<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______.
Commission File Number 0-16376
TIMBERLINE SOFTWARE CORPORATION
(Name of small business issuer in its charter)
Oregon 93-0748489
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 S.W. Nimbus Avenue, Beaverton, Oregon 97008
(Address of principal executive offices) (Zip code)
(503) 626-6775
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
At August 9, 1996, 5,399,440 shares of common stock of the
registrant were outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
- ---------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets, June 30, 1996 and
December 31, 1995 ............................... 3
Condensed statements of operations for the three
months ended June 30, 1996 and 1995 ........... . 4
Condensed statements of operations for the six
months ended June 30, 1996 and 1995 ........... . 5
Condensed statements of cash flows for the six
months ended June 30, 1996 and 1995 .......... .. 6
Notes to condensed financial statements ....... ... 7
Item 2. Management's Discussion and Analysis or
Plan of Operation ............................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders ............................... 13
Item 6. Exhibits and Reports on Form 8-K ................. 13
SIGNATURES ................................................. 13
EXHIBIT INDEX .............................................. 14
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
TIMBERLINE SOFTWARE CORPORATION
CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
- ----------------------------------------------------------------
<TABLE><CAPTION>
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,868,071 $ 3,856,533
Temporary cash investments 3,671,928 3,439,000
Accounts receivable, less allowance
for doubtful accounts
(June 30, 1996, $239,054;
December 31, 1995, $225,909) 3,292,041 3,185,737
Other receivables 146,824 81,025
Inventories 384,448 326,311
Other current assets 925,565 614,190
----------- -----------
Total current assets 10,288,877 11,502,796
----------- -----------
Property and equipment 6,666,092 5,738,256
Less accumulated depreciation
and amortization 3,761,989 3,374,494
------------ -----------
Property and equipment - net 2,904,103 2,363,762
----------- -----------
Cash investments 2,325,769 -
Capitalized software costs - net 1,035,011 245,669
Purchased software - net 144,224 176,151
Other assets 91,575 96,510
----------- -----------
Total $16,789,559 $14,384,888
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 972,221 $ 562,622
Accrued commissions/royalties 188,571 258,398
Accrued income taxes - 79,427
Deferred revenues 6,072,108 5,337,973
Accrued employee expenses 930,340 1,148,231
Other current liabilities 236,172 222,585
----------- -----------
Total current liabilities 8,399,412 7,609,236
----------- -----------
Accrued rent expense 74,839 56,891
Deferred income taxes 666,000 358,000
Shareholders' equity:
Common stock, without par value
authorized, 8,000,000 shares;
issued June 30, 1996,
5,343,190 shares;
December 31, 1995,
5,188,591 shares 356,215 345,906
Additional paid in capital 1,887,121 1,304,997
Retained earnings 5,405,972 4,709,858
----------- -----------
Total shareholders' equity 7,649,308 6,360,761
----------- -----------
Total $16,789,559 $14,384,888
=========== ===========
</TABLE>
See notes to condensed financial statements.<PAGE>
TIMBERLINE SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net revenue $6,813,126 $5,971,222
---------- ----------
Cost and expenses:
Cost of revenue 856,316 720,830
Customer support 1,592,881 1,205,616
Product development 889,421 1,280,961
Sales and marketing 1,693,132 1,509,326
General and administrative 999,836 893,701
---------- ----------
Total cost and expenses 6,031,586 5,610,434
---------- ----------
Income from operations 781,540 360,788
Other income 98,010 100,075
---------- ----------
Income before income taxes 879,550 460,863
Provision for income taxes 337,000 173,000
---------- ----------
Net income $ 542,550 $ 287,863
========== ==========
Earnings per share $ .10 $ .05
========== ==========
Weighted average common shares
outstanding 5,687,194 5,406,159
========== ==========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net revenue $13,491,323 $11,864,781
----------- -----------
Cost and expenses:
Cost of revenue 1,664,201 1,370,592
Customer support 3,078,437 2,401,633
Product development 2,015,844 2,529,734
Sales and marketing 3,375,429 2,927,240
General and administrative 1,932,092 1,980,027
----------- -----------
Total cost and expenses 12,066,003 11,209,226
----------- -----------
Income from operations 1,425,320 655,555
Other income 195,088 184,888
----------- -----------
Income before income taxes 1,620,408 840,443
Provision for income taxes 625,000 319,000
----------- -----------
Net income $ 995,408 $ 521,443
=========== ===========
Earnings per share $ .18 $ .10
=========== ===========
Weighted average common shares
outstanding 5,603,376 5,377,502
=========== ===========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Net cash provided by
operating activities $2,044,146 $2,119,139
---------- ----------
Cash flows from investing
activities:
Payments for property
and equipment (895,548) (472,892)
Capitalized software costs (871,902) (20,281)
Proceeds from temporary
cash investments 3,500,000 3,000,000
Purchase of temporary and other
cash investments (6,058,697) (3,458,009)
Other investing activities 400 12,763
---------- ---------
Net cash used in investing
activities (4,325,747) (938,419)
---------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
common stock 592,433 196,434
Common stock reacquired - (160,098)
Dividends paid (299,294) (170,748)
---------- ----------
Net cash provided by (used in)
financing activities 293,139 (134,412)
---------- ----------
Net increase (decrease) in cash
and cash equivalents (1,988,462) 1,046,308
Cash and cash equivalents,
beginning of the year 3,856,533 1,411,611
---------- ----------
Cash and cash equivalents,
end of period $1,868,071 $2,457,919
========== ==========
Supplemental information:
Cash paid during the period for
income taxes $ 488,918 $ 736,827
========== ==========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
- ----------------------------------------------------------------
1. Condensed financial statements
Certain information and note disclosures normally included
in financial statements prepared in accordance with
generally accepted accounting principles have been omitted
from these condensed financial statements. These condensed
financial statements should be read in conjunction with the
financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1995.
The balance sheet at December 31, 1995 has been condensed
from the audited balance sheet as of that date. The results
of operations for the three and six month periods ended
June 30, 1996 and 1995 are not necessarily indicative of the
operating results for the full year.
In the opinion of management, all adjustments, consisting of
normal recurring adjustments, have been made to present
fairly the Company's financial position at June 30, 1996 and
the results of its operations and its cash flows for the
three and six month periods ended June 30, 1996 and 1995.
2. Accounting pronouncement
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires expanded disclosures
of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument
awarded. Companies are permitted, however, to continue to
apply Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock issued to Employees," which recognizes
compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on
net income and earnings per share in its financial
statements for the year ending December 31, 1996.
3. Stock split
On April 18, 1996, the Company's Board of Directors approved
a three-for-two stock split to shareholders of record on
May 3, 1996. All common shares and per share amounts in
these condensed financial statements have been retroactively
adjusted to reflect this change.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of
Operation
TIMBERLINE SOFTWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ----------------------------------------------------------------
Results of Operations
- ---------------------
NET REVENUE. Net revenue increased 14 percent to $6,813,000 in
the three months ended June 30, 1996 compared to $5,971,000 in
the comparable period in 1995. The major component of net
revenue, software sales, increased 10 percent to $3,551,000 in
the 1996 period compared to $3,230,000 in the 1995 period,
primarily due to increased sales of construction accounting
software, particularly Construction Gold. Construction Gold
software sales increased 51 percent in the three months ended
June 30, 1996 over the same period in 1995. Gold Extended
Edition software sales continued to increase. The primary reason
for the increase in Construction Gold sales was the release at
the end of June 1996 of Gold Standard Edition, a Windows-based
software targeted for the smaller construction companies and
homebuilders. Sales of estimating software remained constant for
the three months ended June 30, 1996 compared to the same period
in 1995. Sales of estimating software included sales from the
release of a Windows-based estimating software at the end of June
1996. The increase in software sales was partially offset by a
decrease in architect and engineer and property management
software sales. Software sales represented 52 percent of net
revenue in the three months ended June 30, 1996 compared to 54
percent in the same period in 1995.
Service fees from maintenance, support and training, which
represented 47 percent and 44 percent of net revenue for the
three months ended June 30, 1996 and 1995, respectively,
increased 20 percent to $3,177,000 in the 1996 period from
$2,656,000 for the comparable period in 1995. The increase in
service fees was principally due to the increase in maintenance
and support fees resulting from the Company's larger user base
and, to a lesser degree, an increase in training fees. The
Company continues to anticipate that service fees will represent
a significant percentage of net revenue.
For the six months ended June 30, 1996, net revenue increased 14
percent to $13,491,000 from $11,865,000 for the six months ended
June 30, 1995. Software sales increased 10 percent to $6,935,000
compared to $6,292,000 for the comparable period in 1995,
primarily due to the continued increase in Gold Extended Edition
sales, sales from the release in June 1996 of the new Gold
Standard Edition product line, and an increase in estimating
software sales. This was partially offset by a decrease in
architect and engineer software sales and a large decrease in
property management software sales as a sale to a large national
account in the 1995 period did not reoccur in the 1996 period.
Software sales represented 51 percent of net revenue for the six
months ended June 30, 1996 compared to 53 percent for the same
period in 1995.
Service fees from maintenance, support and training, which
represented 47 percent and 45 percent of net revenue for the six
months ended June 30, 1996 and 1995, respectively, increased 17
percent to $6,310,000 in the 1996 period from $5,385,000 for the
comparable period in 1995. The increase in service fees was
principally due to the increase in maintenance and support fees
resulting from the Company's larger user base and, to a lesser
degree, an increase in training fees.
COST OF REVENUE. Cost of revenue, as a percentage of net
revenue, increased to 13 percent for the three months ended
June 30, 1996 from 12 percent for the comparable period in 1995.
The increase was primarily due to increased expenses related to
training and consulting service fees, offset in part by lower
software costs and royalty expenses. For the six months ended
June 30, 1996 and 1995, cost of revenue remained constant at 12
percent of net revenue.
OPERATING EXPENSES. Operating expenses increased six percent to
$5,175,000 for the three months ended June 30, 1996 from
$4,890,000 for the comparable period in 1995. For the six months
ended June 30, 1996, operating expenses also increased six
percent to $10,402,000 from $9,839,000 for the same period in
1995.
Customer support expenses increased 32 percent to $1,593,000 for
the three months ended June 30, 1996 from $1,206,000 for the same
period in 1995. For the six months ended June 30, 1996, customer
support expenses increased 28 percent to $3,078,000 from
$2,402,000 for the comparable period in 1995. The increases were
primarily due to additional personnel costs required to handle
the increased demand for support, consulting and training
services resulting from the increased sales of Gold Extended
Edition software. The Company anticipates increases in customer
support expenses in order to meet the demands of its customers
and to maintain a high quality level of service.
Product development expenses decreased 31 percent to $889,000 for
the three months ended June 30, 1996 from $1,281,000 for the
comparable period in 1995. For the six months ended June 30,
1996, product development expenses decreased 20 percent to
$2,016,000 from $2,530,000 for the same period in 1995. The
decrease in expenses was principally due to the capitalization of
of expenses related to the development of new Windows-based
software products for the estimating and construction product
lines, which were released at the end of June 1996. The amount
of product development costs capitalized was $625,000 and $12,000
respectively, for the three months ended June 30, 1996 and 1995
and $872,000 and $20,000, respectively for the six months ended
June 30, 1996 and 1995. Without the effect of these capitalized
costs, product development expenses increased 17 percent and 13
percent, respectively, for the three and six months ended June
30, 1996 over the comparable periods in 1995. This was due
primarily to additional personnel required to maintain the
Company's existing software products and to develop and test the
new Windows-based software products. The Company anticipates
that eventually all of its products will operate in the Windows
environment and that additional personnel will be required in
1996. Capitalized product development costs will be amortized to
cost of revenue over the estimated life of the software products
after the products have been released for sale.
Sales and marketing expenses increased 12 percent to $1,693,000
in the three months ended June 30, 1996 from $1,509,000 for the
comparable period in 1995. For the six months ended June 30,
1996, sales and marketing expenses increased 15 percent to
$3,375,000 from $2,927,000 for the same period in 1995. The
increases were primarily due to increase in personnel and
advertising expenses in the marketing area. As a percentage of
net revenue, sales and marketing expenses remained constant at 25
percent for the three and six months ended June 30, 1996 and
1995.
General and administrative expenses increased 12 percent to
$1,000,000 for the three months ended June 30, 1996 from $894,000
for the comparable period in 1995, but, as a percentage of net
revenue, remained constant at 15 percent for both periods. The
increase in expenses was primarily due to increased personnel and
equipment costs. For the six months ended June 30, 1996, general
and administrative expenses decreased two percent to $1,932,000
from $1,980,000 for the same period in 1995 and, as a percentage
of net revenue, declined to 14 percent in 1996 from 17 percent in
1995. The decrease in expenses for the six months ended June 30,
1996 was primarily due to a $185,000 reduction in bad debt
expense, which was partially offset by an increase in personnel
and equipment costs. General and administrative expenses for
1995 included a large bad debt expense for the write-off of a
receivable from a Canadian customer that went bankrupt in 1995.
PROVISION FOR INCOME TAXES. As a percentage of income before
income taxes, the provision for income taxes remained constant at
approximately 38 percent for the three and six months ended
June 30, 1996 and 1995.
Capital Resources and Liquidity
- -------------------------------
During the six months ended June 30, 1996, net cash provided by
operations was $2,044,000 compared to $2,119,000 for the same
period in 1995. Working capital decreased to $1,889,000 at
June 30, 1996 from $3,894,000 at December 31, 1995, primarily due
to the decrease in cash, cash equivalents and temporary cash
investments. Cash, cash equivalents and temporary cash
investments, which represented 33 percent of total assets at
June 30, 1996, decreased $1,756,000 since December 31, 1995,
principally due to the purchase in 1996 of $2,326,000 in long-
term cash investments. Net accounts receivable at June 30, 1996
increased $106,000 since December 31, 1995, primarily due to the
shipment in late June of the Company's new Windows-based software
products, Gold Standard Edition and Precision Standard. Other
current assets increased $311,000 since December 31, 1995
primarily due to the timing of income tax payments causing the
Company to be in a net tax refund position rather than in a net
tax liability position, as was the situation at December 31,
1995, and an increase in prepaid insurance costs. Net
capitalized software costs increased $789,000 since December 31,
1995 primarily due to the addition of $872,000 of capitalized
software development costs during the six months ended June 30,
1996 related to the development of the new Windows-based software
for the estimating and construction product lines that were
released at the end of June 1996. Net property and equipment at
June 30, 1996 increased $540,000 since December 31, 1995,
primarily due to the purchase of new compter equipment for
additional employees hired in 1996, the upgrading of computer
equipment for the product development group, and new equipment
for its telecommunication and management information system. As
of June 30, 1996, the Company has spent $896,000 of its 1996
capital expenditures budget of $1,300,000. Future capital
expenditures in 1996 will be funded through current cash balances
and cash provided by operations.
Accounts payable increased $410,000 since December 31, 1995
primarily due to a large amount owed to one of the Company's
customers. Deferred revenues increased $734,000 in the same
period primarily due to increased billings for annual maintenance
and support services and for training classes. Revenue from
annual maintenance and support service billings is recognized
monthly over the terms of the contracts while revenue from
training billings is recognized when the training occurs.
Accrued employee expenses decreased $218,000 during the first six
months of 1996 primarily as a result of the payment of the
Company's 1995 contribution to its 401(k) plan and payments to
employees for 1995 profit sharing bonuses. Deferred income taxes
increased $308,000 since December 31, 1995, primarily due to
additional deferred income tax liability related to net
capitalized software costs.
During the first six months of 1996, the Company declared two
quarterly cash dividends amounting to $299,000. In July 1996,
the Company's Board of Directors declared a regular quarterly
cash dividend of $.03 per share. The Company anticipates
continuing to pay quarterly cash dividends.
In April 1996, the Company's Board of Directors approved a three-
for-two common stock split to shareholders of record on May 3,
1996. All common shares and per share amounts in this Report
have been retroactively adjusted to reflect this change.
The Company had a $1,000,000 working capital line of credit that
expired May 1, 1996. The Company decided not to renew its line
of credit because it believes that its cash reserves are
sufficient to provide anticipated working capital needs for at
least the next twelve months.
<PAGE>
Safe Harbor for Forward-Looking Statements
- ------------------------------------------
From time to time, the Company or its representatives have made
or may make forward-looking statements, orally or in writing,
including in this Report. Such forward-looking statements may be
included in, without limitation, press releases, oral statements
made with the approval of an authorized executive officer of the
Company and filings with the Securities and Exchange Commission.
The words or phrases "anticipates", "expects", "will continue",
"estimates", "projects", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company's forward-looking statements are subject to certain
risks, trends, and uncertainties that could cause actual results
to vary materially from anticipated results, including, without
limitation, the following: delays in new product releases caused
by programming errors or "bugs" or failures by the Company's
outside vendors to perform as promised and changes in the
software operating systems for which the Company's products are
written. <PAGE>
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on
April 23, 1996. Voting common shareholders took the
following actions at the meeting:
1. The shareholders voted to elect the following nominees
to the Company's Board of Directors
Votes Votes Shares
For Withheld Not Voted
John Gorman 4,769,116 7,329 412,146
Leslie F. Clarke,II 4,769,116 7,329 412,146
James A. Meyer 4,769,116 7,329 412,146
Donald L. Tisdel 4,760,319 16,126 412,146
2. The shareholders voted to ratify management's selection
of auditors for 1996 by the affirmative vote of
4,755,471 shares, with 20,974 shares abstaining or
voting against the proposal, and 412,146 shares not
voted.
The foregoing results reflect the three-for-two stock split
to shareholders of record on May 3, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Form 8-K was filed during the three months ended
June 30, 1996.
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TIMBERLINE SOFTWARE CORPORATION
-------------------------------
(Registrant)
/s/ Thomas P. Cox
Date August 12, 1996 _____________________________
Thomas P. Cox, Senior Vice
President-Finance (Chief Financial Officer)
<PAGE>
FORM 10-QSB
Exhibit Index
Exhibit Page
- ------- ----
(27) Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM TIMBERLINE SOFTWARE CORPORATION'S CONDENSED
FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON
FORM 10-QSB FOR THE PERIOD ENDING JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,868,071
<SECURITIES> 3,671,928
<RECEIVABLES> 3,531,095
<ALLOWANCES> 239,054
<INVENTORY> 384,448
<CURRENT-ASSETS> 10,288,877
<PP&E> 6,666,092
<DEPRECIATION> 3,761,989
<TOTAL-ASSETS> 16,789,559
<CURRENT-LIABILITIES> 8,399,412
<BONDS> 0
<COMMON> 356,215
0
0
<OTHER-SE> 7,293,093
<TOTAL-LIABILITY-AND-EQUITY> 16,789,559
<SALES> 13,491,323 <F1>
<TOTAL-REVENUES> 13,491,323
<CGS> 1,664,201
<TOTAL-COSTS> 12,066,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,620,408
<INCOME-TAX> 625,000
<INCOME-CONTINUING> 995,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 995,408
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1> Amount includes revenue from services which is not
separately presented for interim reports.
</FN>
</TABLE>
