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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, 2000.
[_] 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
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15195 N.W. Greenbrier Parkway, Beaverton, Oregon 97006-5701
-----------------------------------------------------------
(Address of principal executive offices) (Zip code)
(503) 690-6775
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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, 2001, 11,648,398 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 $37,762,639.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement dated March 13, 2001, prepared in
connection with the Annual Meeting of Shareholders to be held on April 24,
2001 are incorporated by reference into Part III of this Report.
PART I
Item 1. Business
General
Timberline(R) Software Corporation (the "Company" or "Timberline") was
incorporated in Oregon in 1979. 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 plans, classroom
training, 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, 2000, the Company believes that approximately 25,000 entities are
currently using the Company's software products, of which more than 13,000 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 6 to the Company's consolidated financial
statements for the year ended December 31, 2000.
Software Products
Software license revenue is a major source of the Company's net revenue. In
2000, 1999 and 1998, software license revenue accounted for 45 percent, 53
percent and 56 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 embedded an SQL database engine into its Windows-based
software applications. This replaced the proprietary database that was being
used in earlier versions of its software. With this change, the Company
expects 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 their 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
MS-DOS-based software products for sale to new users, but primarily maintains
these products for existing users of the software.
1
The Company has two main software product lines: Accounting (composed of
construction and property management software) and Estimating.
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.
In May 2000, the Company announced its e-commerce initiative. Currently, many
companies, especially in the construction industry, rely on paper, facsimile
and phone communication in conducting their business. The time and effort
required to process, communicate and coordinate these activities is
significant and the Company believes increased productivity and efficiencies
can be gained by processing these transactions electronically. Timberline is
currently developing new functionality to its current suite of accounting and
estimating products, which will enable users of its software to conduct
business-to-business e-commerce through Internet portals or directly from
desktop to desktop. Timberline users will be able to communicate and share
information with existing and future online construction portals, other
software systems, or companies that only have an Internet connection. Using
eXtensible Markup Language (XML) and Timberline's new patent-pending
technology, Timberline users will be able to send electronic construction
documents that mimic their current paper-based documents to their suppliers,
partners and other interested parties. They, in turn, will be able to open,
edit and re-send these documents back to the originator of the documents,
providing all parties with significant processing efficiencies.
Accounting Software
The Company's Accounting software is designed for use in the construction and
property management industries. This group's software license revenue
accounted for over 69 percent, 72 percent and 75 percent of the Company's
software license revenue in 2000, 1999 and 1998 respectively.
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.
2
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. 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.
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.
At the end of 1999, the Company released Purchase Order and Inventory software
applications and in August 2000, released Service Management applications.
These applications, bundled with its current construction accounting
applications, 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 to which, until the release
of the above applications, Timberline was not able to provide a complete
accounting solution.
3
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
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 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.
4
In June 2000, the Company released 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.
The Company plans to continue to enhance its current estimating software
applications. In 2001, the Company plans to release a conceptual database
product allowing quick estimates on new projects using parametric input, a
modeling feature which will allow estimators to analyze various what-if
scenarios for facility and financial planning purposes, and a CAD integrator
product, which will automatically generate a construction estimate using
dimensional attributes captured from CAD systems that have adopted the new
Industry Foundation Classes Standard.
Support Services
The Company generates a significant portion of its net revenue from service
fees. Service fees consist 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.
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 professional 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.
5
Service fees are a significant percentage of the Company's total net revenue.
In 2000, 1999, and 1998, service fees comprised 53 percent, 44 percent and 41
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 2000, 38 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 and
provides related services 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 2000, 1999 and 1998.
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 plans 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, 2000 and 1999 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
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.
6
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.
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 2000, 39 percent of
the Company's employees were directly associated with product development.
Product development expenses were $13,254,000, $10,624,000 and $8,863,000 in
2000, 1999 and 1998, respectively. Of that total, $11,522,000, $9,325,000, and
$7,822,000 were incurred in 2000, 1999 and 1998, respectively, on research and
development on new software products. An additional $5,183,000, $2,015,000 and
$173,000, respectively, of product development expenses on new software
products were capitalized in those same years.
Employees
At December 31, 2000, the Company had 509 employees, of which 475 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 2000 and 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.
7
Item 2. Properties
In October 1998, the Company moved into its new corporate headquarters located
in Beaverton, Oregon. Most 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.
In July 2000, the Company entered into a lease for additional office space in
close proximity to its corporate headquarters to locate part of its product
development group. Under this lease, the Company is currently leasing 24,000
square feet and will be leasing another 24,000 square feet in July 2001. This
lease expires in 2011.
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 its 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.
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.
8
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.
2000 1999
----------------------- ----------------------
High Low High Low
First Quarter $ 13.63 $ 8.13 $ 12.84 $ 8.53
Second Quarter 9.31 7.31 14.44 8.81
Third Quarter 7.38 5.38 14.77 11.67
Fourth Quarter 6.00 3.38 15.38 11.48
As of March 2, 2001, there were 318 shareholders of record. Based upon the
requests for the Company's proxy material for its 2001 annual meeting of
shareholders, the Company believes there were approximately 6,600 beneficial
shareholders as of that date. Cash dividends paid in 2000 and 1999 amounted
(in thousands) to $2,015 and $1,675, respectively.
Item 6. Selected Financial Data
(Amounts in thousands, except per share amounts and percentages)
Year ended December 31,
----------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------
Net revenue:
Software license fees $22,950 $29,291 $24,786 $18,928 $14,983
Service fees 27,064 24,176 18,197 15,354 12,956
Other 1,162 1,647 1,310 958 720
- -----------------------------------------------------------------------
Net revenue 51,176 55,114 44,293 35,240 28,659
Cost and expenses 47,205 39,762 33,518 28,740 26,004
- -----------------------------------------------------------------------
Operating income 3,971 15,352 10,775 6,500 2,655
Other income - net 1,006 749 531 470 399
- -----------------------------------------------------------------------
Income before income taxes 4,977 16,101 11,306 6,970 3,054
Provision for income taxes 1,646 5,907 4,112 2,435 870
- -----------------------------------------------------------------------
Net income $ 3,331 $10,194 $ 7,194 $ 4,535 $ 2,184
=======================================================================
Basic earnings per share $ 0.27 $ 0.80 $ 0.58 $ 0.37 $ 0.18
Diluted earnings per share $ 0.26 $ 0.78 $ 0.56 $ 0.36 $ 0.17
=======================================================================
Cash dividends $ 2,015 $ 1,675 $ 1,236 833 $ 625
Cash Dividends per share 0.16 0.13 0.10 0.07 0.05
Total assets 48,968 50,347 41,549 25,754 18,042
Long-term debt - - 5,417 - -
Shareholders' equity 25,362 30,167 20,036 13,266 8,915
Working capital (33) 8,702 5,500 4,339 1,325
Current ratio 1.00 1.47 1.37 1.38 1.16
=======================================================================
9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, without limitation, press releases, oral
statements made with the approval of an authorized executive officer of the
Company and filings with the Securities and Exchange Commission. The words or
phrases "anticipates," "believes," "expects," "intends," "will continue,"
"estimates," "plans," "projects," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
The Company's forward-looking statements are subject to certain risks, trends,
and uncertainties that could cause actual results to vary materially from
anticipated results, including, without limitation, delays in new product
releases, delays in acceptance of the Company's products in the marketplace,
failures by the Company's outside vendors to perform as promised, changes in
the software operating systems for which the Company's products are written,
increased competition, 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, cost estimating, and service management software primarily for the
construction and property management industries. The Company also provides
related services to its users, including annual maintenance and support
service plans, on-site consulting services, and training. Approximately,
twenty-five thousand companies use one or more of the Company's software
products.
Results of Operations
The Company's consolidated results of operations for the years ended December
31, 2000, 1999 and 1998 and the changes on a year over year comparison are set
forth below:
%
Increase/(Decrease) Increase/(Decrease)
----------------- --------------
Year ended December 31, 2000 1999 2000 1999
------------------------- vs. vs. vs. vs.
2000 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------
Net revenue:
Software license fees $22,950 $29,291 $24,786 $(6,341) $ 4,505 (21.6)% 18.2%
Service fees 27,064 24,176 18,197 2,888 5,979 11.9 32.9
Other 1,162 1,647 1,310 (485) 337 (29.4) 25.7
- -----------------------------------------------------------------------------------------------
Net revenue 51,176 55,114 44,293 (3,938) 10,821 (7.1) 24.4
- -----------------------------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 5,071 4,793 3,909 278 884 5.8 22.6
Client services 12,459 10,353 8,496 2,106 1,857 20.3 21.9
Product development 13,254 10,624 8,863 2,630 1,761 24.8 19.9
Sales and marketing 9,781 8,451 6,916 1,330 1,535 15.7 22.2
General and administrative 6,640 5,541 5,334 1,099 207 19.8 3.9
- -----------------------------------------------------------------------------------------------
Total cost and expenses 47,205 39,762 33,518 7,443 6,244 18.7 18.6
- -----------------------------------------------------------------------------------------------
Operating income 3,971 15,352 10,775 (11,381) 4,577 (74.1) 42.5
Other income 1,006 749 531 257 218 34.3 41.1
- -----------------------------------------------------------------------------------------------
Income before income taxes 4,977 16,101 11,306 (11,124) 4,795 (69.1) 42.4
Provision for income taxes 1,646 5,907 4,112 (4,261) 1,795 (72.1) 43.7
- -----------------------------------------------------------------------------------------------
Net income $ 3,331 $10,194 $7,194 $(6,863) $ 3,000 (67.3)% 41.7%
===============================================================================================
10
The following table presents the Company's consolidated operating statement
data expressed as a percentage of net revenue for the years indicated:
Year ended December 31,
--------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Net revenue:
Software license fees 44.8% 53.1% 56.0%
Service fees 52.9 43.9 41.1
Other 2.3 3.0 2.9
- -------------------------------------------------------------------------------
Net revenue 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 9.9 8.7 8.8
Client services 24.3 18.8 19.2
Product development 25.9 19.3 20.0
Sales and marketing 19.1 15.3 15.6
General and administrative 13.0 10.0 12.1
- -------------------------------------------------------------------------------
Total cost and expenses 92.2 72.1 75.7
- -------------------------------------------------------------------------------
Operating income 7.8 27.9 24.3
Other income 1.9 1.3 1.2
- -------------------------------------------------------------------------------
Income before income taxes 9.7 29.2 25.5
Provision for income taxes 3.2 10.7 9.3
- -------------------------------------------------------------------------------
Net income 6.5% 18.5% 16.2%
===============================================================================
Net Revenue. Net revenue is composed primarily of software license revenue and
service fee revenue. Service fee revenue increased in 2000 and 1999 over the
previous years, but the Company's software license revenue in 2000 experienced
its first year-over-year decline since 1991. Software license revenue
decreased across all of the Company's product lines. In 2000, Accounting
software license revenue, which accounted for 69% of the Company's total
software license revenue decreased 26%, while Estimating license revenue,
which accounted for 31% of the total software license revenue, decreased 12%.
The Company believes the decrease in the Accounting software license revenue
was primarily due to the decrease in the demand for software. Many companies
in the few years prior to 2000 upgraded or replaced their existing software
that was not year 2000 compliant, resulting in lower demand in 2000.
11
Additionally, because of the uncertainty in the U.S. economy and signs of a
slowdown in the construction industry during the latter part of 2000, the
Company believes many prospective buyers delayed their computer software
purchasing decision. Partially offsetting the effect of the decline in the
demand was additional revenue from new products introduced in 2000. These new
products include the purchase order and inventory applications, which were
introduced at the end of 1999 and service management applications, which were
introduced in August 2000. These applications enable the Company to penetrate
the specialty contractor market, which is a new area the Company has targeted
to further expand into the various segments of the construction industry.
Estimating software revenue declined in 2000 compared to 1999, primarily as a
result of a large software order in 1999, which was the single largest
software order in the Company's history. Excluding that order from 1999,
Estimating software revenue in 2000 increased slightly over 1999.
In 1999, Accounting software license revenue, which accounted for 72% of the
Company's total software license revenue, increased 14% over 1998 and
Estimating software license revenue, which account for 28% of total software
license fees, increased 30%. The increase in Accounting software revenue was
primarily due to an increase in revenue generated from the Company's Gold
Collection 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. Estimating software revenue increased in
1999 compared to 1998, primarily due to an Estimating software licensing
arrangement during the first quarter of 1999, which was the single largest
software order in the Company's history.
In terms of revenue mix, software license revenue accounted for 45%, 53% and
56% of net revenue in 2000, 1999 and 1998, respectively. A large majority of
software licensing arrangements are made in the United States. International
(non-U.S.) software revenue, as a percentage of total software revenue,
increased slightly in 2000 to 7% from 6% for 1999 and 1998.
Service fee revenue is comprised primarily of fees from annual maintenance and
support service plans and fees for consulting and training. The increase in
service fee revenue was due to the increase in revenue from annual maintenance
and support service plans. Revenue from these plans, which comprised 86% of
the total service fee revenue for 2000, increased 23% over 1999. This was
partially offset by a decline in consulting and training revenue, primarily
due to a lower demand for these services as a direct result of the decline in
the Company's software license revenue. Service fee revenue in 1999 increased
significantly over 1998 primarily due to an increase in revenue from annual
maintenance and support service plans. Fees from these service plans, which
accounted 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
12
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 was 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 in 1999 increased 55% over the
prior year. Although this is not a large percentage of net revenue, the
Company targeted this area as a source for future growth. Training fees in
1999 remained essentially flat compared to 1998 because, in the latter part of
1998, the Company transferred the primary responsibility of holding training
classes for users to its reseller channel. The reduction in training revenue
was offset with increased sales of training materials.
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 in 2000
increased slightly, and as a percentage of net revenue, increased to 10% from
9% in 1999. The increase was primarily due to an increase in royalties and
amortization of capitalized software costs. 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
revenue. These sources of revenue increased significantly in 1999 over 1998.
Operating Expenses. Operating expenses amounted to $42,134, $34,969, and
$29,609 in 2000, 1999 and 1998, respectively. These expenses increased 20% in
2000 and 18% in 1999 over the previous years. As a percentage of net revenue,
operating expenses increased to 82% in 2000 from 63% in 1999 and 67% in 1998.
Client services expenses increased in 2000 primarily as a result of an
increase in personnel and internal training costs in order to manage and
service the increased level and quality of support services being provided to
its customers. The call volume to the Company's client services group in 2000
increased 20% over 1999's level. Internal training costs increased due to the
new products added during the year and an increase in the number of people who
needed to be trained. The Company doubled its internal training staff from a
year ago in order to properly train its employees, certified consultants and
trainers on the new products as well as to train new employees on the
Company's existing products. As a percentage of service fees, client services
expenses increased to 46% in 2000 from 43% in 1999.
Client services expenses 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 customer 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 remained fairly constant. As a percentage of
service fees, customer support expenses decreased to 43% in 1999 from 47% in
1998.
Product development expenses represent expenses for research on new software
products as well as enhancements and ongoing updates to the Company's existing
software products. In 2000 and 1999, product development expenses increased
over the previous years, primarily due to an increase in personnel and the
additional use of outside contract developers to maintain and enhance the
Company's current software products. Personnel costs were also higher due to
the competitive environment for attracting and retaining highly qualified
people in the local area in which the Company's operations are located.
13
The Company is continually working on a number of enhancements to its existing
product lines to meet the needs of its existing customers and to improve the
marketability of the products. The Company has also added new products in
2000, which increased the number of software applications that must be
maintained and enhanced. Consequently, the Company believes that it will
continue to commit a significant amount of its resources toward product
development in 2001.
Sales and marketing expenses increased in 2000 over 1999 and also increased as
a percentage of net revenue. A portion of the increase was due to an increase
in sales personnel. The Company opened a sales office in Sydney Australia
during the first quarter of 2000 to increase its presence in the Asia Pacific
region and to provide better support to its distribution channel in that
region. The Company also added sales personnel to boost its software revenue
in certain areas within the U.S. where the Company believed it had a greater
opportunity to increase its current market share. Sales personnel were also
added as the Company targeted two additional segments within the construction
industry - the specialty contractors and owners and design/build firms - to
market its products and services. Marketing expenses increased due to
increased personnel, advertising, trade show costs and outside service costs.
The Company is aggressively marketing into the two segments mentioned above.
The Company spent additional funds in 2000 on a new marketing campaign and
public relations to increase its presence in these new areas, as well as to
gain more exposure to its customers and prospects of its e-commerce and
project management strategy.
Sales and marketing expenses in 1999 increased significantly over 1998, but as
a percentage of net revenue, declined slightly from the previous year. 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.
General and administrative expenses in 2000 increased over 1999 in both
absolute dollar amounts and as a percentage of net revenue. The increase was
primarily due to increase in personnel costs, depreciation and amortization,
and outside service costs. The increase in personnel costs was primarily due
to the Company establishing a human resources and legal affairs group to
coordinate these functions within the Company. The increase in depreciation
and amortization was primarily due to additional capital expenditures in 2000
and 1999 to expand the capabilities and functionality of its telecommunication
system and information system, the latter of which became operational in
September 1999. Outside service costs increased primarily due to higher
insurance and legal fees.
General and administrative expenses in 1999 increased slightly from the
previous year, but declined as a percentage of net revenue. The increase in
expense was 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 for insurance and legal
services. The increase in these costs was partially offset by the moving costs
the Company incurred in 1998 related to the move to its current corporate
offices.
Other Income. Other income is primarily composed of interest income on cash
and cash equivalents and temporary investments. Other income increased in 2000
and 1999 primarily due to an increase in the amount of average funds invested
in 2000 and 1999 over the previous year, and higher interest rates in 2000.
Provision for Income Taxes. The Company's effective tax rate was 33%, 37% and
36% in 2000, 1999 and 1998, respectively. The decrease in this rate in 2000
over the previous two years is primarily due to the decrease in the Company's
pre-tax earnings and a greater effect of the research tax credit on its
effective tax rate.
14
Liquidity and Capital Resources
The Company generally meets its liquidity needs through cash generated from
operations. Net cash provided by operations was $8,532 in 2000 compared to
$16,763 and $12,297 in 1999 and 1998, respectively. The changes in the amount
of cash generated from operations from year-to-year were primarily due to the
level of profitability during those years. Working capital decreased in 2000
primarily due to large uses of cash and an increase in deferred revenues
during the year, which are further discussed below.
The Company's financial position continues to be strong. The Company has no
long-term debt. Cash and cash equivalents and temporary investments amounted
to $11,865 at December 31, 2000 and represent 24% of the Company's total
assets. These cash resources have decreased $8,515 since the end of 1999,
primarily due to the Company's investment in product development on new
applications supporting its e-commerce and project management strategy,
capital expenditures, and share repurchases under the Company's Stock
Repurchase Plan. During 2000, the Company expended $5,183 for capitalized
software development costs. The Company also spent $6,606 to repurchase 1,131
shares, representing 9% of the Company's shares outstanding at March 31, 2000,
the date that the Company announced its share repurchase plan. There remains
169 shares that the Company may repurchase under current authorization from
the Board of Directors. There are no current plans to increase the number of
shares the Company may repurchase beyond the amount previously authorized.
Capital expenditures amounted to $3,769, $2,721 and $13,489 in 2000, 1999 and
1998, respectively. Normal capital expenditures are computers for new
employees, periodic upgrades of existing computers for employees, and
expansion of the Company's telecommunication and internal information system.
In 2000, there were additional capital expenditures for work related to the
design of the future development and expansion of the Company's corporate
properties and productivity software for its Client Services group. In 1999,
there were additional expenditures related to its new internal information
system, which became operational in September 1999. The large amount of
capital expenditures in 1998 was primarily related to the construction of the
Company's current corporate offices.
Accounts receivable, net at December 31, 2000 increased slightly since the end
of 1999, primarily due to an increase in service plans billings. DSO's (Days
Sales Outstanding) in accounts receivable increased to 34 days from 30 days at
December 31, 1999.
Other receivables increased $1,045 during 2000, primarily due to refundable
income taxes.
Accounts payable at the end of 2000 increased $668 since the end of 1999,
primarily due to amounts owed at the end of the year for outside developers,
property and equipment purchases, outside marketing services and shipping
costs.
Deferred revenues, which consist primarily of billings related to the
Company's maintenance and support service plans, increased $1,690 during 2000
to $15,415 at December 31, 2000. Because billings for these plans generally
cover a twelve-month period, practically all of the deferred revenues at the
end of 2000 will be recognized as revenue in 2001.
Income taxes payable decreased since the end of 1999 due to the Company's
current income tax situation as mentioned above. Accrued employee expenses
decreased, primarily due to a decrease in employee bonuses for the year 2000.
Deferred income taxes increased primarily as a result of the deferred tax
liability related to capitalized software development costs.
15
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 its existing product lines, and other strategic
opportunities that arise. Other future cash needs will, or may, include
additional investments for equipment for Company personnel, upgrading and
expanding its telecommunication and internal information systems, additional
expenditures for expansion of the Company's corporate offices, 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, income levels and its long-term dividend policy. Total cash dividends
paid in 2000 amounted to $2,015 or $.16 per share, compared to $1,675 or $.13
per share in 1999 and $1,236 or $.10 per share in 1998.
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 twelve 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 properties 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:
Competition. The computer software market is highly competitive and subject to
change because of the rapid technological changes in the computer industry.
The number of software vendors with which the Company competes varies from
product to product and from region to region within the United States.
Although the Company believes it is a major supplier of accounting and cost
estimating software for the construction and property management industries,
and that there are economical and technological barriers to discourage new
specialty software vendors from entering into its segment of the software
market, there can be no assurance that larger, well-known software developers
will not target this segment of the market. Such competitors are considerably
larger, more diversified, and have greater financial and other resources and
enjoy greater brand recognition for their products than the Company.
The Company must also compete with other larger, well-known software
developers for the hiring and retention of highly qualified technical
personnel. As a result, the Company may have to expend additional financial
resources to hire and retain qualified technical personnel. If the Company is
not able to secure the services of employees with the level of technical
expertise it requires, the development of new products would likely be delayed
and would result in a decrease in the quality of new software products and
enhancements to its existing software products. A delay in the development, or
failure to maintain the quality of new software products by the Company would
likely have a material adverse effect on the financial position, results of
operations and cash flows of the Company.
Dependence on Microsoft Operating System; Obsolescence and Technological
Changes. The Company is a specialty software developer, an industry
characterized by rapid technological change. Its software is designed to work
with specific operating systems developed by Microsoft Corporation. If
substantial changes are made to those operating systems or if new operating
systems are adopted, the Company's software may not function properly,
necessitating that the Company invest additional resources to adapt its
software to those changes. Also, other operating systems may be introduced on
which the Company's software may not function, which may also cause additional
resources to be expended which would otherwise be devoted to improving the
Company's software or developing new software.
16
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.
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
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. Selected quarterly financial
information is included in Note 9 of the Notes to Consolidated Financial
Statements included in this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
18
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 24, 2001, 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 24, 2001, 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 24, 2001, and is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions
None.
19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a(1). Financial Statements
The following consolidated financial statements of Timberline Software
Corporation are filed as part of this report:
PAGE
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998 F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-2
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998 F-3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998 F-4
Notes to Consolidated Financial Statements F-5
Independent Auditors' Report F-14
a(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.
a(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
*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)
*10.6 2000 Stock Incentive Plan (Incorporated by reference to the
registration statement on Form S-8 (Commission File No.
333-39424) as filed on June 16, 2000)
Consents
23 Independent Auditors' Consent
* 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, 2000.
21
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 3/20/01
------------------------------- -----------------
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 3/20/01
- ------------------------------------ -----------------
Curtis L. Peltz Date
President, Chief Executive Officer
and Director
/s/Carl C. Asai 3/20/01
- ------------------------------------ -----------------
Carl C. Asai Date
Senior Vice President - Finance and
Chief Financial Officer
/s/ James A. Meyer 3/20/01
- ------------------------------------ -----------------
James A. Meyer Date
Chairman of the Board of Directors
/s/ Thomas P. Cox 3/20/01
- ------------------------------------ -----------------
Thomas P. Cox Date
Director
/s/ Donald L. Tisdel 3/20/01
- ------------------------------------ -----------------
Donald L. Tisdel Date
Director
22
TIMBERLINE SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts and percentages)
Year ended December 31,
---------------------------------
2000 1999 1998
- -----------------------------------------------------------------
Net revenue:
Software license fees $ 22,950 $ 29,291 $ 24,786
Service fees 27,064 24,176 18,197
Other 1,162 1,647 1,310
- -----------------------------------------------------------------
Net revenue 51,176 55,114 44,293
- -----------------------------------------------------------------
Cost and expenses:
Cost of revenue 5,071 4,793 3,909
Client services 12,459 10,353 8,496
Product development 13,254 10,624 8,863
Sales and marketing 9,781 8,451 6,916
General and administrative 6,640 5,541 5,334
- -----------------------------------------------------------------
Total cost and expenses 47,205 39,762 33,518
- -----------------------------------------------------------------
Operating income 3,971 15,352 10,775
Other income (expense):
Interest income and other - net 1,017 784 548
Interest expense (11) (35) (17)
- -----------------------------------------------------------------
Income before income taxes 4,977 16,101 11,306
Provision for income taxes 1,646 5,907 4,112
- -----------------------------------------------------------------
Net income $ 3,331 $ 10,194 $ 7,194
=================================================================
Basic earnings per share $ 0.27 $ 0.80 $ 0.58
=================================================================
Diluted earnings per share $ 0.26 $ 0.78 $ 0.56
=================================================================
Cash dividends per share $ 0.16 $ 0.13 $ 0.10
=================================================================
See notes to consolidated financial statements.
F-1
TIMBERLINE SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts and percentages)
December 31,
---------------------
2000 1999
- -----------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 3,620 $ 7,642
Temporary investments 8,245 12,738
Accounts receivable, less allowance for doubtful
accounts (2000, $138; 1999, $143) 5,183 5,025
Other receivables 1,418 373
Inventories 275 221
Other current assets 1,340 1,128
- -----------------------------------------------------------------------
Total current assets 20,081 27,127
- -----------------------------------------------------------------------
Property and equipment - net 21,834 20,420
Capitalized software costs, less accumulated
amortization (2000, $2,596; 1999, $1,525) 6,827 2,715
Other assets 226 85
- -----------------------------------------------------------------------
Total assets $ 48,968 $ 50,347
=======================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,532 $ 864
Deferred revenues 15,415 13,725
Accrued employee expenses 1,830 2,184
Accrued commissions/royalties 961 774
Income taxes payable 36 467
Other current liabilities 340 411
- -----------------------------------------------------------------------
Total current liabilities 20,114 18,425
- -----------------------------------------------------------------------
Accrued rent expense 293 30
Deferred income taxes 3,199 1,725
Commitments
Shareholders' equity:
Common stock, no par value
Authorized - 20,000 shares
Issued - 2000, 11,773 shares; 1999,
12,822 shares 353 385
Additional paid in capital 5,297 5,405
Accumulated other comprehensive income (loss) 20 (70)
Retained earnings 19,692 24,447
- -----------------------------------------------------------------------
Total shareholders' equity 25,362 30,167
- -----------------------------------------------------------------------
Total liabilities and shareholders' equity $ 48,968 $ 50,347
=======================================================================
See notes to consolidated financial statements.
F-2
TIMBERLINE SOFTWARE CORPORATION
CONSLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share amounts and percentages)
Year ended December 31,
---------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 3,331 $ 10,194 $ 7,194
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,499 2,545 1,993
Deferred income taxes 1,452 712 138
Net change in:
Accounts receivable (158) 61 (783)
Other receivables (1,045) (152) 12
Inventories (54) 51 (31)
Accounts payable 668 52 (628)
Deferred revenues 1,690 3,373 2,849
Accrued employee expenses (354) (128) 451
Accrued commissions/royalties 187 175 419
Income taxes payable (431) 94 207
Accrued rent expense 263 1 (17)
Other (516) (215) 493
- --------------------------------------------------------------------------------
Net cash provided by operating activities 8,532 16,763 12,297
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (3,769) (2,721) (13,489)
Capitalized software costs (5,183) (2,015) (173)
Proceeds from investments 4,650 3,550 6,490
Purchase of investments (40) (12,652) (5,072)
Other - net 14 7 7
- --------------------------------------------------------------------------------
Net cash used in investing activities (4,328) (13,831) (12,237)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends (2,015) (1,675) (1,236)
Common stock issued 395 1,692 819
Common stock repurchased (6,606)
Proceeds from (payments on) long-term debt (5,500) 5,500
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (8,226) (5,483) 5,083
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (4,022) (2,551) 5,143
Cash and cash equivalents,
beginning of the year 7,642 10,193 5,050
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $ 3,620 $ 7,642 $ 10,193
================================================================================
Supplemental information:
Cash paid during the year for
income taxes $ 1,318 $ 4,036 $ 3,250
================================================================================
See notes to consolidated financial statements.
F-3
TIMBERLINE SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except per share amounts and percentages)
Accumulated
Common Stock Add'l Other
-------------- Paid in Comprehensive
Shares Amount Capital Income Retained Total
Issued (Loss) Earnings
- ---------------------------------------------------------------------------------------
Balances, January 1, 1998 12,403 $372 $2,907 $17 $9,970 $13,266
Components of comprehensive
income:
Net income for the year 7,194 7,194
Unrealized loss on
investments (net of
income tax benefit of
$3) (7) (7)
-----
Total comprehensive income 7,187
-----
Common stock issued 155 5 298 303
Income tax benefit on
stock options exercised 516 516
Cash dividends
($.10 per share) (1,236) (1,236)
- ---------------------------------------------------------------------------------------
Balances, December 31, 1998 12,558 377 3,721 10 15,928 20,036
Components of comprehensive
income:
Net income for the year 10,194 10,194
Unrealized loss on
investments (net of
income tax benefit of
$51) (80) (80)
------
Total comprehensive income 10,114
------
Common stock issued 264 8 618 626
Income tax benefit on
Stock options exercised 1,066 1,066
Cash dividends
($.13 per share) (1,675) (1,675)
- ---------------------------------------------------------------------------------------
Balances, December 31, 1999 12,822 385 5,405 (70) 24,447 30,167
Components of comprehensive
income:
Net income for the year 3,331 3,331
Unrealized gain on
investments (net of
income taxes of $45) 72 72
Unrealized gain on
foreign currency
translation (net of
income taxes of $0) 18 18
-----
Total comprehensive income 3,421
-----
Common stock issued 82 2 204 206
Income tax benefit on
stock options exercised 189 189
Common stock repurchased (1,131) (34) (501) (6,071) (6,606)
Cash dividends
($.16 per share) (2,015) (2,015)
- ---------------------------------------------------------------------------------------
Balances, December 31, 2000 11,773 $353 $5,297 $20 $19,692 $25,362
=======================================================================================
See notes to consolidated financial statements.
F-4
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED 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 Timberline 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
accounting principles generally accepted in the United States of America
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.
CONSOLIDATED FINANCIAL STATEMENTS: The accompanying financial statements
include the accounts of the Company as well as its wholly-owned subsidiary,
which was opened in Australia during March 2000. The functional currency of
the subsidiary is Australian dollars. Gains and losses resulting from foreign
currency translation are recorded as other comprehensive income and
accumulated as a separate component of shareholders' equity. All significant
intercompany balances and transactions are eliminated in consolidation.
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 plans, training classes, consulting and other client
services. Revenue from maintenance and technical support plans 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 $5,183
in 2000, $2,015 in 1999 and $173 in 1998. Amortization of capitalized computer
software development costs was $1,071 in 2000, $604 in 1999 and $503 in 1998.
Expenses incurred on research and development of computer software products
were $11,522 in 2000, $9,325 in 1999 and $7,822 in 1998.
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.
F-5
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
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: Property and equipment are recorded at cost.
Depreciation on 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.
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, 2000, 1999 and 1998 is
as follows:
2000 1999 1998
- -----------------------------------------------------------------------------
Weighted-average shares outstanding,
used in computing basic EPS 12,563 12,694 12,500
Effect of dilutive stock options 219 417 434
- -----------------------------------------------------------------------------
Weighted-average shares outstanding, and the effect
of dilutive stock options,
used in computing diluted EPS 12,782 13,111 12,934
=============================================================================
RECLASSIFICATIONS: Certain reclassifications have been made in the 1999 and
1998 financial statements to conform to the 2000 presentation.
F-6
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 2 Investments
Investments at December 31, 2000 and 1999 are composed of the following:
Amortized Fair
Cost Value
- ------------------------------------------------------------------------------
2000:
Debt securities issued by the U.S. Treasury
and other U.S. government agencies $ 7,744 $ 7,749
Debt securities issued by states of the United
States and political subdivisions of the states 498 496
- ------------------------------------------------------------------------------
Total investments $ 8,242 $ 8,245
==============================================================================
2000 net unrealized gain on investments $ 3
==============================================================================
1999:
Debt securities issued by the U.S. Treasury
and other U.S. government agencies $ 12,356 $ 12,248
Debt securities issued by states of the United
States and political subdivisions of the states 496 490
- ------------------------------------------------------------------------------
Total investments $ 12,852 $ 12,738
==============================================================================
1999 net unrealized (loss) on investments $ (114)
==============================================================================
Note 3 Property and equipment
Property and equipment at December 31, 2000 and 1999 is composed of the
following:
2000 1999
- ------------------------------------------------------------------------------
Land $ 2,433 $ 2,433
Building 13,253 13,220
Tenant improvements 127 63
Furniture and fixtures 2,074 1,744
Machinery and equipment 12,089 10,289
Capital projects in progress 646
- ------------------------------------------------------------------------------
Total 30,622 27,749
Less accumulated depreciation and amortization 8,788 7,329
- ------------------------------------------------------------------------------
Property and equipment - net $ 21,834 $ 20,420
==============================================================================
F-7
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 4 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. All prior
common stock and per share data amounts have been retroactively adjusted to
reflect these changes.
As of December 31, 2000, the Company has five 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, 2000, 141 shares are reserved under
these plans, of which there are 141 options outstanding.
In 1993, 1998 and 2000, 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, 1998 and 2000 plans may not be granted
after the years 2003, 2008 and 2010, respectively. As of December 31, 2000,
2,936 shares are reserved under these plans, of which there are 1,929 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 Statement of Financial
Accounting Standards 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, 2000,
1999 and 1998:
2000 1999 1998
- ------------------------------------------------------------------------------
Net income, as reported $ 3,331 $ 10,194 $ 7,194
Net income, pro forma 1,533 9,202 6,743
Diluted earnings per share, as reported 0.26 0.78 0.56
Diluted earnings per share, pro forma 0.12 0.70 0.52
F-8
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED 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 2000, 1999 and 1998:
2000 1999 1998
- ------------------------------------------------------------------------------
Annual dividend yield 2.0% 1.0% 1.0%
Risk-free interest rate per annum 6.1% 5.2% 5.6%
Expected annual volatility 71.2% 79.2% 85.0%
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,
2000, 1999 and 1998, and changes during the years ending on those dates is
presented below:
2000 1999 1998
------------------ ------------------ -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------
Outstanding at
beginning of year ....... 1,228 $ 6.130 1,006 $ 3.504 1,115 $ 2.935
Granted (1)................ 1,121 7.664 513 9.435 86 9.404
Exercised ................. (82) 2.523 (264) 2.371 (155) 1.955
Forfeited ................. (197) 8.643 (27) 7.730 (40) 6.411
- ------------------------------------------------------------------------------------------
Outstanding at end of year 2,070 $ 6.864 1,228 $ 6.131 1,006 $ 3.504
==========================================================================================
Options exercisable
at year-end ............. 652 586 685
Weighted-average fair value
of options granted
during the year .......... $ 4.272 $ 6.594 $ 6.834
- ------------------------------------
(1) Commencing in 1999, the Company extended the granting of stock options to
substantially all employees.
F-9
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000:
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 - 4.94 471 4.5 $ 2.609 434 $ 2.497
5.00 - 9.98 1,522 8.8 7.912 198 8.133
10.05 - 15.38 77 8.4 12.133 20 11.983
- --------------------------------------------------------------------------------
$ 1.05 - 15.38 2,070 7.8 $ 6.864 652 $ 4.502
================================================================================
Note 5 Income taxes
The tax effects of significant items comprising the Company's net deferred tax
liability as of December 31, 2000 and 1999 are as follows:
2000 1999
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment $ 1,016 $ 928
Capitalized software costs 2,296 853
Maintenance costs 75 80
Other 104 14
- ------------------------------------------------------------------------------
Deferred tax liabilities 3,491 1,875
- ------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts 54 56
Employee expenses not currently deductible 51 51
Accrued rent expense 114 12
Other 84 65
- ------------------------------------------------------------------------------
Deferred tax assets 303 184
- ------------------------------------------------------------------------------
Net deferred tax liability $ 3,188 $ 1,691
==============================================================================
The net deferred tax liability is classified in the balance sheet as follows:
2000 1999
- ------------------------------------------------------------------------------
Deferred income taxes $ 3,199 $ 1,725
Deferred tax assets included in other
current assets (11) (34)
- ------------------------------------------------------------------------------
Net deferred tax liability $ 3,188 $ 1,691
==============================================================================
F-10
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
The provision for income taxes is composed of the following:
2000 1999 1998
- ------------------------------------------------------------------------------
Current:
Federal $ 121 $ 4,302 $ 3,300
State 56 893 674
Foreign 17
Deferred:
Federal 1,190 575 111
State 262 137 27
- ------------------------------------------------------------------------------
Total $ 1,646 $ 5,907 $ 4,112
==============================================================================
A reconciliation of the difference between the provision for income taxes and
the income taxes computed at the federal statutory rate is summarized below:
2000 1999 1998
- ------------------------------------------------------------------------------
Income taxes based on federal statutory rate $ 1,692 $ 5,568 $ 3,857
State tax, net of federal tax benefit 211 691 469
Research and development credits (417) (324) (283)
Non-deductible expenses for tax purposes 133 96 93
Other 27 (124) (24)
- ------------------------------------------------------------------------------
Provision for income taxes $ 1,646 $ 5,907 $ 4,112
==============================================================================
Note 6 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 plans, 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. 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, 2000, 1999 and 1998:
F-11
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
2000 1999 1998
- -----------------------------------------------------------------------------
Net revenue:
Software products $22,950 $29,291 $24,786
Services 27,064 24,176 18,197
Other 1,162 1,647 1,310
- -----------------------------------------------------------------------------
Net revenue $51,176 $55,114 $44,293
=============================================================================
Operating contribution:
Software products $11,522 $19,968 $16,971
Services 11,415 10,112 6,892
Other revenue, net of cost 928 1,437 1,109
Product development expenses (13,254) (10,624) (8,863)
General and administrative expenses (6,640) (5,541) (5,334)
- -----------------------------------------------------------------------------
Operating income $ 3,971 $15,352 $10,775
=============================================================================
The Company operates primarily in the United States. In terms of net revenue,
more than 94 percent of its net revenue in 2000, 1999 and 1998 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 7 Commitments
The Company leases some equipment and office facilities under noncancelable
operating leases. Its major lease commitment relates to a lease entered into
in 2000 and expiring in 2011 for additional office space for expansion of its
corporate offices. Additionally, the Company had entered into a lease in 1996
for expansion of its previous corporate offices which expires in 2003. 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
$537, $188 and $825 in 2000, 1999 and 1998, respectively. Future minimum
rental payments under these leases as of December 31, 2000, are as follows:
Year ending December 31,
------------------------
2001 $ 815
2002 828
2003 677
2004 612
2005 601
Thereafter 2,962
------------------------
Total $ 6,495
========================
Future minimum rental payments shown above have not been reduced by future
minimum sublease rental income of $456 from a noncancelable sublease.
F-12
TIMBERLINE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts and percentages)
Note 8 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
$689 in 2000, $598 in 1999 and $479 in 1998.
Note 9 Quarterly financial information (unaudited)
Basic Diluted
Net Cost and Net Earnings Earnings
Revenue Expenses Income per Share per Share
- -------------------------------------------------------------------------------
2000
1st quarter $12,340 $11,113 $ 948 $ 0.07 $ 0.07
2nd quarter 12,141 11,516 589 0.05 0.05
3rd quarter 13,023 12,039 782 0.06 0.06
4th quarter 13,672 12,537 1,012 0.08 0.08
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
F-13
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Timberline Software Corporation
Beaverton, Oregon
We have audited the accompanying consolidated balance sheets of Timberline
Software Corporation and subsidiary as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements present fairly, in all
material respects, the financial position of Timberline Software Corporation
and subsidiary as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
January 26, 2001
F-14
TIMBERLINE SOFTWARE CORPORATION
FORM 10-K FOR YEAR ENDED DECEMBER 31, 2000
EXHIBIT INDEX*
Consents
23 Independent Auditors' Consent
* 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, 33-69820, 333-77135, and 333-39424 on Form S-8 of our report dated
January 26, 2001 appearing in this Annual Report on Form 10-K of Timberline
Software Corporation for the year ended December 31, 2000.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
March 26, 2001