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, 1999
[ ] 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
(Exact name of registrant as specified in its charter)
Oregon 93-0748489
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15195 N.W. Greenbrier Parkway, Beaverton, Oregon 97006-5701
(Address of principal executive offices) (Zip code)
(503) 690-6775
(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 12, 1999, 9,485,854 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, 1999
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets, March 31, 1999 and
December 31, 1998 ........................................ 3
Condensed statements of operations for the three
months ended March 31, 1999 and 1998 .................. 4
Condensed statements of cash flows for the three
months ended March 31, 1999 and 1998 .................. 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 6. Exhibits and Reports on Form 8-K............................. 18
SIGNATURES............................................................ 18
EXHIBIT INDEX......................................................... 19
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PART I. Financial Information
Item 1. Financial Statements
TIMBERLINE SOFTWARE CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(Amounts in thousands)
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 8,360 $10,193
Temporary investments 1,956 3,767
Accounts receivable, less allowance
for doubtful accounts
(March 31, 1999, $182;
December 31, 1998, $182) 5,172 5,086
Inventories 225 272
Other current assets 1,738 1,202
----------- -----------
Total current assets 17,451 20,520
----------- -----------
Property and equipment 23,690 23,452
Less accumulated depreciation
and amortization 5,427 5,071
----------- -----------
Property and equipment - net 18,263 18,381
----------- -----------
Capitalized software costs - net 2,239 1,304
Purchased software - net 1,382 1,249
Other assets 102 95
----------- -----------
Total $39,437 $41,549
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 1,022 $ 812
Deferred revenues 11,569 10,352
Accrued employee expenses 1,294 2,312
Income taxes payable 1,309 373
Other current liabilities 1,069 1,171
----------- -----------
Total current liabilities 16,263 15,020
----------- -----------
Long-term debt - 5,417
Accrued rent expense 29 29
Deferred income taxes 974 1,047
Shareholders' equity:
Common stock, without par value
authorized, 20,000 shares;
issued - March 31, 1999, 9,455
shares; December 31, 1998,
9,420 shares 378 377
Additional paid in capital 4,009 3,721
Unrealized net gain on investments 4 10
Retained earnings 17,780 15,928
----------- -----------
Total shareholders' equity 22,171 20,036
----------- -----------
Total $39,437 $41,549
=========== ===========
</TABLE>
See notes to condensed financial statements.
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TIMBERLINE SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands, except per share data)
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net revenue:
Computer software $ 7,472 $ 5,054
Service fees 5,500 4,129
Other 369 200
---------- ----------
Net revenue 13,341 9,383
---------- ----------
Cost and expenses:
Cost of revenue 1,128 866
Customer support 2,452 1,930
Product development 2,464 2,041
Sales and marketing 2,406 1,570
General and administrative 1,327 1,267
---------- ----------
Total cost and expenses 9,777 7,674
---------- ----------
Operating income 3,564 1,709
Other income 91 131
---------- ----------
Income before income taxes 3,655 1,840
Provision for income taxes 1,425 681
---------- ----------
Net income $ 2,230 $ 1,159
========== ==========
Earnings per share:
Basic $ 0.24 $ 0.12
Diluted 0.23 0.12
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, 1999 AND 1998
(Amounts in thousands)
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net cash provided by
operating activities $ 3,635 $ 2,359
---------- ----------
Cash flows from investing activities:
Payments for property,
equipment and purchased software (606) (2,250)
Capitalized software costs (1,080) (101)
Proceeds from investments 1,805 1,270
Purchase of investments - (1,509)
Other 2 (4)
---------- ----------
Net cash provided by (used in)
investing activities 121 (2,594)
---------- ----------
Cash flows from financing activities:
Long-term debt payments (5,500) -
Proceeds from issuance of
common stock 289 248
Dividends paid (378) (280)
---------- ----------
Net cash used in
financing activities (5,589) (32)
---------- ----------
Net decrease in cash and cash
equivalents (1,833) (267)
Cash and cash equivalents,
beginning of the period 10,193 5,050
---------- ----------
Cash and cash equivalents,
end of period $ 8,360 $ 4,783
========== ==========
Supplemental information:
Cash paid during the period for
income taxes $ 396 $ 351
========== ==========
Non-cash investing and financing activity:
Property and equipment purchases to be
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-K for the year ended December 31, 1998. The balance sheet at
December 31, 1998 has been condensed from the audited balance sheet as
of that date. The results of operations for the three months ended
March 31, 1999 and 1998 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, 1999 and the results of its operations
and its cash flows for the three months ended March 31, 1999 and 1998.
2. Long-term debt
At the end of 1998, the Company had construction loan borrowings of
$5,500 under its construction loan agreement with a bank in connection
with the construction of its new corporate offices, which were
substantially completed in October 1998. Because the Company had the
intent and the ability to finance construction costs on a long-term
basis, borrowings under the construction loan agreement were recorded
as long-term debt at December 31, 1998.
During the first quarter of 1999, the Company repaid these borrowings.
Based on the Company's current cash balances, its cash projections for
1999 and current mortgage interest rates, the Company is reconsidering
the need for long-term mortgage financing. Although management of the
Company has not yet made any decision on this matter, it plans to do so
in the second quarter after further discussions with its Board of
Directors.
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
3. Earnings per share
There were no adjustments to net income in computing diluted earnings
per share for the three months ended March 31, 1999 and 1998. 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, 1999 and 1998 is as follows:
Three Months Ended
March 31,
1999 1998
------- -------
Weighted-average shares outstanding,
used in computing basic earnings
per share 9,443 9,330
Effect of dilutive stock options 305 325
------- -------
Weighted-average shares outstanding,
used in computing diluted earnings
per share 9,748 9,655
======= =======
4. Comprehensive income
In September 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (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, 1999 and 1998 are not presented
because the difference between net income and comprehensive income is
not material. There was a $6 and a $4 reduction in unrealized net gain
on investments which decreased net income to arrive at comprehensive
income for the three months ended March 31, 1999 and 1998,
respectively.
5. Operating segment information
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
The statement requires that public companies report certain financial
and descriptive information about its operating segments on both annual
and interim financial reports. Operating segments within a company are
determined based on a company's organizational structure and the way
that a company manages its businesses for making operating decisions
and assessing its performance.
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)
The Company's operations are divided into two operating segments:
software products and software services. The Company evaluates its
performance in each segment based on its operating contribution, which
includes revenue, cost and expenses that can be specifically identified
with each segment. Product development and general and administrative
expenses are not allocated to the segments for determining its
operating contribution because such an allocation would be based on
subjective factors. Information about each operating segment and a
reconciliation of operating contribution to operating income for the
three months ended March 31, 1999 and 1998 is as follows:
Three Months Ended
March 31,
1999 1998
------- -------
Net revenue:
Software products $ 7,472 $ 5,054
Services 5,500 4,129
Other 369 200
------- -------
Net revenue $13,341 $ 9,383
======= =======
Operating Contribution:
Software products $ 4,875 $ 3,265
Services 2,152 1,585
Other revenue, net of cost 328 167
Product development expenses (2,464) (2,041)
General and administrative expenses (1,327) (1,267)
------- -------
Operating income $ 3,564 $ 1,709
======= =======
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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
- --------------------------
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," "intends," "will
continue," "estimates," "plans," "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, 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,
increased competition, changes in general market conditions and certain risks
associated with the year 2000. These factors are discussed in further detail
below under "Risks and Uncertainties." Should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those discussed herein as expected,
believed, estimated, intended or anticipated. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements.
Results of Operations
- ---------------------
NET REVENUE. Net revenue increased 42 percent to $13,341 for the three months
ended March 31, 1999 compared to $9,383 for the comparable period in 1998. Both
major components of net revenue, computer software sales and service fees,
increased in 1999. Computer software sales increased 48 percent to $7,472 in the
1999 period from $5,054 in the 1998 period. Software sales increased in all
product lines. The Company's Gold Collection for Construction Accounting, the
Company's Windows-based accounting software continued to sell well, increasing
31 percent in the first three months of 1999 over the same period last year. The
Company believes this increase is primarily due to the continuing strength in
the construction industry and the Company's increasing market dominance, which
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is giving the Company greater penetration into its market and access to more
prospective users. The need by many companies to upgrade or replace existing
computer software which is not year 2000 compliant is also a factor contributing
to the increase in construction accounting software sales, but is not believed
to be as significant as the other two factors mentioned above. Additionally,
software sales for the three months ended March 31, 1999 included sales from its
Billing module, which was released in May 1998. Property Management software
sales increased 42 percent, reflecting increasing acceptance of this software in
the market. The largest increase in software sales this quarter came in the
Company's estimating product line. Estimating software sales during the first
three months of 1999 increased 90 percent over the same period last year, due to
the largest, single software sale in the Company's history to a large national
construction company. Total computer software sales represented 56 percent of
net revenue in the three months ended March 31, 1999 compared to 54 percent for
the same period in 1998. The Company believes that computer software sales, as a
percentage of net revenue, will likely continue at its present level for the
remainder of 1999.
Service fees from maintenance, support, consulting and training, which
represented 41 percent and 44 percent of net revenue for the three months ended
March 31, 1999 and 1998, respectively, increased 33 percent to $5,500 in the
1999 period from $4,129 for the comparable period in 1998. The increase was
principally due to the continuing increase in the Company's user base through
new product sales and the Company's new maintenance and support service plan
pricing structure which was instituted a year ago. Maintenance and support fees,
which comprise about three-fourths of total service fees for the three months
ended March 31, 1999, increased 27 percent and consulting and training fees
increased 60 percent over the 1998 period. 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 eight
percent for the three months ended March 31, 1999 compared to nine percent for
the comparable period in 1998. 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 Company believes
that cost of revenue, as a percentage of net revenue, will remain at
approximately the same level throughout 1999.
OPERATING EXPENSES. Operating expenses increased 27 percent to $8,649 for the
three months ended March 31, 1999 from $6,808 for the comparable period in 1998.
Customer support expenses increased 27 percent to $2,452 for the three months
ended March 31, 1999 from $1,930 for the same period in 1998. The increase was
primarily due to additional personnel hired during 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
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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 21 percent to $2,464 for the three months
ended March 31, 1999 from $2,041 for the comparable period in 1998. The increase
was primarily due to increased personnel hirings during 1998 in the quality
assurance area. Because of the complexity of developing software in a Windows
environment and the extensive testing required to ensure its reliability, the
Company has been devoting more resources to quality assurance so the Company's
software is more thoroughly tested and bug-free prior to its release to users.
The Company believes that a greater emphasis on quality assurance may have the
effect of reducing the number of calls to the Company's customer support staff,
which in turn can allow faster service to its customers and more efficient and
productive use of its customer support personnel. The Company expects overall
product development expenses to remain above its 1998 level throughout 1999.
Sales and marketing expenses increased 53 percent to $2,406 for the three months
ended March 31, 1999 from $1,570 for the same period in 1998. As a percentage of
net revenue, these expenses increased to 18 percent for the three months ended
March 31, 1999 from 17 percent for the same period in 1998. The increased
expense was primarily due to increased sales commissions, advertising and trade
show costs, and to a lesser extent, international marketing expenses. The
increase in sales commissions was primarily due to the large estimating software
sale that was discussed above. General and administrative expenses increased
five percent to $1,327 for the three months ended March 31, 1999 from $1,267 for
the comparable period in 1998. As a percentage of net revenue, general and
administrative expenses decreased to 10 percent for the three months ended
March 31, 1999 from 14 percent for the same period in 1998 due to these expenses
remaining relatively constant while net revenue increased.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39 percent for
the three months ended March 31, 1999 compared to 37% for the same period in
1998. The provision for income taxes is based on the Company's estimate of the
effective tax rate for each of the respective years.
Capital Resources and Liquidity
- -------------------------------
The Company generally meets its liquidity needs through cash generated from
operations. During the three months ended March 31, 1999, net cash provided by
operations was $3,635 compared to $2,359 for the same period in 1998. This
increase was primarily due to an increase in the profitability of the Company's
operations for the first three months of 1999 compared to the same period in
1998. Working capital decreased to $1,188 at March 31, 1999 from $5,500 at
December 31, 1998. This decrease was primarily due to a reduction in cash and
cash equivalents and temporary investments as a result of the repayment of the
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Company's construction loan during the first quarter of 1999,as further
discussed below. Net accounts receivable at March 31, 1999 were $5,172, an
increase of $86 compared to December 31, 1998. DSO (Days Sales Outstanding) at
March 31, 1999 increased slightly to 35, compared to 34 at December 31, 1998.
Net capitalized software costs increased $935 since December 31, 1998 primarily
due to payments owed under an agreement with another software company to
integrate its SQL software database with the Company's software.
Deferred revenues at March 31, 1999 increased $1,217 since December 31, 1998
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 $1,018 since December 31, 1998 primarily due to payments for profit
sharing expense accrued in 1998 and the Company's 1998 contribution to its
401(k) plan. Income taxes payable increased $936 since December 31, 1998
primarily due to accrued income tax expense on income earned during the first
three months of 1999.
In connection with the construction of its new corporate headquarters, the
Company entered into a construction loan agreement with a bank to borrow up to
$9,750. At December 31, 1998, there were outstanding borrowings under the
construction loan amounting to $5,500. During the first quarter of 1999, the
Company repaid the entire construction loan balance. The Company had classified
the borrowings under the construction loan as long-term debt at the end of 1998
because the Company had the intent and the ability to finance these borrowings
on a long-term basis. Based on the Company's current cash balances, its cash
projections for the year, and current mortgage interest rates, the Company is
reconsidering the need for long-term mortgage financing. No decision has yet
been made on this matter, but management of the Company plans to make a decision
on this during the second quarter this year, after further discussions with its
Board of Directors.
In January 1999, the Company declared a regular quarterly cash dividend of $.04
per share, aggregating $378. The Company plans to continue to pay quarterly cash
dividends. The payment and amount of future dividends remain within the
discretion of the Board of Directors and will depend upon the Company's future
earnings, financial condition, capital requirements and other factors deemed
relevant by the Board of Directors.
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Risks and Uncertainties
- -----------------------
From time to time the Company may make forward-looking statements as such term
is defined in the Federal securities laws. The following risks and
uncertainties, among others, should be considered in evaluating the Company's
forward-looking statements.
Factors that may cause actual results to differ materially from those contained
in such forward-looking statements are as follows:
YEAR 2000 COMPLIANCE. Many companies that use and/or develop computer software
are addressing the potential problem that will soon manifest if their software
is not year 2000 compliant. The potential problem that exists with some computer
software is that it will not process transactions properly for dates commencing
in the year 2000. This is due to the fact that many software programs were
designed to make date calculations based on the last two digits of the year. As
a result, dates in the year 2000 may be identified as dates in the year 1900,
which may cause incorrect calculations, cause the transaction to not be
processed or, in some cases, cause an entire computer system to malfunction.
The Company has been aware of this problem for many years and has been
addressing it, both for its software that is being developed for sale to users
and for applications affecting internal operations that potentially may not be
year 2000 compliant. On software developed for sale to users, the Company
believes that its complete suite of current Windows-based products is already
year 2000 compliant, and modifications to its older DOS-based products which are
still maintained by the Company, to make them year 2000 compliant are complete.
The testing of these modifications by the Company is complete and the modified
software has been made available on request to users who are on a software
maintenance plan with the Company. The Company plans to release the modified
software to all of its DOS-based product users who are on a software maintenance
contract with the Company later this year. The Company has already notified
users of its discontinued software products that the Company will not continue
support of such products. Because the Company has been aware of the year 2000
issue for a number of years, it has been developing and testing software with
year 2000 compliance in mind and has not budgeted separately to address it.
The Company is currently in various stages of assessing all of its internal
technical applications to ascertain whether they are year 2000 compliant. The
Company has conducted an internal assessment of its internal information and
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telecommunication systems and believes that these systems are already, or in the
process of being upgraded to become, year 2000 compliant. Components of those
systems which are in the process of becoming year 2000 compliant are expected to
be completed and tested for compliance by the end of the second quarter of 1999.
The Company continually upgrades and expands its internal information and
telecommunication systems, and does not budget specifically for year 2000
compliant costs required for upgrading and testing those systems. However, the
Company estimates that costs specifically related to upgrading and testing the
information and telecommunication system for year 2000 compliance will be $80 in
1999. The assessment and projections for having those systems year 2000
compliant were conducted by the Company's information technology and
telecommunication staff based on their expertise in those areas and discussions
with representatives of vendors who support those systems.
The Company is also in various stages of assessing its non-technical
applications to identify areas that are not year 2000 compliant. This assessment
has not yet been completed, but the assessment and final compliance testing is
expected to be completed by the end of the second quarter of 1999. Based on the
Company's current assessment of these non-technical areas, the Company does not
believe this area poses any significant problems. The Company believes that the
cost of bringing its non-technical applications into year 2000 compliance will
not be material.
Additionally, the Company is continuing to assess whether significant third
parties upon whom it relies for various aspects of its business are year 2000
compliant. These third parties are primarily vendors (banks, telephone
companies, fulfillment and freight companies, and suppliers of components for
the Company's software products) whose inability to be year 2000 compliant could
delay or cancel customer orders for the Company's products and services, delay
receipt of payments by customers for products shipped and services rendered, and
disrupt other aspects of the Company's operations. Any one of these potential
events could adversely affect the Company's financial condition and results of
operations.
The Company has made some formal inquiries with these third party vendors,
suppliers and service providers with respect to their year 2000 compliance
programs and, more importantly, those specific parts of their program that
directly affect the Company's operations. The general response that the Company
has received from these parties has indicated that they are in the process of
assessing and testing their operations for year 2000 compliance and are expected
to complete their testing during 1999. The Company is continuing to identify and
categorize its third parties so that those parties who are identified as being
critical to the Company's operations receive higher priority and more attention
than those third parties who are deemed to be not as critical to the Company's
operations. The Company anticipates that it will continue to solicit information
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for these third parties and monitor the progress of their year 2000 compliant
programs through 1999.
The Company has not yet developed a contingency plan in the event the Company or
any of its third parties fail to become year 2000 compliant in a timely manner
and does not have any timetable to develop such a plan. Such a plan may be
developed after the Company has completed its assessment of its third party
vendors, suppliers and service providers, and the testing of its own year 2000
program. The Company believes that a reasonable worst-case scenario for not
being year 2000 compliant would be that the Company's software products sold to
users does not address all aspects or conditions related to the year 2000
compliant issue, and/or that the Company's vendors are not able to supply
components related to its software products. If such a scenario occurs, the
Company will have to redirect some of its product development staff to work on
the software to make it year 2000 compliant for events it did not originally
consider in the development of the software. The Company's users may also seek
to hold the Company liable for damages if the software does not function
properly. Additionally, there could be delays in delivering software to
customers as the Company finds new suppliers or methods of delivery.
Based on the assessment the Company has made to date on the year 2000 compliant
issue, the Company does not believe that it will have an adverse effect on the
Company's financial condition, results of operations and cash flows. However,
that assessment is based on knowledge that is currently known to the Company and
assumes that the responses it has received from third parties are representative
of all third parties with which the Company transacts business. Many factors
outside the control of the Company could cause the Company's current assessment
on the year 2000 compliance issue to change significantly. For example,
unfavorable rulings on current and future litigation related to this issue could
adversely affect the Company's legal defenses if the Company were to be named in
such litigation and, as a result, could have an adverse effect on the Company's
financial condition, results of operations and cash flows. The Company will
continue to update its assessment of its year 2000 readiness as it receives
updated information from its year 2000 program and as it monitors legal rulings
concerning the year 2000 compliance issue.
COMPETITION. The computer software market is highly competitive and subject to
change because of the rapid technological changes in the computer industry. The
number of software vendors with which the Company competes varies from product
to product and from region to region within the United States. Although the
Company believes it is a major supplier of project accounting and cost
estimating software for the construction and property management industries, and
that there are economical and technological barriers to discourage new specialty
software vendors from entering into its segment of the software market, there
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can be no assurance that larger, well-known software developers will not target
this segment of the market. Such competitors are considerably larger, more
diversified, and have greater financial and other resources and enjoy greater
brand recognition for their products than the Company.
The Company must also compete with other larger, well-known software developers
for the hiring and retention of highly qualified technical personnel. As a
result, the Company may have to expend additional financial resources to hire
and retain qualified technical personnel. If the Company is not able to secure
the services of employees with the level of technical expertise it requires, the
development of new products would likely be delayed and would result in a
decrease in the quality of new software products and enhancements to its
existing software products. A delay in the development, or failure to maintain
the quality of new software products by the Company would likely have an adverse
effect on the financial position and results of operations of the Company.
DEPENDENCE ON MICROSOFT OPERATING SYSTEM;OBSOLESCENCE AND TECHNOLOGICAL CHANGES.
The Company is a specialty software developer, an industry characterized by
rapid technological change. Its software is designed to work with specific
operating systems developed by Microsoft Corporation. If substantial changes are
made to those operating systems or if new operating systems are adopted, the
Company's software may not function properly, necessitating that the Company
invest additional resources to adapt its software to those changes. Also, other
operating systems may be introduced on which the Company's software may not
function, which may also cause additional resources to be expended which would
otherwise be devoted to improving the Company's software or developing new
software.
To remain competitive, the Company must continue to make substantial
expenditures for product development. Although the Company plans to continue to
enhance its existing products and to develop new products, the Company's
competitors may develop products with superior capabilities and/or market their
products more effectively at lower prices, by "bundling" of software with other
software or through other methods. The Company believes its existing software
products are widely accepted in its segment of the marketplace. However, a delay
in the release of new products or modifications to existing products, or a delay
in the acceptance by the marketplace of any new products or modifications to
existing products, could similarly delay the recognition of revenue, or have an
adverse effect on the Company's revenue and earnings.
SUBSTANTIAL DEPENDENCE ON SINGLE INDUSTRY. Because the Company sells a large
majority of its software products and services to the construction industry,
adverse economic conditions in that industry could have a material adverse
effect on the Company's revenue and earnings. The construction industry is
particularly sensitive to a significant increase in interest rates, which in the
16
<PAGE>
past has resulted in substantial financial distress across the industry. In
addition, a downturn in general economic conditions in the United States could
adversely affect the construction industry.
PRODUCT PROTECTION. The Company regards its software as proprietary and attempts
to protect it by relying upon copyrights, trade secrets, internal nondisclosure
agreements and transferability restriction incorporated into its software
license agreements. The Company believes the risk of unauthorized transfers of
the Company's proprietary information is reduced because program source listings
are not released to third parties. Despite these restrictions, it may be
possible for competitors or users to copy aspects of the Company's products or
to obtain information which the Company regards as proprietary. The Company's
competitive position could be adversely affected by unauthorized use of its
proprietary information. Third parties may also assert infringement or other
claims against the Company with respect to any existing or future products.
Litigation to protect the Company's proprietary information or to determine the
validity of any third-party claims could result in significant expense to the
Company and, whether or not such litigation is determined in favor of the
Company, divert the efforts of the Company's technical and management personnel
from further development and support of the Company's software products.
17
<PAGE>
PART II. Other Information
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, 1999.
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)
Date May 14, 1999 /s/ Carl C. Asai
-----------------------------
Carl C. Asai, Vice President,
Finance (Chief Financial Officer)
18
<PAGE>
FORM 10-Q
Exhibit Index
Exhibit Page
- ------- ------
(27) Financial Data Schedule 20
19
<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, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,360
<SECURITIES> 1,956
<RECEIVABLES> 5,354
<ALLOWANCES> 182
<INVENTORY> 225
<CURRENT-ASSETS> 17,451
<PP&E> 23,690
<DEPRECIATION> 5,427
<TOTAL-ASSETS> 39,437
<CURRENT-LIABILITIES> 16,263
<BONDS> 0
<COMMON> 378
0
0
<OTHER-SE> 21,793
<TOTAL-LIABILITY-AND-EQUITY> 37,437
<SALES> 7,472
<TOTAL-REVENUES> 13,341
<CGS> 1,128
<TOTAL-COSTS> 6,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,655
<INCOME-TAX> 1,425
<INCOME-CONTINUING> 2,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,230
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
