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 June 30, 2000
[_] 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
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(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
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(Address of principal executive offices) (Zip code)
(503) 690-6775
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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 August 8, 2000, 12,705,841 shares of common stock of the registrant were
outstanding.
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TIMBERLINE SOFTWARE CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets, June 30,
2000 and December 31, 1999...................................3
Condensed consolidated statements of operations
for the three months ended June 30, 2000 and
1999.........................................................4
Condensed consolidated statements of operations
for the six months ended June 30, 2000 and
1999.........................................................5
Condensed consolidated statements of cash flows
for the six months ended June 30, 2000 and
1999.........................................................6
Notes to condensed consolidated financial
statements...................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...............................11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders.........................................................19
Item 6. Exhibits and Reports on Form 8-K...................................19
SIGNATURES..................................................................20
EXHIBIT INDEX ..............................................................21
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PART I. Financial Information
Item 1. Financial Statements
TIMBERLINE SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (Unaudited) AND DECEMBER 31, 1999
(Amounts in thousands)
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<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 8,019 $ 7,642
Temporary investments 10,473 12,738
Accounts receivable, less allowance
for doubtful accounts
(June 30, 2000, $142;
December 31, 1999, $143) 4,398 5,025
Inventories 249 221
Other current assets 1,950 1,501
----------- -----------
Total current assets 25,089 27,127
----------- -----------
Property and equipment 28,851 27,749
Less accumulated depreciation
and amortization 7,965 7,329
----------- -----------
Property and equipment - net 20,886 20,420
----------- -----------
Capitalized software costs - net 4,473 2,715
Other assets 218 85
----------- -----------
Total $50,666 $50,347
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 931 $ 864
Deferred revenues 14,865 13,725
Accrued employee expenses 1,446 2,184
Income taxes payable - 467
Other current liabilities 1,427 1,185
----------- -----------
Total current liabilities 18,669 18,425
----------- -----------
Accrued rent expense 30 30
Deferred income taxes 2,223 1,725
Shareholders' equity:
Common stock, without par value
authorized, 20,000 shares;
issued - June 30, 2000, 12,729
shares; December 31, 1999,
12,822 shares 382 385
Additional paid in capital 5,626 5,405
Accumulated other comprehensive
loss (67) (70)
Retained earnings 23,803 24,447
----------- -----------
Total shareholders' equity 29,744 30,167
----------- -----------
Total $50,666 $50,347
=========== ===========
See notes to condensed consolidated financial
statements.
</TABLE>
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TIMBERLINE SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
(Amounts in thousands, except per share data)
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<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net revenue:
Software license fees $ 5,136 $ 7,226
Service fees 6,800 5,786
Other 205 259
---------- ----------
Net revenue 12,141 13,271
---------- ----------
Cost and expenses:
Cost of revenue 1,427 1,311
Client services 2,842 2,507
Product development 3,265 2,546
Sales and marketing 2,295 2,019
General and administrative 1,687 1,332
---------- ----------
Total cost and expenses 11,516 9,715
---------- ----------
Operating income 625 3,556
Other income 280 142
---------- ----------
Income before income taxes 905 3,698
Provision for income taxes 316 1,443
---------- ----------
Net income $ 589 $ 2,255
========== ==========
Earnings per share:
Basic $ 0.05 $ 0.18
Diluted 0.05 0.17
See notes to condensed consolidated financial statements.
</TABLE>
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TIMBERLINE SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
(Amounts in thousands, except per share data)
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<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net revenue:
Software license fees $10,686 $14,698
Service fees 13,275 11,286
Other 520 628
---------- ----------
Net revenue 24,481 26,612
---------- ----------
Cost and expenses:
Cost of revenue 2,612 2,439
Client services 5,946 4,959
Product development 6,383 5,010
Sales and marketing 4,372 4,425
General and administrative 3,316 2,659
---------- ----------
Total cost and expenses 22,629 19,492
---------- ----------
Operating income 1,852 7,120
Other income 569 233
---------- ----------
Income before income taxes 2,421 7,353
Provision for income taxes 884 2,868
---------- ----------
Net income $ 1,537 $ 4,485
========== ==========
Earnings per share:
Basic $ 0.12 $ 0.36
Diluted 0.12 0.34
See notes to condensed consolidated financial statements.
</TABLE>
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TIMBERLINE SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
(Amounts in thousands)
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<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net cash provided by
operating activities $ 4,083 $ 7,385
---------- ----------
Cash flows from investing
activities:
Payments for property and
equipment (1,703) (1,197)
Capitalized software costs (2,308) (1,210)
Proceeds from investments 2,267 2,967
Purchase of investments - (6,178)
Other 1 3
---------- ----------
Net cash used in investing
activities (1,743) (5,615)
---------- ----------
Cash flows from financing
activities:
Long-term debt payments - (5,500)
Proceeds from issuance of
common stock 291 750
Common stock reacquired (1,226) -
Dividends paid (1,028) (757)
---------- ----------
Net cash used in financing
activities (1,963) (5,507)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 377 (3,737)
Cash and cash equivalents,
beginning of the period 7,642 10,193
---------- ----------
Cash and cash equivalents,
end of the period $ 8,019 $ 6,456
========== ==========
Supplemental information:
Cash paid during the period for
income taxes $ 1,049 $ 2,651
========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
(Amounts in thousands)
1. Condensed consolidated financial statements
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America 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, 1999. The balance sheet at December 31, 1999 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, 2000 and 1999 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, 2000 and the results of its operations and
its cash flows for the three and six month periods ended June 30, 2000
and 1999.
Certain reclassifications have been made in the 1999 financial statements
to conform to the 2000 presentation.
The accompanying financial statements include the accounts of the Company
as well as its wholly-owned subsidiary, which was opened in Australia
during March 2000. The functional currency of the subsidiary is
Australian dollars. Gains and losses resulting from foreign currency
translation are recorded as other comprehensive income and accumulated as
a separate component of shareholders' equity. All significant
intercompany balances and transactions are eliminated in consolidation.
2. Recent accounting pronouncement
In December 1999, the Securities and Exchange Commission (the SEC)
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition
in Financial Statements." SAB No. 101 summarizes certain of the SEC's
views in applying generally accepted accounting principles to revenue
recognition in financial statements and will be effective for the Company
in the fourth quarter of fiscal 2000. The Company believes that the
effect, if any, of the adoption of this standard will not be material to
the Company's consolidated financial position, results of operations or
cash flows.
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(Unaudited)(Continued) (Amounts in thousands)
3. Earnings per share
A reconciliation of the common shares used in the denominator for
computing basic and diluted earnings per share for the three and six
month periods ended June 30, 2000 and 1999 is as follows:
Three Months Ended
June 30,
------------------
2000 1999
------- -------
Weighted-average shares outstanding,
used in computing basic earnings
per share 12,800 12,646
Effect of dilutive stock options 223 465
------- -------
Weighted-average shares outstanding,
used in computing diluted earnings
per share 13,023 13,111
======= =======
Six Months Ended
June 30,
------------------
2000 1999
------- -------
Weighted-average shares outstanding,
used in computing basic earnings
per share 12,814 12,618
Effect of dilutive stock options 292 437
------- -------
Weighted-average shares outstanding,
used in computing diluted earnings
per share 13,106 13,055
======= =======
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(Unaudited)(Continued) (Amounts in thousands)
4. Comprehensive income
Statements of comprehensive income for the three and six month periods
ended June 30, 2000 and 1999 are not presented because the difference
between net income and comprehensive income is not material. The
difference between the Company's net income and comprehensive income
relates to the change in the unrealized net gain (loss) on temporary
investments and translation gain (loss) related to the consolidation of
the Company's wholly-owned foreign subsidiary. For the three months ended
June 30, 2000 and 1999, net income would have been increased by $16 and
reduced by $28, respectively, to arrive at comprehensive income of $605
and $2,227, respectively. For the six months ended June 30, 2000 and
1999, net income would have been increased by $3 and reduced by $34,
respectively, to arrive at comprehensive income of $1,540 and $4,451,
respectively.
5. Operating segment information
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
within 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 and six month
periods ended June 30, 2000 and 1999 is as follows:
Three Months Ended
June 30,
------------------
2000 1999
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Net revenue:
Software products $ 5,136 $ 7,226
Services 6,800 5,786
Other 205 259
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Net revenue $12,141 $13,271
======= =======
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TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(Unaudited)(Continued) (Amounts in thousands)
Three Months Ended
June 30,
------------------
2000 1999
------- -------
Operating Contribution:
Software products $ 2,249 $ 4,851
Services 3,181 2,361
Other revenue, net of cost 147 222
Product development expenses (3,265) (2,546)
General and administrative expenses (1,687) (1,332)
------- -------
Operating income $ 625 $ 3,556
======= =======
Six Months Ended
June 30,
------------------
2000 1999
------- -------
Net revenue:
Software products $10,686 $14,698
Services 13,275 11,286
Other 520 628
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Net revenue $24,481 $26,612
======= =======
Six Months Ended
June 30,
------------------
2000 1999
------- -------
Operating Contribution:
Software products $ 5,440 $ 9,726
Services 5,709 4,513
Other revenue, net of cost 402 550
Product development expenses (6,383 (5,010)
General and administrative expenses (3,316) (2,659)
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Operating income $ 1,852 $ 7,120
======= =======
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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 percentages and per share data)
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Forward-Looking Statements
--------------------------
This Report includes forward-looking statements. 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, and changes in general market conditions. 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
---------------------
The Company's results of operations for the three and six month periods ended
June 30, 2000 and 1999 and the changes on a period over period comparison are
set forth below:
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Three Months Ended
June 30, %
------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
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Net revenue:
Software license fees $ 5,136 $ 7,226 $(2,090) (28.9)
Service fees 6,800 5,786 1,014 17.5
Other 205 259 (54) (20.8)
--------------------------------------------------------------------------
Net revenue 12,141 13,271 (1,130) (8.5)
--------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 1,427 1,311 116 8.8
Client services 2,842 2,507 335 13.4
Product development 3,265 2,546 719 28.2
Sales and marketing 2,295 2,019 276 13.7
General and administrative 1,687 1,332 355 26.7
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Total cost and expenses 11,516 9,715 1,801 18.5
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Operating income 625 3,556 (2,931) (82.4)
Other income 280 142 138 97.2
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Income before income taxes 905 3,698 (2,793) (75.5)
Provision for income taxes 316 1,443 (1,127) (78.1)
--------------------------------------------------------------------------
Net income $ 589 $ 2,255 $(1,666) (73.9)
==========================================================================
Six Months Ended
June 30, %
------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
--------------------------------------------------------------------------
Net revenue:
Software license fees $10,686 $14,698 $(4,012) (27.3)
Service fees 13,275 11,286 1,989 17.6
Other 520 628 (108) (17.2)
--------------------------------------------------------------------------
Net revenue 24,481 26,612 (2,131) (8.0)
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Cost and expenses:
Cost of revenue 2,612 2,439 173 7.1
Client services 5,946 4,959 987 19.9
Product development 6,383 5,010 1,373 27.4
Sales and marketing 4,372 4,425 (53) (1.2)
General and administrative 3,316 2,659 657 24.7
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Total cost and expenses 22,629 19,492 3,137 16.1
--------------------------------------------------------------------------
Operating income 1,852 7,120 (5,268) (74.0)
Other income 569 233 336 144.2
--------------------------------------------------------------------------
Income before income taxes 2,421 7,353 (4,932) (67.1)
Provision for income taxes 884 2,868 (1,984) (69.2)
--------------------------------------------------------------------------
Net income $ 1,537 $ 4,485 $(2,948) (65.7)
==========================================================================
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The following tables present the Company's operating statement data expressed
as a percentage of net revenue for the three and six months ended June 30,
2000 and 1999:
Three Months Ended
June 30,
------------------
2000 1999
-------------------------------------------------
Net revenue:
Software license fees 42.3 54.4
Service fees 56.0 43.6
Other 1.7 2.0
-------------------------------------------------
Net revenue 100.0 100.0
-------------------------------------------------
Cost and expenses:
Cost of revenue 11.8 9.9
Client services 23.4 18.9
Product development 26.9 19.2
Sales and marketing 18.9 15.2
General and administrative 13.9 10.0
-------------------------------------------------
Total cost and expenses 94.9 73.2
-------------------------------------------------
Operating income 5.1 26.8
Other income 2.4 1.1
-------------------------------------------------
Income before income taxes 7.5 27.9
Provision for income taxes 2.6 10.9
-------------------------------------------------
Net income 4.9 17.0
=================================================
Six Months Ended
June 30,
-----------------
2000 1999
-------------------------------------------------
Net revenue:
Software license fees 43.7 55.2
Service fees 54.2 42.4
Other 2.1 2.4
-------------------------------------------------
Net revenue 100.0 100.0
-------------------------------------------------
Cost and expenses:
Cost of revenue 10.7 9.2
Client services 24.3 18.6
Product development 26.1 18.8
Sales and marketing 17.8 16.6
General and administrative 13.5 10.0
-------------------------------------------------
Total cost and expenses 92.4 73.2
-------------------------------------------------
Operating income 7.6 26.8
Other income 2.3 0.9
-------------------------------------------------
Income before income taxes 9.9 27.7
Provision for income taxes 3.6 10.8
-------------------------------------------------
Net income 6.3 16.9
=================================================
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NET REVENUE. Net revenue for the three months ended June 30, 2000 decreased
compared to the same period a year ago, primarily due to a decline in software
license revenue. The Company continued to see a slowdown in software orders in
comparison to the prior year, primarily due to the post Y2K effect and longer
sales cycles. The Company's Accounting products, which comprise 67 percent of
the Company's software license revenue for the three months ended June 30,
2000 declined 36 percent compared to the same period in 1999. Its Estimating
products, which accounted for 33 percent of the Company's software license
revenue, decreased by seven percent from the comparable period in 1999.
Service fee revenue increased, primarily due to an increase in revenue from
maintenance and support plans. Revenue from these service plans, which
accounted for 86 percent of total service fees for the quarter ended June 30,
2000, increased 28 percent over the same period last year. This increase was
primarily due to the increase in the Company's user base through new software
orders during 1999, and an increase in the percentage of users renewing their
annual service plans. The increase in revenue from service plans was partially
offset by a 24 percent decline in consulting revenue and a 19 percent decline
in training revenue, compared to the same period last year. These declines
were primarily due to the decrease in new software orders in 2000.
For the six months ended June 30, 2000 net revenue declined compared to the
same period in 1999, primarily due to a decrease in software license revenue.
As previously mentioned above, the Company believes this decrease was due to a
slowdown in software orders, primarily due to the post Y2K effect and longer
sales cycles. Additionally, the decline in software license revenue from 1999
was partially due to the shipment of an Estimating software order during the
first quarter of 1999, which was the single, largest software order in the
Company's history. The Company had no comparable software order in 2000. The
Company's Accounting products, which accounted for 68 percent of the total
software license revenue for the six months ended June 30, 2000, decreased 29
percent compared to the same period in 1999. Estimating software license
revenue decreased 23 percent compared to the same period a year ago. Excluding
the large software order mentioned above from Estimating software license
revenue in 1999, Estimating software revenue for the first six months of 2000
increased six percent over 1999.
The increase in service fee revenue for the six months ended June 30, 2000,
over the same period last year was primarily due to an increase in revenue
from maintenance and support plans. Revenue from these service plans, which
accounted for 84 percent of total service fees for the six months ended June
30, 2000, increased 28 percent over the same period last year. This increase
was primarily due to the increase in the Company's user base through new
software orders during 1999, and an increase in the percentage of users
renewing their annual service plans. The increase in revenue from service
plans was partially offset by a seven percent decrease in consulting revenue
and a 28 percent decrease in training revenue, compared to the same period
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last year. These declines were primarily due to the decrease in new software
orders in 2000.
COST OF REVENUE. Cost of revenue, as a percentage of net revenue, increased
for the three and six month periods ended June 30, 2000, over the same periods
in 1999. This was primarily due to higher royalty payments and additional
amortization of capitalized software costs.
OPERATING EXPENSES. Operating expenses increased 20 percent for the three
months ended June 30, 2000, over the same period last year. For the six months
ended June 30, 2000 these expenses increased 17 percent over the same period
last year.
Expenses for client services increased for the three months ended June 30,
2000 over the same period last year. This was primarily due to increased
personnel needed to handle increased call volume into our technical support
area. For the six months ended June 30, 2000, these costs increased, primarily
due to additional expenses incurred in restructuring the consulting services
practice and the increased personnel costs mentioned above.
Product development expenses increased for the three and six month periods
ended June 30, 2000 over the same periods last year, primarily due to
additional personnel hired and contract software developers retained to keep
the Company's development schedule on track for enhancements to the software
as well as research and development on new software products. The Company
expects overall product development expenses to remain above its 1999 level
throughout 2000.
Sales and marketing expenses increased for the three months ended June 30,
2000, over the same period last year, primarily due to an increase in
advertising-related expenses. For the six months ended June 30, 2000 sales and
marketing expenses decreased over the same period last year, primarily due to
lower commission expenses resulting from lower software revenue.
General and administrative expenses increased for the three and six month
periods ended June 30, 2000 over the same periods last year. The increase was
primarily due to increased depreciation and amortization expense, mainly
related to a new IS system that was implemented last September, and an
increase in legal and insurance costs.
OTHER INCOME. Other income increased for the three and six month periods ended
June 30, 2000 over the same periods last year, primarily due to an increase in
interest income. This increase was a result of cash and cash equivalents and
temporary investments increasing $5,092 to $18,492 at June 30, 2000, compared
to $13,400 at June 30, 1999.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for the three and
six month periods ended June 30, 2000 was 34.9 percent and 36.5 percent,
respectively, compared to 39.0 percent for the comparable periods in 1999. The
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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 six months ended June 30, 2000, net cash provided by
operations was $4,083 compared to $7,385 for the same period in 1999. This
decrease was primarily due to the decrease in the profitability of the
Company's operations for the first six months of 2000 compared to the same
period in 1999. Working capital decreased to $6,420 at June 30, 2000 from
$8,702 at December 31, 1999, as a result of several factors discussed below.
Net accounts receivable at June 30, 2000 were $4,398, a decrease of $627
compared to December 31, 1999, primarily due to the decline in software
license fee revenue during this period. DSO (Days Sales Outstanding) at June
30, 2000 increased slightly to 33, compared to 30 at December 31, 1999. Net
capitalized software costs increased $1,758 to $4,473 at June 30, 2000 from
$2,715 at December 31, 1999, primarily due to cost incurred in the development
of new products.
Deferred revenues at June 30, 2000 increased $1,140 to $14,865 from $13,725 at
December 31, 1999 primarily due to an increase in the billings for annual
maintenance and support service plans. Revenue from annual maintenance and
support service billings are recognized ratably over the service plan period.
Accrued employee expenses decreased $738 to $1,446 at June 30, 2000, from
$2,184 at December 31, 1999, primarily due to payments in 2000 of the
Company's 1999 matching contribution to its 401(k) plan and 1999's profit
sharing expense. There was no income taxes payable at June 30, 2000 due to the
payment of income taxes for 1999 and estimated tax payments for 2000.
During the first six months, the Company declared two regular quarterly cash
dividends totaling $.08 per share, aggregating $1,028. The Company plans to
continue to pay quarterly cash dividends consistent with its capital needs and
income levels.
On March 31, 2000 the Company's Board of Directors authorized management to
repurchase up to 1,300 shares of the Company's common stock in the open
market. For the three months ended June 30, 2000, the Company repurchased 149
shares at a total cost of $1,226.
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:
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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 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 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 a material adverse effect on the financial position, results of
operations and cash flows 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" their software
with other software or through other methods. The Company believes its
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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 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.
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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 25, 2000.
Shareholders took the following actions at the meeting:
1. The shareholders voted to elect all of the Board's nominees to the
Company's Board of Directors. The following table sets forth information
regarding votes cast with respect each nominee:
Votes Votes
For Withheld
---------- --------
Curtis L. Peltz 11,112,176 739,291
Thomas P. Cox 11,109,981 741,486
James A. Meyer 11,113,012 738,455
Donald L. Tisdel 11,216,026 635,441
2. The shareholders voted to ratify the Board's selection of auditors for
2000 by the affirmative vote of 11,762,505 shares with 41,564 shares
voting against the proposal, and 47,397 shares abstaining.
3. The shareholders voted to approve the Company's 2000 Stock Incentive Plan
by the affirmative vote of 6,276,204 shares with 1,253,404 shares voting
against the proposal, 150,152 shares abstaining, and 4,171,707 broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on April 4, 2000 to report that, on March 31,
2000, the Company's Board of Directors had authorized management to
repurchase up to 1,300,000 shares of the Company's common stock from
time to time in the open market.
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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 August 11, 2000 /s/ Carl C. Asai
--------------------------------------
Carl C. Asai, Sr. Vice President,
Finance (Chief Financial Officer)
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FORM 10-Q
Exhibit Index
Exhibit Page
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(27) Financial Data Schedule 22