U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
March 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16376
TIMBERLINE SOFTWARE CORPORATION
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(Exact name of registrant as specified in its charter)
Oregon 93-0748489
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 S.W. Nimbus Avenue, Beaverton, Oregon 97008
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(Address of principal executive offices) (Zip code)
(503) 626-6775
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
At May 8, 1998, approximately 7,023,743 shares of common stock of the registrant
were outstanding.
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TIMBERLINE SOFTWARE CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets, March 31, 1998 and
December 31, 1997 ................................ 3
Condensed statements of operations for the three
months ended March 31, 1998 and 1997.............. 4
Condensed statements of cash flows for the three
months ended March 31, 1998 and 1997.............. 5
Notes to condensed financial statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation................ 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.......... 12
Item 6. Exhibits and Reports on Form 8-K................... 12
SIGNATURES.................................................... 12
EXHIBIT INDEX................................................. 13
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PART I. Financial Information
Item 1. Financial Statements
TIMBERLINE SOFTWARE CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(Amounts in thousands)
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<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,783 $ 5,050
Temporary investments 5,431 5,195
Accounts receivable, less allowance
for doubtful accounts
(March 31, 1998, $198;
December 31, 1997, $199) 3,650 4,303
Inventories 247 241
Other current assets 1,150 1,027
----------- -----------
Total current assets 15,261 15,816
----------- -----------
Property and equipment 15,185 12,671
Less accumulated depreciation
and amortization 5,504 5,186
----------- -----------
Property and equipment - net 9,681 7,485
----------- -----------
Capitalized software costs - net 1,622 1,634
Purchased software - net 764 709
Other assets 110 110
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Total $27,438 $25,754
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 805 $ 1,440
Income taxes payable 384 166
Deferred revenues 8,528 7,503
Accrued employee expenses 987 1,861
Other current liabilities 476 507
----------- -----------
Total current liabilities 11,180 11,477
----------- -----------
Construction costs payable 888 -
Accrued rent expense 41 46
Deferred income taxes 940 965
Shareholders' equity:
Common stock, without par value
authorized, 20,000 shares;
issued - March 31, 1998, 7,009
shares; December 31, 1997,
6,978 shares 374 372
Additional paid in capital 3,153 2,907
Unrealized net gain on investments 13 17
Retained earnings 10,849 9,970
----------- -----------
Total shareholders' equity 14,389 13,266
----------- -----------
Total $27,438 $25,754
=========== ===========
</TABLE>
See notes to condensed financial statements.
3
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TIMBERLINE SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Amounts in thousands, except per share data)
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<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net revenue:
Computer software $5,054 $3,769
Service fees 4,129 3,468
Other 200 271
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Net revenue 9,383 7,508
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Cost and expenses:
Cost of revenue 866 923
Customer support 1,930 1,576
Product development 2,041 1,825
Sales and marketing 1,570 1,636
General and administrative 1,267 1,141
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Total cost and expenses 7,674 7,101
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Income from operations 1,709 407
Other income 131 103
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Income before income taxes 1,840 510
Provision for income taxes 681 178
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Net income $1,159 $ 332
========== ==========
Earnings per share:
Basic $ 0.17 $ 0.05
Diluted 0.16 0.05
See notes to condensed financial statements.
</TABLE>
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TIMBERLINE SOFTWARE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Amounts in thousands)
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<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net cash provided by
operating activities $2,359 $ 954
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Cash flows from investing activities:
Payments for property,
equipment and purchased software (2,250) (438)
Capitalized software costs (101) (125)
Proceeds from investments 1,270 1,202
Purchase of investments (1,509) -
Other (4) -
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Net cash provided by (used in)
investing activities (2,594) 639
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of
common stock 248 47
Dividends paid (280) (164)
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Net cash used in
financing activities (32) (117)
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Net increase (decrease) in cash
and cash equivalents (267) 1,476
Cash and cash equivalents,
beginning of the year 5,050 3,129
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Cash and cash equivalents,
end of period $4,783 $4,605
========== ==========
Supplemental information:
Cash paid during the period for
income taxes $ 351 $ 181
========== ==========
Non-cash investing and financing
activity:
Property and equipment purchases
financed through construction loan $ 888 $ -
========== ==========
See notes to condensed financial statements.
</TABLE>
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Amounts in thousands)
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, 1997. The balance sheet at
December 31, 1997 has been condensed from the audited balance sheet as
of that date. The results of operations for the three months ended
March 31, 1998 and 1997 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 March 31, 1998 and the results of its operations
and its cash flows for the three months ended March 31, 1998 and 1997.
2. Recent accounting pronouncement
In June 1997, the Financial Accounting Standards Board(FASB) issued
Statement of Financial Accounting Standards(SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
established standards for disclosure about operating segments in annual
financial statements and selected information about operating segments
in interim financial statements. It also established standards for
related disclosure about products and services, geographic areas, and
major customers. This standard is effective commencing with the
Company's annual financial statements for the year ending December 31,
1998. Selected information about operating segments is not required for
interim financial statements issued in 1998. The Company has not yet
completed its analysis of the specific additional information required
under this new standard, but believes that any segment information
required to be disclosed under SFAS No. 131 will provide expanded
disclosure about operating statement and balance sheet items.
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3. Construction costs payable
Construction of the Company's new corporate headquarters is being
financed through a combination of existing cash balances, temporary
investments, and a construction loan. Commencing in April 1998, some of
the construction costs, including some that are payable at March 31,
1998, will be paid from advances received under a construction loan
agreement entered into by the Company in December 1997. Because the
Company has the intent and the ability to finance construction costs on
a long-term basis, construction costs payable at March 31, 1998 which
will be paid from advances received under the construction loan
agreement have been recorded as a long-term liability.
In April 1998, the Company received its first advance under the
construction loan agreement amounting to $723.
4. Earnings per share
There were no adjustments to net income in computing diluted earnings
per share for the three months ended March 31, 1998 and 1997. A
reconciliation of the common shares used in the denominator for
computing basic and diluted earnings per share for the three months
ended March 31, 1998 and 1997 is as follows:
1998 1997
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Weighted-average shares outstanding,
used in computing basic earnings
per share 6,997 6,839
Effect of dilutive stock options 245 300
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Weighted-average shares outstanding,
used in computing diluted earnings
per share 7,242 7,139
======= =======
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5. Comprehensive income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting comprehensive income
and its components. The Company adopted this standard on January 1,
1998. Statements of comprehensive income for the three months ended
March 31, 1998 and 1997 are not presented because the difference
between net income and comprehensive income is not material. There was
a $4 reduction in unrealized net gain on investments which reduced net
income to arrive at comprehensive income for the three months ended
March 31, 1998 and there was no adjustment between net income and
comprehensive income for the three months ended March 31, 1997.
6. Common Stock
At the annual meeting of the Company's shareholders on April 28, 1998,
the shareholders approved an increase in the number of authorized
shares of the Company from 8,000 shares to 20,000 shares. This change
is reflected on the Company's balance sheet as of March 31, 1998.
Additionally, the Company's shareholders approved an incentive stock
plan for the purpose of retaining and attracting the services of key
employees, officers and directors, as well as other persons who are
integral to the ongoing success of the Company. The plan is nearly
identical to the stock incentive plan approved by the shareholders in
1993, which provided for the granting of various stock options, stock
appreciation rights, and stock bonuses. The plan will be administered
by the compensation committee of the Company's Board of Directors which
will determine the terms and conditions of the various grants awarded
under the plan. There are 500 shares reserved under this plan.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
TIMBERLINE SOFTWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Amounts in thousands, except percent amounts and per share data)
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Forward-Looking Statements
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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," "believes," "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, delays in acceptance of the Company's products in the
marketplace, failures by the Company's outside vendors to perform as promised,
changes in the software operating systems for which the Company's products are
written or increased competition and changes in general market conditions.
Results of Operations
- ---------------------
NET REVENUE. Net revenue increased 25 percent to $9,383 for the three months
ended March 31, 1998 compared to $7,508 for the comparable period in 1997. Both
major components of net revenue, computer software sales and service fees,
increased in 1998. Computer software sales increased 34 percent to $5,054 in the
1998 period from $3,769 in the 1997 period. The increase was primarily due to a
52 percent increase in sales from the Gold Collection for Construction
Accounting, the Company's Windows-based accounting software. The Company
believes this increase is due in part to the continuing strength in the
construction industry and the need to upgrade or replace existing computer
software which is not Year 2000 compliant. Computer software sales represented
54 percent of net revenue in the three months ended March 31, 1998 compared to
50 percent for the same period in 1997. The Company believes that computer
software sales, as a percentage of net revenue, will likely continue at its
present level for the remainder of 1998.
Service fees from maintenance, support, consulting and training, which
represented 44 percent and 46 percent of net revenue for the three months ended
March 31, 1998 and 1997, respectively, increased 19 percent to $4,129 in the
9
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1998 period from $3,468 for the comparable period in 1997. The increase was
principally due to the continuing increase in the Company's user base through
new product sales. Maintenance and support fees, which comprise 80 percent of
service fees, increased 18 percent and consulting and training fees increased 24
percent over 1997 levels. The Company anticipates that service fees will
continue to represent a significant, but not necessarily an increasing,
percentage of net revenue.
COST OF REVENUE. Cost of revenue, as a percentage of net revenue, was nine
percent for the three months ended March 31, 1998 compared to 12 percent for the
same period in 1997. The decrease in this percentage was primarily due to lower
documentation and fulfillment costs associated with software sales and software
releases to users on annual maintenance contracts. The decrease in these costs
was partially offset with an increase in costs associated with consulting and
training. The Company believes that cost of revenue, as a percentage of net
revenue, will remain at approximately the same level throughout 1998.
OPERATING EXPENSES. Operating expenses increased 10 percent to $6,808 for the
three months ended March 31, 1998 from $6,178 for the comparable period in 1997.
The increase was primarily due to higher expenses in the customer support and
product development areas.
Customer support increased 22 percent to $1,930 for the three months ended March
31, 1998 from $1,576 in the same period in 1997. The increase was primarily due
to additional personnel hired during the last eight months of 1997 and the first
three months of 1998 to handle the increased demands for support and consulting
services as a result of the continuing increase in Accounting software sales.
The Company anticipates that customer support expenses will continue to increase
in order to meet the demands of its customers and to maintain a high quality
level of support.
Product development expenses increased 12 percent to $2,041 for the three months
ended March 31, 1998 from $1,825 for the comparable period in 1997. The increase
was primarily due to increased personnel costs for designing, developing and
testing enhancements to the Company's existing software products, as well as
ongoing research for future products. The Company expects product development
expenses to remain above its 1997 level throughout 1998. Capitalized software
costs related to new product development, which reduce current operating
expenses were $101 for the three months ended March 31, 1998 compared to $125
for the same period in 1997.
Sales and marketing expenses decreased four percent to $1,570 for the three
months ended March 31, 1998 from $1,636 for the same period in 1997. As a
percentage of net revenue, these expenses decreased to 17 percent in 1998 from
22 percent in 1997. The decrease was primarily due to a reduction in personnel
in the sales area during the latter part of 1997. This decrease was partially
offset by a slight increase in marketing expenses, primarily in the area of
trade show expenses. General and administrative expenses increased 11 percent to
$1,267 for the three months ended March 31, 1998 from $1,141 for the comparable
period in 1997. The increase was partially due to an increase in depreciation,
10
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insurance, and legal expenses. As a percentage of net revenue, these expenses
decreased to 14 percent in 1998 from 15 percent in 1997.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37 percent and
35 percent for the three months ended March 31, 1998 and 1997, respectively. The
provision was based on the Company's estimate of the effective tax rate for each
of the respective years.
Capital Resources and Liquidity
- -------------------------------
During the three months ended March 31, 1998, net cash provided by operations
was $2,359 compared to $954 for the same period in 1997. This increase was due
to the increase in the Company's net income in the 1998 period compared to the
same period in 1997. Working capital has decreased to $4,081 at March 31, 1998
from $4,339 at December 31, 1997. Net accounts receivable at March 31, 1998
decreased $653 since December 31, 1997 reflecting the seasonal decline in
revenue in March 1998 from December 1997. Net property and equipment has
increased $2,196 since December 31, 1997 primarily due to $2,032 of additional
costs incurred during the first three months of 1998 in connection with the
construction of the Company's new corporate headquarters. The Company has also
purchased computer equipment for additional personnel and to replace older
computer equipment.
Accounts payable has decreased $635 since December 31, 1997 primarily due to
some construction costs payable related to the Company's new corporate
headquarters are no longer being classified in accounts payable. As of March 31,
1998, most of these costs are being shown as a long-term liability because the
Company has the intent and the ability to finance these costs on a long-term
basis. Subsequent to March 31, 1998, the Company made its initial advance under
its construction loan agreement, amounting to $723.
Deferred revenues at March 31, 1998 increased $1,025 since December 31, 1997
primarily due to an increase in the billings for annual maintenance and support
services. Revenue from annual maintenance and support service billings are
recognized monthly over the terms of the contracts. Accrued employee expenses
decreased $874 since December 31, 1997, primarily as a result of the payment of
profit sharing expenses accrued at the end of 1997 and the payment of the
Company's 1997 contribution to its 401(k) plan.
In January 1998, the Company declared a regular cash dividend of $.04 per share
aggregating $280. The Company anticipates continuing to pay quarterly cash
dividends. The Company's construction loan agreement requires the Company to
maintain certain minimum working capital and tangible net worth levels, which
could restrict the amount of retained earnings that are available for the
payment of dividends. Under the most restrictive requirements of the loan
agreement, unrestricted retained earnings at March 31, 1998 amounted to $1,081.
11
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PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds
In December 1997, the Company entered into a construction loan agreement with a
bank to finance a portion of the costs for its new corporate headquarters which
are currently under construction. A copy of the construction loan agreement and
related documents were filed as Exhibits 10.8, 10.9 and 10.10 to the Company's
Form 10-KSB for the year ended December 31, 1997. The agreement requires that
the Company maintain certain working capital and minimum tangible net worth
levels, which could restrict the amount of retained earnings available for the
payment of dividends. Under the most restrictive requirements of the loan
agreement, unrestricted retained earnings at March 31, 1998 amounted to
$1,081,000.
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 March 31,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIMBERLINE SOFTWARE CORPORATION
...............................
(Registrant)
/s/ Thomas P. Cox
Date: May 12, 1998 _____________________________
Thomas P. Cox, Executive Vice
President (Chief Financial Officer)
12
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FORM 10-Q
Exhibit Index
Exhibit Page
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(27) Financial Data Schedule 14
13
<TABLE> <S> <C>
<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-Q FOR THE PERIOD ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,783
<SECURITIES> 5,431
<RECEIVABLES> 3,848
<ALLOWANCES> 198
<INVENTORY> 247
<CURRENT-ASSETS> 15,261
<PP&E> 15,185
<DEPRECIATION> 5,504
<TOTAL-ASSETS> 27,438
<CURRENT-LIABILITIES> 11,180
<BONDS> 888
0
0
<COMMON> 374
<OTHER-SE> 14,015
<TOTAL-LIABILITY-AND-EQUITY> 27,438
<SALES> 5,054
<TOTAL-REVENUES> 9,383
<CGS> 866
<TOTAL-COSTS> 4,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,840
<INCOME-TAX> 681
<INCOME-CONTINUING> 1,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,159
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
