
Purchase price adjustments related to NWS acquisition	(7,372		)		—				(7,372		)
Balance as of 12/31/2016	$	643,680			$	6,557			$	650,237

Estimated annual amortization expense relating to acquired leases will be recorded as a reduction to hardware and other revenue and is expected to be $442,000 in 2017, $426,000 in 2018, $373,000 in 2019, $314,000 in 2020, $312,000 in 2021 and $1.3 million thereafter. Estimated annual amortization expense relating to acquisition intangibles, including acquired software, for which the amortization expense is recorded as cost of revenues, for the next five years is as follows:

2017	$	35,120
2018	34,443
2019	33,107
2020	31,660
2021	31,302

F-17

(5)ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31:

	2016				2015
Accrued wages, bonuses and commissions	$	38,996			$	32,006
Other accrued liabilities	16,993				17,150
	$	55,989			$	49,156

(6)REVOLVING LINE OF CREDIT

On November 16, 2015, we entered into a $300.0 million Credit Agreement (the “Credit Facility”) with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. The Credit Facility provides for a revolving credit line of up to $300.0 million, including a $10.0 million sublimit for letters of credit. The Credit Facility matures on November 16, 2020. Borrowings under the Credit Facility may be used for general corporate purposes, including working capital requirements, acquisitions and share repurchases.

Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180 day LIBOR rate plus a margin of 1.25% to 2.00%. As of December 31, 2016, our interest rate was 1.96%. The Credit Facility is secured by substantially all our assets. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of December 31, 2016, we were in compliance with those covenants.

As of December 31, 2016, we had $10.0 million in outstanding borrowings and unused borrowing capacity of $287.8 million under the Credit Facility. In addition, as of December 31, 2016, we had two outstanding letters of credit totaling $2.2 million in favor of a client contract and the expansion of an office building in Yarmouth, Maine. Both letters of credit guarantee our performance under each contract and both expire in 2017.

We paid interest of $1.9 million in 2016 and $223,000 in 2015.

(7)INCOME TAX

The income tax provision (benefit) on income from operations consists of the following:

	Years Ended December 31,
	2016				2015				2014
Current:
Federal	$	41,366			$	44,841			$	34,504
State	7,023				6,670				4,827
	48,389				51,511				39,331
Deferred	(28,939		)		(7,956		)		(3,804		)
	$	19,450			$	43,555			$	35,527

Reconciliation of the U.S. statutory income tax rate to our effective income tax expense rate for operations follows:

	Years Ended December 31,
	2016				2015				2014
Federal income tax expense at statutory rate	$	45,257			$	37,949			$	33,064
State income tax, net of federal income tax benefit	4,807				3,715				2,867
Domestic production activities deduction	(3,947		)		(466		)		(1,720		)
Excess tax benefits related to stock option exercises	(29,582		)		—				—
Non-deductible business expenses	2,979				2,414				1,485
Other, net	(64		)		(57		)		(169		)
	$	19,450			$	43,555			$	35,527

F-18

Due to the adoption of ASU No. 2016-09, federal and state excess tax benefits from stock option exercises for the year ended December 31, 2016 are reflected as a reduction of the provision for income taxes, whereas they were previously accounted for as an increase to shareholders’ equity. See Note 1 "Summary of Significant Accounting Policies" for additional information related to this adoption.

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

	2016				2015
Deferred income tax assets:
Operating expenses not currently deductible	$	18,721			$	9,953
Stock option and other employee benefit plans	19,665				13,504
Capital loss and credit carryforward	—				179
Total deferred income tax assets	38,386				23,636
Deferred income tax liabilities:
Intangible assets	(103,754		)		(111,653		)
Property and equipment	(3,207		)		(2,781		)
Other	(204		)		(228		)
Total deferred income tax liabilities	(107,165		)		(114,662		)
Net deferred income tax liabilities	$	(68,779	)		$	(91,026	)

Although realization is not assured, we believe it is more likely than not that all the deferred tax assets will be realized. Accordingly, we believe no valuation allowance is required for the deferred tax assets. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of reversing taxable temporary differences are revised. There were no unrecognized tax benefits during any of the reported periods.

The Internal Revenue Service (“IRS”) is examining our U.S. income tax return for the year 2012. As of February 21, 2017, no significant adjustments have been proposed by any taxing jurisdiction. We are unable to make a reasonable estimate as to when cash settlements, if any, will occur.

We are subject to U.S. federal tax as well as income tax of multiple state and local jurisdictions. We are no longer subject to United States federal income tax or state and local income tax examinations for years before 2011.

We paid income taxes, net of refunds received, of $30.2 million in 2016, $27.3 million in 2015, and $10.2 million in 2014.

(8)SHAREHOLDERS’ EQUITY

The following table details activity in our common stock:

	Years Ended December 31,
	2016							2015							2014
	Shares			Amount				Shares			Amount				Shares			Amount
Stock option exercises	827			$	23,527			1,118			$	23,160			855			$	14,680
Purchases of common stock	(882	)		(112,699		)		(5	)		(645		)		(294	)		(22,817		)
Employee stock plan purchases	47			6,236				43			4,671				53			4,144
Shares issued for acquisitions	—			—				2,149			364,333				17			1,473

Subsequent to December 31, 2016 and through February 21, 2017, we repurchased 42,000 shares for an aggregate purchase price of $6.2 million. As of February 21, 2017, we had authorization from our board of directors to repurchase up to 2.0 million additional shares of our common stock.

F-19

(9)SHARE-BASED COMPENSATION

Share-Based Compensation Plan

We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. Once options become exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation. During fourth quarter of 2016, we adopted ASU No. 2016-09 "Improvements to Employee Share-Based Payment Accounting," See Note 1 - "Summary of Significant Accounting Policies" for further information.

As of December 31, 2016, there were 2.9 million shares available for future grants under the plan from the 20.0 million shares previously approved by the shareholders.

Determining Fair Value of Stock Compensation

Valuation and Amortization Method. We estimate the fair value of share-based awards granted using the Black-Scholes option valuation model. We amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The expected life represents the weighted-average period the stock options are expected to be outstanding based primarily on the options’ vesting terms, remaining contractual life and the employees’ expected exercise based on historical patterns.

Expected Volatility. Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock.

Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

Expected Dividend Yield. We have not paid any cash dividends on our common stock in more than ten years and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model.

Expected Forfeitures. We use historical data to estimate pre-vesting option forfeitures. We record share-based compensation only for those awards that are expected to vest.

The following weighted average assumptions were used for options granted:

	Years Ended December 31,
	2016			2015			2014
Expected life (in years)	6.0			6.0			6.0
Expected volatility	29.3	%		28.3	%		30.9	%
Risk-free interest rate	1.8	%		1.7	%		1.8	%
Expected forfeiture rate	—	%		1.7	%		3.0	%

The following table summarizes share-based compensation expense related to share-based awards which is recorded in the statements of comprehensive income:

	Years Ended December 31,
	2016				2015				2014
Cost of software services, maintenance and subscriptions	$	6,548			$	3,380			$	2,177
Selling, general and administrative expenses	23,199				16,802				12,642
Total share-based compensation expenses	29,747				20,182				14,819
Tax benefit	(30,059		)		(5,986		)		(4,237		)
Net (decrease) increase in net income	$	(312	)		$	14,196			$	10,582

F-20

Adoption of ASU 2016-09 resulted in the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital of $29.6 million for period ended December 31, 2016.

Stock Option Activity

Options granted, exercised, forfeited and expired are summarized as follows:

	Number of Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013	5,720			$	34.66
Granted	675			94.15
Exercised	(855	)		17.17
Forfeited	(3	)		37.44
Outstanding at December 31, 2014	5,537			44.61
Granted	747			145.71
Exercised	(1,118	)		20.71
Forfeited	(2	)		19.61
Outstanding at December 31, 2015	5,164			64.43
Granted	846			147.25
Exercised	(827	)		28.43
Forfeited	(27	)		95.33
Outstanding at December 31, 2016	5,156			83.64				7		$	320,924
Exercisable at December 31, 2016	2,311			58.07				6		$	198,460

We had unvested options to purchase 2.8 million shares with a weighted average grant date exercise price of $104.91 as of December 31, 2016 and unvested options to purchase 3.1 million shares with a weighted average grant date exercise price of $78.86 as of December 31, 2015. As of December 31, 2016, we had $80.1 million of total unrecognized compensation cost related to unvested options, net of expected forfeitures, which is expected to be amortized over a weighted average amortization period of 3.2 years.

Other information pertaining to option activity was as follows during the twelve months ended December 31:

	2016				2015				2014
Weighted average grant-date fair value of stock options granted	$	46.89			$	45.17			$	31.32
Total intrinsic value of stock options exercised	103,703				149,542				69,768

Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“ESPP”) participants may contribute up to 15% of their annual compensation to purchase common shares of Tyler. The purchase price of the shares is equal to 85% of the closing price of Tyler shares on the last day of each quarterly offering period. As of December 31, 2016, there were 847,000 shares available for future grants under the ESPP from the 2.0 million shares previously approved by the stockholders.

F-21

(10)EARNINGS PER SHARE

Basic earnings and diluted earnings per share data were computed as follows:

	Years Ended December 31,
	2016				2015				2014
Numerator for basic and diluted earnings per share:
Net income	$	109,857			$	64,869			$	58,940
Denominator:
Weighted-average basic common shares outstanding	36,448				34,137				33,011
Assumed conversion of dilutive securities:
Stock options	2,513				2,415				2,390
Denominator for diluted earnings per share - Adjusted weighted-average shares	38,961				36,552				35,401
Earnings per common share:
Basic	$	3.01			$	1.90			$	1.79
Diluted	$	2.82			$	1.77			$	1.66

Stock options representing the right to purchase common stock of 786,000 shares in 2016, 417,000 shares in 2015, and 481,000 shares in 2014 were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. During fourth quarter of 2016, we adopted ASU No. 2016-09 requiring the recognition of excess tax benefits as a component of income tax expense; these benefits were historically recognized in equity. As the standard required a prospective method of adoption, our 2016 net income includes a $29.6 million income tax benefit due to the adoption that did not occur in the comparable periods presented above. In addition, the standard updates the method of calculating diluted shares resulting in the inclusion of 519,000 additional shares in our diluted EPS calculation that is not comparable to the other periods presented. Refer to Note 1 "Summary of Significant Accounting Policies" for further discussion of this new accounting standard.

(11)LEASES

We lease office facilities for use in our operations, as well as transportation, computer and other equipment. Most of our leases are non-cancelable operating lease agreements and they expire at various dates through 2023. In addition to rent, the leases generally require us to pay taxes, maintenance, insurance and certain other operating expenses.

Rent expense was approximately $6.7 million in 2016, $7.2 million in 2015, and $6.7 million in 2014, which included rent expense associated with related party lease agreements of $330,000 in 2016, $1.8 million in 2015, and $1.7 million in 2014.

Future minimum lease payments under all non-cancelable leases at December 31, 2016 are as follows:

Years Ending December 31,
2017	$	5,177
2018	4,221
2019	3,556
2020	3,273
2021	2,059
Thereafter	601
Total	$	18,887

F-22

(12)EMPLOYEE BENEFIT PLANS

We provide a defined contribution plan for the majority of our employees meeting minimum service requirements. The employees can contribute up to 30% of their current compensation to the plan subject to certain statutory limitations. We contribute up to a maximum of 3% of an employee’s compensation to the plan. We made contributions to the plan and charged operating results $6.9 million during 2016, $5.3 million during 2015, and $4.3 million during 2014.

(13)COMMITMENTS AND CONTINGENCIES

Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject.

(14)SEGMENT AND RELATED INFORMATION

We are a major provider of integrated information management solutions and services for the public sector, with a focus on local and state governments.

We provide our software systems and services and appraisal services through four business units, which focus on the following products:

•	financial management, education and planning, regulatory and maintenance software solutions;

•	financial management, municipal courts, and land and vital records management software solutions;

•	courts and justice and public safety software solutions; and

•	appraisal and tax software solutions and property appraisal services.

In accordance with ASC 280-10, Segment Reporting, the financial management, education and planning, regulatory and maintenance software solutions unit; financial management, municipal courts and land and vital records management software solutions unit; and the courts and justice and public safety software solutions unit meet the criteria for aggregation and are presented in one reportable segment, Enterprise Software (“ES”). The ES segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as financial management and courts and justice and public safety processes. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction.

We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before noncash amortization of intangible assets associated with their acquisition, interest expense and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the contractual arrangement. Segment operating income for corporate primarily consists of compensation costs for the executive management team and certain accounting and administrative staff and share-based compensation expense for the entire company. Corporate segment operating income also includes revenues and expenses related to a company-wide user conference. The accounting policies of the reportable segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”

Segment assets include net accounts receivable, prepaid expenses and other current assets and net property and equipment. Corporate assets consist of cash and investments, prepaid insurance, intangibles associated with acquisitions, deferred income taxes and net property and equipment mainly related to unallocated information and technology assets.

ES segment capital expenditures in 2016 included $17.7 million for the expansion of an existing building and purchase of a building and land.

F-23

As of the year ended December 31, 2016

	Enterprise Software				Appraisal and Tax				Corporate				Totals
Revenues
Software licenses and royalties	$	68,844			$	5,462			$	—			$	74,306
Subscriptions	135,516				7,188				—				142,704
Software services	158,478				16,326				—				174,804
Maintenance	304,380				18,589				—				322,969
Appraisal services	—				26,287				—				26,287
Hardware and other	11,942				16				3,015				14,973
Intercompany	6,742				—				(6,742		)		—
Total revenues	$	685,902			$	73,868			$	(3,727	)		$	756,043
Depreciation and amortization expense	43,962				984				5,355				50,301
Segment operating income	190,817				18,286				(41,832		)		167,271
Capital expenditures	23,843				1,432				11,448				36,723
Segment assets	$	295,260			$	31,769			$	1,030,916			$	1,357,945

As of the year ended December 31, 2015

	Enterprise Software				Appraisal and Tax				Corporate				Totals
Revenues
Software licenses and royalties	$	54,376			$	4,632			$	—			$	59,008
Subscriptions	107,090				4,843				—				111,933
Software services	129,068				10,784				—				139,852
Maintenance	227,586				17,951				—				245,537
Appraisal services	—				25,065				—				25,065
Hardware and other	6,935				12				2,680				9,627
Intercompany	4,025				—				(4,025		)		—
Total revenues	$	529,080			$	63,287			$	(1,345	)		$	591,022
Depreciation and amortization expense	15,413				867				3,294				19,574
Segment operating income	141,401				15,477				(38,490		)		118,388
Capital expenditures	6,112				646				6,746				13,504
Segment assets	$	265,877			$	22,283			$	1,068,410			$	1,356,570

F-24

As of the year ended December 31, 2014

	Enterprise Software				Appraisal and Tax				Corporate				Totals
Revenues
Software licenses and royalties	$	46,047			$	3,018			$	—			$	49,065
Subscriptions	84,322				3,526				—				87,848
Software services	104,146				9,675				—				113,821
Maintenance	195,881				16,815				—				212,696
Appraisal services	—				21,802				—				21,802
Hardware and other	5,398				11				2,460				7,869
Intercompany	2,812				—				(2,812		)		—
Total revenues	$	438,606			$	54,847			$	(352	)		$	493,101
Depreciation and amortization expense	11,140				866				2,599				14,605
Segment operating income	114,993				11,603				(25,370		)		101,226
Capital expenditures	3,644				359				5,446				9,449
Segment assets	$	170,369			$	16,463			$	382,980			$	569,812

Reconciliation of reportable segment operating		Years Ended December 31,
income to the Company's consolidated totals:		2016				2015				2014
Total segment operating income		$	167,271			$	118,388			$	101,226
Amortization of acquired software		(22,235		)		(4,440		)		(1,858		)
Amortization of customer and trade name intangibles		(13,731		)		(5,905		)		(4,546		)
Other (expense) income, net		(1,998		)		381				(355		)
Income before income taxes		$	129,307			$	108,424			$	94,467

(15)QUARTERLY FINANCIAL INFORMATION (unaudited)

The following table contains selected financial information from unaudited statements of income for each quarter of 2016 and 2015.

	Quarters Ended
	2016																2015
	Dec. 31				Sept. 30				June 30				Mar. 31				Dec. 31(b)				Sept. 30				June 30				Mar. 31
Revenues	$	193,281			$	194,497			$	188,972			$	179,293			$	158,916			$	150,845			$	146,295			$	134,966
Gross profit	92,817				93,480				86,936				82,118				73,222				71,833				68,253				63,879
Income before income taxes (a)	35,119				36,419				30,195				27,574				19,540				31,744				29,781				27,359
Net income (a)	31,196				35,430				25,007				18,224				8,618				20,142				18,836				17,273
Earnings per diluted share	$	0.80			$	0.91			$	0.65			$	0.47			$	0.23			$	0.55			$	0.52			$	0.48
Shares used in computing diluted earnings per share (a)	38,975				39,062				38,738				39,071				37,864				36,349				36,097				35,895

(a)

During fourth quarter 2016, we adopted ASU No. 2016-09 requiring the recognition of excess tax benefits as a component of income tax expense; these benefits were historically recognized in equity. As the standard required a prospective method of adoption, our fourth quarter 2016 net income includes a $9.2 million income tax benefit due to the adoption that did not occur in the comparable prior year periods presented above. The three months ended March 31, June 30, and September 30, 2016, respectively, have been adjusted for the newly adopted standard. Refer to Note 1 "Summary of Significant Accounting Policies" for further discussion of this new accounting standard.

(b)	Operating results for the three months ended December 31, 2015, include $5.9 million for financial advisory, legal, accounting, due diligence, valuation and other expenses necessary to complete the NWS acquisition as well as $3.5 million amortization expense related to NWS acquisition intangibles.

F-25