U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended December 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO 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
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(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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
-------------------------------
(Title of class)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [x]
At March 15, 2000, 12,833,969 shares of common stock of the registrant were
outstanding. On such date, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $142,352,257.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement dated March 22, 2000, prepared in
connection with the Annual Meeting of Shareholders to be held on April 25,
2000 are incorporated by reference into Part III of this Report.
<PAGE>
PART I
Item 1. Business
General
Timberline(R) Software Corporation (the "Company" or "Timberline") was
incorporated in Oregon in 1979. Originally incorporated under the name
Timberline Systems, Inc., the Company changed its name in 1986. The Company's
corporate headquarters are located in Beaverton, Oregon and it maintains a
home page on the World Wide Web at http://www.timberline.com.
Timberline develops, markets, and supports accounting and cost estimating
computer software primarily for the construction and property management
industries. The software is designed to work on stand alone microcomputers
(commonly referred to as personal computers or "PC's") or in a network of
microcomputers. Timberline also provides a range of support services for users
of its software, including annual maintenance and support contracts, classroom
training at its corporate headquarters and at other sites in the United
States, and on-site training and consulting.
The Company operates predominantly within the United States, but also licenses
its products in other foreign countries, including Australia and Canada. As of
December 31, 1999, the Company believes that over 23,000 entities are
currently using the Company's software products, of which more than 12,000 are
currently subscribing to one of the Company's maintenance and support service
plans.
The Company's operations are divided into two operating segments: software
products and software services. For additional information about these
operating segments, see Note 8 to the Company's Financial Statements for the
year ended December 31, 1999.
Software Products
Software license revenue are the main source of the Company's net revenue. In
1999, 1998 and 1997, software license revenue accounted for 53 percent, 56
percent and 54 percent of net revenue for those years, respectively.
The Company's current software products operate in Microsoft(R) Windows 95(R),
Windows 98(R), and NT(R) operating environments. Timberline's Windows-based
software products are also compatible with other Open Database Connectivity
(ODBC)-compliant applications. ODBC, a data exchange methodology developed by
Microsoft that has been accepted as an industry standard, allows users to
directly access information stored in Timberline data format with other
databases, word processing and spreadsheet programs for greater productivity.
The Company believes that the current versions of its Windows-based products
are year 2000 compliant.
In 2000, the Company will embed an SQL database engine into its Windows-based
software applications. This will replace the proprietary database that is
currently being used in the software. With this change, we expect some users,
especially those with many concurrent users on the software, to see a
significant increase in the performance of the software. All users should see
a much improved integrity of the database.
The Company also currently maintains certain software products that operate in
the MS-DOS(R) operating environment. As a result of the introduction of its
Windows-based software products, the Company generally does not offer its
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MS-DOS-based software products for sale to new users, but primarily maintains
these products for existing users of the software. The Company believes that
the current versions of its DOS-based products that are maintained by the
Company are also year 2000 compliant.
The Company has two main software product groups: Accounting (composed of
construction and property management software) and Estimating. Prior to
October 1996, the Company also sold software specifically designed for
architectural and engineering firms.
In July 1999, the Company announced plans to offer software for the
construction project management market. Because the project manager's job
encompasses both accounting and estimating functions as well as strict project
management functions, Timberline will be able to offer a fully integrated
solution that takes into account all of these functions to streamline the
project management process. The Company is in the process of developing the
project management software and integrating it with its current accounting and
estimating software applications. The Company believes that it will release
this software by 2001.
Accounting Product Group Software
The Company's Accounting Group software is accounting software designed for
use in the construction and property management industries. This group's
software license revenue accounted for over 70 percent of the Company's
software license revenue in 1999, 1998 and 1997.
Timberline's construction accounting software products are composed of three
different levels of software. The Medallion(R) line of software was first
released in 1984 and operates only in the MS-DOS operating environment. The
Medallion line was designed specifically for the home builder/remodeler and
small to medium-sized general and specialty contractors.
Due to the popularity of the Windows environment and the Company's
introduction of Gold Collection(TM) - Standard Edition software in June 1996,
as discussed below, Medallion software license revenue has decreased
significantly since that date and is no longer a significant source of revenue
to the Company. The Company generally does not offer this line of software
products for sale to new users. However, the Company continues to maintain
this software and generates maintenance and support fees from users of this
line of software.
Gold Collection - Extended Edition was released in October 1992 and operates
in the Windows operating environment. This line of software was designed
specifically to handle the accounting and management information needs for
medium to large-sized construction companies and for other users with more
advanced accounting and management information requirements. The Company
believes that it was the first major software company to develop software for
construction companies utilizing the advanced capabilities of the Windows
operating environment.
In June 1996, the Company released Gold Standard, an integrated accounting
management system for the small to medium-sized construction companies
developed to work with Microsoft Windows 95. The software was developed to
give the Company's Medallion users an upgrade path to take advantage of the
technology that is now available and to address a segment of the construction
market which needed an accounting and management information system that used
state-of-the-art technology, without the additional advanced features
available in and added expense of the Gold Extended software products.
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All three levels of software are designed around a core set of
accounting-oriented applications (such as General Ledger, Job Cost, Accounts
Payable, Accounts Receivable and Payroll). Additional features were added to
the software to meet the industry-specific needs of construction companies.
The various applications are fully integrated, allowing for data entered into
one application to be accessed and entered electronically into another
application. Gold Standard and Gold Extended have additional features and
capabilities for users with more complex needs, including executive inquiry
and customized summary reporting capabilities.
An Equipment Cost software application for Gold Extended was released at the
end of 1995 and is also available for Gold Standard. This application is
critical to equipment-intensive construction companies. With the release of
this application, Timberline believes it is able to meet the accounting and
management information needs of the heavy/highway segment of the construction
industry.
The Company released its Accounts Receivable and Contracts software product in
December 1997 and its Billing software product in May 1998 for its Gold
Extended and Standard product lines. These are applications that the Company's
current users and prospective users have been requesting that the Company
develop since Gold Extended was initially released in 1992. The Company
believes that these applications will attract new users to Timberline because
the Company is now able to provide a more complete accounting and management
information solution.
Commencing in 2000, the Company released a Purchase Order/Inventory software
application and plans to offer a Service Billing application later in the
year. These additional applications, bundled with its current construction
accounting applications, will allow the Company to meet the needs of the
specialty contractors, such as the plumbing, painting, electrical, roofing,
siding, heating and air conditioning companies. The specialty contractor area
is a significant segment of the construction industry for which Timberline has
not been able to provide a complete accounting solution, but will be able to
do so when the Service Billing application becomes available.
The Company's property management software is an accounting and management
information system used by managers of residential and commercial properties.
It provides information to property managers regarding revenues and expenses
of various properties and generates financial reports about the properties to
the various owners, as well as reports containing other tenant and lease
information about the properties. In March 1997, the Company released its Gold
Collection for Property Management, lease-based accounting software designed
to work on Microsoft Windows 95, Windows 98 and NT platforms. Unlike
traditional, tenant-based or unit-based software programs, Timberline's
software is designed to focus on the lease document itself, which allows the
software to adapt to many various types of lease arrangements. Prior to the
release of this suite of software applications, the Company's software for the
property management industry was Property Management Gold, which was designed
to work on IBM(R) OS/2(R) and Microsoft Windows NT platforms. The Company no
longer offers this line of software to new users since the release of the Gold
Collection for Property Management.
In July 1998, the Company announced that it had formed a marketing alliance
with invata international, inc. (invata), a company that specializes in
computerized maintenance management software. Under this alliance, invata
would develop software that will interface directly with the Company's Gold
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Collection for Property Management to help property managers control their
maintenance operations. This software was released for distribution in the
first quarter of 1999. In October 1999, the Company purchased this software
product from invata.
Estimating Product Group Software
Estimating software allows an estimator to compile a bid on construction
projects based on certain parameters such as the architectural design,
building materials required and material and labor costs. In 1987, Timberline
introduced the Precision Collection(R), a family of integrated estimating
software applications. The Precision Collection is currently designed around
two core estimating products - Precision Estimating - Standard Edition and
Precision Estimating - Extended Edition. Precision Estimating Standard,
released in June 1996, replaced the Company's older entry and mid-level
DOS-based estimating products. Designed specifically for Microsoft Windows 95
and Microsoft Windows NT platforms, this estimating software is designed to
allow an estimator to make fast, accurate estimates on software that the
Company believes is fairly easy to learn and to use, while taking advantage of
Windows-based technology. Precision Estimating Extended offers a more
comprehensive and sophisticated approach to the estimating process, from the
first conceptual estimate to the final bill of materials. In September 1997,
the Company released a completely re-designed, Windows-based version of
Precision Estimating Extended to replace the older DOS version. This new group
of software products is fully interoperable with the Precision Standard
products.
To complement its estimating software products, the Company also licenses
databases and other software it has developed and those developed by others,
which allow estimators to be more productive and to develop more comprehensive
estimates. The core estimating product also interfaces with the Company's Job
Cost accounting application. Through interfaces developed by Timberline, the
core estimating product can be linked to Autodesk's AutoCAD(R) applications
and to scheduling software developed by Microsoft and Primavera Systems, Inc.
In the first part of 2000, the Company plans to release Precision Palm
Estimating, its first application for hand-held personal digital assistants
(PDA's). This will enable estimators to use a PDA to take off key project
information at the job site and then synchronize the device with the Company's
desktop estimating software to quickly generate a detailed estimate.
Support Services
The Company generates a significant portion of its net revenue from service
fees. Services fees consists primarily of maintenance and support fees,
classroom training fees, sales of training materials and on-site consulting
fees.
Users of the Company's software may purchase maintenance and support services
from the Company. These annual service plans allow the user to obtain program
changes and enhancements as they are released and to obtain telephone access
to the Company's customer support department for answering application-related
questions. Commencing in 1998, users on maintenance and support service plans
also have internet access to online support help available through the
Company's home page on the World Wide Web. Through this service, users have a
24-hour-a-day communication and information tool for self-help services, such
as downloading latest versions of software, updates and software patches, and
access to a knowledge base to obtain answers to most commonly answered
questions.
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The Company also generates fees from training classes to teach users how to
efficiently setup and use the Company's software products. The classes are
generally held throughout the year at the Company's corporate headquarters or
near its offices in the New York and Los Angeles metropolitan areas.
Commencing in the latter part of 1998, the Company curtailed the number of
training classes it offered as the Company's independent reseller channel
assumed a more active role in providing training classes to users in their own
geographic areas. To maintain a high, consistent standard of training to users
of Timberline software and to assist the resellers in conducting training
classes, the Company developed a curriculum of training materials to be used
at all Timberline software classes. The Company generates revenue from the
sale of these training materials to its reseller channel.
The Company also offers consulting services to users who need or request more
specialized assistance in the set-up and use of Timberline software. In these
situations, the Company's consulting services group provides such services
on-site at the user's offices. Requests for such services are received
directly from the user or from referrals from the Company's independent
reseller channel. In certain circumstances, the Company may sub-contract these
consulting services to a group of Timberline-certified consultants. This group
is composed of independent third party providers who have met or surpassed
standards imposed by the Company of their knowledge in Timberline software
products, industry knowledge, accounting and estimating expertise,
communication skills and other relevant factors.
Service fees are a significant percentage of the Company's total net revenue.
In 1999, 1998, and 1997, service fees comprised 44 percent, 41 percent and 44
percent, respectively, of total net revenue. Maintenance and support fees
accounted for over 75 percent of the Company's service fee revenue in those
years. The Company is committed to maintaining a high level of quality related
to its support services. At the end of 1999, 39 percent of the Company's
employees were directly associated with providing client services.
Sales/Distribution
The Company licenses its software products and sells its services primarily in
the United States. The Company also licenses its software products into
Canada, Australia, and other foreign countries. Revenue from foreign countries
has not been significant, comprising less than six percent of the Company's
total net revenue in 1999, 1998 and 1997.
Product distribution is primarily handled by value added resellers and
distributors. The Company also maintains a direct sales force to complement
its reseller channel and to handle sales to national accounts and other large
companies.
Timberline maintains a telemarketing staff for selling maintenance and support
service contracts and classroom training to its user base. On-site consulting
fees are generated from requests for services from the users and resellers to
the Company's sales and client services staff.
Unfilled orders for software products at December 31, 1999 and 1998 were not
significant. The Company typically ships software products within three days
of receipt of the order.
Production
The principal materials and components used in the Company's software products
are computer media and user manuals. For each product, the Company prepares
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masters of the software on CD-ROM's. Substantially all copies of the software
are made by outside vendors. The Company also relies on outside vendors to
provide other software-related materials and shipping services.
Competition
The 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. The Company believes that it
is the major supplier of construction accounting and estimating software in
the construction industry and is also one of the leading suppliers of
accounting and management information software in the property management
industry. The Company believes that there are barriers to entry into its
segment of the software market. First, the sophisticated programs it develops
require a wide range of programming specialization. In addition, the nature of
the software requires a company of a certain size able to support the
software, including distribution and training capabilities in a number of
geographical regions as well as continuing support, maintenance and upgrades
of the software. However, should a decision be made by the larger,
better-known software developers to enter 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 believes that its emphasis on producing high quality software
products that are flexible and user-friendly enables the Company to compete
effectively. In addition, the Company believes it provides very responsive
customer support service to its end users, which enhances the marketability of
its products.
Product Protection
The Company regards its software as proprietary and attempts to protect it by
relying upon copyrights, trade secret laws, internal nondisclosure agreements
and transferability restrictions incorporated into its software license
agreements. The Company provides its software products under a perpetual
paid-up license agreement. Title does not transfer to the customer. Program
source listings are not released, which the Company believes further protects
unauthorized transfers of the Company's proprietary information, as well as
the confidentiality of the Company's trade secrets. The Company also uses a
combination of software programming and hardware devices to protect some of
its products from unauthorized use or duplication. 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 has no software patents. Although the Company's competitive
position may be adversely affected by unauthorized use of its proprietary
information, the Company believes that the rapid pace of technological change
in the computer industry makes intellectual property protection of less
significance than such factors as the knowledge and experience of management
personnel and the Company's ability to develop, enhance, support and market
its products.
Third parties may 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
divert the efforts of the Company's technical and management personnel,
whether or not such litigation is determined in favor of the Company.
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Research and Development
Timberline is continually in the process of developing new software and
enhancing its existing software products in order to meet the changing needs
of its current users and the marketplace. At the end of 1999, 36 percent of
the Company's employees were directly associated with product development.
Product development expenses were $10,624,000, $8,863,000, and $7,264,000 in
1999, 1998 and 1997, respectively. Of that total, $9,325,000, $7,822,000, and
$6,222,000 were incurred in 1999, 1998 and 1997, respectively, on research and
development on new software products. An additional $1,465,000, $173,000, and
$927,000, respectively, of product development expenses on new software
products were capitalized in those same years.
Employees
At December 31, 1999, the Company had 408 employees, of which 380 were
full-time. None of the employees are represented by unions, or subject to
collective bargaining. Timberline's business is heavily dependent on retaining
and attracting highly skilled employees. As such, the Company has an employee
benefits program that includes group health, dental, vision, disability and
life insurance plans, paid vacations and holidays, leave privileges, and
educational reimbursement. The Company also has a pension plan under the
provisions of section 401(k) of the Internal Revenue Code in which the Company
is currently matching a certain percentage of the employee's contribution to
the plan, and a profit sharing plan covering all employees. Additionally, the
Company has stock option and stock incentive plans from which it may grant
stock options and incentives to its employees. In 1999, the Company granted
stock options to substantially all employees and plans to continue this
practice in the future. The Company believes its relationship with its
employees is good.
Item 2. Properties
In October 1998, the Company moved into its new corporate headquarters located
in Beaverton, Oregon. Nearly all of the Company's employees and operations are
located in this 89,000 square foot office and production facility, which was
constructed by the Company on land it purchased in 1997. Prior to the
construction of its new corporate headquarters, the Company's main offices
were in a leased 51,000 square foot office and production facility located
close to its present location. The lease on that facility expired in October
1998. The Company also leases an additional 12,000 square feet of office space
near its former location, which was initially used to locate part of the
Company's operations as it outgrew its former main office facility. The lease
on this office space expires in April 2003 and is currently being subleased
for the balance of the lease term.
The Company also leases small regional offices under short-term lease
arrangements for some of its sales, consulting and training functions in the
following metropolitan areas: Los Angeles, CA; New York, NY; Concord, NC;
Nashville, TN; and Jacksonville, FL.
In March 2000, the Company opened up it first regional office outside the
United States in Sydney, Australia.
The Company believes that its corporate headquarters and all of its leased
facilities are modern facilities in good condition and are adequate for its
immediate needs. Should additional office space be required, the Company
believes it has the ability to construct additional office space on its
corporate properties where it currently maintains its corporate headquarters.
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Item 3. Legal Proceedings
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Report, the Company is not a party to any legal proceedings the
adverse outcome of which would, in management's opinion, have a material
adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the Nasdaq National Market System
under the symbol TMBS. The high and low closing prices are as reported by the
Nasdaq National Market System. The prices have been retroactively adjusted to
reflect the four-for-three stock splits in November 1999 and 1998.
1999 1998
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High Low High Low
First Quarter $ 12.84 $ 8.53 $ 10.27 $ 6.86
Second Quarter 14.44 8.81 13.78 8.44
Third Quarter 14.77 11.67 15.26 7.88
Fourth Quarter 15.38 11.48 11.25 8.65
As of March 15, 2000, there were 348 shareholders of record. Based upon the
number of requests for the Company's proxy material for its 2000 annual
meeting of shareholders, the Company believes there were approximately 8,300
beneficial shareholders as of that date. Cash dividends paid in 1999 and 1998
amounted (in thousands) to $1,675 and $1,236, respectively.
Item 6. Selected Financial Data
(Amounts in thousands, except per share amounts and percentages)
Year ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------
Net revenue:
Software license fees $29,291 $24,786 $18,928 $14,983 $13,435
Service fees 24,176 18,197 15,354 12,956 10,927
Other 1,647 1,310 958 720 457
- -----------------------------------------------------------------------
Net revenue 55,114 44,293 35,240 28,659 24,819
Cost and expenses 39,762 33,518 28,740 26,004 22,731
- -----------------------------------------------------------------------
Operating income 15,352 10,775 6,500 2,655 2,088
Other income - net 749 531 470 399 359
- -----------------------------------------------------------------------
Income before income taxes 16,101 11,306 6,970 3,054 2,447
Provision for income taxes 5,907 4,112 2,435 870 714
- -----------------------------------------------------------------------
Net income $10,194 $ 7,194 $ 4,535 $ 2,184 $ 1,733
=======================================================================
Basic earnings per share $ 0.80 $ 0.58 $ 0.37 $ 0.18 $ 0.15
Diluted earnings per share $ 0.78 $ 0.56 $ 0.36 $ 0.17 $ 0.14
=======================================================================
Cash dividends declared $ 1,675 $ 1,236 $ 833 $ 625 $ 377
Dividends per share 0.13 0.10 0.07 0.05 0.03
Total assets 50,347 41,549 25,754 18,042 14,385
Long-term debt - 5,417 - - -
Shareholders' equity 30,167 20,036 13,266 8,915 6,361
Working capital 8,702 5,500 4,339 1,325 3,894
Current ratio 1.47 1.37 1.38 1.16 1.51
=======================================================================
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 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.
The Company
Timberline Software Corporation develops, manufactures and licenses accounting
and cost estimating computer software primarily for the construction and
property management industries. The Company also provides related services to
its users, including annual maintenance and technical support service plans,
on-site consulting services, and training. Over twenty-three thousand
companies use one or more of the Company's software products.
Results of Operations
The Company's results of operations for the years ended December 31, 1999,
1998 and 1997 and the changes on a year over year comparison are set forth
below:
<TABLE>
<CAPTION>
Increase % Increase
----------------- --------------
Year ended December 31, 1999 1998 1999 1998
------------------------- vs. vs. vs. vs.
1999 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
Software license fees $29,291 $24,786 $18,928 $ 4,505 $ 5,858 18.2% 30.9%
Service fees 24,176 18,197 15,354 5,979 2,843 32.9% 18.5%
Other 1,647 1,310 958 337 352 25.7% 36.7%
- -----------------------------------------------------------------------------------------------
Net revenue 55,114 44,293 35,240 10,821 9,053 24.4% 25.7%
- -----------------------------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 4,793 3,909 3,605 884 304 22.6% 8.4%
Client services 10,353 8,496 6,744 1,857 1,752 21.9% 26.0%
Product development 10,624 8,863 7,264 1,761 1,599 19.9% 22.0%
Sales and marketing 8,451 6,916 6,351 1,535 565 22.2% 8.9%
General and administrative 5,541 5,334 4,776 207 558 3.9% 11.7%
- -----------------------------------------------------------------------------------------------
Total cost and expenses 39,762 33,518 28,740 6,244 4,778 18.6% 16.6%
- -----------------------------------------------------------------------------------------------
Operating income 15,352 10,775 6,500 4,577 4,275 42.5% 65.8%
Other income 749 531 470 218 61 41.1% 13.0%
- -----------------------------------------------------------------------------------------------
Income before income taxes 16,101 11,306 6,970 4,795 4,336 42.4% 62.2%
Provision for income taxes 5,907 4,112 2,435 1,795 1,677 43.7% 68.9%
- -----------------------------------------------------------------------------------------------
Net income $10,194 $ 7,194 $ 4,535 $ 3,000 $ 2,659 41.7% 58.6%
===============================================================================================
</TABLE>
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The following table presents the Company's operating statement data expressed
as a percentage of net revenue for the years indicated:
Year ended December 31,
--------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Net revenue:
Software license fees 53.1% 56.0% 53.7%
Service fees 43.9% 41.1% 43.6%
Other 3.0% 2.9% 2.7%
- -------------------------------------------------------------------------------
Net revenue 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 8.7% 8.8% 10.3%
Client services 18.8% 19.2% 19.1%
Product development 19.3% 20.0% 20.6%
Sales and marketing 15.3% 15.6% 18.0%
General and administrative 10.0% 12.1% 13.6%
- -------------------------------------------------------------------------------
Total cost and expenses 72.1% 75.7% 81.6%
- -------------------------------------------------------------------------------
Operating income 27.9% 24.3% 18.4%
Other income 1.3% 1.2% 1.4%
- -------------------------------------------------------------------------------
Income before income taxes 29.2% 25.5% 19.8%
Provision for income taxes 10.7% 9.3% 6.9%
- -------------------------------------------------------------------------------
Net income 18.5% 16.2% 12.9%
===============================================================================
NET REVENUE. Both major components of net revenue, computer software license
and service fees, increased in 1999 and 1998 over the previous years. Computer
software license fees increased in all the Company's product lines. In 1999,
Accounting software license fees, which account for 72% of the Company's total
software license fees, increased 14% over 1998 and Estimating software license
fees, which account for 28% of total software license fees, increased 30%. The
increase in Accounting software license fees was primarily due to an increase
in fees generated from the Company's Gold Collection(R) for Construction
Accounting. The Company believes this increase was primarily due to three
factors: the continued strength in the construction industry, the increasing
dominance of our products in our targeted markets, and the need by many
companies to upgrade or replace their existing software which was not year
2000 compliant. However, the latter factor also had a negative impact on
license fees during the latter part of 1999, as the Company believes some
companies deferred their decisions to acquire new software until 2000. There
were also no significant new software products released in 1999 that increased
license fees as there were in 1998. Estimating software license fees increased
in 1999 primarily due to one software licensing arrangement during the first
quarter of 1999, which was the single largest software license in the
Company's history.
In 1998, Accounting software license fees, which accounted for 75% of the
Company's total software license fees, increased 37% over 1997, primarily due
to the increase in license fees from the Company's Gold Collection for
Construction Accounting. The increase was primarily due to the factors stated
above for 1999. In addition, the increase in Accounting software license fees
was due to the release of new software products which were not available, or
available for only part of the year, in 1997. These products include the
Accounts Receivable product, released in December 1997, the Billing module
released in May 1998, and the Company's Gold Collection for Property
Management, which was released in March 1997. Estimating software license fees
accounted for 25% of the Company's total license fees in 1998 and increased
17% over the previous year. The Company believes this increase was also due
primarily to the continued strength in the construction industry and
additional license revenue from the Company's Precision Collection(R) Extended
Edition, which was released in September 1997.
12
<PAGE>
In terms of revenue mix, software license fees accounted for 53%, 56% and 54%
of net revenue in 1999, 1998 and 1997, respectively. A large majority of the
Company's software license revenue is from the United States. International
(non-U.S.) software license fees, as a percentage of total software license
fees, remained constant at 6% for 1999, 1998 and 1997.
Service fees are comprised primarily of fees from annual maintenance and
technical support service plans and fees for consulting and training. Service
fees in 1999 increased significantly over 1998 primarily due to an increase in
fees from annual maintenance and technical support service plans. Fees from
these service plans, which account for over 78% of the Company's total service
fees in 1999, increased 35%, primarily due to the increase in the Company's
user base through new product sales, the revision in the pricing structure for
these plans which was instituted during the first quarter of 1998, and an
increase in the percentage of users renewing their annual service plans. The
Company also believes the increase is due to a higher quality of service being
provided to its users as a result of a significant re-engineering and
restructuring of the way it provides telephone support. Consulting fees
increased 55% over the prior year. Although consulting fees are not a large
portion of our business yet, the Company has targeted this area as a source
for future growth. Training fees remained essentially flat because, in the
latter part of 1998, the Company transferred the primary responsibility of
holding training classes for users to its independent resellers. The reduction
in training revenue was offset by increased sales of training materials.
For 1998, the increase in service fees over 1997 was also primarily due
to the increase in fees from annual maintenance and support services plans.
Fees from these service plans, which accounted for 77% of total service fees
in 1998, increased 14% due to an increase in new users and a price increase
for these plans. Consulting fees increased 22% over the prior year. Training
fees increased 52% in 1998 over 1997 primarily due to an increase in training
material sales to its resellers, who are taking a more active role in
conducting training classes in their geographical area.
COST OF REVENUE. Cost of revenue consists primarily of software documentation,
assembly and shipping costs, royalties paid to outside developers,
amortization of capitalized software development costs, and cost of facilities
and outside services for training and consulting. Cost of revenue increased
significantly in 1999 over 1998, but as a percentage of net revenue remained
constant at 9%. The increase in the dollar amount for cost of revenue was
primarily due to higher costs related to software license and consulting fees.
These fees increased significantly in 1999 over 1998. In 1998, cost of
revenue, as a percentage of net revenue, declined slightly from 1997. The
decrease in this percentage was primarily due to lower costs associated with
software license fees and lower costs associated with software release to
users on annual software maintenance plans. This was partially offset by
increased costs for amortization of capitalized software development costs,
royalties and training costs.
OPERATING EXPENSES. Operating expenses amounted to $34,969, $29,609, and
$25,135 in 1999, 1998 and 1997, respectively. These expenses increased 18% in
both 1999 and 1998 over the previous year. However, as a percentage of net
revenue, they declined to 63% in 1999 from 67% in 1998 and 71% in 1997.
Expenses for client services (previously titled customer support)
increased in 1999 over 1998 primarily due to two factors. About a third of the
increase was due to an increase in personnel costs for performing consulting
services, for which the Company's revenue from this service grew 55% in 1999.
The remainder of the increase is primarily related to higher personnel costs
required to retain and hire highly-qualified technical support specialists to
handle the telephone support volume and outside costs incurred to assist the
Company in re-engineering and restructuring the support organization to make
it more efficient. Call volume in 1999 increased about 33% over the previous
year, while support staff dedicated to this function has remained fairly
constant. As a percentage of service fees, client services expenses decreased
to 43% in 1999 from 47% in 1998.
In 1998, client services expenses increased over 1997 due to additional
personnel hired to handle the increased demand for support, training and
consulting services as a result of the continued increase in Accounting
software license fees. As a percentage of service fees, client services
expenses increased to 47% in 1998 from 44% in 1997.
Product development expenses represent expenses for research and
development on new software products as well as enhancements and ongoing
updates to the Company's existing software products. In 1999, product
13
<PAGE>
development expenses increased over 1998 primarily due to additional personnel
hired to develop and design new enhancements on ongoing updates to the
Company's existing software products as well as research on future software
products. The increase in expenses was also due to the use of outside
developers to assist the Company in its development efforts. In 1998, the
increase in product development expenses over 1997 was primarily due to
additional personnel hired not only for designing and developing enhancements
to the Company's software products and research on new products, but also for
the testing of such enhancements. Additionally, capitalized software
development costs, which reduce the amount of product development expenses
recognized, amounted to $173 in 1998 compared to $927 in 1997. This would
account for nearly 47% of the increase in 1998 over 1997.
The Company is working on a number of enhancements to its existing
product line, as well as new products. In July 1999, the Company announced
that it will enter the project management market. The Company is also
developing new products and enhancements to its current products which are
web-enabled and will facilitate e-commerce. Consequently, the Company believes
that it will continue to commit a significant amount of its resources toward
product development in 2000.
Sales and marketing expenses in 1999 increased significantly over 1998,
but as a percentage of net revenue, declined slightly from a year ago. The
increase was primarily due to an increase in personnel and trade show costs in
the marketing area, increased sales commissions related to the Company's
direct sales, and an increase in international marketing expenses. In 1998,
sales and marketing expenses increased modestly over 1997's level, but as a
percentage of net revenue, declined from the previous year. The increase in
these expenses was primarily due to increased advertising and trade show costs
and to a lesser extent, international marketing activities. The increase in
marketing expenses was partially offset by a slight reduction in sales
expenses.
General and administrative expenses in 1999 increased slightly from the
previous year, but declined as a percentage of net revenue. The increase in
expense is primarily due to higher amortization expense, primarily related to
the Company's new information system which became operational in September
1999, and an increase in outside service costs, including insurance and legal
costs. The increase in these costs was partially offset by the absence in 1999
of moving costs the Company incurred in 1998 related to the move to its new
corporate offices. General and administrative expenses in 1998 increased over
1997 primarily because of these moving expenses and higher insurance, legal
and other professional service costs. However, as a percentage of net revenue,
general and administrative expenses declined from its 1997 level.
OTHER INCOME (EXPENSE). Other income (expense) is primarily composed of
interest income on cash and cash equivalents and temporary investments. Other
income increased significantly in 1999 over 1998 due to the significant
increase in investable funds. Interest income increased slightly in 1998 over
1997. During 1998, the Company used a portion of its investable cash to
finance the construction of its new corporate offices.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37%, 36% and
35% in 1999, 1998 and 1997, respectively. The slight increase in this rate
year over year is primarily due to the increase in the Company's pre-tax
earnings and a slight reduction in the effect of the research tax credit on
its effective tax rate.
Liquidity and Capital Resources
The Company generally meets its liquidity needs through cash generated from
operations. Net cash provided by operations was $16,763 in 1999 compared to
$12,297 and $8,686 in 1998 and 1997, respectively. The increase in cash
provided by operations in 1999 and 1998 was primarily due to the increased
profitability in the Company's operations. Working capital increased to $8,702
at December 31, 1999 from $5,500 at December 31, 1998 primarily due to the
increase in cash and cash equivalents and temporary investments. This was
partially offset by an increase in deferred revenues, as discussed below.
The Company's financial position continues to be very strong. The Company
has no long-term debt. Cash and cash equivalents and temporary investments
amounted to $20,380 at December 31, 1999 and represent 40% of the Company's
total assets. These cash resources have increased $6,420 since the end of
1998, primarily due to the increase in cash provided by operations and despite
the repayment of $5,500 in the first quarter of 1999 on a construction loan
14
<PAGE>
related to its new corporate offices. Accounts receivable - net at December
31, 1999 decreased slightly since the end of 1998 and the DSO's (Days Sales
Outstanding) in accounts receivable declined to 30 days from 34 days at
December 31, 1998.
While net property and equipment remained about the same at the end of
1999 compared to 1998, purchased software increased $1,353 in 1999 due to cost
incurred for the Company's new information system and the purchase in October
1999 of a software product for the Company's Property Management product line.
Capitalized software costs increased $884 during 1999, primarily due to
development costs incurred and other capitalized costs incurred to embed an
SQL database engine into the Company's software products.
Deferred revenues increased $3,373 during 1999 to $13,725 at December 31,
1999. It is composed primarily of billings related to the Company's
maintenance and technical support service plans. Because billings for these
plans generally cover a twelve-month period, practically all of the deferred
revenue will be recognized as revenue in 2000.
The Company believes that its current cash balances and temporary
investments, along with future cash generated from operations, will be
sufficient to meet its operating needs for at least the next 12 months. The
Company plans to continue to invest significant resources toward product
development, which may include internal software development, acquiring new
technology or new products which will complement our existing product lines,
and other strategic opportunities that arise. Other future cash needs will, or
may, include additional investments for equipment for Company personnel,
additional expenditures for expansion of the Company's corporate offices and
properties, a stock repurchase program and the payment of cash dividends. The
Company currently pays regular quarterly cash dividends and plans to continue
to pay such dividends, consistent with its capital needs and income levels.
Total cash dividends paid in 1999 amounted to $1,675 or $.13 per share,
compared to $1,236 or $.10 per share in 1998 and $833 or $.07 per share in
1997.
Although the Company believes that it has sufficient cash and temporary
investments on hand to meet its operating needs and other cash requirements
for at least the next 12 months, events may occur that require funds in excess
of what the Company has available. If such events were to occur, the Company
may borrow money against its real property or seek other debt or equity
financing.
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
have been addressing, or are continuing to address, the problem of their
software not being year 2000 compliant. The problem that may exist 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 computer
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
addressed it, both for its software that it has developed for sale to users
and for applications affecting internal operations that potentially are not
year 2000 compliant. On software developed for sale to users, the Company
believes that the complete suite of its current version of Windows-based
products and its older DOS-based products which are currently being maintained
by the Company are year 2000 compliant. To date, the Company has not received
any significant notices from its user base who are using the Company's
currently maintained software products of any problems encountered with the
software as it relates to the year 2000. The Company had also previously
notified known users of its discontinued software products that it will not
continue support of those products. To date, the Company has not received any
significant inquiries regarding this.
15
<PAGE>
During 1999, the Company completed its assessment of its internal operations
in terms of technical applications, non-technical applications and the effect
of significant third parties upon whom it relies for various aspects of its
business, to identify year 2000 compliance issues. Because of this assessment
and the Company's efforts to continuously upgrade and expand its internal
information and telecommunication system, the Company, to date, has not
experienced any material operational problems in the year 2000. Although the
Company did not budget specifically for year 2000 compliance costs, it
believes that these costs were not significant.
Based on its experience to date on the year 2000 compliance issue, the
Company does not believe there will be any significant adverse effect on the
Company's financial condition, results of operations, or cash flows related to
this issue. However, this belief may change as a result of factors outside the
control of the Company or unforeseen events that may occur related to the year
2000 compliance issue.
Various of the Company's disclosures and announcements concerning its
products and year 2000 programs are intended to constitute "Year 2000
Readiness Disclosures" as defined in the Year 2000 Information and Readiness
Disclosures Act. This Act provides added protection from liability for certain
public and private statements concerning an entity's year 2000 readiness and
the year 2000 readiness of its products and services. It also potentially
provides added protection from liability for certain types of year 2000
disclosures made after January 1, 1996 and before the date of enactment of the
Act.
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 can be no assurance that larger, better-known
software developers will not target this segment of the market. Such
competitors are considerably larger and more diversified, 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, better-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(R) 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 introduced and receive market acceptance, the Company may need to
invest additional resources to adapt its software to those changes or new
operating systems. 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
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.
16
<PAGE>
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 restrictions 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>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has assessed its exposure to market risks for its financial
instruments and has determined that its exposures to such risks is not
material.
Item 8. Financial Statements and Supplementary Data
The financial statements required pursuant to this item are included in Item
14 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information called for by this item is included under the caption "Agenda
Item 1, Election of Directors" contained in Timberline Software Corporation's
definitive proxy statement for the annual meeting of shareholders to be held
on April 25, 2000, and is hereby incorporated by reference.
Item 11. Executive Compensation
The information called for by this item is included under the caption
"Executive Compensation" within "Agenda Item 1, Election of Directors"
contained in Timberline Software Corporation's definitive proxy statement for
the annual meeting of shareholders to be held on April 25, 2000, and is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is included under the caption "Stock
Ownership of Certain Beneficial Owners and Management" contained in Timberline
Software Corporation's definitive proxy statement for the annual meeting of
shareholders to be held on April 25, 2000, and is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions
None.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a.1. Financial Statements
The following financial statements of Timberline Software Corporation are
filed as part of this report:
PAGE
Statements of Operations for the years ended December 31, 1999,
1998 and 1997 F-1
Balance Sheets at December 31, 1999 and 1998 F-2
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 F-3
Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997 F-4
Notes to Financial Statements F-5
Independent Auditors' Report F-14
2. Financial Statement Schedules
Financial statement schedules have been omitted since they are either not
required or the amounts to be included in such schedules are not material.
3. Exhibits
Articles of Incorporation and Bylaws
3(i) Amended and Restated Articles of Incorporation (Incorporated
by reference to Exhibit 3.1 of Quarterly Report on Form 10-Q
for the three months ended September 30, 1998)
3(ii) Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3(ii) of Quarterly Report on Form 10-QSB for the three
months ended March 31, 1997)
Material Contracts
*10.1 1987 Non-Qualified Stock Option Plan (Incorporated by
reference to Exhibit 10.1 of Annual Report on Form 10-K for
the year ended December 31, 1990)
*10.1(a) Amendment No. 1 to 1987 Non-Qualified Stock Option Plan
(Incorporated by reference to exhibit 10.1(a) of Form 10-KSB
for the year ended December 31, 1995)
*10.2 1989 Non-Qualified Stock Option Plan (Incorporated by
reference to Exhibit 10.2 of Annual Report on Form 10-K for
the year ended December 31, 1990)
20
<PAGE>
*10.2(a) Amendment No. 1 to 1989 Non-Qualified Stock Option Plan
(Incorporated by reference to Exhibit 10.2(a) of Form 10-KSB
for the year ended December 31, 1995)
10.3 Form of Indemnification Agreement and signature pages for all
indemnitees (Incorporated by reference to Exhibit 10.3 of
Annual Report on Form 10-K for the year ended December 31,
1990)
*10.4 1993 Stock Incentive Plan (Incorporated by reference to
Exhibit 10 of Quarterly Report on Form 10-Q for the three
months ended June 30, 1993)
*10.5 1998 Stock Incentive Plan, as amended, effective April 28,
1998 (Incorporated by reference to Exhibit 10.11 of Form 10-K
for the year ended December 31, 1998)
Consents
23 Independent Auditors' Consent
Miscellaneous
27 Financial Data Schedule for the year ended December 31, 1999
* Management contract or compensatory plan or arrangement
b. Reports on Form 8-K
No Form 8-K was filed during the three months ended December 31, 1999.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TIMBERLINE SOFTWARE CORPORATION
by /s/ Carl C. Asai 3/28/00
------------------------------ -----------------
Carl C. Asai Date
Senior Vice President - Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Curtis L. Peltz 3/28/00
- ------------------------------------ -----------------
Curtis L. Peltz Date
President, Chief Executive Officer
and Director
/s/ Carl C. Asai 3/28/00
- ------------------------------------ -----------------
Carl C. Asai Date
Senior Vice President - Finance and
Chief Financial Officer
/s/ James A. Meyer 3/28/00
- ------------------------------------ -----------------
James A. Meyer Date
Chairman of the Board of Directors
/s/ Thomas P. Cox 3/28/00
- ------------------------------------ -----------------
Thomas P. Cox Date
Director
/s/ Donald L. Tisdel 3/28/00
- ------------------------------------ -----------------
Donald L. Tisdel Date
Director
22
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts and percentages)
Year ended December 31,
----------------------------------
1999 1998 1997
- ------------------------------------------------------------------
Net revenue:
Software license fees $ 29,291 $ 24,786 $ 18,928
Service fees 24,176 18,197 15,354
Other 1,647 1,310 958
- ------------------------------------------------------------------
Net revenue 55,114 44,293 35,240
- ------------------------------------------------------------------
Cost and expenses:
Cost of revenue 4,793 3,909 3,605
Client services 10,353 8,496 6,744
Product development 10,624 8,863 7,264
Sales and marketing 8,451 6,916 6,351
General and administrative 5,541 5,334 4,776
- ------------------------------------------------------------------
Total cost and expenses 39,762 33,518 28,740
- ------------------------------------------------------------------
Operating income 15,352 10,775 6,500
Other income (expense):
Interest income and other - net 784 548 487
Interest expense (35) (17) (17)
- ------------------------------------------------------------------
Income before income taxes 16,101 11,306 6,970
Provision for income taxes 5,907 4,112 2,435
- ------------------------------------------------------------------
Net income $ 10,194 $ 7,194 $ 4,535
==================================================================
Basic earnings per share $ 0.80 $ 0.58 $ 0.37
==================================================================
Diluted earnings per share $ 0.78 $ 0.56 $ 0.36
==================================================================
Dividends per share $ 0.13 $ 0.10 $ 0.07
==================================================================
See notes to financial statements.
F-1
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
BALANCE SHEETS
(Amounts in thousands, except per share amounts and percentages)
December 31,
----------------------
1999 1998
- ------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 7,642 $ 10,193
Temporary investments 12,738 3,767
Accounts receivable, less allowance for doubtful
accounts (1999, $143; 1998, $182) 5,025 5,086
Other receivables 373 221
Inventories 221 272
Other current assets 1,128 981
- ------------------------------------------------------------------------
Total current assets 27,127 20,520
- ------------------------------------------------------------------------
Property and equipment - net 18,345 18,381
Capitalized software costs, less accumulated
amortization (1999, $1,502; 1998, $923) 2,188 1,304
Purchased software, less accumulated amortization
(1999, $988; 1998, $685) 2,602 1,249
Other assets 85 95
- ------------------------------------------------------------------------
Total assets $ 50,347 $ 41,549
========================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 864 $ 812
Deferred revenues 13,725 10,352
Accrued employee expenses 2,184 2,312
Accrued commissions/royalties 774 599
Income taxes payable 467 373
Other current liabilities 411 489
Current portion of long-term debt - 83
- ------------------------------------------------------------------------
Total current liabilities 18,425 15,020
- ------------------------------------------------------------------------
Long-term debt - 5,417
Accrued rent expense 30 29
Deferred income taxes 1,725 1,047
Commitments
Shareholders' equity:
Common stock, no par value
Authorized - 20,000 shares
Issued - 1999, 12,822 shares; 1998,
12,558 shares 385 377
Additional paid in capital 5,405 3,721
Accumulated other comprehensive income (loss) (70) 10
Retained earnings 24,447 15,928
- ------------------------------------------------------------------------
Total shareholders' equity 30,167 20,036
- ------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 50,347 $ 41,549
========================================================================
See notes to financial statements.
F-2
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share amounts and percentages)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1999 1988 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,194 $ 7,194 $ 4,535
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,545 1,993 1,906
Deferred income taxes 712 138 155
Net change in:
Accounts receivable 61 (783) (609)
Other receivables (152) 12 (76)
Inventories 51 (31) 67
Accounts payable 52 (628) 676
Deferred revenues 3,373 2,849 1,541
Accrued employee expenses (128) 451 719
Accrued commissions/royalties 175 419 (14)
Income taxes payable 94 207 166
Accrued rent expense 1 (17) (20)
Other (215) 493 (360)
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 16,763 12,297 8,686
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment and
purchased software (3,271) (13,489) (5,246)
Capitalized software costs (1,465) (173) (927)
Proceeds from investments 3,550 6,490 4,115
Purchase of investments (12,652) (5,072) (4,517)
Other - net 7 7 11
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (13,831) (12,237) (6,564)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (1,675) (1,236) (833)
Common stock issued 1,692 819 632
Proceeds from (payments on) long-term debt (5,500) 5,500 --
- -----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,483) 5,083 (201)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents . (2,551) 5,143 1,921
Cash and cash equivalents, beginning of the year 10,193 5,050 3,129
- -----------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $ 7,642 $ 10,193 $ 5,050
=========================================================================================
Supplemental information:
Cash paid during the year for income taxes $ 4,036 $ 3,250 $ 1,674
=========================================================================================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except per share amounts and percentages)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------------- Paid in Comprehensive Retained
Shares Issued Amount Capital Income (Loss) Earnings Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 12,143 $ 364 $ 2,283 $ - $ 6,268 $ 8,915
Common stock issued 260 8 365 373
Income tax benefit on
stock options exercised 259 259
Unrealized gain on investments,
net of income taxes 17 17
Dividends declared ($.07 per share) (833) (833)
Net income for the year 4,535 4,535
- ---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 12,403 372 2,907 17 9,970 13,266
Common stock issued 155 5 298 303
Income tax benefit on stock
options exercised 516 516
Unrealized loss on investments,
net of income taxes (7) (7)
Dividends declared ($.10 per share) (1,236) (1,236)
Net income for the year 7,194 7,194
- ---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 12,558 377 3,721 10 15,928 20,036
Common stock issued 264 8 618 626
Income tax benefit on stock
options exercised 1,066 1,066
Unrealized loss on investments,
net of income taxes (80) (80)
Dividends declared ($.13 per share) (1,675) (1,675)
Net income for the year 10,194 10,194
- ---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 12,822 $ 385 $ 5,405 $ (70) $24,447 $30,167
=====================================================================================================================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 1 Summary of significant accounting policies and line of business:
LINE OF BUSINESS AND CREDIT RISKS: The Company develops and markets computer
software programs primarily for the construction and property management
industries. The Company sells its products and services primarily to customers
and to authorized resellers (Timberline Solution Providers) throughout the
United States. Credit is granted to certain customers and Solution Providers
generally without collateral. An allowance for doubtful accounts is provided
based on historical experience and anticipated losses.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS: The carrying amount reported in the balance sheet for
cash and cash equivalents, temporary investments, accounts receivable,
accounts payable and other current assets and liabilities approximates fair
value because of the immediate or short-term maturity of these financial
instruments.
REVENUE RECOGNITION: Revenue from the "license to use" computer software
programs is generally recognized at the point of shipment. Revenue from
service fees is generated from the sale of computer software maintenance and
technical support contracts, training classes, consulting and other client
services. Revenue from maintenance and technical support contracts is
recognized ratably over the period the service is provided. Revenue from other
service fees is recognized at the time the service is provided.
SOFTWARE DEVELOPMENT COSTS: Costs of developing computer software are
capitalized when technological feasibility has been established for the
computer software product. These costs are amortized over a two- to four-year
period. Costs capitalized for the development of computer software were $1,465
in 1999, $173 in 1998 and $927 in 1997. Amortization of capitalized computer
software development costs was $581 in 1999, $503 in 1998 and $403 in 1997.
Expenses incurred on research and development of computer software products
were $9,325 in 1999, $7,822 in 1998 and $6,222 in 1997.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
cash deposited with banks and financial institutions, money market funds and
highly liquid debt instruments purchased with maturity dates of three months
or less at the date of acquisition.
TEMPORARY INVESTMENTS: Temporary investments represent debt securities which
have maturity dates over three months from the purchase date. The Company has
classified these investments as "available for sale" because the Company may
decide not to hold these investments to maturity. Accordingly, the investments
have been recorded at fair value. The unrealized gain or loss on these
investments, net of income taxes, is reported as accumulated other
comprehensive income (loss) within the shareholders' equity section of the
balance sheet.
INVENTORIES: Inventories consist of marketing literature and of software
components. Inventories are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT AND PURCHASED SOFTWARE: Property and equipment and
purchased software are recorded at cost. Depreciation on purchased software,
furniture and equipment is provided using the straight-line method over the
estimated useful lives of the related assets ranging from two to ten years.
The building is being depreciated on a straight-line basis over forty years.
F-5
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
ACCRUED RENT EXPENSE: Rent expense on operating leases with scheduled rent
increases is recognized on a straight-line basis over the lease term. Accrued
rent expense represents the excess of rent charged to expense over the amount
of scheduled rent paid.
INCOME TAXES: Deferred tax assets and liabilities are established based on the
temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
These assets and liabilities are recorded at the enacted tax rates expected to
be in effect when they are realized or settled.
STOCK OPTIONS: The Company applies the intrinsic value-based method described
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock options.
EARNINGS PER SHARE (EPS): The Company computes basic EPS by dividing net
income by the weighted-average number of common shares outstanding and diluted
EPS by dividing net income by the sum of the weighted-average number of common
shares outstanding and the dilutive effect of stock options outstanding as if
such options were exercised or converted into common shares.
A reconciliation of the common shares used in the denominator for
computing basic and diluted EPS for the years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average shares outstanding,
used in computing basic EPS 12,694 12,500 12,296
Effect of dilutive stock options 417 434 348
====================================================================================
Weighted-average shares outstanding, and the effect
of dilutive securities, used in computing diluted EPS 13,111 12,934 12,644
====================================================================================
</TABLE>
Note 2 Comprehensive income:
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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. However,
statements of comprehensive income are not presented for the years ended
December 31, 1999, 1998 and 1997, because the difference between the Company's
comprehensive income and net income is not material. The only component of
comprehensive income that is not included in the Company's net income is the
unrealized gain or loss on temporary investments. For 1999, the unrealized
loss on temporary investments was $80, net of income taxes, which reduced net
income to arrive at comprehensive income of $10,114. For 1998, the unrealized
loss on temporary investments was $7, net of income taxes, which reduced net
income to arrive at comprehensive income of $7,187. For 1997, the unrealized
gain on temporary investments was $17, net of income taxes, which increased
net income to arrive at comprehensive income of $4,552.
F-6
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 3 Investments:
Investments at December 31, 1999 and 1998 are composed of the following:
Amortized Fair
Cost Value
- ------------------------------------------------------------------------------
1999:
Debt securities issued by the U.S. Treasury
and other U.S. government agencies $ 3,607 $ 3,583
Debt securities issued by states of the United
States and political subdivisions of the states 9,245 9,155
- ------------------------------------------------------------------------------
Total investments $ 12,852 $ 12,738
==============================================================================
1999 net unrealized (loss) on investments $ (114)
==============================================================================
1998:
Debt securities issued by the U.S. Treasury
and other U.S. government agencies $ 2,800 $ 2,812
Debt securities issued by states of the United
States and political subdivisions of the states 950 955
- ------------------------------------------------------------------------------
Total investments $ 3,750 $ 3,767
==============================================================================
1998 net unrealized gain on investments $ 17
==============================================================================
Note 4 Property and equipment:
Property and equipment at December 31, 1999 and 1998 is composed of the
following:
1999 1998
- ------------------------------------------------------------------------------
Land $ 2,433 $ 2,433
Building 13,220 12,975
Tenant improvements 63 63
Furniture and fixtures 1,744 1,612
Machinery and equipment 7,249 6,369
- ------------------------------------------------------------------------------
Total 24,709 23,452
Less accumulated depreciation and amortization 6,364 5,071
- ------------------------------------------------------------------------------
Property and equipment - net $ 18,345 $ 18,381
==============================================================================
F-7
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 5 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. At
that time, the Company reconsidered the need for long-term mortgage financing
based on its current cash balances, cash projections for 1999 and current
mortgage interest rates. After further discussion with its Board of Directors
in May 1999, management of the Company decided that long-term mortgage
financing was not required at that time.
Note 6 Common stock:
In October 1999 and 1998, the Company's Board of Directors approved
four-for-three stock splits, effective in November 1999 and 1998,
respectively. In October 1997, the Company's Board of Directors approved a
five-for-four stock split, effective in November 1997. All prior common stock
and per share data amounts have been retroactively adjusted to reflect these
changes.
As of December 31, 1999, the Company has four stock-based compensation
plans. Two nearly identical plans, adopted in 1987 and 1989, are non-qualified
stock option plans for its officers and key employees. Under these plans, the
Company may grant options for up to 1,125 shares of common stock. Options
could not be granted under the 1987 plan and the 1989 plan after 1997 and
1999, respectively. As of December 31, 1999, 174 shares are reserved under
these plans, of which there are 174 options outstanding.
In 1993 and 1998, the Company's shareholders approved incentive stock
plans for the main purpose of retaining and attracting the services of Company
directors, officers, employees and non-employees. Although these plans provide
for the granting of various stock options, stock appreciation rights and stock
bonuses, the Company currently plans to grant only non-qualified stock
options. Stock options under the 1993 and 1998 plans may not be granted after
the year 2003 and 2008, respectively. As of December 31, 1999, 1,484 shares
are reserved under these plans, of which there are 1,054 options outstanding.
All of the above plans are administered by a committee of the Company's
Board of Directors, which determines the terms and conditions of the various
grants awarded under these plans. Under these plans, the non-qualified stock
options have an exercise price equal to the market price of the Company's
common stock on the date of grant. The options vest ratably over a four or
five-year period and expire 10 years after the date of grant.
If compensation cost on stock options granted after 1994 under these
plans had been determined based on the fair value of the options granted as of
the grant date in a method consistent with that described in SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income and
diluted earnings per share would have been reduced to the pro forma amounts
indicated below for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
- ------------------------------------------------------------------------------
Net income, as reported $ 10,194 $ 7,194 $ 4,535
Net income, pro forma 9,202 6,743 4,214
Diluted earnings per share, as reported 0.78 0.56 0.36
Diluted earnings per share, pro forma 0.70 0.52 0.33
F-8
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
The pro forma amounts do not consider the effect of options granted prior to
1995 that vest in subsequent years. The pro forma amounts may also not be
indicative of the effects on reported net income for future years, due to the
effect of options vesting over a period of years and the awarding of stock
compensation awards in future years.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997
- ------------------------------------------------------------------------------
Annual dividend yield 1.0% 1.0% 1.1%
Risk-free interest rate per annum 5.2% 5.6% 6.2%
Expected annual volatility 79.2% 85.0% 87.4%
Expected lives of options (years) 7.0 7.0 7.0
A summary of the status of the Company's stock option plans as of December 31,
1999, 1998 and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year ....... 1,006 $ 3.504 1,115 $ 2.935 1,081 $ 1.923
Granted ................... 513 9.435 86 9.404 327 5.123
Exercised ................. (264) 2.371 (155) 1.955 (260) 1.431
Forfeited ................. (27) 7.730 (40) 6.411 (33) 3.297
- -------------------------------------------------------------------------------------------
Outstanding at end of year 1,228 $ 6.131 1,006 $ 3.504 1,115 $ 2.935
===========================================================================================
Options exercisable
at year-end ............. 586 685 680
Weighted-average fair value
of options granted
during the year .......... $ 6.594 $ 6.834 $ 3.766
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:
Outstanding Exercisable
-------------------------------------- -----------------------
Weighted-
Average
Number Remaining Weighted- Number Weighted-
Range of of Contractual Average of Average
Exercise Prices Options Life (years) Exercise Price Options Exercise Price
- --------------------------------------------------------------------------------
$ 1.05 - 4.69 530 5.2 $ 2.460 477 $ 2.324
6.75 - 9.98 615 8.9 8.471 101 7.330
10.05 - 15.38 83 9.3 12.225 8 11.502
- --------------------------------------------------------------------------------
$ 1.05 - 15.38 1,228 7.3 $ 6.131 586 $ 3.320
================================================================================
F-9
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 7 Income taxes:
The tax effects of significant items comprising the Company's net deferred tax
liability as of December 31, 1999 and 1998 are as follows:
1999 1998
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment $ 928 $ 543
Capitalized software costs 853 509
Maintenance costs 80 120
Other 14 20
- ------------------------------------------------------------------------------
Deferred tax liabilities 1,875 1,192
- ------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts 56 71
Employee expenses not currently deductible 51 58
Accrued rent expense 12 12
Other 65 21
- ------------------------------------------------------------------------------
Deferred tax assets 184 162
- ------------------------------------------------------------------------------
Net deferred tax liability $1,691 $1,030
==============================================================================
The net deferred tax liability is classified in the balance sheet as follows:
1999 1998
- ------------------------------------------------------------------------------
Deferred income taxes $1,725 $1,047
Deferred tax assets included in other
current assets (34) (17)
- ------------------------------------------------------------------------------
Net deferred tax liability $1,691 $1,030
==============================================================================
The provision for income taxes is composed of the following:
1999 1998 1997
- ------------------------------------------------------------------------------
Current:
Federal $4,302 $3,300 $1,949
State 893 674 331
Deferred:
Federal 575 111 125
State 137 27 30
- ------------------------------------------------------------------------------
Total $5,907 $4,112 $2,435
==============================================================================
F-10
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
A reconciliation of the difference between the provision for income taxes and
the income taxes computed at the federal statutory rate is summarized below:
1999 1998 1997
- ------------------------------------------------------------------------------
Income taxes based on federal statutory rate $ 5,568 $ 3,857 $ 2,370
State tax, net of federal tax benefit 691 469 230
Research and development credits (324) (283) (251)
Other (28) 69 86
- ------------------------------------------------------------------------------
Provision for income taxes $ 5,907 $ 4,112 $ 2,435
==============================================================================
Note 8 Business segment information:
The Company's operations are divided into two operating segments: software
products and software services. Software products encompass software product
revenue across all of the Company's product lines. Software services encompass
fees for all services after the software is sold, such as annual maintenance
and technical support service contracts, consulting and training services. The
Company accounts for revenue and cost of revenue on these two operating
segments, and tracks specifically identifiable expenses related to the
generation of revenue for each of those segments. There are no intersegment
transactions. These segments are managed separately because of different
revenue and marketing strategies and different strategic planning processes.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in Note 1 of Notes to
Financial Statements. 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. The Company also does not allocate assets by
segment in evaluating the performance of each segment. Information about each
operating segment and a reconciliation of operating contribution to operating
income is as follows for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
- ------------------------------------------------------------------------------
Net revenue:
Software products $29,291 $24,786 $18,928
Services 24,176 18,197 15,354
Other 1,647 1,310 958
- ------------------------------------------------------------------------------
Net revenue $55,114 $44,293 $35,240
==============================================================================
Operating contribution:
Software products $19,968 $16,971 $11,619
Services 10,112 6,892 6,196
Other revenue, net of cost 1,437 1,109 725
Product development expenses (10,624) (8,863) (7,264)
General and administrative expenses (5,541) (5,334) (4,776)
- ------------------------------------------------------------------------------
Operating income $15,352 $10,775 $ 6,500
==============================================================================
F-11
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
The Company operates primarily in the United States. In terms of net revenue,
more than 94 percent of its net revenue in 1999, 1998 and 1997 was generated
from customers located in the United States. No revenue from customers located
in any one foreign country accounted for more than three percent of the
Company's net revenue during those years.
Note 9 Commitments:
The Company leases some equipment and office facilities under noncancelable
operating leases. Its major lease commitment relates to a lease entered into
in 1996 and expiring in 2003 for additional office space for expansion of its
former corporate offices. That office space is currently being subleased for
the balance of the lease term.
Total rent expense under operating leases, net of sublease rental income, was
$188, $825 and $986 in 1999, 1998 and 1997, respectively. Future minimum
rental payments under these leases as of December 31, 1999, are as follows:
Year ending December 31,
------------------------
2000 $ 265
2001 270
2002 271
2003 107
2004 29
---------------
Total $ 942
===============
Future minimum rental payments shown above have not been reduced by future
minimum sublease rental income of $670 from a noncancelable sublease.
Note 10 Employee benefit plan:
The Company has a retirement plan, under the provisions of Section 401(k) of
the Internal Revenue Code, covering substantially all employees. Under the
terms of the plan, employees may make contributions computed on a percentage
of pay. The Company may match employee contributions up to a set percentage of
pay. The Company may, at its discretion, make an additional year-end
contribution out of profits. Contributions by the Company under the plan were
$598 in 1999, $479 in 1998 and $393 in 1997.
F-12
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 11 Quarterly financial information (unaudited):
Basic Diluted
Net Cost and Net Earnings Earnings
Revenue Expenses Income per Share per Share
- -------------------------------------------------------------------------------
1999
1st quarter $13,341 $ 9,777 $ 2,230 $ 0.18 $ 0.17
2nd quarter 13,271 9,715 2,255 0.18 0.17
3rd quarter 13,350 9,518 2,465 0.19 0.19
4th quarter 15,152 10,752 3,244 0.25 0.25
1998
1st quarter $ 9,383 $ 7,674 $ 1,159 $ 0.09 $ 0.09
2nd quarter 10,460 8,078 1,623 0.13 0.13
3rd quarter 11,078 8,447 1,726 0.14 0.13
4th quarter 13,372 9,319 2,686 0.22 0.21
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Timberline Software Corporation
Beaverton, Oregon
We have audited the accompanying balance sheets of Timberline Software
Corporation as of December 31, 1999 and 1998, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Timberline Software Corporation as of
December 31, 1999 and 1998 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
January 21, 2000
F-14
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX*
Consents
23 Independent Auditors' Consent
Miscellaneous
27 Financial Data Schedule for the year ended December 31, 1999
* See Item 14(a)(3) of this Report for a list of all exhibits, including
those incorporated by reference.
Independent Auditors' Consent
Board of Directors and Shareholders
of Timberline Software Corporation
Beaverton, Oregon
We consent to the incorporation by reference in Registration Statements Nos.
33-46716 and 33-69820 on Form S-8 of our report dated January 21, 2000
appearing in this Annual Report on Form 10-K of Timberline Software
Corporation for the year ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TIMBERLINE
SOFTWARE CORPORATION'S FINANCIAL STATEMENTS CONTAINED IN ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,642
<SECURITIES> 12,738
<RECEIVABLES> 5,168
<ALLOWANCES> 143
<INVENTORY> 221
<CURRENT-ASSETS> 27,127
<PP&E> 24,709
<DEPRECIATION> 6,364
<TOTAL-ASSETS> 50,347
<CURRENT-LIABILITIES> 18,425
<BONDS> 0
0
0
<COMMON> 385
<OTHER-SE> 29,782
<TOTAL-LIABILITY-AND-EQUITY> 50,347
<SALES> 29,291
<TOTAL-REVENUES> 55,114
<CGS> 4,793
<TOTAL-COSTS> 25,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 16,101
<INCOME-TAX> 5,907
<INCOME-CONTINUING> 10,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,194
<EPS-BASIC> .80
<EPS-DILUTED> .78
</TABLE>
