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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended November 30, 1999

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from  to .

Commission File No. 0-22703

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GREAT PLAINS SOFTWARE, INC.(Exact name of registrant as specified in its charter)

|MINNESOTA(State or other jurisdiction of
incorporation or organization) |  | 45-0374871(I.R.S. Employer
Identification Number)
|----------------------------------------------------------------------- |  | -------------------------------------------------

|1701 S.W. 38TH STREET, FARGO, NORTH DAKOTA(Address of principal executive offices) |  | 58103(Zip Code)
|---------------------------------------------------------------------------------- |  | ---------------

(701) 281-0550(Registrant's telephone number, including area code)

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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 / /

As
of January 6, 2000, the number of shares outstanding of the registrant's Common Stock par value $.01 per share, was 15,655,075

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## 

PART IFINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

GREAT PLAINS SOFTWARE, INC.
Consolidated Condensed Balance Sheet
(In thousands)

|                                            |  | November 30,
1999 |         | May 31,
1999 |  
|------------------------------------------- |  | ----------------- | ------- | ------------ | -
|
|Assets:                                     |  |                   |         |              |  
|Current assets:                             |  |                   |         |              |  
|Cash and cash equivalents                   |  | $                 | 17,749  |              | $
|Investments                                 |  |                   | 87,444  |              |  
|Accounts receivable, net                    |  |                   | 23,740  |              |  
|Deferred income tax assets                  |  |                   | 5,896   |              |  
|Other current assets                        |  |                   | 6,959   |              |  
|                                            |  |                   |         |              |  
|Total current assets                        |  |                   | 141,788 |              |  
|Property and equipment, net                 |  |                   | 32,746  |              |  
|Goodwill and other intangibles, net         |  |                   | 9,000   |              |  
|Deferred income tax assets                  |  |                   | 3,446   |              |  
|Other assets                                |  |                   | 15,416  |              |  
|                                            |  |                   |         |              |  
|Total assets                                |  | $                 | 202,396 |              | $
|                                            |  |                   |         |              |  
|Liabilities and stockholders' equity        |  |                   |         |              |  
|Current liabilities:                        |  |                   |         |              |  
|Accounts payable                            |  | $                 | 6,673   |              | $
|Accrued expenses                            |  |                   | 19,495  |              |  
|Deferred revenue                            |  |                   | 31,817  |              |  
|                                            |  |                   |         |              |  
|Total current liabilities                   |  |                   | 57,985  |              |  
|Long-term liabilities:                      |  |                   |         |              |  
|Deferred income tax liabilities             |  |                   | 64      |              |  
|                                            |  |                   |         |              |  
|Total liabilities                           |  |                   | 58,049  |              |  
|Stockholders' equity:                       |  |                   |         |              |  
|Common stock                                |  |                   | 156     |              |  
|Additional paid-in capital                  |  |                   | 121,679 |              |  
|Accumulated other comprehensive gain (loss) |  |                   | 130     |              |  
|Retained earnings                           |  |                   | 22,382  |              |  
|                                            |  |                   |         |              |  
|Total stockholders' equity                  |  |                   | 144,347 |              |  
|                                            |  |                   |         |              |  
|Total liabilities and stockholders' equity  |  | $                 | 202,396 |              | $
|                                            |  |                   |         |              |  

See
accompanying notes to the consolidated condensed financial statements.



GREAT PLAINS SOFTWARE, INC.
Consolidated Condensed Statement of Income
(In thousands, except share and per share amounts)

|                                                  |  | Three Months Ended
November 30, |            | Six Months Ended
November 30,
|------------------------------------------------- |  | ------------------------------- | ---------- | -----------------------------
|
|
|Revenues:                                         |  |                                 |            |                              
|License                                           |  | $                               | 27,020     |                              
|Service                                           |  |                                 | 20,346     |                              
|                                                  |  |                                 |            |                              
|Total revenues                                    |  |                                 | 47,366     |                              
|                                                  |  |                                 |            |                              
|Cost of revenues:                                 |  |                                 |            |                              
|License                                           |  |                                 | 6,570      |                              
|Service                                           |  |                                 | 7,407      |                              
|                                                  |  |                                 |            |                              
|Total cost of revenues                            |  |                                 | 13,977     |                              
|                                                  |  |                                 |            |                              
|Gross profit                                      |  |                                 | 33,389     |                              
|                                                  |  |                                 |            |                              
|Operating expenses:                               |  |                                 |            |                              
|Sales and marketing                               |  |                                 | 16,203     |                              
|Research and development                          |  |                                 | 7,249      |                              
|General and administrative                        |  |                                 | 3,788      |                              
|Amortization of acquired intangibles              |  |                                 | 358        |                              
|                                                  |  |                                 |            |                              
|Total operating expenses                          |  |                                 | 27,598     |                              
|                                                  |  |                                 |            |                              
|Operating income                                  |  |                                 | 5,791      |                              
|Other income, net                                 |  |                                 | 1,476      |                              
|                                                  |  |                                 |            |                              
|Income before income taxes                        |  |                                 | 7,267      |                              
|Income tax provision                              |  |                                 | 2,906      |                              
|                                                  |  |                                 |            |                              
|Net income                                        |  | $                               | 4,361      |                              
|                                                  |  |                                 |            |                              
|Income per common share:                          |  |                                 |            |                              
|Basic                                             |  | $                               | 0.28       |                              
|Diluted                                           |  | $                               | 0.27       |                              
|Shares used in computing income per common share: |  |                                 |            |                              
|Basic                                             |  |                                 | 15,562,499 |                              
|Diluted                                           |  |                                 | 16,255,130 |                              

See
accompanying notes to the consolidated condensed financial statements.



GREAT PLAINS SOFTWARE, INC.
Consolidated Condensed Statement of Cash Flows
(In thousands)

|                                                                                  |  | Six Months Ended November 30, |        
|--------------------------------------------------------------------------------- |  | ----------------------------- | -------
|
|
|Cash flows from operating activities:                                             |  |                               |        
|Funds generated by current operations:                                            |  |                               |        
|Net income                                                                        |  | $                             | 7,864  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                               |        
|Depreciation and amortization                                                     |  |                               | 3,633  
|Deferred income tax expense                                                       |  |                               | (754   
|Changes in operating assets and liabilities:                                      |  |                               |        
|Accounts receivable                                                               |  |                               | (11,147
|Other current assets                                                              |  |                               | (233   
|Accounts payable                                                                  |  |                               | (1,719 
|Accrued expenses                                                                  |  |                               | 4,821  
|Deferred revenue                                                                  |  |                               | 7,933  
|                                                                                  |  |                               |        
|Net cash provided by operating activities                                         |  |                               | 10,398 
|Cash flows from investing activities:                                             |  |                               |        
|Purchases of property and equipment                                               |  |                               | (15,822
|Net sale of investments                                                           |  |                               | 9,256  
|Purchase of business                                                              |  |                               | (5,873 
|Purchase of other assets                                                          |  |                               | (10,123
|                                                                                  |  |                               |        
|Net cash used by investing activities                                             |  |                               | (22,562
|Cash flows from financing activities:                                             |  |                               |        
|Exercise of stock options                                                         |  |                               | 2,638  
|                                                                                  |  |                               |        
|Net cash provided by financing activities                                         |  |                               | 2,638  
|Effect of accumulated other comprehensive income items                            |  |                               | 292    
|                                                                                  |  |                               |        
|Net increase (decrease) in cash and cash equivalents                              |  |                               | (9,234 
|Cash and cash equivalents at beginning of period                                  |  |                               | 26,983 
|                                                                                  |  |                               |        
|Cash and cash equivalents at end of period                                        |  | $                             | 17,749 
|                                                                                  |  |                               |        

See
accompanying notes to the consolidated condensed financial statements.



## 

GREAT PLAINS SOFTWARE, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

1. Basis of Presentation

The information at November 30, 1999 and 1998 and for the three and six month periods then ended is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) which the Company's management believes to be necessary for the fair presentation of the financial position, results of operations and changes in cash flows for
the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Despite management's best effort to
establish good faith estimates and assumptions, actual results may differ.

The
accompanying interim financial statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on
Form 10-K for the year ended May 31, 1999. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission. Interim results of operations for the three and six month
periods ended November 30, 1999 are not necessarily indicative of operating results for the full fiscal year.

2. Earnings per Share

Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share.

The
following table sets forth the computation of basic and diluted net income per share:

|                                            |  | For the Three Months
Ended November 30, |            | For the Six Months
Ended November 30,
|------------------------------------------- |  | --------------------------------------- | ---------- | -------------------------------------
|
|
|Basic earnings per share calculation        |  |                                         |            |                                      
|Net income available to common shareholders |  | $                                       | 4,361      |                                      
|Weighted average common shares              |  |                                         | 15,562,499 |                                      
|Basic net income per share                  |  | $                                       | 0.28       |                                      
|Diluted earnings per share calculation:     |  |                                         |            |                                      
|Net income                                  |  | $                                       | 4,361      |                                      
|Shares calculation                          |  |                                         |            |                                      
|Weighted average number of common shares    |  |                                         | 15,562,499 |                                      
|Effect of dilutive stock options            |  |                                         | 692,631    |                                      
|                                            |  |                                         |            |                                      
|                                            |  |                                         | 16,255,130 |                                      
|Diluted net income per share                |  | $                                       | 0.27       |                                      

3. Comprehensive Income

Comprehensive income for the Company includes net income, the effects of currency translation which are charged or credited to the cumulative translation
adjustments account within stockholders' equity, and the unrealized gain/loss on investments available for sale which is recorded within stockholders' equity. Comprehensive income for the three and
six months ended November 30, 1999 and 1998 are as follows:

|                                                                                     |  | For the Three Months
Ended November 30, |       | For the Six Months
Ended November 30,
|------------------------------------------------------------------------------------ |  | --------------------------------------- | ----- | -------------------------------------
|
|
|Net income                                                                           |  | $                                       | 4,361 |                                      
|Changes in cumulative translation adjustment And unrealized gain/loss on investments |  |                                         | 264   |                                      
|                                                                                     |  |                                         |       |                                      
|Comprehensive income                                                                 |  | $                                       | 4,625 |                                      
|                                                                                     |  |                                         |       |                                      

4. Business Combinations

In October 1999, the Company acquired Southern Plains, LLC through the payment of approximately $5.9 million of cash. This acquisition provides ownership of
the field service solution for which the Company was previously marketing under an OEM agreement. This transaction is accounted for as a purchase accounting transaction.

5. Subsequent Events

In January 2000, the Company acquired RealWorld Corporation, a developer of accounting and business solutions, through a merger agreement by the
issuance of approximately 184,000 shares of the Company's common stock and $5.5 million in cash. This merger will be accounted for as a purchase accounting transaction.

In
January 2000, the Company acquired FORESTAR Asset Management, LLC through the issuance of approximately 104,000 shares of the Company's common stock and $900,000 in cash.
This acquisition provides ownership of the fixed asset management solution for the Great Plains Platform products for which the Company was previously marketing under an OEM agreement. This
transaction will be accounted for as a purchase accounting transaction.

In
December 1999, the Company established a wholly owned subsidiary in Germany. Total consideration for the acquisition was approximately $5 million. This transaction
will be accounted for as a purchase accounting transaction.

GREAT PLAINS SOFTWARE, INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto.

Results of Operations

The following table sets forth for the periods indicated the percentage of total revenues represented by certain items reflected in the Company's consolidated
condensed statement of income.

|                                     |  | Three Months Ended
November 30, |   | Six Months Ended
November 30, |  
|------------------------------------ |  | ------------------------------- | - | ----------------------------- | -
|
|As a percentage of total revenues    |  |                                 |   |                               |  
|Revenues:                            |  |                                 |   |                               |  
|License                              |  | 57.0                            | % | 58.0                          | %
|Service                              |  | 43.0                            |   | 42.0                          |  
|                                     |  |                                 |   |                               |  
|Total revenues                       |  | 100.0                           |   | 100.0                         |  
|                                     |  |                                 |   |                               |  
|Cost of revenues:                    |  |                                 |   |                               |  
|License                              |  | 13.9                            |   | 14.7                          |  
|Service                              |  | 15.6                            |   | 13.0                          |  
|                                     |  |                                 |   |                               |  
|Total cost of revenues               |  | 29.5                            |   | 27.7                          |  
|                                     |  |                                 |   |                               |  
|Gross profit                         |  | 70.5                            |   | 72.3                          |  
|                                     |  |                                 |   |                               |  
|Operating expenses:                  |  |                                 |   |                               |  
|Sales and marketing                  |  | 34.2                            |   | 36.8                          |  
|Research and development             |  | 15.3                            |   | 14.6                          |  
|General and administrative           |  | 8.0                             |   | 7.3                           |  
|Amortization of acquired intangibles |  | 0.8                             |   | 0.8                           |  
|                                     |  |                                 |   |                               |  
|Total operating expenses             |  | 58.3                            |   | 59.5                          |  
|                                     |  |                                 |   |                               |  
|Operating income                     |  | 12.2                            |   | 12.8                          |  
|Other income, net                    |  | 3.1                             |   | 2.2                           |  
|                                     |  |                                 |   |                               |  
|Income before income taxes           |  | 15.3                            |   | 15.0                          |  
|Income tax provision                 |  | 6.1                             |   | 6.0                           |  
|                                     |  |                                 |   |                               |  
|Net income                           |  | 9.2                             | % | 9.0                           | %
|                                     |  |                                 |   |                               |  

REVENUES

Revenues.Revenues for the quarter ended November 30, 1999 were $47.4 million,
representing an increase of 48.9% over revenues of $31.8 million for the quarter ended November 30, 1998. Revenues for the six months ended November 30, 1999 were
$87.2 million, representing an increase of 48.0% over revenues of $58.9 million for the six months ended November 30, 1998. These increases in revenues were primarily due to
increased demand for the Company's eEnterprise and Dynamics products (together, the Great Plains platform products) and related service fees. The following tables set forth for the periods indicated
Great Plains platform and heritage product revenues, each as a percentage of total revenues:

|                                       |  | Three Months Ended
November 30, |   | Six Months Ended
November 30, |  
|-------------------------------------- |  | ------------------------------- | - | ----------------------------- | -
|
|Great Plains platform product revenues |  | 96.8                            | % | 93.4                          | %
|Heritage product revenues              |  | 3.2                             | % | 6.6                           | %

Great Plains platform product revenues, including license and service fees, were $45.8 million for the quarter ended November 30, 1999, representing an
increase of 54.3% over Great Plains platform product revenues of $29.7 million for the quarter ended November 30, 1998. For the six months ended November 30, 1999, Great Plains
platform product revenues were $84.1 million, an increase of 53.6% over the $54.8 million in Great Plains platform product revenues for the six months ended November 30, 1998.
These increases in revenues were primarily the result of increases in new customer licenses as well as increased revenues from maintenance and telephone support contracts due to an increased installed
base of Great Plains platform customers.

The
increase in Great Plains platform product revenues was offset, in part, by a decrease in revenues from Great Plains heritage products. Heritage product revenues decreased to
$1.5 million for the quarter ended November 30, 1999 from $2.1 million for the quarter ended November 30, 1998 representing a decrease of 26.8%. For the six months ended
November, 30, 1999, heritage product revenues decreased to $3.1 million from $4.1 million for the same period last fiscal year, a decrease of 25.5%. The decrease in heritage product
revenues was primarily due to a decrease in demand for DOS and Macintosh solutions, which reflect the broader market trend toward Windows and Windows NT solutions and due to a decline in the number of
customers purchasing Great Plains Accounting Version 9 heritage upgrade. Great Plains anticipates that heritage product revenues will continue to decrease in future periods.

The
Company's international revenues increased 45.8% to $7.9 million for the quarter ended November 30, 1999, when compared with international revenues of
$5.4 million for the quarter ended November 30, 1998. International revenues as a percentage of total revenues were 16.6% and 17.0% for the three months ended November 30, 1999
and 1998, respectively. International revenues for the six months ended November 30, 1999 were $14.3 million, representing an increase of 43.2% over international revenues of
$10.0 million for the six months ended November 30, 1998. For the six months ended November 30, 1999 and 1998 international revenues as a percentage of total revenues were 16.4%
and 16.9%, respectively. This increase in dollar amount was primarily a result of growth in the Company's subsidiary operations in Canada, the United Kingdom, Australia, Scandinavia, South Africa and
Singapore.

License.Total license fee revenues for the quarter ended November 30, 1999 were
$27.0 million, representing an increase of 46.5% over license revenues of $18.4 million for the quarter ended November 30, 1998. For the six months ended November 30, 1999,
license fee revenues were $50.5 million, representing an increase of 46.0% over the $34.5 million in license revenues for the six months ended November 30, 1998. This increase in
total license fees was largely attributable to increased market acceptance and demand for the Great Plains platform products. The increase in demand for the Great Plains platform products was also
driven by demand for the new solution areas of manufacturing, human resources, enterprise reporting, project accounting and e-commerce.

Service.Service revenues for the quarter ended November 30, 1999 were
$20.3 million, representing an increase of 52.2% over service revenues of $13.4 million for the quarter ended November 30, 1998. Service revenues for the six months ended
November 30, 1999 were $36.8 million, representing an increase of 50.8% over service revenues of $24.4 million for the six months ended November 30, 1998. The increase in
service revenues is due largely to the increased number of licenses for Great Plains platform products and renewals of existing maintenance and support contracts from the increased installed base of
Great Plains platform customers. Service revenues as a percentage of total revenues were 43.0% for the three months ended November 30, 1999 compared with 42.0% of total revenues for the three
months ended November 30, 1998. For the six months ended November 30, 1999 and 1998, service revenues as a percentage of total revenues were 42.1% and 41.4%, respectively.

COSTS AND EXPENSES

Cost of License Fees.Cost of license fees consists primarily of the costs of product manuals,
media, shipping and royalties paid to third-party vendors. Cost of license fees for the quarter ended November 30,



## 

1999
increased to $6.6 million from $4.7 million in the quarter ended November 30, 1998, representing 24.3% and 25.2% of total license fee revenues, respectively. Cost of license
fees for the six months ended November 30, 1999 increased to $12.5 million from $8.7 million in the six months ended November 30, 1998, representing 24.8% and 25.0% of
total license fee revenues, respectively. The dollar increases in the cost of licenses for the quarter and six months ended November 30, 1999 were primarily attributable to the overall growth
in license fee revenues. Cost of license fees as a percentage of license revenues for both the three month and six month periods ended November 30, 1999 decreased slightly in comparison to the
same periods last fiscal year primarily as a result of a lower mix of product sales for which Great Plains is obligated to make royalty payments to third parties.

Cost of Services.Cost of services consists of the costs of providing telephone support,
training and consulting services to customers and partners. Cost of services for the quarter ended November 30, 1999 increased to $7.4 million from $4.1 million for the quarter ended
November 30, 1998, representing 36.4% and 31.0% of total service revenues, respectively, Cost of services for the six months ended November 30, 1999 increased to $13.4 million from $7.7
million for the six months ended November 30, 1998, representing 36.5% and 31.7% of total service revenues, respectively. The increase in dollar amount is the result of additional service
personnel in support, training and consulting to support the new solutions areas of front office, e-business, project accounting, manufacturing, human resources and enterprise reporting as well as
additional costs associated with servicing the increased installed base of Great Plains platform customers. The increase as a percentage of service revenues is primarily the result of additional
service personnel in support, training and consulting to support the new solutions areas of front office, e-business, project accounting, manufacturing, human resources and enterprise reporting. We
anticipate that cost of services will increase in dollar amount as service revenues increase and may increase as a percentage of service revenue if additional resources are added to support additional
new solutions.

Sales and Marketing.Sales and Marketing expenses consist primarily of salaries, commissions,
travel and promotional expenses. Sales and marketing expenses increased to $16.2 million for the quarter ended November 30, 1999 compared with $11.7 million for the quarter ended
November 30, 1998, representing 34.2% and 36.8% of total revenues, respectively. Sales and marketing expenses for the six months ended November 30, 1999 increased to $29.6 million
from $21.2 million for the six months ended November 30, 1998, representing 33.9% and 36.0% of total revenues, respectively. The dollar increase in sales and marketing expenses for the
quarter and six month period ended November 30, 1999 is attributable to the hiring of additional sales and marketing personnel, continued investments in expanding the capacity and capability of
the channel for our Great Plains platform products and increased marketing expenses for our Great Plains platform products including a global advertising and brand awareness campaign. In addition,
Great Plains increased sales and marketing expenses related to the operation of our international subsidiaries in Canada, the United Kingdom, Scandinavia, South Africa, Singapore and Australia. The
decrease in sales and marketing expenses as a percentage of total revenues for the quarter and six month period ended November 30, 1999 compared to the same periods in the last fiscal year
reflects an increase in sales and marketing productivity and a corresponding increase in revenues derived from our Great Plains platform products. Great Plains anticipates that sales and marketing
expenses will increase in dollar amount as total revenues increase; however, Great Plains does not anticipate significant changes in sales and marketing expenses as a percentage of total revenues.

Research and Development.Research and development expenses consist primarily of compensation
of development personnel and depreciation of equipment. Total research and development expenses were $7.2 million for the quarter ended November 30, 1999 compared with
$4.7 million for the quarter ended November 30, 1998, representing 15.3% and 14.6% of total revenues, respectively. For the six months
ended November 30, 1999, total research and development expenses were $13.4 million, compared with $8.9 million for the six months ended November 30, 1998, representing
15.4% and 15.1% of total revenues, respectively. Research and development expenditure increases and increases in such expenditures as a percentage of total revenues were primarily attributable to
additional resources added to further develop

the new solution areas of front office, e-business, project accounting, manufacturing, human resources and enterprise reporting including resources added as a result of the fourth quarter
1999 acquisition of Match Data Systems, which included an established development center in Manila, Philippines. We anticipate that we will continue to devote substantial resources to our research and
development effort and that research and development expenses will increase in dollar amount in future periods and may increase as a percentage of total revenues.

General and Administrative.General and administrative expenses consist primarily of salaries
of executive, financial, human resources and information services personnel as well as outside professional fees. General and administrative expenses for the quarter ended November 30, 1999
were $3.8 million, compared with $2.3 million for the quarter ended November 30, 1998 representing 8.0% and 7.3% of total revenues, respectively. For the six months ended
November 30, 1999, general and administrative expenses were $7.4 million, compared with $4.9 million for the six months ended November 30, 1998, representing 8.5% and 8.2%
of total revenues, respectively. These increases in dollar amounts were primarily due to increased staffing and professional fees to support the expansion of our operations. The Company believes that
its general and administrative expenses will increase in dollar amount in the future to support the expansion of its operations.

Amortization of Acquired Intangibles.Amortization of acquired intangible assets represents the
periodic amortization expense of acquired intangibles and goodwill from acquisitions the Company has completed. The goodwill and acquired intangibles are being amortized over their expected useful
lives ranging from four to seven years. Amortization of acquired intangible assets for the quarter ended November 30, 1999 were $0.4 million compared to $0.2 million for the
quarter ended November 30, 1998, representing 0.8% of total revenues for both periods. For the six months ended November 30, 1999, amortization of acquired intangible assets were
$0.6 million compared with $0.5 million for the six months ended November 30, 1998, representing 0.7% and 0.9% of total revenues respectively. Subsequent to November 30,
1999, the Company acquired three separate entities that were accounted for as purchase accounting transactions. As a result of these transactions, the Company expects to increase its total
amortization of acquired intangibles to approximately $1.9 million in the third quarter of fiscal 2000 and then to $2.3 million for the remaining quarters over the next five years. See
the Notes to the Consolidated Condensed Financial Statements contained within this document for more information. If additional acquisitions are entered into which require the Company to record
additional intangible assets, amortization of acquired intangible assets may increase in both dollar amount and as a percentage of total revenues.

Other Income, Net.Other income, net consists primarily of earnings from investments and gains
or losses from disposal of fixed assets, net of any interest expense. Other income, net was $1.5 million for the quarter ended November 30, 1999, compared with $0.7 million for
the quarter ended November 30, 1998. For the six months ended November 30, 1999, other income, net was $2.8 million compared with $1.3 million for the six months ended
November 30, 1998. The increase in dollar amount for both the quarter and six month periods ended November 30, 1999 was primarily a result of increased investment earnings due to
increased investments as a result of the more than $47 million received from Great Plains' public offering of common stock in March 1999.

Provision for Income Taxes.The Company's income tax provision for the quarter ended
November 30, 1999 was $2.9 million, compared with $1.9 million for the quarter ended November 30, 1998. The Company's income tax provision for the six months ended
November 30, 1999 was $5.2 million, compared with $3.4 million for the six months ended November 30, 1998. These increases in the provision for income taxes are primarily
attributable to the increased operating income for the Company for both the quarter and six months ended November 30, 1999, compared with the quarter and six months ended November 30,
1998. The provision for income taxes was 40% of income before income taxes for the quarter and six months ended November 30, 1999, which is consistent with the fiscal 1999 annual effective
income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically funded operations primarily through cash provided by operations and the sale of equity securities. Currently, the Company meets
its working capital needs and capital equipment needs with cash provided by operations.

Cash
provided by operating activities for the six months ended November 30, 1999 was $10.4 million, compared with $7.7 million for the six months ended
November 30, 1998. The increase in cash provided by operations for the six months ended November 30, 1998, was primarily due to revenue growth, increased profits from Great Plains'
operations as well as an increase in deferred revenue and accrued expenses. These increases were offset, in part, by an increase in accounts receivable and a decrease in accounts payable.

The
Company's investing activities used cash of $22.6 million for the six months ended November 30, 1999, compared with $4.7 million for the six months ended
November 30, 1998. The increase in cash used for investing activities for the six months ended November 30, 1999 was attributable to $5.9 million for the purchase of a business,
$10.1 million for the purchase of other assets which includes the investment of $10 million by Great Plains to acquire minority interests in two separate companies and
$15.8 million for the acquisition of computer software, computer equipment and furniture required to support expansion of our operations and to furnish the new building that the Company moved
into in August 1999. These increases were offset, in part, by the sale of $9.3 million in investments.

The
Company's financing activities provided cash of $2.6 million during the six months ended November 30, 1999, compared with cash provided of $1.4 million for
the six months ended November 30, 1998. For the six months ended November 30, 1999 and 1998, cash provided by financing activities consisted of proceeds received from the exercise of
stock options and stock issued as a result of the Company's employee stock purchase plan.

The
Company's sources of liquidity at November 30, 1999 consisted principally of cash, cash equivalents and investments of $105.2 million. The Company also has a
$10.0 million revolving line of credit facility with a bank. The line of credit expires in November 2000 and borrowings made thereunder are subject to certain covenants. No amounts were
outstanding under the line of credit at November 30, 1999. The Company believes that its existing cash, cash equivalents and investments, cash generated from operations and the amounts
available under the line of credit will be sufficient to fund its operations for the foreseeable future.

Other Disclosures

Year 2000

Many currently installed computer systems and software were originally coded to accept only two digit entries in the date code fields and, if not corrected,
may be unable to distinguish 21st century dates from 20th century dates. These problems could result in system failures or miscalculations causing disruptions of business operations (including, among
other things, a temporary inability to process transactions, send invoices or engage in other similar business activities). Such residual Year 2000 problems could affect Great Plains, the U.S. and the
world economy generally.

All
of Great Plains' current products are Year 2000 compliant. Great Plains platform products have been Year 2000 compliant since their initial introduction, as are Versions 8 and 9
of the heritage product. Great Plains is currently offering our heritage product customers a free Year 2000 compliant upgrade for prior versions of the heritage product. Even though Great Plains'
current products are Year 2000 compliant, there can be no assurance that midmarket businesses will have sufficient resources available for the acquisition of new systems from us because they may be
diverting resources to fix internal systems that are not Year 2000 compliant. There have been no reports of material Year 2000 problems with Great Plains platform products or with Versions 8 and 9 of
the heritage product.

Great
Plains formed a project team (consisting of representatives from our information technology, finance, manufacturing, product development, sales, marketing and legal departments)
to address other internal and external Year 2000 issues. Our internal financial, manufacturing and other computer systems were reviewed to assess and remediate Year 2000 problems. Our assessment of
internal systems included our information technology as well as other systems that contain embedded technology in manufacturing or process control equipment containing microprocessors or other similar
circuitry. Our Year 2000 compliance program included the following phases:



The
amount of remediation work required to address Year 2000 problems has not been extensive. We have replaced certain financial and operational systems in the last several years, and
management believes that the new equipment and software substantially addresses Year 2000 issues. Our internal systems have been functioning properly and we have not experienced any material Year 2000
problems.

There
has been no material disruption in products or services purchased by us from our suppliers including areas such as utilities, communications, transportation, and banking
attributable to Year 2000 problems. Although we have no reason to believe that this level of service will be disrupted, we cannot fully assess the potential consequences in the event of service
interruptions.

The
total cost for resolving Great Plains' Year 2000 issues has been approximately $100,000. The total cost includes the cost of replacing non-compliant systems as a remediation cost
in cases where we have accelerated plans to replace such systems. We do not expect to incur material additional Year 2000 remediation costs.

Based
on assessments to date, Great Plains has not experienced and believes it will not experience any material disruption as a result of Year 2000 problems in internal manufacturing
processes, information processing or interface with major customers, or with processing orders and billing. However, if certain
critical third party providers, such as those providers supplying electricity, water or telephone service, experience difficulties resulting in disruption of service to Great Plains, a shutdown of
Great Plains' operations at individual facilities could occur for the duration of the disruption. Great Plains has developed a contingency plan to provide for continuity of processing in the event of
various problem scenarios. We have not experienced any major disruption in service from utility companies or other critical third party providers and, assuming that no such disruptions arise, we
believe that we will be able to complete our total Year 2000 transition without any material effect on our results of operations or financial condition.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's expectations or beliefs, including, but not limited to, statements concerning the Company's operations and financial performance and condition. For this purpose, any statements contained in
this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks
and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors, including those described in
Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1999.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Great Plains does not have operations subject to risks of material foreign currency fluctuations, nor does it use derivative financial instruments in our
operations or investment portfolio. Great Plains places our investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. The Company does not
expect any material loss with respect to our investment portfolio or exposure to market risk associated with interest rates.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 1999 Annual Meeting of Shareholders of Great Plains Software, Inc. (the "Company") was held on September 15, 1999 (the "Annual Meeting").
Holders of the Company's common stock of record on July 26, 1999 were entitled to one vote per share.

At
the Annual Meeting, Douglas J. Burgum and Frederick W. Burgum were elected directors for a term of three years. The number of votes cast for the election of each director and the
number of votes withheld were as follows:

|                    |  | FOR        |  | WITHHELD
|------------------- |  | ---------- |  | --------
|Douglas J. Burgum   |  | 14,365,621 |  | 98,098  
|Frederick W. Burgum |  | 14,285,774 |  | 177,945 

The
other directors whose terms of office as directors continued after the Annual Meeting are William V. Campbell, J.A. Heidi Roizen, Joseph S. Tibbetts, Jr. and
Bradley J. Burgum.

With
respect to the proposal to approve the appointment of PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal year ending May 31, 2000, there were
14,459,067 votes cast for the proposal, 1,558 votes cast against the proposal and 3,094 abstentions. There were no broker nonvotes with respect to such matter.

With
respect to the proposal to increase the number of shares authorized under the Company's Incentive Stock Option Plan by 2,500,000 shares, there were 11,058,968 votes cast for the
proposal, 2,061,552 votes cast against the proposal and 20,902 abstentions. There were 1,322,297 broker nonvotes with respect to such matter.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|Dated: January 13, 2000 |  | GREAT PLAINS SOFTWARE, INC.
|----------------------- |  | ---------------------------
|                        |  | By                         
|                        |  | By                         
|                        |  | By                         



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EXHIBIT INDEX

|27.1 |  | Financial Data Schedule
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## QuickLinks

PART IFINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PART II. OTHER INFORMATION

SIGNATURES

EXHIBIT INDEX