U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number 0-16376

TIMBERLINE SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)

(503) 690-6775
(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, 2002, 11,694,517 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 $73,027,818.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant's Proxy Statement dated March 22, 2002, prepared in connection with the Annual Meeting of Shareholders to be held on April 30, 2002 are incorporated by reference into Part III of this Report.

PART I

Item 1. Business

General

Timberline Software Corporation was incorporated in Oregon in 1979. Originally incorporated under the name Timberline Systems, Inc., we changed our name in 1986. Our corporate headquarters are located in Beaverton, Oregon and we maintain a home page on the Internet at www.timberline.com.

We develop, market, and support accounting, cost estimating and service management computer software applications primarily for the construction and real estate industries. The software is designed to work on stand-alone personal computers ("pc's") or in a network of pc's. We also provide a range of support services for users of our software, including annual maintenance and support service plans, on-site consulting and classroom training.

We operate predominantly within the United States of America, but also license our products in other foreign countries, including Australia and Canada. As of December 31, 2001, we believe that approximately 25,000 entities are currently using our software products, of which more than 14,000 are currently subscribing to one of our maintenance and support service plans.

Our operations are divided into two main operating segments: software products and software services. For additional information about these operating segments, see Note 6 to our consolidated financial statements for the year ended December 31, 2001.

Software Products

Software license revenue is a major source of the Company's net revenue. In 2001, 2000 and 1999, software license revenue accounted for 43 %, 45 % and 53 % of net revenue for those years, respectively.

Our current software products operate in Microsoft(R) Windows(R)95, Windows 98, Windows 2000, and Windows 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.

Prior to the introduction of our Windows-based software applications, our product offerings included software products that operated in the MS-DOS(R) operating environment. In 1998, we announced that we would discontinue maintenance of the DOS-based products after 2001. We discontinued maintenance of these software applications in February 2002.

In 2000, we embedded an SQL database engine into our Windows-based software applications. This replaced the proprietary database that we had used in earlier versions of our software. With this change, we believe that many of our users, especially those with many concurrent users on the software, will see a significant increase in the performance of the software. All users should see greater integrity of their database.

We have two main software product lines: Accounting (composed of construction, property management and service management software) and Estimating.

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Accounting Software

Our Accounting software is designed for use in the construction and real estate industries. This group's software license revenue accounted for over 69 % of our software license revenue in 2001 and 2000, and 72 % of our software license revenue in 1999.

Timberline's construction accounting software products are composed of two different levels of software.

Our Gold Collection - Extended Edition was released in October 1992. 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. We believe we were the first major software company to develop software for construction companies utilizing the advanced capabilities of the Windows operating environment.

In June 1996, we released Gold Standard, an integrated accounting management system for the small to medium-sized construction companies. The software was developed to give our clients who have been using our MS-DOS Accounting applications an upgrade path to take advantage of the Windows technology, 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.

Both editions of our Accounting 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, we believe we are able to meet the accounting and management information needs of the heavy/highway segment of the construction industry.

We released an Accounts Receivable and Contracts software product in December 1997 and a Billing software product in May 1998 for the Gold Extended and Standard product lines. These are applications that our users had requested that we develop since Gold Extended was initially released. We believe these applications attracted new users to Timberline because we were more able to provide a more complete accounting and management information solution.

At the end of 1999, we released Purchase Order and Inventory software applications and in August 2000, released Service Management applications. These applications, bundled with our current construction accounting applications, allow us to meet the needs of the specialty contractors, such as the plumbing, painting, electrical, roofing, siding, heating and air conditioning companies. The specialty contractor area is a significant segment of the construction industry for which, until the release of the above applications, we were not able to provide a complete accounting solution.

Our 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, we released our Gold Collection for Property Management, a lease-based accounting software suite of products that was designed to work on the Microsoft Windows and NT platforms. Unlike traditional, tenant-based or unit-based software programs, our 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, our 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 p latforms. The Company no longer offers this line of software to new users since the release of the Gold Collection for Property Management.

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In September 2001, we released Investment Management for property asset managers, real estate firms and facility owners. This application allows companies to model multiple scenarios for their owned or leased-based properties, including valuation, forecasting, lease analysis, investment analysis, and budgeting. Data can be exchanged with our Property Management, General Ledger and Estimating applications, and with many other Windows-based property management, accounting or spreadsheet applications.

Estimating Software

Our Estimating software applications allow estimators to compile bids 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 and NT platforms, this estimating software is designed to allow an estimator to make fast, accurate estimates on software that we believe 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, fr om the first conceptual estimate to the final bill of materials. In September 1997, we 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 our estimating software products, we also license databases and other software we have 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 our Job Cost accounting application. Through interfaces we have developed, the core estimating product can be linked to Autodesk's AutoCAD(R) applications and to scheduling software developed by Microsoft and Primavera Systems, Inc.

In June 2000, we released Precision Palm Estimating, our 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.

In January 2001, we released a conceptual database product allowing quick estimates on new projects using parametric input. In June 2001, we released Model Estimating, which uses detailed databases and simple interview-like questions to create detailed conceptual estimates and various what-if scenarios for facility and financial planning purposes. Combined with our Investment Management application, which was discussed earlier, companies can develop capital budgeting information through Model Estimating and import that information directly into Investment Management to forecast cash flows, to analyze lease performance and to perform other financial analyses.

In February 2002, we released our CAD Integrator product. This is the first construction estimating software to incorporate the Industry Foundation Classes ("IFC") standard. This standard enables data exchange with any IFC-compliant software application. The CAD Integrator electronically reads the IFC data into our Estimating Extended application and creates a cost estimate very quickly. No manual entry of quantity values or use of a digitizer is required. In November 2001, the Toronto (Canada) Construction Association presented its 2001 Innovative Product/Technology Award to us for the development of CAD Integrator.

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Future Software Development

In the summer of 2002, we plan to offer Project Management software that will be fully integrated with our Accounting and Estimating software applications. With the release of that software, we are addressing a growing need that our users are requesting - integration of software applications. Data from accounting and estimating applications are required to enable project managers to effectively perform their project management function. However, in many cases, there was not an efficient way of reporting that information to project managers because the accounting, estimating and project management software were not integrated with each other. There are many vendors that provide software for the construction and real estate industries. However, many vendors supply only accounting software, estimating software or project management software, but very few provide all three. This results in companies having to manually re-enter accounting and estimating data into their project management software or relying on a data import tool. With the release of our project management software, we will provide tight integration of our Accounting, Estimating and Project Management software to streamline the project management process.

Our goal is to provide our users a fully integrated suite of applications, which we call Timberline Office. Our strong Accounting and Estimating applications form the foundation on which to build this suite of products. In 2000 and 2001, we added a layer of management applications, such as Service Management, Model Estimating and Investment Management. In 2002, we will add Project Management software to further manage projects and document control. In the final step, we plan to add e-commerce capabilities to our suite of products to provide a fully integrated, collaborative e-commerce solution for companies and organizations in the construction and real estate industries.

We believe the addition of the e-commerce capability to our applications can improve workplace efficiencies. 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. We believe increased productivity and efficiencies can be gained by processing these transactions electronically. We are currently developing new functionality to our current suite of accounting and estimating products, which will enable users of our software to conduct business-to-business e-commerce through Internet portals or directly from desktop to desktop. Our 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 other new technology, our users will be abl e 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.

Support Services

We also generate a significant portion of our net revenue from service fees. Service fees consist primarily of maintenance and support fees, on-site consulting fees, classroom training fees and sales of training materials.

Users of our software may purchase annual maintenance and support service plans from us. These service plans allow our users to obtain program changes and enhancements to the software as they are released and to obtain telephone access to our technical support department for answering application-related questions. Commencing in 1998, users who are on our maintenance and support service plans also have Internet access to our online support help available through the web site. Through this service, users have a 24-hour-a-day communication and information tool for self-help services, such as downloading latest versions of software, updates and software patches, and access to a knowledge base to obtain answers to most commonly answered questions.

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We also offer consulting services to users who need or request more specialized assistance in the set-up and implementation of our software. In these situations, our 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 our independent reseller channel. In certain circumstances, we 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 us of their knowledge of Timberline software products, industry knowledge, accounting and estimating expertise, communication skills and other relevant factors.

In addition, we also generate fees from training classes to teach users how to efficiently set up and use our software products. The classes are generally held throughout the year at our corporate headquarters or near our offices in the New York and Los Angeles metropolitan areas. Commencing in the latter part of 1998, we curtailed the number of training classes we offered as our 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, we developed a curriculum of training materials to be used at all Timberline software classes. We generate revenue from the sale of these training materials to our reseller channel.

Service fees are a significant percentage of our total net revenue. In 2001, 2000, and 1999, service fees comprised 56 %, 53 % and 44 %, respectively, of total net revenue. Revenue from our maintenance and support service plans accounted for 86 % of our service fee revenue in 2001 and 2000, and 78 % of our service fee revenue in 1999. We are very committed to maintain a high level of quality related to our support services. At the end of 2001, 35 % of our employees were directly associated with providing client services. In May 2001, our technical support group received Support Center Practices ("SCP") Certification for excellence in providing technical support services to our customers. We believe we are the first estimating and accounting software company to achieve SCP certification.

Markets

Traditionally, we have focused our sales and marketing efforts primarily toward residential contractors, general contractors, and property managers and developers. However, the introduction of our new products in 2000 and 2001 and our future software development will enable us to expand into more phases within the facility lifecycle. This will allow us to effectively sell our products and services to companies and organizations with whom we were not able to sell in prior years.

Sales/Distribution

We license our software products and provide related software services primarily in the United States of America. We also license our software products and provide related services in Canada, Australia, and other foreign countries. Revenue from foreign countries comprised less than six % of our total net revenue in 2001, 2000 and 1999.

Product distribution is primarily handled by value added resellers, which we refer to as solution providers. We also maintain a direct sales force to complement our solution providers and to handle sales to national accounts, other large companies and to our user base.

We also maintain a telemarketing staff for selling maintenance and support service plans and classroom training to our user base. On-site consulting fees are generated from requests for services from users we sell to directly and from our solution providers.

Unfilled orders for software products at December 31, 2001 and 2000 were not significant. We typically ship our software products within three days of receipt of the order.

Production

The principal materials and components used in our software products are computer media and some user documentation. For each product, we prepare masters of the software on CD-ROM's. Substantially all copies of the software are made by outside vendors. We rely 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 and computer software industry. The number of software vendors with which we compete varies from product to product and from region to region within the United States. We believe we are the major supplier of construction accounting and estimating software in the construction industry and one of the leading suppliers of accounting and management information software in the real estate industry. We believe there are barriers to entry into our segment of the software market. First, the sophisticated software applications we develop require a wide range of programming specialization and industry knowledge. In addition, the nature of the software requires a company of a certain size that is able to support the software, including distribution and training capabilities in a number of geographical regions as well as on-going support, maintenance and upgrade of the software. However, should a decision be made by 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 us.

We believe our emphasis on producing high quality software products that are flexible and user-friendly enables us to compete effectively. In addition, we believe we provide a very responsive customer support service to our users, which enhances the marketability of our products.

Product Protection

We regard our software as proprietary and attempt to protect it by relying upon copyrights, trade secret laws, internal nondisclosure agreements and transferability restrictions incorporated into our software license agreements. We provide our software products to users under a perpetual paid-up license agreement. Title of the software applications does not transfer to the user. Program source listings are not released, which we believe further protects unauthorized transfers of our proprietary information, as well as the confidentiality of our trade secrets. A combination of software programming and hardware devices are also used by us to protect some of our products from unauthorized use or duplication. Despite these restrictions, it may be possible for our competitors or users to copy aspects of our software products or to obtain information which we regard as proprietary. We do not have any software patents. Although our competitive position may be adversely affected by unauthorized use of our proprie tary information, we believe that the rapid pace of technological change in the computer and computer software industries makes intellectual property protection of less significance than such factors as the knowledge and experience of our management personnel and our ability to develop, enhance, support and market our products.

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Third parties may assert infringement or other claims against us with respect to any of our existing or future software products. Litigation to protect our proprietary information or to determine the validity of any third-party claims could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is determined in our favor.

Research and Development

We are continually in the process of developing new software applications and enhancements to our existing software products in order to meet the changing needs of our users and the marketplace. At the end of 2001, 40 % of our employees were directly associated with product development. Product development expenses (in thousands) were $16,332, $13,254and $10,624 in 2001, 2000 and 1999, respectively. Of that total, $14,290, $11,522 and $9,325 were incurred in 2001, 2000 and 1999, respectively, on research and development on new software products. An additional $4,990, $5,183 and $1,071, respectively, of product development expenses on new software products were capitalized in those same years.

Employees

At December 31, 2001, we had 539 employees, of which 506 were full-time. None of the employees are represented by unions, or subject to collective bargaining. Our business is heavily dependent on retaining and attracting highly skilled employees. As such, we have an employee benefits program that includes group health, dental, vision, disability and life insurance plans, paid vacations and holidays, leave privileges, employee assistance program and educational reimbursement. We also maintain a 401(k) plan, and a profit sharing plan covering all employees. Additionally, we have stock option and stock incentive plans from which we may grant stock options and other stock incentives to our employees. In 2001, 2000 and 1999, we granted stock options to substantially all of our employees. We believe our relationship with our employees is good. In 2001 and 2002, we were rated by the Oregon Business magazine as one of the best companies to work for in Oregon.

Item 2. Properties

In October 1998, we moved into our new corporate headquarters located in Beaverton, Oregon. Most of our employees and operations are located in this 89,000 square foot office and production facility, which we constructed on land purchased in 1997.

In July 2000, we entered into a lease for additional office space in close proximity to our corporate headquarters to locate part of our product development group. Under this lease, we are currently leasing about 48,000 square feet. This lease expires in 2011. Commencing in 2002, we are subleasing about one-half of the space for approximately two years. Prior to the construction of our new corporate headquarters, our main offices were in a leased 51,000 square foot office and production facility located close to its present location. The lease on that facility expired in October 1998. We also lease an additional 12,000 square feet of office space near our former location, which was initially used to locate part of our operations as we outgrew our former main office facility. The lease on that additional office space is currently being subleased for the balance of the lease term.

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We also lease small regional offices under short-term lease arrangements for some of our 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, we opened up our first regional office outside the United States in Sydney, Australia. We did this to provide better support to our sales channel in that country and to increase our presence in the Asia-Pacific region.

We believe that our corporate headquarters and all of our leased facilities are modern facilities in good condition and are adequate for our immediate needs. Should additional office space be required, we believe we have the ability to construct additional office space on our corporate properties where we currently maintain our corporate headquarters.

Item 3. Legal Proceedings

From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this Report, we are not a party to any legal proceedings, the adverse outcome of which would, in our opinion, have a material adverse effect on our financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Our 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.

As of March 11, 2002, we had 300 shareholders of record. Based upon the requests for proxy material for our 2002 annual meeting of shareholders, we believe there were approximately 5,500 beneficial shareholders as of that date. Cash dividends paid in 2001 and 2000 amounted (in thousands) to $1,867 $2,015, respectively.

Item 6. Selected Financial Data

(Amounts in thousands except per share amounts)