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)

15195 N.W. Greenbrier Parkway, Beaverton, Oregon 97006-5701
(Address of principal executive offices) (Zip code)

(503) 690-6775
(Registrant's telephone number, including area code)

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]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes [ ] No[x]

As of March 19, 2003, 11,797,046 shares of common stock of the registrant were outstanding.

As of June 30, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant was $61,365,289.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant's Proxy Statement dated March 21, 2003, prepared in connection with the Annual Meeting of Shareholders to be held on April 29, 2003 are incorporated by reference into Part III of this Report.

In this Form 10-K and in the Management's Discussion and Analysis included in Item 7, we have made certain forward-looking statements. The words or phrases "anticipates," "believes," "expects," "intends," "will continue," "estimates," "plans," "projects," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

Our 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 our products in the marketplace, failures by our outside vendors to perform as promised, changes in the software operating systems for which our products are written, increased competition, and changes in general market conditions. These factors are discussed in further detail under "Risks and Uncertainties" in our Management's Discussion and Analysis. 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. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

We develop, market, and support financial and operations software for the construction and real estate industries. The software is designed to work on stand-alone personal computers or in a network of personal computers or computer workstations. We also provide a range of support services for our clients, including annual maintenance and support service plans, on-site consulting, classroom training, and annual user conferences.

We operate predominantly within the United States of America, but also license our products in other countries, including Australia and Canada. As of December 31, 2002, we believe that approximately 20,000 clients are using our software products. Of these, nearly 12,000 subscribe to one of our maintenance and support service plans.

Our operations are divided into two main 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, 2002.

1

Software license revenue is a major source of our net revenue. In 2002, 2001, and 2000, software license revenue accounted for 36%, 41% and 43% of net revenue for those years, respectively.

Our current software products are designed to operate in Microsoft® Windows® 2000 Professional and Windows XP Professional operating environments for stand-alone personal computers. Timberline's Windows-based software products are also compatible with other Open Database Connectivity (ODBC)-compliant applications. ODBC is a data exchange methodology developed by Microsoft Corporation. Accepted as an industry standard, ODBC 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 that operated in the MS-DOS® 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 version of our software. We believe this change enabled many of our users, especially those with many concurrent users on the software, to significantly increase their software performance and provide greater integrity of their database.

Timberline has been noted primarily as a provider of Accounting software (composed of construction, property management and service management software) and Estimating software. However, to better respond to the changing needs of our clients who have been asking for an integrated software solution, over the past several years, we have been developing new software and enhancing our current software product offerings to gradually transition from a company that produced separately branded software functions to one that provides a suite of construction and real estate products that spans the entire facility lifecycle. To signify the importance of its direction, Timberline now groups its products and services under the name Timberline® Office.

The facility lifecycle is the evolution of a facility from the time the idea is born to the final disposition of the facility. It begins with the feasibility and design stages and then moves into the engineering, planning and building phases. Once constructed, the facility moves into the phases involving occupation, operations and maintenance. Until recently, our focus has been on providing estimating, accounting and property management products for every phase of the facility lifecycle, other than the feasibility and design phases. With new software products and software product enhancements, we are now moving into those areas and pushing further into the operating phase of the facility lifecycle.

With our transition, some key innovations are taking place. Traditionally, we have focused on individual needs, and the individual's specific function-functions like accounting, estimating, and property management. These strengths remain. Building on our strengths, we have added two key elements.

First, we are enhancing the individual user's ability to connect with other functions. Through fully integrated applications, we are providing a greater ability to share and use common information across functions and departments, both within businesses and with business partners.

Secondly, we have recognized that, while software applications may apply to several industries, each industry nonetheless has specific needs and circumstances. We now acknowledge this uniqueness with our focus on specific industry segments. These segments include commercial and industrial contractors, specialty contractors, electrical and mechanical contractors, residential contractors, real estate managers, real estate developers, owners, and government.

2

Our applications fall under the umbrella of Timberline® Office, a collection of fully integrated software. From this software collection, we recommend applications that are most appropriate in meeting the specific needs of each industry segment. In addition, our software collection is divided among product suites that include accounting, estimating, procurement, production management, project management, property management, reporting and other tools, and service management. In turn, each product suite has a corresponding set of applications. Each of these product suites is explained below.

Our Accounting suite was Timberline's first product suite developed for the Windows environment with a Graphical User Interface (GUI). It was released in October 1992. We designed this line of software 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 using the advanced capabilities of the Windows operating environment.

We designed our accounting suite around a core set of applications, such as Accounts Payable, Cash Management, General Ledger, Financial Statement Designer, Payroll, and Job Cost. These applications are fully integrated, allowing for data entered into one application to be accessed and entered electronically into another application.

Since the initial release of our Windows-based Accounting products, we have released additional applications to help meet the industry-specific needs of businesses in construction and real estate. These applications include Equipment Cost software in 1995, which is critical to equipment-intensive construction companies, Accounts Receivable and Contracts application in December 1997, and a Billing software application in May 1998.

Our Estimating product suite enables estimators to compile bids on construction projects based on certain parameters such as architectural design, building materials required, and material and labor costs. In 1987, we introduced our collection of integrated estimating software applications, then named Precision Estimating. The collection is currently designed around two core estimating products--Estimating Standard, and Estimating Extended. Estimating Standard, released in 1996, replaced the Company's older entry- and mid-level DOS-based estimating products. Designed specifically for Microsoft Windows, this estimating software allows 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. 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, we released a completely re- designed, Windows-based version of Estimating Extended to replace the older DOS version.

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 and Project Management applications. Through interfaces we have developed, the core estimating products can be linked to scheduling software developed by Microsoft and Primavera Systems, Inc.

In June 2000, we released Palm Estimating, our first application for hand-held personal digital assistants, or "PDAs." This application enables 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 that allows 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.

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.

In May 2002, we released our Construction Knowledgebase. As the first product of its kind, the Construction Knowledgebase contains pre-built construction models, a comprehensive list of Smart Assemblies™, and incorporates RSMeans Cost Data content and pricing for more than 700 cities and 20,000 items.

In August 2000, we released our Service Management product suite. These applications, bundled with our current construction accounting applications, allow us to meet the service dispatching needs of specialty contractors, primarily electrical and mechanical contractors. The specialty contractor area is a significant segment of the construction industry, for which, until the release of the above applications, we were unable to provide a complete accounting solution.

Additionally, in August 2002, we released our Project Management product suite. With the release of our Project Management software application, we are addressing a growing need that our users are requesting - integration of software applications. With Project Management, our clients can now access cost and project information in real time through a central database. This central database eliminates the need for redundant data entry and simplifies the flow of information between Project Management, Accounting, and Estimating.

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 had little or no integration with each other. There are many vendors who provide software for the construction and real estate industries. However, many vendors supply only accounting software, estimating software, property management or project management software; none provide all four. This results in customers having to manually re-enter accounting and estimating data into their project management software, or rely on a data import tool.

Our Property Management software suite is an accounting and management information system used by managers of residential and commercial properties. In March 1997, we released our main application, Property Management, a lease-based accounting software suite of products that we designed to work on the Microsoft Windows platform. Unlike traditional, tenant-based or unit-based software programs, we designed our software to focus on the lease document, which allows the software to adapt to many various types of lease arrangements. The software helps provide 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 tenants and lease information about the properties.

Since the initial release of our Property Management product suite, we have added additional products to improve its functionality. In September 2001, we released Valuation and Forecasting for property asset managers, real estate firms and facility owners. This software allows companies to model multiple scenarios for their owned or leased-based properties, including valuation, forecasting, lease analysis, investment analysis, and budgeting. Through our integration, clients can exchange their data with our Property Management, General Ledger, and Estimating applications, and with many other Windows-based property management, accounting, or other spreadsheet applications. In July 2002, we released Residential Management, an application specific to the needs of on-site managers, and managers in the home office.

Our Reporting and Other Tools product suite includes Address Book, which we released in August 2002. Address Book pulls together in one location all company-wide contact information for suppliers, subcontractors, and all other business contacts. Other applications in this product suite include applications that retrieve and organize data, such as Inquiry Designer and Report Designer.

Our goal with Timberline Office is to provide our clients with a fully integrated suite of applications that are backed by world class support. As noted before, our strong Accounting and Estimating applications form the foundation on which we are building our industry-based suite of products. As a further 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 product suites, 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 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

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.

Clients 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 asked questions.

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 client 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's software products, industry knowledge, accounting and estimating expertise, communications 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's 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 2002, 2001, and 2000, service fees comprised 62%, 56%, and 54% respectively, of total net revenue. Revenue from our maintenance and support service plans accounted for approximately 86% of our service fee revenue in 2002, 2001 and 2000. We are very committed to maintaining a high level of quality related to our support services. At the end of 2002, 36% 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. We achieved re-certification in 2002.

Traditionally, we have focused our sales and marketing efforts primarily toward residential contractors, general contractors, and property managers and developers. However, the introduction of new products in the past three years has enabled us to expand into more phases within the facility lifecycle. Currently, we now produce financial and operations software for commercial and industrial contractors, residential builders, specialty contractors, electrical and mechanical contractors, real estate managers, real estate developers, corporate owners, and government. This industry coverage will allow us to effectively sell our products and services to a broader range of companies and organizations than we were able to in prior years.

With new products released during the past three years, we can serve the needs of companies who own or manage facilities. The release of Model Estimating and Forecasting software has allowed us to target those companies by helping them with their capital budgeting, forecasting and valuation needs, which is part of the feasibility and design phase of the lifecycle. Our work on developing project management products should also strengthen our presence in the lifecycle's planning and building stages. With the release of our Service Management, Purchasing and Inventory applications, we significantly expanded our target market by including the specialty contractor segment of the construction industry. This allowed us to have better coverage in the building phase of the lifecycle, but also enabled us to provide better solutions in the phases involved with occupation, operations and maintenance.

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 6 % of our total net revenue in 2002, 2001 and 2000.

Product distribution is primarily handled by value added resellers, who 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, 2002 and 2001 were not significant. We typically ship our software products within three days of receipt of the order.

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.

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, shou ld a decision be made by larger, better-known software developers to enter this segment of the market, some such competitors are considerably larger, more diversified, and have greater financial and other resources and enjoy greater brand recognition for their products than we have.

We believe our emphasis on producing high quality software products that are flexible and user-friendly enables us to compete effectively. In addition, as noted above, our technical support group has received SCP certification, which symbolizes excellence in providing service to customers. We believe this also enhances the marketability of our products.

We regard our software as proprietary and attempt to protect it by relying primarily 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 to 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. We also use a combination of software programming and hardware devices 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. Although our competitive position may be adversely affected by unauthorized use of our proprietary information, we believe th at 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.

7

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.

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 2002, 39 % of our employees were directly associated with product development. Product development expenses (in thousands) were $16,450, $16,332 and $13,254 in 2002, 2001 and 2000, respectively. Of that total, $14,784, $14,290 and $11,522 were incurred in 2002, 2001 and 2000, respectively, on research and development on new software products. An additional $2,143, $4,990 and $4,583, respectively, of product development expenses on new software products were capitalized in those same years.

At December 31, 2002, we had 498 employees, of which 472 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. Accordingly, 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 2002, 2001 and 2000, we granted stock options to substantially all of our employees. We believe our relationship with our employees is good. In 2002, we were rated by the Oregon Business magazine as one of the best companies to work for in Oregon.

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 subleased about one-half of the space for approximately two years.

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.

8

From time to time, we are subject to routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business. We currently believe that the ultimate amount of liability, if any, for any pending claims will not materially affect our financial position, results of operations or cash flow. However, the ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact. Regardless of the outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors.

None.

9

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 10, 2003, we had 300 shareholders of record. Based upon the requests for proxy material for our 2003 annual meeting of shareholders, we believe there were approximately 4,100 beneficial shareholders as of that date. Cash dividends paid in 2002 and 2001 amounted (in thousands) to $1,876 and $1,867, respectively.

(Amounts in thousands, except per share amounts and ratio)

10

The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto.

We develop, manufacture, and license financial and operations software primarily for the construction and real estate industries. We also provide related services to our users, including annual maintenance and support service plans, on-site consulting services, and training. Approximately twenty thousand companies use one or more of our software products.

(Amounts in thousands, except per share amounts and percentages)

Our results of operations for the years ended December 31, 2002, 2001, and 2000, and the changes on a year-over-year comparison are set forth below: