1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended JANUARYJanuary 31, 20002001 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________ to
____________.
COMMISSION FILE NUMBER 0-21180
INTUIT INC.
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 77-0034661
-------- ----------- ------------------------ ---------------------------------
(State of incorporation) (IRS employer identification no.)
2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
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(Address of principal executive offices)
(650) 944-6000
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(Registrant's telephone number, including area code)
Indicate by a 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Approximately 201,677,034208,633,563 shares of Common Stock, $0.01 par value, as of
February 29, 200028, 2001
2
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FORM 10-Q
INTUIT INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE
NUMBER
------
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 2000 and January 31, 2001............................... 3
Condensed Consolidated Statements of Operations for
the three and six months ended January 31, 2000 and 2001......... 4
Condensed Consolidated Statements of Cash Flows for
the six months ended January 31, 2000 and 2001................... 5
Notes to Condensed Consolidated Financial Statements ............... 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 17
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk.......... 28
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings................................................... 30
ITEM 5: Other Matters....................................................... 30
ITEM 6: Exhibits and Reports on Form 8-K.................................... 31
Signatures.......................................................... 31 1999 and January 31, 2000........................... 3
Condensed Consolidated Statements of Operations for
the three and six months ended January 31, 1999 and 2000.... 4
Condensed Consolidated Statements of Cash Flows for
the six months ended January 31, 1999 and 2000............... 5
Notes to Condensed Consolidated Financial
Statements................................................... 6
- - -
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 18
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk...... 29
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings............................................... 31
ITEM 2: Changes in Securities and Use of Proceeds....................... 32
ITEM 5: Other Matters................................................... 33
ITEM 6: Exhibits and Reports on Form 8-K................................ 34
Signatures...................................................... 35
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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, JANUARY 31,
1999(In thousands; Unaudited) 2000 ----------2001
----------- -----------
(In thousands, except par value; unaudited)
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 554,230416,953 $ 377,685377,407
Short-term investments ................................... 305,125 412,918............................ 1,050,220 1,099,792
Marketable securities .................................... 431,319 1,046,170
Customer deposits ........................................ 145,836 135,456............................. 225,878 168,871
Accounts receivable, net(1) ............................. 63,677 249,146
Mortgage loans ........................................... 84,983 38,386
Deferred income taxes .................................... 64,925 65,002
Inventories .............................................. 4,931 9,351
Income taxes receivable .................................. -- 1,190net .......................... 67,420 253,659
Prepaid expenses and other current assets(2) ............ 67,859 34,803
----------assets (1) ..... 368,323 414,783
----------- -----------
Total current assets ............................. 1,722,885 2,370,107.......................... 2,128,794 2,314,512
Property and equipment, net ................................ 119,220 149,324
Purchased........................ 167,707 184,461
Goodwill and intangibles, net ................................. 98,049 97,275
Goodwill, net .............................................. 383,102 416,874...................... 438,878 542,744
Investments ........................................ 31,160 24,798
Other assets ............................................... 7,897 9,022
Long-term deferred income taxes ............................ 76,190 80,222
Investments ................................................ 45,704 39,569
Restricted investments ..................................... 36,028 38,416
----------(2) ................................... 112,363 112,614
----------- -----------
Total assets ............................................... $2,489,075....................................... $ 3,200,809
==========2,878,902 $ 3,179,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit .......................................... $ 29,896 $ 3,283
Accounts payable ......................................... 66,436 121,110
Accrued compensation and related liabilities ............. 39,996 49,733
Payroll tax obligations .................................. 131,148 127,333$ 79,145 $ 118,234
Escrow liabilities ....................................... 14,857 9,821
Drafts payable ........................................... 49,169 15,344................................ 32,077 66,732
Deferred revenue ......................................... 65,994 106,395.................................. 107,578 143,215
Income taxestax payable ..................................... 143,181 --................................ 110,743 52,881
Deferred income taxes .................................... 136,694 384,484............................. 53,934 54,403
Other accruedcurrent liabilities ................................ 201,872 271,760
----------......................... 423,360 509,644
----------- -----------
Total current liabilities ........................ 879,243 1,089,263..................... 806,837 945,109
Long-term notes payable .................................... 36,614 37,862
Long-term deferred income taxes ............................ 11,615 11,919obligations .............................. 538 18,786
Minority interest .......................................... 215 224.................................. 238 385
Commitments and contingencies
Stockholders' equityequity:
Preferred stock $0.01 par value
Authorized - 1,345 shares total; 145 shares
designated Series A;
250 shares designated Series B Junior Participating
Issued and outstanding - none; none ....................................................... -- --
Common stock $0.01 par value
Authorized - 750,000 shares
Issued and outstanding - 196,350 and 201,093 shares,
respectively ........................................ 1,073 2,012
Additional paid-inadditional paid in capital ............................... 1,266,004 1,433,323
Acquisition related deferred....... 1,521,559 1,669,583
Deferred compensation ................ -- (30,063)............................. (26,522) (25,593)
Accumulated other comprehensive income, ................... 77,680 448,207
Accumulated retainednet ....... 55,586 57,396
Retained earnings ............................ 216,631 208,062
----------................................. 520,666 513,463
----------- -----------
Total stockholders' equity ....................... 1,561,388 2,061,541
----------.................... 2,071,289 2,214,849
----------- -----------
Total liabilities and stockholders' equity ................. $2,489,075......... $ 3,200,809
==========2,878,902 $ 3,179,129
=========== ===========
- ------------------------
(1) Includes $0.1$7.2 million and $2.3 million due from Checkfree at July 31, 1999
and January 31, 2000, respectively (see Note 11).
(2) Includes $6.7 million and $10.6 million notenotes receivable from Venture Finance Software Corp.
atas of July 31, 19992000.
(2) Includes $6.5 million and $10.7 million loans due from affiliates as of
July 31, 2000 and January 31, 2000 respectively
(see Note 11).2001, respectively.
See accompanying notes to condensed consolidated financial statements.notes.
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 2000 19992001 2000 --------2001
--------- ----------------- --------- ---------
(In thousands, except per share amounts; unaudited)data; Unaudited)
Net revenue(1) .............................................. $373,733revenue .......................................... $ 425,499 $510,614$ 457,560 $ 602,427 $ 645,082
Costs and expenses:
Cost of goods sold:
Products and services ................................... 70,234 93,066 109,231 149,506
Amortization of purchased software and other ............ 1,897 2,489 3,701 4,921revenue ..................................... 95,555 107,677 154,427 177,558
Customer service &and technical support ....................... 41,144.............. 47,657 72,00446,134 81,958 78,530
Selling &and marketing ........................................ 71,203............................... 86,110 124,28285,567 156,015 146,667
Research &and development ..................................... 36,353............................ 44,038 70,02154,599 85,750 102,477
General &and administrative ................................... 19,625.......................... 23,327 38,93425,914 44,819 53,697
Charge for purchased research and development .............. --....... -- -- 1,312 Amortization of goodwill and purchased intangibles ......... 20,962 45,211 41,932 81,562--
Amortization of acquisition related deferred compensation .. -- 1,005 -- 1,744costs ................... 46,216 43,074 83,306 82,753
Reorganization costs ....................................... 2,000................................ -- 2,000-- 3,500 ----------
--------- ----------------- --------- ---------
Total costs & expenses ............................ 263,418.............................. 342,903 462,105362,965 611,087 641,682
--------- --------- --------- ---------
Income (loss) from operations ..................... 110,315........................ 82,596 48,50994,595 (8,660) 3,400
Interest and other income and expense, net .................. 3,950........... 6,988 7,29816,548 15,465 Gain (loss) from32,666
Losses on marketable securities ...................... 10,088and other
investments, net .................................... (2,800) 10,088(71,935) (20,110) --------(75,803)
Gain on divestiture .................................. -- 1,639 -- 1,639
--------- ----------------- --------- ---------
Income (loss) before income taxes ........................... 124,353tax, minority interest and
cumulative effect of accounting change ............. 86,784 65,89540,847 (13,305) (38,098)
Income tax provision (benefit) .............................. 31,228....................... 29,582 17,66514,188 (4,587) (16,728)
Minority interest ............................................................................... (90) 97 (149) 147
--------- --------- --------- ---------
Income (loss) before cumulative effect of accounting
change ............................................. 57,292 26,562 (8,569) (21,517)
Cumulative effect of accounting change, net of taxes . -- (90) -- (149)
---------- 14,314
--------- ----------------- --------- ---------
Net income (loss) ........................................... $ 93,125.................................... $ 57,292 $ 48,23026,562 $ (8,569) ========$ (7,203)
========= ================= ========= =========
Basic net income (loss) per share ........................... $ 0.49before
cumulative effect of accounting change ............. $ 0.29 $ 0.260.13 $ (0.04) ========$ (0.10)
Cumulative effect of accounting change ............... -- -- -- 0.07
Basic net income (loss) per share .................... $ 0.29 $ 0.13 $ (0.04) $ (0.03)
========= ================= ========= =========
Shares used in per share amounts ............................ 188,813..................... 195,935 187,600207,594 192,285 ========206,661
========= ================= ========= =========
Diluted net income (loss) per share ......................... $ 0.47before
cumulative effect of accounting change ............. $ 0.27 $ 0.250.12 $ (0.04) ========$ (0.10)
Cumulative effect of accounting change ............... -- -- -- 0.07
========= ================= ========= =========
Diluted net income (loss) per share .................. $ 0.27 $ 0.12 $ (0.04) $ (0.03)
========= ========= ========= =========
Shares used in per share amounts ............................ 198,413..................... 209,566 195,561215,927 192,285 ========206,661
========= ================= ========= =========
(1) Includes $1.3 million and $2.4 million from Checkfree for the three and six
months ended January 31, 1999 and $1.8 million and $3.6 million from
Checkfree for the three and six months ended January 31, 2000 respectively
(see Note 11).
See accompanying notes to condensed consolidated financial statements.notes.
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED
JANUARY 31,
(In thousands; unaudited) 1999Unaudited) 2000 --------- ---------2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .............................................................loss ...................................................................... $ 48,230(8,569) $ (8,569)(7,203)
Adjustments to reconcile net income (loss)loss to net cash provided by (used in)
operating activities:
Amortization of goodwill and other purchased intangibles ................. 45,633 86,483
Deferred compensation expense ............................................ -- 1,744acquisition costs .......................................... 89,539 79,440
Depreciation ............................................................. 18,002............................................................... 21,798 Charge for purchased research and development ............................ -- 1,312
(Gain)29,607
Net loss from marketable securities ................................... (10,088)........................................ 20,110 75,803
Cumulative effect of accounting change ..................................... -- (23,857)
Deferred income tax benefit (provision) .................................... (3,805) 45,463
Gain on divestiture ........................................................ -- (1,639)
Changes in operating assets and liabilities:
Accounts receivable ................................................... (181,831)........................................................ (185,369) Inventories ........................................................... (2,170) (4,420)
Mortgage loans ........................................................ (66,435) 46,597(185,794)
Prepaid expenses and other current assets ............................. (16,544) 32,163
Customer deposits ..................................................... (8,514) 6,565
Deferred income tax assets and liabilities ............................ (1,428) (3,805).................................. 80,905 (43,544)
Accounts payable ...................................................... 25,838........................................................... 54,620 Accrued compensation and related28,814
Escrow liabilities .......................... 4,877 9,572
Escrow funds payable .................................................. 8,362 (5,036)......................................................... (38,861) 34,809
Deferred revenue ...................................................... (12,581)........................................................... 40,401 Drafts payable ........................................................ 9,812 (33,825)
Accrued acquisition liabilities ....................................... (19,181) (5,389)
Other accrued liabilities ............................................. 130,558 63,93635,637
Income taxes payable ....................................................... (94,561) (57,862)
Other current liabilities .................................................. 25,404 (94,561)68,119 58,858
Minority interest ..................................................... --.......................................................... 9 --------- ---------147
----------- -----------
Net cash (used in) provided by operating activities ................. (2,056)................................ 44,336 --------- ---------68,679
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities ................................... 17,263 --Other assets .................................................................. (14,851) (1,254)
Purchase of property and equipment ............................................ (27,448) (51,901) Principal payments(45,964)
Proceeds from the sale of long-term debt .......................................... (29)marketable securities ............................... -- (Increase) in other assets .................................................... (7,262) (14,851)24,855
Purchase of short-term investments ............................................ (145,086) (301,277) Acquisitions and dispositions, net of cash acquired ........................... -- (54,584)
Purchase of long-term investments ............................................. (474) (11,115)(1,878,887)
Liquidation and maturity of short-term investments ............................ 100,547 191,096 --------- ---------1,829,315
Acquisitions, net of cash acquired ............................................ (54,584) (94,130)
Purchase of long-term investments ............................................. (11,115) (1,457)
----------- -----------
Net cash used inby investing activities ............................... (62,489).................................... (242,632) --------- ---------(167,522)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal proceeds on long-term debt .......................................... -- 2,446
Net borrowings (payments)payments under lineswarehouse line of credit ............................... 70,887................................... (26,613) Net borrowings under reverse repurchase agreement ............................. 9,135 --
Purchase of common stock ...................................................... (1,308) --(199)
Net proceeds from issuance of common stock .................................... 39,627 48,364 Rock Financial and Title Source payments of dividends ......................... (177) --
--------- ---------57,050
----------- -----------
Net cash provided by financing activities ........................... 118,164................................ 21,751 --------- ---------59,297
----------- -----------
NET INCREASE (DECREASE)DECREASE IN CASH AND CASH EQUIVALENTS ............................ 53,619....................................... (176,545) (39,546)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................ 140,991 554,230 --------- ---------416,953
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................... $ 194,610377,685 $ 377,685
========= =========377,407
=========== ===========
See accompanying notes to condensed consolidated financial statements.notes.
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INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-(UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. develops, sells and supports small business accounting and
management, tax preparation and consumer finance desktop software products,
financial supplies (such as computer checks, envelopes and invoices), mortgage loans and
Internet-based products and services for individuals and small businesses. Our
products and services are designed to automate commonly performed financial
tasks and to simplify the way individuals and small businesses manage their
finances.finances and businesses. We sell our products and services throughout North
America and in many internationalglobal markets. Sales are made primarily through retail and
OEM distribution channels, traditional direct sales to customers and via the
Internet.
Basis of Presentation
Intuit has prepared the accompanying unaudited condensed consolidated financial
statements in accordance with generally accepted accounting principles for
interim financial statements. All intercompany balances and transactions have
been eliminated in consolidation. Certain other previously reported amounts have
been reclassified to conform to the current presentation format. We have
included all normal recurring adjustments considered necessary to give a fair
presentation of our operating results for the periods shown. Results for the
three and six months ended January 31, 20002001 do not necessarily indicate the
results to be expected for the fiscal year ending July 31, 20002001 or any other
future period. All financial statements presented are restated to includereflect the
combined results of Intuit and our Rock Financial Corporation ("Rock") and Title
Source, Inc. ("Title Source") subsidiaries whichthat were acquired on December 8,
1999 in a transaction whichthat was accounted for as a pooling of interests. These
statements and accompanying notes should be read together with the audited
consolidated financial statements for the fiscal year ended July 31, 19992000
included in Intuit's Form 10K-A, Amendment No. 1,10-K, filed with the Securities and Exchange
Commission.
Principles of Consolidation
The condensed consolidated financial statements include all of our accounts and
those of our wholly-owned subsidiaries. We have eliminated all significant
intercompany accounts and transactions. Investments in which management intends
to maintain more than a temporary 20% to 50% interest, or otherwise has the
ability to exercise significant influence, are accounted for under the equity
method. Investments in which we have less than a 20% interest and/or do not have
the ability to exercise significant influence are carried at the lower of cost
or estimated realizable value.
Use of Estimates
To comply with generally accepted accounting principles, we make estimates and
assumptions that affect the amounts reported in the financial statements and the
disclosures made in the accompanying notes. Our most significant estimates are
related to reserves for product returns and exchanges, reserves for rebates and
the collectability of accounts receivable. We also use estimates to determine
the remaining economic lives and carrying value of goodwill, purchased
intangibles, fixed assets and fixeddeferred tax assets. Despite our intention to
establish accurate estimates and assumptions, actual results may differ from our
estimates.
Net Revenue
Intuit recognizes revenue upon shipment of our shrink-wrapped software products
based on "FOB shipping" terms. Because, underUnder FOB shipping terms, title and risk of loss
are transferred, and we have no continuing obligations, -6-
7
once our products are
delivered to the shipper, weshipper. We recognize revenue upon shipment, net of return
reserves based on historical experience. To recognize revenue, it must also be
probable that we will collect the accounts receivable from our customers.
Reserves are provided for returns of excess quantities of current product
versions, as well as previous versions of products still in the distribution
channel when new versions are launched. In some situations, we receive advance
payments from our customers. Revenue associated with these advance payments is
deferred until the products are shipped or services are provided. We also reduce
revenue by the estimated cost of rebates when products are shipped.
Warranty reserves are provided at the time revenue is recognized
for the estimated cost of replacing defective products.-6-
7
We recognize revenue from Internet products and services when that revenue is
"earned" based on the nature of the particular product or service. For Internet
products and services that are provided over a period of time, revenue is
recognized pro rata based on the passage of the contractual time period during
which the product or service is to be provided or in accordance with agreed upon
performance criteria. However, where the Internet product or service is to be
deliveredprovided or provideddelivered at one point in time, revenue is recognized immediatelyonce upon
delivery of the product or completion of the service, rather than ratably over
time. For example, we earn advertising revenues from third parties that
advertise on certain of our websites and contract to run such advertisements for
a particular period of time. In thatthis case, the associated advertising revenue is
recognized ratably over the contractual time period during which the advertising
is to be placed. By contrast, for on-line transactions for which we receive a payment
(such as electronic tax filing), revenue is recognized upon completion of the
transaction, assuming there arewe have no remaining obligations on our part.obligations.
Intuit also offers several plans under which customers are charged for technical
support assistance. Fees charged for these plans are collected in advance and
are recognized as revenue over a period of time (generally one year) at a rate
that is based on historical call volumes for support, which approximates when
these services are performed.. Costs
incurred for fee for support plans are included in cost of goods sold.
We defer loan origination revenue and the associated incremental directcommissions and processing
costs on loans held for sale until the related loan is sold. We recognize gains
and losses on loans at the time we sell them, based upon the difference between
the selling price and the carrying value of the related loans sold. We recognize
loan servicing revenue as the related principal is collected. We recognize
interest income on mortgage loans as it is earned, and we recognize interest
expenses on related borrowings as we incur them.
Customer Service and Technical Support
Customer service and technical support costs include the costs associated with
performing order processing, answering customer inquiries through websites and
other electronic means and providing technical assistance by telephone fax, email, and the Internet.assistance. In connection with
the sale of certain products, Intuit provides a limited amount of free telephonetechnical
support service to customers. This free service, also referred to as post-contract
customer support, is included in this expense category. We do not defer the
recognition of any revenue associated with sales of these products, since the
cost of providing this free support is insignificant. The support is provided
within one year after the associated revenue is recognized and enhancements are
minimal and infrequent. The estimated cost of providing this free support is
accrued upon product shipment.
Cash, Cash Equivalents and Short-Term Investments
Intuit considers highly liquid investments with a maturity of three months or
less at the date of purchase to be cash equivalents. Both cash equivalents and
short-termShort-term investments are
considered available-for-sale debt securities and are carried at amortized cost,
which approximates fair value. Available-for-sale debt securities are classified
as current assets based upon our intent and ability to use any and all of these
securities as necessary to satisfy the significant short-term liquidity
requirements that may arise from the highly seasonal and cyclical nature of our
business. Based on our significant business seasonality, cash flow requirements
within quarters may fluctuate dramatically and could
require us to use a significant
amount of the cashshort-term investments held as available-for-sale securities.
-7-
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The following schedule summarizes the estimated fair value of our cash, cash
equivalents, and short-term investments:
JULY 31, JANUARY 31,
1999 2000 --------- ---------2001
---------- ----------
(In thousands; unaudited)thousands)
Cash and cash equivalents:
Cash ................................................................. $ 56,5484,298 $ 9,23528,886
Certificate of deposits ............... -- 6,700
Money market funds ................. 294,190 172,342.................... 338,462 307,891
Commercial paper ................... 156,037 40,875& corporate notes .... 29,543 33,930
Municipal bonds .................... 37,455 155,233
U.S. Government securities ......... 10,000....................... 44,650 --
--------- ------------------- ----------
$ 554,230416,953 $ 377,685
========= =========377,407
========== ==========
Short-term investments:
Certificates of deposit .......................... $ 9,9015,053 $ --
Commercial Paper ................... -- 103,244
Corporate notes .................... 19,482 2,932...................... 75,640 72,604
Municipal bonds .................... 284,057 312,487...................... 920,360 962,863
U.S. Government securities ......... 27,713 32,671
Restricted short-term investments .. (36,028) (38,416)
--------- ---------
$ 305,125 $ 412,918
========= =========........... 49,167 64,325
---------- ----------
$1,050,220 $1,099,792
========== ==========
The following table outlines the estimated fair value of cash equivalents andIntuit's
available-for-sale debt securities held in short-term investments classified by
the maturity date of maturity is as follows:listed on the security.
JULY 31, JANUARY 31,
1999 2000 --------- ---------2001
---------- ----------
(In thousands; unaudited)thousands)
Due within one year ..................................... $ 735,349235,998 $ 725,909252,692
Due within two years ................. 101,784 93,875.................. 157,309 177,002
Due within three years ............... 1,702 --
Restricted short-term investments .... (36,028) (38,416)
--------- ---------
$ 802,807 $ 781,368
========= =========................. 13,039 1,793
Due after three years ................. 638,821 668,305
---------- ----------
$1,045,167 $1,099,792
========== ==========
For information about our restricted investments, see Note 8. Realized gains and
losses from sales of each type of security were immaterial for all periods
presented.
-8-
9
Marketable Securities
As explained in greater detail below, we currently hold several marketable
securities, that weremost of which we acquired in connection with strategic business
transactions and relationships. Our available for sale marketableavailable-for-sale equity securities are
carried at fair value and we include unrealized gains and losses, net of tax, in
stockholders' equity. We have designated our investmentinvestments in At Home Corporation
("At Home")(which does business as aExcite@ Home), VeriSign and 724 Solutions as trading
securitysecurities and fluctuations in the market value of these shares are reported in
net income. We held the following marketable securities at July 31, 19992000 and
January 31, 2000:2001:
AVAILABLE-FOR-SALE EQUITY GROSS UNREALIZED
----------------- NET REALIZEDSECURITIES COST GAIN LOSS LOSS------------------------- ESTIMATED
BASIS GAINS LOSSES FAIR VALUE
-------- -------- ------- --------------------- --------- ----------
JULY 31, 19992000 (In thousands; unaudited)thousands)
Checkfree Corporation common stock .. $150,081 $152,177.......... $ 36,875 $ 115,000 $ -- $$151,875
Homestore.com, Inc. common stock ............ 1,689 10,626 -- $ 302,25812,315
Quotesmith.com, Inc. common stock ........... 5,645 -- (2,721) 2,924
S1 Corporation common stock .......................... 49,997 -- 16,140 -- 33,857
At Home common stock ............... 132,060 -- -- 36,856 95,204(25,302) 24,695
-------- --------- --------- --------
------- ---------- ----------
$332,138 $152,177 $16,140 $ 36,85694,206 $ 431,319125,626 $ (28,023) $191,809
======== ========= ========= ======== ======= ========== ==========
JANUARY 31, 2000
(In thousands; unaudited)2001
Checkfree Corporation common stock .. $150,081 $450,245.......... $ 35,621 $ 97,958 $ -- $$133,579
InsWeb Corporation common stock ............. 10,810 815 -- $ 600,32611,625
S1 Corporation common stock ......... 49,997 37,922................. 9,769 -- -- 87,919
S1 Corporation options ..............9,769
-------- --------- --------- --------
$ 56,200 $ 98,773 $ -- 178,874 -- -- 178,874
Mortgage.com,$154,973
======== ========= ========= ========
TRADING SECURITIES CUMULATIVE NET
COST RECOGNIZED ESTIMATED
BASIS LOSSES FAIR VALUE
--------- --------- ----------
JULY 31, 2000
Excite@Home common stock .................... $ 119,366 $ (92,997) $26,369
VeriSign, Inc. common stock ..... 6,000 13,859 -- -- 19,859
Homestore.com,................. 4,916 (1,833) 3,083
724 Solutions, Inc. common stock .... 3,500 67,639 -- -- 71,139
Quotesmith.com,............ 7,700 (3,083) 4,617
--------- --------- -------
$ 131,982 $ (97,913) $34,069
========= ========= =======
JANUARY 31, 2001
Excite@Home common stock .................... $ 119,366 $(107,124) $12,242
VeriSign, Inc. common stock ... 6,000 6,971 -- -- 12,971
At Home................. 2,458 (1,744) 714
724 Solutions, Inc. common stock ................ 132,060 -- -- 56,978 75,082
-------- --------............ 2,118 (1,177) 941
--------- --------- -------
---------- ----------
$347,638 $755,510 $ -- $ 56,978 $1,046,170
======== ========123,942 $(110,045) $13,897
========= ========= ======= ========== ==========
In January 1997, we soldobtained marketable securities in Checkfree as a result of
selling our online banking and bill payment transaction processing business to
Checkfree Corporation. We obtained marketable securities
in Checkfree as a result of this sale. We account for the investment in Checkfree as an
available-for-sale equity security, which accordingly is carried at market
value. Checkfree common stock is quoted on the Nasdaq National Market under the
symbol CKFR. The closing price of Checkfree common stock at January 31, 20002001 was
$59.00$55.31 per share. At January 31, 2000,2001, we held 10.2approximately 2.4 million shares,
or approximately 19.5%2.8%, of Checkfree's outstanding common stock.
-9-
10
In connection with the sale of selected assets of our Quicken Insurance business
to InsWeb Corp on January 24, 2001, we received approximately 7.0 million shares
of InsWeb's common stock. We account for the investment in InsWeb as an
available-for-sale equity security, which accordingly is carried at market
value. InsWeb common stock is quoted on the Nasdaq National Market under the
symbol INSW. The closing price of InsWeb common stock at January 31, 2001 was
$1.66 per share. At January 31, 2001, we held approximately 7.0 million shares,
or approximately 16.6%, of InsWeb's outstanding common stock.
In May 1999, we purchased 970,813approximately 1.0 million shares of common stock of
Security First Technologies. In November 1999, Security First Technologies
changed its name to S1 Corporation ("S1").Corporation. We account for the investment in S1 as an
available-for-sale-equityavailable-for-sale equity security, which accordingly is carried at market
value. S1 common stock is quoted on the Nasdaq National Market under the symbol
SONE. The closing price of S1 common stock at January 31, 20002001 was $90.5625$10.06 per
share. At January 31, 2000,2001, we held 970,813approximately 1.0 million shares, or
approximately 3.5%1.7%, of S1's outstanding common stock. During the quarter ended
January 31, 2001, we recorded a loss of $40.2 million to recognize an other than
temporary decline in the value of our S1 shares for the difference between our
original cost of $51.50 per share and $10.06 per share, the fair value as of the
date the other than temporary impairment determination was made. If a further
decline in fair value occurs that is considered other than temporary, we will
record the additional loss in the period when the subsequent impairment becomes
apparent. In connection with the above purchase, we also received an option to
purchase up to an4.6 million additional 4,579,187 shares of S1 exercisable at a per share
purchase price of $51.50. We account forconsider these S1 options as available-for-sale equity securities, and accordingly the options are
carried at market value.
In August 1999, we acquired approximately 3.7 million shares of common stock of
Mortgage.com, Inc. ("Mortgage.com") upon conversion of our preferred shares in
connection with Mortgage.com's initial public offering. We account for the
investment in Mortgage.com as an available-for-sale-equity security, which
accordingly is carried at market value. Mortgage.com common stock is quoted on
the Nasdaq National Market under the symbol MDCM. The closing price of
Mortgage.com common stock at January 31, 2000 was $5.4375 per
-9-
10
share.derivatives. At January
31, 2000, we held 3.72001 they were valued at $7.2 million shares, or approximately 8.5%,
of Mortgage.com's outstanding common stock.
In August 1999, we acquired 729,165 shares of common stock of Homestore.com,
Inc. ("Homestore.com") upon conversion of our preferred shares in connection
with Homestore.com's initial public offering. We account forusing the investment in
Homestore.comBlack-Scholes model and are
classified as an available-for-sale-equity security, which accordingly is
carried at market value. Homestore.com common stock is quoted on the Nasdaq
National Market under the symbol HOMS. The closing price of Homestore.com common
stock at January 31, 2000 was $97.5625 per share. At January 31, 2000, we held
729,165 shares, or approximately 1.0%, of Homestore.com's outstanding common
stock.
In February 1999, we purchased one million shares of common stock of
Quotesmith.com, Inc. ("Quotesmith.com"). We purchased an additional 272,727
shares of Quotesmith.com in August 1999 at the time of its initial public
offering. We account for the investment in Quotesmith.com as an
available-for-sale-equity security, which accordingly is carried at market
value. Quotesmith.com common stock is quoted on the Nasdaq National Market under
the symbol QUOT. The closing price of Quotesmith.com common stock at January 31,
2000 was $10.1875 per share. At January 31, 2000, we held approximately
1,272,727 shares, or approximately 6.6%, of Quotesmith.com's outstanding common
stock.long term investments.
In connection with At Home Corporation's acquisition of Excite in May 1999, our
shares of Excite were converted into At HomeExcite@Home (Nasdaq symbol ATHM) common
stock. We have elected to report these converted At HomeExcite@Home shares as a trading
security. As a result, we are reporting both positive and negative fluctuations
in the market value of this stock in net income. At January 31, 2000,2001, we owned
approximately 2.11.9 million shares (or approximately 0.6%(less than 1%) of At HomeExcite@Home common stock andstock.
From May 1999 through January 31, 2001, we have reported a realizedcumulative recognized
valuation loss of approximately $20.1$107.1 million for these securities for the
period between August 1, 1999 and January 31, 2000.1.9 million shares. The
closing price of At Home
(symbol ATHM)Excite@Home at January 31, 2000,2001, was $36.0313$6.50 per share.
In connection with VeriSign Corporation's acquisition of Signio in February
2000, our shares of Signio were converted into VeriSign common stock. We have
elected to report these converted VeriSign shares as a trading security. As a
result, we are reporting both positive and negative fluctuations in the market
value of this stock in net income. At January 31, 2001, we owned 9,716 shares
(less than 1%) of VeriSign common stock. From February 2000 through January 31,
2001, we have reported a cumulative recognized valuation loss of approximately
$1.7 million for these securities. The averageclosing price of At Home between August 1, 1999 andVeriSign (Nasdaq symbol
VRSN) at January 31, 20002001, was $41.49$73.50 per share.
In connection with 724 Solutions Inc.'s acquisition of eZlogin in June 2000, our
shares of eZlogin were converted into 724 Solutions common stock. We have
elected to report these converted 724 Solutions shares as a trading security. As
a result, we are reporting both positive and negative fluctuations in the market
value of this stock in net income. At January 31, 2001, we owned 37,906 shares
(less than 1%) of 724 Solutions common stock. From June 2000 through January 31,
2001, we have reported a cumulative recognized valuation loss of approximately
$1.2 million for these securities. The closing price of 724 Solutions (Nasdaq
symbol SVNX) at January 31, 2001, was $24.81 per share.
During the six months ended January 31, 2001, we sold 85,000 shares of
Checkfree, At Home, S1, Mortgage.com,351,865 shares of Homestore.com, and Quotesmith.com99,902 shares of 724 Solutions.
In connection with these sales we recognized realized gains of $4.0 million, $
11.1 million, and $0.1 million, respectively. In addition we sold 9,715 shares
of VeriSign and approximately 1.2 million shares of Quotesmith.com. and
recognized realized losses of $0.2 million and $4.9 million, respectively. Total
net gains on sales of marketable securities were $10.1 million for the six
months ended January 31, 2001. This gain was offset by recognized losses of
$30.7 million to reflect a decline in valuations of our trading securities and
S1 options, and a loss of $55.2 million for other than temporary declines in the
value of our marketable securities and other investments. This resulted in
combined net losses on marketable securities and other investments of $75.8
million for the six months ended January 31, 2001.
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11
All of our marketable securities are stocks of high technology companies whose stocks are subject to substantial volatility.
Accordingly, it is possible that
thehave been extremely volatile. The market priceprices of one or morea number of these companies'
stocks have declined substantially. Declines in the market prices of stocks we
hold could decline substantiallycontinue. These declines have resulted, and quickly, which could continue to result
in a material reduction in the carrying value of these assets.
Lines of Credit
For lines of credit we estimate fair value basedassets and a negative
impact on the discounted value of
contractual cash flows using interest rates currently in effect for similar
maturities and collateral requirements. The carrying amount of these lines of
credit approximates their estimated fair values since all of the borrowings have
variable interest rates that approximate current market interest rates for
similar types of lines of credit and are due upon demand. We held the following
lines of credit at July 31, 1999 and January 31, 2000.
JULY 31, 1999 JANUARY 31, 2000
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- --------
Lines of credit.................... 29,896 30,000 3,283 3,291
Mortgage Loans
We carry mortgage loans at estimated realizable value, and we estimate their
fair value using quoted market prices for similar loans, adjusted for
differences in loan characteristics, including credit quality. The carrying
amount of accrued interest receivable approximates the assets' fair value. We
held the following mortgage loans and lines of credit at July 31, 1999 and
January 31, 2000.
JULY 31, 1999 JANUARY 31, 2000
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- --------
Mortgage loans..................... $84,983 $86,021 $38,386 $ 39,183
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Carrying amounts at July 31, 1999 and January 31, 2000 include an allowance for
credit losses of $1.3 million and $0.4 million, respectively.
As of July 31, 1999 and January 31, 2000, there were approximately $1.8 million
and $0.5 million, respectively of mortgage loans that were greater than 90 days
past due.our operating results.
Goodwill and Purchased Intangible Assets
We record goodwill when the costpurchase price exceeds the book value of net assets
we acquire exceeds their fair
value.acquired. Goodwill is amortized on a straight-line basis over periods ranging
from 3 to 5 years. The cost of identified intangibles is generally amortized on
a straight-line basis over periods ranging from 1 to 10 years. We regularlyWhen appropriate,
we perform reviews to determine if the carrying value of assets is impaired. The
reviews look for the existence of facts or circumstances, either internal or
external, which indicate that the carrying value of the asset cannot be
recovered. No such impairment has been indicated to date. If, in the future,
management determines the existence of impairment indicators, we would use
undiscounted cash flows to initially determine whether impairment should be
recognized. If necessary, we would perform a subsequent calculation to measure
the amount of the impairment loss based on the excess of the carrying value over
the fair value of the impaired assets. If quoted market prices for the assets
are not available, the fair value would be calculated using the present value of
estimated expected future cash flows. The cash flow calculations would be based
on management's best estimates, using appropriate assumptions and projections at
the time.
Goodwill and purchased intangible assets consisted of the following:
LIFE IN NET BALANCE AT
LIFE IN -----------------------------------
YEARS JULY 31, 19992000 JANUARY 31, 20002001
------- ------------- ---------------------------------
(In thousands; unaudited)
Goodwill..................................(in thousands)
Goodwill........................................... 3-5 $383,102 $416,874$358,890 $430,234
Customer lists............................lists..................................... 3-5 66,934 67,535
Covenants57,890 50,823
Covenant not to compete..................compete............................ 3-5 2,492 5,9854,992 3,998
Purchased technology......................technology............................... 1-5 17,751 14,97010,990 48,650
Assembled workforce.......................workforce................................ 2-5 3,972 3,4281,976 4,131
Trade names and logos.....................logos.............................. 1-10 6,900 5,3574,140 4,908
Balances presented above are net of total accumulated amortization of $210.1$465.3
million and $289.5$541.1 million at July 31, 19992000 and January 31, 2000,2001, respectively.
Concentration of Credit Risk
Intuit operates in an industry which is highly competitive and rapidly changing.
Many circumstances could have an unfavorable impact on Intuit's operating
results. Examples include significant technological changes in the industry,
changes in customer requirements or the emergence of competitive products or
services with new capabilities.
We are also subject to risks related to changes in the values of our significant
balances of marketable securities, private equity investments, short-term
investments marketable securities and the collectability of our trade accounts receivable. At January
31, 2000,2001, we held shares of Checkfree common stock representing approximately 19.5%
of Checkfree's outstanding common stock. We also held approximately 0.6% of At
Home's common stock, 3.5% of S1's outstanding common stock, 8.5% of
Mortgage.com's outstanding common stock, 1.0% of Homestore.com's outstanding
common stock and 6.6% of Quotesmith.com's outstanding common stock. If there is
a permanent decline$168.9 million in the value of thesemarketable securities, below cost, we will need to
report this declineas
described in our statement of operations."Marketable Securities", above in Note 1. Fluctuations in the
market value of our shares in At Home are treated as realizedExcite@Home, VeriSign and 724 Solutions result in
recognized gains and losses in our statement of operations on an ongoing basis,
since this investment isthese investments are treated as a trading security.
-11-
12securities. If there were an
other than temporary impairment in any marketable securities held as
available-for-sale, we would report this decline in our statement of operations.
See "Marketable Securities," above in Note 1 for a discussion of risks
associated with our marketable securities. At January 31, 2001, we held
approximately $17.6 million in private equity investments, net of reserves for
potential declines in value that are other than temporary. Our remaining
portfolio is diversified and consists primarily of short-term investment-grade
securities.
To reduce the credit risk associated with accounts receivable, Intuit performs
ongoing evaluations of customer credit. Generally, no collateral is required. We
maintain reserves for estimated credit losses and these losses have historically
been within our expectations. At January 31, 2001, we had one distributor,
Ingram Micro, that accounted for approximately 34% of our accounts receivable
balance.
In the normal course of our mortgage business, we enter into loan commitments to
extend credit in order to meet the financing needs of our customers. Loan
commitments are agreements to lend to a customer as long as all conditions
specified in the contract are met. Commitments generally have fixed expiration
dates or other termination clauses and may require the customer to pay a fee. We
evaluate each customer's creditworthiness on a case-by-case basis. The amount of
collateral we obtain is based on our credit evaluation of the customer.
-11-
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Loan commitments subject us to market risks and credit risks. Market risk occurs
if interest rates rise after a loan commitment is made. To offset this risk on
conventional loans that are in process, we utilize mandatory forward sale
commitments and purchase puts and calls on U.S. Treasury securities. At January
31, 2001, we had $150.1 million in mandatory forward sale commitments for future
delivery of FNMA and FHLMC securities and held puts in the amount of $8.0
million. The credit risk associated with these puts and calls on U.S. Treasury
securities is a small fraction of the notional amount of the securities and is
reflected in their fair value. Loan commitments also involve credit risk
relating to the customer, which is not reflected on the balance sheet. We use
the same credit policies for making credit commitments as we do for the
underlying loan product.
Loan commitments to extend credit at July 31, 2000 and January 31, 2001 were as
follows:
JULY 31, 2000 JANUARY 31, 2001
------------------------------ ------------------------------
FIXED-RATE VARIABLE-RATE FIXED-RATE VARIABLE-RATE
-------- ------------- ---------- -------------
(In thousands)
Conventional prime loans ..... $167,000 $ 31,100 $266,385 $ 26,323
Sub-prime loans .............. 4,200 1,700 2,291 885
High-LTV loans ............... 600 -- 368 --
-------- -------- -------- --------
$171,800 $ 32,800 $269,044 $ 27,208
======== ======== ======== ========
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No.FAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 provides a
comprehensiveActivities," which
establishes accounting and consistent standardreporting standards for the recognition and measurement of
derivativesderivative instruments and
hedging activities. Implementation is requiredIt requires us to recognize all derivatives as either assets
or liabilities on the balance sheet and measure those instruments at fair value.
It further provides criteria for fiscal years
beginning after June 15, 2000.designating derivative instruments at fair
value, cash flow, or foreign currency hedges, and establishes accounting
standards for reporting changes in the fair value of the derivative instruments.
Upon the date of adoption, August 1, 2000, we will report transition
adjustments in net income or other comprehensive income, as appropriate,
reflectingrecorded the cumulative effect of
athe change in accounting principle.for derivatives for our S1 options held. This resulted
in a one-time cumulative effect of $14.3 million, net of taxes totaling $9.5
million, as of August 1, 2000. The one-time cumulative effect created a decrease
of $0.07 per share on the basic and diluted net loss per share for the six month
period ended January 31, 2001. FAS 133 requires the derivatives to be carried at
fair value, so subsequent fluctuations in the fair value of these options will
be included in our net income. For the three and six months ended January 31,
2001 these fluctuations resulted in a loss of $2.4 million and $10.0 million net
of taxes, respectively. The following table shows what adjusted net profit
(loss) and diluted net profit (loss) per share of Intuit would have been as if
we had adopted this standard as of the beginning of fiscal 2000:
Six Months Ended January 31, 2000
---------------------------------
As Adjusted As Reported
-------------- --------------
(In thousands, except per share data)
Net income (loss) ................................ $ 117,899 $ (8,569)
Diluted net income (loss) per share .............. $ 0.58 $ (0.04)
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, Revenue Recognition in Financial Statements ("SAB 101"), as
amended in March and June 2000. SAB 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements for all public
registrants. We have not yet
determined whetherare required to adopt SAB 101 no later than our fourth quarter
of 2001. The adoption of FAS 133 willSAB 101 is not expected to have a material impacteffect on our
consolidated financial position or results of operations, or cash flows.
Reclassifications
Certain previously reported amounts have been reclassified and restated to
include the results of our Rock and Title Source subsidiaries acquired on
December 8, 1999. Certain other previously reported amounts have been
reclassified to conform to the current presentation format.operations.
2. PER SHARE DATA
Basic income per share is computed using the weighted average number of common
shares outstanding during the period. Diluted income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the exercise of stock options under the treasury stock method. In
loss periods, basic and dilutive loss per share is identical since the impact of
common equivalent shares is anti-dilutive.
On September 8, 1999, our Board of Directors declared a three-for-one stock
split, to be effected as a stock dividend of two shares of common stock for each
share of Intuit's common stock outstanding. Stockholders of record on September
20, 1999 were issued two additional shares of common stock for each share of
Intuit's common stock held on that date. The payment date for the stock dividend
was September 30, 1999. We have restated all share and per share amounts
referred to in the financial statements and notes to reflect this stock split.-12-
13
3. COMPREHENSIVE NET INCOME
As of August 1, 1998, Intuit adopted SFAS 130, "Reporting Comprehensive Income."
SFAS 130Income" establishes new rulesstandards for the reporting
and displaydisplaying of comprehensive net income and its components. However, it has
no impact on our net income or
stockholders' equity as presented in our financial statements. SFAS 130
requires foreign currency translation adjustments and changes in the fair value
of available for saleavailable-for-sale securities to be included in comprehensive income.
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The components of comprehensive net income, net of tax, are as follows:
SIX MONTHS ENDED JANUARY 31,
----------------------------
1999 2000 2001
--------- -----------------
(In thousands; unaudited)
Net income (loss) ............................thousands)
Beginning balance, net of tax ......................... $ 48,23079,144 $ (8,569)55,586
Unrealized gainloss on marketable securities ..... 371,342 371,684
Change in cumulative translation.............. 619,474 29,691
Realized loss on marketable securities ................ -- (28,518)
Tax provision (benefit) on marketable securities ...... (247,790) (469)
Translation adjustment .. (4,052) (1,157)gain (loss), net of tax ........ (2,621) 1,106
--------- ---------
Comprehensive--------
Ending balance, net income .....................of tax ............................ $ 415,520448,207 $ 361,95857,396
========= =========
4. ACQUISITIONS
On May 3, 1999,August 30, 2000, we completed our acquisition of Computing Resources, Inc.
("CRI"), a Reno, Nevada-based provider of payroll services for a combination of
cash and Intuit stock. CRI is onepurchased all of the country's largest payroll services
companies and a leader in providing payroll services to small businesses. The
purchase priceoutstanding securities of Venture
Finance Software Corporation ("VFSC") that were not already held by Intuit
(approximately 51%) for privately-held CRI was approximately $200 million, consisting
of approximately $100 million cash and approximately $25 million of Intuit stock
that was paid at closing, and $75$118 million in cash (including
approximately $4.5 million in option exercise and tax payments in connection
with VFSC options exercised immediately prior to be paid in three annual
installments of $25 million each beginning in May 2000.the purchase). We accounted for
the acquisition of CRIVFSC as a purchase for accounting purposes and allocated
approximately $187 million to identified intangible assets and goodwill. These
assets are being amortized over a period of three to five years. The following
table shows pro forma net revenue, net loss from continuing operations and
diluted net loss per share from continuing operations of Intuit and CRI as if we
had acquired CRI at the beginning of fiscal 1999:
SIX MONTHS
ENDED JANUARY 31, 1999
----------------------
AS
PRO FORMA REPORTED
--------- --------
(In thousands, except per share data; unaudited)
Net revenue ....................................... $528,280 $510,614
Net income ........................................ 32,523 48,230
Diluted net income per share ...................... $ 0.17 $ 0.25
On November 30, 1999, we completed the purchase of all of the outstanding common
stock of Turning Mill Software, Inc. ("Turning Mill") for approximately $22
million in stock. Turning Mill is a developer of software and web based products
based in Acton, Massachusetts. We accounted for the acquisition of Turning Mill
as a purchase for accounting purposes and allocated approximately $22$113 million to identified intangible assets and goodwill. These
assets are being amortized over periods of three to five years.
Eric Dunn, who was Senior Vice President and Chief Technology Officer of Intuit
through July 31, 2000, as well as VFSC's President and a director of VFSC, was
an option holder of VFSC. He exercised his options immediately prior to the
closing of Intuit's acquisition of VFSC. He received $5.7 million from Intuit
for his VFSC shares, net of the aggregate exercise price for his option ($1.4
million) and withholding taxes ($3.1 million).
Other shareholders of VFSC included venture capital funds managed by Kleiner
Perkins Caufield & Byers, of which L. John Doerr, a director of Intuit, is a
general partner. These funds received approximately $2.4 million from Intuit for
their VFSC shares. The aggregate original purchase price for the shares held by
the Kleiner Perkins Caufield & Byers funds was $1.2 million.
On December 8, 1999,20, 2000 we completed the purchase ofacquired all of the outstanding sharesstock of
Rock Financial Corporation ("Rock")EmployeeMatters, Inc., in exchange for approximately 8.6$41.9 million sharesin Intuit
stock, the elimination of Intuit common stock. Rock is a providerapproximately $8.0 million in bridge loans we extended
to EmployeeMatters prior to the closing, and the assumption of consumer mortgages and is based in
Michigan. In connection with the acquisition, Intuit assumed allapproximately
$3.4 million of Rock's
outstanding employee stock options, which were converted into options to
purchase approximately 1.2 million shares of Intuit common stock. In a related
transaction, Intuit also completed the acquisition of Title Source, Inc., an
affiliate of Rock, for approximately 150,000 shares of Intuit stock. Title
Source provides title insurance and escrow services to real estate agents,
lenders, attorneys, corporations and homeowners.liabilities. We accounted for the acquisitionsacquisition of Rock and Title SourceEmployeeMatters
as a pooling of interestspurchase for accounting purposes and have restated all previously reported amountsallocated approximately $53.3 million
to reflect the effectidentified intangible assets and goodwill. These assets are being amortized
over periods of three to five years.
5. DISCONTINUED OPERATIONS AND DIVESTITURES
On January 24, 2001, we sold selected assets of our Quicken Insurance business
to InsWeb Corp. for approximately $10.8 million of InsWeb common stock. As a
result of the pooling.divestiture, we recorded a pre-tax gain of $1.6 million and a
related tax provision of $0.6 million in the quarter ended January 31, 2001.
In addition, Intuit and InsWeb entered into a distribution agreement under which
InsWeb became the exclusive consumer insurance aggregator for Intuit's
Quicken.com and QuickenInsurance Web sites and certain Quicken consumer desktop
products. In exchange, Intuit will share in associated revenues, which are
subject to certain minimums, over the 5 year term of the distribution agreement.
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14
5.6. BORROWINGS
We have two mortgage lines of credit.credit, which are reflected in escrow liabilities.
Advances under the first line of credit are based on a formula computation, with
interest due monthly. Advances are due on demand and are collateralized by
residential first and second mortgages. Advances may be drawn for working
capital and sub-prime, high loan-to-value and conventional prime mortgage loans.
The maximum outstanding balance permitted under this line is $20 million.
Interest rates are variable and are based on the federal funds rate and prime
rate, depending on the type of advance. The interest rates in effect at July 31,
19992000 and January 31, 20002001 were 6.29%7.69% and 6.83%7.53%, respectively. The weighted
average interest ratesrate for the year ended July 31,
1999 and quartersix months ended January 31, 2000 were 6.45% and 6.58%, respectively.was 6.59%.
During the six months ended January 31, 2001 we had a zero balance outstanding
for the line of credit resulting in a weighted average interest rate of 0%.
Our second line of credit currently provides for up to $50 million principal
amount of demand loans secured by mortgage loans and other assets. Loans
interest atInterest
rates thaton loans vary depending on the type of underlying loan, and the loans are
subject to sublimits,sub-limits, advance rates and warehouse terms that vary depending on
the type of underlying loan. The interest rates in effect at July 31, 19992000 and
January 31, 20002001 were 6.37%7.89% and 6.96%7.05%, respectively, while the weighted average
interest rates for the three month periodssix months ended JulyJanuary 31, 19992000 and January 31, 20002001
were 5.92%6.69% and 6.64%7.60%, respectively. We are required to maintain a minimum
tangible net worth and to satisfy other financial covenants, as outlined in the
line of credit agreements. We were in compliance with the requirements as of
July 31, 19992000 and January 31, 2000.
Our reverse repurchase agreement entered into in 1997 provides that the lender
will purchase from us, subject to our agreement to repurchase on a specified
date, up to $200 million of conventional prime and sub-prime mortgage loans at
par, as of January 31, 2000. Loans subject to purchase are fixed and adjustable
rate, fully-amortizing first or junior lien residential mortgage loans and home
equity loans that comply with our origination guidelines and conform to
whole-loan sale requirements. The reverse repurchase agreement is not a
committed facility and the lender may elect to discontinue the repurchase
agreement at any time. The terms2001.
7. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the financing under the repurchase agreement
mature and may be renewed on a daily basis. In any event, the arrangement
terminates in March 2000. Interest rates are variable and are based on the
London Interbank Offered Rate, depending on the type of advance. The interest
rate in effect at July 31, 1999 was 5.75%. The weighted average interest rate
for the year ended July 31, 1999 was 5.92%. There were no borrowings on this
line for the quarter ended January 31, 2000.
Drafts payable represent funds advanced for mortgages originated which have not
yet been drawn against the lines of credit.
6. OTHER ACCRUED LIABILITIESfollowing:
JULY 31, JANUARY 31,
1999 2000 --------2001
---------- -----------
(In thousands; unaudited)
Reserve for returnsthousands)
Short-term notes payable ....................... $ 34,286 $ 39,939
Accrued compensation and exchanges ................ $ 73,955 $ 96,372related liabilities ... 49,303 53,763
Future payments due for CRI acquisition .......... 66,314 68,313
Other acquisition........ 44,916 46,455
Payroll tax obligations ........................ 177,002 175,088
Rebates ........................................ 21,552 41,758
Reserve for returns and disposition related items .. 10,824 12,341
Rebates .......................................... 18,002 34,204
Post-contract customer support ................... 3,418 11,289exchanges .............. 60,979 85,211
Other accruals ................................... 29,359 49,241................................. 35,322 67,430
-------- --------
$201,872 $271,760$423,360 $509,644
======== ========
7. SEGMENTED-14-
15
8. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
Intuit has adoptedThe following information is provided in accordance with Statement of Financial
Accounting No. 131, "Disclosures about Segments of an Enterprise and Related
Information,"Information" ("SFAS 131"). SFAS 131 establishes standards for the way in which
public companies disclose certain information about operating segments in the
Company's financial reports.
Consistent with SFAS 131, we have determined our operating segments based on
factors such as how our operations are managed and how results are viewed by
management. Since Internet-based revenues and expenses cut
across all of our business divisions, we do not report results of our
Internet-based businesses as a separate business segment in our financial
statements. Instead, each of our business divisions reports Internet-based
revenues and expenses that are specific
-14-
15 to its operations and are included in
its results. The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies. Intuit does
not track assets by operating segments. Consequently, we do not disclose assets
by operating segments. The following unaudited results for the six months ended
January 31, 2000 and 2001 are broken out by our operating segments for the six
month periods ended January 31, 1999 and 2000:segments:
SIX MONTHS ENDED SMALL CONSUMER GLOBAL
JANUARY 31, 1999
SMALL CONSUMER2000 BUSINESS TAX FINANCE TAX INTERNATIONALBUSINESS
(In thousands; unaudited)thousands) DIVISION DIVISION DIVISION DIVISION OTHER(1)OTHER (1) CONSOLIDATED
-------- -------- -------- ------------- --------- ----------------- ---------- ------------
Net revenue ................ $131,961 $134,269 $209,358 $ 35,026 $ -- 510,614
Segment operating
income / (loss) ............ 38,925 19,210 98,415 (6,263) -- 150,287
Common expenses ............ -- -- -- -- (54,145) (54,145)
-------- -------- -------- -------- --------- ---------
Sub-total operating
income (loss) .............. 38,925 19,210 98,415 (6,263) (54,145) 96,142
-------- -------- -------- -------- --------- ---------
Gains/(losses)
on marketable securities ... -- -- -- -- 10,088 10,088
Acquisition costs .......... -- -- -- -- (45,633) (45,633)
Reorganization costs ....... -- -- -- -- (2,000) (2,000)
Interest income/expense
and other items ............ -- -- -- -- 7,298 7,298
-------- -------- -------- -------- --------- ---------
Net income (loss)
before tax ................. $ 38,925 $ 19,210 $ 98,415 $ (6,263) $ (84,392) $ 65,895
======== ======== ======== ======== ========= =========
SIX MONTHS ENDED
JANUARY 31, 2000
(In thousands;
unaudited)
Net revenue ................................................. $216,912 $140,659 $196,844 $ 48,012140,659 $48,012 $ -- $ 602,427
Segment operating income/(loss) .............. 70,007 10,238 68,581 4,383 -- 153,209
Common expenses ............ -- -- -- -- (68,830) (68,830)
-------- -------- -------- -------- --------- ---------
Sub-total operating
income (loss) .............. 70,007 10,238 68,581 4,383 (68,830) 84,379
-------- -------- -------- -------- --------- ---------
Gains/(losses)
on marketable securities ................ 42,900 45,441 (2,379) 40 -- -- -- -- (20,110) (20,110)86,002
Acquisition costs ..................................... -- -- -- -- (89,539) (89,539)
Reorganization costs ............................... -- -- -- -- (3,500) (3,500)
Common expenses ............................. -- -- -- -- (1,623) (1,623)
----------------------------------------------------------------------------
Sub-total operating income (loss) ........... 42,900 45,441 (2,379) 40 (94,662) (8,660)
Interest income/expenseincome (expense) and other items ............... -- -- -- -- 15,465 15,465
-------- -------- -------- -------- --------- ---------Realized net losses on marketable ........... -- -- -- -- (20,110) (20,110)
securities
Gain on divestiture ......................... -- -- -- -- -- --
----------------------------------------------------------------------------
Net income (loss) before tax ................................. $ 70,00742,900 $ 10,23845,441 $ 68,581(2,379) $ 4,383 $(166,514)40 $(99,307) $ (13,305)
======== ======== ======== ======== ========= =====================================================================================
SIX MONTHS ENDED SMALL CONSUMER GLOBAL
JANUARY 31, 2001 BUSINESS TAX FINANCE BUSINESS
(In thousands) DIVISION DIVISION DIVISION DIVISION OTHER CONSOLIDATED
-------- -------- -------- -------- ---------- ------------
Net revenue ................................. $253,782 $204,659 $ 130,006 $56,635 $ -- $ 645,082
Segment operating income (loss) ............. 54,320 46,523 (906) 3,340 -- 103,277
Acquisition costs ........................... -- -- -- -- (89,599) (89,599)
Reorganization costs ........................ -- -- -- -- -- --
Common expenses ............................. -- -- -- -- (10,278) (10,278)
-----------------------------------------------------------------------------
Sub-total operating income (loss) ........... 54,320 46,523 (906) 3,340 (99,877) 3,400
Interest income (expense) and other items ... -- -- -- -- 32,666 32,666
Realized net losses on marketable ........... -- -- -- -- (75,803) (75,803)
securities
Gain on divestiture ......................... -- -- -- -- 1,639 1,639
-----------------------------------------------------------------------------
Net income (loss) before tax ................ $ 54,320 $ 46,523 $ (906) $ 3,340 $(141,375) $ (38,098)
=============================================================================
- --------------------
(1) Reconciling items include acquisition and other common costs not allocatedCommon expenses in fiscal 2000 have been reclassified to specific segments.
8.conform to the
current presentation format.
9. NOTES PAYABLE AND COMMITMENTS
In March 1997,2000, our Japanese subsidiary, Intuit KK, entered into a three-yearone-year loan
agreement with Japanese banks for approximately $30.3$32.2 million which was used to
fund
itsrefinance the three year loan that was entered into in March 1997 to finance our
acquisition of Nihon Micom. The loan is denominated in Japanese yen and is
therefore subject to foreign currency fluctuations when translated to U.S.
dollars for reporting -15-
16
purposes. The interest rate is variable based on the Tokyo
inter-bank offered rate or the short-term prime rate offered in Japan. At
January 31, 2000,2001, the rate was approximately 0.6%1.35%. The fair value of the loan
approximates cost as the interest rate on the borrowings is adjusted
periodically to reflect market rates (which are currently significantly lower in
Japan than in the United States). We have guaranteed the loan and pledged approximately $38.4 million, or 110% of the
loan balance, of short-term investments to be restricted as security for the
borrowings at January 31, 2000. We are obligated to pay interest only untilon the
loan through March 2000. We are currently refinancing this debt for another one-year term.
9.2001.
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10. INCOME TAXES
Intuit computes the provision (benefit) for income taxes by applying the
estimated annual effective tax rate to recurring operations and other taxable
items. Our effective tax rate differs from the federal statutory rate primarily
because of tax credits, tax exempt interest income, state taxes, non deductible
acquisition costs and certain foreign losses.
10.11. LITIGATION
Intuit was a defendant in two consolidated class action lawsuits (one in
California and one in New York) which alleged that certain of its Quicken
products have on-line banking functions that are not Year 2000 compliant. With
respect to the California litigation, on October 13, 1999 the court dismissed
the case without leave to amend. The only remaining issue relates to a potential
award of attorneys' fees to the plaintiffs. On December 1, 1999, the court
granted our motion to dismiss all the New York actions with prejudice. Although
plaintiffs filed a Notice of Appeal, they failed to perfect the appeal.
Accordingly, this case is also now over.
In addition, a suit was filed in the Contra Costa County, California Superior
Court by an individual consumer against various retailers, including Circuit
City Stores, CompUSA, Fry's Electronics, Office Depot, The Good Guys and others,
alleging that these retailers have sold software and hardware products which are
not Year 2000 compliant, including at least one product published by Intuit. One
of the defendants in this action, Fry's Electronics, filed a cross-complaint
against various software publishers and hardware manufacturers, including
Intuit, asserting a claim for indemnity in the main action. In September 1999,
Fry's Electronics reached a settlement with the plaintiffs. All the cross
defendants, including Intuit, then filed a demurrer to the cross-complaint. On
December 7, 1999 the court granted the demurrer and dismissed the case without
leave to amend. If Fry's Electronics does not appeal this ruling by April 4,
2000, this lawsuit against Intuit will also be over.
On March 3, 2000 a class action lawsuit, Bruce v. Intuit Inc., was filed in the
United States District Court, Central District of California, Eastern Division.
On March 8, 2000 aTwo virtually identical lawsuit,lawsuits were later filed: Rubin v. Intuit Inc., was
filed on March 8, 2000 in the United States District Court, Southern District of
New York. BothYork and Newby v. Intuit Inc. was filed on April 27, 2000, in the United
States District Court, Central District of California, Eastern Division. The
Bruce and Newby lawsuits were consolidated into one lawsuit - In re Intuit
Privacy Litigation, filed on July 28, 2000 in the United States District Court
of California, Eastern Division. A similar lawsuit, Almanza v. Intuit Inc. was
filed on March 22, 2000 in the Superior Court of State of California, San
Bernadino County, Rancho Cucamonga Division. The Almanza complaint was amended
on October 26, 2000. These purported class actions claim thatallege violations of various
federal and California statutes and common law claims for invasion of privacy
based upon the alleged intentional disclosure to third parties of personal and
private customer information entered intoat Intuit's Quicken.com website was intentionally and secretly disclosed to third-party advertisers.website. The
two lawsuits allege identical causes of actions for invasion of privacy and
violations of federal statutes related to electronic communications. The
lawsuitscomplaints seek injunctive relief, an orderorders to disgorge profits related to the
alleged acts, and statutory and other damages. As of March 10, 2000, neither
lawsuit had been served on Intuit.
WeIntuit believes these lawsuits
are without merit and intends to defend the litigation vigorously.
Intuit is subject to other legal proceedings, as well as demands, claims and
claimsthreatened litigation, that arise in the normal course of our business. We
currently believe that the ultimate amount of liability, if any, for any pending
actionsclaims of any type (either alone or combined) will not materially affect our
financial position, results of operations or liquidity. However, the ultimate
outcome of any litigation is uncertain, and either unfavorable or favorable
outcomes could have a material negative impact. Regardless of outcome,
litigation can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
11. RELATED PARTY TRANSACTIONS
As of January 31, 2000, we held approximately 19.5% of Checkfree's outstanding
common stock. In exchange for providing connectivity between Checkfree's bill
payment processing service and our Quicken products, we reported
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revenues of $1.3 million and $2.4 million from Checkfree for the three and
six-months ended January 31, 1999 and $1.8 million and $3.6 million for the
three and six-months ended January 31, 2000, respectively. We held receivables
due from Checkfree for $0.1 million and $2.3 million at July 31, 1999 and
January 31, 2000, respectively.
As of January 31, 2000, we held a 49% non-voting equity interest in Venture
Finance Software Corp. ("VFSC"). We have entered into agreements with VFSC to
provide them with services related to ongoing development of Web-oriented
finance products and services. We have an option to purchase the equity
interests of the other investors in VFSC between May 4, 2000 and May 4, 2002, at
a price to be determined by a formula. We held a receivable due from VFSC for
$6.7 million and $10.6 million at July 31, 1999 and January 31, 2000,
respectively.
12. SUBSEQUENT EVENTS
On February 18, 2000 we sold 3.0 million shares of Checkfree common stock at a
price of $90 per share and on March 2, 2000 we sold 2.5 million shares of
Checkfree common stock at a price of $92 per share. Gross proceeds from these
transactions were $500 million. These divestitures reduced our ownership in
Checkfree to 4.7 million shares or approximately 9% of Checkfree's outstanding
stock.
On February 29, 2000, Verisign, Inc. ("Verisign") acquired all of the
outstanding securities of privately-held Signio, Inc. ("Signio"). We held an
investment in Signio, and in exchange for our investment, we will receive
approximately 194,000 common shares of Verisign (representing less than 1% of
the outstanding common stock of Verisign subsequent to the acquisition). On
February 29, 2000, the closing stock price of Verisign was $253 per share.
-17-
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-
- --------------------------------------------------------------------------------
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
CAUTIONS ABOUT FORWARD LOOKING STATEMENTS
AND INVESTMENT CONSIDERATIONS
ThisThroughout this Form 10-Q, contains forward-lookingyou will find "forward-looking" statements, or
statements about events andor circumstances that have not yet occurred. For example,In some
cases, you can identify these statements withby forward-looking words like "expect,such as "may,"
"anticipate,"might," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "believe""continue," and other similar terms.
These forward-looking statements include, among other things, the anticipated
future growth of our mortgage revenue, predictions about QuickBooks upgrade
rates, expected trends in thecost of revenue, operating expenses and capital needs,
projections of our future tense,financial performance, our anticipated growth and
anticipated trends in our businesses (including trends in product pricing and
seasonality). These statements are only predictions, based on our current
expectations about future events., We cannot guarantee future results,
performance or achievements or guarantee that predictions or current
expectations will be accurate. These forward-looking statements. Investors should be aware thatstatements involve risks
and uncertainties, and our actual results, mayperformance or achievements could
differ materially from those expressed or implied by the forward-looking
statements. The important factors that could cause our expectations becauseresults to differ are
discussed under "Risks That Could Affect Future Results," at the end of risksthis
Item 2. This Item 2 should also be read in conjunction with the Consolidated
Financial Statements and uncertainties
about the future. We will not necessarily update informationrelated Notes in Part I, Item 1 of this Form 10-Q, if any forward-looking statement later turns out to be inaccurate. Risks and
uncertainties that may affect our future results and performance include, but
are not limited to the following:
- - - Our revenue and earnings are highly seasonal and
our quarterly and annual
financial results fluctuate significantly.
- - - We face intense competition from many companies in all of our business
areas.
- - - Competition in the personal tax preparation software business is
particularly intense, with Microsoft having entered the market during the
1999 tax season. We are seeing increasing price competition during the
remainder of the tax season (including free products from Microsoft), and
this could have a material negative impact on revenue, profitability and
market position for our personal tax business.
- - - In our online mortgage and insurance businesses, we face competition from
many newly public companies that have a narrower business focus, increasing
financial resources and less demanding earnings expectations.
- - - We must continue to establish and maintain important distribution
relationships for our Internet-based products and services and successfully
market and promote these products and services.
- - - We must maintain high reliability for our server-based Web services. In
particular, our web-based tax preparation and electronic filing services
must handle extremely heavy customer demand during the peak tax season.
- - - If we fail to provide responsive customer service and technical support, we
could lose customers.
- - - Our Internet businesses face risks relating to customer privacy and
security and increasing regulation.
- - - Our Internet businesses require significant research and development and
marketing expenditures.
- - - Page views and reach statistics for our Quicken.com site can vary
significantly from month to month due to seasonal trends, site performance,
the timing of launches, competitors' activities and other factors. Adverse
changes in page view and reach statistics could adversely affect our
ability to earn advertising revenue from our Quicken.com site.
- - - In order to succeed in the payroll services business, we must continue to
improve the integration of the operations of our payroll processing
subsidiary, streamline customer activations for our online payroll
processing service and focus our traditional payroll service on existing
distribution channels.
- - - The technology and services of certain alliances for our QuickBooks
Internet Gateway initiative still need to be completed and integrated with
QuickBooks, and are subject to risks and uncertainties involved in the
product development process, including technological difficulties, possible
delays, and availability of financial resources. Significant delays in
implementing key services, or failure to implement, could delay or
eliminate our ability to recognize contractually committed revenues.
- - - The anticipated benefits of certain proposed small business services to
Intuit (including the Site Builder website creation tool, Site Solutions
services and QuickBooks Internet Gateway services) will depend on a number
of variables, including the rate at which customers upgrade to QuickBooksfiscal 2000 and future versions of the product, customer acceptance of new and
proposed services, and, the level of satisfaction of third party
participants.
- - - The success of the small business alliances will depend on establishing and
maintaining a number of important business relationships, and there can be
no assurance that key relationships will continue.
- - - Our Tax and Quicken Internet Gateway initiatives, and related new services
to be offered in these areas, are in very early stages. Success of these
initiatives will depend on establishing and maintaining business
relationships with key participants and completing necessary technology
development and integration, as well as achieving broad customer
acceptance of the services to be offered.
- - - We offer electronic bill payment and bill presentment services, and the My
Finances web-based personal finance management service, through licensing
arrangements with a joint venture in which we are a participant. The
success of these services for Intuit will depend on a number of factors,
including timely and cost-effective completion of ongoing development
efforts, customer and biller adoption and participation rates, and the
status of the relationship with the joint venture. Intuit has an option to
purchase the interests in the joint venture that it does not currently own
between May 2000 and May 2002, at a formula-driven price that could exceed
$100 million. If we do not exercise the purchase option, our rights to
use the technology developed by the joint venture will be subject to
future negotiation.
- - - We face increasing competition for access to retail and OEM distribution
channels.
- - - The integration of acquired companies poses ongoing operational challenges
and risks. In addition, our recent acquisitions have resulted in
significant acquisition-related expenses.
- - - Our mortgage business is subject to interest rate fluctuations, and the
impact of interest rates on Intuit's operating results has become more
significant since the acquisition of Rock Financial was completed.
- - - Our recent acquisition
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of Rock Financial could have a negative impact on Intuit's relationships
with other lenders that participate in the online mortgage service.
- - - We hold investments that have been very volatile.
Additional information about factors that could affect future results and events
is included in our fiscal 1999 Form 10-K/A and other reports filed with the
Securities and Exchange Commission.10K.
OVERVIEW
Intuit's mission is to revolutionize the wayhow people manage their financial lives and
small businesses manage their businesses. We strive to offer innovative products
and services that drive fundamental changes in how individuals and small
businesses manage their finances. As we executeactivities - changes so profound that our mission, we have embarked oncustomers
can't imagine going back to the "old way" of doing things. We offer a strategy
to greatly expand the worldvariety of
electronic finance. "Electronic finance"
encompasses three types of productssmall business, tax preparation and services: (1) desktoppersonal finance software products
such as Quicken(R), QuickBooks(R) and Quicken TurboTax(R), that operate on
customers' personal computers to automate financial tasks; (2) online products
and services, such as Quicken.com(SM), QuickenLoans(SM), QuickenInsurance(SM)
and Quicken TurboTax for the Web(SM), that are delivered via the Internet; and
(3) products and services, such as QuickBooks Online Payroll(SM) service, that
connect Internet-based services with desktop software to enable customers to
integrate their financial activities. Our revenues come primarily from the
United States, Japan, Canada and the United Kingdom, through retail distribution
channels, direct customer sales and via the Internet.
While desktop software and
related products and services now provide most of our
revenue, our Internet-based revenue is growing rapidly. For the three months
ended January 31, 2000, Internet-based revenues grew by approximately 162%
comparedthat enable people and small businesses to
the same period last year and accounted for approximately 21% of
total revenue in the quarter ended January 31, 2000, compared to approximately
10% in the prior year quarter. We use the term Internet-based revenue to include
revenue from both Internet-enabled products and services as well as revenue from
electronic distribution. Internetrevolutionize how they manage their activities. Our products and services
include activities where
the customer realizes the value of the goods or services directly on the
Internet or an Intuit server. Internet product revenues include, for example,
advertising revenues generated on our Quicken.com website, online tax
preparationQuicken(R), QuickBooks(R), Quicken TurboTax(R), ProSeries(R) and
electronic tax filing revenues, online payroll service revenue
and transaction and processing fees from our online insurance and online
mortgage services. Electronic distribution includes revenues generated by
electronic ordering and/or delivery of traditionalLacerte(R) desktop software products, as well as an expanding array of
Internet-based products and financial supplies. We also useservices, including QuickBooks Deluxe Payroll
service, QuickBooks Internet Gateway services, our Site Builder website tool,
Quicken TurboTax for the Internet to host our technical support
website where we can quicklyWeb, Quicken.com(SM) and cost-effectively provide patches for product
bugs and provide customers with answers to frequently asked questions.
While we believe that the Internet provides an opportunity to increase revenue
in fiscal 2000, we also anticipate continued increases in spending in an effort
to capitalize on new business opportunities. In particular, we continue to
expect increased research and development expenses due to investments in
Internet-based initiatives. We also anticipate increased selling and marketing
expenses related to these initiatives and because of more intense competition in
the personal tax market during fiscal 2000. While we have made significant
progress in our Internet-based businesses, investors should be aware many of
these businesses are in their initial stages, and are not yet generating
significant revenue or profit. Since Internet-based revenues and expenses cut
across all of our business divisions, we do not report results of our
Internet-based businesses as a separate business segment in our financial
statements. Instead, each of our business divisions reports Internet-based
revenues and expenses that are specific to its operations and are included in
its results.Quicken Loans(SM).
Our business is highly seasonal. Sales of tax products are heavily concentrated
from November through March. Sales of small business and consumer finance and small business
products are typically strongest during the year-end holiday buying season and
the beginning of the calendar year, and therefore our major product launches
usually occur in the fall or early winter to take advantage of thisthese customer
buying pattern.patterns. These seasonal patterns mean that revenue is usually strongesthighest
during the quarters ending January 31 and April 30. We experience lower revenues
for the quarters ending July 31 and October 31, while our operating expenses to
develop and managesupport products and services continue to
be incurred at relatively consistent
levels during these periods. These seasonal
trendsThis can result in significant operating losses particularly in
the July 31 and October 31 quarters when our revenues are lower.quarters. Operating results can also fluctuate for
other reasons,
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20 such as changes in product release dates, non-recurring events
such as acquisitions, dispositions, gains and dispositions,losses from marketable securities,
and product price cuts in quarters that have relatively high fixed expenses.
Acquisitions and dispositions in particular can have a significant impact on the
comparability of both our quarterly and yearlyannual results, and acquisition-related
expenses continue to have had a negative impact on our earnings.
While desktop software and related products and services provide a majority our
revenue, our Internet-based revenue is continuing to grow rapidly. We use the
term Internet-based revenue to include revenue from both Internet-enabled
products and services as well as revenue generated by electronic ordering and/or
delivery of traditional desktop software products and financial supplies. Since
Internet-based revenues cut across all of our business divisions, we do not
report results of our Internet-based revenues separately in our financial
statements. Instead, each of our business divisions reports Internet-based
revenues that are specific to its operations and are included in its results.
We believe our Internet-based businesses and our other emerging service
businesses provide an opportunity to increase revenue in fiscal 2001 and beyond.
We have made significant progress in several of these businesses over the past
three years. During fiscal 2000, our web-based tax preparation and electronic
filing services achieved
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profitability on a pre-tax basis. During the second quarter of fiscal 2001, the
profitability of our Quicken Loans and payroll businesses improved significantly
from the prior year. During the second quarter of fiscal 2001, we introduced
QuickBooks for the Web, which provides basic accounting functionality on the
web, and QuickBase, a web-based tool that lets customers create, manage and
share data from a browser. In February 2001, we announced the Intuit Developer
Network, a program that gives software developers access to application
programming interfaces (APIs) for various Intuit small business products, so
that they can develop software applications that will be available to Intuit's
small business customers. Despite this progress, investors should be aware that
most of our emerging businesses are still in their initial stages and are not
yet generating either profits or significant revenue. We anticipate increased
spending in an effort to capitalize on new business opportunities. During the
first half of fiscal 2001 we doubled our investments in our emerging businesses
compared to the first half of fiscal 2000, which has contributed to increased
research and development expenses. We expect to continue increasing our
investment in emerging businesses during the remainder of fiscal 2001. See
"Risks That Could Affect Future Results."
RESULTS OF OPERATIONS
Set forth below are certain consolidated statements of operations data for the
three and six-month periods ended January 31, 1999 and 2000. Investors should
note that results for the three and six-month periodssix months ended January 31, 2000 include activity for our CRI subsidiary, which was acquired in May 1999. The
corresponding year ago periods did not include results for CRI (see Note 4).and 2001. Results for all periods
include resultsactivity for Rock Financial Corporation and Title Source, Inc.
(collectively, "Rock"), which wewere acquired in December 1999. TheAs the acquisition
of Rock has beenwas accounted for as a pooling of interests, so all prior periods have been
restated to reflect the combined results of Rock and Intuit. The inclusion of Rock's results in the
comparison periods for both fiscal 1999 and fiscal 2000 had a significant impact
on our financial results. Rock's revenue declined approximately 50% between the
comparison periods, due to Rock's transition from a traditional mortgage
business to an online mortgage business and the closingSee Note 1 of the
majority of their
traditional mortgage branch offices, as well as rising interest rates. Although
Rock's operating expenses decreased in absolute dollars between the comparison
periods, they increased significantly as a percentage of revenue and resulted in
operating losses for Rock during the fiscal 2000 comparison periods (compared to
operating profits in the fiscal 1999 periods), which partially offset growth in
operating income for our other businesses as a whole.
Since the business of selling software and related services is considerably
different from our supplies business, we break them out separately for financial reporting purposes.statements.
NET REVENUE
Three Months Ended January 31, Six Months Ended January 31,
1999 Change 2000 1999 Change 2000
---------------------------- ----------------------------
(Dollars in millions; unaudited)
Software and other ................ $ 344.1 14% $ 392.7 $ 457.4 18% $ 541.7
% of revenue ...................... 92% 92% 90% 90%
Supplies .......................... $ 29.6 11% $ 32.8 $ 53.2 14% $ 60.7
% of revenue ...................... 8% 8% 10% 10%
Total ............................. $ 373.7 14% $ 425.5 $ 510.6 18% $ 602.4
The following revenue discussion is categorized by our business divisions, which
is how we examine results internally. Our domestic suppliesdivisions. The
table below shows each business is
considered a partdivision's percentage of our smallnet revenue for the
three and six months ended January 31, 2000 and 2001. See Note 8 of the
financial statements for additional information about our business division while the international
supplies business is considered part of our international division (see Note 7).segments.
Q2 % Q2 % % YTD % YTD % %
(Dollars in millions; FY00 REVENUE FY01 REVENUE CHANGE FY00 REVENUE FY01 REVENUE CHANGE
Unaudited) Q2 YTD
------ ------- ------ ------- ------ ------ -------- ------ ------- ------
Small Business Division ... $136.8 32% $160.1 35% 17% $216.9 36% $253.8 39% 17%
Tax Division............... 185.7 44% 192.3 42% 4% 196.8 33% 204.7 32% 4%
Consumer Finance Division.. 72.6 17% 66.5 15% (8)% 140.7 23% 130.0 20% (8)%
Global Business Division .. 30.4 7% 38.7 8% 27% 48.0 8% 56.6 9% 18%
Total net revenue...... $425.5 100% $457.6 100% 8% $602.4 100% $645.1 100% 7%
Small Business Division.
Small business division revenues comeBusiness Division revenue is derived primarily from the following sources:
- QuickBooks product line
- Suppliesdesktop
products, (including checks, envelopes and invoices)
- Payrollfinancial supplies, payroll services,
- Support fees for the QuickBooks Support Network
Overall,and QuickBooks Internet Gateway services.
Revenue for the Small Business Division increased by 17% for both the three and
six months ended January 31, 2001 compared to the same periods in the prior
year. Our QuickBooks business experienced revenue growth of 6% for the three
months ended January 31, 2001, compared to the same period a year ago. This
growth was the result of higher average selling prices, which partially offset a
9% decline in unit sales. QuickBooks revenue for the division was up 63% and 64% for the three and six-month
periodssix months ended January
31, 2000 respectively,was roughly flat, as higher average selling prices were offset by a 12%
decline in unit sales compared to the prior year. These results primarily
reflect a year-over-year decline in the rate at which existing QuickBooks
customers upgraded to a newer QuickBooks product. Historically, approximately
20-30% of our QuickBooks customer base will upgrade in any one year. Year 2000
concerns, however, skewed both the normal seasonal patterns and traditional
upgrade patterns in fiscal 2000. Almost 50 percent of our customers upgraded
last year due to Year 2000 concerns. As a result, we currently expect the
upgrade rate to be in the high teens this fiscal year. The relatively slow
growth of QuickBooks revenue also reflects slower economic growth in the U.S.
and other major markets for our QuickBooks products.
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19
Our financial supplies business experienced revenue growth of 9% for both the
three and six months ended January 31, 2001 compared to the same periods in the
prior year. This increase is primarily the result of higher average selling
prices.
Payroll services experienced revenue growth of 57% and 54% in the three and six
months ended January 31, 2001, compared to the same periods a year
ago. TheSignificant price increases were primarily a result of revenuecontributed to this growth for both our QuickBooks products. In addition, CRI (acquired in May 1999)Basic
Payroll Service and our QuickBooks
Onlineonline Deluxe Payroll Service. Both services also
experienced solid growth in their customer base. While we believe our payroll
business, and the Deluxe Payroll Service (launched in October 1998) contributed to revenues during
the three-month and six-month periods
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21
ended January 31, 2000, but did not account for material revenue in the three
and six-month periods ended January 31, 1999.
Though they are a smaller component of small business division revenues, tax
tables service revenue and revenue from our QuickBooks Support Network also grew
in the three and six-month periods ended January 31, 2000 compared to the same
periods a year ago.
We launched our most recent version of QuickBooks (QuickBooks 2000) in December
1999. The increased revenue from our QuickBooks product line was attributable to
increased unit sales, as well as an increase in the average selling prices of
the QuickBooks product driven by consumer preferences toward higher priced,
greater functionality products. We believe a significant number of customers may
have upgraded earlier than they otherwise may have, due to Year 2000 concerns.
Accordingly, we expect that some of the fiscal 2000 second quarter strength in
QuickBooks revenue is a shift from the second half of the year, and we expect
the revenue growth rate to decline significantly as the year progresses.
QuickBooks 2000 features the QuickBooks Internet Gateway platform of connected
and integrated electronic services, that is designed to offer small businesses
direct access to services from third parties, such as electronic postage and
merchant account services, that can help them more easily and efficiently manage
their business. It also features QuickBooks Site Builder, a new web site
creation and domain name registration tool that enables small businesses to
quickly establish a presence on the Web. Although these new features are
strategically important for Intuit, it is too early to tell how successful these
servicesparticular, will be, or the extent to which they will generate increasing demand
for QuickBooks 2000.
Domestic supplies revenues, which are part of the small business division, grew
by 11% and 14% for the three and six-month periods ended January 31, 2000 as a
result of our increasing base of small business customers who use QuickBooks and
Quicken. In addition, in August 1999, we began charging for shipping and
handling for domestic supplies shipments which also contributed to our domestic
supplies revenue.
We offer different types of payroll services. Our QuickBooks Online Payroll
service, which is integrated with our QuickBooks products, handles all aspects
of payroll processing with our CRI subsidiary providing the processing services.
CRI also continues to provide traditional payroll processing services for its
customer base. We also offer QuickPayroll, a subscription-based payroll service
for customers who do not use QuickBooks, as well as a payroll tax table
subscription service for small business customers that need current tax tables
to prepare their own payroll. While the payroll processing business provides us with a
significant opportunity to generate recurring revenue there are businessin the future, we face a
number of challenges and risks, associated with theincluding operational issues in activating
online payroll processing business and the continued integrationcustomers. See "Risks That Could Affect Future Results."
In December 2000, we completed our acquisition of CRI into our existing business model. For example, if we are unableEmployeeMatters, which is
developing employee administration services that will enable us to provide accurate and timely payroll information, cash deposits or tax return filings,
that failure could be costlya
broader set of solutions to correct and may have a significant negative
impact on our ability to attract and retain customers, who have a low tolerance
for payroll processing errors. Our ability to successfully operate CRI will
depend in part on retaining their existing customers and maintaining
relationships with certain banks and other third parties who we will rely on to
retain existing customers and attract new customers outsidesmall business customers. See Note 4 of our QuickBooks
customer base. If we are unable to do so, it could result in a negative impact
on our consolidated results. While the
customer base for the QuickBooks Online
Payroll service continues to expand, the servicefinancial statements.
Tax Division
Tax Division revenue is not yet generating material
revenues and we must continue to focus on streamlining the customer activation
process.
Tax Division. Tax division revenues comederived primarily from the following sources:
- Quicken TurboTax federal and
MacInTax personalstate consumer desktop tax preparation products
- Professionalsoftware, ProSeries and Lacerte
professional tax preparation products, (ProSerieselectronic tax filing services and Lacerte
product lines)
-
Quicken TurboTax for the Web electroniconline tax preparation services
and electronic filing services
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22services.
Overall, tax division revenuesTax Division revenue for both the three and six-monthssix months ended January
31, 2000 declined2001 increased by 8% and 6% respectively,4% compared to the same periods last year. The declines in revenue were due primarily to an aggressive marketing and
pricing strategy forRevenue from
Quicken TurboTax products for both the three and six months ended January 31,
2001 remained roughly flat, compared to the same periods in responsethe prior year. This
is consistent with our expectations as we continue to a very competitive market
for desktop personal tax software. We lowered average selling prices, and we
also bundledbundle electronic filing
and state tax products with certain versions of Quicken TurboTax, which requiredrequires
us to defer recognitionrecognizing a portion of approximately $30
million ofthe associated revenue from the second
quarter to the remainder of the fiscal year. WhileIn addition, over the past few
years, we have experienced significant unit sales growthnoticed a gradual change in the buying patterns of our customers.
The general shift has been from customers purchasing Quicken TurboTax and
preparing their tax returns throughout our second and third quarters to a
concentration in the third quarter. We attribute this shift in part to an
increasing number of customers using Quicken TurboTax for the Web. This service
is generally not available until mid-January (late in our second quarter), so
almost all of its revenue comes in the third quarter. As Quicken TurboTax for
the Web expands to comprise an increasing proportion of our tax revenue, this
concentration of revenue in the third quarter ended
January 31,will become even more pronounced.
The development and launch of our consumer tax products for the 2000 we continue to experience extreme pricing pressures from both
H&R Block's aggressively priced TaxCut producttax year
was completed on schedule, and from Microsoft's TaxSaver
product,products reached retail shelves in late November.
However, there are still ongoing risks associated with our tax business,
including free product offerings from Microsoft. The increasedintense competition has resultedthat could potentially result in lower average
selling prices and/or a decline in response to these
pricing pressures.
It is currently too early to predict the final levelour share of demand for the Quicken
TurboTax product line through our retail distribution channels. Although the
number of units sold is currently highersales in the current fiscal year to dateretail channel. In
January 2001, H&R Block's TaxCut products were promoted in a manner that
essentially made its basic tax product free for two weeks, while we increased
our desktop product prices by about 5% compared to last year. According to PC
Data, as of February 3, 2001, our share of dollar sales of desktop consumer tax
products in the retail channel had increased to 82%, compared to 76% at the same
period atime last year, ago, revenue is lower duewhile our share of unit sales had declined to lower average
selling prices. We expect our reserves for returned products70%, from 72% in
the prior year. Investors should note that these are early results, and we will
not be adequateable to cover retailers' returns of unsold products during the next three quarters,
though higher than expected returns could have a negative impact on revenue for
the season. Because of these and other uncertainties,report revenues and operating results for thisthe entire tax season will be unknown
until late in the fiscal year.
We have experienced significantly higher revenues and volume for Quicken
TurboTax for the Web and for electronic filing compared to last year, as an
increasing number of customers gain Internet access and become more accustomed
to processing transactions on-line. We expect that as the tax filing deadline
nears, we may experience a dramatic increase in demand for both Web tax
preparation and electronic filing services. To deal with the expected increases
in demand, we have increased our capacity and have developed a contingency plan
to provide additional capacity if necessary. However, the exact level of demand
is very difficult to predict, and we could experience significant negative
financial and public relations consequences if our capacity to serve our web tax
preparation and electronic filing customers is insufficient during the peak
filing period, or if the service is unavailable for other reasons such as
technical difficulties at our data center. We have not experienced any service
interruptions thus far in the current tax filing season. However, we did have
some interruptions in our electronic filing services in February 1999 and on
April 11-12, 1999. Although we do not believe those service outages prevented
customers from completing and filing their returns in a timely manner, or posed
a risk that customer data would be lost or corrupted, we did experience negative
publicity.
Revenues for ourOur professional tax (ProSeries) products and products from our
Lacerte subsidiary increased by 10%experienced revenue growth of 6% for both the
three and six-month periodssix months ended January 31, 2000 compared to the same periods last year. This growth is
attributable to a combination of a continued shift to higher priced products and
growth in our customer base due in part to our acquisitions of Compucraft and
TaxByte during 1999. In addition, we continue to experience a high customer
renewal rate.
Consumer Finance Division. Consumer finance division revenues come primarily
from the following sources:
- Quicken product line
- Advertising and sponsorship fees from the consumer areas of our
Quicken.com website
- Implementation, marketing and transaction fees from financial
institutions (including marketspace participants) providing
services through Quicken and Quicken.com
- On-line consumer mortgage placement and servicing fees through
QuickenLoans
Overall, consumer finance division revenues were up 9% and 5% for the three and
six-month periods ended January 31, 20002001 compared to the same periods a year
ago. This growth in revenue was the result of higher average selling prices of
our ProSeries and Lacerte unlimited-use products, as well as growth in our
customer base.
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20
Our web-based tax preparation and electronic filing services have experienced
strong growth during the current tax season. Through January 31, 2001, web tax
preparation revenue more than doubled from the prior year, driven by a 50% price
increase as well as a substantial increase in unit volume. Unit volume for our
electronic filing service doubled from the first half of last year, with a
slight increase in revenue. The increasesfaster unit growth reflected an increase in
customers eligible for free electronic filing through our Quicken Tax Freedom
Project]. Despite these encouraging early results, we face the challenge of
maintaining high service levels, particularly during peak volume service times.
The exact level of demand for Quicken TurboTax for the Web and electronic filing
for the remainder of the current tax year is impossible to predict, and we could
experience adverse financial and public relations consequences if these services
are unavailable due to technical difficulties or other reasons. See "Risks That
Could Affect Future Results."
Consumer Finance Division
Consumer Finance Division revenue comes primarily from Quicken desktop products,
Quicken Loans, advertising, sponsorship and placement fees from Quicken.com and
Quicken, and online transactions.
Revenue for the Consumer Finance Division was down 8% for both the three and six
months ended January 31, 2001, compared to strong revenue growththe same periods a year ago. Revenue
for our Quicken product line declined 18% and growth in Internet-based revenues, offset in part by a
significant decline in revenues15% for Rock's mortgage business from the year-ago
periods. Quicken revenue increasedthree and six months
ended January 31, 2001, compared to the same periods ofa year ago. Our comparative
results were negatively impacted by strong consumer demand during the prior year
primarily due to strong consumer demand resulting from aggressive retail
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23
promotions with our tax products and lower than expected product rebate
redemptions related to Quicken 99. We believe someperiods as a result of a significant number of customers may have upgraded
during the second quarter,upgrading due to Year
2000 concerns. Accordingly, someIn addition, Quicken.com advertising and sponsorship revenue
declined due to reduced advertising spending by potential purchasers of the
fiscal 2000 second quarter strength in Quicken revenue may be a shift from the
third quarter, and we expect the revenue growth rate may decline as the year
progresses.Internet
advertising. Our Quicken product line faces many challenges in the desktop personal
financial software market. For example, we continue to facecategory, including continued competition from Microsoft's
Money product. In addition,product and from other web-based personal financial software functionality isfinance tracking and management
tools that are becoming increasingly becoming available on the Internet at no cost to consumers.
The Consumer Finance Division benefited from revenue growth experienced by our
Quicken Loans mortgage business of 27% and 17% for the three and six months
ended January 31, 2001, compared to the same periods a year ago. Online mortgage
revenue (which includes services provided through our website or by telephone)
was up 44% and 34% for the three and six months ended January 31, 2001 over the
prior year periods. Mortgage revenue growth is primarily attributable to lower
interest rates that drove higher demand for loans, as well as the process
efficiencies and infrastructure improvements that we have made that allow us to
capitalize on the interest rate environment. We currently expect mortgage
revenue to increase at least 50% in fiscal 2001 compared to fiscal 2000.
However, we face continuing challenges, including interest rate fluctuations.
See "Risks That Could Affect Future Results."
On January 24, 2001, we completed the sale of certain assets of our Intuit
Insurance Services Inc. subsidiary (which operated our QuickenInsurance
business) to InsWeb Corp. in exchange for common stock of InsWeb. In addition,
we entered into a distribution agreement under which hasInsWeb is the exclusive
consumer insurance aggregator for our Quicken.com and QuickenInsurance Web sites
and certain consumer desktop products. See Note 5 of the financial statements.
We do not expect this transaction to have a negativematerial impact on desktop product sales. There is also an increasing emphasis on
packaging desktop software with original equipment manufacturers' personal
computers, which resultsrevenue for the
remainder of fiscal 2001, though it may result in lowera slight improvement in
operating income.
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Global Business Division
Global Business Division revenues per unit shipped.
Consumer divisioncome primarily from small business products in
Japan, QuickBooks, Quicken and tax products in Canada, QuickBooks, Quicken and
consumer tax products in Europe, and QuickBooks and Quicken products in
Southeast Asia.
Overall, the Global Business Division revenue growth also benefited from an increase in certain
Internet-based revenueincreased 27% and 18% for the
three and six months ended January 31, 2001, compared to the same periods last
year. This increase was
largelyWe experienced more than 70% revenue growth in Canada for both the three
and six months ended January 31, 2001, compared to the same periods in the prior
year. The increases were due in part to higher advertising, sponsorship and transaction-relatedprofessional tax revenue through Quicken.com and Quicken. However,as a
result of an acquisition we made earlier in the current fiscal year. In
addition, we were able to release the Canadian version of QuickBooks 2001 in the
second quarter of fiscal 2001 compared to last year when we released the
Canadian version of QuickBooks 2000 in the third quarter. Japan experienced
revenue growth was not uniform across
all of our Internet product25% and service offerings in12% for the Consumer division. For
example, advertising revenue from our Quicken.com site has grown relatively
rapidly. However, revenue from QuickenLoans was substantially lower than inthree and six months ended January 31,
2001 compared to the same periods a year ago. QuickenLoans now encompasses Intuit's online mortgage
business as well as the online and traditional mortgage businesses of Rock
Financial, which we acquired in December 1999. The decline in mortgage revenueThis growth was primarily due to
Rock's decisionhigher retail sales of our Yayoi small business accounting software. The
increases in revenue in Canada and Japan were partially offset by a decline in
revenue from Europe. Comparative results for Quicken products were negatively
impacted by strong consumer demand during prior year periods as a result of
customers upgrading due to close many of its traditional mortgage
branch offices in order to focus resources on Internet-based lending, as well as
increasing interest rates. Growth in mortgage transaction fees may continue to
be adversely impacted if interest rates continue to rise, and as we continue to
phase out Rock's traditional mortgage business.Year 2000 concerns. In addition the acquisition of
Rock will continue to result in new business risks and integration challenges
common in all acquisitions. For example, our ability to successfully facilitate
the application, approval, and closing process in loan applications on a timely
basis will have a significantwe experienced an
adverse foreign exchange rate impact on our ability to attract customers to the
service. Our ability to successfully operate Rock will depend in part on
maintaining relationships with certain banks and other third parties who we will
rely on to provide access to capital, and later, service the loans. If we are
unable to do so, it could have a negative impact on our consolidated results.
The rapid growth we've experienced in our Internet products and services has
been generated in part by collaborating with third party online service and
content providers such as At Home Corporation (doing business as "Excite@Home")
and AOL, which have helped to increase traffic to our Quicken.com website. The
Excite@Home agreement calls for us to share revenue generated from our
Quicken.com site and the AOL agreement calls for us to make significant
guaranteed payments to AOL over the term of the agreement. While the Internet
provides a significant opportunity for revenue growth, our financial commitments
to these and other third party providers are significant and we must continue to
increase traffic and revenue in order for our Internet businesses to become
profitable. Our ability to maintain important relationships with Internet
portals, distributors and content providers will also have an impact on traffic
and revenues. If our website traffic and revenue expectations aren't met, there
could be a significant negative impact on our operating results.
International Division. International division revenues come primarily from the
following sources:
- Japanese QuickBooks and other small business products
- Canadian Quicken, QuickBooks and Tax products
- German Quicken, QuickBooks and Tax products
- United Kingdom Quicken and QuickBooks products
In addition to the above, we also operate in smaller European, Asian and Latin
American markets. Overall, international division revenues increased 37% for the three and six-month periodsquarter ended January 31, 2000 compared to the same periods
last year. This increase is a result of stronger sales of Quicken and QuickBooks
in both Canada and the U.K., higher sales of the Yayoi small business product in
Japan, and favorable currency fluctuations in Japan. Partially offsetting these
increases were declines in revenues, but increased profitability in
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Germany due to a shift in our business model from direct participation in the
market to a third party distribution arrangement.
COST OF GOODS SOLD2001.
Three Months Ended January 31, Six Months Ended January 31,COST OF REVENUE Q2 % Q2 % % YTD % YTD % %
(Dollars in millions; unaudited) 1999 Change 2000 1999 Change 2000
-------------------------- ----------------------------FY00 REVENUE FY01 REVENUE CHANGE FY00 REVENUE FY01 REVENUE CHANGE
Unaudited) Q2 YTD
------ ------- ------ ------- ------ ------ -------- ------ ------- ------
Product .................... $ 70.2 33%and services......... $ 93.1 $ 109.2 37%22% $103.8 23% 11% $ 149.5 % of revenue ............... 19% 22% 21% 25% $170.7 27% 14%
Amortization of purchased
.. $ 1.9 32% $ 2.5 $ 3.7 32% $ 4.9
software & other %........... 2.5 1% 3.9 1% 56% 4.9 1% 6.8 1% 39%
Total of cost of
revenue ............... 1% 1% 1% 1%
Total ...................... $ 72.1 33%............. $ 95.6 $ 112.9 37%23% $107.7 24% 13% $ 154.4 % of revenue ............... 19% 22% 22% 26% $177.5 28% 15%
There are two components of our cost of goods sold.revenue. The largestlarger component is the
direct cost of manufacturing and shipping products and offering services, which
includes data center costs relating to delivering Internet-based products and
services. The second component is the amortization of purchased software, which
is the cost of depreciating products or services obtained through acquisitions.acquisitions
over their useful lives.
Total cost of goods soldrevenue as a percentage of revenue increased to 22%24% and 28% for
the three and six months ended January 31, 2001, compared to 23% and 26% for the
same periods in the prior year. These increases are primarily attributable to
the continued growth of our service businesses, such as payroll services,
Quicken Loans and the QuickBooks Support Network, which typically have higher
cost of revenue than our packaged software products. As our service businesses
expand to become a higher portion of total revenue, we anticipate that our cost
of revenue will continue to increase as a percentage of revenue. In addition, we
are experiencing increased costs due to infrastructure investments for our new
and existing service businesses. Also, in fiscal 2001 we reclassified certain
operating expenses of Quicken Loans from selling and marketing expenses in
fiscal 2000 to cost of revenue in fiscal 2001.
OPERATING EXPENSES Q2 % Q2 % % YTD % YTD % %
(Dollars in millions; FY00 REVENUE FY01 REVENUE CHANGE FY00 REVENUE FY01 REVENUE CHANGE
Unaudited) Q2 YTD
------ ------- ------ ------- ------ ------ -------- ------ ------- ------
Customer service and
technical support ......... $ 47.7 11% $ 46.1 10% (3)% $ 82.0 14% $ 78.5 12% (4)%
Selling and marketing ....... 86.1 20% 85.6 19% (1)% 156.0 26% 146.7 23% (6)%
Research and development .... 44.0 10% 54.6 12% 24% 85.8 14% 102.5 16% 19%
General and
administrative ............ 23.3 5% 25.9 6% 11% 44.8 7% 53.7 8% 20%
Charge for purchased
research and development .. -- -- -- -- -- 1.3 0% -- -- --
Amortization of
acquisition costs ......... 46.2 11% 43.1 9% (7)% 83.3 14% 82.8 13% (1)%
Reorganization costs ........ -- -- -- -- -- 3.5 1% -- -- --
Total operating
expenses .............. $247.3 58% $255.3 56% 3% $456.7 76% $464.2 72% 2%
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Customer Service and Technical Support.
Customer service and technical support expenses were 10% and 12% of revenue for
the three and six-monthssix months ended January 31, 20002001, compared to 11% and 14% for the
same periods of the prior year. This improvement reflects the continued
efficiency gains in providing customer service and technical support less
expensively through websites and other electronic means, and from the expansion
of the QuickBooks Support Network and our other fee-for-support programs.
Selling and Marketing.
Selling and marketing expenses were 19% and 22%23% of revenue for the three and six
months ended January 31, 2001, compared to 20% and 26% for the same periods of
the prior year. The decline in selling and marketing costs as a percentage of
revenue for both the three and six month periods is partly attributable to a
reclassification of certain Quicken Loans expenses from sales and marketing
expenses to cost of revenue in fiscal 2001. In addition, in the prior year we
incurred higher than normal selling and marketing expenses to notify customers
of Year 2000 issues and solutions. The year-over year declines also reflect
relatively higher sales and marketing expenses in the first half of fiscal 2000
due to aggressive marketing programs relating to the expansion of our
Internet-based businesses and the extremely competitive consumer tax season, as
well as relatively lower marketing expenditures during the first half of fiscal
2001 for Quicken Loans and QuickBooks Deluxe Payroll Service, as those services
began to more fully leverage the value of the Intuit brands.
Research and Development.
Research and development expenses were 12% and 16% of revenue for the three and
six months ended January 31, 2001, compared to 10% and 14% for the same periods
of the prior year. These increases are primarily attributable to two factors. First, consistent withcontinued
investments in the development of our growing
Internet-based business, we are experiencing a significant increase in related
hardware and infrastructure costs as we purchase equipment to increase our
Internet capability. These costs are classified as cost of goods sold and, as a
percentage of revenue, are significantly higher than the costs of goods sold for
our traditional desktop software business. Second, ouremerging service businesses, such
as payroll processingincluding
QuickBooks for the Web, our online Deluxe Payroll Service, our QuickBase
information management tool, and QuickBooks Support Network, generallythe Intuit Developer Network. During the first
half of fiscal 2001, we have higher cost
of goods sold compared to the sale of packaged software. As theseinvested significant amounts in our emerging
businesses grow to a higher proportion of total revenue, we anticipate that our cost of
goods sold will continue to increase. Note that results from CRI, our payroll
processing subsidiary that we acquired in May 1999, are included in fiscal 2000
results but not- mostly focused in the small business area. During the remainder of
fiscal 1999 comparison periods, which contributed2001, we expect to the
year-over-year increase in cost of goods sold.
OPERATING EXPENSES
Three Months Ended January 31, Six Months Ended January 31,
(Dollars in millions; unaudited) 1999 Change 2000 1999 Change 2000
-------------------------- ----------------------------
Customer service & technical support .... $ 41.1 16% $ 47.7 $ 72.0 14% $ 82.0
% of revenue ............................ 11% 11% 14% 14%
Selling & marketing ..................... $ 71.2 21% $ 86.1 $ 124.3 26% $ 156.0
% of revenue ............................ 19% 20% 24% 26%
Research & development .................. $ 36.4 21% $ 44.0 $ 70.0 22% $ 85.8
% of revenue ............................ 10% 10% 14% 14%
General and administrative .............. $ 19.6 19% $ 23.3 $ 38.9 15% $ 44.8
% of revenue ............................ 5% 5% 8% 7%
Charge for purchased research
and development ......................... $ -- N/A $ -- $ -- N/A $ 1.3
% of revenue ............................ N/A N/A N/A 0%
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Other acquisition costs, including
amortization of goodwill and purchased
intangibles ............................. $ 21.0 115% $ 45.2 $ 41.9 95% $ 81.6
% of revenue ............................ 6% 11% 8% 14%
Other acquisition related costs-
amortization of deferred compensation ... $ -- N/A $ 1.0 $ -- N/A $ 1.7
% of revenue ............................ N/A 0% N/A 0%
Reorganization costs .................... $ 2.0 (100)% $ -- $ 2.0 75% $ 3.5
% of revenue ............................ 1% N/A 0% 1%
Customer Service and Technical Support. Customer service and technical support
expenses were flat as a percentage of revenue for the three and six-month
periods ended January 31, 2000 compared to the same periods of the prior year.
We have benefited from our efforts to provide customer service and technical
support less expensively through websites and other electronic means. However,
we increased our investment in customer service and technical support during the
fiscal 2000 comparison periods in anticipation of increased call volumes
relating to potential year 2000 issues, and also to support two major product
launches in the second quarter (QuickBooks 2000 and Quicken TurboTax for the
1999 tax year).
Selling and Marketing. Selling and marketing expenses were 20% and 26% of
revenue for the three and six-months ended January 31, 2000 compared to 19% and
24% for the same periods of the prior year. The increases in selling and
marketing costs are attributable to the aggressive marketing programs relating
to the expansion of our Internet-based businesses and the increasingly
competitive personal tax market. We continue to expect that selling and
marketing costs as a percentage of revenue will increase for fiscal 2000
compared to fiscal 1999 as we continue to aggressively market our Internet-based
businesses and face intense competition in the personal tax market for the rest
of the 1999 tax season.
Research and Development. Research and development expenses were 10% and 14% of
revenue for the three and six-months ended January 31, 2000 compared to 10% and
14% of revenue for the same periods of the prior year. We continue to investsignificant investments in research and
development, due toparticularly for our efforts to develop our Internet-basedemerging service businesses. As a result, we expect our Internet-based businesses will continue
to require significant development expenditures in fiscal 2000 and beyond. If such expenses
exceed our current expectations, they may have an adverse effect on operating
results. This could occur, for example, if we were to
undertake a costly product development venture in response to competitive
pressures or other market conditions.See "Risks That Could Affect Future Results."
General and Administrative.
General and administrative expenses were 5%6% and 7%8% of revenue for the three and
six-monthssix months ended January 31, 20002001, compared to 5% and 8%7% for the same periods of
the prior year.year, respectively. For our entire fiscal 2000,year 2001, we expect general
and administrative expenses to remain roughly flat as a percentage of revenue
compared to fiscal 1999.2000.
Charge for Purchased Research and Development.
ForWe did not incur any charges for purchased research and development during the
six months ended January
31,first two quarters for fiscal 2001. During the first quarter of fiscal 2000, we
recorded charges of $1.3 million for purchased research and development as a
result of our Boston Light and Hutchison acquisitions. In connection with these
acquisitions, we usedand with the assistance of third party appraisers' estimates to determineappraisers, we determined
the value of in-process projects under development for which technological
feasibility had not been established. The total value of these projects at the
time of the acquisitions was determined to be approximately $1.3 million and was expensed in
the three months ended October 31, 1999.million. The
value of the projects was determined by estimating the costs to develop the
in-process technology into commercially feasible products, estimating the net
cash flows we believed would result from the products and discounting these net
cash flows back to their present value. We believe theThe products related to these charges
will bewere completed during our fiscal year 2000, and that the risk of these products not
being
-25-2000.
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26
successfully completed is low.23
Other Acquisition Costs.
Other acquisition costs include the amortization of goodwill and purchased
intangibles andintangible assets, as well as deferred compensation costs that are
recorded as part of an acquisition.expenses arising from
acquisitions. These costs increaseddecreased to $48.7$43.1 million and $88.2$82.8 million for the
three and six-monthssix months ended January 31, 20002001, compared to $22.9$46.2 million and $45.6$83.3
million for the same periods of the prior year. These
increases ware primarily attributable to the amortization of intangibles
associated with our acquisition of CRI in May 1999, and our acquisitions of
Secure Tax, Boston Light and Hutchison in August 1999, and Turning Mill Software
in November 1999.
The high levels of non-cash amortizationa year ago. Amortization expense related to
completed acquisitions will continue to have a negative impact on our operating
results in future periods. Assuming no additional acquisitions and nowe do not experience any impairment of value
resulting in an acceleration of the intangible assets that would require us to accelerate amortization, future
amortization will be approximately $163.7$186.4 million, $145.5$189.5 million, $140.2$165.5
million and $90.9$85.1 million for the years ending July 31, 20002001 through 2003,2004,
respectively. If we complete additional acquisitions or accelerate amortization
in the future, there couldwould be an incremental negative impact on operating
results. See also "Risks That Could Affect Future Results" for a discussion of
possible accounting changes related to goodwill amortization.
Reorganization Costs.
Reorganization costs representreflect the costs associated with Rock's closure ofour Quicken Loans
subsidiary (formerly Rock) closing numerous branch offices in Michigan prior to its acquisition
by Intuitin 1999,
as the mortgage businessit began to transition its mortgage business from a traditional branch-based
business to an on-line transactional-basedonline and call center-based business. These costs increased tototaled $3.5
million forin the six-month period ended January 31, 2000 from
$2.0 million for the same periodfirst quarter of the prior year.
OTHERfiscal 2000.
NON-OPERATING INCOME AND EXPENSES
Interest and Other Income and Expense, Net.
For the three and six-monthssix months ended January 31, 2000,2001, interest and other income
and expense, net, increased to $16.5 million and $32.7 million compared to $7.0
million and $15.5 million compared to $4.0
million and $7.3 million, for the same periods a year ago, reflecting increasedago. The increases
reflect higher cash and short-term investment balances. We have electedbalances due primarily to report our At Home
common stock as a trading securityproceeds
from sales of marketable securities.
Net Loss from Marketable Securities and are required to mark to market the
fluctuations in the stock price and report the fluctuations in our earnings.Other Investments.
For the three and six-monthssix months ended January 31, 2000,2001, we reportedrecorded net losses arising from
fluctuations in the share pricemarketable securities and other investments, of At Home of$71.9 million and $75.8 million,
compared to $2.8 million and $20.1 million respectively. Infor the same periodperiods a year ago,ago. The
losses incurred during the three months ended January 31, 2001, are due
primarily to declines in the values of certain equity investments held as
trading securities below our cost, as well as charges to reflect other than
temporary declines in the values of certain private equity investments. We
consider our shares of Excite@Home, VeriSign and 724 Solutions common stock as
trading securities. See Note 1 of the financial statements. As a result,
unrealized gains and losses due to market fluctuations in these securities are
included in our net income. Recent volatility in the market has significantly
reduced the value of our trading and available-for-sale securities, and we
did not report a gain or a lossexpect this volatility to continue for changes inthe foreseeable future. If the market
value of Excite, Inc. ("Excite"), onethese trading securities continues to decline significantly in the
future, it would have a negative impact on our earnings. Other than temporary
decline of the predecessor companiesvalues of Excite@Homeour available-for-sale and private equity investments
could result in our earnings, since that security was
not classified as a trading security. We did, however, report a realized gain of
$10.1 million for both the three and six-month periods from a year ago from the
sales of Checkfree, Verisign, and Concentric common stock.
INCOME TAXESadditional losses.
Income Taxes.
For the three and six-monthssix months ended January 31, 2000,2001, we recorded an income tax
provisions (benefits)provision (benefit) of $14.2 million and $(16.7) million, on a pretax gain
(loss) of $40.8 million and $(38.1) million. This compares to an income tax
provision (benefit) of $29.6 million and ($4.6)$(4.6) million, on a pretax incomegain (loss)
of $86.8 million ($13.3)and $(13.3) million, respectively. This compares to income
tax provisions of $31.2 million and $17.7 million on a pretax income of $124.4
million and $65.9 million, respectively for the same periods of the prior year.a year ago. At
January 31, 2000,2001, there was a valuation allowance of $11.6$11.4 million for tax
assets of our internationalglobal subsidiaries based on management's assessment that we may
not receive the benefit of certain loss carryforwards.
Cumulative Effect of Change in Accounting For Derivatives, Net
During the first quarter of fiscal 2001, we recorded a cumulative gain of $14.3
million, net of taxes, as a result of a change in accounting principle that
required us to recognize the cumulative effect of the increase in the fair value
of our S1 options as of August 1, 2000. See Note 1 of the financial statements.
Subsequent fluctuations in the fair value of these options will also be included
in our net income or net loss.
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24
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000,2001, our unrestricted cash and cash equivalents totaled $377.7$377.4
million, a $176.5$39.5 million decrease from July 31, 1999.2000. The decrease wasdecline primarily
reflects a result
of netshift from cash used by investing activities, partially offset by cash provided by
financing and operations activities. Cash from operating activities is driven by
the seasonality of our business, which typically results in the majority of net
revenues and cash receipts occurring in the January and April quarters, though
operating expenses are incurred throughout the year.equivalents to our short-term investment
portfolio.
Our operations provided $44.3$68.7 million in cash duringfor the six months ended January
31, 2000. Primary2001. The primary sources of cash provided by operations were an increase of $54.6 million in
accounts payable and $63.9 million in other accrued liabilities. The
-26-
27 increases in
accrued liabilities of $58.9 million, and accounts payable aredeferred revenue of $35.6 million. The
increase in accrued liabilities was driven by the seasonality of our business
and the resulting increases in accruals for product returns, customer rebates
and accrued technical support expenses. In addition,
cash was generated by an increaseIncreases in deferred revenues of $40.4 million duerevenue were
primarily todriven by the deferral of state tax product and electronic filing revenues
whichthat will be realizedrecognized in our third and fourth fiscal quarters. Cash was also
generated by the decreaseIn addition,
adjustments made for non-cash expenses such as amortization of $32.2goodwill and
other purchased intangibles of $79.4 million, in prepaid expenses due primarilydepreciation charges of $29.6
million, and losses on marketable securities and other investments, net of $75.8
million, contributed to the completion of acquisitions in the first quarter. Primarycash provided by operations. The primary uses of
cash includedduring the net loss of $8.6 million,six months ended January 31, 2001 were an increase of $185.4 million in accounts
receivable of $185.8 million due to the large volumes of seasonal product
shipments to retailers and distributors that typically occur in our first and
second fiscal quarterquarters and a significant decrease in our income taxes payable of
$57.9 million as a result of the payment of taxes for our fiscal year ended July
31, 1999.2000. In addition to these uses of cash, we also recorded non-cash
adjustments during the six months ended January 31, 2001 for a pre-tax
cumulative accounting gain relating to a change in the method of accounting for
derivatives of $23.9 million and net losses of $7.2 million.
Investing activities used $242.6$167.5 million in cash for the six months ended
January 31, 2000. Uses2001. The primary use of cash included net purchasesfor investing was the purchase of $110.2all
of the outstanding securities of Venture Finance Software Corp. ("VFSC") not
already owned by Intuit for $118 million in August 2000. We also purchased $49.6
million of net short-term investments, which was partially offset by proceeds of
$24.9 million from the sale of our marketable securities. As a result of our
continued investment in information systems and purchases of $51.9 million ininfrastructure for our emerging
businesses, we purchased property and equipment.
Property and equipment purchases were made to support our ongoing operations,
information system upgrades and our growing Internet-based businesses. We also
used $54.6of $46.0 million in cash for our acquisitions of SecureTax and Hutchison.during the six
months ended January 31, 2001.
Financing activities provided $21.8$59.3 million infor the first quarter,six months ended January 31,
2001, primarily attributable to proceeds from the exercise of employee stock
options. This was
partially offset by a decrease in our line of credit as we funded new consumer
mortgage loans during the period.
We currently hold investments in a number of publicly traded companies (see Note
1)1 of the financial statements). The volatility of the stock market and the
potential risk of fluctuating stock prices may have an impact on the proceeds
from future sales of these securities and therefore on our future liquidity. Due
to our reporting of the At HomeExcite@Home, VeriSign and 724 Solutions shares as
a trading security,securities, future fluctuations in the carrying valuevalues of At Homethese stocks
will impact our earnings (see Note 1).operating results. If future declines in our other marketable
securities are deemed to be permanent,other than temporary, they will also impact our
earnings.operating results. Investors should note that many high technology companies,
including Excite@Home, VeriSign and 724 Solutions, have recently experienced
significant declines in their stock prices.
In connection with our acquisition of CRI (see Note 4),Computing Resources, Inc. in May 1999, we
are required to pay three annual installments of $25 million, the first of which
was paid in each of the next three fiscal years.May 2000. In the normal course of business, we enter into leases for
new or expanded facilities in both domestic and internationalglobal locations. We also
evaluate, on an ongoing basis, the merits of acquiring technology or businesses,
or establishing strategic relationships with and investing in other companies.
Accordingly, it is possible that we may decide to use cash and cash equivalents
to fund such activities in the future.
For example, if we exercise our option to purchase VFSC (see Note
11) and elect to pay all or a significant portion of the exercise price in cash,
this would have a negative impact on our liquidity.
We believe that our unrestricted cash, cash equivalents and short-term investments will be
sufficient to meet anticipated seasonal working capital and capital expenditure
requirements for at least the next twelve months.
YEAR-24-
25
RISKS THAT COULD AFFECT FUTURE RESULTS
The factors discussed below are cautionary statements that identify important
factors that could cause actual results to differ materially from those
anticipated in the forward-looking statements in this Form 10-Q. Our fiscal 2000
Form 10-K contains additional details about these risks, as well as other risks
that could affect future results.
We face competitive pressures in all of our businesses, particularly our
consumer tax preparation software business, which can have a negative impact on
our revenue, profitability and market position. During the fiscal 2000 tax
season we reduced prices for our Quicken TurboTax product line in response to
aggressive pricing by H&R Block and Microsoft. This resulted in significantly
lower average selling prices. We have increased our tax products prices somewhat
for fiscal 2001. Although our share of dollar sales of consumer desktop products
in the retail channel has increased compared to the same time last year, we have
seen a slight decline in our share of unit sales in the retail channel. There
are formidable current and potential competitors in the private sector, and we
also face potential competition from publicly-funded government entities seeking
to competitively enter private markets in the United States for consumer
electronic financial services. Accordingly, we expect competition to remain
intense during fiscal 2001, and it is too early to predict results for the full
tax season.
If we fail to maintain reliable and responsive service levels for our electronic
tax offerings, we could lose revenue and customers. Our online tax preparation
and electronic tax filing services face significant challenges in maintaining
high service levels, particularly during peak volume service times. For example,
we have experienced relatively brief unscheduled interruptions in our electronic
filing/and or tax preparation services during fiscal 1999, 2000 and 2001. We do
not believe any prior service outages had a material financial impact, prevented
customers from completing and filing their returns in a timely manner, or posed
a risk that customer data would be lost or corrupted. However, we did experience
negative publicity in some instances. The following is a Year 2000 readiness disclosure underexact level of demand for Quicken
TurboTax for the Year 2000
InformationWeb and Readiness Disclosure Act.
Intuit established a Year 2000 Project Office to addresselectronic filing for the impactremainder of the current tax
year is impossible to predict, and we could experience adverse financial and
public relations consequences if these services are unavailable for an extended
period of time, or late in the tax season, due to technical difficulties or
other reasons.
Despite our efforts to adequately staff and equip our customer service and
technical support operations, we cannot always respond promptly to customer
requests for assistance. We occasionally experience customer service and support
problems, including longer than expected "hold" times when our staffing is
inadequate to handle higher than anticipated call volume, and a large number of
inquiries from customers checking on the status of product orders when shipments
are delayed. This can adversely affect customer relationships and our financial
performance. For example, during fiscal 2000, date transitionsome small business customers
(particularly QuickBooks Support Network and payroll services customers)
experienced inconsistent service levels and delays that led to some negative
press attention. In order to improve our customer service and technical support,
we must continue to focus on its operations,eliminating underlying causes of service and
support calls (through product improvements and better order fulfillment
processes), and on more accurately anticipating demand for customer service and
technical support.
We hold equity investments that have been very volatile. Our investment
activities can impact our net income. We recorded pre-tax gains and losses from
marketable securities and other investments of $481.1 million in fiscal 2000 and
a loss of $75.8 million for the six months ended January 31, 2001. These amounts
reflect net realized gains and losses on sales of certain marketable securities,
unrealized quarter-to-quarter gains and losses due to price fluctuations in
securities that we account for as "trading securities," and charges to reflect
other than temporary declines in value of our available-for-sale and private
equity investments below our cost (including charges in the second quarter of
fiscal 2001 of $40.2 million related to our investment in S1 Corporation and
$15.0 million related to our private equity investments). Fiscal 2000 and 2001
decreases in the market prices of our trading securities resulted in a
significant reduction in our pre-tax income, and future price fluctuations in
trading securities, and any significant long-term declines in value of other
securities, could reduce our net income in future periods.
A general decline in economic conditions could lead to reduced demand for our
products and services globally. We
adoptedservices. The recent downturn in general economic conditions had
led to reduced demand for a five-phase approach for reviewing and preparing the significant
elementsvariety of operations, productsgoods and services, forincluding many
technology products. If conditions continue to decline, or fail to improve, in
geographic areas that are significant to us, such as the Year 2000 date transition.
Through the date of this filing,United States, Canada
and Japan, we have had no major Y2K-related issues. In
addition, all substantive claimscould see a significant decrease in the lawsuits filed against Intuit in
connection with alleged Y2K problems withoverall demand for our
products and services that could harm our operating results.
-25-
26
Actual product returns may exceed return reserves. We generally ship
significantly more desktop products to our distributors and retailers than we
expect them to sell, in order to reduce the risk that distributors or retailers
will run out of products. This is particularly true for our tax products, which
have a short selling season. Like most software companies, we have a liberal
product return policy and we have historically accepted significant product
returns. We establish reserves for product returns in our financial statements,
based on estimated future returns of products. We closely monitor levels of
product sales and inventory in the retail channel in an effort to maintain
reserves that are adequate to cover expected returns. In the past, returns have
not generally exceeded these reserves. However, if we do experience actual
returns that significantly exceed reserves, it would result in lower revenue.
If we do not continue to successfully refine and update the business models for
our Internet-based products and services and other emerging service businesses,
and operationally support these businesses, the businesses will not achieve
sustainable financial viability or broad customer acceptance. Our business
models for our Internet-based businesses and other emerging service businesses
have more complex and varied revenue streams than our traditional desktop
software businesses. For these businesses to become and remain economically
viable, we must continually refine their revenue models to reflect evolving
economic circumstances. These businesses also depend on a different operational
infrastructure than our desktop software businesses, and we must continually
develop, expand and modify internal systems and procedures to support these
businesses. In particular, our web-based tax preparation and electronic filing
services must effectively handle extremely heavy customer demand during the peak
tax season. If we are unable to meet customer expectations in a cost-effective
manner, it could result in lost customers, negative publicity, and increased
operating costs, which could have a significant negative impact on the financial
and market success of these businesses.
We face intense competition for qualified employees, especially for our
Internet-based businesses. Like many of our competitors, we have had
difficulties during the past few years in hiring and retaining employees, and we
expect to face continuing challenges in recruiting and retention.
We face risks relating to customer privacy and security and increasing
regulation, which could hinder the growth of our businesses - particularly our
Internet-based businesses. Despite our efforts to address customer concerns
about privacy and security, these issues still pose a significant risk, and we
have experienced lawsuits and negative publicity relating to privacy issues. For
example, during fiscal 2000 and fiscal 2001, there have been dismissed,press articles
criticizing our privacy and security practices as they relate to the
connectivity of our desktop software to our web sites. We have faced lawsuits
and negative press alleging that we improperly shared information about
customers with only one possible appeal remaining. Customers can find Intuit's
Year 2000 Readiness Disclosure aboutthird party "ad servers" for our products, and order free solutions,
where required,web sites. A major breach of
customer privacy or security by Intuit, or even by another company, could have
serious consequences for our businesses - particularly our Internet businesses -
including reduced customer interest and/or additional regulation by federal or
state agencies. For example, if a "hacker" were able to overcome the security
precautions we take to protect our customers' personal tax preparation
information, it could have a material negative impact on our Corporate Yearoperating results
and our relationships with our customers. In addition, mandatory privacy and
security standards and protocols are still being developed by government
agencies, and we may incur significant expenses to comply with any requirements
that are ultimately adopted. For example, under the Gramm Leach Bliley Act
recently adopted by the federal government, by July 1, 2001 Intuit will be
required to provide written notice of its privacy practices to many of its
customers. We must give customers an opportunity to state their preferences
regarding Intuit's use of their non-public personal information, and we must
honor those preferences. If Internet use does not grow as a result of privacy or
security concerns, increasing regulation or for other reasons, the growth of our
Internet-based businesses would be hindered.
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27
If our QuickBooks Internet Gateway services do not achieve and maintain
acceptance by customers and the third-party vendors who provide these services,
the services will not generate long-term revenue growth or profitability. We
must meet customer and vendor expectations in delivering our QuickBooks Internet
Gateway services. If we do not meet these expectations, we may not be able to
maintain the third party vendor relationships that are necessary to allow us to
provide services desired by customers. If we experience significant failures in
meeting expectations and maintaining important relationships, our ability to
expand our QuickBooks Internet Gateway services will be jeopardized. Intuit is
refining its approach to selecting and working with QuickBooks Gateway vendors.
Although we are seeing encouraging preliminary results for some services, such
as merchant account services, that are more closely integrated with QuickBooks,
we are in the process of ending relationships with most of our smaller alliance
companies where the business results are not meeting our expectations or theirs.
To retain other relationships, we may be required to adapt them in ways that are
less attractive to us, financially or otherwise. In addition, QuickBooks
Internet Gateway Services are currently available only to customers using
QuickBooks 2000 Resource Center at
www.intuit.com/y2k.
Costs directly attributedor QuickBooks 2001, so customer adoption of the services is
somewhat dependent on unit sales of newer QuickBooks products to new customers
and to customers upgrading from older versions of the product. Customer upgrade
rates for QuickBooks 2001 have been lower than historical upgrade levels.
Development and/or implementation of certain announced services has not yet been
completed to our Yearsatisfaction. Technological difficulties, financial
difficulties and other problems could delay or prevent us from recognizing
contractually committed revenues that are dependent on implementation.
In order to expand our customer base in the payroll services business, we must
continue to improve the efficiency and effectiveness of our payroll processing
operations and streamline customer activations for our Deluxe online payroll
processing service. The payroll processing business involves a number of
business risks if we make errors in providing accurate and timely payroll
information, cash deposits or tax return filings, including our incurring
liability to customers, additional expense to correct product errors and loss of
customers. For our Internet-based services (the Deluxe service, as well as the
online Basic service), we must improve our operations to give customers more
reliable connectivity to our data center to transmit and receive payroll data
and tax tables. In order to expand the customer base for our Deluxe payroll
service, we must continue to focus on streamlining the service activation
process for new customers.
Our mortgage business is subject to interest rate fluctuations and operational
risks that could result in further revenue declines. Increases in mortgage rates
and other interest rates adversely affected our mortgage business during 2000,
project were approximately $6.5
millioncontributing to a significant revenue decline from fiscal 1999 to fiscal 2000.
Conversely, declines in mortgage interest rates during fiscal 1999.2001 have had a
positive impact on revenue. If mortgage interest rates rise again, this could
negatively impact the volume of closed loans and applications - particularly our
most interest-rate sensitive products such as conventional loans and refinancing
loans. FHA loans and home purchase mortgages tend to be less mortgage-rate
sensitive. Fluctuations in non-mortgage interest rates also create risks with
respect to the loans on our balance sheet and impact our cost of funds to
provide loans. In addition, our ability to successfully streamline the online
application, approval, and closing process will have a significant impact on our
ability to attract customers to our mortgage service, and on our ability to
continue increasing the percentage of our mortgage revenue generated through the
online channel compared to branch offices. We must also maintain relationships
with certain banks and other third parties who we will rely on to provide access
to capital, and later, service the loans. If we are unable to do so, it could
have a negative impact on our mortgage business and on Intuit's financial
results.
Our ability to conduct business could be impacted by a variety of factors
such as electrical power interruptions, earthquakes, fires and other similar
events. Our business operations depend on the efficient and uninterrupted
operation of a large number computer and communications hardware and
software systems. These systems are vulnerable to damage or interruption
from electrical power interruptions, telecommunication failures, earthquakes,
fires, floods, and other similar events. Recently, electrical power in certain
locations in California has been interrupted for short periods of time in the
form of "rolling blackouts." We have principal facilities (including our
primary data centers) located in California. To date, our business operations
have not been materially impacted by these outages. However, it is possible
that rolling blackouts will continue in the foreseeable future and our
facilities could be significantly affected in the future. We currently anticipate direct costshave
short-term alternate sources of power (in the form of backup batteries and
generators) at all of our California facilities. However, if rolling blackouts
become more frequent and/or longer in the rangeduration, it is possible that our
alternative sources of $8power would be insufficient to $12 million for fiscal year 2000, including costs associated withallow us to
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28
ongoing maintenancecontinue our operations without interruption. Other events such as earthquakes,
fires and support activityfloods, could also impact our ability to continue our business
operations. For our Internet-based services, the system failures of various
third-party Internet service providers, online service providers and other
website operators could result in fiscal year 2000,interruption in our services to our customers.
Any significant interruptions in our ability to conduct our business operations
could reduce our revenue and including
costs associated withoperating income. Our business interruption
insurance may not adequately compensate us for the manufactureimpact of interruptions to
our business operations.
New FASB guidelines relating to accounting for goodwill could make our
acquisition-related charges less predictable in any given reporting period. On
February 14, 2001, the FASB issued a limited revision of its Exposure Draft,
Business Combinations and distributionIntangible Assets that establishes a new standard for
accounting for goodwill acquired in a business combination. It would continue to
require recognition of free solutions for
products that aregoodwill as an asset but would not Year 2000 compliant or in certain cases that were notpermit amortization of
goodwill as currently required by APB Opinion No. 17, Intangible Assets. Under
the proposed statement, goodwill would be separately tested for Year 2000 compliance. Althoughimpairment using
a fair-value-based approach when an event occurs indicating the provisionpotential for
impairment. Any required goodwill impairment charges would be presented as a
separate line item within the operating section of free solutions has
probably resultedthe income statement. The
shift from an amortization approach to an impairment approach would apply to
previously recorded goodwill as well as goodwill arising from acquisitions
completed after the application of the new standard. If the standard is adopted
as described above, our goodwill amortization charges would cease. However, it
is possible that in some lost revenue for new product upgrades,the future, we believewould incur less frequent, but larger,
impairment charges related to the lost revenue will be less than $5 million.
-28-
29
-goodwill already recorded as well as goodwill
arising out of future acquisitions as we continue to expand our business.
- --------------------------------------------------------------------------------
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT PORTFOLIO
We do not hold derivative financial instruments in our short-term investment
portfolio. Our short-term investments consist of instruments that meet high quality
standards consistent with our investment policy. This policy dictates that we
diversify our holdings and limit our short-term investments to a maximum of $5
million to any one issuer. Our policy also dictates that all short-term
investments mature in 30 months or less.
MARKETABLE SECURITIES
We also carrycarried significant balances in marketable equity securities as of January
31, 2000.2001. These securities are subject to considerable market risk due to their
volatility. Fluctuations in the carrying value of our shares of Excite@Home,
VeriSign and 724 Solutions will have an immediate impact on our earnings because
we report these shares as trading securities. See Note 1 of the financial
statement notes for more information regarding risks related to our investments
in marketable securities.securities and the impact of our trading securities on our
reported net income.
INTEREST RATE RISK
Interest rate risk represents a component of market risk to us and represents
the possibility that changes in interest rates will cause unfavorable changes in
our net income and in the value of our interest rate sensitive assets,
liabilities and commitments.commitments, particularly those that relate to our mortgage
business. In a higher interest rate environment, borrower demand for mortgage
loans declines.declines, adversely affecting our mortgage loan business. Interest rate
movements also affect the interest income earned on loans we hold for sale in
the secondary market, interest expense on our lines of credit, the value of our
mortgage loans we hold for
sale in the secondary market and ultimately the gain or loss on the sale of those mortgage
loans. In addition, interest rate movements affect the interest income earned on
investments we hold in our short-term investment portfolio and the value of
those investments.
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29
As part of our risk management programs, we enter into financial agreements and
purchase financial instruments in the normal course of business to manage our
exposure to interest rate risk with respect to our Conventional Loansconventional loans and our
government-insured loans (together, "Prime Loans"), but not with respect to our
Sub-Prime Loanssub-prime loans or Home Equity Lineshome equity lines of Credit.credit. We use these financial
agreements and financial instruments for the explicit purpose of managing
interest rate risks to protect the value of our mortgage loan portfolio.
Managementportfolio, and not
for trading purposes.
We actively monitorsmonitor and managesmanage our exposure to interest rate risk on Prime
Loans, which is incurred in the normal course of business. The committed and
closed pipelines of Prime Loans, as well as the related forward commitments and
derivatives, are valued daily. We refer to the loans, pipeline, commitments and
derivatives together as the "hedge position."Hedge Position." The hedge position is
evaluatedWe evaluate the Hedge Position
against a spectrum of interest rate scenarios to determine expected net changes
in the fair values of the hedge positionHedge Position in relation to the changes in interest
rates. We do not enter into instruments for trading purposes. Ourevaluate our interest rate risk exposure is evaluated daily using models whichthat
estimate changes in the fair value of the hedge positionHedge Position and compare those
changes against the fair value of the underlying assets and commitments.
-29-
30The following table shows the maturity of our mortgage loans and home equity
lines of credit:
PRINCIPAL AMOUNTS BY EXPECTED MATURITY:
(in thousands, except interest rates; Unaudited)
PRINCIPAL AMOUNTS BY EXPECTED MATURITY:
(in thousands, except interest rates)MATURITY DATE (1)
PERIOD ENDING JANUARY 31, FAIR VALUE
EXPECTED MATURITY DATE------------------------------------------------- JANUARY 31,
---------------------------------------------------
2000
2001 2002 2003 2004 2005 TOTAL 20002001
---- ---- ---- ---- ---- ----- ---------------
ASSETS:
Mortgage Loans................... $38,386Loans................. $86,780 -- -- -- -- $38,386 $39,183$86,780 $89,343
Average Interest Rate........ 8.97% 8.97%Rate.... 8.75% 8.75%
LIABILITIES:
Lines of Credit.................. $ 3,283Credit................ $2,381 -- -- -- -- $ 3,283 $ 3,291$2,381 $2,400
Average Interest Rate........ 6.64% 6.64%Rate.... 7.05% 7.05%
(1) In the ordinary course of our mortgage business, expected maturity is based
on the assumption that loans will be re-sold in the indicated period.
Based on the carrying values of our mortgage loans and lines of credit that we
held at January 31, 2000,2001, we do not believe that short-term changes in interest
rates wouldwill have a material effect on the interest income we earn on loans held
for sale in the secondary market, interest expense on our lines of credit or the
value of mortgage loans that we hold for sale in the secondary market.loans. See Notes 1 and 5 of the financial statement notes for
more information regarding risks related to our mortgage loans and lines of
credit.
IMPACT OF FOREIGN CURRENCY RATE CHANGES
DuringWhile the Japanese yen and the Canadian dollar have strengthened during the
first six months of fiscal 1999, the currency of our Japanese subsidiary strengthened while2001, the currencies of our other subsidiaries
remained essentially stable. As of
January 31, 2000, the currency of our Japanese subsidiary has continued to
strengthen and the currencies of our other subsidiaries have remained
essentially stable since the end of our 1999 fiscal year. Because we translate foreign currencies into U.S
dollars for reporting purposes, currency fluctuations can have an impact, though
generally immaterial, on our results. We believe that our exposure to currency
exchange fluctuation risk is insignificant primarily because our internationalglobal
subsidiaries invoice customers and satisfy their financial obligations almost
exclusively in their local currencies. For the quarter ended January 31, 2000, there was an
immaterial currency exchange impact from our intercompany transactions. Currency exchange risk is also minimized
since foreign debt is due almost exclusively in local foreign currencies. As of
January 31, 2000,2001, we did not engage in foreign currency hedging activities.
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PART II
ITEM 1
LEGAL PROCEEDINGS
- - --------------------------------------------------------------------------------
Intuit was a defendant in two consolidated class action lawsuits (one in
California and one in New York) which alleged that certain of its Quicken
products have on-line banking functions that are not Year 2000 compliant. With
respect to the California litigation, on October 13, 1999 the court dismissed
the case without leave to amend. The only remaining issue relates to a potential
award of attorneys' fees to the plaintiffs. On December 1, 1999, the court
granted our motion to dismiss all the New York actions with prejudice. Although
plaintiffs filed a Notice of Appeal, they failed to perfect the appeal.
Accordingly, this case is also now over.
In addition, a suit was filed in the Contra Costa County, California Superior
Court by an individual consumer against various retailers, including Circuit
City Stores, CompUSA, Fry's Electronics, Office Depot, The Good Guys and others,
alleging that these retailers have sold software and hardware products which are
not Year 2000 compliant, including at least one product published by Intuit. One
of the defendants in this action, Fry's Electronics, filed a cross-complaint
against various software publishers and hardware manufacturers, including
Intuit, asserting a claim for indemnity in the main action. In September 1999,
Fry's Electronics reached a settlement with the plaintiffs. All the cross
defendants, including Intuit, then filed a demurrer to the cross-complaint. On
December 7, 1999 the court granted the demurrer and dismissed the case without
leave to amend. If Fry's Electronics does not appeal this ruling by April 4,
2000, this lawsuit against Intuit will also be over.
On March 3, 2000 a class action lawsuit, Bruce v. Intuit Inc., was filed in the
United States District Court, Central District of California, Eastern Division.
On March 8, 2000 aTwo virtually identical lawsuit,lawsuits were later filed: Rubin v. Intuit Inc., was
filed on March 8, 2000 in the United States District Court, Southern District of
New York. BothYork and Newby v. Intuit Inc. was filed on April 27, 2000, in the United
States District Court, Central District of California, Eastern Division. The
Bruce and Newby lawsuits were consolidated into one lawsuit, In re Intuit
Privacy Litigation, filed on July 28, 2000 in the United States District Court
of California, Eastern Division. A similar lawsuit, Almanza v. Intuit Inc. was
filed on March 22, 2000 in the Superior Court of State of California, San
Bernadino County, Rancho Cucamonga Division. The Almanza complaint was amended
on October 26, 2000. These purported class actions claim thatallege violations of various
federal and California statutes and common law claims for invasion of privacy
based upon the alleged intentional disclosure to third parties of personal and
private customer information entered intoat Intuit's Quicken.com website was intentionally and secretly disclosed to third-party advertisers.website. The
two lawsuits allege identical causes of actions for invasion of privacy and
violations of federal statutes related to electronic communications. The
lawsuitscomplaints seek injunctive relief, an orderorders to disgorge profits related to the
alleged acts, and statutory and other damages. As of March 10, 2000, neither
lawsuit had been served on Intuit.
WeIntuit believes these lawsuits
are without merit and intends to defend the litigation vigorously.
Intuit is subject to other legal proceedings, as well as demands, claims and
claimsthreatened litigation, that arise in the normal course of our business. We
currently believe that the ultimate amount of liability, if any, for any pending
actionsclaims of any type (either alone or combined) will not materially affect our
financial position, results of operations or liquidity. However, the ultimate
outcome of any litigation is uncertain, and either unfavorable or favorable
outcomes could have a material negative impact. Regardless of outcome,
litigation can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
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ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
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(a) Not applicable.
(b) Not applicable.
(c) On January 24, 2000, we issued and sold 225,000 shares of our common
stock to Stephen M. Bennett, our recently appointed President and Chief
Executive Officer, pursuant to two Restricted Stock Purchase Agreements.
The purchase price for the shares was $0.01 per share, for an aggregate
purchase price of $2,250. The shares were issued without registration
under the Securities Act of 1993, as amended (the "1933 Act"), in
reliance on an exemption under Section 4(2) of the 1933 Act. The shares
are subject to vesting over periods of up to 10 years. Any unvested
shares may be repurchased by Intuit for the original purchase price if
Mr. Bennett's employment with Intuit is terminated under certain
circumstances.
(d) Not applicable.
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ITEM 5
OTHER MATTERS
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CHANGES IN EXECUTIVE OFFICERS
AND BOARD OF DIRECTORS
On January 24, 2000, Stephen M. Bennett was appointed President and Chief
Executive Officer and a member of the Board of Directors. William V. Campbell
stepped down as Acting Chief Executive Officer but remains Chairman of the
Board.
As of March 13, 2000,14, 2001, Intuit's executive officers arewere as follows:
NAME AGE POSITION
- - ---- --------
Stephen M. Bennett 47 President, Chief Executive Officer and Director
William V. Campbell 60 Chairman of the Board of Directors
Scott D. Cook 48 Chairman of the Executive Committee of the Board of Directors
Alan A. Gleicher 48 Senior Vice President, Global Business Division
Richard William Ihrie 51 Senior Vice President, Technology
David A. Kinser 49 Senior Vice President, Service Delivery and Operations
Greg J. Santora 49 Senior Vice President, Finance and Corporate Services; Chief Financial Officer
Raymond G. Stern 39 Senior Vice President, Corporate Strategy and Marketing
Larry J. Wolfe 50 Senior Vice President, Tax Division
Sonita Ahmed 44 Vice President, Finance & Corporate Controller
Caroline F. Donahue 40 Vice President, Sales
Linda Fellows 52 Vice President, Investor Relations and Treasurer
Elisabeth M. Lang 43 Vice President, Corporate Public Relations & Marketing Communication
Carol Novello 36 Vice President, Financial Supplies Group
Daniel T. Nye 34 Vice President, Small Business Division
Enrico Roderick 41 Vice President, Personal Finance Group
Catherine L. Valentine 48 Vice President, General Counsel and Corporate Secretary
Sherry Whiteley 41 Vice President, Human Resources
Stephen M. Bennett President and Chief Executive Officer
Scott D. Cook Chairman of the Executive Committee of the Board of
Directors
Eric C.W. Dunn Senior Vice President and Chief Technology Officer
Alan A. Gleicher Senior Vice President, International
James J. Heeger Senior Vice President, Small Business Division
David A. Kinser Senior Vice President, Service Delivery and Operations
Greg J. Santora Senior Vice President, Finance, and Chief Financial
Officer
Raymond G. Stern Senior Vice President, Corporate Strategy and Marketing
Larry J. Wolfe Senior Vice President, Tax Division
Sonita J. Ahmed Vice President, Finance
Kristen S. Brown Vice President, Corporate Development
Caroline F. Donahue Vice President, Sales
Linda Fellows Vice President, Treasurer and Director of Investor
Relations
Daniel B. Gilbert Vice President, Quicken Loans
Larry King, Jr. Vice President, Payroll Services Group
Elisabeth M. Lang Vice President, Corporate Public Relations and
Marketing Communications
Carol Novello Vice President, Financial Supplies Group
Enrico Roderick Vice President, Personal Finance Group
Catherine L. Valentine Vice President, General Counsel and Secretary
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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
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(A)(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
10.01 Intuit Inc. 1996 Employee Stock Purchase Plan, as amended through
January 19, 2000
10.02 Employment Agreement between Intuit and Stephen M. Bennett dated January
21, 2000
10.03 Intuit Inc. Restricted Stock Purchase Agreements between Intuit and
Stephen M. Bennett dated January 24, 2000
10.04 Confidential Agreement and General Release of Claims between Intuit Inc.
and William H. Harris, Jr., dated September 23, 1999
27.01 Financial Data Schedule (filed only in electronic format) period ended
January 31, 2000
27.02 Financial Data Schedule (filed only in electronic format) period ended
January 31, 1999
- - ----------------
(B)REPORT.
None
(b) REPORTS ON FORM 8-K:
(1) On January 25, 2000,29, 2001, Intuit filed a report on Form 8-K to report under Item
5 that it had completed the appointmentsale of Stephen M. Bennettcertain assets of its Intuit Insurances
Services, Inc. subsidiary.
(2) On February 28, 2001, Intuit filed a report on Form 8-K to report under
Item 5 its financial results for the quarter ended January 31, 2001.
Intuit's balance sheet as Presidentof January 31, 2000 and Chief Executive
Officer2001, and a board member.
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-statement of
operations for the three months and six months ended January 31, 2000 and
2001 were included in the Form 8-K.
- --------------------------------------------------------------------------------
SIGNATURES
-
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTUIT INC.
(REGISTRANT)
Date: March 16, 199914, 2001 By: /s/ Greg J. Santora
----------------------------------------------------------------------------
Greg J. Santora
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number.. Description Page
- - ------ ----------- ----
10.01 Intuit Inc. 1996 Employee Stock Purchase Plan, as amended through
January 19, 2000.......................................................
10.02 Employment Agreement between Intuit and Stephen M. Bennett dated
January 21, 2000.......................................................
10.03 Intuit Inc. Form of Restricted Stock Purchase Agreements between
Intuit and Stephen M. Bennett dated January 24, 2000...................
10.04 Confidential Agreement and General Release of Claims between
Intuit Inc. and William H. Harris, Jr., dated September 23, 1999.......
27.01 Financial Data Schedule (filed only in electronic format) period
ended January 31, 2000 ................................................
27.02 Financial Data Schedule (filed only in electronic format) period
ended January 31, 1999 ................................................
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