---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

(Mark One)

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

For the fiscal year ended May 31, 2000

Commission File Number
0-22703

---

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 ID No.)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)

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:Common Stock, par value $.01 per share

---

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/

The
aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of the registrant as of July 26, 2000 was approximately $281,745,368
(based on the last sale price of such stock as quoted on the Nasdaq National Market ($18.422) on such date).

As
of July 26, 2000, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 19,906,692.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement dated August 7, 2000 for the 2000 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Annual Report on Form 10-K (the "Form 10-K Report").

This Form 10-K Serves As The Company's 2000 Annual Report To Shareholders.

---

---

---

## 

PART I

ITEM 1.  BUSINESS

GENERAL

Great Plains (Nasdaq: GPSI) offers e-business solutions that interconnect business communities. These e-business solutions automate
processes among financials, distribution, enterprise reporting, project accounting, electronic commerce, human resources and payroll, manufacturing, sales and marketing management, customer service
and support functions. Great Plains' solutions are sold and implemented by a unique worldwide network of independent partner organizations that share the company's commitment to lasting customer
relationships. Named four times to the "Top 100 Companies to Work for in America" list, Great Plains has more than 2,000 team members worldwide.

Great
Plains' e-business solutions are designed to meet the broad spectrum of business application needs of the "midmarket," which generally consists of businesses with
$1 million to $500 million in annual revenues. We design, develop, market, sell and support e-business solutions that are cost-effective, scalable, easy to
implement, customize and use. Our e-business solutions help our customers electronically interconnect with their employees, customers, and suppliers. Our solutions are available in eight
languages, leverage the Internet, and are optimized for Microsoft technologies, the standard in the midmarket. Great Plains' solutions are also fully and seamlessly integrated across the application
areas of back office, front office and e-business.

Great
Plains has made a significant investment in building an experienced, knowledgeable and highly motivated distribution network, which consists of value added resellers (VARs),
systems integrators, independent software vendors (ISVs), national, regional and local accounting firms, specialized software consultants and Internet strategy and implementation organizations
(eBuilders) (together, the "partners"). Through our partner network, we provide customers with trained and knowledgeable software
professionals who are available locally to implement our systems as well as provide ongoing professional services. Partners customize Great Plains' systems to fit individual business needs, and more
than 300 ISVs provide vertical and horizontal extensions to our eEnterprise, Dynamics and Solomon solutions. Great Plains believes that high quality professional services are an essential element of a
successful solution implementation and are vital to maintaining customer and partner satisfaction. We dedicate significant resources to delivering timely, reliable and innovative service to our
customers and partners.

We
have received numerous industry awards for our customer and partner service including our innovative eService offerings, CustomerSource and PartnerSource. We also earned a 1998
"Best Practices Award," sponsored by Arthur Andersen, in the category of "Exceeding Customer Expectations." Great Plains has been recognized by numerous notable industry organizations and publications
including Forbes ASAP's "Dynamic 100" companies on April 5, 1999; Start's "Hottest Companies of 1999" in July 1999; Business Week's "100 Hot Growth Companies" on November 1, 1999;
and the company is featured inThe One to One Manager, Real World Lessons in Customer Relationship Management,by Don Peppers and Martha Rogers, Ph.D.,
published in 1999. We also earned the 1999 "Global Best Practices Awards," sponsored by Arthur Andersen, in the category of "Strategic Leadership". The January 17, 2000 issue of FORTUNE
magazine, named Great Plains as one of the "100 Best Companies to Work for in America" for the fourth time. Great Plains also received the Presidential "E" award from the President of the United
States in July 1999 for outstanding contributions to export commerce.

Great
Plains was founded in 1981 and was incorporated as a Minnesota corporation in 1983.

THE MIDMARKET OPPORTUNITY

Great Plains' solutions are designed to meet the business application needs of the "midmarket," which generally consists of businesses with $1 million
to $500 million in annual revenues. Dun and Bradstreet estimates there are 2.4 million businesses in the midmarket.

2

---

Growth in the midmarket applications segment is driven both by midmarket companies replacing aging systems with next-generation strategic applications across back office,
front office and e-business and by start up and high growth entrepreneurial companies using software and technology including Internet technologies to help fuel their growth. As these
organizations experience rapid growth into new and emerging markets, they often have limited information technology (IT) budgets, resources and capital.
As a result, midmarket companies require systems that are cost effective, yet functionally rich, scalable, easy to customize, implement and use.

In
addition, Great Plains believes that the Internet, with its ability to deliver a global standards-based platform for next generation business applications, will change the way
commerce is conducted by businesses of every size. As a result, Great Plains believes that midmarket customers will require an interconnected business solution to deliver on the interaction,
transaction and content needs of all constituents in the business community including employees, prospects, customers, suppliers, partners and other stakeholders.

Today,
more than 130,000 global customers across virtually every industry use one or more of Great Plains' interconnected business solutions. Some of our customers are implementing
our back office, front office or e-business applications as a point solution and many of our customers are leveraging and implementing our solutions as a fully integrated back office,
front office and e-business solution including our Internet and electronic commerce solutions.

STRATEGY

Great Plains' strategy is to extend our position in the midmarket as a leading provider of interconnected business solutions across back office, front office
and e-business. To meet the needs of businesses in the midmarket, we have implemented the following strategies:

Interconnected Business Solution

As the Internet changes almost every aspect of business, midmarket companies will need to implement comprehensive Internet and electronic commerce solutions to
remain competitive. Great Plains provides a comprehensive interconnected business solution across back office, front office and e-business. These solutions allow our customers to
effectively conduct both business-to-consumer and business-to-business electronic transactions. Great Plains' interconnected business solutions also
enable our customers to communicate and deliver services to their employees, customers and suppliers through our employee-facing, customer-facing and supplier-facing applications. These applications
allow their employees, customers and suppliers to receive Web-based services and interact with the company from their desktop.

Fully Integrated Application Platform

Midmarket companies are increasingly demanding a fully integrated e-business platform across front office and back office applications, including
comprehensive Internet and electronic commerce solutions. Great Plains, through our own internal development efforts, acquisitions, and strategic partnerships, provides a fully integrated platform of
front office, back office and e-business solutions. This e-business platform consists of financial, distribution, enterprise reporting, project accounting, electronic commerce,
human resources and payroll, manufacturing, servicemanagement, sales and marketing, and customer service and support applications. In addition, independent software vendors offer more than 300
vertical and horizontal applications that further extend Great Plains' software solutions.

Technology Leadership

Great Plains has built a strong record of technical leadership and we continue to invest record levels into the development of new technologies and products.
Great Plains eEnterprise, Dynamics and Solomon

3

---

provide award-winning functionality to midmarket companies including technology-based features across navigation, customization, information access, scalability and integration and are designed to
take full advantage of Windows 2000. With Release 6.0, Great Plains extends our technology leadership for both eEnterprise and Dynamics by significantly expanding our use of XML-enabled
objects across our back office, front office and e-business solutions. This technology allows our customers to integrate their web storefront with Great Plains' back office solutions
regardless of the storefront's technology platform. Great Plains' product architecture is well suited for ongoing integration of new technologies.

Industry-leading Services

Great Plains believes that high quality professional services are an essential element of a successful solution implementation and are vital to maintaining
customer and partner satisfaction. Great Plains has invested significantly in technology and team members to develop a broad set of eServices for our customers and partners including
Web-based technical support and Web-based training. In addition, we offer high quality on-sight consulting and training services to our customers and partners
across back
office, front office and e-business. Great Plains has received numerous industry awards for our customer and partner service.

Global Product Offering and Infrastructure

Great Plains sells our products in the United States and through subsidiaries located in Canada, the United Kingdom, Germany, South Africa, Singapore and
Australia. In fiscal 2000, we significantly expanded our European presence and operations through the acquisitions of PWA Group Limited, a global human resources solutions provider in the United
Kingdom; and BTK Software and Consulting AG, an established midmarket business application provider in Germany. In addition, we sell our products through international distribution partners in Mexico,
Poland, the Czech Republic, the Benelux countries, Portugal, Latin America and the Middle East. Great Plains intends to expand our global infrastructure through growth in our existing subsidiary and
international partner operations and by extending the global functionality of our eEnterprise, Dynamics and Solomon products. In addition to our development offices in the United States, Great Plains
also has development offices in the United Kingdom, Germany and the Philippines.

World Class Partner Network

The Great Plains partner network has been highly effective in serving the needs of midmarket organizations. To assist our partners in selling and implementing
our solutions, Great Plains offers extensive programs that provide partners with product and sales training, sales and marketing assistance and technical support to help them develop and expand their
businesses. Great Plains continues to grow and strengthen this partner network through partner recruiting efforts, channel development programs and training, and certification and recognition
programs. In addition, Great Plains has developed a program that provides product and curricula offerings to colleges and universities designed to increase the number of graduates familiar with our
products. Great Plains offers a number of educational and networking conferences each year, including "Stampede," an annual partner conference in Fargo. In 1999, 1,800 participants attended Stampede.

TECHNOLOGY

Great Plains has built a strong record of technical leadership and continues to invest at record levels on the development of new technologies and products.
Great Plains' solutions leverage industry-leading technologies including Internet technologies and are based on the following:

4

---

Internet and Electronic Commerce Enabled

Great Plains was among the first midmarket solution providers to deliver Internet and e-commerce enabled business management solutions. We leverage
Internet and e-commerce technologies, such as Microsoft Site Server, Commerce Edition, to deliver business-to-business and
consumer-to-business e-commerce solutions as well as customer-facing, employee-facing and supplier-facing applications. Our
business-to-business and consumer-to-business solutions allow our customers to complete digital transactions over the Internet, both with new and
established customers. Our customer-facing, employee-facing, and supplier-facing applications allow customers to deliver Web-based desktop services to their customers and employees.

Standards-based C++ Development Architecture

The development architecture of Great Plains' e-business solutions is standards-based C++. This powerful and flexible development environment has
enabled us to build our products to leverage important technology advancements including 32-bit technologies, Windows NT, Microsoft SQL Server, Visual Basic for Applications, and
Microsoft's standard for application interoperability, the Component Object Model (COM). The use of standards-based C++ as our development architecture will provide us flexibility in continuing to
deliver solutions on emerging technologies and platforms.

Microsoft Based Technologies

Great Plains eEnterprise, Dynamics and Solomon are optimized for the latest releases of Microsoft SQL Server, and include stored procedures to enhance
distributed processing, overall performance and data integrity. Great Plains' solutions are also designed and optimized for Microsoft Windows 2000 Advanced Server, Microsoft Windows NT Server,
Microsoft Internet Information Server, Microsoft Transaction Server, Microsoft Site Server Commerce Edition and Microsoft Visual Basic for Applications, enhancing data accessibility and system
scalability.

Component-Based Functionality

The business rules of Great Plains' products have been designed and developed into "logic components." This component-based product design allows us to use
software code multiple times within a product, and from product to product, increasing the speed with which new applications and product extensions can be developed. The component-based architecture
of our products also allows our applications and third-party applications to share a common user interface, thereby creating a seamless and easy-to-use environment for
customers. In addition, the components that make up the business logic are separate from the technical application layer, allowing Great Plains to adopt new technologies like COM and VBA rapidly
without affecting the quality or performance of the applications.

Next Generation Products

Great Plains maintains a significant technical research and next-generation development team focused on assessing and incorporating new
technologies into our current and future products. As a leading developer on the Microsoft platform, Great Plains has extensively collaborated with Microsoft on the development of Microsoft.NET
Framework. We chose Microsoft's.NET Framework and the C# programming language for our next-generation e-business solutions for its increased productivity, reliability,
multi-language support and Internet capabilities. Our strategy for the development of next-generation products includes the development of solutions that will allow our more than 130,000
customers to migrate to our newest solutions.

5

---

PRODUCTS

Great Plains provides e-business solutions that interconnect business communities. These solutions automate processes across the back office
functions of financials, distribution, enterprise reporting, project accounting, human resources and payroll, manufacturing, and the front office applications of sales and marketing management,
customer service and support. In addition, Great Plains provides solutions across electronic commerce, self-service and Web-based analytics.

Great Plains Back Office Products

Great Plains eEnterprise, Dynamics and Solomon have received more than 15 industry awards, including "Best Functionality" in the Microsoft BackOffice
Challenge, an Editors' Choice Award from PC Magazine and a Reviewers' Choice Award from Personal Computing Magazine in the United Kingdom.

eEnterprise

eEnterprise is Great Plains' global business management solution for the mid to upper-tier of the midmarket. An enterprise-wide,
integrated solution, eEnterprise provides functionality for financials, distribution, human resources and payroll, project accounting, and manufacturing. More than 4,000 customers have chosen Great
Plains eEnterprise. Customers benefit from the robust functionality within eEnterprise and its integration with Great Plains Siebel Front Office and Great Plains' e-business solutions.

Financial Series



Distribution Series



Human Resources and Payroll Series



PWA Global Human Resources



6

---



Project Series



Fixed Asset Management



Manufacturing Series



eEnterprise Release 6.0



Great Plains Supply Chain Series Powered by Logility



Dynamics

Dynamics is Great Plains' solution for the lower- to mid-tier of the midmarket. More than 24,000 businesses have chosen Dynamics. The Dynamics back
office solution includes Financials, Distribution and Project Accounting solutions, as well as Human Resources and Payroll, and Fixed Assets. In addition, Dynamics is fully integrated with Great
Plains Siebel Front Office and with Great Plains' e-business

7

---

solutions including e.Order, e.Requisition and e.Employee. Dynamics is available on Microsoft SQL Server and the Pervasive.SQL database.

Financial Series



Distribution Series



Project Series



Human Resources and Payroll Series



Fixed Asset Management



Dynamics Release 6.0



Apertum



8

---



Solomon

In June 2000, Great Plains acquired Solomon Software, a leading provider of business management and e-business solutions for the midmarket.
Solomon's products are targeted at the lower- and mid-tiers of the midmarket. Solomon IV was first released in December 1996 and is available exclusively on the Microsoft SQL Server
database.

Financial Series



Distribution Series



Project Series



Service Series



Great Plains Siebel Front Office Products

Great Plains and Siebel Systems announced a strategic partnership to deliver the front office solutions of sales, marketing, customer service and call center.
Great Plains Siebel Front Office combines Siebel Systems' front office expertise with Great Plains' midmarket, back office and integration expertise. Great Plains Siebel Front Office is seamlessly
integrated with Great Plains eEnterprise and Dynamics, and distributed exclusively through Great Plains' global network of partners. Great Plains has also announced integration with Great Plains
Solomon by the end of Calendar 2000.

Sales and Marketing Series



9

---



Customer Service Series



Field Service Series



Call Center Series



E-Business Solutions

Great Plains offers e-business solutions that interconnect business communities. These e-business applications enable midmarket
businesses to electronically connect to customers, suppliers, partners and employees. Great Plains' e-business solutions are integrated with eEnterprise and Great Plains Siebel Front
Office. Selected modules also integrate with Dynamics and Solomon. The e-business solutions include both commerce and self-service applications.

Commerce



10

---



Self-Service



Analytics and Reporting

Great Plains offers a comprehensive suite of analysis and reporting tools. These tools deliver significant value to eEnterprise, Dynamics and Solomon
customers.

FRx.



Enterprise Reporting



Seagate Crystal Reports



11

---



Explorer



eEnterprise and Dynamics Report Writer



Cognos PowerPlay



Customization and Integration Tools

Great Plains offers midmarket customers the ability to customize and extend the functionality of eEnterprise and Dynamics through our customization and
integration tools.

Integration Manager



Modifier with Visual Basic for Applications (VBA)



Continuum



Dexterity



Product Migration Opportunities

Great Plains is focused on delivering additional value to all of our existing customers. We market eEnterprise and Dynamics to our Great Plains Accounting and
RealWorld customers and have developed migration tools to assist businesses during this transition.

Great Plains Accounting



RealWorld



12

---



PROFESSIONAL SERVICES

Great Plains believes that high quality professional services are an essential element of a successful solution implementation and are vital to maintaining
customer and partner satisfaction. We dedicate significant resources to delivering timely, reliable and innovative service to our customers and partners. Great Plains works with our worldwide network
of partners to offer customers the best solutions and service. The services available from Great Plains include technical support and services, training, and consulting.

Technical Support and Services

Customers can choose from a variety of support options. These include:



Training

Customers
can receive product training from Great Plans and/or a local Great Plains partner. Great Plains' virtual training center delivers training in a variety of ways so customers
can choose the method that best fits their needs, their schedule and their budget. Great Plains offers classroom training, Internet-based training, Teleweb seminars, videos and workbooks, and
on-site training.

Consulting

Great
Plains Consulting and a customer's local partner provide a full range of professional consulting services to customers including full term implementation, installation,
customization, integration of existing operational systems, and project management.

Enhancement Program

In
addition to these value-added support services, all new and the majority of existing customers enroll in a Great Plains enhancement plan. Customers enrolled in the enhancement
program receive all new product releases and have unlimited access to CustomerSource, a secure Website designed specifically for Great Plains customers. CustomerSource contains a number of
self-help tools such as a technical support knowledge base, a discussion database, e-mail support, online training, online customer chat sessions and a resource library.

13

---

GLOBAL PARTNER NETWORK

Great Plains has recruited and developed one of the most powerful distribution networks in the industry. 2,000 organizations make up the Great Plains community
of "partners" including value added resellers (VARs), system integrators, consultants, solution developers, application solution providers (ASPs), accounting firms, and eBuilders. Each has diverse
geographic coverage, customer focus areas and technological expertise.

Business Opportunities

Great Plains continues to improve and build the business opportunity available to partners. Companies of all sizes and focus areas partner with Great Plains to
provide e-business solutions to their customers. Great Plains offers the following partner programs and services:

Value Added Reseller (VAR)



System Integrator



Consultant



Solution Developer



Application Service Provider (ASP)



14

---



Accounting Firms



eBuilders



INDUSTRY LEADING CONFERENCES

Great Plains provides partners, customers and team members several networking and learning opportunities through Great Plains' industry leading conferences.
Each event is targeted at a specific audience within the Great Plains Community.

Stampede

Stampede
is Great Plains' four-day international business conference for our partners. During the conference, attendees are introduced to new technology solutions, key corporate and
product strategies, product demonstrations and workshops focused on the needs of a global marketplace. More than 1,800 partners attended Stampede 1999 and another record breaking attendance is
expected in September 2000.

Tech Conference

The
Great Plains Tech Conference is the premier event for software engineers and implementation specialists within Great Plains' partner network. The conference is held each year in July and February.
More than 500 attended the February 2000 conference and 700 attended the July 2000 event.

Business Building Conference

The
Great Plains Business Building Conference is a skill-building workshop designed for sales, marketing, and management professionals within the partner organization. The conference provides sales
and marketing workshops including sessions on successful sales tools, competitive strategies, organizational development topics and marketing strategies. More than 600 partners attended Business
Building Conference 2000.

Convergence

Convergence
is Great Plains' annual customer conference and is designed to bring together Great Plains customers, business partners and industry experts. Attendance has grown rapidly from its
inaugural year in 1997 when 100 customers attended to more than 300 customers in 1998, 1,000 attendees in 1999 and more than 2,000 participants attended in 2000. A highlight of Convergence is the
Pinnacle Awards dinner and ceremony. This event recognizes customer's accomplishments with their Great Plains solution and honors those customers who've achieved outstanding levels of success with
their Great Plains implementation. The 2000 Pinnacle award winners were US Fleet Services, Inc., ArrowPoint Communications, Secon Systems, Inc., Applied Roller Technology, Integrated
Systems Group, ROXY.com, Inc., National Mobile Television, Inc., Wienerberger Baustoffindustrie AG, Carpenter Technology, Panavision, and McFarlane Toys.

15

---

## 

SALES AND MARKETING

Sales

Great Plains products are sold and implemented exclusively through our network of 2,000 channel partners. To assist our partners in their sales and marketing
efforts, Great Plains provides extensive resources and programs including regional sales, marketing and technical personnel, sales and marketing training and conferences, and partner recognition
programs.

Great
Plains channel sales managers and solutions consultants provide our partners assistance in the sales process and ongoing assistance in the area of business development. Great
Plains also has a sales team dedicated to developing existing customer programs with our partners to help meet the needs of their existing customers and drive additional revenue through the sale of
additional products and services. In addition, Great Plains has a sales team dedicated to recruiting additional channel partners to sell our solutions.

Great
Plains maintains distinct sales teams for our eEnterprise, Dynamics and Solomon products. Domestically, Great Plains' sales resources are located across the United States
including in our Fargo, North Dakota and Findlay, Ohio locations.

Internationally,
Great Plains has both subsidiary operations and distribution relationships. Great Plains has subsidiary sales offices in Canada, the United Kingdom, Germany, South
Africa, Singapore, and Australia. Each subsidiary sales office provides sales resources and assistance to the partners in their geographic area and is responsible for recruiting additional partners
for their region. In addition, we have established distribution relationships with international partners in Western and Eastern Europe, the Middle East, and Latin America to further the international
distribution of our products. These distribution partners typically localize and translate our products, locate and train qualified partners, market our products, and provide ongoing customer service
and technical support. International partners typically pay localization and translation costs for our software in exchange for exclusive distribution rights, while Great Plains retains ownership of
the localized version of the software.

Marketing

Great Plains' marketing efforts are focused on building market awareness and acceptance of Great Plains and our products and on generating qualified customer
leads for our partners.

Great
Plains has a comprehensive marketing strategy with several key components: global corporate and product image and awareness building, direct marketing to both prospective and
existing customers, a strong Web presence, and local marketing with partners. Our global corporate and product image strategy includes a comprehensive public relations effort and global advertising in
key financial, business and technology publications. Our direct marketing includes direct mail, online and regional seminars, tradeshows, and outbound telemarketing to existing and prospective
customers. For prospective customers, we also offer seminars and Web-based tools to assist them in selecting a solution. Seminars are offered in conjunction with partners in their local or
industry-specific markets.

Our
marketing strategy is designed to leverage our partner network by including cooperative marketing programs designed for partners' local markets. These programs allow partners to
choose turn-key programs from Great Plains and customize them for their specific business focus. These programs are then partially funded through Great Plains' cooperative marketing funds
that partners earn through sales credit.

In
addition to awareness marketing and lead generation efforts, Great Plains has a dedicated telesales team that further qualifies customer leads.

16

---

STRATEGIC PARTNERSHIPS

Great Plains has established relationships with key industry leaders to provide comprehensive solutions and services to midmarket customers. Great Plains has
formed alliances with several market-leading companies including Microsoft, Siebel, IBM, webMethods and Logility.

Microsoft

Great Plains has collaborated with Microsoft on several strategic development initiatives. As a leading developer on the Microsoft platform, we are using
Microsoft.NET Framework for our next generation e-business solutions. Microsoft.NET Framework simplifies the task of creating components that can be immediately leveraged in Web
applications. Great Plains solutions are also optimized for other Microsoft products and technologies, including Microsoft Windows 2000 Advanced Server, Microsoft Windows NT Server, Microsoft SQL
Server, Microsoft Internet Information Server, Microsoft Transaction Server, Microsoft Site Server, Commerce Edition and Microsoft Visual Basic for Applications. All Great Plains solutions are
available for Microsoft Windows 2000. Great Plains has a direct relationship with many of the technical product teams at Microsoft and fosters a strong marketing relationship that enables us to
leverage local, regional and national Microsoft marketing initiatives.

Siebel Systems

Great Plains and Siebel Systems announced a strategic partnership to deliver the front office solutions of sales, marketing, customer service and call center.
The co-branded solution, Great Plains Siebel Front Office, offers midmarket customers a front office solution that is tightly integrated to Great Plains back office products. In addition,
Great Plains Siebel Front Office was designed to support global business processes and fully supports multiple currencies including the euro and automatic currency conversion. The partnership between
Great Plains and Siebel Systems enables Great Plains to leverage Siebel's industry leading front office expertise and Siebel is able to extend its reach into the midmarket by leveraging Great Plains
midmarket expertise and channel network.

IBM

IBM is a key partner in Great Plains' Application Service Provider (ASP) network. This initiative provides midmarket customers the ability to use Great Plains
e-business solutions via a secure network maintained by IBM. This partnership allows customers the ability to outsource the deployment, operations and maintenance of the Great Plains
solution, as well as IT staffing, training and management, enabling companies to focus on their core business competencies. Access to financial data is achieved in real time through a hosted scenario
managed by IBM Global Services combined with a remote client desktop. The goal of the partnership is to deliver small and mid-sized businesses a comprehensive e-business
outsourcing solution.

webMethods

Great Plains' has chosen webMethods as the solution provider to provide integration capabilities that will allow business documents to be seamlessly exchanged
over the Internet between companies within Great Plains' interconnected business community. The webMethods' solution will enable Great Plains to provide midmarket customers with integrated direct
links to buyers and suppliers, connecting customers to major B2B marketplaces and enabling real-time interactive communication through the Internet, regardless of existing technology
infrastructure. Great Plains community members include Great Plains' network of more than 130,000 customers, 2,000 team members and a worldwide network of 2,000 partners and the organizations with
which they interact.

17

---

Logility

In July 2000, Great Plains announced a global strategic partnership with Logility, Inc. to deliver business-to-business
(B2B) collaborative commerce solutions to the midmarket that enables manufacturers, distributors and retailers to more effectively collaborate supply chain planning and execution operations with
trading partners via the Internet. Through an OEM agreement, Great Plains will add components of the Logility Voyager Solutions application suite to our e-business solutions
to more efficiently and accurately coordinate the planning, forecasting, warehousing and delivery of goods throughout the supply chain. The Great Plains Supply Chain Series powered by Logility
delivers end-to-end e-business efficiencies across trading communities. The Supply Chain Series will be released in phases with the first phase initially available
late in the fourth calendar quarter.

COMPETITION

Great Plains targets businesses in the midmarket, which is defined as companies with revenues between $1 million and $500 million. The market for
back office, front office and e-business solutions is highly competitive, fragmented and rapidly changing. Midmarket customers have varying product needs and differing levels of
integration requirements.

Great
Plains competes effectively as a "point solution" across our primary application categories of back office and front office. Great Plains offers even more strategic value for
customers seeking an integrated solution across back office, front office and e-business. In the back office solutions market, Great Plains primarily competes with Epicor, Sage, and
Navision. In the front office solutions market, Great Plains primarily competes with Onyx, Pivotal and SalesLogix. In the upper-tier of our market, Great Plains occasionally competes with
ERP vendors primarily targeting large enterprise companies including Oracle, SAP, JD Edwards, and Peoplesoft. In addition, Great Plains' competition includes e-business applications from
certain e-business point solution providers across the areas of e-commerce, self-service and business portals. In certain geographic and vertical markets, Great
Plains competes with numerous other niche solution vendors.

Certain
Great Plains competitors have substantially greater financial, marketing or technical resources than Great Plains. There are no assurances that other companies have not
developed or marketed or will not develop or market products that are superior to our products. In addition, there can be no assurance that alternative methods of delivering business applications will
not provide increased competition including solutions offered exclusively in a hosted or outsourced environment.

RESEARCH AND DEVELOPMENT

Great Plains has made substantial investments in research and development. During the fiscal years 2000, 1999, and 1998, software development expenses were
$32.7 million, $19.5 million, and $12.5 million, respectively. As of May 31, 2000, Great Plains had 531 team members engaged in research and development.

Great
Plains research and development efforts employ a standard development process to guide software development through stages of product concept, market requirements analysis,
product definition, design specification, coding, testing, developing and integrating leading technologies into Great Plains' products to better meet customer needs.

Great
Plains continues to invest record levels into the development of new technologies and products. With Release 6.0, we significantly expanded our use of XML-enabled
objects. Great Plains' product architecture is well-suited for ongoing integration of new technologies.

18

---

TEAM MEMBERS

As of May 31, 2000, Great Plains had a total of 1,775 full time equivalent ("FTE") team members, of which 344 joined Great Plains through acquisition in
fiscal 2000. The 1,775 FTE's include 1,027 FTEs in sales, marketing, technical support and professional services; 531 FTEs in research and development; and 217 in administration. Great Plains received
recognition for the fourth time as one of the "100 Best Companies to Work for in America," as reported in FORTUNE magazine. Our annual team member survey indicated that team member satisfaction
reached a record high level this past year.

Great
Plains believes that our future performance depends largely upon the continued service of our key technical, sales and senior management personnel. The loss of the services of
one or more of our key employees could have a materially adverse effect on our business, operating results and financial condition. Our future success also depends on our continued ability to attract,
train and retain qualified team members. Competition for the hiring of such personnel in the software industry is intense and from time to time we experience difficulty in locating candidates with
appropriate qualifications, particularly within the desired geographic location.

PRODUCTION

The principal physical components of the Great Plains' software products are computer media and manuals. We prepare master software CDs, manuals and packaging
materials that are then duplicated by Great Plains and third-party vendors. To date, we have not experienced any material difficulties or delays in the manufacture and assembly of products or material
returns due to product defects.

SEASONALITY

Great Plains' business has experienced and may continue to experience seasonality. In recent years, we have recognized a greater percentage of our revenue in
the fourth fiscal quarter than in any of the first three fiscal quarters due to a number of factors, including the timing of product releases and our sales incentive programs. Moreover, due to
generally diminished business activity in the summer quarter, and to Great Plains' fiscal year-end sales incentive programs, we have historically recognized less revenue and operating
income in our first fiscal quarter than in other quarters.

INTELLECTUAL PROPERTY RIGHTS AND LICENSES

Great Plains regards certain features of our internal operations, software and documentation as intellectual property. We rely on a combination of contract,
copyright, trademark and trade secret laws, a mandatory software registration mechanism and other measures to protect our intellectual property. We have no patents. We believe that, because of the
rapid pace of technological change in the computer software industry, trade secret and copyright protection are less significant than factors such as the knowledge, ability and experience of our team
members, frequent product enhancements and the timeliness and quality of support services. It is our policy to file for protection of our basic trademarks and service marks in countries in which we
sell our products either directly or through our international partners and in countries in which protection is advisable. Despite these measures there can be no assurance that we will be able to
fully protect our intellectual property.

Great
Plains provides our products to customers on a "right-to-use" basis, under non-exclusive licenses, which generally are nontransferable and
have a perpetual term. We typically license our products solely for our customer's internal operations.

FORWARD LOOKING STATEMENTS

The above Business section and other parts of the Form 10-K Report contain forward-looking statements that involve risk and uncertainties.
Great Plains' actual results may differ significantly from the

19

---

results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those contained above in this Item 1, the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 and Exhibit 99.1 to this Form 10-K Report.

EXECUTIVE OFFICERS

Great Plains' executive officers as of August 1, 2000, their ages and positions and a brief biography of each individual are as follows:

|Name                |  | Age |  | Position                                                    
|------------------- |  | --- |  | ------------------------------------------------------------
|Douglas J. Burgum   |  | 44  |  | Chairman of the Board, President and Chief Executive Officer
|Jodi A. Uecker-Rust |  | 38  |  | Chief Operating Officer                                     
|Tami L. Reller      |  | 36  |  | Chief Financial Officer                                     
|Darren C. Laybourn  |  | 38  |  | Executive Vice President, Research and Development          
|Jeffrey A. Young    |  | 34  |  | Executive Vice President, Global Operations                 
|David M. O'Hara     |  | 37  |  | Vice President, Business Development                        

Douglas J. Burgumhas served as President of Great Plains since March 1984, Chief Executive Officer since September 1991
and Chairman of the Board since January 1996. Mr. Burgum was an early investor in Great Plains, and he initially served as Vice President and a director from March 1983 to
March 1984. Before joining Great Plains, Mr. Burgum was a management consultant in the Chicago office of McKinsey & Company, Inc. Mr. Burgum holds a B.U.S. from
North Dakota State University and an M.B.A. from the Stanford University Graduate School of Business.

Jodi A. Uecker-Rusthas served as Chief Operating Officer since February 2000. From November 1998 through
February 2000, Ms. Uecker-Rust served as Executive Vice President, Organizational Development. Ms. Uecker-Rust served as Vice President, Center for
Organizational Excellence (CORE) and Heritage Business of Great Plains from June 1996 through November 1998. Ms. Uecker-Rust served as Vice President, Employee
Services for Great Plains from August 1994 through May 1996 and as Vice President of Operations and Customer Service from June 1993 through August 1994.
Ms. Uecker-Rust has been with Great Plains for more than 14 years. Prior to 1984 she was with Honeywell, Inc. She is a 1983 graduate of North Dakota State University
in Fargo, North Dakota where she earned a B.S. in Industrial Engineering.

Tami L. Rellerhas served as Chief Financial Officer since July 1999. Ms. Reller is a 15 year veteran with Great
Plains and has served as Vice President of Finance and Investor Relations since January 1998, and Director of Finance and Investor Relations since December 1996. She has also held
accounting, marketing management and sales positions during her career with Great Plains. She holds a B.S. degree from Moorhead State University and a M.B.A. from St. Mary's College in Moraga, CA.

Darren C. Laybournhas served as Vice President, Research and Development since July 1998. From June 1997 to
July 1998, Mr. Laybourn served as General Manager, Global Development, and from June 1994 to June 1997 he was General Manager, DynamicTools. Mr. Laybourn joined
Great Plains in 1994 and prior to that time was employed by the Boeing Company in Seattle, where he lead development efforts supporting manufacturing and corporate computing infrastructure. He holds a
B.S. in Computer Science and Mathematics from the University of Washington.

Jeffrey A. Younghas served as the Executive Vice President of Global Operations since February 2000 and Vice President of
Product Development since March 1998. Mr. Young is an 11 year veteran with Great Plains and has held key product and management roles during his tenure at Great Plains including
as

20

---

Director of Product Development from September 1996 until March 1998 and as a development manager and senior project leader from September 1991 until September 1996.
Mr. Young holds a B.A. degree in Computer Science, Business, and Mathematics from Jamestown College.

David M. O'Harahas served as the Vice President of Business Development since January 2000. He has been with the Company since
1998, first serving as the General Manager of Manufacturing. Prior to Great Plains, Mr. O'Hara was President of ICONtrol, a development partner Great Plains acquired in
1998. During Mr. O'Hara's four years with ICONtrol, he also served as Vice President of Sales and Marketing. Prior to 1994, he served as the Commissioner of Economic Development for the State
of South Dakota. He holds a B.S. degree in Economics and a M.B.A. from the University of South Dakota.

ITEM 2.  PROPERTIES

Great Plains' principal administrative, marketing, production and product development facilities consist of an aggregate of approximately 165,000 square feet
at three locations in Fargo, North Dakota. Great Plains also leases space for our subsidiary operations in Canada, the United Kingdom, Germany, Scandinavia, South Africa, Singapore and Australia. In
addition, Great Plains also has offices in Seattle, Washington; Denver, Colorado; Manchester, New Hampshire; Minneapolis, Minnesota; Watertown, South Dakota; Atlanta, Georgia; and Manila, Philippines.
Great Plains occupies the North Dakota sites under lease agreements that expire at various times through 2013. Total rent expense during fiscal 2000, 1999 and 1998 was $5,411,000 $1,593,000, and
$1,054,000, respectively. Great Plains is currently in the process of constructing a second facility on our campus in Fargo, North Dakota and expects to occupy this facility by the summer of 2001.
This facility will be owned by Great Plains with financing through a loan. The facilities added as a result of the recent acquisitions as well as completion of the second campus facility will result
in increased rent and facilities costs.

ITEM 3.  LEGAL PROCEEDINGS

From time to time, Great Plains and our subsidiaries are involved in litigation arising out of operations in the normal course of business. In the opinion of
management, we currently are not a party to any legal proceedings the adverse outcome of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on our
results of operations or financial position.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended May 31, 2000.

21

---

## 

PART II

ITEM 5.  MARKET PRICE

Great Plains' common stock trades on the Nasdaq National Market under the symbol "GPSI." The following table sets forth, for the period indicated, the high and
low closing sales prices of Great Plains' common stock, as quoted on the Nasdaq National Market.

High

LowFirst Quarter Fiscal 1999

$
39.500

$
31.625Second Quarter Fiscal 1999

$
48.250

$
30.125Third Quarter Fiscal 1999

$
49.000

$
39.563Fourth Quarter Fiscal 1999

$
42.000

$
26.750First Quarter Fiscal 2000

$
49.625

$
37.375Second Quarter Fiscal 2000

$
63.625

$
46.250Third Quarter Fiscal 2000

$
82.938

$
53.438Fourth Quarter Fiscal 2000

$
67.688

$
37.188


On
July 26, 2000, the closing sales price per share of Great Plains' Common Stock as quoted on the Nasdaq National Market was $18.422. On July 26, 2000, there were
approximately 541 holders of record of our Common Stock, representing approximately 12,760 shareholder accounts.

The
trading price of Great Plains' Common Stock may be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological
innovations or new software products by us or our competitors, as well as other events or factors. In addition, the stock market has from time to time experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many high technology companies and which often have been unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of Great Plains' Common Stock.

Great
Plains has never declared or paid cash dividends on its capital stock. We currently intend to retain future earnings for use in our business and do not anticipate paying any
cash dividends in the foreseeable future.

22

---

## 

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below and the Consolidated Financial Statements and the Notes thereto included in Item 8 below.

|                                                         |                                              | Year Ended May 31,       |       
|-------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------
|
|
|Consolidated Statement of Income Data:                   |                                              |                          |       
|Revenues:                                                |                                              |                          |       
|                                                         | License                                      |                          | $     
|                                                         | Service                                      |                          |       
|                                                         |                                              |                          |       
|                                                         |                                              | Total revenues           |       
|Cost of revenues:                                        |                                              |                          |       
|                                                         | License                                      |                          |       
|                                                         | Service                                      |                          |       
|                                                         | Amortization of acquired intangibles         |                          |       
|                                                         |                                              |                          |       
|                                                         |                                              | Total cost of revenues   |       
|                                                         |                                              |                          |       
|                                                         |                                              | Gross profit             |       
|Operating expenses:                                      |                                              |                          |       
|                                                         | Sales and marketing                          |                          |       
|                                                         | Research and development                     |                          |       
|                                                         | General and administrative                   |                          |       
|                                                         | Amortization of acquired intangibles         |                          |       
|                                                         | Acquired in-process research and development |                          |       
|                                                         |                                              |                          |       
|                                                         |                                              | Total operating expenses |       
|                                                         |                                              |                          |       
|Operating income                                         |                                              |                          | 4,757 
|Other income, net                                        |                                              |                          | 5,502 
|                                                         |                                              |                          |       
|Income before income taxes                               |                                              |                          | 10,259
|Income tax provision (benefit)(1)                        |                                              |                          | 4,850 
|                                                         |                                              |                          |       
|Net income                                               |                                              | $                        | 5,409 
|                                                         |                                              |                          |       
|Income (loss) per common share:                          |                                              |                          |       
|                                                         | Basic(2)                                     |                          | $     
|                                                         | Diluted                                      |                          | $     
|                                                         |                                              |                          |       
|Shares used in computing income (loss) per common share: |                                              |                          |       
|                                                         | Basic                                        |                          |       
|                                                         | Diluted                                      |                          |       
|                                                         |                                              |                          |       

|                                                |                                                                    | May 31, |       
|----------------------------------------------- | ------------------------------------------------------------------ | ------- | ------
|
|
|Consolidated Balance Sheet Data:                |                                                                    |         |       
|Assets:                                         |                                                                    |         |       
|                                                | Cash, cash equivalents and investments                             |         | $     
|                                                | Total assets                                                       |         |       
|Working capital                                 |                                                                    |         | 43,580
|Liabilities and stockholders' equity (deficit): |                                                                    |         |       
|                                                | Deferred revenues                                                  |         |       
|                                                | Long-term debt and capital lease obligations, less current portion |         |       
|                                                | Mandatory redeemable convertible preferred stock                   |         |       
|                                                | Total stockholders' equity (deficit)                               |         |       

---

23

---



## 

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of Great Plains should be read in conjunction with Great
Plains' Consolidated Financial Statements and Notes thereto, and the other financial information included elsewhere in this Form 10-K Report. This Discussion and Analysis of
Financial Condition and Results of Operations contains descriptions of Great Plains' expectations regarding future trends affecting our business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The following discussion as well as
Exhibit 99.1 to this Form 10-K set forth certain factors Great Plains believes could cause actual results to differ materially from those contemplated by the forward-looking
statements. Great Plains undertakes no obligation to update the forward-looking information contained in this Item 7.

OVERVIEW

Great Plains (Nasdaq: GPSI) offers e-business solutions that interconnect business communities. These e-business solutions automate
processes among financials, distribution, enterprise reporting, project accounting, electronic commerce, human resources and payroll, manufacturing, sales and marketing management, and customer
service and support functions. Great Plains' solutions are sold and implemented by a unique worldwide network of independent partner organizations that share the company's commitment to lasting
customer relationships. Named four times to the "Top 100 Companies to Work for in America" list, Great Plains has more than 2,000 team members worldwide.

Great
Plains' e-business solutions are designed to meet the broad spectrum of business application needs of the "midmarket", which generally consists of businesses with
$1 million to $500 million in annual revenues. We design, develop, market, sell and support e-business solutions that are cost-effective, scalable, and easy to
implement, customize and use. Our e-business solutions help our customers electronically interconnect with their employees, customers, and suppliers. Our solutions are available in eight
languages, leverage the Internet, and are optimized for Microsoft technologies, the standard in the midmarket. Great Plains' solutions are also fully and seamlessly integrated across the application
areas of back office, front office and e-business.

During
fiscal 2000, Great Plains completed a number of acquisitions which expanded our solution offerings and global operations:



24

---



All
the acquisitions completed during fiscal 2000 were accounted for as purchases. See Note 2 in the Notes to Consolidated Financial Statements

In
addition, in July 1999, Great Plains announced a partnership with Siebel Systems to offer Great Plains Siebel Front Office, providing midmarket customers the only fully
integrated back office, front office, and electronic business solution from a single source.

Subsequent
to fiscal 2000, Great Plains acquired Solomon Software, Inc., ("Solomon") a leading provider of flexible business management and e-business solutions.
Solomon will be operated as a separate business unit that will continue to deliver and enhance the award-winning Solomon line of business management and e-business solutions and will also
provide industry-leading services to Solomon partners and customers. Moving forward, the existing Great Plains business units and the new Solomon business unit will share best practices and
collaborate on next-generation research and development to further enhance Great Plains' e-business offerings to the midmarket.

Great
Plains' revenues are derived from two principal sources: software license fees and fees for maintenance, technical support, training and consulting services. As required, Great
Plains recognizes revenue in accordance with Statement of Position 97-2, Software Revenue Recognition, which it adopted
beginning June 1, 1998. Statement of Position 97-2 generally requires revenue earned on software products, upgrades or enhancements, rights to exchange or return software, post
contract customer support, or services, including elements deliverable only on a when-and-if-available basis, to be allocated to the various elements of the sale
based on vendor specific objective evidence of fair market values. If this evidence does not exist, revenue from the sale would be deferred until sufficient evidence exists, or until all

25

---

elements have satisfied the requirements for revenue recognition. Prior to adoption of Statement of Position 97-2, Great Plains recognized revenue in accordance with Statement of Position
91-1, Software Revenue Recognition. This adoption did not have a material effect on the timing of Great Plains' revenue recognition or cause changes to Great Plains' revenue recognition
policies. See Note 1 in the Notes to Consolidated Financial Statements.

License
fee revenues are generally recognized upon shipment of the related software product and associated registration keys. Fees for Great Plains' maintenance and support plans are
recorded as deferred revenue when billed to the customer and recognized ratably over the term of the maintenance and support agreement, which is typically one year. Fees for Great Plains' training and
consulting services are recognized at the time the services are performed.

Great
Plains' customers are required to purchase a one-year maintenance plan at the time the product is acquired. A majority of these customers renew the maintenance plan
after the initial term. Under the maintenance plan, Great Plains provides these customers with product upgrades in addition to on-line assistance and information.

For
further discussion of recently issued accounting standards that may impact Great Plains' future financial results, see Note 1 in the Notes to Consolidated Financial
Statements.

RESULTS OF OPERATIONS

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

|                                  |                                              | Year Ended May 31,       |     
|--------------------------------- | -------------------------------------------- | ------------------------ | ----
|
|As a percentage of total revenues |                                              |                          |     
|Revenues:                         |                                              |                          |     
|                                  | License                                      |                          | 54.5
|                                  | Service                                      |                          | 45.5
|                                  |                                              |                          |     
|                                  |                                              | Total revenues           |     
|Cost of revenues:                 |                                              |                          |     
|                                  | License                                      |                          | 13.2
|                                  | Service                                      |                          | 17.7
|                                  | Amortization of acquired intangibles         |                          | 0.4 
|                                  |                                              |                          |     
|                                  |                                              | Total cost of revenues   |     
|                                  |                                              |                          |     
|                                  |                                              | Gross profit             |     
|Operating expenses:               |                                              |                          |     
|                                  | Sales and marketing                          |                          | 34.4
|                                  | Research and development                     |                          | 16.8
|                                  | General and administrative                   |                          | 9.3 
|                                  | Amortization of acquired intangibles         |                          | 5.7 
|                                  | Acquired in-process research and development |                          |     
|                                  |                                              |                          |     
|                                  |                                              | Total operating expenses |     
|                                  |                                              |                          |     
|Operating income                  |                                              | 2.5                      |     
|Other income, net                 |                                              | 2.8                      |     
|                                  |                                              |                          |     
|Income before income taxes        |                                              | 5.3                      |     
|Income tax provision              |                                              | 2.5                      |     
|                                  |                                              |                          |     
|Net income                        |                                              | 2.8                      | %   
|                                  |                                              |                          |     

26

---

Revenues

Revenues.Revenues increased to $194.9 million for fiscal 2000 from
$134.9 million in fiscal 1999 and $85.7 million in fiscal 1998, representing increases of 44.4% and 57.5%, respectively. These increases in revenues were primarily due to increased
demand for Great Plains eEnterprise and Dynamics products and related services from both new and existing customers. During fiscal 2000, the increase in revenue can also be attributed to new strategic
partnerships and acquisitions. In fiscal 2000, Great Plains launched a front office solution through a strategic partnership with Siebel Systems and completed the acquisitions of RealWorld, BTK, PWA
and FRx.

Great
Plains' international revenues increased to $37.3 million in fiscal 2000 from $22.8 million in fiscal 1999 and $13.4 million in fiscal 1998, representing
19.1%, 16.9%, and 15.6% of total revenues for fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, the increase in international revenues was a result of growth in existing markets as well as
through the acquisition of BTK in Germany and PWA in the United Kingdom. In fiscal 1999, the revenue growth was largely a result of growth in markets served by our existing subsidiary operations and
the fact that all of our subsidiaries were in operation for the entire year. In fiscal 1998, the growth was primarily a result of growth in our international subsidiary operations in the United
Kingdom and Australia, as well as from the addition of new subsidiary operations in Singapore, South Africa and Scandinavia.

License.Total license fee revenues increased to $106.3 million in fiscal 2000 from
$79.7 million in fiscal 1999 and $53.0 million in fiscal 1998, representing increases of 33.4% and 50.5%, respectively. These increases in total license fee revenues are largely
attributable to increased market demand for our products from both new and existing customers. This demand was driven, in part, by additional product offerings. In fiscal 2000, Great Plains expanded
our product offerings with our acquisitions of PWA, BTK, and FRx, while launching into front office through a strategic partnership with Siebel Systems. In addition in fiscal 2000, Great Plains
released a project accounting solution. In fiscal 1999, Great Plains released human resources, manufacturing and enterprise reporting solutions. The release of these new solutions contributed to the
increase in license fee revenues.

Service.Service revenues increased to $88.6 million in fiscal 2000, from
$55.2 million in fiscal 1999 and $32.7 million in fiscal 1998, representing increases of 60.4% and 68.8%, respectively. Service revenues as
a percentage of total revenues were 45.5%, 40.9%, and 38.2% for fiscal 2000, 1999 and 1998, respectively. The increase in service revenues is due largely to the service associated with our increased
number of licenses for our products and renewals of existing maintenance and support contracts from the increased installed base of customers. The increase in service revenues as a percentage of total
revenues is due primarily to renewals of existing maintenance and support contracts from the installed base of customers.

Costs and Expenses

Cost of License Revenues.Cost of license revenues consists primarily of the costs of product
manuals, media, shipping and royalties paid to third-parties. Cost of license revenues increased to $25.7 million in fiscal 2000 from $19.4 million in fiscal 1999 and
$11.2 million in fiscal 1998, representing 24.2%, 24.3% and 21.2% of total license revenues in fiscal 2000, 1999 and 1998, respectively. The increases in cost of license revenues are primarily
attributable to an overall growth in license revenues and an increase in the sale of products for which Great Plains is obligated to pay royalties to third-party vendors. The increase in cost of
license revenues as a percentage of license revenues increased in fiscal 1999 over fiscal 1998 due to a higher mix of revenue from sales of third-party products for which we have a royalty obligation.
The cost of license revenues as a percentage of license revenues may continue to increase if Great Plains enters into additional royalty arrangements or if the sales of products which includes royalty
obligations increase as a percentage of total license revenues.

27

---

Cost of Service Revenues.Cost of service revenues consists of the costs of providing
electronic and telephone support, training and consulting services to customers and partners. Cost of service revenues increased to $34.4 million for fiscal 2000 from $18.3 million in
fiscal 1999 and $11.1 million in fiscal 1998. The increase in cost of service revenues in dollars is primarily due to the expansion of Great Plains' service resources. Cost of service revenues
as a percentage of service revenues increased to 38.8% for fiscal 2000 from 33.2% for fiscal 1999 and from 34.0% in fiscal 1998. The increase in cost of service revenues as a percentage of service
revenues for fiscal 2000 was due to additional team members added in professional services to support the new solution areas of front office, human resources, project accounting and electronic
commerce as well as increased costs associated with servicing the increased installed base. The decrease in cost of service revenues as a percentage of service revenues for fiscal 1999 from fiscal
1998 was due, in part, to improved efficiency in operations and continued strong customer enrollment in maintenance plans and support contracts. We anticipate that cost of service revenues will
increase in dollar amount as service revenues increase and may increase as a percentage of service revenues if additional resources are added to support new initiatives.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries, commissions,
travel and promotional expenses. Sales and marketing expenses increased to $67.1 million for fiscal 2000 from $47.8 million in fiscal 1999 and $31.5 million in fiscal 1998,
representing 34.4%, 35.5%, and 36.8% of total revenues for fiscal 2000, 1999 and 1998, respectively. The decrease in sales and marketing expenses as a percentage of total revenues in fiscal 2000 and
fiscal 1999 reflects an increase in sales and marketing productivity. The dollar increase in sales and marketing expenses is attributable to the hiring of additional sales and marketing personnel,
continued investments in expanding the capacity and capability of the channel for our products, increased marketing expenses for our products including a global advertising and brand awareness
campaign, and increased commission expenses associated with higher revenues. Also, Great Plains increased sales and marketing expenses related to the operation of our international subsidiaries in
Canada, the United Kingdom, Germany, Scandinavia, South Africa, Singapore and Australia. In fiscal 2000, sales and marketing expenses also increased as a result of sales and marketing expenses
associated with the acquisitions of RealWorld, BTK, PWA and FRx. 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. Research and development expenses increased to $32.7 million in fiscal 2000 from $19.5 million in fiscal 1999 and
$12.5 million in fiscal 1998, representing 16.8%, 14.4% and 14.6% of total revenues for fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, the increase in research and development
expenses both in dollars and as a percentage of total revenues was primarily due to the acquisitions of BTK, PWA and FRx and as a result of additional resources added to further develop the new
solution areas of e-business, front office, human resources, and project accounting. In fiscal 1999, the increase in research and development in dollars was due, in part, to additional
resources added to further develop the new solution areas of e-business, human resources, manufacturing and enterprise reporting, as well as from resources added as a result of the fourth
quarter 1999 acquisition of Match Data Systems, which included an established development center in Manila, Philippines. In fiscal 1998, the dollar increase for research and development was from
development efforts primarily focused on the delivery of substantial new versions of Great Plains products and the release of an electronic commerce solution. 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
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 increased to $18.2 million for fiscal 2000
from $11.1 million in fiscal 1999 and $7.6 million in fiscal 1998, representing 9.3%, 8.2% and 8.9% of total revenues for fiscal

28

---

2000, 1999 and 1998, respectively. These increases were primarily due to increased staffing and related expenses necessary to manage and support the expansion of our operations. In fiscal 2000, the
acquisitions of BTK, PWA, and FRx have resulted in increased general and administrative expenses. We believe that our general and administrative expenses will increase in dollar amount in the future
to support the expansion of our operations.

Amortization of Acquired Intangibles.Amortization of acquired intangible assets represents the
periodic amortization expense of acquired intangibles and goodwill from acquisitions completed by Great Plains. The portion of acquired intangible assets that is identified as "acquired technology' is
included in the Cost of Revenues section of the Consolidated Statement of Income. The acquired technology assets are being amortized over their expected useful lives ranging from four to five years.
Amortization of acquired technology for fiscal 2000 was $0.9 million, representing 0.4% of total revenues. Amortization of other acquired intangible assets and goodwill is recorded within the
Operating Expenses section of the Consolidated Statement of Income. The goodwill and acquired intangibles are being amortized over their expected useful lives ranging from four to five years.
Amortization of acquired intangible assets was $11.1 million in fiscal 2000, $1.1 million in fiscal 1999 and $0.2 million in fiscal 1998, representing 5.7%, 0.9%, and 0.2% of
total revenues, respectively. The increase of amortization of intangibles in both dollars and as a percentage of total revenue for fiscal 2000 relates to the acquisitions that were completed during
fiscal 2000. The increase of amortization of intangibles for fiscal 1999 relates to the acquisitions of ICONtrol Inc. and certain assets and liabilities of Telenor Financial Systems that
occurred late in fiscal 1998. See Note 2 in the Notes to Consolidated Financial Statements for a listing of the acquisitions completed in fiscal 2000. Given that the majority of these
acquisitions occurred during the last half of fiscal 2000 and given the subsequent acquisition of Solomon Software, which will be accounted for as a purchase accounting transaction, amortization of
acquired intangibles will increase in future periods. See Note 16 in the Notes to Consolidated Financial Statements.

Acquired In-Process Research and Development.Great Plains completed two
acquisitions in the fourth quarter of fiscal 1998, both of which were accounted for using the purchase method of accounting. The first acquisition provided a human resources application and
manufacturing solution, while the second acquisition provided a enterprise reporting solution. The purchase price for these acquisitions was $7.5 million for the manufacturing and human
resource applications and $4.4 million for the enterprise reporting solution.

Valuation
of the intangible assets acquired were determined by an independent third party appraisal company and consisted of in-process research and development, current
technology, assembled workforce, and goodwill. The amounts related to in-process research and development included $3.2 million for manufacturing, $2.2 million for human
resources, and $1.7 million for enterprise reporting. These amounts were determined by an independent third party appraisal company and were charged against income in fiscal 1998, as the
underlying research and development projects had not yet reached technological feasibility and had no alternative future uses.

Great
Plains has used the acquired in-process research and development to complete new products in the areas of human resources, manufacturing, and enterprise reporting,
which will become part of our product lines over the next several years. We released the initial products developed from the acquired in-process research and development in fiscal 1999. We
expect additional significant releases will continue through fiscal 2003.

Other Income, Net.Other income, net, consists primarily of earnings from investments, net of
any interest expense. Other income, net, increased to $5.5 million for fiscal 2000 from $3.6 million in fiscal 1999 and $3.3 million in fiscal 1998. The increase in other income,
net in fiscal 2000 was primarily a result of increased investment earnings due to higher interest rates our investments returned during the year and the more than $47 million received from
Great Plains' public offering of common stock in March 1999. The increase in other income, net in fiscal 1999 over fiscal 1998 was a result of the more than $47 million

29

---

received from Great Plains' public offering of common stock in March 1999, as well as additional cash resulting from our increased operating income.

Provision for Income Taxes.Provision for income taxes was $4.9 million,
$8.5 million and $3.2 million for fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, 1999 and 1998, the provision for income taxes was 47.3%, 40.0% and 41.9%, respectively, of
income before income taxes. In fiscal 2000, the decrease in dollar amount of the provision for income taxes is the result of a lower operating income. The increase in the effective tax rate is a
result of the non-deductibility of amortization of certain acquired intangibles for income tax purposes. See Note 11 in the Notes to Consolidated Financial Statements.

Net Income.Net income was $5.4 million, $12.8 million and $4.4 million
for fiscal 2000, 1999 and 1998, respectively. The overall decrease in net income in fiscal 2000 from fiscal 1999 is due primarily to the amortization of acquired intangibles that Great Plains recorded
as a result of the acquisitions that were completed during fiscal 2000. Great Plains anticipates that it will experience net losses for the foreseeable future due to the amortization expenses of
acquired intangibles associated with the acquisitions of in fiscal 2000 and the acquisition of Solomon Software in June 2001. See Notes 2 and 16 in the Notes to Consolidated Financial
Statements for discussion of the acquisitions completed.

30

---

## 

Selected Quarterly Operating Results

The following table sets forth certain unaudited consolidated financial information for each of the four quarters in Great Plains' fiscal years ended
May 31, 2000 and May 31, 1999. In management's opinion, this unaudited quarterly information has been prepared on the same basis as the audited consolidated financial statements and
includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented when read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere in this document. Great Plains believes that quarter-to-quarter comparisons of our financial results are
not necessarily meaningful and should not be relied upon as an indication of future performance.

|                               |                                      | Three Months Ended      
|------------------------------ | ------------------------------------ | ------------------------
|
|
|Revenues:                      |                                      |                         
|                               | License                              |                         
|                               | Service                              |                         
|                               |                                      |                         
|                               |                                      | Total revenues          
|Cost of revenues:              |                                      |                         
|                               | License                              |                         
|                               | Service                              |                         
|                               | Amortization of acquired intangibles |                         
|                               |                                      |                         
|                               |                                      | Total cost of revenues  
|                               |                                      |                         
|                               |                                      | Gross profit            
|Operating expenses:            |                                      |                         
|                               | Sales and marketing                  |                         
|                               | Research and development             |                         
|                               | General and administrative           |                         
|                               | Amortization of acquired intangibles |                         
|                               |                                      |                         
|                               |                                      | Total operating expenses
|                               |                                      |                         
|Operating income (loss)        |                                      |                         
|Other income, net              |                                      |                         
|                               |                                      |                         
|                               | Income (loss) before income taxes    |                         
|Income tax provision (benefit) |                                      |                         
|                               |                                      |                         
|Net income (loss)              |                                      | $                       
|                               |                                      |                         

Great
Plains' quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Such
fluctuations may result in volatility in the price of Great Plains' common stock. Management establishes our expenditure levels based on our expectations as to future revenue, and, if revenue levels
are below expectations, expenses can be disproportionately high. As a result, a drop in near-term demand for Great Plains' products could significantly affect both revenues and profits in
any quarter. In the future, Great Plains' operating results may fluctuate for this reason or as a result of a number of other factors, including increased expenses, timing of product releases,
increased competition, variations in the mix of sales, announcements of new products by Great Plains or our competitors, potential acquisitions and capital spending patterns of Great Plains'
customers.

31

---

Great Plains' business has experienced and may continue to experience seasonality. In recent years, due to a number of factors, including the timing of product releases and sales
incentive programs, Great Plains has recognized a greater percentage of our revenue in our fourth fiscal quarter than in any of the first three quarters. Moreover, due to fiscal year-end
sales incentive programs, Great Plains has historically recognized less revenue and operating income in our first fiscal quarter than in the other quarters.

Liquidity and Capital Resources

Great Plains has historically funded operations primarily through cash provided by operations and the sale of equity securities. Currently, Great Plains meets
our working capital needs with cash provided by operations.

Cash
provided by operating activities was $20.4 million, $24.6 million, and $17.6 million for fiscal 2000, 1999 and 1998, respectively. The decrease in cash
provided by operations in fiscal 2000 was primarily a result of decreased net income and an increase in accounts receivable. This decrease was partially offset by the increase in depreciation and
amortization charges as a result of acquisitions and an increase in deferred revenues. The increase in cash provided by operations in fiscal 1999 was primarily due to revenue growth and increased
profits from Great Plains' operations as well as increases in deferred revenues of $8.8 million, increase in accounts payable and accrued expenses of $8.9 million offset by a
$3.3 million reduction in income taxes payable and a $3.8 million increase in accounts receivable.

Great
Plains' investing activities used cash of $25.6 million, $65.8 million, and $63.8 million for fiscal 2000, 1999, and 1998, respectively. In fiscal 2000,
cash used for investing activities included $32.2 million for the purchase of property and equipment used for expansion of business as well as construction costs associated with a second
building that Great Plains is constructing on our campus in Fargo, North Dakota. Great Plains also used cash of $39.7 for acquisitions completed during the year. See Note 2 in the Notes to
Consolidated Financial Statements for a listing of acquisitions that occurred during the year. These expenditures were offset by the net sale of investments of $52.0 million in order to fund
Great Plains cash needs during the year.

The
principal use of cash in investing activities for fiscal 1999 was approximately $47 million for the purchase of investments following Great Plains' second public offering
of common stock. Investing activities in fiscal 1999 also included cash used of approximately $14.8 million for the purchase of property and equipment to support our growth as well as to
furnish the new building that we moved into in the first quarter of fiscal 2000. Investing activities in fiscal 1998 also included cash used of approximately $11.9 million for two acquisitions
completed in the fourth quarter of fiscal 1998. In addition, investing activities for fiscal 1998 included increased capital expenditures related to the acquisition of computer equipment and furniture
required to support expansion of our operations.

Great
Plains' financing activities provided cash of $5.1 million, $50.0 million, and $52.2 million during fiscal 2000, 1999 and 1998, respectively. Cash provided
by financing activities were derived from $3.5 million of proceeds from a note payable and $5.7 million of stock options that were exercised by employees. This increase in cash was
offset by $4.2 million of cash payments on notes payable, long-term debt and capital leases.

For
fiscal 1999, cash of $50.0 million was provided from financing activities primarily from $47.2 million from the sale of Great Plains common stock in a public
offering in March 1999 and proceeds received from stock options that were exercised during the year. For fiscal 1998, cash of $52.2 million was provided from financing activities
primarily from $50.3 million from the sale of Great Plains common stock in an initial public offering and proceeds received from the exercise of stock options.

Great
Plains' sources of liquidity at May 31, 2000, consisted principally of cash, cash equivalents and investments of $71.6 million. Great Plains also has a
$10.0 million revolving line of credit facility with a bank. The line of credit expires November 2000, and borrowings made thereunder are subject to certain

32

---

covenants. No amounts were outstanding under the line of credit at May 31, 2000. See Note 8 of Notes to Consolidated Financial Statements. Great Plains believes that our existing cash,
cash equivalents and investments, cash generated from operations and the amounts available under the line of credit will be sufficient to fund our operations for the foreseeable future.

Recently Issued Accounting Pronouncements

In December 1999, the Securities and Exchange Commission published Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB summarized certain of the
staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. This SAB is required to be implemented by Great Plains in fiscal 2001. Great Plains'
management believes the adoption of SAB No. 101 will not have a material effect on Great Plains' financial statements.

In
June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities."
This standard establishes accounting and reporting standards for derivative instruments and hedging activities. The Company must adopt SFAS No. 133, as amended by SFAS No. 137 and SFAS
No. 138, no later than June 1, 2001. Management believes the adoption of SFAS No. 133 will not have a material effect on the Company's financial statements.

ITEM 7A.  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. We do not expect any
material loss with respect to our investment portfolio or exposure to market risks associated with interest rates.

33

---

## 

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                     |                                                                                                                       | Page
|------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------- | ----
|Financial Statements:                                                                                                                |                                                                                                                       |     
|                                                                                                                                     | Report of Independent Accountants                                                                                     |     
|                                                                                                                                     | Consolidated Balance Sheet as of May 31, 2000 and 1999                                                                |     
|                                                                                                                                     | Consolidated Statement of Income for the three fiscal years ended May 31, 2000                                        |     
|                                                                                                                                     | Consolidated Statement of Stockholders' Equity and Comprehensive Income for the three fiscal years ended May 31, 2000 |     
|                                                                                                                                     | Consolidated Statement of Cash Flows for the three fiscal years ended May 31, 2000                                    |     
|                                                                                                                                     | Notes to Consolidated Financial Statements                                                                            |     
|Financial Statement Schedule:
  For the three years ended May 31, 2000
    Schedule IISchedule of Valuation and Qualifying Accounts |                                                                                                                       | 59  

34

---

## 

Report of Independent Accountants

To
the Board of Directors
and Stockholders of
Great Plains Software, Inc.

In
our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Great Plains
Software, Inc. and our subsidiaries at May 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2000
in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

/s/
PricewaterhouseCoopers LLP

PricewaterhouseCoopers
LLP
Minneapolis, Minnesota
June 22, 2000

35

---

## 

GREAT PLAINS SOFTWARE, INC.       CONSOLIDATED BALANCE SHEET  (Dollars in thousands, except per share amounts)

|                                                          |                                                                                                                                                     | May 31,                                    |        
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                                    |                                                                                                                                                     |                                            |        
|Current assets:                                           |                                                                                                                                                     |                                            |        
|                                                          | Cash and cash equivalents                                                                                                                           |                                            | $      
|                                                          | Investments                                                                                                                                         |                                            |        
|                                                          | Accounts receivable, net                                                                                                                            |                                            |        
|                                                          | Inventories                                                                                                                                         |                                            |        
|                                                          | Prepaid expenses and other current assets                                                                                                           |                                            |        
|                                                          | Deferred income tax assets                                                                                                                          |                                            |        
|                                                          |                                                                                                                                                     |                                            |        
|                                                          |                                                                                                                                                     | Total current assets                       |        
|Property and equipment, net                               |                                                                                                                                                     |                                            | 46,898 
|Goodwill and other intangibles, net                       |                                                                                                                                                     |                                            | 161,192
|Deferred income tax assets                                |                                                                                                                                                     |                                            | 1,444  
|Other assets                                              |                                                                                                                                                     |                                            | 6,878  
|                                                          |                                                                                                                                                     |                                            |        
|                                                          |                                                                                                                                                     | Total assets                               |        
|                                                          |                                                                                                                                                     |                                            |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                      |                                                                                                                                                     |                                            |        
|Current liabilities:                                      |                                                                                                                                                     |                                            |        
|                                                          | Accounts payable                                                                                                                                    |                                            | $      
|                                                          | Accrued expenses                                                                                                                                    |                                            |        
|                                                          | Salaries and wages payable                                                                                                                          |                                            |        
|                                                          | Commissions payable                                                                                                                                 |                                            |        
|                                                          | Deferred revenues                                                                                                                                   |                                            |        
|                                                          | Current portion of long-term debt and capital leases                                                                                                |                                            |        
|                                                          |                                                                                                                                                     |                                            |        
|                                                          |                                                                                                                                                     | Total current liabilities                  |        
|Long-term debt and capital leases, net of current portion |                                                                                                                                                     |                                            | 3,007  
|                                                          |                                                                                                                                                     |                                            |        
|                                                          |                                                                                                                                                     | Total liabilities                          |        
|Commitments and contingencies (Note 10)                   |                                                                                                                                                     |                                            |        
|Stockholders' equity:                                     |                                                                                                                                                     |                                            |        
|                                                          | Common stock, par value $.01 per share: 100,000,000 shares authorized, 17,375,010 shares and 15,362,820 shares issued and outstanding, respectively |                                            |        
|                                                          | Additional paid-in capital                                                                                                                          |                                            |        
|                                                          | Accumulated other comprehensive loss                                                                                                                |                                            |        
|                                                          | Retained earnings                                                                                                                                   |                                            |        
|                                                          |                                                                                                                                                     |                                            |        
|                                                          |                                                                                                                                                     | Total stockholders' equity                 |        
|                                                          |                                                                                                                                                     |                                            |        
|                                                          |                                                                                                                                                     | Total liabilities and stockholders' equity |        
|                                                          |                                                                                                                                                     |                                            |        

See
accompanying notes to the consolidated financial statements.

36

---

## 

GREAT PLAINS SOFTWARE, INC.              CONSOLIDATED STATEMENT OF INCOME         (Dollars in thousands, except per share amounts)

|                                                  |                                              | Year Ended May 31,       |      
|------------------------------------------------- | -------------------------------------------- | ------------------------ | -----
|
|Revenues:                                         |                                              |                          |      
|                                                  | License                                      |                          | $    
|                                                  | Service                                      |                          |      
|                                                  |                                              |                          |      
|                                                  |                                              | Total revenues           |      
|                                                  |                                              |                          |      
|Cost of revenues:                                 |                                              |                          |      
|                                                  | License                                      |                          |      
|                                                  | Service                                      |                          |      
|                                                  | Amortization of acquired intangibles         |                          |      
|                                                  |                                              |                          |      
|                                                  |                                              | Total cost of revenues   |      
|                                                  |                                              |                          |      
|                                                  |                                              | Gross profit             |      
|Operating expenses:                               |                                              |                          |      
|                                                  | Sales and marketing                          |                          |      
|                                                  | Research and development                     |                          |      
|                                                  | General and administrative                   |                          |      
|                                                  | Amortization of acquired intangibles         |                          |      
|                                                  | Acquired in-process research and development |                          |      
|                                                  |                                              |                          |      
|                                                  |                                              | Total operating expenses |      
|                                                  |                                              |                          |      
|Operating income                                  |                                              |                          | 4,757
|Interest expense                                  |                                              |                          | (230 
|Other income, net                                 |                                              |                          | 5,732
|                                                  |                                              |                          |      
|                                                  | Income before income taxes                   |                          |      
|Income tax provision                              |                                              |                          | 4,850
|                                                  |                                              |                          |      
|                                                  |                                              | Net income               |      
|                                                  |                                              |                          |      
|Income per common share:                          |                                              |                          |      
|                                                  | Basic                                        |                          | $    
|                                                  |                                              |                          |      
|                                                  | Diluted                                      |                          | $    
|                                                  |                                              |                          |      
|Shares used in computing income per common share: |                                              |                          |      
|                                                  | Basic                                        |                          |      
|                                                  |                                              |                          |      
|                                                  | Diluted                                      |                          |      
|                                                  |                                              |                          |      

See
accompanying notes to the consolidated statements.

37

---

## 

GREAT PLAINS SOFTWARE, INC.              CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME         (Dollars in thousands)

|                                               |  | Series A Preferred |   | Common Stock |      |   |            |  |   |     |  |   |         |   |  
|---------------------------------------------- |  | ------------------ | - | ------------ | ---- | - | ---------- |  | - | --- |  | - | ------- | - | -
|
|
|Balance May 31, 1997                           |  | 225,000            |   | $            | 199  |   | 8,080,335  |  | $ | 81  |  | $ | (13,843 | ) | $
|Sale of common stock, net                      |  |                    |   |              |      |   | 3,450,000  |  |   | 34  |  |   | 50,209  |   |  
|Exercise of stock options                      |  |                    |   |              |      |   | 286,708    |  |   | 3   |  |   | 1,900   |   |  
|Conversion of preferred stock to common stock  |  | (225,000           | ) |              | (199 | ) | 1,847,627  |  |   | 18  |  |   | 28,878  |   |  
|Tax benefit from stockholder transactions      |  |                    |   |              |      |   |            |  |   |     |  |   | 586     |   |  
|Stock issued for business combination          |  |                    |   |              |      |   | 56,250     |  |   | 1   |  |   | 71      |   |  
|Net income                                     |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|                                               |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Balance May 31, 1998                           |  |                   |   |              |     |   | 13,720,920 |  |   | 137 |  |   | 67,801  |   |  
|                                               |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Sale of common stock, net                      |  |                    |   |              |      |   | 1,318,325  |  |   | 13  |  |   | 47,165  |   |  
|Exercise of stock options                      |  |                    |   |              |      |   | 218,534    |  |   | 3   |  |   | 2,804   |   |  
|Tax benefit from stockholder transactions      |  |                    |   |              |      |   |            |  |   |     |  |   | 978     |   |  
|Stock issued for business combinations         |  |                    |   |              |      |   | 105,041    |  |   | 1   |  |   | (65     | ) |  
|Translation adjustment                         |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Net unrealized loss on investments, net of tax |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Net income                                     |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|                                               |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Balance May 31, 1999                           |  |                   |   |              |     |   | 15,362,820 |  |   | 154 |  |   | 118,683 |   |  
|                                               |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Exercise of stock options                      |  |                    |   |              |      |   | 426,162    |  |   | 4   |  |   | 5,728   |   |  
|Tax benefit from stockholder transactions      |  |                    |   |              |      |   |            |  |   |     |  |   | 893     |   |  
|Stock issued for business combinations         |  |                    |   |              |      |   | 1,586,028  |  |   | 16  |  |   | 116,605 |   |  
|Translation adjustment                         |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Net unrealized gain on investments, net of tax |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Net income                                     |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|                                               |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  
|Balance May 31, 2000                           |  |                   |   |              |     |   | 17,375,010 |  | $ | 174 |  | $ | 241,909 |   | $
|                                               |  |                    |   |              |      |   |            |  |   |     |  |   |         |   |  

See accompanying notes to the consolidated financial statements.

38

---

## 

GREAT PLAINS SOFTWARE, INC.              CONSOLIDATED STATEMENT OF CASH FLOWS         (Dollars in thousands)

|                                                 |                                                                                   | Year Ended May 31,                                                                     |                                        
|------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ---------------------------------------
|
|Cash flows from operating activities:            |                                                                                   |                                                                                        |                                        
|                                                 | Net income                                                                        |                                                                                        | $                                      
|                                                 | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                        |                                        
|                                                 |                                                                                   | Depreciation and amortization                                                          |                                        
|                                                 |                                                                                   | Acquired in-process research and development                                           |                                        
|                                                 |                                                                                   | Deferred income tax expense                                                            |                                        
|                                                 |                                                                                   | Changes in operating assets and liabilities excluding effect of business combinations: |                                        
|                                                 |                                                                                   |                                                                                        | Accounts receivable                    
|                                                 |                                                                                   |                                                                                        | Inventories                            
|                                                 |                                                                                   |                                                                                        | Prepaid expenses and other assets      
|                                                 |                                                                                   |                                                                                        | Accounts payable and accrued expenses  
|                                                 |                                                                                   |                                                                                        | Salaries, wages and commissions payable
|                                                 |                                                                                   |                                                                                        | Deferred revenue                       
|                                                 |                                                                                   |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|Cash flows from investing activities:            |                                                                                   |                                                                                        |                                        
|                                                 | Purchases of property and equipment                                               |                                                                                        |                                        
|                                                 | Purchases of businesses, net of cash acquired                                     |                                                                                        |                                        
|                                                 | Purchase of investments                                                           |                                                                                        |                                        
|                                                 | Proceeds from investments                                                         |                                                                                        |                                        
|                                                 | Purchase of other assets                                                          |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|Cash flows from financing activities:            |                                                                                   |                                                                                        |                                        
|                                                 | Principal payments on notes payable, long-term debt and capital lease obligations |                                                                                        |                                        
|                                                 | Proceeds from loan                                                                |                                                                                        |                                        
|                                                 | Exercise of stock options                                                         |                                                                                        |                                        
|                                                 | Proceeds from issuance of common stock, net                                       |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|                                                 |                                                                                   |                                                                                        |                                        
|(Decrease) increase in cash and cash equivalents |                                                                                   |                                                                                        | (71                                    
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                                        | 26,983                                 
|                                                 |                                                                                   |                                                                                        |                                        
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                                      | 26,912                                 
|                                                 |                                                                                   |                                                                                        |                                        
|Supplemental cash flow information:              |                                                                                   |                                                                                        |                                        
|                                                 | Interest paid                                                                     |                                                                                        | $                                      
|                                                 | Income taxes paid                                                                 |                                                                                        | $                                      

See
accompanying notes to the consolidated financial statements.

39

---

## 

GREAT PLAINS SOFTWARE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

Business Information

Great Plains (Nasdaq: GPSI) offers e-business solutions that interconnect business communities. These e-business solutions automate
processes among financials, distribution, enterprise reporting, project accounting, electronic commerce, human resources and payroll, manufacturing, sales and marketing management, and customer
service and support functions. Great Plains' solutions are sold and implemented by a unique worldwide network of independent partner organizations that share the company's commitment to lasting
customer relationships.

Significant Accounting Policies



The consolidated financial statements include the accounts of Great Plains and our subsidiaries in the United States, Canada, the United Kingdom, Germany,
Scandinavia, South Africa, Singapore, Australia and the Philippines, collectively the "Company". All significant intercompany accounts and transactions have been eliminated in consolidation.
Essentially all assets and liabilities are translated to U.S. dollars at year-end exchange rates, while elements of the income statement are translated at average exchange rates in effect
during the year. The functional currency of the subsidiaries is the local currency. Therefore, all translation gains and losses resulting from fluctuations in currency exchange rates of these
subsidiaries are recorded as a component of accumulated other comprehensive loss in equity.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.



The Company's financial instruments consist of cash, investments, short-term receivables, payables, capital leases and loans for which their
current carrying amounts approximate fair market value.



Financial instruments that potentially subject the Company to credit risk consist primarily of cash, cash equivalents, investments and accounts receivable. The
Company grants credit to customers in the ordinary course of business. No single customer or region represents a significant concentration of credit risk. The Company invests its cash with high
quality financial institutions.



Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less and which are readily convertible to
cash.

40

---



Investments in debt securities that are not cash equivalents have been designated as available for sale. Those securities, which consist of various high rated
governmental securities and corporate commercial paper, are reported at fair value, with net unrealized gains and losses included in stockholders' equity. The net unrealized gain on investments in
debt securities, net of income tax, was $69,000 at May 31, 2000 and the net unrealized loss on investment in debt securities, net of income tax, was $81,000 at May 31, 1999. The
maturities of the debt securities range between 2000 to 2001.



Inventories consisting of media, training materials and packaging supplies are stated at lower of cost or market, with cost determined on a
first-in, first-out ("FIFO") basis.



Income taxes are accounted for under the liability method in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
No. 109"), "Accounting for Income Taxes." Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of
assets and liabilities.



Property and equipment are stated at cost. Major improvements are capitalized while maintenance and repairs are expensed currently. Depreciation is computed
using the straight-line method based on estimated useful lives of three to five years for computer equipment and five to ten years for furniture, fixtures and equipment. Leasehold
improvements are amortized over the lesser of the terms of the related leases or estimated useful life. Purchased computer software, which is used internally, is amortized over a period of three to
five years using the straight-line method. Amortization expense is included with depreciation expense in the consolidated statement of cash flows.



Amortization of intangible assets and goodwill is recorded on a straight line basis over their estimated useful lives ranging from four to seven years. The
recoverability of unamortized intangible assets and goodwill is assessed on an ongoing basis by comparing anticipated undiscounted cash flows to net book value.



Software license revenues are recognized upon shipment less a reserve for estimated future returns. Revenues from support and maintenance service contracts are
recorded as deferred revenues when billed and recognized ratably over the contract period. Other service revenues such as training and consulting services are recognized as the services are performed.
The Company, at managements discretion, may allow customers to return products for a short period of time following the sale. The Company provides an allowance for these anticipated returns based upon
our historical experience of returns for similar products. These amounts are recorded as an offset to license revenues. Statement of Position 97-2 ("SOP 97-2"), "Software
Revenue Recognition," was effective in fiscal 1999 and was adopted by the Company on

41

---

June 1, 1998. The adoption of SOP 97-2 did not have a material effect on the timing of the Company's revenue recognition or cause changes to its revenue recognition policies.



The Company accrues, at the time of sale, an estimated liability for qualified advertising expenses incurred by partner organizations for which the Company has
agreed to reimburse such parties as part of a cooperative advertising program. Other advertising costs are expensed as incurred. Advertising expense was approximately $9,742,000, $7,638,000 and
$3,731,000 for the years ended May 31, 2000, 1999 and 1998, respectively.



Expenditures for software development costs and research are expensed as incurred. Such costs are required to be expensed until the point that technological
feasibility is established. The period between achieving technological feasibility and the general availability of such software has been short. Consequently, costs otherwise capitalizable after
technological feasibility is achieved are generally expensed because they are insignificant.



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 reflect the potential dilution of securities that could share in the earnings of an entity.

The
following table sets forth the computation of basic and diluted net income per share (dollars in thousands, except per share amounts):

|                                            |  | For the Year Ended May 31,
|------------------------------------------- |  | --------------------------
|
|Basic earnings per share computation:       |  |                           
|Net income available to common stockholders |  | $                         
|                                            |  |                           
|Weighted average common shares              |  |                           
|                                            |  |                           
|Basic net income per share                  |  | $                         
|                                            |  |                           
|Diluted earnings per share computation:     |  |                           
|Net income                                  |  | $                         
|                                            |  |                           
|Shares calculation:                         |  |                           
|Weighted average number of common shares    |  |                           
|Effect of dilutive stock options            |  |                           
|                                            |  |                           
|                                            |  |                           
|                                            |  |                           
|Diluted net income per share                |  | $                         
|                                            |  |                           

42

---



Comprehensive income for the Company includes net income, the effects of currency translation which are charged or credited to the cumulative translation
adjustment account within stockholders' equity, and the unrealized gain/loss on investments available for sale which is recorded within stockholders' equity. Comprehensive income for all periods
presented is included in the Consolidated Statement of Stockholders' Equity and Comprehensive Income.



In January, 2000, the Company purchased 33 acres of land immediately west of its North Dakota headquarters from a partnership controlled by one of its
directors for expansion purposes. The purchase price of $969,000 (based upon $.67 per square foot) was determined by an independent third-party appraisal.



Certain prior year amounts have been reclassified to conform with the current year presentation.



In December 1999, the Securities and Exchange Commission published Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB summarized certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. This SAB is required to be
implemented by Great Plains in fiscal 2001. Great Plains' management believes the adoption of SAB No. 101 will not have a material effect on Great Plains' financial statements.

In
June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities."
This standard establishes accounting and reporting standards for derivative instruments and hedging activities. The Company must adopt
SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, no later than June 1, 2001. Management believes the adoption of SFAS No. 133 will not have a material
effect on the Company's financial statements.

2.  BUSINESS COMBINATIONS



In March 2000, the Company acquired FRx Software Corporation, a developer of financial reporting and analytics solutions, through a merger agreement by
the issuance of approximately 786,000 shares of the Company's common stock and $12.3 million in cash.

In
February 2000, the Company acquired PWA Group, Limited, a provider of human resource and payroll solutions based in the United Kingdom through the issuance of approximately
416,000 shares of the Company's common stock and $6.8 million in cash.

In
January 2000, the Company acquired BTK Software & Consulting AG, a developer of front office and back office solutions based in Germany, through the issuance of
approximately 96,000 shares of the Company's common stock and $5.5 million in cash.

43

---

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 our e-business products for which the Company was previously marketing under an OEM agreement.

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.

In
December 1999, the Company established a wholly owned subsidiary in Germany through the acquisition of an established international alliance partner. Total consideration for
the acquisition was approximately $4.6 million.

In
October 1999, the Company acquired Southern Plains, LLC through the payment of approximately $5.7 million of cash. This acquisition provides ownership of the field
service solution for which the Company was previously marketing under an OEM agreement.

The
value of the Company's common stock issued for the acquisitions completed during fiscal 2000 was determined by the average Great Plains common stock price shortly before and after
the announcements of the acquisitions. All of the transactions above were accounted for using the purchase accounting method and accordingly, the net assets acquired were recorded at their estimated
fair values at the effective dates of the acquisitions. The following table presents the purchase price allocation of these acquisitions (dollars in thousands):

Cash and fair value of the Company's common stock issued

$
163,205Direct acquisition costs


3,709Net liabilities assumed


25,727Total purchase price

$
192,641Estimated fair value of tangible assets acquired

$
24,469Estimated fair value of identifiable intangible assets


19,020Goodwill


154,487Deferred tax liabilities related to identifiable intangibles


(5,335
)$
192,641


The
value of the intangible assets was determined by a third party appraiser. The intangible assets are being amortized over their estimated lives of four to five years.

Except
for the FRx acquisition, the results of operations from all of the acquisitions that were completed during fiscal 2000 were not material to the consolidated financial
statements; accordingly, pro forma financial disclosures for those acquisitions are not presented.

44

---

The following table presents the consolidated results of operations on an unaudited pro forma basis as if the acquisition of FRx had taken place at the beginning of each year
presented (dollars in thousands, except per share amounts).

May 31,2000

1999Total revenues

$
206,453

$
148,272Net loss

$
(6,604
)
$
(2,494
)Pro forma net loss per share

$
(0.40
)
$
(0.17
)


The
unaudited pro forma results of operations are for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the
beginning of the periods presented or the results which may occur in the future.



In April 1999, the Company received all of the outstanding capital stock of Match Data Systems, Inc., a software provider of project accounting
solutions, in a transaction that was accounted for as a pooling of interests. To affect the business combination, the Company issued a combination of 159,618 shares and options of the Company's common
stock. Financial data for the periods prior to the closing of this transaction has not been restated because neither the net assets nor operating results were material to the Company's consolidated
financial statements. The Company's consolidated financial statements include the results of Match Data Systems, Inc. since May 1, 1999.

In
April 1998, the Company acquired certain assets and assumed certain liabilities of ICONtrol, Inc., a software provider of manufacturing and human resource solutions.
The purchase price was paid in cash and totaled $7,536,000. The acquisition was accounted for as a purchase and accordingly, the net assets acquired were recorded at their estimated fair values at the
effective date of the acquisition. The allocation included $5,456,000 to in-process research and development, $1,935,000 to intangible assets and $145,000 to the fair value of net tangible
assets.

The
$5,456,000 related to acquired in-process research and development, as determined by an independent third party appraisal, was charged against income in fiscal 1998 as
the underlying research and development projects had not yet reached technological feasibility. The Company's consolidated financial statements include the results of ICONtrol since date of
acquisition.

The
following table presents the consolidated results of operations on an unaudited pro forma basis as if the acquisition of ICONtrol had taken place at the beginning of fiscal 1998
(dollars in thousands, except per share amounts):

May 31, 1998Total revenues

$
88,060Net income

$
7,367Pro forma net income per share (diluted)

$
0.53Reported net income per share (diluted) before acquisition related charges

$
0.63


45

---

The one time charge for acquired in-process research and development is not reflected in the pro forma results presented above. The unaudited pro forma results of
operations are for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the periods presented or the results
which may occur in the future.

In
May 1998, the Company acquired certain assets and assumed certain liabilities of Telenor Financial Systems, a software provider of sophisticated multinational consolidations
and budgeting solutions. The purchase price was paid in cash and totaled $4,406,000. The acquisition was accounted for as a purchase and accordingly, the net assets acquired were recorded at their
estimated fair values at the effective date of the acquisition. The allocation included $1,680,000 to in-process research and development, $990,000 to intangible assets, $1,681,000 to
goodwill and $55,000 to the fair value of net tangible assets.

The
$1,680,000 related to acquired in-process research and development, as determined by an independent third party appraisal, was charged against income in fiscal 1998 as
the underlying research and development projects had not yet reached technological feasibility. The Company's consolidated financial statements include the results of Telenor Financial Systems from
May 1, 1998. The results of operations prior to May 1, 1998, were not material to the consolidated financial statements; accordingly, pro forma financial disclosures are not presented.

In
September 1997, the Company received all of the outstanding capital stock of its Singapore distributor in a transaction that was accounted for as a pooling of interest. To
effect the business combination, the Company issued 56,250 shares of the Company's common stock. Financial data for the periods prior to the closing of this transaction have not been restated because
neither the net assets nor operating results were material to the Company's consolidated financial statements. The Company's consolidated financial statements include the results of the Singapore
distributor since September 1, 1997.

3.  ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances, consist of the following (dollars in thousands)

May 31,2000

1999Gross accounts receivable

$
50,934

$
18,280Less allowance for returns and doubtful accounts


(7,425
)

(5,687
)$
43,509

$
12,593


46

---

4.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following (dollars in thousands):

May 31,2000

1999Land

$
1,698

$
225Furniture and fixtures


9,986


7,239Computers and equipment


41,030


23,520Leasehold improvements


3,499


943Purchased software for internal use


12,239


2,632Construction in progress


4,441


72,893


34,559Less accumulated depreciation and amortization


(25,995
)

(15,208
)$
46,898

$
19,351


Depreciation
expense for the years ended May 31, 2000, 1999, 1998, was $8,358,000, $4,069,000, and $2,676,000, respectively.

5.  GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangibles consist of the following (dollars in thousands):

May 31,2000

1999Goodwill

$
154,419

$
2,308Other intangibles


22,618


2,925177,037


5,233Less accumulated amortization


(15,845
)

(1,395
)$
161,192

$
3,838


Amortization
expense for the years ended May 31, 2000, 1999 and 1998 was $11,979,000, $1,078,000 and $187,000, respectively.

6.  ACCRUED EXPENSES

Accrued expenses consist of the following (dollars in thousands):

May 31,2000

1999Accrued vacation payable

$
5,551

$
3,780Coop advertising accrual


1,767


2,074Sales tax payable


1,299


521Other


15,009


5,215$
23,626

$
11,590


47

---

7.  OTHER INCOME, NET

Other income, net consists of the following (dollars in thousands):

May 31,2000

1999

1998Interest income

$
5,506

$
3,998

$
3,508Other


226


(403
)

(232
)$
5,732

$
3,595

$
3,276


8.  LINE OF CREDIT

The Company has a $10,000,000 revolving line of credit facility with a bank that provides for interest at prime. Substantially all of the Company's assets are
pledged as collateral on the line of credit, which expires in November 2000, and is subject to certain covenants, all of which had been complied with at May 31, 2000. There were no
amounts outstanding at May 31, 2000 or 1999.

9.  LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consists of the following (dollars in thousands):

May 31, 2000Various capital lease obligations with interest rates varying from 7.6% to 14.3%, at May 31, 2000, maturities through February 2002, repayable in monthly installments and collateralized by the related
equipment

$
442Variable term loan bearing interest at the prime rate (adjusted annually) less a 5% PACE Interest Buy Down (3.5% as of May 31, 2000), matures January 31, 2004, payable in monthly installments and secured by
various assets


3,305Mortgage payable bearing interest at 2.25% over the defined rate, through September 15, 2003 (7.25% as of May 31, 2000). The interest rate then reverts to 1.25% over the base rate, as defined, thereafter (7.25%
as of May 31, 2000).


441Other


1084,296Current portion of long-term debt


(1,289
)$
3,007


Long-term
debt and capital lease obligations maturing in each of the next five years is $1,289,000 in fiscal 2001, $1,037,000 in fiscal 2002, $920,000 in fiscal 2003,
$820,000 in fiscal 2004 and $230,000 in fiscal 2005.

48

---

10.  COMMITMENTS AND CONTINGENCIES



Rental expense incurred for operating leases of office facilities and office equipment was approximately $5,648,000 in 2000, $1,706,000 in 1999 and $1,054,000
in 1998. Future minimum rental payments as of May 31, 2000, for noncancelable operating leases with initial or remaining terms in excess of one year are payable as follows: fiscal
2001$6,869,000, fiscal 2002$6,487,000, fiscal 2003$5,668,000, fiscal 2004$3,789,000, fiscal 2005$3,143,000 and
thereafter$26,379,000.



The Company is, from time to time, a party to litigation arising in the normal course of business. Management believes that none of this litigation will have a
material adverse effect on the financial position or results of operations or cash flows of the Company.

11.  INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.

Significant
components of the Company's deferred income tax assets and liabilities are as follows (dollars in thousands):

May 31,2000

1999Current deferred income tax assets:Accounts receivable allowances

$
2,467

$
2,086Deferred revenue


253


592Accruals and other


3,241


2,864Total current deferred income tax assets


5,961


5,542Long-term deferred income tax assets:Long-term deferred income tax assets:Net operating loss of foreign subsidiaries


2,287


664Net operating loss


1,274Book amortization in excess of tax amortization


1,137Acquired-in-process research and development


2,253


2,427Other


245Total long-term deferred income tax assets


7,196


3,091Long-term deferred income tax liabilities:Tax depreciation in excess of financial reporting


(660
)

(109
)Indentifiable intangible assets


(5,005
)Other


(87
)Total long-term deferred income tax liabilities


(5,752
)

(109
)Total net long-term deferred income taxes assets


1,444


2,982Total net deferred income tax assets

$
7,405

$
8,524


49

---

The provision for income taxes is summarized as follows (dollars in thousands):

May 31,2000

1999

1998Current income taxes:Federal

$
6,851

$
8,244

$
6,954State


881


1,056


1,4607,732


9,300


8,414Deferred income taxes:Federal


(2,554
)

(683
)

(4,560
)State


(328
)

(97
)

(651
)(2,882
)

(780
)

(5,211
)$
4,850

$
8,520

$
3,203


The
differences between the expected tax provision based on the federal income tax statutory rate and the actual provision for the years presented are summarized as follows (dollars
in thousands):

May 31,2000

1999

1998Expected tax provision at statutory rate

$
3,591

$
7,457

$
2,678State income taxes, net of federal tax effect


462


633


575Other


797


430


(50
)Total

$
4,850

$
8,520

$
3,203


12.  INCENTIVE STOCK OPTION PLAN

On May 31, 2000, 2,419,202 shares of common stock had been reserved for issuance or grant under the Company's stock option plans. The options are
granted to employees at 100% of the fair market value on the date of grant. The fair market value, rate of exercisability and expiration dates of the options granted are determined by the Board of
Directors at the time of grant. Options generally vest ratably over five years from date of grant and expire ten years after grant. Options issued prior to fiscal 1998 vest ratably over five years
from date of grant and expire six years after grant.

50

---

The following summary of outstanding options and shares reserved under the Plan is as follows:

|                            |                             | Options
Outstanding |          | Option
Price Range
Per Share |                  | Expiration
Date
(Fiscal Year) |  | Weighted
Average
Exercise Price
Per Share
|--------------------------- | --------------------------- | ------------------- | -------- | ---------------------------- | ---------------- | ----------------------------- |  | -----------------------------------------
|Outstanding at May 31, 1997 |                             | 869,533             |          | $2.42 to $7.71               |                  | 19982003                     |  | $                                        
|                            | Granted                     |                     | 370,110  |                              | $16.00 to $37.25 |                               |  |                                          
|                            | Exercised                   |                     | (200,641 | )                            | $2.42 to $6.41   |                               |  |                                          
|                            | Canceled/expired            |                     | (42,087  | )                            | $3.41 to $37.25  |                               |  |                                          
|                            |                             |                     |          |                              |                  |                               |  |                                          
|Outstanding at May 31, 1998 |                             | 996,915             |          | $2.42 to $37.25              |                  | 19992008                     |  | $                                        
|                            | Granted                     |                     | 453,061  |                              | $29.50 to $48.25 |                               |  |                                          
|                            | Exercised                   |                     | (152,522 | )                            | $2.42 to $28.25  |                               |  |                                          
|                            | Canceled/expired            |                     | (24,672  | )                            | $6.41 to $48.25  |                               |  |                                          
|                            |                             |                     |          |                              |                  |                               |  |                                          
|Outstanding at May 31, 1999 |                             | 1,272,782           |          | $3.41 to $48.25              |                  | 20002009                     |  | $                                        
|                            | Granted                     |                     | 635,030  |                              | $38.00 to $74.75 |                               |  |                                          
|                            | Assumed through acquisition |                     | 178,122  |                              | $0.29 to $66.02  |                               |  |                                          
|                            | Exercised                   |                     | (364,438 | )                            | $0.95 to $48.13  |                               |  |                                          
|                            | Canceled/expired            |                     | (143,955 | )                            | $4.16 to $74.75  |                               |  |                                          
|                            |                             |                     |          |                              |                  |                               |  |                                          
|Outstanding at May 31, 2000 |                             | 1,577,541           |          | $3.41 to $48.25              |                  | 20012010                     |  | $                                        
|                            |                             |                     |          |                              |                  |                               |  |                                          

As
of May 31, 2000 there were currently exercisable options outstanding covering 365,754 shares, exercisable at prices ranging from $0.29 to $74.75 per
share.

In
fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." As permitted by SFAS
No. 123, the Company has elected to continue following the guidance of APB 25 for measurement and recognition of stock-based transactions with employees and adopt the disclosure only provisions
of SFAS No. 123. As a result, no compensation expense has been recognized for the awards made in the form of stock options. If the Company had elected to recognize compensation costs for
stock-based compensation plans based on the fair value at the grant dates for awards under those plans consistent with the method prescribed by SFAS No. 123, net income and earnings per share
would have been changed to the pro forma amounts shown as follows (dollars in thousands, except per share amounts):

Year Ended May 31,2000

1999

1998Net income:As reported

$
5,409

$
12,785

$
4,447Pro forma

$
1,601

$
10,597

$
2,826Earnings per share (diluted):As reported

$
0.32

$
0.86

$
0.32Pro forma

$
0.10

$
0.71

$
0.20


51

---

The fair value of the stock options used to compute pro forma net income and earnings per share disclosures is the present value at grant date using the Black-Scholes option pricing
model with the following weighted average assumptions:

2000

1999

1998Expected dividend level

0

0

0Expected stock price volatility

66.6%

62.6%

58.8%Risk free interest rates

6.0%

5.1%

6.0%Expected life of options

510 years

510 years

510 years


The
following table summarizes the status of the Company's stock options outstanding as of May 31, 2000:

|                 |  |           |  | Stock Options
Outstanding |  | Stock Options
Exercisable
|---------------- |  | --------- |  | ------------------------- |  | -------------------------
|
|$ 0.29 to $16.00 |  | 369,088   |  | 3.4 years                 |  | $                        
|$16.23 to $35.25 |  | 367,350   |  | 7.7 years                 |  | $                        
|$35.33 to $38.00 |  | 438,399   |  | 9.4 years                 |  | $                        
|$38.69 to $54.00 |  | 330,494   |  | 8.5 years                 |  | $                        
|$55.50 to $74.75 |  | 72,210    |  | 9.7 years                 |  | $                        
|                 |  |           |  |                           |  |                          
|                 |  | 1,577,541 |  |                           |  |                          
|                 |  |           |  |                           |  |                          

13.  EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution 401(k) Profit Sharing Plan covering substantially all employees. The Company currently matches 25% of each
participant's contribution up to 8% of their annual salary, and can make discretionary profit sharing contributions to the plan. The Company's contribution to this plan for the years ended
May 31, 2000, 1999 and 1998, was approximately $782,000, $578,000 and $389,000, respectively.

14.  SEGMENT INFORMATION AND GEOGRAPHIC AREAS

Effective June 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131 ("SFAS
No. 131"), "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 superseded FASB Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and major customers. Management has determined that the Company
operates in one industry segment, providing business management software solutions to midmarket businesses. Substantially all of the Company's revenues are derived from the licensing of software
products and providing related consulting, support and training services. The

52

---

following table presents a revenue and long-lived asset summary by geographic region (dollars in thousands):

|                                 |             | North
America |         | Europe  |   | Asia and
Australia |        | Other
Foreign |       | Elimi-
nations |   | Consoli-
dated
|-------------------------------- | ----------- | ------------- | ------- | ------- | - | ------------------ | ------ | ------------- | ----- | -------------- | - | --------------
|2000                             |             |               |         |         |   |                    |        |               |       |                |   |               
|Revenues from external customers |             | $             | 168,695 |         | $ | 17,165             |        | $             | 5,818 |                | $ | 3,174         
|Intergeographic sales            |             |               | 5,928   |         |   | 1,224              |        |               | 2,191 |                |   |              
|                                 |             |               |         |         |   |                    |        |               |       |                |   |               
|                                 | Total sales |               | $       | 174,623 |   | $                  | 18,389 |               | $     | 8,009          |   | $             
|                                 |             |               |         |         |   |                    |        |               |       |                |   |               
|Long-lived assets                |             | $             | 41,835  |         | $ | 4,115              |        | $             | 843   |                | $ | 105           
|1999                             |             |               |         |         |   |                    |        |               |       |                |   |               
|Revenues from external customers |             | $             | 119,496 |         | $ | 9,651              |        | $             | 3,388 |                | $ | 2,372         
|Intergeographic sales            |             |               | 5,256   |         |   | 1,526              |        |               |      |                |   |              
|                                 |             |               |         |         |   |                    |        |               |       |                |   |               
|                                 | Total sales |               | $       | 124,752 |   | $                  | 11,177 |               | $     | 3,388          |   | $             
|                                 |             |               |         |         |   |                    |        |               |       |                |   |               
|Long-lived assets                |             | $             | 17,511  |         | $ | 1,166              |        | $             | 530   |                | $ | 144           
|1998                             |             |               |         |         |   |                    |        |               |       |                |   |               
|Revenues from external customers |             | $             | 77,441  |         | $ | 4,552              |        | $             | 2,096 |                | $ | 1,570         
|Intergeographic sales            |             |               | 4,779   |         |   |                   |        |               |      |                |   |              
|                                 |             |               |         |         |   |                    |        |               |       |                |   |               
|                                 | Total sales |               | $       | 82,220  |   | $                  | 4,552  |               | $     | 2,096          |   | $             
|                                 |             |               |         |         |   |                    |        |               |       |                |   |               
|Long-lived assets                |             | $             | 7,958   |         | $ | 194                |        | $             | 207   |                | $ | 142           

Sales
between geographic regions are made at prices which would approximate transfers to unaffiliated distributors. Revenues are allocated to geographic regions based on the location
in which the sale originated. No single customer represents over 10% of the Company's consolidated sales.

53

---

15.  QUARTERLY FINANCIAL DATA (unaudited, dollars in thousands, except per share data)

|                                   |             | First
Quarter |   | Second
Quarter |  | Third
Quarter |        | Fourth
Quarter |   | Fiscal
Year
|---------------------------------- | ----------- | ------------- | - | -------------- |  | ------------- | ------ | -------------- | - | -----------
|Net revenues:                      |             |               |   |                |  |               |        |                |   |            
|                                   | Fiscal 2000 |               | $ | 39,868         |  | $             | 47,366 |                | $ | 48,057     
|                                   | Fiscal 1999 |               |   | 27,129         |  |               | 31,807 |                |   | 35,844     
|Gross profit:                      |             |               |   |                |  |               |        |                |   |            
|                                   | Fiscal 2000 |               | $ | 27,902         |  | $             | 33,366 |                | $ | 32,758     
|                                   | Fiscal 1999 |               |   | 19,557         |  |               | 23,002 |                |   | 25,546     
|Net income (loss):                 |             |               |   |                |  |               |        |                |   |            
|                                   | Fiscal 2000 |               | $ | 3,503          |  | $             | 4,361  |                | $ | 118        
|                                   | Fiscal 1999 |               |   | 2,184          |  |               | 2,860  |                |   | 3,362      
|Basic earnings (loss) per share:   |             |               |   |                |  |               |        |                |   |            
|                                   | Fiscal 2000 |               | $ | 0.23           |  | $             | 0.28   |                | $ | 0.01       
|                                   | Fiscal 1999 |               |   | 0.16           |  |               | 0.21   |                |   | 0.24       
|Diluted earnings (loss) per share: |             |               |   |                |  |               |        |                |   |            
|                                   | Fiscal 2000 |               | $ | 0.22           |  | $             | 0.27   |                | $ | 0.01       
|                                   | Fiscal 1999 |               |   | 0.15           |  |               | 0.20   |                |   | 0.23       

Quarterly
and annual earnings per share are calculated independently based on the weighted-average number of shares outstanding during the period.

16.  SUBSEQUENT EVENTS (unaudited)

In June 2000, the Company acquired Solomon Software, Inc., a leading provider of flexible business management and e-business
solutions, through the issuance of approximately 2.5 million shares of the
Company's common stock and $14.6 million in cash. This transaction will be accounted for using the purchase accounting method and accordingly, the net assets acquired will be recorded at their
estimated fair values at the effective date of the acquisition. The preliminary allocation of the total purchase price of the acquisition includes $4.2 million to the fair value of net tangible
liabilities and $85.8 million to identifiable intangible assets and goodwill.

In
June 2000, management announced, with the approval of the board of directors, a plan of restructuring in the first quarter of fiscal 2001. As a result, the Company estimates
it will recognize a one-time charge between $3 to $5 million during the first quarter of fiscal 2001 for costs associated with a 7% workforce reduction, closing of offices globally
and other reorganization costs.

54

---

## 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The section under the heading "Election of Directors" on pages 3 through 6 and the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 11 of the Company's Proxy Statement dated August 7, 2000 ("2000 Proxy Statement") are incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The section under the heading "Election of Directors" entitled "Compensation of Directors" on page 6 and the section entitled "Executive Compensation" on pages
9 through 11 of the 2000 Proxy Statement are incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section entitled "Security Ownership of Certain Beneficial Owners and Management" on pages 2 and 3 of the 2000 Proxy Statement is incorporated herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section entitled "Related Transactions" on page 11 of the 2000 Proxy Statement is incorporated herein by reference.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Documents filed as part of this Report





55

---



|3.1   |  | Amended and Restated Articles of Incorporation, as amended (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 filed March 5, 1997 (SEC File No. 333-22833))                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | Amended Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed January 4, 1999)                                                                                                                                                                                        
|10.1  |  | Lease Agreement, dated October 1, 1983, as amended, between the Company and West Acres Office Park (including Amendments 5 and 6 to Lease Agreement dated October 1, 1983; incorporated herein by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 filed March 5, 1997 (SEC File No. 333-22833))
|10.2  |  | Lease Agreement, dated October 23, 1997, between the Company and Investor's Real Estate Trust                                                                                                                                                                                                                                
|10.3  |  | 1983 Incentive Stock Option Plan, as amended (incorporated here herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 filed March 5, 1997 (SEC File No. 333-22833)) *                                                                                                                      
|10.4  |  | 1997 Stock Incentive Plan, including form of option agreement (incorporated here herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 filed March 5, 1997 (SEC File No. 333-22833)) *                                                                                                     
|10.5  |  | Outside Directors Stock Option Plan, as amended *                                                                                                                                                                                                                                                                            
|10.6  |  | 1997 Employee Stock Purchase Plan, as amended                                                                                                                                                                                                                                                                                
|10.7  |  | Registration Rights Agreement, dated as of June 24, 1994, between the Company and the holders of registerable securities named therein (incorporated here herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 filed
March 5, 1997 (SEC File No. 333-22833))                              
|10.8  |  | Limited Liability Company Agreement for Great Plains Software U.K., LLC, dated as of February 20, 1996, between the Company and Douglas J. Burgum therein (incorporated here herein by reference to Exhibit 10.9 to the Company's Registration Statement
on Form S-1 filed March 5, 1997 (SEC File No. 333-22833))           
|10.9  |  | Form of Nonemployee Director Stock Option Agreement (incorporated here herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 filed March 5, 1997 (SEC File No. 333-22833)) *                                                                                                              
|10.10 |  | Purchase Agreement dated December 15, 1999, between Great Plains Software, Inc. and Burgum 34 LLP concerning the Company purchase of land for headquarters expansion from a partnership controlled by it's director Frederick W. Burgum.                                                                                     
|10.11 |  | Agreement dated February 24, 2000 between Great Plains Software, Inc. and the PWA Group, Ltd (incorporated herein by reference to Exhibit 2.2 of the Company's Current Report on Form 8-K filed on March 9, 2000).                                                                                                           
|10.12 |  | Share Purchase Agreement dated February 24, 2000 between Great Plains Software, Inc. and the PWA Group, Ltd. (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on March 9, 2000).                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                              

56

---

|10.13 |  | Agreement and Plan of Merger dated as of February 22, 2000, between Great Plains Software, Inc., GPS Acquisition, Inc., FRx Software Corporation and Michael L. Rohan (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K filed on April 4, 2000).                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Amendment to Agreement and Plan of Merger dated as of March 15, 2000, between Great Plains Software, Inc., GPS Acquisition, Inc., FRx Software Corporation and Michael L. Rohan (incorporated herein by reference to Exhibit 2.2 of the Company's Current
Report on Form 8-K filed on April 4, 2000).      
|10.15 |  | Agreement and Plan of Merger dated as of May 1, 2000, between Great Plains Software, Inc., GPS Eagle Inc., Solomon Software, Inc., Gary M. Harpst, Vernon M. Strong and Jack W. Ridge (incorporated herein by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K filed on June 23, 2000).
|21.1  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                
|23.1  |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                      
|24.1  |  | Powers of Attorney                                                                                                                                                                                                                                                                                         
|27.1  |  | Financial Data Schedule                                                                                                                                                                                                                                                                                    
|99.1  |  | Cautionary Statement for Purposes of the "Safe Habor" Provisions of the Private Securities Litigation Reform Act of 1995                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                            

---



57

---



SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

|Dated: August 7, 2000 |  | GREAT PLAINS SOFTWARE, INC.
|--------------------- |  | ---------------------------
|                      |  | By:                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the date indicated.

|Name                                  |  | Title                                                                                      |  | Date          
|------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------
|                                      |  |                                                                                            |  |               
|/s/DOUGLAS J. BURGUMDouglas J. Burgum |  | President, Chief Executive Officer and Chairman of the Board
(principal executive officer) |  | August 7, 2000
|/s/TAMI L. RELLERTami L. Reller       |  | Chief Financial Officer
(principal financial officer)                                      |  | August 7, 2000
|/s/DAVID K. EDSONDavid K. Edson       |  | Controller
(principal accounting officer)                                                  |  | August 7, 2000
|*Bradley J. Burgum                    |  | Director                                                                                   |  | August 7, 2000
|*Frederick W. Burgum                  |  | Director                                                                                   |  | August 7, 2000
|*J.A. Heidi Roizen                    |  | Director                                                                                   |  | August 7, 2000
|*Joseph S. Tibbetts, Jr.              |  | Director                                                                                   |  | August 7, 2000
|*James Leland Strange                 |  | Director                                                                                   |  | August 7, 2000
|                                      |  |                                                                                            |  |               

|*By |  | /s/DOUGLAS J. BURGUMDouglas J. Burgum |  | Attorney-in-Fact |  | 
|--- |  | ------------------------------------- |  | ---------------- |  | 

58

---

## 

Great Plains Software, Inc.  Schedule IISchedule of Valuation and Qualifying Accounts Receivable and Reserves

|                                |                    | Balance at
Beginning of
Year |  | Charged to
Costs and
Expenses |       | Deductions |   | Acquired
from
Acquisitions |  | Balance at
End of Year
|------------------------------- | ------------------ | ---------------------------- |  | ----------------------------- | ----- | ---------- | - | -------------------------- |  | ----------------------
|
|Allowance for doubtful accounts |                    |                              |  |                               |       |            |   |                            |  |                       
|                                | Year ended May 31, |                              |  |                               |       |            |   |                            |  |                       
|                                |                    | 2000                         |  | $                             | 2,090 |            | $ | 879                        |  | $                     
|                                |                    | 1999                         |  |                               | 1,631 |            |   | 1,123                      |  |                       
|                                |                    | 1998                         |  |                               | 991   |            |   | 766                        |  |                       
|Allowances for returns          |                    |                              |  |                               |       |            |   |                            |  |                       
|                                | Year ended May 31, |                              |  |                               |       |            |   |                            |  |                       
|                                |                    | 2000                         |  | $                             | 3,597 |            | $ | 16,250                     |  | $                     
|                                |                    | 1999                         |  |                               | 3,051 |            |   | 9,859                      |  |                       
|                                |                    | 1998                         |  |                               | 1,616 |            |   | 6,726                      |  |                       

59

---

## QuickLinks