1UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
Washington, D.C. 20549----------------------------------FORM 10-Q
[X][X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period endedApril 30,October 31, 2001 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.Commission File Number 0-21180
INTUIT INC.
----------- (Exact
(Exact name of registrant as specified in its charter)DELAWARE 77-0034661 -------- ---------- (State of incorporation) (IRS employer identification no.)
Delaware 77-0034661 (State of incorporation) (IRS employer identification no.) 2535
GARCIA AVENUE, MOUNTAIN VIEW,Garcia Avenue, Mountain View, CA 94043------------------------------------------- (Address
(Address of principal executive offices)(650) 944-6000
-------------- (Registrant's
(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'sissuer’s classes of common stock, as of the latest practicable date.Approximately
209,143,388212,063,887 shares of Common Stock, $0.01 par value, as ofMay 31,November 30, 20012 - -------------------------------------------------------------------------------- FORM 10-Q INTUIT INC. INDEX - --------------------------------------------------------------------------------TABLE OF CONTENTS
FORM 10-Q
INTUIT INC.
INDEX
Page
NumberPART I FINANCIAL INFORMATION ITEM 1: Financial Statements Condensed Consolidated Balance Sheets as of July 31, 20002001 andApril 30, 2001.............................October 31, 20013 Condensed Consolidated Statements of Operations for the three and nine monthsquarters endedApril 30,October 31, 2000 and2001......20014 Condensed Consolidated Statements of Cash Flows for the nine monthsquarters endedApril 30,October 31, 2000 and2001................20015 Notes to Condensed Consolidated Financial Statements ........(Unaudited)6 ITEM 2: Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations..........................Operations16 ITEM 3: Quantitative and Qualitative Disclosures about Market Risk...... 27Risk25 PART II OTHER INFORMATION ITEM 1: Legal Proceedings............................................... 28Proceedings26 ITEM 5: Other Matters................................................... 29Matters27 ITEM 6: Exhibits and Reports on Form 8-K................................ 30 Signatures...................................................... 308-K28 Signatures 29 -2-
3INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31, (In thousands) 2001 2001 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 450,104 $ 415,044 Short-term investments 1,119,305 1,049,281 Marketable securities 85,307 41,484 Customer deposits 230,410 225,004 Accounts receivable, net 27,990 43,024 Mortgage loans 123,241 216,844 Deferred income taxes 77,948 92,300 Prepaid expenses and other current assets 33,617 37,353 Total current assets 2,147,922 2,120,334 Property and equipment, net 185,969 184,973 Goodwill and intangibles, net 415,334 374,770 Long-term deferred income taxes 145,905 145,815 Investments 24,107 14,108 Other assets (1) 42,499 14,000 Total assets $ 2,961,736 $ 2,854,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 66,400 $ 83,540 Payroll service obligations 205,067 199,529 Escrow liabilities 23,373 25,408 Drafts payable 63,518 85,947 Deferred revenue 137,305 139,510 Income taxes payable 82,661 44,514 Short-term note payable 38,672 39,532 Other current liabilities 170,966 168,857 Total current liabilities 787,962 786,837 Long-term obligations 12,413 12,153 Minority interest 35 35 Commitments and contingencies — — Stockholders’ equity: Preferred stock — — Common stock and additional paid in capital 1,725,490 1,749,168 Treasury stock, at cost (8,497 ) (21,132 ) Deferred compensation (21,720 ) (20,343 ) Accumulated other comprehensive income, net 28,180 1,836 Retained earnings 437,873 345,446 Total stockholders’ equity 2,161,326 2,054,975 Total liabilities and stockholders’ equity $ 2,961,736 $ 2,854,000
JULY(1) Includes $9.5 million and $8.1 million loans due from affiliates as of July 31, APRIL 30, (In thousands; Unaudited) 20002001----------- -----------ASSETS Current assets: Cashandcash equivalents ...................... $ 416,953 $ 437,604 Short-term investments ......................... 1,050,220 1,129,929 Marketable securities .......................... 225,878 117,494 Customer deposits .............................. 181,678 221,944 Accounts receivable, net ........................ 67,420 103,310 Mortgage loans ................................. 60,330 145,964 Prepaid expenses and other current assets(1) ... 126,315 134,704 ----------- ----------- Total current assets ....................... 2,128,794 2,290,949 Property and equipment, net ..................... 167,707 181,635 Goodwill and intangibles, net ................... 438,878 487,667 Investments ..................................... 31,160 21,311 Other assets(2) ................................. 112,363 110,354 ----------- ----------- Total assets .................................... $ 2,878,902 $ 3,091,916 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................... $ 79,145 $ 74,709 Payroll tax obligations ........................ 177,002 197,700 Escrow liabilities ............................. 32,077 105,046 Deferred revenue ............................... 107,578 82,374 Income taxes payable ........................... 110,743 66,374 Deferred income taxes .......................... 53,934 36,318 Other current liabilities ...................... 246,358 323,568 ----------- ----------- Total current liabilities .................. 806,837 886,089 Long-term obligations ........................... 538 15,786 Minority interest ............................... 238 836 Commitments and contingencies Stockholders' equity: Preferred stock ................................ -- -- Common stock and additional paid in capital .... 1,521,559 1,682,138 Deferred compensation .......................... (26,522) (23,657) Accumulated other comprehensive income, net .... 55,586 31,562 Retained earnings .............................. 520,666 499,162 ----------- ----------- Total stockholders' equity ................. 2,071,289 2,189,205 ----------- ----------- Total liabilities and stockholders' equity ...... $ 2,878,902 $ 3,091,916 =========== ===========October 31, 2001, respectively.(1) Includes $7.2 million notes receivable from Venture Finance Software Corp. as of July 31, 2000. (2) Includes $6.5 million and $9.5 million loans due from affiliates as of July 31, 2000 and April 30, 2001, respectively.See accompanying notes.
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4INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED APRIL 30, APRIL 30, 2000 2001 2000 2001 --------- --------- --------- -----------(In thousands, except per share data; Unaudited) Net revenue ...................................... $ 329,139 $ 425,210 $ 931,566 $ 1,070,292 Costs and expenses: Cost of revenue ................................. 77,647 81,888 232,074 259,446 Customer service and technical support .......... 31,596 37,538 113,554 116,068 Selling and marketing ........................... 60,173 68,479 216,188 215,146 Research and development ........................ 40,779 52,697 126,529 155,174 General and administrative ...................... 20,027 23,917 64,846 77,614 Charge for purchased research and development ... -- 238 1,312 238 Acquisition related costs ....................... 38,404 122,575 121,710 205,328 Reorganization costs ............................ -- -- 3,500 -- --------- --------- --------- ----------- Total costs and expenses ........................ 268,626 387,332 879,713 1,029,014 --------- --------- --------- ----------- Income from operations ........................... 60,513 37,878 51,853 41,278 Interest and other income and expense, net ....... 14,516 15,070 29,981 47,736 Gain (loss) on marketable securities and other investments, net ............................... 422,206 (11,504) 402,096 (87,307) Gain on divestiture .............................. -- -- -- 1,639 --------- --------- --------- ----------- Income before income tax, minority interest and cumulative effect of accounting change ......... 497,235 41,444 483,930 3,346 Income tax provision ............................. 200,204 55,294 195,617 38,566 Minority interest (income) ....................... (54) 451 (203) 598 --------- --------- --------- ----------- Income (loss) before cumulative effect of accounting change .............................. 297,085 (14,301) 288,516 (35,818) Cumulative effect of accounting change, net of taxes .......................................... -- -- -- 14,314 --------- --------- --------- ----------- Net income (loss) ................................ $ 297,085 $ (14,301) $ 288,516 $ (21,504) ========= ========= ========= =========== Basic net income (loss) per share before cumulative effect of accounting change ......... $ 1.47 $ (0.07) $ 1.44 $ (0.17) Cumulative effect of accounting change ........... -- -- -- 0.07 --------- --------- --------- ----------- Basic net income (loss) per share ................ $ 1.47 $ (0.07) $ 1.44 $ (0.10) ========= ========= ========= =========== Shares used in per share amounts ................. 202,342 208,715 199,787 207,345 ========= ========= ========= =========== Diluted net income (loss) per share before cumulative effect of accounting change ......... $ 1.39 $ (0.07) $ 1.37 $ (0.17) Cumulative effect of accounting change ........... -- -- -- 0.07 --------- --------- --------- ----------- Diluted net income (loss) per share .............. $ 1.39 $ (0.07) $ 1.37 $ (0.10) ========= ========= ========= =========== Shares used in per share amounts ................. 214,362 208,715 211,049 207,345 ========= ========= ========= ===========
Quarter Ended October 31, 2000 2001 (In thousands, except per share data) (unaudited) Net revenue: Products $ 119,823 $ 114,583 Services 47,540 76,794 Other 20,159 17,389 Total net revenue 187,522 208,766 Costs and expenses: Cost of revenue: Cost of products 29,300 31,926 Cost of services 30,955 33,880 Cost of other revenue 6,639 6,546 Amortization of purchased software 2,987 1,706 Customer service and technical support 32,396 38,953 Selling and marketing 61,100 71,895 Research and development 47,878 49,940 General and administrative 27,783 28,593 Acquisition-related charges 39,679 41,087 Loss on impairment of long-lived asset — 27,000 Total costs and expenses 278,717 331,526 Loss from operations (91,195 ) (122,760 ) Interest and other income and expense, net 16,118 11,797 Net losses on marketable securities and other investments (3,868 ) (12,254 ) Loss before income tax benefit, minority interest and cumulative effect of accounting change (78,945 ) (123,217 ) Income tax benefit 30,916 30,790 Minority interest (50 ) — Loss before cumulative effect of accounting change (48,079 ) (92,427 ) Cumulative effect of accounting change, net of income taxes of $9,543 14,314 — Net loss $ (33,765 ) $ (92,427 ) Basic and diluted net loss per share before cumulative effect of accounting change $ (0.23 ) $ (0.44 ) Cumulative effect of accounting change 0.07 — Basic and diluted net loss per share $ (0.16 ) $ (0.44 ) Shares used in per share amounts 205,727 211,039 See accompanying notes.
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5INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED APRIL 30, (In thousands; Unaudited) 2000 2001 ---- ----CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ........................................... $ 288,516 $ (21,504) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Acquisition related costs .............................. 128,746 213,144 Depreciation ........................................... 33,682 45,208 Net (gain) loss from marketable securities and other investments .......................................... (402,096) 87,307 Charge for purchased research and development .......... 1,312 238 Cumulative effect of accounting change ................. -- (23,857) Deferred income tax (benefit) provision ................ (3,121) 49,793 Gain on divestiture .................................... -- (1,639) Changes in operating assets and liabilities: Customer deposits ...................................... 8,621 (40,266) Accounts receivable .................................... (64,390) (35,445) Mortgage loans ......................................... 19,798 (85,634) Prepaid expenses and other current assets .............. 24,746 (10,071) Other assets ........................................... (17,050) 7,738 Accounts payable ....................................... 27,034 (14,711) Payroll tax obligations ................................ 10,077 20,702 Escrow liabilities ..................................... (26,594) 71,844 Deferred revenue ....................................... 23,134 (25,204) Income taxes payable ................................... 106,535 (44,369) Other current liabilities .............................. 43,601 40,932 Minority interest ...................................... (203) 598 --------- ----------- Net cash provided by operating activities ............ 202,348 234,804 --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment .......................... (71,683) (58,011) Proceeds from the sale of marketable securities ............. 519,183 25,238 Purchase of marketable securities ........................... (16,500) -- Purchase of short-term investments .......................... (728,504) (2,581,316) Liquidation and maturity of short-term investments .......... 509,259 2,501,607 Acquisitions, net of cash acquired .......................... (54,584) (164,059) Purchase of long-term investments ........................... (7,157) (3,694) --------- ----------- Net cash provided (used) by investing activities .... 150,014 (280,235) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt ........................ (3,348) (2,610) Net proceeds (payments) under warehouse line of credit ...... (11,105) 1,125 Net proceeds from issuance of common stock .................. 70,887 65,086 --------- ----------- Net cash provided by financing activities ........... 56,434 63,601 --------- ----------- Effect of foreign currency translation on cash and cash equivalents .................................. (919) 2,481 NET INCREASE IN CASH AND CASH EQUIVALENTS ..................... 407,877 20,651 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............. 554,230 416,953 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 962,107 $ 437,604 ========= ===========
Quarter Ended October 31, (In thousands) 2000 2001 (unaudited) Cash flows from operating activities: Net loss $ (33,765 ) $ (92,427 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of goodwill, purchased intangibles and deferred compensation 43,110 43,426 Depreciation 14,610 16,058 Net loss from marketable securities and other investments 3,868 12,254 Loss on impairment of long-lived asset — 27,000 Loss on sale of fixed assets — 495 Cumulative effect of accounting change (23,857 ) — Deferred income tax benefit 2,170 198 Tax benefit from employee stock options 32,006 9,574 Changes in assets and liabilities: Accounts receivable (95 ) (15,034 ) Mortgage loans (6,939 ) (93,603 ) Prepaid expenses and other current assets (1,462 ) 1,670 Other assets 5,684 1,499 Accounts payable (6,620 ) 17,140 Escrow liabilities 1,270 2,035 Drafts payable 2,667 22,429 Deferred revenue 13,591 2,205 Income taxes payable (60,342 ) (38,147 ) Other accrued liabilities (1,144 ) (7,647 ) Minority interest 50 — NET CASH USED IN OPERATING ACTIVITIES (15,198 ) (90,875 ) Cash flows from investing activities: Purchases of property and equipment (29,383 ) (16,343 ) Proceeds from the sale of marketable securities 24,137 1,157 Purchases of short-term investments (998,903 ) (347,531 ) Liquidation and maturity of short-term investments 956,458 418,603 Acquisitions and dispositions, net of cash acquired (105,860 ) — Purchases of long-term investments (1,000 ) (894 ) NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (154,551 ) 54,992 Cash flows from financing activities: Principal payments on long-term debt (2,943 ) (260 ) Principal proceeds on short-term debt — 860 Net increases under warehouse line of credit 557 — Net proceeds from issuance of common stock 33,901 22,019 Purchase of treasury stock — (21,137 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 31,515 1,482 Effect of foreign currency translation — (659 ) Net decrease in cash and cash equivalents (138,234 ) (35,060 ) Cash and cash equivalents at beginning of period 416,953 450,104 Cash and cash equivalents at end of period $ 278,719 $ 415,044 See accompanying notes.
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6INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)- -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Summary of Significant Accounting Policies Basis of Presentation
Intuit Inc. (“Intuit”) has prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles for interim financial statements. The financial statements include the financial statements of Intuit and its wholly-owned subsidiaries. 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 nine monthsquarter endedApril 30,October 31, 2001 do not necessarily indicate the results to be expected for the fiscal year ending July 31,20012002 or any other future period.All financial statements presented are restated to reflect the combined results of Intuit and our Rock Financial Corporation and Title Source, Inc. subsidiaries that were acquired on December 8, 1999 in a transaction that 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 31,20002001 included inIntuit'sIntuit’s Form 10-K, filed with the Securities and ExchangeCommission.Commission on October 5, 2001.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 estimatesEstimates arerelated to reservesused for product returns and exchanges, reserves for rebates,andthecollectabilitycollectibility of accountsreceivable.receivable, deferred taxes and other amounts. We also use estimates to determine the remaining economic lives and carrying value of goodwill, purchased intangibles, fixed assets anddeferred taxother long-lived assets. Despite our intention to establish accurate estimates and assumptions, actual results may differ from our estimates.Net Revenue
WeFor our shrink-wrapped software products, we recognize revenue upon shipment
of our shrink-wrapped software products, net of returns reserves, based on historical experience,(which is when title passes), provided that collection is probable and we have no significant remaining obligations. We recognize revenue net of returns reserves based on historical experience. 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.We recognize revenue from
Internet productspayroll processing and payroll tax filing serviceswhenas the services are performed, provided we have no other obligations. We generally require our payroll tax customers to remit payroll tax liability funds to us in advance of the applicable payroll due date, via electronic funds transfer. We include in total net revenue the interest earned on invested balances resulting from timing differences between the collection of these funds from customers and the remittance of such funds to outside parties, because this interest income represents an integral part of the revenue generated from our services. We recognize this interest as it is"earned" based on the nature of the particular product or service. For Internet productsearned. However, interest income generated from our cash andservices that we provide over a period of time, we recognize revenue pro rata based on the contractual time period. However, where we provide or deliver the Internet product or service at one pointcash equivalents balance is included intime, we recognize revenue upon delivery of the product or completion of the service. Intuit also offers several plans under which customers are charged for technical support assistance. We collect fees charged for these plans in advance and we recognize revenue over a period of time (generally one year). We include costs incurred for fee for support plans in cost of goods sold.other income because this interest income does not result from our operating activities.We defer loan origination revenue and the associated commissions 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 recognizeinterest income on mortgage loans held for sale as it is earned, and we recognize interest expenses on related borrowings as cost of revenue as we incur them.We also offer several plans under which customers are charged for technical support assistance. For plans where we collect fees in advance, we recognize revenue over the life of the plan, which is generally one year. We include costs incurred for fee-for-support plans in cost of revenue.
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We recognize revenue from other products and services when it is earned based on the nature of the particular product or service. For products and services that we provide over a period of time, we recognize revenue pro rata based on the contractual time period. However, where we provide or deliver the product or service at a specific point in time, we recognize revenue upon delivery of the product or completion of the service.
Shipping and Handling Costs
Costs incurred with the shipping and handling of our shrink-wrapped software products are recorded as cost of products in our results of operations.
Customer Service and Technical Support
Customer service and technical support costs include the costs associated with performing order processing, answering customer inquiries through
websitesWeb sites and other electronic means and providingcustomerfree technical support assistance to customers by telephone. In connection with the sale of certain products,Intuit provideswe provide a limited amount of free technical support-6-7assistance to customers. We do not defer the recognition of any revenue associated with sales of these products, since the cost of providing this free technical support and related customer service is insignificant. The technical support is provided within one year after the associated revenue is recognized and free product enhancements are minimal and infrequent. We accrue the estimated cost of providing this free support upon product shipment.Cash and Cash Equivalents and Short-Term Investments
Intuit considersWe consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Short-term investments
are consideredconsist of available-for-sale debt securitiesandthat are carried atamortized cost, which approximatesfair 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 ourbusiness. Based onbusinesses. Because of our significant business seasonality, cash flow requirementswithin quartersmay fluctuate dramatically from quarter to quarter and require us to use a significant amount of the short-term investments held as available-for-saledebtsecurities.The following schedule summarizes the estimated fair value of ourSee Note 2 for more information about cash and cash equivalents and short-terminvestments:
JULY 31, APRIL 30, 2000 2001 ---------- ----------(In thousands) Cash and cash equivalents: Cash .................................... $ 4,298 $ 40,197 Certificate of deposits ................. -- 6,309 Money market funds ...................... 338,462 388,495 Commercial paper and corporate notes .... 29,543 -- Municipal bonds ......................... 44,650 2,603 ---------- ---------- $ 416,953 $ 437,604 ========== ========== Short-term investments: Certificates of deposit ............ $ 5,053 $ -- Corporate notes .................... 75,640 64,671 Municipal bonds .................... 920,360 1,045,258 U.S. Government securities ......... 49,167 20,000 ---------- ---------- $1,050,220 $1,129,929 ========== ==========The following table outlines the estimated fair value of Intuit's available-for-sale debt securities held in short-term investments classified by the maturity date listed on the security.
JULY 31, APRIL 30, 2000 2001 ---------- ----------(In thousands) Due within one year ........ $ 235,998 $ 181,690 Due within two years ....... 157,309 201,044 Due within three years ..... 13,039 1,785 Due after three years ...... 638,821 745,410 ---------- ---------- $1,045,167 $1,129,929 ========== ==========-7-8investments.Marketable Securities
We currently hold several marketable securities, most of which we acquired in connection with strategic business transactionsandrelationships.Other InvestmentsOur available-for-sale
equitymarketable securities are carried at fair value and we include unrealized gains and losses, net of tax, instockholders'stockholders’ equity. Wehave designated our investments in At Home Corporation (which does business as Excite@Home), VeriSignuse the specific identification method to account for gains and724 Solutions as trading securities and fluctuations in the market value of these shares are reported in net income. We held the followinglosses on marketablesecurities at July 31, 2000 and April 30, 2001:
AVAILABLE-FOR-SALE EQUITY COST GROSS UNREALIZED ESTIMATED SECURITIES BASIS GAINS LOSSES FAIR VALUE - ------------------------- -------- --------- --------- ---------- (In thousands)JULY 31, 2000 Checkfree Corporation common stock $ 36,875 $ 115,000 $ -- $151,875 Homestore.com, Inc. common stock 1,689 10,626 -- 12,315 Quotesmith.com, Inc. common stock 5,645 -- (2,721) 2,924 S1 Corporation common stock 49,997 -- (25,302) 24,695 -------- --------- --------- -------- $ 94,206 $ 125,626 $ (28,023) $191,809 ======== ========= ========= ======== APRIL 30, 2001 Checkfree Corporation common stock $ 35,621 $ 60,592 $ -- $ 96,213 InsWeb Corporation common stock 10,810 -- (3,720) 7,090 S1 Corporation common stock 9,769 -- (3,313) 6,456 -------- --------- --------- -------- $ 56,200 $ 60,592 $ (7,033) $109,759 ======== ========= ========= ========
CUMULATIVE NET COST RECOGNIZED ESTIMATED TRADING SECURITIES BASIS LOSSES FAIR VALUE --------- -------------- ---------- (In thousands)JULY 31, 2000 Excite@Home common stock $ 119,366 $ (92,997) $26,369 VeriSign, Inc. common stock 4,916 (1,833) 3,083 724 Solutions, Inc. common stock 7,700 (3,083) 4,617 --------- --------- ------- $ 131,982 $ (97,913) $34,069 ========= ========= ======= APRIL 30, 2001 Excite@Home common stock $ 114,614 $(107,760) $ 6,854 VeriSign, Inc. common stock 2,458 (1,960) 498 724 Solutions, Inc. common stock 2,118 (1,735) 383 --------- --------- ------- $ 119,190 $(111,455) $ 7,735 ========= ========= =======The cost basis of our marketable securities reflect adjustments for other than temporary impairments in value as well as sales ofequity securities. Ourmarketable securitiesother long-term investments arequoted on the Nasdaq National Market. All of our marketable securities are stocks of high technology companies that have been extremely volatile. The market prices of a number of these companies' stocks have declined substantially. Declines in the market prices of stocks we hold could continue. These declines have resulted, and could continue to result, in a material reduction in the carrying value of these assets and a negative impact on our operating results. For example, if our available-for-sale securities experience further declines in fair value that is considered other than temporary, we will record the additional loss in the period when the subsequent impairment becomes apparent. During the nine months ended April 30, 2001, we recorded a loss of $40.2 million to recognize an other than temporary decline in the value of our S1 sharesstated at cost. See Note 3 forthe difference between our original cost of $51.50 per share and $10.06 per share, the fair value as of October 31, 2000 the date we made the impairment determination. -8-9 During the nine months ended April 30, 2001, we sold 85,000 shares of Checkfree, 351,865 shares of Homestore.com, and 99,902 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, 1,197,327 shares of Quotesmith.com and 75,000 shares of Excite@Home and recognized aggregate realized losses of $5.1 million. Total net gains on sales of marketable securities were $10.1 million for the nine months ended April 30, 2001. This gain was offset by recognized losses of $42.2 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 ofmore information about our marketable securities and other investments.This resulted in combined net losses on marketable securities and other investments of $87.3 million for the nine months ended April 30, 2001.Goodwill,
andPurchased Intangible Assets, and Other Long-lived AssetsWe record goodwill when the purchase price
exceeds the book valueof net tangible and intangible assetsacquired. Goodwill is amortizedwe acquire exceeds their fair value. We amortize goodwill on a straight-line basis over periods ranging from 3 to 5 years.TheWe generally amortize the cost of identified intangiblesis generally amortizedon a straight-line basis over periods ranging from 1 to 15 years.We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. The reviews look for
the existence offacts or circumstances, either internal or external,whichthat indicate that the carrying value of the asset cannot be recovered.During the third quarter, events and circumstances indicated possible impairment of our long-lived assets consisting principally of acquired intangible assets and goodwill. These indicators included deterioration in the business climate for web-based companies and recent changes in our fiscal 2002 operating forecasts.We
measured themeasure impairment loss related to long-lived assets based on the amount by which the carrying amount of such assetsexceededexceeds their fair values. Our measurement of fair valuewasis generally based on an analysis ofthefuture discounted cashflows at the enterprise level.flows. In performing this analysis, weuseduse the best information available in the circumstances, including reasonable and supportable assumptions and projections. The discounted cash flow analysisconsideredconsiders the likelihood of possible outcomes andwasis based on our best estimate of projected future cashflows, including terminal value cash flows expected to result from the disposition of the assets at the end of their useful lives. The anticipated proceeds from the pending disposition of a portion of Venture Finance Software Corp. ("VFSC"), our Quicken Bill Manager business, assisted management in the determination of the fair value of the assets associated with VFSC as of April 30, 2001. Based on our analysis we recorded a charge of $51 million and $26 million to write down the goodwill associated with VFSC and SecureTax, respectively.flows. If necessary, wewillperform subsequent calculations 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 market values for the assetsarewere not available, we would calculate the fair valuewould be calculatedusing the present value of estimated expected future discounted cash flows. The cash flow calculations, including the discount rate, would be based onmanagement'smanagement’s best estimates, using appropriate assumptions and projections at the time. In June 2001, FASB issued FAS 142, “Goodwill andpurchased intangible assets consistedOther Intangible Assets.” In October-7-
2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”We intend to implement both FAS 142 and FAS 144 beginning in the
following:
NET BALANCE AT LIFE IN ------------------------------- YEARS JULY 31, 2000 APRIL 30, 2001 ------- ------------- -------------- (in thousands)Goodwill................................ 3-5 $358,890 $370,200 Customer lists.......................... 3-5 57,890 60,926 Covenant not to compete................. 3-5 4,992 3,501 Purchased technology.................... 1-5 10,990 44,276 Assembled workforce..................... 2-5 1,976 4,216 Trade names and logos................... 1-15 4,140 4,548Balances presented above are netfirst quarter oftotal accumulated amortization of $465.3 million and $569.6 million at July 31, 2000 and April 30, 2001, respectively. -9-10fiscal 2003. See Note 1 for more information.Concentration of Credit Risk
Intuit operates in markets that are highly competitive and rapidly changing. Significant technological changes, changes in customer requirements, the emergence of competitive products or services with new capabilities and other factors could negatively impact our operating results.
We are also subject to risks related to changes in the values of our
significant balances of,marketable securities and private equityinvestments and short-term investments, as well as risks related to the collectability of our trade accounts receivable. At April 30, 2001, we held approximately $117.5 million in marketable securities, as described in "Marketable Securities," above. Fluctuations in the market value of our shares in Excite@Home, VeriSign and 724 Solutions result in recognized gains and losses in our statement of operations on an ongoing basis, since these investments are treated as trading securities. 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.investments. See"Marketable Securities," above inNote13 for a discussion of risks associated withour marketable securities. At April 30, 2001, we held approximately $19.8 million in private equity investments, net of reserves for potential declines in value that are other than temporary.these assets. Our remaining investment portfolio is diversified and consists primarily of short-term investment-grade securities.We sell a significant portion of our products through third-party resellers and distributors and, as a result, maintain one individually significant receivable balance with a major distributor. If the financial condition or operations of this distributor deteriorates substantially, our operating results could be adversely affected. We also face risks related to the collectibility of our trade accounts receivable. To appropriately manage
the creditthis risk,associated with accounts receivable, Intuit performswe perform ongoing evaluations of customer credit. Generally,no collateral is required.we do not require collateral. We maintain reserves for estimated credit losses and these losses have historically been within our expectations.At April 30, 2001,However, since wehad one distributor, that accounted for approximately 25%cannot predict future changes in the financial stability of ouraccounts receivable balance.customers, we cannot guarantee that our reserves will continue to be adequate.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'scustomer’s creditworthiness on a case-by-case basis.The amount of collateral we obtain is based on our credit evaluation of the customer.Loan commitments subject us to market risks and credit risks. Market risk
occurs ifis the risk that interest rates may rise after a loan commitment is made. To offset this risk on conventional mortgage loans and government-insured loans that are in process, we utilize mandatory forward salecommitments and purchase puts and calls on U.S. Treasury securities.commitments. AtApril 30,October 31, 2001, we had$214.3$259.9 million in mandatory forward sale commitments for future delivery ofFNMAmortgages to Federal National Mortgage Association andFHLMC securities.Federal Home Loan Mortgage Corporation. Loan commitments, which are not reflected on the balance sheet, also involve credit risk relating to thecustomer, which is not reflected on the balance sheet.customer. 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 April 30, 2001 were as follows:See Note 5 for more information on loan commitments.
JULY 31, 2000 APRIL 30, 2001 -------------------------- -------------------------- FIXED-RATE VARIABLE-RATE FIXED-RATE VARIABLE-RATE ---------- ------------- ---------- ------------- (In thousands)Conventional prime loans... $167,000 $31,100 $377,091 $48,390 Sub-prime loans............ 4,200 1,700 3,239 587 High-LTV loans............. 600 -- 25 -- -------- ------- -------- ------- $171,800 $32,800 $380,355 $48,977 ======== ======= ======== =======Recent Pronouncements
InOn June
1998,29, 2001, the Financial Accounting Standards Board("FASB"(“FASB”) issued Statements of Financial Accounting Standards No. 141 (SFAS 141), “Business Combinations,” and No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.”SFAS 141 supersedes APB Opinion No. 16, “Business Combinations,” and eliminates the pooling-of-interests method of accounting for business combinations, thus requiring that all business combinations be accounted for using the purchase method. The requirements of SFAS 141 apply to all business combinations initiated after June 30, 2001.
SFAS 142 supercedes APB Opinion No. 17, “Intangible Assets,” and provides that goodwill and other intangible assets that have an indefinite useful life will no longer be amortized. However, these assets must be reviewed at least annually for impairment. SFAS 142 applies to all business combinations completed after June 30, 2001. For business combinations completed before July 1, 2001, we will adopt SFAS 142 effective August 1, 2002. We are currently evaluating the impact of SFAS 142 on our financial position and statement of operations. We expect the adoption of SFAS 142 to reduce our amortization of goodwill and intangible expense significantly, commencing with the first quarter of fiscal 2003. However, it is possible that in the future, we would incur less frequent, but larger, impairment charges related to the goodwill already recorded, as well as goodwill arising out of future acquisitions as we continue to expand our business.
In October 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,”which applies to financial statements issued for fiscal years beginning after December 15, 2001. SFAS 144 supersedes FASB Statement 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
-8-
to Be Disposed Of,”and portions of APB Opinion 30,“Reporting the Results of Operations.”SFAS 144 provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria for classifying an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value or carrying amount. SFAS 144 also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. We do not expect the adoption of SFAS 144 to have a material impact on our consolidated financial statements.
Foreign Currency
The functional currency of all our foreign subsidiaries is the local currency. Assets and liabilities of our foreign subsidiaries are translated at the exchange rate on the balance sheet date. Revenue, costs and expenses are translated at average rates of exchange in effect during the year. We report translation gains and losses as a separate component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statement of operations and were immaterial in all periods presented.
2. Cash and Cash Equivalents and Short-Term Investments The following schedule summarizes the estimated fair value of our cash and cash equivalents and short-term investments:
July 31, October 31, 2001 2001 Cash and cash equivalents: Cash $ 33,427 $ 33,445 Certificate of deposits 5,600 5,720 Money market funds 406,077 370,879 Municipal bonds 5,000 5,000 $ 450,104 $ 415,044 Short-term investments: Corporate notes $ 63,723 $ 54,959 Municipal bonds 1,030,442 952,063 U.S. Government securities 25,140 42,259 $ 1,119,305 $ 1,049,281 The following table outlines the estimated fair value of Intuit’s available-for-sale debt securities held in short-term investments classified by the maturity date of the security:
July 31, October 31, 2001 2001
Due within one year$ 215,205 $ 217,635 Due within two years 221,620 230,191 Due within three years — — Due after three years 682,480 601,455 $ 1,119,305 $ 1,049,281 -9-
3. Marketable Securities and Other Investments We designated our investments in At Home Corporation (which does business as Excite@Home) and 724 Solutions as trading securities and fluctuations in the market value of these shares have been reported in the consolidated statement of operations. We sold all of the remaining shares of these securities during the quarter. The cost basis reflects adjustments for other than temporary impairments in value as well as sales of securities. We held the following available-for-sale securities at July 31, 2001 and October 31, 2001:
Cost Gross Unrealized Estimated (In thousands) Basis Gains Losses Fair Value Checkfree Corporation common stock $ 35,621 $ 37,215 $ — $ 72,836 S1 Corporation common stock 7,741 2,714 — 10,455 $ 43,362 $ 39,929 $ — $ 83,291 Checkfree Corporation common stock $ 35,621 $ — $ (1,618 ) $ 34,003 S1 Corporation common stock 7,238 243 — 7,481 $ 42,859 $ 243 $ (1,618 ) $ 41,484 Our marketable securities, which are quoted on the Nasdaq Stock Market, are stocks of high technology companies whose market prices have been extremely volatile and have declined substantially during the past two years. These declines have resulted, and could continue to result, in a material reduction in the carrying value of these assets. This has a negative impact on our operating results. If our available-for-sale securities experience further declines in fair value that are considered other than temporary, we will reflect the additional loss in our consolidated statement of operations in the period when the subsequent impairment becomes apparent.
The fair values of our long-term investments have also declined substantially since our initial investments due to the volatility and economic downturn in the high technology industry.
During the quarter ended October 31, 2001, we sold 50,000 shares of S1 Corporation and recognized realized gains of $0.2 million. This gain was offset by a realized loss of $1.9 million recorded in connection with the sale of our options to purchase additional shares of S1. In addition, we sold 37,906 shares of 724 Solutions and 1,533,504 shares of Excite@Home and recognized aggregate realized losses of $0.1 million during the quarter ended October 31, 2001. We recorded a loss of $3.3 million for other-than-temporary declines in the value of our other investments and recognized losses of $1.5 million for our trading securities and $5.7 million for our other long-term investments to reflect the declines in valuation. This resulted in combined net losses on marketable securities and other investments of $12.3 million for the quarter ended October 31, 2001.
During fiscal 2001, we adopted FAS 133,
"Accounting“Accounting for Derivative Instruments and Hedging Activities,"” which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires us to recognize all derivatives as either assets or liabilities on the balance sheet andmeasurerecord those instruments at fair value.It further provides criteria for designating derivative instrumentsIn May 1999, we completed a $50 million investment (970,813 shares) in Security First Technologies, now known as S1 Corporation (“S1”). In connection with this agreement, we received options to purchase 4.8 million additional shares of S1 common stock, atfair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair valuea per-share purchase price ofthe derivative instruments. Upon the date of adoption,$51.50. These options contained a net-exercise feature. In August1,2000, we recorded the cumulative effect of the change in accounting for derivatives for our4.64.8 million S1 options held inlong termlong-term investments. This resulted in a one-time cumulative effect of $14.3 million, net of income taxes totaling $9.5million, 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 nine month period ended April 30, 2001.million. FAS 133 requires the derivatives to be carried at fair value, so subsequent fluctuations in the fair value of these optionswill bewere included in our netincome. Forloss. During thethree and nine months ended April 30,first quarter of fiscal 2001 these fluctuations resulted in a loss of$3.4 million and $13.4$7.6 million net of income taxes, which decreased the basic and diluted net loss per share for the period by $0.04 per share. During the first quarter of fiscal 2002, we sold these options and recorded a realized loss of $1.9 million.-10-
4. Goodwill and Intangible Assets Goodwill and purchased intangible assets consisted of the following:
Net balance at Life in July 31, October 31, Years 2001 2001 (In thousands) Goodwill 3-5 $ 326,986 $ 294,149 Customer lists 3-5 53,423 48,533 Covenant not to compete 3-5 3,060 2,730 Purchased technology 1-5 24,078 22,390 Assembled workforce 2-5 3,598 3,139 Trade names and logos 1-15 4,189 3,829 $ 415,334 $ 374,770 Balances presented above are net of total accumulated amortization of $598.1 million and $641.5 million at July 31, 2001 and October 31, 2001, respectively.
5. Loan Commitments The following table
shows what adjusted netsummarizes loan commitments to extend credit at July 31, 2001 and October 31, 2001:
July 31, 2001 October 31, 2001 Fixed-rate Variable-rate Fixed-rate Variable-rate (In thousands) Conventional prime loans $ 303,100 $ 72,500 $ 619,100 $ 136,600 Sub-prime loans 4,300 1,200 3,100 1,300 $ 307,400 $ 73,700 $ 622,200 $ 137,900
6. Per Share Data We compute basic income
and diluted net incomeor loss per sharewould have been as if we had adopted this standard as of the beginning of fiscal 2000: -10-11
Nine Months Ended April 30, 2000 -------------------------------- As Adjusted As Reported ----------- ----------- (In thousands, except per share data)Net income ....................................... $323,657 $288,516 Diluted net income per share ..................... $ 1.53 $ 1.37In 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 are required to adopt SAB 101 no later than our fourth quarter of 2001. The adoption of SAB 101 is not expected to have a material effect on our financial position or results of operations. 2. PER SHARE DATA Basic income per share is computedusing the weighted average number of common shares outstanding during the period.DilutedWe compute diluted income or loss per shareis computedusing 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.3. COMPREHENSIVE NET INCOME StatementWe excluded options to purchase 15.9 million shares ofFinancial Accounting No.common stock in our diluted per-share computation for the quarter ended October 31, 2001 and options to purchase 12.5 million shares of common stock in the computation for the quarter ended October 31, 2000, since we experienced losses in those quarters.-11-
7. Comprehensive Net Income SFAS 130,
"Reporting“Reporting ComprehensiveIncome" ("SFAS 130")Income,” establishes standards for reporting and displaying comprehensive net income and its components instockholders'stockholders’ equity. However, it has no impact on our net income or loss as presented in our financial statements. SFAS 130 requires foreign currency translation adjustments and changes in the fair value of available-for-sale securities to be included in comprehensive income.The components of comprehensive net income, net of
tax,income taxes, are as follows:
Marketable Short-term Foreign Currency Securities Investments Translation Total October 31, 2000
(In thousands)Beginning balance gain, net of income taxes $ 58,561 $ — $ (2,975 ) $ 55,586 Unrealized loss, net of income tax benefit of $15,786 (23,680 ) — — (23,680 ) Reclassification adjustment for realized losses included in net loss, net of income tax benefit of $6,596 (9,894 ) — — (9,894 ) Translation adjustment loss — (63 ) (63 ) Ending balance, net of income tax benefit of $22,382 $ 24,987 $ — $ (3,038 ) $ 21,949 October 31, 2001
(In thousands)Beginning balance gain, net of income taxes $ 23,958 $ 4,686 $ (464 ) $ 28,180 Unrealized loss, net of income tax benefit of $16,451 and $534 (24,677 ) (802 ) — (25,479 ) Reclassification adjustment for realized losses included in net loss, net of income tax tax benefit of $71 (106 ) — — (106 ) Translation adjustment loss — — (759 ) (759 ) Ending balance, net of income tax benefit of $17,056 $ (825 ) $ 3,884 $ (1,223 ) $ 1,836
NINE MONTHS ENDED APRIL 30, --------------------------- 2000 2001 --------- -------- (In thousands)Beginning balance, net of tax..................... $ 79,144 $ 55,586 Unrealized gain (loss) on marketable securities... 447,333 (72,560) Realized (gain) loss on marketable securities..... (435,713) 28,518 Tax effect on marketable securities............... 20,241 17,808 Translation adjustment gain (loss), net of tax.... (910) 2,211 --------- -------- Ending balance, net of tax........................ $ 110,095 $ 31,562 ========= ========8. Acquisition-Related Charges 4. ACQUISITIONS On August 30, 2000, we purchased all of the outstanding securities of Venture Finance Software Corp. ("VFSC") that were not already held by Intuit (approximately 51%) for approximately $118 million in cash (including approximately $4.5 million in option exercise and tax payments in connection with VFSC options exercised immediately prior to the purchase). We accounted for the acquisition of VFSC as a purchase for accounting purposes and allocated approximately $113 million to identified intangible assets and goodwill. These assets were determined to be impaired by $51 million as of April 30, 2001. The remaining balance of $52.8 million, net of accumulated depreciation year to date, is being amortized over approximately three years. -11-12 On December 20, 2000, we acquired all of the outstanding stock of EmployeeMatters, Inc., in exchange for approximately $41.9 million in Intuit stock, the elimination of approximately $8.0 million in bridge loans we extended to EmployeeMatters prior to the closing, and the assumption of approximately $3.4 million of liabilities. We accounted for the acquisition of EmployeeMatters as a purchase for accounting purposes and allocated approximately $53.3 million to identified intangible assets and goodwill. These assets are being amortized over periods of three to five years. On April 17, 2001, we acquired substantially all of the assets of Tax and Accounting Software Corporation ("TAASC"), for $63.0 million in cash and approximately $7.8 million in accrued costs. We accounted for the acquisition of TAASC as a purchase for accounting purposes and allocated approximately $69.8 million to identified intangible assets and goodwill. These assets are being amortized over five years.We classify the following expenses as
acquisition related costsacquisition-related charges in ourstatementconsolidated statements of operations:
Quarter Ended October 31, October 31, 2000 2001 Amortization of goodwill $ 32,664 $ 32,749 Amortization of purchased intangibles 5,781 6,795 Amortization of acquisition-related deferred compensation 1,137 1,543 Other 97 — $ 39,679 $ 41,087 -12-
Three Months Ended April 30, Nine Months Ended April 30, (In thousands) 2000 2001 2000 2001 -------- -------- -------- --------Amortization9. Loss on Impairment of goodwill $ 29,515 $ 37,880 $ 89,101 $106,504 Amortization of intangibles 6,758 6,458 20,573 18,184 Deferred compensation 1,137 1,233 2,882 3,563 Impairment charge -- 77,000 -- 77,000 Other 994 4 9,154 77 -------- -------- -------- -------- $ 38,404 $122,575 $121,710 $205,328 ======== ======== ======== ========Long-lived Asset5. DISCONTINUED OPERATIONS AND DIVESTITURES On January 24, 2001, we sold selected assetsIn connection with the sale of our Quicken
InsuranceBill Manager businessto InsWeb Corp. for approximately $10.8 million of InsWeb common stock. As a result of the divestiture,in May 2001, we recorded apre-tax gain$27 million long-term asset related to future consideration from the purchasing company, which was recorded as “other assets” on the balance sheet. We are entitled to receive from the purchaser either (i) shares of$1.6its common stock in February 2002, (ii) cash payments of a minimum of $37 million paid in four equal annual installments of a minimum of $9.3 million per year, beginning in February 2002, or (iii) a combination of shares anda related tax provisioncash, beginning in February 2002. As discussed in Note 1, we regularly perform reviews to determine if the carrying values of$0.6 million inour long-lived assets are impaired. The reviews look for facts or circumstances, either internal or external, that indicate that thesecondcarrying value of an asset cannot be recovered. During the quarter ended October 31, 2001, events and circumstances indicated impairment offiscal 2001. In addition, Intuit and InsWeb entered into a distribution agreement under which InsWeb becamethis asset. These indicators included theexclusive consumer insurance aggregator for Intuit's Quicken.com and QuickenInsurance Web sites and certain Quicken consumer desktop products. In exchange, Intuit is sharing associated revenues, which are subject to certain minimums, over the 5-year termdeterioration of thedistribution agreement. 6. BORROWINGSpurchasing company’s financial position (including cash flows and liquidity) and the decreased likelihood that it will receive future funding. Wehave twoconsidered the implied fair value of our investment based on the purchasing company’s most recent round of planned funding as well as the fair value of our investment if funding were received. Based on our analysis as described above, we recorded a charge of $27 million to reduce the carrying value of this asset its estimated fair value of zero.
10. Borrowings As of October 31, 2001, we had one mortgage
linesline of credit, whichbalances areis reflected in escrow liabilities.The first line of credit currently provides for up to $50 million principal amount of demand loans secured by mortgage loans and other assets. As of April 30, 2001 our outstanding balance was $3.7 million. Interest rates on loans vary depending on the type of underlying loan, and the loans are subject to sub-limits, advance rates and warehouse terms that vary depending on the type of underlying loan. The interest rates in effect at July 31, 2000 and April 30, 2001 were 7.89% and 5.96%, respectively, while the weighted average interest rates for the nine months ended April 30, 2000 and 2001 were 7.18% and 7.07%, 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, 2000 and April 30, 2001. Our second line of credit advancesAdvances may be drawn for working capital and sub-primehigh loan-to-valueand conventional prime mortgageloans.loans, with the maximum amount based on a formula computation. Advances are due on demand and are collateralized by residential first and second mortgages.Advances are basedInterest is paid on aformula computation, with interest due monthly.monthly basis. The maximum outstanding balance permitted under this line is $20 million.During the second and third quartersAs offiscalOctober 31, 2001, we hada zerono balance outstanding under this line of credit.Drafts payable represent funds advanced for mortgages originated, which have not yet been drawn against the line of credit.
-12-13 7. OTHER CURRENT LIABILITIES Other current liabilities consisted of the following:
JULY 31, APRIL 30, (In thousands) 2000 2001 -------- ---------Accrued compensation .............................. $ 49,303 $ 66,327 Short-term notes payable .......................... 34,286 37,884 Future payments due for CRI acquisition ........... 44,916 47,373 Rebates............................................ 21,552 34,485 Reserve for returns11. Industry Segment and exchanges ................. 60,979 68,654 Other accruals..................................... 35,322 68,845 -------- -------- $246,358 $323,568 ======== ========Geographic Information8. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION The following information is provided in accordance with Statement of Financial Accounting No.SFAS 131,
"Disclosures“Disclosures about Segments of an Enterprise and RelatedInformation" ("SFAS 131"). SFAS 131Information,” establishes standards forthe way in which publiccompanies to disclose certain information about operating segments in thecompany'scompany’s financial reports.Since Internet-based revenuesConsistent with SFAS 131, we have determined our five operating segments, described below, based on factors such as how our operations are managed andexpenses cut across all ofhow results are viewed by ourbusiness 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.chief operating decision maker.-13-
Intuit does not track assets by operating segments. Consequently, we do not disclose assets by operating segments. The following unaudited results for the
nine monthsquarters endedApril 30,October 31, 2000 and 2001 are broken out by our operatingsegments:
NINE MONTHS ENDED SMALL CONSUMER GLOBAL APRIL 30, 2000 BUSINESS TAX FINANCE BUSINESS (In thousands) DIVISION DIVISION DIVISION DIVISION OTHER(1) CONSOLIDATED -------- -------- --------- -------- --------- ------------Net revenue ........................................ $307,606 $365,473 $ 183,921 $74,566 $ -- $ 931,566 Segment operating income (loss) .................... 50,099 150,099 (18,818) 5,108 -- 186,488 Acquisition costs .................................. -- -- -- -- (130,058) (130,058) Reorganization costs ............................... -- -- -- -- (3,500) (3,500) Common expenses .................................... -- -- -- -- (1,077) (1,077) -------- -------- --------- ------- --------- --------- Sub-total operating income (loss) .................. 50,099 150,099 (18,818) 5,108 (134,635) 51,853 Interest income (expense) and other items .......... -- -- -- -- 29,981 29,981 Realized net gain (loss) on marketable securities .. -- -- -- -- 402,096 402,096 Gain on divestiture ................................ -- -- -- -- -- -- -------- -------- --------- ------- --------- --------- Net income (loss) before tax ....................... $ 50,099 $150,099 $ (18,818) $ 5,108 $ 297,442 $ 483,930 ======== ======== ========= ======= ========= =========
NINE MONTHS ENDED SMALL CONSUMER GLOBAL APRIL 30, 2001 BUSINESS TAX FINANCE BUSINESS (In thousands) DIVISION DIVISION DIVISION DIVISION OTHER CONSOLIDATED -------- -------- -------- -------- --------- ------------Net revenue ........................................ $357,305 $437,177 $195,265 $80,545 $ -- $ 1,070,292 Segment operating income (loss) .................... 58,013 208,439 2,638 4,106 -- 273,196 Acquisition costs .................................. -- -- -- -- (216,786) (216,786) Reorganization costs ............................... -- -- -- -- -- -- Common expenses .................................... -- -- -- -- (15,132) (15,132) -------- -------- -------- ------- --------- ----------- Sub-total operating income (loss) .................. 58,013 208,439 2,638 4,106 (231,918) 41,278 Interest income (expense) and other items .......... -- -- -- -- 47,736 47,736 Realized net gain (loss) on marketable securities .. -- -- -- -- (87,307) (87,307) Gain on divestiture ................................ -- -- -- -- 1,639 1,639 -------- -------- -------- ------- --------- ----------- Net income (loss) before tax ....................... $ 58,013 $208,439 $ 2,638 $ 4,106 $(269,850) $ 3,346 ======== ======== ======== ======= ========= ===========(1) Common expenses in fiscal 2000 havesegments. Prior quarter information has been reclassified to conform to the current quarter financial presentationformat. -13-14 9. NOTES PAYABLE AND COMMITMENTSfor comparability.
Quarter ended Small Personal Quicken Global October 31, 2000 Business Tax Finance Loans Business (In thousands) Division Division Division Division Division Other (1) Consolidated Product revenue $ 69,148 $ 11,016 $ 29,915 $ — $ 9,744 $ — $ 119,823 Service revenue 18,837 2,335 1,747 16,952 7,669 — 47,540 Other revenue 4,767 — 14,904 — 488 — 20,159 Total net revenue 92,752 13,351 46,566 16,952 17,901 — 187,522 Segment operating income (loss) 24,714 (30,105 ) 11,199 239 (1,568 ) — 4,479 Common expenses — — — — — (53,008 ) (53,008 ) Sub-total operating income (loss) 24,714 (30,105 ) 11,199 239 (1,568 ) (53,008 ) (48,529 ) Realized net losses on marketable securities — — — — — (3,868 ) (3,868 ) Acquisition-related costs — — — — — (42,666 ) (42,666 ) Interest and other income and expense, net — — — — — 16,118 16,118 Net income (loss) before tax $ 24,714 $ (30,105 ) $ 11,199 $ 239 $ (1,568 ) $ (83,424 ) $ (78,945 ) Quarter ended Small Personal Quicken Global October 31, 2001 Business Tax Finance Loans Business (In thousands) Division Division Division Division Division Other (1) Consolidated Product revenue $ 73,201 $ 8,143 $ 24,903 $ — $ 8,336 $ — 114,583 Service revenue 26,364 2,583 2,810 40,039 4,998 76,794 Other revenue 2,165 204 12,082 — 2,938 17,389 Total net revenue 101,730 10,930 39,795 40,039 16,272 — 208,766 Segment operating income (loss) 18,408 (35,141 ) 12,175 13,006 (2,814 ) — 5,634 Common expenses — — — — — (58,601 ) (58,601 ) Sub-total operating income (loss) 18,408 (35,141 ) 12,175 13,006 (2,814 ) (58,601 ) (52,967 ) Realized net losses on marketable securities — — — — — (12,254 ) (12,254 ) Acquisition-related costs — — — — — (42,793 ) (42,793 ) Loss on impairment of long-lived asset — — — — — (27,000 ) (27,000 ) Interest and other income and expense, net — — — — — 11,797 11,797 Net income (loss) before tax $ 18,408 $ (35,141 ) $ 12,175 $ 13,006 $ (2,814 ) $ (128,851 ) $ (123,217 )
(1) Other includes reconciling items such as acquisition-related costs, including amortization of purchased software and charge for purchased research and development, and other common costs not allocated to specific segments.
12. Notes Payable and Commitments In March 2001, our Japanese subsidiary, Intuit KK, refinanced its one-year loan agreement with a Japanese bank for approximately
$30.3$30.6 million. The loan is denominated in Japaneseyen and is therefore subject to foreign currency fluctuations when translated to U.S. dollars for reporting purposes.yen. The interest rate is variable based on the Tokyo inter-bank offered rate or the short-term prime rate offered in Japan. AtApril 30,October 31, 2001, the rate was approximately0.72%0.56%. 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 are obligated to pay interest only on the loan through March 2002.10. INCOME TAXES-14-
13. 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 costsnon-deductible impairment charges and goodwill amortization and certain foreign losses.11. LITIGATION
14. Stockholders’ Equity Stock Repurchase Program
In May 2001, Intuit’s Board of Directors authorized the company to repurchase up to $500 million of common stock from time to time in the open market over a three-year period. The stock repurchase program is intended to help offset some of the dilution resulting from the issuance of shares under Intuit’s employee stock plans. As of October 31, 2001, we had repurchased approximately 738,500 shares of our common stock under this program (which became treasury shares) for an aggregate cost of approximately $29.3 million. From the inception of the stock repurchase program through October 31, 2001 we reissued 169,742 shares of treasury stock in connection with exercises of employee stock options, which were valued at $8.5 million (using Intuit’s average purchase price per share).
Repurchases through October 31, 2001 have had no significant impact upon our income or loss per share. Intuit intends to continue using its cash and cash equivalents to fund these repurchases.
15. Litigation 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. Two virtually identical 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 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. Following
Intuit'sIntuit’s successful motion to dismiss several of the claims, an amended complaint was filed on May 2, 2001. A similar lawsuit, Almanza v. Intuit Inc. was filed on March 22, 2000 in the Superior Court of the State of California, San Bernardino County, Rancho Cucamonga Division. An amended complaint in the Almanza suit was filed on October 26, 2000. These purported class actions allege 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 atIntuit'sIntuit’s Quicken.comwebsite.Web site. The complaints seek injunctive relief, orders to disgorge profits related to the alleged acts, and statutory and other damages. Intuit 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 threatened litigation, that arise in the normal course of our business. We currently believe that the ultimate amount of liability, if any, for any pending claims 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.
12. SUBSEQUENT EVENTS Sale of Quicken Bill Manager
16. Subsequent events On
May 15,November 2, 2001, wesoldacquired substantially all of thetechnologyassets ofour Quicken Bill ManagerOMware, Inc. (“OMware”), a leading provider of construction management software solutions, pursuant to an Asset Purchase Agreement signed on August 22, 2001. Its principal product helps construction companies handle accounting, estimating, job costing and project management. OMware’s employees, products and services comprise Intuit’s new construction business solutions division, headquartered in Sebastopol, California. Under the terms of the agreement, Intuit acquired substantially all of the assets of OMware for up toPrinceton eCom Corporation. In exchange for these assets,approximately $42 million in Intuitis entitledstock, with $34 million issued at the closing of the transaction, and up toreceive, at Princeton eCom's election$8 million to bemadeissued contingent upon the achievement of certain future performance objectives byFebruary 2002, either shares of Princeton eCom common stock equal to approximately 20% of Princeton eCom's fully diluted shares or cash payments in four annual installments, beginning in February 2002, with each cash installment to equal 25% ofthevalue, measured at the time of the payment, of the Princeton eCom shares that Intuit would have received if Princeton had elected to pay with shares of its stock. In addition, Intuit and Princeton eCom entered into several multi-year business agreements related to bill payment and presentment. Under these agreements, Intuit will offer Web-based Quicken Bill Manager-branded service processed by Princeton eCom and will receive a share in revenues derived from the services. Intuit will also receive certain payments if Princeton eCom licenses the Web-based user interface technology to third parties. Intuit will utilize Princeton eCom as a provider of bill payment and presentment services for Intuit's Quicken desktop bill management services. Princeton eCom was also granted a license to use the "Powered by Quicken Bill Manager" mark on third party sites. -14-15 Share Repurchase Program On May 22, 2001, we announced that our board of directors has authorized a three-year stock repurchase program for the purchase up to $500 million of common stock. The program authorizes us to repurchase shares of common stock on the open market from time to time, depending on general market conditions and the trading price of our common stock. The company's cash and cash equivalents will fund the repurchases.division.-15-
16ITEM 2
MANAGEMENT'S
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS- -------------------------------------------------------------------------------- CAUTIONS ABOUT FORWARD LOOKING STATEMENTSCautions about Forward Looking Statements
Throughout this Form 10-Q, you will find
"forward-looking"“forward-looking” statements, or statements about events or circumstances that have not yet occurred. In some cases, you can identify these statements by forward-looking words such as"may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential"“may,” “will,” “should,” “plans,” “believes,” “predicts,” or"continue,"“continue,” and other similar terms. Theseforward-lookingstatements may include, among other things,the potential for our emerging businesses and our payroll business, the anticipated future growthprojections of ourmortgage revenue, predictions about QuickBooks new userfuture financial performance, our anticipated growth, our strategies andupgrade rates for existing customers, expectedanticipated trends inoperating income and expenses and capital needs. These statements are only predictions, based onourcurrent expectations about future events. We cannot guarantee future results, performance or achievements or guarantee that predictions or current expectations will be accurate. In addition, we will not necessarily update these statements if circumstances change in the future.businesses. These forward-looking statements involve risks and uncertainties and our actual resultsperformance or achievementscould differmaterially from those expressedmaterially. We cannot guarantee future results orimplied by thethat current expectations will be accurate, and we will not update information in this Form 10-Q if any forward-lookingstatements.statement later turns out to be inaccurate. The important factors that could cause our results to differ are discussed under"Risksthe section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results,"” at the end ofthisItem 2.ThisYou should read Item 2should also be readin conjunction with the Consolidated Financial Statements and related Notes in Part I, Item 1 of this Form 10-Q and our fiscal20002001 Form10K. OVERVIEW Intuit's10-K. We encourage you to read these sections carefully.Overview
Intuit’s mission is to revolutionize how people manage their financial lives, and how small businesses and accounting professionals manage their businesses. We
strive to offer innovative products and services that will revolutionize how individuals and small businesses manage their activities. We offer a varietyare the leading provider of small business accounting, tax preparation and personal finance software products andrelatedWeb-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals. Our principal products and servicesthatincludeQuicken(R)Quicken®,QuickBooks(R)QuickBooks®, QuickenTurboTax(R)TurboTax®,ProSeries(R) and Lacerte(R) desktop software products, as well as an array of Internet-based products and services, including QuickBooks Deluxe Payroll service, QuickBase(R)ProSeries®,Quicken TurboTax for the Web, Quicken.com(SM)Lacerte® and QuickenLoans.(SM)LoansSM.Our businesses are highly seasonal – particularly our tax business,
is highly seasonal.but also small business and personal finance to a lesser extent. Sales of tax products are heavily concentrated in the period from November throughMarch.April. Sales of personal finance and small businessand consumer financeproducts are typically strongest during the calendar year-end holiday buying season and the beginning of the calendar year and thereforeourmajor product launches for these products usually occur in the fall or early winter to take advantage of these customer buying patterns. These seasonal patterns mean that our total net revenue is usually highest duringtheour second and third fiscal quarters. We typically report a loss in our first and fourth quartersending January 31when revenue from our tax businesses andApril 30. We experience lower revenues for the quarters ending July 31 and October 31, while ourother seasonal businesses is minimal, but operating expenses to developand supportnew products and services continue at relatively consistentlevels during these periods. This can result in significant operating losses in the July 31 and October 31 quarters.levels. Operating results can also fluctuate for other reasons such as changes in product release dates, non-recurring events such as acquisitions, dispositions, gains and losses from marketable securities, and product price cuts in quartersthat havewith relatively high fixed expenses.Acquisitions and dispositions in particular can have a significant impact on the comparability-16-
Results of
both our quarterly and annual results, and acquisition-related expenses continue to have a negative impact on our earnings. While desktop software and related products and services provide a majority of our revenue, our Internet-based revenue is continuing to grow. 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. -16-17 We believe our internal emerging businesses will provide an opportunity to increase revenue in fiscal 2001 and beyond. We have made significant progress in several of these businesses in the past. During fiscal 2000, our web-based tax preparation and electronic filing services achieved profitability. During both the second and third 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. Year over year, as of April 30, 2001 we have doubled our investments in our internally developed emerging businesses. 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 OPERATIONSOperationsThe following
tables set forth data from our consolidated statements of operations for the quarter and year-to-date ended April 30, 2000 and 2001. Results for all periods include activity for Rock Financial Corporation and Title Source, Inc. (collectively, "Rock"), which were acquired in December 1999. As the acquisition of Rock was accounted for as a pooling of interests, all prior periods have been restated to reflect the combined results of Rock and Intuit. See Note 1 of the financial statements. NET REVENUE The followingtotal net revenue discussion is categorized by our business divisions. The table below shows each businessdivision'sdivision’s percentage of our total net revenue for thequarter and year-to-datequarters endedApril 30,October 31, 2000 and 2001. Information for the first quarter of fiscal 2001 has been reclassified to conform to the fiscal 2002 first quarter financial presentation for comparability. See Note811 of the financial statements for additional information about our businesssegments.segments, which correspond to the business divisions described below.
Q3 % Q3 % % YTD % YTD % % (Dollars in millions; CHANGE CHANGE Unaudited) FY00 REVENUE FY01 REVENUE Q3 FY00 REVENUE FY01 REVENUE YTD ------ ------- ------ ------- ------ ------ ------- -------- ------- ------Small Business Division ..... $ 90.7 28% $103.5 24% 14% $307.6 33% $ 357.3 33% 16% Tax Division ................ 168.6 51% 232.5 55% 38% 365.5 39% 437.2 41% 20% Consumer Finance Division ... 43.2 13% 65.3 15% 51% 183.9 20% 195.2 18% 6% Global Business Division .... 26.6 8% 23.9 6% (10)% 74.6 8% 80.6 8% 8% Total net revenue........ $329.1 100% $425.2 100% 29% $931.6 100% $1,070.3 100% 15%
Total Net Revenue Quarter Quarter Ended % Total Ended % Total 10/31/00 Net Revenue 10/31/01 Net Revenue % Change Small Business $ 92,752 49 % $ 101,730 49 % 10 % Tax 13,351 7 % 10,930 5 % (18 %) Personal Finance 46,566 25 % 39,795 19 % (15 %) Quicken Loans 16,952 9 % 40,039 19 % 136 % Global Business 17,901 10 % 16,272 8 % (9 %) $ 187,522 100 % $ 208,766 100 % 11 % Small Business Division.
Small Business Division revenue is derived primarily from QuickBooks desktop products, payroll products and services, financial supplies
payroll services,products, and the QuickBooks SupportNetwork ("QBSN"), and QuickBooks Internet Gateway services ("QBIG"). RevenueNetwork.Overall, revenue for the
Small Business Division increased by 14% and 16% for quarter and year to date ended April 30, 2001 compared to the same periods in the prior year. Our QuickBooks business (including QuickBooks desktop products, QBSN and QBIG) experienced revenue growth of 5% and 9%division was up 10% for the quarterand year to dateendedApril 30,October 31, 2001 compared to the same perioda year ago. This growth was primarily attributablein the prior year. Payroll revenue grew 43%, due toincreased QBIG revenuehigher unit sales, as well as higher average selling prices resulting from price increases for all three of our payroll offerings. Full year revenue growth for payroll is expected to be slower than the first quarter year-over-year growth. Revenue for our QuickBooksdesktop products.Support Network and our financial supplies business also increased in the quarter ended October 31, 2001 compared to the same period in the prior year.These
factorsincreases were partially offset by12% and 18% declinesa 15% decline in QuickBooks revenue. The decline was primarily the result of lower unit salesfor our QuickBooks desktop products forcompared to the first quarterand year to date ended April 30, 2001. These results primarily reflectof fiscal 2001, as the overall economic environment resulted in ayear-over-year decline in the rate at which existing QuickBooks customers upgraded to a newer QuickBooks product,lower new customer acquisition rate. This was partially offset by increased average selling prices, as well aslower acquisition rate of new users compared to the prior year. Year 2000 concerns skewed both the normal seasonal patterns and traditional annual upgrade patternsa slight increase infiscal 2000. Almost 50 percent of our customers upgraded last year due to Year 2000 concerns. QuickBooks revenue results also reflect slower economic growth in the U.S. and other major markets for our QuickBooks products, which has resulted in slower new customer acquisition. Payroll services experienced revenue growth of 56% and 54% for the quarter and year to date, compared to the same periods a year ago. Significant price increases contributed to this growth for both our Basic Payroll Service and our -17-18 online Deluxe Payroll Service. Both services also experienced solid growth in their customer base. While we believe our payroll business, and the Deluxe Payroll Service in particular, will provide us with a significant opportunity to generate recurring revenue in the future, we face a number of ongoing challenges and risks, including operational issues in activating payrollupgrades by current customers.See "Risks That Could Affect Future Results."Tax
DivisionDivision.Tax Division revenue is derived primarily from Quicken TurboTax federal and state consumer desktop tax preparation
software,products, electronic tax filing services, Quicken TurboTax for the Web online tax preparation services and ProSeries and Lacerte professional tax preparation products.Due to the seasonal nature of our tax business, the first fiscal quarter typically generates only nominal revenue from tax products and
electronic tax filing services.services compared to the second and third quarters of the fiscal year. Overall, Tax Division revenue for the quarterand year to date increasedended October 31, 2001 decreased by38% and 20%, respectively18% compared to the sameperiodsperiod lastyear. The increase in revenue was due to a combinationyear, but we do not believe this is indicative ofhigher average selling prices to reflect product enhancements (such as the Automated Tax Return feature) and increased unit sales ofourdesktop and web-based tax preparation products. Our web-based preparation and electronic filing services experienced strong growth during the current tax season. Year to date through April 30, 2001, web tax preparation revenue grew 130% from the prior year, driven by price increases and a 73% increase in federal tax unit volume. We experienced an increase in the number of customers who take advantage of our free electronic tax preparation and filing through Quicken Tax Freedom Project, which accounted for approximately 50% of total Quicken TurboTax for the Web federal units. Our professional tax products experienced revenue growth of 17% and 10% for the quarter and year to date, respectively 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 pay-per return unit growth. Although we are encouraged by the year to date results for our tax products, revenues for the full tax season are still subject to consumer product returns from our retail distribution channels. While we expect our reserves for returned products will be adequate to cover retailers' returns of unsold products during the next two quarters, higher than expected returns could have a negative impact onrevenue for the fullseason. In April 2001, we completed our acquisition of Taxyear. The development andAccounting Software Corp. ("TAASC"), which offered a fully integrated suite of software tools for accounting and tax professionals. TAASC will become partlaunch of ourprofessionalconsumer taxdivision. See Note 4products for the 2001 tax year was completed on schedule, and products reached retail shelves in late November. However, there are still ongoing risks associated with our tax business, including intense competition that could result in lower average selling prices and/or a decline in our share of sales in thefinancial statements. Consumerretail channel. While we have undertaken product development and marketing efforts intended to address competitive pressures, we will not be able to report revenues and operating results for the entire tax season until late in the fiscal year.-17-
Personal Finance Division
Consumer.Personal Finance Division revenue comes primarily from Quicken desktop products,
Quicken Loans,advertisingsponsorship and placement fees from(both Web-based on Quicken.com,and Quicken,as well as in-product advertising) and online transactions.Revenue for the ConsumerOverall, Personal Finance Division
increased by 51% and 6%revenue was down 15% for the quarterand year to date, respectivelyended October 31, 2001 compared to the sameperiodsquarter a year ago.The Consumer Finance Division benefited fromThis decline was attributable to an 18% decline in revenuegrowth experienced byfor our QuickenLoans mortgage business of 209% and 68% for the quarter and year to date respectively, compared to the same periodsdesktop products (reflecting ayear ago. Mortgage revenue increases reflect both an increase17% decline involume of loans sold,unit sales), as well asincreasea 36% decline inmargins earned on loan fees andQuicken.com advertising revenue. The decline in Quicken desktop revenue reflects the continuing maturation of the personal finance desktop software category. Advertising revenue continued to decline, reflecting the industry trend of reduced advertising spending by purchasers of Internet advertising. We experienced continued growth in our online transaction business, which partially offset these declines.Quicken Loans Division.
Quicken Loans Division revenue comes primarily from gains on the sale of loans and post-closing servicing arrangements in bulk to participating financial institutions, and from loan fees we receive for originating loans.
MortgageRevenue for the Quicken Loans Division increased by 136% for the quarter ended October 31, 2001 compared to the same quarter a year ago. The growth was primarily due to two factors. First, the volume of loans sold increased significantly, reflecting increased consumer demand to refinance and originate mortgage loans in light of declining interest rates. Second, our average revenue
growth is primarily attributable to process efficienciesper loan increased, reflecting both higher average gains on sales of loans andinfrastructure improvements that we have made that allow us to capitalize onhigher average loan fees as themortgage rate environment. While weconsumer demand for loans increased. We expectcontinued growth in our mortgage business, we do not expectthe revenueand profitgrowth rates experienced byour mortgage business year to date during fiscal 2001Quicken Loans to besustainable long-term. We face continuing challenges, including mortgage rate fluctuations. See "Risks That Could Affect Future Results." For the quarter our Quicken product line revenue was roughly flat compared to the same period a year ago. Year to date our Quicken products experienced a decline in revenues of 12%, compared to the prior year. Our year to date comparative results were negatively impacted by strong consumer demand during the prior year periods as a result of a significant number of customers upgrading due to Year 2000 concerns. In addition, Quicken.com advertising and sponsorship revenue declined due to reduced advertising spending by potential purchasers of Internet advertising. Our Quicken product line faces many challengeslower in thepersonal financial software category, including continued competition from Microsoft's Money productthird andfrom other web-based personal finance trackingfourth quarters of fiscal 2002, both on a year-over-year basis andmanagement tools that are becoming increasingly available at no cost to consumers. -18-19 On May 15, 2001, we completedon a sequential quarter basis. Mortgage rate increases, thesale of our Quicken Bill Manager business to Princeton eCom Corporation. See Note 12impact of thefinancial statements for details about this transaction. We do not expect this transaction to have a materialeconomic climate on the housing market, business operation risks and other factors could negatively impacton revenue fortheremaindervolume offiscal 2001, though it may have a slight positive impact on operating income.applications and closed loans, particularly our most mortgage-rate sensitive products such as conventional refinancing loans. See “Interest Rate Risk” in Item 3, below.Global Business Division.
Global Business Division
Global Business Division revenues comerevenue comes primarily from Yayoi small business products in Japan, and QuickBooks, Quicken andtaxQuickTax products inCanada, QuickBooks, Quicken and consumer tax products in Europe, and QuickBooks and Quicken products in Southeast Asia.Canada.Overall,
theGlobal Business Division revenuedeclined 10%decreased 9% for the quarter endedApril 30,October 31, 2001and increased 8% year to datecompared to the sameperiodsquarter last year.The declineRevenue from Canada decreased by 17%. This decease was partially attributable to a year-over-year decrease in revenue forthe quarter is primarily due to relatively higher revenue in the second quarter compared to the third quarter because of Canada's early launch of theCanada’s localized version of QuickBooks2001. In addition, yearreflecting lower unit sales compared todate we experienced a 68% year-over-year decline in QuickBooks retailthe prior quarter, as well as declining Quicken sales in Canada. These declines were partially offset by increased revenue from Japan forthe quarter due to prior year promotion activities that were discontinuedour Yayoi small business accounting software, as well as increased revenue generated from maintenance contracts infiscal 2001. The year-to date increase in revenues can be attributed to overall growth in Canada's professional tax revenue as a result of an acquisition we made earlier in the current fiscal year, and an increase in Europe revenue due to an earlier release of QuickBooks compared to last year. Partially offsetting the increases, we experienced an adverse foreign exchange rate impact year to date.Japan.
COST OF REVENUE Q3 % Q3 % % YTD % YTD % % (Dollars in millions; CHANGE CHANGE Unaudited) FY00 REVENUE FY01 REVENUE Q3 FY00 REVENUE FY01 REVENUE YTD ----- ------- ----- ------- ------ ------ ------- ------ ------- ------Product and services........... $75.5 23% $77.5 18% 3% $225.1 24% $248.2 23% 10% Amortization of purchased software & other............. 2.1 1% 4.4 1% 110% 7.0 1% 11.2 1% 60% Total of cost of revenue... $77.6 24% $81.9 19% 6% $232.1 25% $259.4 24% 12%
Cost of Revenue Quarter % Total % of Quarter % Total % of Ended Net Related Ended Net Related 10/31/00 Revenue Revenue 10/31/01 Revenue Revenue % Change Cost of revenue: Cost of products $ 29,300 16 % 24 % $ 31,926 15 % 28 % 9 % Cost of services 30,955 16 % 65 % 33,880 16 % 44 % 9 % Cost of other revenue 6,639 3 % 33 % 6,546 3 % 38 % (1 %) Amortization of purchased software 2,987 2 % — 1,706 1 % — (43 %) $ 69,881 37 % — $ 74,058 35 % — 6 % There are
twofour components of our cost ofrevenue. The larger component isrevenue: (i) cost of products, which includes the direct cost of manufacturing and shippingproducts and offeringdesktop software products; (ii) cost of services, whichincludesreflects direct costs associated with providing services, including data center costs relating to delivering Internet-basedproductsservices; (iii) cost of other-18-
revenue, which includes costs associated with providing advertising and
services. The second component is themarketing and online transactions; and (iv) amortization of purchased software, whichisrepresents the cost of depreciating products or services we obtained through acquisitions over their useful lives.TotalCost of products as a percentage of product revenue increased to 28% for the quarter ended October 31, 2001, compared to 24% for the same period in the prior year. This increase was attributable in part to changes in our third-party manufacturing and distribution relationships. In the first quarter of fiscal 2001, our primary third-party manufacturing contract reflected a 100% variable cost model. We now have a fixed and variable cost model, with the fixed costs spread equally among our four fiscal quarters. Because of our seasonally low revenue in the first quarter, the fixed costs this year resulted in an increase in cost of products as a percentage of product revenue compared to last year. However, we expect that this new cost model will result in lower cost of products as a percentage of product revenue for the full fiscal year and for the longer term. The increase this year also reflected incremental costs to implement a new third-party retail distribution relationship for our shrink-wrap software products.
Cost of services as a percentage of service revenue decreased to 44% for the quarter ended October 31, 2001, compared to 65% for the same period in the prior year. This improvement was driven primarily by our Quicken Loans Division, which experienced a significantly lower average cost per loan. The decline in average cost per loan reflected greater operational efficiencies, as well as a significant increase in total loan revenue being spread over a fixed cost base that increased only slightly. Our payroll business, which experienced revenue growth over a relatively fixed cost base, also contributed to this decrease.
Cost of other revenue as a percentage of other revenue
declinedincreased to19% and 24%38% for the quarterand year to dateendedApril 30,October 31, 2001 compared to24% and 25%33% for the sameperiodsperiod in the prior year.These declines areThis increase was primarilyattributabledue toimproved inventory management with lower excess and obsolete inventory expenses for allincreased data center costs related to ourproduct lines. We expect costPersonal Finance Division's online transaction businesses.Amortization of
revenue for fiscal 2001 to be roughly flat compared to the prior year as a percentage of revenue. -19-20purchased software was not significant in either period.
OPERATING EXPENSES Q3 % Q3 % % YTD % YTD % % (Dollars in FY00 REVENUE FY01 REVENUE CHANGE FY00 REVENUE FY01 REVENUE CHANGE millions; Unaudited) Q3 YTD ------ ------- ------ ------- ------ ------ ------- ------ ------- ------Customer service and technical support .......... $ 31.6 10% $ 37.5 9% 19% $113.6 12% $116.1 11% 2% Selling and marketing ........ 60.2 18% 68.5 16% 14% 216.2 23% 215.2 20% (1)% Research and development ..... 40.8 12% 52.7 12% 29% 126.5 14% 155.2 15% 23% General and administrative ... 20.0 6% 23.9 6% 20% 64.8 7% 77.6 7% 20% Charge for purchased research and development.... -- -- 0.2 -- -- 1.3 -- 0.2 -- (85)% Acquisition related costs..... 38.4 12% 122.6 29% 219% 121.7 13% 205.3 19% 69% Reorganization costs.......... -- -- -- -- -- 3.5 -- -- -- (100)% Total operating expenses.. $191.0 58% $305.4 72% 60% $647.6 70% $769.6 72% 19%
Operating Expenses Quarter % Total Quarter % Total Ended Net Ended Net 10/31/00 Revenue 10/31/01 Revenue % Change Customer service and technical
support$ 32,396 17 % $ 38,953 18 % 20 % Selling and marketing 61,100 33 % 71,895 34 % 18 % Research and development 47,878 26 % 49,940 24 % 4 % General and administrative 27,783 15 % 28,593 14 % 3 % Acquisition-related charges 39,679 21 % 41,087 20 % 4 % Loss on impairment of long-lived asset — — 27,000 13 % — $ 208,836 112 % $ 257,468 123 % 23 % Customer Service and Technical Support.
Customer service and technical support expenses were
9% and 11%18% of total net revenue for the quarterand year to dateendedApril 30,October 31, 2001, compared to10% and 12%17% for the sameperiodsperiod of the prior year. Thisimprovement reflectsincrease was primarily attributable to thecontinued efficiency gainsdirect sales and support costs associated with converting the customers of Tax and Accounting Software Corporation (“TAASC”), which we acquired inproviding customer serviceApril 2001, to our ProSeries andtechnical 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.Lacerte professional tax products.Selling and
Marketing.Marketing.Selling and marketing expenses were
16% and 20%34% of total net revenue for the quarterand year to dateendedApril 30,October 31, 2001, compared to18% and 23%33% for the sameperiodsperiod of the prior year. Thedeclineincrease was attributable inselling and marketing costs as a percentage of revenue for both the quarter and year to date 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 relatingpart to the expansion of ourInternet-based businessessmall business marketing programs, as we began to execute on our recently announced “Right for My Business” strategy. Specifically, we increased incremental selling andthe extremely competitive consumer tax seasonmarketing expenses in connection with theentrancelaunch of two new QuickBooks products (QuickBooks Premier andsubsequent exit of Microsoft's TaxSaver product,QuickBooks Premier: Accountant Edition), as wellas relatively lower marketing expenditures during fiscal 2001 yearthe Intuit Developer Network, which enables third-party developers todate for Quicken Loansprovide integrated value-added software solutions to QuickBooks Pro and QuickBooksDeluxe Payroll Service, as those services have begun to more fully leverage the value of the Intuit brands.Premier customers.Research and
Development.Development.Research and development expenses were
12% and 15%24% of total net revenue for the quarter ended October 31, 2001, compared to 26% of revenue for thequarter and year to date ended April 30, 2001, compared to 12% and 14% for thesameperiodsperiod of the prior year. We continued to invest in the initial elements of-19-
our Right for My Business strategy, including new QuickBooks products and the Intuit Developer Network. This was more than offset by lower research and development investments in Quicken.com as well as more automated and efficient product development processes for our recently launched QuickBooks 2002 products. During the remainder of fiscal 2002, we expect to continue significant investments in research and development, particularly
for our emerging service businesses.in the small business area.General and Administrative.
General and administrative expenses were
6% and 7%14% of total net revenue for the quarterand yearended October 31, 2001, compared todate ended April 30, 2000 and 2001, respectively. For our entire fiscal year 2001, we expect general and administrative expenses to remain roughly flat15% for the same period of the prior year. The decrease as a percentage of revenue was primarily due to a decrease in bad debt charges compared tofiscal 2000. Charge for Purchased Research and Development. For the quarter ended April 30, 2001, we recorded a charge for purchased research and development of $0.2 million as a result of our acquisition of Tax and Accounting Software Corporation. Duringthe first quarter a year ago, when we had greater receivable write offs due to the deteriorating financial condition offiscal 2000,many Internet companies with whom werecordeddid business.Acquisition-Related Charges.
Acquisition-related charges
of $1.3 million for purchased research and development as a result of our Boston Light and Hutchison acquisitions. See Note 4 of the financial statements. In connection with these acquisitions, and with the assistance of third party appraisers, we determined the value of in-process projects under development for which technological feasibility had not been established. 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. -20-21 Acquisition Related Costs. Acquisition related costsinclude the amortization of goodwill,andpurchased intangible assets and deferred compensation expenses arising from acquisitions, and impairmentcharges. (See Note 4 of the financial statements.)charges relating to acquired assets. These costs increased to$122.6 million and $205.3$41.1 million for the quarterand year to date,ended October 31, 2001, compared to$38.4 million and $121.7$39.7 million for the sameperiods a year ago.period of the prior year. Thequarter and year to dateincrease wastheprimarily attributable toan impairment chargethe amortization of$77.0 million recorded in the third quarter of fiscal 2001 During our review for impairment in the third quarter, events and circumstances indicated possible impairment of our long-lived assets consisting principally of acquired intangible assets and goodwill. These indicators included deterioration in the business climate for web-based companies and recent changes in our fiscal 2002 operating forecasts. We measured the impairment loss related to long-lived assets based on the amount by which the carrying amount of such assets exceeded their fair values. Our measurement of fair value was based on an analysis of the future discounted cash flows at the enterprise level. In performing this analysis, we used the best information available in the circumstances including reasonable and supportable assumptions and projections. The discounted cash flow analysis considered the likelihood of possible outcomes and was based on our best estimate of projected future cash flows, including terminal value cash flows expected to result from the disposition of the assets at the end of their useful lives. The anticipated proceeds from the pending disposition of a portion of Venture Finance Software Corp. ("VFSC"), our Quicken Bill Manager business assisted management in the determination of the fair value of the assetsintangibles associated withVFSC asour acquisitions of EmployeeMatters in December 2000 and TAASC in April30,of 2001.Based on our analysis we recorded an impairment charge of $51 million and $26 million associated with VFSC and SecureTax, respectively.Amortization expense related to completed acquisitions will continue to have a negative impact on our operating results in future periods.Assuming we do not experience any further impairment of value of the intangible assets that would require us to accelerate amortization, under the current accounting guidance, amortization will be approximately $185.6 million, $180.5 million, $156.5 million and $75.9 million for the years ending July 31, 2001 through 2004, respectively. See "Risks That Could Affect Future Results."If we complete additional acquisitions or if we are required to accelerate amortization or take impairment charges in the future, there would be an incremental negative impact on operating results. Seealso "Risks that“Risks That Could Affect FutureResults" for a discussionResults.”Loss on Impairment of
possible accounting changes relatedLong-lived Asset.The loss on impairment of long-lived asset relates to
goodwill amortization. Reorganization Costs. Reorganization costs reflectthecosts associatedimpairment of assets we received in connection with the sale of our QuickenLoans subsidiary (formerly Rock) closing numerous branch officesBill Manager business inMichigan in 1999, as it beganMay 2001. See Note 9 of the financial statements. We regularly perform reviews totransition its mortgage business fromdetermine if the carrying values of our long-lived assets are impaired. During the quarter ended October 31, 2001, we recorded atraditional branch-based businesscharge of $27 million toan onlinereduce the carrying value of this asset to zero.Non-Operating Income and
call center-based business. These costs totaled $3.5 million in the first quarter of fiscal 2000. -21-22 NON-OPERATING INCOME AND EXPENSESExpensesInterest and Other Income and Expense,
Net.NetFor the quarter
and year to dateendedApril 30,October 31, 2001, interest and other income and expense, net,increaseddecreased to$15.1 million and $47.7$11.8 million compared to$14.5 million and $30.0$16.1 million for the sameperiodsperiod a yearago. The increases reflect higherago due to a sharp decrease in the interest rates we earned on our cash and short-term investmentbalances due primarily to proceeds from sales of marketable securities.balances.Net
gain (loss) fromLosses on Marketable Securities and OtherInvestments.InvestmentsFor the quarter
and year to dateendedApril 30,October 31, 2001, we recordednet lossesa loss from marketable securities and other investments, net of$(11.5) million and $(87.3)taxes, of $12.3 million, compared tonet gainsa loss of$422.2 million and $402.1$3.9 million for the sameperiodsperiod a year ago. See Note 3 of the financial statements. Thelosses incurred$12.3 million loss in the quarter ended October 31, 2001 included, among other things, a $7.2 million loss attributable to declines during the quarter in the market prices of Excite@Home, 724 Solutions andyear to date ended April 30, 2001, are due primarily toour S-1 options, and a loss of $3.3 million for other-than-temporary declines inthe values ofvalue relating to certainequity investments held as trading securities below our cost, as well as charges to reflect other than temporary declines in the values of certain private equitylong-term investments. Weconsiderconsidered our shares of Excite@HomeVeriSignand 724 Solutions common stock as trading securities.See Note 1 of the financial statements.As a result,unrealized gainsmarket fluctuations were reflected in our consolidated statement of operations for the quarter. However, we sold all of our remaining shares of these securities, as well as our S-1 options, during the quarter. As of October 31, 2001, we continued to hold marketable securities andlossesprivate investments valued at approximately $56 million on our balance sheet, down from approximately $109 million a year ago due tomarket fluctuations in these securities are included insales and write-downs. We review the values of ournet income. Recent declines in the market have significantly reducedinvestments each quarter and make adjustments as appropriate. If the value ofour trading and available-for-sale securities, and we expect this volatility to continue for the foreseeable future. If the market value ofthesetradingremaining securities continues to decline significantly in the future, it would have a negative impact on ourearnings. Other than temporary decline of the values of our available-for-sale and private equity investments could result in additional losses.financial results.-20-
Income
Taxes.TaxesFor the quarter
and year to dateendedApril 30,October 31, 2001, we recorded an income taxprovisionbenefit of$55.3 million and $38.6$30.8 million on a pretaxincomeloss of$41.4$123.2 million,and $3.3 million.resulting in an effective tax rate of 25%. This compares to an income taxprovisionbenefit of$200.2 million and $195.6$30.9 million on a pretaxincomeloss of$497.2 million and $483.9$78.9 million for the sameperiodsperiod of the prior year, resulting in an effective tax rate of 39%. The difference in the effective tax rate for the quarter ended October 31, 2001 compared to the same quarter a yearago.ago was primarily due to the tax effect of the non-deductible long-lived asset impairment charge in the first quarter of this fiscal year. AtApril 30,October 31, 2001,there waswe recorded a valuation allowance of $11.4 million for tax assets of our global subsidiaries based onmanagement'smanagement’s assessment that we may not receive the benefit of certain losscarry forwards.carryforwards.Cumulative Effect of Change in Accounting
Change. DuringFor Derivatives, NetFor the
firstquarterof fiscal 2001,ended October 31, 2000, we recorded a cumulative gain of $14.3 million, net of taxes, as a result of a change in accountingprincipleprinciples thatrequired us to recognizerecognized the cumulative effect ofthe increase inthe fair value of our S1 options as of August 1, 2000. See Note13 of the financial statements. Subsequent fluctuations in the fair value of these optionswill also bewere included in our net income or net loss.LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
At
April 30,October 31, 2001, ourunrestrictedcash and cash equivalents and short-term investments totaled$437.6$1,464.3 million, a$20.7$105.1 millionincreasedecrease from July 31,2000. Year to date,2001.We used $90.9 million in cash for our operations during the
improvementquarter ended October 31, 2001. The primary components of cash used by operations were a net loss of $92.4 million, an increase of $93.6 million inliquidity was themortgage loans as a result ofnet cash provided by operating and financing activities, whichincreased loan volumes for the Quicken Loans division, as well as a $38.1 million reduction in our income taxes payable. These were partially offset byinvesting activities. Our operations provided $234.8 million in cash year to date. 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. In addition,adjustments made for non-cash expenses,such as amortizationincluding acquisition-related charges and deferred compensation ofgoodwill$43.4 million, an impairment loss on long-lived asset of $27.0 million, depreciation charges of $16.1 million andother purchased intangiblesa loss of$213.1$12.3 millionwhich included a $77.0 million impairment charge, and losseson marketable securities and otherinvestments, net, of $87.3 million, contributed to the cash provided by operations. The primary use of cash year to date was an increase in mortgage loans of $85.6 million due to increased activity in our mortgage business. In addition, we also recorded non-cash adjustments for a pre-tax cumulative accounting gain relating to a change in the method of accounting for derivatives of $23.9 million and a net loss of $21.5 million, year to date.investments.Investing activities
used $280.2provided $55.0 million in cashyear to date. The primary usefor the quarter ended October 31, 2001. We received proceeds ofcash$418.6 million from the maturity and sale of certain short-term investments, which wasfor business acquisitions, which included Venture Finance Software Corp. in the first quarter (for $118 million in cash), and Tax and Accounting Software Corp. in the third quarter (for $63 million in cash).partially offset by purchases of short-term investments of $347.5 million. Asparta result of ourcontinuing internal -22-23continued investment in information systems and infrastructure,for our emerging business,we also purchased$58.0 million ofproperty and equipmentyear to date.of $16.3 million during the quarter.Financing activities provided
$63.6$1.5 millionyear to date,for the quarter ended October 31, 2001, primarily attributable to proceeds of $22.0 million received from theexerciseissuance of common stock under employee stockoptions. We currently hold investments in a numberplans. This was partially offset by the use ofpublicly traded companies (see Note 1 of the financial statements). The volatility of the$21.1 million for our stockmarket 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 Excite@Home, VeriSign and 724 Solutions shares as trading securities, future fluctuations in the carrying values of these stocks will impact our operating results. If future declines in our other marketable securities are deemed to be other than temporary, they will also impact our 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 Computing Resources, Inc. in May 1999, we are required to pay three annual installments of $25 million, the second of which was paid in May 2001.repurchase program.In the normal course of business, we enter into leases for new or expanded facilities in both domestic and global 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 weWe may decide to use cash and cash equivalents to fund such activities in the future. In May 2001, our Board of Directors authorized a stock repurchase program covering up to $500 million of common stock over a three-year period. As of October 31, 2001, we have repurchased $29.3 million of common stock under the program. See Note 14 of the financial statements.We believe that our cash and 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.
RISKS THAT COULD AFFECT FUTURE RESULTSRisks 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
20002001 Form 10-K contains additional details about these risks, as well as other risks that could affect future results.Our revenue and earnings are highly seasonal, which causes significant quarterly fluctuations in our revenue and net income.Several of our businesses are highly seasonal
-– particularly our tax business, but also small business andconsumerpersonal finance to a lesser extent. This causes significant quarterly fluctuations in our financial results. Revenue andearningsoperating results are usually strongest during the second and third fiscal quarters ending January 31 and April-21-
30. We typically experience lower revenues, and
oftensignificant operating losses, in theJulyfirst and fourth quarters ending October 31 andOctober 31 quarters.July 31.Acquisition-related
chargescosts can cause significant fluctuation in our net income.Ourrecentacquisitions have resulted in significant expenses, including amortization of purchased softwaregoodwill and purchased intangibles, and(which is reflected in cost of revenue), as well as charges for in-process research anddevelopment. Acquisition-related expensesdevelopment and amortization of goodwill, purchased intangibles and deferred compensation (which are reflected in operating expenses). Total acquisition-related cots in the categories identified above were$80.9 million in fiscal 1998,$100.7 million in fiscal 1999, $168.1 million in fiscal 2000,and $216.8 in the nine months ended April 30, 2001, including a charge of $77$263.4 million inthe third quarterfiscal 2001 (including charges offiscal 2001$78.7 million to write down the long-lived intangible assets related totwo recent acquisitions (see Note 1three acquisitions), and $42.8 million in the first quarter ofthe financial statements).fiscal 2002. Additional acquisitions, and any additionalacceleratedimpairment of the value of purchased assets, could have a significant negative impact on future operating results.-23-24 ProposedGains and losses related to marketable securities and other investments can cause significant fluctuations in our net income.Our investment activities have had a significant impact on our net income. We recorded pre-tax net gains from marketable securities and other investments of $579.2 million in fiscal 1999 and $481.1 million in fiscal 2000 and pre-tax net losses of $98.1 million in fiscal 2001 and $12.3 million in the first quarter of fiscal 2002. Any additional significant long-term declines in value of these securities could reduce our net income in future periods.
Recent changes to Financial Accounting Standards Board guidelines relating to accounting for goodwill could make our acquisition-related charges less predictable in any given reporting period.
On February 14, 2001, theThe FASBissued a limited revision of its Exposure Draft, Business Combinations and Intangible Assets that establishesrecently adopted a new standard for accounting for goodwill acquired in a business combination. Itwould continuecontinues to require recognition of goodwill as an asset butwoulddoes not permit amortization of goodwill ascurrentlypreviously required. Under theproposednew statement, goodwillwould beis separately tested for impairment using a fair-value-based approach when an event occurs indicating the potential for impairment.Any required goodwill impairment charges would be presented as a separate line item within the operating section of the income statement.The shift from an amortization approach to an impairment approachwouldapplies to all acquisitions completed after June 30, 2001. Starting with our adoption of the new standard, which we expect will be in the first quarter of fiscal 2003, it will also apply to previously recordedgoodwill as well as goodwill arising from acquisitions completed after the application ofgoodwill. When we adopt the newstandard. If thestandard,is adopted as described above,our goodwill amortization chargeswouldwill cease. However, it is possible that in the future, we would incur less frequent, but larger, impairment charges related to the goodwill already recorded, as well as goodwill arising out of future acquisitions as we continue to expand our business.Gains and losses related to marketable securities can cause significant fluctuation in our net income. Our investment activities have had a significant impact on our net income. We recorded pre-tax net gains from marketable securities and other investments of $579.2 million in fiscal 1999 and $481.1 million in fiscal 2000 and a pre-tax net loss of $87.3 for the nine months ended April 30, 2001. See Note 1 of the financial statements. Fiscal 2000 and 2001 decreases in the market prices of our trading securities have resulted in significant reductions in our pre-tax income. 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.The recent downturn in general economic conditions has led to reduced demand for a variety of goods and services, including many technology products, and we believe the economic decline
has beenwas partially responsible for slower than expected growth in our Small BusinessDivision.Division since the beginning of fiscal 2001. If conditions continue to decline, or fail to improve, in geographic areas that are significant to us, such as the United States, Canada and Japan, we could see a significant decrease in the overall demand for our products and services that could harm our operating results.We faceIt is unlikely that the revenue and profit growth rates experienced by our Quicken Loans Division during fiscal 2001 and the first quarter of fiscal 2002 will be sustainable long-term, either on a year-over-year basis or on a sequential quarter basis.Mortgage rate increases, the impact of the economic climate on the housing market, business operation risks
relating to customer privacyandsecurityother factors could result in significantly lower revenue andincreasing regulation, which could hinder theprofit growthoffor ourbusinesses - particularlymortgage business. Increases in mortgage interest rates and other interest rates adversely affected ourInternet-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,mortgage business during fiscal 2000,andcontributing to a significant revenue decline from fiscal 1999 to fiscal 2000. Conversely, declines in mortgage interest rates during fiscal 2001there have been press articles criticizingand the first quarter of fiscal 2002 had a positive impact on revenue. If mortgage rates rise again, this could negatively impact the volume of applications and closed loans, particularly ourprivacy and security practicesmost mortgage-rate sensitive products such asthey relateconventional refinancing loans. Fluctuations in non-mortgage rates also create risks with respect to theconnectivityloans on our balance sheet and impact our cost of funds to provide loans. In addition, ourdesktop softwareability toour web sites. We have faced lawsuitssuccessfully streamline the online application, approval, andnegative press alleging that we improperly shared information about customers with third party "ad servers" for our 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' consumer tax preparation information, it couldclosing process will have amaterial negativesignificant impact on ouroperating resultsability 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 withour customers. In addition, mandatory privacycertain banks andsecurity standards and protocols are still being developed by government agencies, andother third parties who wemay 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 requiredrely on to providewritten noticeaccess to capital, and later, purchase and service the loans. If we are unable to maintain key relationships, or if the terms ofits privacy practiceskey relationships change tomany of its customers. We must give customers an opportunitybe less favorable tostate 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. We face competitive pressures in all of our businesses, which canIntuit, it could have a negative impact on our mortgage business and on Intuit’s financial results.-22-
If we are unable to capitalize on new sources of revenue
profitability and market position. There are formidable current and potential competitors infor our QuickBooks business, our Small Business Division will not be able to achieve sustained growth.Sales of our QuickBooks desktop products since theprivate 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 the restbeginning of fiscal2001. -24-252001 have been lower than expected, both to existing customers as well new customers. We cannot rely solely on this source of revenue to provide sustainable future growth for our Small Business Division. We must generate significant revenue from broader markets and customer segments as well as from new products and services — including QuickBooks Premier: Accountant Edition designed for accountants, a new version of QuickBooks targeted at larger and more complex small businesses, and other recently announced new small business products.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"“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 the timing of shipments fails to meet customer expectations. This can adversely affect customer relationships and our financial performance. In order to improve our customer service and technical support, we must continue to focus on 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 rely on two third party vendors to handle all outsourced aspects of our primary retail desktop software product launches.For manufacturing and distributing our primary retail products at the time of product launches, we have an exclusive manufacturing relationship with Modus Media, and an exclusive distribution arrangement with Ingram Micro Logistics. While we believe that relying on only two outsourcers for our primary retail product launches improves the efficiency and reliability of our product launches, reliance on any vendor for a significant aspect of our business can have severe negative consequences if the vendor fails to perform for any reason.
We face risks relating to customer privacy and security and increasing regulation, which could hinder the growth of our 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 were 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 third party “ad servers” for our Web sites. A major breach of customer privacy or security by Intuit, or even by another company, could have serious consequences for our businesses, including reduced customer interest and/or additional regulation by federal or state agencies. In addition, mandatory privacy and security standards and protocols have been developed by the federal government, and we have incurred significant expenses to comply with these requirements. Additional similar federal and state laws may be passed in the future, and the cost of complying with additional legislation could have a negative impact on our operating results. 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.
Actual product returns may exceed return reserves.We
generallyshipsignificantlymore 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 net revenue.If we do not continue to successfully refine and update the business and operating models for our Internet-based products and services and other emerging service businesses, and continue to improve the operational support for 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 business and operating 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. If we are unable to capitalize on new sources of revenue for our QuickBooks business, the business will not be able to achieve sustained growth. Sales of our QuickBooks desktop product for fiscal 2001 year to date are lower than expected, due to lower upgrades sales to existing customers compared to fiscal 2000, as well as lower than expected sales to new customers. We cannot rely solely on these sources of revenue to provide sustainable future growth for our Small Business Division. We must generate revenue from broader markets and customer segments as well as from new products and services. If we are unable to successfully restructure our QuickBooks Internet Gateway services and business model, the services will not achieve and maintain acceptance by customers and the third-party vendors who provide these services, and they will not generate long-term revenue growth or profitability. Intuit is refining its approach to selecting and working with QuickBooks Gateway vendors. Although we are seeing encouraging results for some services, such as merchant account services, that are more closely integrated with QuickBooks, we have ended relationships with most of our smaller alliance companies where the business results are not meeting our expectations or theirs. To maintain other current 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 or 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 and new user acquisition rates for QuickBooks 2001 have been lower than historical levels. -25-26 In order to successfully grow our payroll services business, we must continue to improve the efficiency and effectiveness of our payroll processing operations and streamline customer activations for our Deluxe and Premier 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 potential 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 bases for our Deluxe and Premier payroll services, we must continue to focus on streamlining the service activation process for new customers. It is unlikely that the revenue and profit growth rates experienced by our mortgage business year-to-date during fiscal 2001 will be sustainable long-term, either on a year-over-year basis or on a sequential quarter basis. Mortgage rate increases, the impact of the economic climate on the housing market, business operation risks and other factors could result in significantly lower revenue and profit growth for our mortgage business. Increases in mortgage rates and other interest rates adversely affected our mortgage business during 2000, contributing to a significant revenue decline from fiscal 1999 to fiscal 2000. Conversely, declines in mortgage rates during fiscal 2001 have had a positive impact on revenue. If mortgage rates rise again, this could negatively impact the volume of applications and closed loans, particularly our most mortgage-rate sensitive products such as conventional loans and refinancing loans. Fluctuations in non-mortgage 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 maintain key relationships, or if the terms of key relationships change to be less favorable to Intuit, it could have a negative impact on our mortgage business and on Intuit's financial results.-23-
Our ability to conduct business could be impacted by a variety of factors such as electrical power interruptions, earthquakes, fires, terrorist activities and other similar
events.events. Our business operations depend on the efficient and uninterrupted operation of a large number of computer and communications hardware and software systems. These systems are vulnerable to damage or interruption from electrical power interruptions, telecommunication failures, earthquakes, fires, floods, terrorist activities and their aftermath, 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“rolling blackouts." We have principal facilities (including our primary data center) 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 have short-term alternate sources of power (in the form of backup batteries and generators) for all of our critical customer-facing operations in California, including our primary data center. However, if rolling blackouts become more frequent and/or longer in duration, it is possible that our alternative sources of power would be insufficient to allow us to continue our operations without interruption.Other unpredictable eventssuch as earthquakes, fires and floods,could also impact our ability to continue our business operations. For example, the September 2001 terrorist attacks on New York City and Washington, D.C. and the aftermath of those attacks may have an unpredictable negative impact on our business activities. For our Internet-based services,thesystem failures of our internal server operations or those of various third-partyInternetservice providers,online service providers and other website operatorscould result in interruption in our services to our customers. Any significant interruptions in our ability to conduct our business operations could reduce our revenue and operating income. Our business interruption insurance may not adequately compensate us for the impact of interruptions to our business operations.-26-27-24-
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK- -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT PORTFOLIOShort-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 quality standards consistent with our investment policy. This policy dictates that, for short-term investments, we diversify our holdings and limit our short-term investments with any individual issuer in a managed portfolio to a maximum of $5 million.
Our policy also dictates that all short-term investments mature in 24 months or less. MARKETABLE SECURITIESMarketable Securities
We carried
significantbalances in marketable equity securities as ofApril 30, 2001. These securitiesOctober 31, 2001 that are subject to considerable market risk due to their volatility.FluctuationsIf our available-for-sale securities experience further declines in fair value that are considered other than temporary, we will reflect the additional loss in our net income in thecarrying 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.period when the subsequent impairment becomes apparent. See Note13 of the financialstatement notesstatements for more information regarding risks related to our investments in marketablesecurities and the impact of our trading securities on our reported net income. INTEREST RATE RISKsecurities.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, particularly those that relate to our mortgage
business.and payroll businesses. In a higher interest rate environment, borrower demand for mortgage loans generally 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 and ultimately the gain or loss on the sale of those mortgage loans. In addition, interest rate movements affect the interest incomeearnedwe earn on payroll customer funds we hold and investments we hold in our short-term investment portfolio,andas well as the value ofthoseour short-term investments.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 mortgage loans and our government-insured loans (together,
"Prime Loans"“Prime Loans”), but not with respect to our sub-prime loans or home equity lines of 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 and not for trading purposes.We actively monitor and manage our exposure to interest rate risk on Prime Loans, which is incurred in the normal course of business. The
committedportfolio of prime loans, including those in the pipeline, andclosed pipelines of Prime Loans, as well asthe related forward commitmentsand derivatives,are valueddaily.on a daily basis. We refer to the loans, pipeline,commitmentsandderivativesforward commitments together as the"Hedge“Hedge Position."” We evaluate the Hedge Position against a spectrum of interest rate scenarios to determine expected net changes in the fair values of the Hedge Position in relation to the changes in interest rates.We evaluateBased on ourinterest rate risk exposure daily using models that estimate changes in the fair value of the Hedge Position and compare those changes against the fair value of the underlying assets and commitments. -27-28 The following table shows the maturityanalysis of ourmortgage loans held for sale and home equity lines of credit: PRINCIPAL AMOUNTS BY EXPECTED MATURITY: (in thousands, except interest rates; Unaudited)
EXPECTED MATURITY DATE(1) PERIOD ENDING APRIL 30, FAIR VALUE ---------------------------------------- APRIL 30, 2001 2002 2003 2004 2005 TOTAL 2001 ---- ---- ---- ---- ---- ----- ----ASSETS: Mortgage Loans................. $144,050 -- -- -- -- $144,050 $148,121 Average Interest Rate...... 7.82% 7.82% LIABILITIES: Lines of Credit................ $ 3,705 -- -- -- -- $ 3,705 $ 3,800 Average Interest Rate...... 5.96% 5.96%(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 held for sale and lines of credit that we heldhedge position atApril 30,October 31, 2001, we do not believe that short-term changes in interest rates will have a material effect on the interest income we earn on loans held for sale in the secondary marketinterest expense on our lines of creditor the value of mortgage loans. See Notes 1 and610 of the financialstatement notesstatements for more information regarding risks related to our mortgage loans and lines of credit.IMPACT OF FOREIGN CURRENCY RATE CHANGES Most local currenciesHowever, a change in interest rates may potentially have a material impact on the interest income earned on our cash equivalents and short-term investments held at October 31, 2001.Impact of
our international subsidiaries have slightly weakened during the first nine months of fiscal 2001. Because weForeign Currency Rate ChangesWe translate foreign currencies into
U.SU.S. dollars for reportingpurposes,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 global subsidiaries invoice customers and satisfy their financial obligations almost exclusively in their local currencies. For the two quarters presented there was an immaterial currency exchange impact from our intercompany transactions. Currency exchange risk is also minimized since foreign debt is duealmostexclusively in local foreign currencies. As ofApril 30,October 31, 2001, we did not engage in foreign currency hedging activities.- ---------------------------------------------------------------------------------25-
PART II
ITEM 1
LEGAL PROCEEDINGS- --------------------------------------------------------------------------------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. Two virtually identical 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 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. Following
Intuit'sIntuit’s successful motion to dismiss several of the claims, an amended complaint was filed on May 2, 2001. A similar lawsuit, Almanza v. Intuit Inc. was filed on March 22, 2000 in the Superior Court of the State of California, San Bernardino County, Rancho Cucamonga Division. An amended complaint in the Almanza suit was filed on October 26, 2000. These purported class actions allege 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 atIntuit'sIntuit’s Quicken.comwebsite.Web site. The complaints seek injunctive relief, orders to disgorge profits related to the alleged acts, and statutory and other damages. Intuit 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 threatened litigation, that arise in the normal course of our business. We currently believe that the ultimate amount of liability, if any, for any pending claims 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.
-28-29 - ---------------------------------------------------------------------------------26-
ITEM 5
OTHER MATTERS- --------------------------------------------------------------------------------CHANGES IN EXECUTIVE OFFICERS
As of June 12, 2001, Intuit'sThe following table shows Intuit’s executive officers
wereand their areas of responsibility asfollows:of December 7, 2001. Biographies of executive officers added since our most recent Form 10-K follow the table.
NAME AGE POSITION - ---- --- --------Name Age Position Stephen M. Bennett 47 President, Chief Executive Officer and Director; Acting Senior Vice President, Small Business DivisionDirectorWilliam V. Campbell 6061 Chairman of the Board of Directors Scott D. Cook 4849 Chairman of the Executive Committee of the Board of Directors Thomas A. Allanson 43 Senior Vice President, Tax Division Alan A. Gleicher 48Michael L. Hrastinski 52 Senior Vice President Global Business Divisionand Chief Information OfficerRichard William Ihrie 51 Senior Vice President and Chief Technology Officer Lorrie M. Norrington 41 Senior Vice President, Small Business Division Greg J. Santora 50 Senior Vice President and Chief Financial Officer Raymond G. Stern 3940 Senior Vice President, Corporate StrategyDevelopment andMarketing Sonita Ahmed 44 Vice President, Finance and Corporate ControllerStrategyCaroline F. Donahue 40 Vice President, Sales Linda Fellows 5253 Vice President, Treasury and Investor Relations and Treasurer Elisabeth M. LangBrooks Fisher 44 Vice President Corporate Public Relationsand Chief MarketingCommunication Carol Novello 36 Vice President - Marketing, Small Business DivisionOfficerEnrico Roderick 42 Vice President, Personal Finance GroupDivisionCatherine L. Valentine 4849 Vice President, General Counsel and Corporate Secretary Sherry Whiteley 4142 Vice President, Human Resources Jeffrey N. Williams 50 Vice President, Finance Operations and Corporate Controller Mr.
AllansonFisher has been Vice President and Chief Marketing Officer since June 2001. He joined Intuit inSeptember 2000March 1997 as Vice President,of Tax Strategy and was promoted to Senior Vice President of the Tax Division in April 2001.for our Consumer Internet business. Prior to joining Intuit, Mr. Fisher was a Vice President at Infoseek Corp. (an Internet search service company) from January 1996 to March 1997. Prior to March 1997, he waswith GE Capital Colonial Pacific Leasing (a vendor financial services business) from May 1995 through August 2000, serving as President from October 1998 to August 2000. He was Sales Effectiveness Leader/GM from September 1997 to October 1998 and was Manager, Marketing Equipment Business (an electrical distribution and control business) from May 1995 through September 1997.a Group Publisher for Yankee Magazine. Mr.AllansonFisher holds a Bachelor ofScienceArts degree inmechanical engineeringEnglish fromAuburn University. -29-30 - --------------------------------------------------------------------------------Williams College.-27-
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K- --------------------------------------------------------------------------------(a)
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:The following exhibits are filed as part of this report.
10.0110.01* Intuit Inc. 2001 Incentive Plan for Leaders 10.02* Letter from Intuit Inc. to Richard William Ihrie dated December 3, 2001, confirming forgiveness of certain loan interest 10.03* Amendment No. 1,2 datedJanuary 17,October 23, 2001, to Employment Agreement between Intuit Inc. and Stephen M. Bennettdatedated January 21, 200010.02 Amendment No. 1, dated January 17, 2001, to Restricted Stock Purchase10.04*# Amended and Restated Services Agreement between Intuit Inc. and Stephen M. Bennett with respect to 150,000 shares of Intuit Common Stock 10.03 Amendment No. 1,Ingram Micro Inc. datedJanuary 17,September 11, 2001to Restricted Stock Purchase10.05*# Master Agreement between Intuit Inc. and Stephen M. Bennett with respectModus Media International, Inc. dated November 1, 2000, as amended on August 27, 200110.06* Third Amendment, dated September 28, 2001, to 75,000 shares of Intuit Common Stock 10.04SecuredFull RecourseBalloon Payment Bridge Loan Promissory Noteand Stock Pledge Agreement, dated March 30, 2001,between Intuit Inc. andStephen M. Bennett 10.05 LetterThomas A. Allanson dated October 16, 2000
* Filed with this Form 10-Q # We have requested confidential treatment for certain portions of this exhibit. We have omitted such portions from this filing and filed them separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K: (1) On August 24, 2001, Intuit filed a report on Form 8-K to Stephen M. Bennett, dated April 6,report under Item 5 its financial results for the quarter ended July 31, 2001. Intuit’s consolidated balance sheets and statements of operations as of and for the fourth quarter and the year ended July 31, 2001confirming forgivenesswere included in the 8-K.(2) On September 27, 2001, Intuit filed a report on Form 8-K to report under Item 5 that it had reached an agreement to acquire substantially all of certain loan interest 10.06 Separation Agreement between Daniel T. H. Nyethe assets of OMware, Inc. No financial statements were filed with the report.(3) On November 8, 2001, Intuit filed a report on Form 8-K to report under Item 5 that on November 2, 2001, it had completed the acquisition of substantially all of the assets of OMware, Inc. No financial statements were filed with the report. (4) On November 16, 2001, Intuit filed a report on Form 8-K to report under Item 5 its financial results for the quarter ended October 31, 2001. Intuit’s consolidated balance sheets and Intuit Inc. dated March 26,statements of operations as of and for the quarter ended October 31, 2000 and 200110.07 Amendment No. 1 dated May 29, 2001, to Secured Balloon Payment Bridge Loan Promissory Note between Intuit Inc. and Thomas A. Allansonwere included in the Form 8-K.- ---------------- (b) REPORTS ON FORM 8-K: (1) On April 17, 2001, Intuit filed a report on Form 8-K to report under Item 5 that it had acquired the assets of Tax and Accounting Software Corporation. (2) On May 24, 2001, Intuit filed a report on Form 8-K to report under Item 5 (a) the sale of its Quicken Bill Manager business to Princeton eCom Corporation; (b) the authorization of a $500 million three-year stock repurchase program; and (c) its financial results for the quarter ended April 30, 2001. Intuit's balance sheet as of April 30, 2000 and 2001, and statement of operations for the three months and nine months ended April 30, 2000 and 2001 were included in the Form 8-K. - ---------------------------------------------------------------------------------28-
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: June 13, 2001 By: /s/ Greg J. Santora ---------------------------------------------------- Greg J. Santora Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
INTUIT INC. (Registrant) Date: December 7, 2001 By: /s/ Greg J. Santora
Greg J. Santora
Senior Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer)-29-
EXHIBIT INDEX
Exhibit Number Description 10.01 Intuit Inc. 2001 Incentive Plan for Leaders 10.02 Letter from Intuit Inc. to Richard William Ihrie dated December 3, 2001, confirming forgiveness of certain loan interest 10.03 Amendment No. 2 dated October 23, 2001, to Employment Agreement between Intuit Inc. and Stephen M. Bennett dated January 21, 2000 10.04# Amended and Restated Services Agreement between Intuit Inc. and Ingram Micro Inc. dated September 11, 2001 10.05# Master Agreement between Intuit Inc. and Modus Media International, Inc. dated November 1, 2000, as amended on August 27, 2001 10.06 Third Amendment, dated September 28, 2001, to Secured Balloon Payment Bridge Loan Promissory Note between Intuit Inc. and Thomas A. Allanson dated October 16, 2000
# We have requested confidential treatment for certain portions of this exhibit. We have omitted such portions from this and filed them separately with the Securities and Exchange Commission. -30-