1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended OCTOBERJANUARY 31, 19992000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
COMMISSION FILE NUMBER 0-21180
INTUIT INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0034661
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(State of incorporation) (IRS employer identification no.)
2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
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(Address of principal executive offices)
(650) 944-6000
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(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
190,365,481Approximately 201,677,034 shares of Common Stock, $0.01 par value,
as of November 30, 1999February 29, 2000
2
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FORM 10-Q
INTUIT INC.
INDEX
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PART I FINANCIAL INFORMATION
PAGE
NUMBER
------
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1999 and OctoberJanuary 31, 1999...........................2000........................... 3
Condensed Consolidated Statements of Operations for
the three and six months ended OctoberJanuary 31, 19981999 and 1999............2000.... 4
Condensed Consolidated Statements of Cash Flows for
the threesix months ended OctoberJanuary 31, 19981999 and 1999.............2000............... 5
Notes to Condensed Consolidated Financial
Statements................................................... 6
- - -
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 1718
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk...... 2829
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings............................................... 2931
ITEM 2: Changes in Securities and Use of Proceeds....................... 3032
ITEM 4: Submission of Matters to a Vote of Security Holders............. 315: Other Matters................................................... 33
ITEM 6: Exhibits and Reports on Form 8-K................................ 3334
Signatures...................................................... 35
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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, OCTOBERJANUARY 31,
1999 19992000
---------- -----------
-----------
(In thousands, except par value) (Unaudited)value; unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................................................................ $ 518,305554,230 $ 286,427
Payroll tax deposits ................................................. 131,148 128,559377,685
Short-term investments .................................................................................. 305,125 380,238412,918
Marketable securities .................................................................................... 431,319 575,2191,046,170
Customer deposits ........................................ 145,836 135,456
Accounts receivable, net(1) .......................................... 63,045 86,766............................. 63,677 249,146
Mortgage loans ........................................... 84,983 38,386
Deferred income taxes .................................................................................... 64,925 65,04165,002
Inventories ........................................................................................................ 4,931 7,1749,351
Income taxes receivable .................................. -- 1,190
Prepaid expenses and other current assets(2) ......................... 66,982 34,819
-----------............ 67,859 34,803
---------- -----------
Total current assets ......................................... 1,585,780 1,564,243............................. 1,722,885 2,370,107
Property and equipment, net ............................................ 108,851 128,515................................ 119,220 149,324
Purchased intangibles, net ............................................. 98,004 106,370................................. 98,049 97,275
Goodwill, net .......................................................... 382,888 429,600.............................................. 383,102 416,874
Other assets ........................................................... 7,549 7,806............................................... 7,897 9,022
Long-term deferred income taxes ........................................ 63,675 63,218............................ 76,190 80,222
Investments ............................................................ 45,473 35,549................................................ 45,704 39,569
Restricted investments ...................................................................................... 36,028 39,619
-----------38,416
---------- -----------
Total assets .......................................................................................................... $2,489,075 $ 2,328,248 $ 2,374,920
===========3,200,809
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit .......................................... $ 29,896 $ 3,283
Accounts payable ..................................................... $ 63,003 $ 87,591......................................... 66,436 121,110
Accrued compensation and related liabilities ......................... 37,414............. 39,996 49,733
Payroll tax obligations ................................................................................ 131,148 128,559127,333
Escrow liabilities ....................................... 14,857 9,821
Drafts payable ........................................... 49,169 15,344
Deferred revenue .............................................................................................. 65,994 84,541106,395
Income taxes payable ................................................. 146,847 11,878..................................... 143,181 --
Deferred income taxes .................................................................................... 136,694 194,993384,484
Other accrued liabilities ............................................ 200,030 206,570
-----------................................ 201,872 271,760
---------- -----------
Total current liabilities .................................... 781,130 754,128........................ 879,243 1,089,263
Long-term notes payable ................................................ 36,308 38,588.................................... 36,614 37,862
Long-term deferred income taxes ............................ 11,615 11,919
Minority interest .......................................... 215 224
Stockholders' equity
Preferred stock, $0.01 par value
Authorized - 1,345 shares total; 145 shares
designated Series A;
250 shares designated Series B Junior Participating
Issued and outstanding - none; none .................................................... -- --
Common stock, $0.01 par value
Authorized - 750,000 shares
Issued and outstanding - 187,626196,350 and 189,439201,093 shares,
respectively.. 625 1,895respectively ........................................ 1,073 2,012
Additional paid-in capital ........................................... 1,229,880 1,287,863............................... 1,266,004 1,433,323
Acquisition related deferred compensation ............................................ -- (11,094)(30,063)
Accumulated other comprehensive income ............................... 79,144 164,108................... 77,680 448,207
Accumulated retained earnings ........................................ 201,161 139,432............................ 216,631 208,062
---------- -----------
Total stockholders' equity ................................... 1,510,810 1,582,204
-----------....................... 1,561,388 2,061,541
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Total liabilities and stockholders' equity .............................................. $2,489,075 $ 2,328,248 $ 2,374,920
===========3,200,809
========== ===========
(1) Includes $0.1 million and $2.2$2.3 million due from Checkfree at July 31, 1999
and OctoberJanuary 31, 1999,2000, respectively (see Note 10)11).
(2) Includes a $6.7 million and $10.6 million note receivable from Venture
Finance Software Corp. at July 31, 1999 and OctoberJanuary 31, 19992000 respectively
(see Note 10)11).
See accompanying notes to condensed consolidated financial statements.
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBERSIX MONTHS ENDED
JANUARY 31, 1998JANUARY 31,
1999 2000 1999 2000
-------- --------- -------- ---------
(In thousands, except per share amounts; unaudited)
Net revenue(1) ............................................................................................. $373,733 $ 111,968425,499 $510,614 $ 163,058602,427
Costs and expenses:
Cost of goods sold:
Product .................................................. 35,215 54,667Products and services ................................... 70,234 93,066 109,231 149,506
Amortization of purchased software and other ............. 1,804 2,432............ 1,897 2,489 3,701 4,921
Customer service & technical support ........................ 29,823 34,275....................... 41,144 47,657 72,004 81,958
Selling & marketing ......................................... 45,092 57,555........................................ 71,203 86,110 124,282 156,015
Research & development ...................................... 33,668 41,713..................................... 36,353 44,038 70,021 85,750
General & administrative .................................... 13,467 18,676................................... 19,625 23,327 38,934 44,819
Charge for purchased research and development ............................. -- -- -- 1,312
Amortization of goodwill and purchased intangibles .......... 20,970 36,359......... 20,962 45,211 41,932 81,562
Amortization of acquisition related deferred compensation ..... -- 7401,005 -- 1,744
Reorganization costs ....................................... 2,000 -- 2,000 3,500
-------- --------- -------- ---------
Total costs & expenses ............................. 180,039 247,729
--------- ---------
Loss............................ 263,418 342,903 462,105 611,087
Income (loss) from operations ............................... (68,071) (84,671)..................... 110,315 82,596 48,509 (8,660)
Interest and other income and expense, net ................... 3,348 8,486.................. 3,950 6,988 7,298 15,465
Gain (loss) from marketable securities ....................... -- (17,309)...................... 10,088 (2,800) 10,088 (20,110)
-------- --------- -------- ---------
LossIncome (loss) before income taxes ..................................... (64,723) (93,494)........................... 124,353 86,784 65,895 (13,305)
Income tax benefitprovision (benefit) .............................. 31,228 29,582 17,665 (4,587)
Minority interest ........................................... (15,533) (31,765)-- (90) -- (149)
-------- --------- -------- ---------
Net loss .....................................................income (loss) ........................................... $ (49,190)93,125 $ (61,729)57,292 $ 48,230 $ (8,569)
======== ========= ======== =========
Basic and diluted net lossincome (loss) per share .................................................... $ (0.28)0.49 $ (0.33)0.29 $ 0.26 $ (0.04)
======== ========= ======== =========
Shares used in per share amounts ............................. 178,236 188,633............................ 188,813 195,935 187,600 192,285
======== ========= ======== =========
Diluted net income (loss) per share ......................... $ 0.47 $ 0.27 $ 0.25 $ (0.04)
======== ========= ======== =========
Shares used in per share amounts ............................ 198,413 209,566 195,561 192,285
======== ========= ======== =========
(1) Includes $3.4$1.3 million and $5.7$2.4 million from Checkfree for the three and six
months ended OctoberJanuary 31, 19981999 and October$1.8 million and $3.6 million from
Checkfree for the three and six months ended January 31, 19992000 respectively
(see Note 10)11).
See accompanying notes to condensed consolidated financial statements.
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
THREESIX MONTHS ENDED
OCTOBERJANUARY 31,
(In thousands; unaudited) 1998 1999 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...........................................................income (loss) ............................................................. $ (49,190)48,230 $ (61,729)(8,569)
Adjustments to reconcile net lossincome (loss) to net cash provided (used) inby (used in)
operating activities:
Amortization of goodwill and other purchased intangibles ...... 27,813 38,791................. 45,633 86,483
Deferred compensation expense ............................................................................. -- 7401,744
Depreciation .................................................. 9,221 10,780............................................................. 18,002 21,798
Charge for purchased research and development ............................................. -- 1,312
Loss(Gain) loss from marketable securities ............................... -- 17,309................................... (10,088) 20,110
Changes in assets and liabilities:
Accounts receivable ........................................ (5,308) (23,621)................................................... (181,831) (185,369)
Inventories ................................................ (40) (2,243)
Income taxes receivable .................................... (15,208) --........................................................... (2,170) (4,420)
Mortgage loans ........................................................ (66,435) 46,597
Prepaid expenses and other current assets .................. 4,245 31,579............................. (16,544) 32,163
Customer deposits ..................................................... (8,514) 6,565
Deferred income tax assets and liabilities ................. 892 341............................ (1,428) (3,805)
Accounts payable ........................................... 4,424 24,535...................................................... 25,838 54,620
Accrued compensation and related liabilities ............... (1,388) 2,440.......................... 4,877 9,572
Escrow funds payable .................................................. 8,362 (5,036)
Deferred revenue ........................................... 9,656 18,547...................................................... (12,581) 40,401
Drafts payable ........................................................ 9,812 (33,825)
Accrued acquisition liabilities ............................ (1,559) (3,472)....................................... (19,181) (5,389)
Other accrued liabilities .................................. 17,044 6,811............................................. 130,558 63,936
Income taxes payable ....................................... (1,520) (121,229).................................................. 25,404 (94,561)
Minority interest ..................................................... -- 9
--------- ---------
Net cash used in(used in) provided by operating activities .................... (918) (59,109)................. (2,056) 44,336
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities ................................... 17,263 --
Purchase of property and equipment ................................. (13,611) (30,463)
Increase............................................ (27,448) (51,901)
Principal payments of long-term debt .......................................... (29) --
(Increase) in other assets ........................................... (7,743) (14,458).................................................... (7,262) (14,851)
Purchase of short-term investments ................................. (82,874) (162,291)............................................ (145,086) (301,277)
Acquisitions and dispositions, net of cash acquired ........................................... -- (54,606)(54,584)
Purchase of long-term investments .................................. (4,474) (7,326)............................................. (474) (11,115)
Liquidation and maturity of short-term investments ................. 63,318 83,587............................ 100,547 191,096
--------- ---------
Net cash used in investing activities .................... (45,384) (185,557)............................... (62,489) (242,632)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under lines of credit ............................... 70,887 (26,613)
Net borrowings under reverse repurchase agreement ............................. 9,135 --
Purchase of common stock ...................................................... (1,308) --
Net proceeds from issuance of common stock .................................... 39,627 48,364
Rock Financial and Title Source payments of dividends ......................... 4,444 12,788(177) --
--------- ---------
Net cash provided by financing activities ................ 4,444 12,788........................... 118,164 21,751
--------- ---------
NET DECREASEINCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................ (41,858) (231,878)53,619 (176,545)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 138,133 518,305................................ 140,991 554,230
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................................................. $ 96,275194,610 $ 286,427377,685
========= =========
See accompanying notes to condensed consolidated financial statements.
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INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. develops, sells and supports small business accounting, tax
preparation and consumer finance desktop software products, financial supplies
(such as computer checks, envelopes and invoices), mortgage loans and
Internet-based products and services for individuals and small businesses. Our
products and services are designed to automate commonly performed financial
tasks and to simplify the way individuals and small businesses manage their
finances. We sell our products throughout North America and in many
international markets. Sales are made through retail distribution channels,
traditional direct sales to customers and via the Internet.
Basis of Presentation
Intuit has prepared the accompanying unaudited condensed consolidated financial
statements in accordance with generally accepted accounting principles for
interim financial statements. We have included all adjustments considered
necessary to give a fair presentation of our operating results for the periods
shown. Results for the threesix months ended OctoberJanuary 31, 19992000 do not necessarily
indicate the results to be expected for the fiscal year ending July 31, 2000 or
any other future period. The July 31, 1999 balance sheet was derived from
auditedAll financial statements but does notpresented are restated to
include all disclosures requiredthe results of our Rock Financial Corporation ("Rock") and Title Source,
Inc. ("Title Source") subsidiaries which were acquired on December 8, 1999 in a
transaction which was accounted for audited financial statements by generally accepted accounting principles.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, 1999 included in
Intuit's Form 10K-A, Amendment No. 1, filed with the Securities and Exchange
Commission.
Principles of Consolidation
The condensed consolidated financial statements include all of our accounts and
those of our wholly-owned subsidiaries. We have eliminated all significant
intercompany accounts and transactions. Investments in which management intends
to maintain more than a temporary 20% to 50% interest, or otherwise has the
ability to exercise significant influence, are accounted for under the equity
method. Investments in which we have less than a 20% interest and/or do not have
the ability to exercise significant influence are carried at the lower of cost
or estimated realizable value.
Use of Estimates
To comply with generally accepted accounting principles, we make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes. Our most significant estimates are
related to reserves for product returns and exchanges, reserves for rebates and
the collectability of accounts receivable. We also use estimates to determine
the remaining economic lives and carrying value of goodwill, purchased
intangibles, and fixed assets. Despite our intention to establish accurate
estimates and assumptions, actual results may differ from our estimates.
Net Revenue
Intuit recognizes revenue upon shipment of our shrink-wrapped products based on
"FOB shipping" terms. Because, under FOB shipping terms, title and risk of loss
are transferred, and we have no continuing obligations,
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once our products are delivered to the shipper, we recognize revenue upon
shipment, net of return
reserves based
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7 on historical experience. To recognize revenue,
it must also be probable that we will collect the accounts receivable from our
customers. Reserves are provided for returns of excess quantities of current
product versions, as well as previous versions of products still in the
distribution channel when new versions are launched. In some situations, we
receive advance payments from our customers. Revenue associated with these
advance payments is deferred until the products are shipped or services are
provided. We also reduce revenue by the estimated cost of rebates when products
are shipped. Warranty reserves are provided at the time revenue is recognized
for the estimated cost of replacing defective products.
We recognize revenue from Internet products and services when that revenue is
"earned" based on the nature of the particular product or service. For Internet
products and services that are provided over a period of time, revenue is
recognized pro rata based on the passage of the contractual time period during
which the product or service is to be provided or in accordance with agreed upon
performance criteria. However, where the Internet product or service is to be
provideddelivered or deliveredprovided at one point in time, revenue is recognized immediately
upon delivery of the product or completion of the service, rather than over
time. For example, we earn advertising revenues from third parties that
advertise on certain of our websites and contract to run such advertisements for
a particular period of time. In that case, the associated advertising revenue is
recognized ratably over the contractual time period during which the advertising
is to be placed. By contrast, for on-line transactions for which we receive a
payment, (such as the sale of insurance through our QuickenInsurance website),
revenue is recognized upon completion of the transaction, assuming
there are no remaining obligations on our part.
Intuit also offers several plans under which customers are charged for technical
support assistance. Fees charged for these plans are collected in advance and
are recognized as revenue over a period of time (generally one year) at a rate
that is based on historical call volumes for support, which approximates when
these services are performed. Costs incurred for fee for support plans are
included in cost of goods sold.
We defer loan origination revenue and associated incremental direct costs on
loans held for sale until the related loan is sold. We recognize gains and
losses on loans at the time we sell them, based upon the difference between the
selling price and the carrying value of the related loans sold. We recognize
loan servicing revenue as the related principal is collected. We recognize
interest income on mortgage loans as it is earned, and we recognize interest
expenses on related borrowings as we incur them.
Customer Service and Technical Support
Customer service and technical support costs include the costs associated with
performing order processing, answering customer inquiries and providing
technical assistance by telephone, fax, email, and the Internet. In connection
with the sale of certain products, Intuit provides limited free telephone
support service to customers. This free service, also referred to as
post-contract customer support, is included in this expense category. We do not
defer the recognition of any revenue associated with sales of these products,
since the cost of providing this free support is insignificant. The support is
provided within one year after the associated revenue is recognized and
enhancements are minimal and infrequent. The estimated cost of providing this
free support is accrued upon product shipment. Intuit also offers several plans
under which customers are charged for technical support assistance. Fees charged
for these plans are collected in advance and are recognized as revenue over a
period of time (generally one year) at a rate that is based on historical call
volumes for support, which approximates when these services are performed. Costs
incurred for fee for support plans are included in cost of goods sold.
Cash, Cash Equivalents and Short-Term Investments
Intuit considers highly liquid investments with a maturity of three months or
less at the date of purchase to be cash equivalents. Both cash equivalents and
short-term investments are considered available-for-sale securities and are
carried at amortized cost, which approximates fair value. Available-for-sale
securities are classified as current assets based upon our intent and ability to
use any and all of these securities as necessary to satisfy the significant
short-term liquidity requirements that may arise from the highly seasonal and
cyclical nature of our business. Based on our significant business seasonality,
cash flow requirements within quarters may fluctuate dramatically and could
require us to use a significant amount of the cash investments held as
available-for-sale securities.
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The following schedule summarizes the estimated fair value of our cash, cash
equivalents and short-term investments:
JULY 31, OCTOBERJANUARY 31,
1999 19992000
--------- ---------
(In thousands)
(In thousands; unaudited)
Cash and cash equivalents:
Cash ............................... $ 20,62356,548 $ 36,7549,235
Money market funds ................. 294,190 65,671172,342
Commercial paper ................... 156,037 5,000
Corporate Notes .................... -- 4,00040,875
Municipal bonds .................... 37,455 175,002155,233
U.S. Government securities ......... 10,000 --
--------- ---------
$ 518,305554,230 $ 286,427377,685
========= =========
Short-term investments:
Certificates of deposit ............ $ 9,901 $ --
Commercial Paper ................... -- 145,053103,244
Corporate notes .................... 19,482 2,932
Municipal bonds .................... 284,057 244,156312,487
U.S. Government securities ......... 27,713 27,71632,671
Restricted short-term investments...investments .. (36,028) (39,619)(38,416)
--------- ---------
$ 305,125 $ 380,238412,918
========= =========
The estimated fair value of cash equivalents and short-term investments
classified by date of maturity is as follows:
JULY 31, OCTOBERJANUARY 31,
1999 19992000
--------- ---------
(In thousands)
(In thousands; unaudited)
Due within one year ................................... $ 735,349 $ 425,043725,909
Due within two years ................................. 101,784 211,01493,875
Due within three years ............................. 1,702 33,473--
Restricted short-term investments....investments .... (36,028) (39,619)(38,416)
--------- ---------
$ 802,807 $ 629,911781,368
========= =========
For information about our restricted investments, see Note 7.8. Realized gains and
losses from sales of each type of security were immaterial for all periods
presented.
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Marketable Securities
As explained in greater detail below, we currently hold several marketable
securities that were acquired in connection with strategic business transactions
and relationships. Our available for sale marketable securities are carried at
fair value and we include unrealized gains and losses, net of tax, in
stockholders' equity. We have designated our investment in At Home Corporation
("At Home") as a trading security and fluctuations in the market value of these
shares are reported in net income. We held the following marketable securities
at July 31, 1999 and OctoberJanuary 31, 1999:2000:
GROSS UNREALIZED
----------------- NET REALIZED
COST GAIN LOSS LOSS FAIR VALUE
JULY 31, 1999
(In thousands)-------- -------- ------- ------------ ----------
JULY 31, 1999
(In thousands; unaudited)
Checkfree Corporation common stock............stock .. $150,081 $152,177 $ -- $ -- $302,258$ 302,258
S1 Corporation common stock...................stock ......... 49,997 -- 16,140 -- 33,857
At Home common stock.........................stock ............... 132,060 -- -- 36,856 95,204
-------- -------- ------- ------- ------------------ ----------
$332,138 $152,177 $16,140 $36,856 $431,319$ 36,856 $ 431,319
======== ======== ======= ======= ========
OCTOBER========== ==========
JANUARY 31, 19992000
(In thousands)thousands; unaudited)
Checkfree Corporation common stock............stock .. $150,081 $230,210$450,245 $ -- $ -- $380,291$ 600,326
S1 Corporation common stock...................stock ......... 49,997 37,922 -- 10,982 -- 39,01587,919
S1 Corporation options .............. -- 178,874 -- -- 178,874
Mortgage.com, Inc. common stock...............stock ..... 6,000 27,30113,859 -- -- 33,30119,859
Homestore.com, Inc. common stock..............stock .... 3,500 30,72567,639 -- -- 34,22571,139
Quotesmith.com, Inc. common stock.............stock ... 6,000 4,5056,971 -- -- 10,50512,971
At Home common stock..........................stock ................ 132,060 -- -- 54,178 77,882
-------56,978 75,082
-------- -------- ------- ------- ------------------ ----------
$347,638 $292,741 $10,982 $54,178 $575,219$755,510 $ -- $ 56,978 $1,046,170
======== ======== ======= ======= ================== ==========
In January 1997, we sold our online banking and bill payment transaction
processing business to Checkfree Corporation. We obtained marketable securities
in Checkfree as a result of this sale.
We account for the investment in Checkfree as an available-for-sale equity
security, which accordingly is carried at market value. Checkfree common stock
is quoted on the Nasdaq StockNational Market under the symbol CKFR. The closing price
of Checkfree common stock at OctoberJanuary 31, 19992000 was $37.375$59.00 per share. At OctoberJanuary
31, 1999,2000, we held 10.2 million shares, or approximately 19.6%19.5%, of Checkfree's
outstanding common stock.
In May 1999, we purchased 970,813 shares of common stock of Security First
Technologies. In November 1999, Security First Technologies changed its name to
S1 Corporation ("S1"). We account for the investment in S1 as an
available-for-sale-equity security, which accordingly is carried at market
value. S1 common stock is quoted on the Nasdaq National Market under the symbol
SONE. The closing price of S1 common stock at OctoberJanuary 31, 19992000 was $40.1875$90.5625 per
share. At OctoberJanuary 31, 1999,2000, we held 970,813 shares, or approximately 3.5%, of
S1's outstanding common stock. In connection with the above purchase, we also
received an option to purchase up to an additional 4,579,187 shares of S1
exercisable at a per share purchase price of $51.50. We account for these
options as available-for-sale equity securities, and accordingly the options are
carried at market value.
In August 1999, we acquired approximately 3.7 million shares of common stock of
Mortgage.com, Inc. ("Mortgage.com") upon conversion of our preferred shares in
connection with Mortgage.com's initial public offering. We account for the
investment in Mortgage.com as an available-for-sale-equity security, which
accordingly is carried at market value. Mortgage.com common stock is quoted on
the Nasdaq National Market under the symbol MDCM. The closing price of
Mortgage.com common stock at OctoberJanuary 31, 19992000 was $9.125$5.4375 per
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share. At OctoberJanuary 31, 1999,2000, we held 3.7 million shares, or approximately 8.5%,
of Mortgage.com's outstanding common stock.
In August 1999, we acquired 729,165 shares of common stock of Homestore.com,
Inc. ("Homestore.com") upon conversion of our preferred shares in connection
with Homestore.com's initial public offering. We account for the -9-
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investment in
Homestore.com as an available-for-sale-equity security, which accordingly is
carried at market value. Homestore.com common stock is quoted on the Nasdaq
National Market under the symbol HOMS. The closing price of Homestore.com common
stock at OctoberJanuary 31, 19992000 was $46.9375$97.5625 per share. At OctoberJanuary 31, 1999,2000, we held
729,165 shares, or approximately 1.1%1.0%, of Homestore.com's outstanding common
stock.
In February 1999, we purchased approximately 1.0one million shares of common stock of
Quotesmith.com, Inc. ("Quotesmith.com") prior to its initial public offering.. We purchased an additional 0.3 million272,727
shares of Quotesmith.com in August 1999 at the time of its initial public
offering. We account for the investment in Quotesmith.com as an
available-for-sale-equity security, which accordingly is carried at market
value. Quotesmith.com common stock is quoted on the Nasdaq National Market under
the symbol QUOT. The closing price of Quotesmith.com common stock at OctoberJanuary 31,
19992000 was $8.25$10.1875 per share. At OctoberJanuary 31, 1999,2000, we held approximately
1.3 million1,272,727 shares, or approximately 7.9%6.6%, of Quotesmith.com's outstanding common
stock.
In connection with At Home Corporation's acquisition of Excite in May 1999, our
shares of Excite were converted into At Home common stock. We have elected to
report these converted At Home shares as a trading security. As a result, we are
reporting both positive and negative fluctuations in the market value of this
stock in net income. At OctoberJanuary 31, 1999,2000, we owned approximately 2.1 million
shares (or approximately 0.6%) of At Home common stock and reported a realized
valuation loss of approximately $17.3$20.1 million for these securities for the
period between August 1, 1999 and OctoberJanuary 31, 1999.2000. The closing price of At Home
(symbol ATHM) at OctoberJanuary 31, 1999,2000, was $37.375$36.0313 per share. The average price of
At Home between August 1, 1999 and OctoberJanuary 31, 19992000 was $39.00$41.49 per share.
Checkfree, At Home, S1, Mortgage.com, Homestore.com and Quotesmith.com are high
technology companies whose stocks are subject to substantial volatility.
Accordingly, it is possible that the market price of one or more of these
companies' stocks could decline substantially and quickly, which could result in
a material reduction in the carrying value of these assets.
Lines of Credit
For lines of credit we estimate fair value based on the discounted value of
contractual cash flows using interest rates currently in effect for similar
maturities and collateral requirements. The carrying amount of these lines of
credit approximates their estimated fair values since all of the borrowings have
variable interest rates that approximate current market interest rates for
similar types of lines of credit and are due upon demand. We held the following
lines of credit at July 31, 1999 and January 31, 2000.
JULY 31, 1999 JANUARY 31, 2000
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- --------
Lines of credit.................... 29,896 30,000 3,283 3,291
Mortgage Loans
We carry mortgage loans at estimated realizable value, and we estimate their
fair value using quoted market prices for similar loans, adjusted for
differences in loan characteristics, including credit quality. The carrying
amount of accrued interest receivable approximates the assets' fair value. We
held the following mortgage loans and lines of credit at July 31, 1999 and
January 31, 2000.
JULY 31, 1999 JANUARY 31, 2000
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- --------
Mortgage loans..................... $84,983 $86,021 $38,386 $ 39,183
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Carrying amounts at July 31, 1999 and January 31, 2000 include an allowance for
credit losses of $1.3 million and $0.4 million, respectively.
As of July 31, 1999 and January 31, 2000, there were approximately $1.8 million
and $0.5 million, respectively of mortgage loans that were greater than 90 days
past due.
Goodwill and Purchased Intangible Assets
We record goodwill when the cost of net assets we acquire exceeds their fair
value. Goodwill is amortized on a straight-line basis over periods ranging from
3 to 5 years. The cost of identified intangibles is generally amortized on a
straight-line basis over periods ranging from 1 to 10 years. We regularly
perform reviews to determine if the carrying value of assets is impaired. The
reviews look for the existence of facts or circumstances, either internal or
external, which indicate that the carrying value of the asset cannot be
recovered. No such impairment has been indicated to date. If, in the future,
management determines the existence of impairment indicators, we would use
undiscounted cash flows to initially determine whether impairment should be
recognized. If necessary, we would perform a subsequent calculation to measure
the amount of the impairment loss based on the excess of the carrying value over
the fair value of the impaired assets. If quoted market prices for the assets
are not available, the fair value would be calculated using the present value of
estimated expected future cash flows. The cash flow calculations would be based
on management's best estimates, using appropriate assumptions and projections at
the time.
Goodwill and purchased intangible assets consisted of the following:
LIFE IN NET BALANCE AT
YEARS JULY 31,1999 OCTOBER 31, 1999 (In thousands) (Unaudited)JANUARY 31, 2000
------- ------------- -----------------
Goodwill...........................................(In thousands; unaudited)
Goodwill.................................. 3-5 $382,888 $429,600$383,102 $416,874
Customer lists.....................................lists............................ 3-5 66,907 72,135
Covenant66,934 67,535
Covenants not to compete............................compete.................. 3-5 2,492 6,4825,985
Purchased technology...............................technology...................... 1-5 17,751 17,51014,970
Assembled workforce................................workforce....................... 2-5 3,972 4,1113,428
Trade names and logos..............................logos..................... 1-10 6,882 6,1326,900 5,357
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11
Balances presented above are net of total accumulated amortization of $210.1
million and $251.0$289.5 million at July 31, 1999 and OctoberJanuary 31, 1999,2000, respectively.
Concentration of Credit Risk
Intuit operates in an industry which is highly competitive and rapidly changing.
Many circumstances could have an unfavorable impact on Intuit's operating
results. Examples include significant technological changes in the industry,
changes in customer requirements or the emergence of competitive products or
services with new capabilities.
We are also subject to risks related to our significant balances of short-term
investments, marketable securities and trade accounts receivable. At OctoberJanuary 31,
1999,2000, we held shares of Checkfree common stock representing approximately 19.6%19.5%
of Checkfree's outstanding common stock. We also held approximately 0.6% of At
Home's common stock, 3.5% of S1's outstanding common stock, 8.5% of
Mortgage.com's outstanding common stock, 1.1%1.0% of Homestore.com's outstanding
common stock and 7.9%6.6% of Quotesmith.com's outstanding common stock outstanding
as of October 31, 1999.stock. If there is
a permanent decline in the value of these securities below cost, we will need to
report this decline in our statement of operations. Fluctuations in the market
value of our shares in At Home are treated as realized gains and losses in our
statement of operations on an ongoing basis, since this investment is treated as
a trading security.
At
October 31, 1999, we held approximately 0.6% of At Home's outstanding common
stock.-11-
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See "Marketable Securities," above in Note 1 for a discussion of risks
associated with our marketable securities. Our remaining portfolio is
diversified and consists primarily of short-term investment-grade securities.
To reduce the credit risk associated with accounts receivable, Intuit performs
ongoing evaluations of customer credit. Generally, no collateral is required. We
maintain reserves for estimated credit losses and these losses have historically
been within our expectations.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. In June 1999, the FASB delayed
implementation of FAS 133, so that implementationImplementation is now required for fiscal years
beginning after June 15, 2000. Upon adoption, we will report transition
adjustments will
be reported in net income or other comprehensive income, as appropriate,
reflecting the effect of a change in accounting principle. We have not yet
determined whether adoption of FAS 133 will have a material impact on our
consolidated financial position, results of operations, or cash flows.
Reclassifications
Certain previously reported amounts have been reclassified and restated to
include the results of our Rock and Title Source subsidiaries acquired on
December 8, 1999. Certain other previously reported amounts have been
reclassified to conform to the current presentation format.
2. PER SHARE DATA
Basic income per share is computed using the weighted average number of common
shares outstanding during the period. Diluted income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the exercise of stock options under the treasury stock method. In
loss periods, basic and dilutive loss per share is identical since the impact of
equivalent shares is anti-dilutive.
-11-
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On September 8, 1999, our Board of Directors declared a three-for-one stock
split, to be effected as a stock dividend of two shares of common stock for each
share of Intuit's common stock outstanding. Stockholders of record on September
20, 1999 were issued two additional shares of common stock for each share of
Intuit's common stock held on that date. The payment date for the stock dividend
was September 30, 1999. We have restated all share and per share amounts
referred to in the financial statements and notes to reflect this stock split.
3. COMPREHENSIVE NET INCOME
As of August 1, 1998, Intuit adopted SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes new rules for the reporting and display of comprehensive
net income and its components. However, it has no impact on our net income or
stockholders' equity as presented in our financial statements. SFAS 130 requires
foreign currency translation adjustments and changes in the fair value of
available for sale securities to be included in comprehensive income.
-12-
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The components of comprehensive net income, net of tax, are as follows:
THREESIX MONTHS ENDED OCTOBERJANUARY 31,
1998----------------------------
1999 2000
--------- ---------
(In thousands; unaudited)
Net loss ...........................................income (loss) ............................ $ (49,190)48,230 $ (61,729)(8,569)
Unrealized gain (loss) on marketable securities .... (58,950) 87,449..... 371,342 371,684
Change in cumulative translation adjustment ........ (4,409) (2,485).. (4,052) (1,157)
--------- ---------
Comprehensive net income ........................... $(112,549)..................... $ 23,235415,520 $ 361,958
========= =========
4. ACQUISITIONS
On May 3, 1999, we completed our acquisition of Computing Resources, Inc.
("CRI"), a Reno, Nevada-based provider of payroll services for a combination of
cash and Intuit stock. CRI is one of the country's largest payroll services
companies and a leader in providing payroll services to small businesses. The
purchase price for privately-held CRI was approximately $200 million, consisting
of approximately $100 million cash and approximately $25 million of Intuit stock
that was paid at closing, and $75 million in cash to be paid in three annual
installments of $25 million each.each beginning in May 2000. We accounted for the
acquisition of CRI as a purchase for accounting purposes and allocated
approximately $187 million to identified intangible assets and goodwill. These
assets are being amortized over a period of three to five years. The following
table shows pro forma net revenue, net loss from continuing operations and
diluted net loss per share from continuing operations of Intuit and CRI as if we
had acquired CRI at the beginning of fiscal 1999:
THREESIX MONTHS
ENDED OCTOBERJANUARY 31, 19981999
----------------------
AS
PRO FORMA REPORTED
--------- --------
(In thousands, except per share data; unaudited)
Net revenue ......................................... $ 119,635 $ 111,968....................................... $528,280 $510,614
Net loss ............................................ (57,445) (49,190)income ........................................ 32,523 48,230
Diluted net lossincome per share ................................................ $ (0.32)0.17 $ (0.28)0.25
On August 2,November 30, 1999, we completed athe purchase of all of the outstanding common
and
Series A preferred stock of Boston LightTurning Mill Software, Corp.Inc. ("Boston Light"Turning Mill") for approximately $33.5$22
million in stock. Boston LightTurning Mill is a developer of software and web based products
for small businesses and is based in Boston, MA. In
connection with the agreement, Intuit assumed 482,910 of Boston Light's
outstanding employee stock options.Acton, Massachusetts. We accounted for the acquisition of Boston
LightTurning Mill
as a purchase for accounting purposes and allocated approximately $24.0
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million to identified intangible assets and goodwill. These assets are being
amortized over a period of three to five years.
On August 9, 1999, we completed a purchase of all of the outstanding common
stock of SecureTax.com, for approximately $52 million in cash. SecureTax is a
developer of online tax preparation and electronic filing services and is based
in Rome, GA. We accounted for the acquisition of SecureTax as a purchase for
accounting purposes and allocated approximately $52 million to identified
intangible assets and goodwill. These assets are being amortized over a period
of three to five years.
On August 10, 1999, we completed a purchase of all of the outstanding common
stock of Hutchison Avenue Software Corporation ("Hutchison"), for approximately
$7.5 million in cash. Hutchison is a developer of software and web based
products and is based in Ontario, Canada. In connection with the agreement,
Intuit assumed 395,058 of Hutchison's outstanding employee stock options. We
accounted for the acquisition of Hutchison as a purchase for accounting purposes
and allocated approximately $6.8$22 million to
identified intangible assets and goodwill. These assets are being amortized over
periods of three to five years.
The total purchase price, including the cost associated with the assumption of
Hutchison's stock options, was approximately $18.5 million.
On October 7,December 8, 1999, we announcedcompleted the proposed acquisitionpurchase of all of the outstanding common stockshares
of Rock Financial Corporation ("Rock"). for approximately 8.6 million shares of
Intuit common stock. Rock is a provider of consumer mortgages and is based in
Michigan. In connection with the acquisition, Intuit assumed all of Rock's
outstanding employee stock options, which were converted into options to
purchase approximately 1.2 million shares of Intuit common stock. In a related
transaction, Intuit also completed the acquisition of Title Source, Inc., an
affiliate of Rock, for approximately 150,000 shares of Intuit stock. Title
Source provides title insurance and escrow services to real estate agents,
lenders, attorneys, corporations and homeowners. We expect to accountaccounted for the
acquisitionacquisitions of Rock and Title Source as a pooling of interests.interests for accounting
purposes and have restated all previously reported amounts to reflect the effect
of the pooling.
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5. BORROWINGS
We have two lines of credit. Advances under the first line of credit are based
on a formula computation, with interest due monthly. Advances are due on demand
and are collateralized by residential first and second mortgages. Advances may
be drawn for working capital and sub-prime, high loan-to-value and conventional
prime mortgage loans. Interest rates are variable and are based on the federal
funds rate and prime rate, depending on the type of advance. The acquisitioninterest rates
in effect at July 31, 1999 and January 31, 2000 were 6.29% and 6.83%,
respectively. The weighted average interest rates for the year ended July 31,
1999 and quarter ended January 31, 2000 were 6.45% and 6.58%, respectively.
Our second line of credit currently provides for up to $50 million principal
amount of demand loans secured by mortgage loans and other assets. Loans
interest at rates that vary depending on the type of underlying loan, and the
loans are subject to sublimits, advance rates and warehouse terms that vary
depending on the type of underlying loan. The interest rates in effect at July
31, 1999 and January 31, 2000 were 6.37% and 6.96%, respectively, while the
weighted average interest rates for the three month periods ended July 31, 1999
and January 31, 2000 were 5.92% and 6.64%, 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, 1999 and January 31, 2000.
Our reverse repurchase agreement entered into in 1997 provides that the lender
will purchase from us, subject to our agreement to repurchase on a specified
date, up to $200 million of conventional prime and sub-prime mortgage loans at
par, as of January 31, 2000. Loans subject to purchase are fixed and adjustable
rate, fully-amortizing first or junior lien residential mortgage loans and home
equity loans that comply with our origination guidelines and conform to
whole-loan sale requirements. The reverse repurchase agreement is not a
committed facility and the lender may elect to discontinue the repurchase
agreement at any time. The terms of the financing under the repurchase agreement
mature and may be renewed on a daily basis. In any event, the arrangement
terminates in March 2000. Interest rates are variable and are based on the
London Interbank Offered Rate, depending on the type of advance. The interest
rate in effect at July 31, 1999 was completed5.75%. The weighted average interest rate
for the year ended July 31, 1999 was 5.92%. There were no borrowings on December 8, 1999. See Note 11.
5.this
line for the quarter ended January 31, 2000.
Drafts payable represent funds advanced for mortgages originated which have not
yet been drawn against the lines of credit.
6. OTHER ACCRUED LIABILITIES
JULY 31, OCTOBERJANUARY 31,
1999 19992000
-------- --------
(In thousands) (Unaudited)-----------
(In thousands; unaudited)
Reserve for returns and exchanges .................................. $ 73,955 $ 74,94696,372
Future payments due for CRI acquisition ...................... 66,314 67,29568,313
Other acquisition and disposition related items ...... 10,824 13,40212,341
Rebates ...................................................................................... 18,002 16,22334,204
Post-contract customer support ........................................ 3,418 3,60411,289
Other accruals ..................................... 27,517 31,100................................... 29,359 49,241
-------- --------
$200,030 $206,570$201,872 $271,760
======== ========
6.7. SEGMENTED INFORMATION
Intuit has adopted Statement of Financial Accounting No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131"). SFAS 131
establishes standards for the way in which public companies disclose certain
information about operating segments in the Company's financial reports.
Consistent with SFAS 131, we have determined our operating segments based on
factors such as how our operations are managed and how results are viewed by
management. Since Internet-based revenues and expenses cut across all of our
business divisions, we do not report results of our Internet-based businesses as
a separate business segment in our financial statements. Instead, each of our
business divisions reports Internet-based revenues and expenses that are
specific
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to its operations and are included in its results. The accounting policies of
the operating segments are the same as those described in the summary of
significant accounting policies. Intuit does not track assets by operating
segments. Consequently, we do not disclose assets by operating segments. The
following unaudited results are broken out by our operating segments for the six
month periods ending Octoberended January 31, 19981999 and 1999:
-13-
142000:
1998SIX MONTHS ENDED
JANUARY 31, 1999
SMALL CONSUMER
BUSINESS FINANCE TAX INTERNATIONAL
(IN THOUSANDS)(In thousands; unaudited) DIVISION DIVISION DIVISION DIVISION OTHER(1) CONSOLIDATED
--------- --------- ----------------- -------- -------- ------------- --------- ---------------------
Net revenue ............................. $131,961 $134,269 $209,358 $ 48,121 $ 42,497 $ 8,477 $ 12,87335,026 $ -- $ 111,968510,614
Segment operating
income/income / (loss) ........... 8,638 7,331 (27,229) (4,965)............ 38,925 19,210 98,415 (6,263) -- (16,225)150,287
Common expenses ..................... -- -- -- -- (29,072) (29,072)
--------- --------- --------- ---------(54,145) (54,145)
-------- -------- -------- -------- --------- ---------
Sub-total operating
income (loss) ........... 8,638 7,331 (27,229) (4,965) (29,072) (45,297)
--------- --------- --------- ---------.............. 38,925 19,210 98,415 (6,263) (54,145) 96,142
-------- -------- -------- -------- --------- ---------
Gains/(losses)
on marketable securities ... -- -- -- -- 10,088 10,088
Acquisition costs .......... -- -- Acquisition-- -- (45,633) (45,633)
Reorganization costs ....... -- -- -- -- (22,774) (22,774)(2,000) (2,000)
Interest income/expense
and other items ..................... -- -- -- -- 3,348 3,3487,298 7,298
-------- -------- -------- -------- --------- --------- --------- --------- -------- ---------
Net income (loss)
before tax ...................................... $ 8,63838,925 $ 7,33119,210 $ (27,229)98,415 $ (4,965) $(48,498)(6,263) $ (64,723)(84,392) $ 65,895
======== ======== ======== ======== ========= =========
========= ========= ======== =========
1999SIX MONTHS ENDED
JANUARY 31, 2000
(In thousands;
unaudited)
Net revenue ............................. $216,912 $140,659 $196,844 $ 80,119 $ 54,178 $ 11,120 $ 17,64148,012 $ -- $ 163,058602,427
Segment operating
income/(loss) ........... 17,516 8,763 (34,400) (2,165).............. 70,007 10,238 68,581 4,383 -- (10,286)153,209
Common expenses ..................... -- -- -- -- (33,542) (33,542)(68,830) (68,830)
-------- -------- -------- -------- --------- --------- --------- --------- -------- ---------
Sub-total operating
income (loss) ........... 17,516 8,763 (34,400) (2,165) (33,542) (43,828).............. 70,007 10,238 68,581 4,383 (68,830) 84,379
-------- -------- -------- -------- --------- --------- --------- --------- -------- ---------
Gains/(losses)
on marketable securities ... -- -- -- -- (17,309) (17,309)(20,110) (20,110)
Acquisition costs .......... -- -- -- -- (89,539) (89,539)
Reorganization costs ....... -- -- -- -- (40,843) (40,843)(3,500) (3,500)
Interest income/expense
and other items ..................... -- -- -- -- 8,486 8,48615,465 15,465
-------- -------- -------- -------- --------- --------- --------- --------- -------- ---------
Net income (loss)
before tax ...................................... $ 17,51670,007 $ 8,76310,238 $ (34,400)68,581 $ (2,165) $(83,208)4,383 $(166,514) $ (93,494)(13,305)
======== ======== ======== ======== ========= ========= ========= ========= ======== =========
(1) Reconciling items include acquisition and other common costs not allocated
to specific segments.
7.8. NOTES PAYABLE AND COMMITMENTS
In March 1997, our Japanese subsidiary, Intuit KK, entered into a three-year
loan agreement with Japanese banks for approximately $30.3 million used to fund
its acquisition of Nihon Micom. The loan is denominated in Japanese yen and is
therefore subject to foreign currency fluctuations when translated to U.S.
dollars for reporting
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16
purposes. The interest rate is variable based on the Tokyo inter-bank offered
rate or the short-term prime rate offered in Japan. At OctoberJanuary 31, 1999,2000, the
rate was approximately 0.4%0.6%. The fair value of the loan approximates cost as the
interest rate on the borrowings is adjusted periodically to reflect market rates
(which are currently significantly lower in Japan than in the United States). We
have guaranteed the loan and pledged approximately $39.6$38.4 million, or 110% of the
loan balance, of short-term investments to be restricted as security for the
borrowings at OctoberJanuary 31, 1999.2000. We are obligated to pay interest only until
March 2000. -14-
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8.We are currently refinancing this debt for another one-year term.
9. 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 and certain
foreign losses.
9.10. LITIGATION
Intuit was a defendant in the following two consolidated class action lawsuits (one in
California and one in New York) which alleged that certain of its Quicken
products have on-line banking functions that are not Year 2000 compliant: (1) In re Intuit Inc. Year 2000compliant. With
respect to the California Litigation (consolidated in Santa Clara County, California Superior
Court from Alan Issokson v. Intuit Inc. (filed April 29, 1998 in the Santa Clara
County, California Superior Court); Joseph Rubin v. Intuit Inc. (filed May 27,
1998 in the Santa Clara County, California Superior Court); Donald Colbourn v.
Intuit Inc. (filed June 4, 1998 in the San Mateo County, California Superior
Court)); and (2) In re Intuit Inc. Year 2000 Litigation (consolidated in the New
York Supreme Court, New York County from Rocco Chilelli v. Intuit Inc. (filed
May 13, 1998 in the New York Supreme Court, Nassau County); Glenn Faegenburg v.
Intuit Inc. (filed May 27, 1998 in the New York Supreme Court, New York County);
and Jerald M. Stein v. Intuit Inc. (filed June 23, 1998 in the New York Supreme
Court, New York County)). The lawsuits were substantively similar. The lawsuits
asserted breach of implied warranty claims, violations of federal and/or state
consumer protection laws, and violations of various state business practices
laws. The plaintiffs sought compensatory damages, disgorgement of profits, and
(in some cases) attorneys' fees.
Intuit successfully had the original complaint and subsequent consolidated
amended complaint dismissed with leave to amend. The plaintiffs then filed a
third amended complaint and Intuit filed a demurrer in response to it, seeking
dismissal of the complaint. Onlitigation, on October 13, 1999 the court sustained Intuit's
demurrer and dismissed
the case without leave to amend. The only remaining issue relates to a potential
award of attorneys' fees.
We also filed motionsfees to dismiss in the New York actions and, onplaintiffs. On December 1, 1998,1999, the court
granted our motion to dismiss all the New York actions with prejudice. Although
plaintiffs filed a Notice of Appeal, Intuit understands that
plaintiffsthey failed to perfect the appeal.
Accordingly, Intuit understands that this case is also now over.
In addition, a suit was filed in the Contra Costa County, California Superior
Court by an individual consumer against various retailers, including Circuit
City Stores, CompUSA, Fry's Electronics, Office Depot, The Good Guys and others,
alleging that these retailers have sold software and hardware products which are
not Year 2000 compliant, including at least one product published by Intuit. One
of the defendants in this action, Fry's Electronics, filed a cross-complaint
against various software publishers and hardware manufacturers, including
Intuit, asserting a claim for indemnity in the main action. In September 1999,
Fry's Electronics reached a settlement with the plaintiffs. All the cross
defendants, including Intuit, then filed a demurrer to the cross-complaint. On
Tuesday, December 7, 1999 the court granted the demurrer and dismissed the case without
leave to amend. UnlessIf Fry's Electronics appealsdoes not appeal this ruling by April 4,
2000, this lawsuit against Intuit iswill also nowbe over.
On March 3, 2000 a class action lawsuit, Bruce v. Intuit Inc., was filed in the
United States District Court, Central District of California, Eastern Division.
On March 8, 2000 a virtually identical lawsuit, Rubin v. Intuit Inc., was filed
in the United States District Court, Southern District of New York. Both actions
claim that private customer information entered into Intuit's Quicken.com
website was intentionally and secretly disclosed to third-party advertisers. The
two lawsuits allege identical causes of actions for invasion of privacy and
violations of federal statutes related to electronic communications. The
lawsuits seek injunctive relief, an order to disgorge profits related to the
alleged acts, and statutory and other damages. As of March 10, 2000, neither
lawsuit had been served on Intuit.
We are subject to other legal proceedings and claims that arise in the normal
course of our business. We currently believe that the ultimate amount of
liability, if any, for any pending actions (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.
10.11. RELATED PARTY TRANSACTIONS
As of OctoberJanuary 31, 1999,2000, we held approximately 19.6%19.5% of Checkfree's outstanding
common stock. In exchange for providing connectivity between Checkfree's bill
payment processing service and our Quicken products, we reported
-15--16-
1617
revenues of $3.4$1.3 million and $5.7$2.4 million from Checkfree for the three monthsand
six-months ended OctoberJanuary 31, 19981999 and 1999,$1.8 million and $3.6 million for the
three and six-months ended January 31, 2000, respectively. We held a receivablereceivables
due from Checkfree for $0.1 million and $2.2$2.3 million at July 31, 1999 and
OctoberJanuary 31, 1999,2000, respectively.
As of OctoberJanuary 31, 1999,2000, we held a 49% non-voting equity interest in Venture
Finance Software Corporation (VFSC)Corp. ("VFSC"). We have entered into agreements with VFSC to
provide them with services related to on-goingongoing development of Web-oriented
finance products. At October 31, 1999, weproducts and services. We have an option to purchase the equity
interests of the other investors in VFSC between May 4, 2000 and May 4, 2002, at
a price to be determined by a formula. We held a receivable due from VFSC for
$6.7 million.
11.million and $10.6 million at July 31, 1999 and January 31, 2000,
respectively.
12. SUBSEQUENT EVENTS
On November 30, 1999,February 18, 2000 we completedsold 3.0 million shares of Checkfree common stock at a
purchaseprice of $90 per share and on March 2, 2000 we sold 2.5 million shares of
Checkfree common stock at a price of $92 per share. Gross proceeds from these
transactions were $500 million. These divestitures reduced our ownership in
Checkfree to 4.7 million shares or approximately 9% of Checkfree's outstanding
stock.
On February 29, 2000, Verisign, Inc. ("Verisign") acquired all of the
outstanding securities of privately-held Signio, Inc. ("Signio"). We held an
investment in Signio, and in exchange for our investment, we will receive
approximately 194,000 common shares of Verisign (representing less than 1% of
the outstanding common stock of Turning Mill Software, Inc. ("Turning Mill") for approximately $14.7
million in stock. Turning Mill is a developerVerisign subsequent to the acquisition). On
February 29, 2000, the closing stock price of software and web based products
based in Acton, MA. The acquisition will be treated as a purchase for accounting
purposes and will be recorded in the second quarter of fiscal 2000.
On December 8, 1999, we completed the acquisition of Rock Financial Corporation,
whichVerisign was originally announced on October 7, 1999. Rock is a provider of online
consumer mortgages. We acquired all of the outstanding stock of Rock for
approximately 8.6 million shares of Intuit common stock as of the date of the
closing. As part of the transaction, we also assumed all of Rock's outstanding
options. We expect to incur expenses of between $7.0 and $10.0 million as a
result of this merger. The acquisition will be accounted for as a pooling of
interests. Intuit's historical financial statements will be restated to reflect
the combination of Intuit and Rock for all periods.
-16-$253 per share.
-17-
1718
- - --------------------------------------------------------------------------------
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
CAUTIONS ABOUT FORWARD LOOKING STATEMENTS AND INVESTMENT CONSIDERATIONS
This Form 10-Q contains forward-looking statements about events and
circumstances that have not yet occurred. For example, statements with words
like "expect," "anticipate," or "believe" and statements in the future tense,
are forward-looking statements. Investors should be aware that actual results
may differ materially from our expectations because of risks and uncertainties
about the future. We will not necessarily update information in this formForm 10-Q
if any forward-looking statement later turns out to be inaccurate. Risks and
uncertainties that may affect our future results and performance include, but
are not limited to the following:
- - - Our revenue and earnings are highly seasonal and our quarterly and annual
financial results fluctuate significantly.
- - - We face intense competition from many companies in all of our business
areas.
We expect
Microsoft to enter- - - Competition in the personal tax preparation software business is
particularly intense, with Microsoft having entered the market induring the
1999 tax year.season. We are seeing increasing price competition during the
remainder of the tax season (including free products from Microsoft), and
this could have a material negative impact on revenue, profitability and
market position for our personal tax business.
- - - In our online mortgage and insurance businesses, we face competition from
many newly public companies with additionalthat have a narrower business focus, increasing
financial resources.resources and less demanding earnings expectations.
- - - We must continue to establish and maintain important distribution
relationships for our Internet-based products and services and successfully
market and promote these products and services.
- - - We must maintain high reliability for our server-based Web services. In
particular, our web-based tax preparation and electronic filing services
must handle extremely heavy customer demand during the peak tax season.
- - - If we fail to provide responsive customer service and technical support, we
could lose customers.
- - - Our Internet businesses face risks relating to customer privacy and
security and increasing regulation.
- - - Our Internet businesses require significant research and development and
marketing expenditures.
- - - Page views and reach statistics for our Quicken.com site can vary
significantly from month to month due to seasonal trends, site performance,
the timing of launches, competitors' activities and other factors. Adverse
changes in page view and reach statistics could adversely affect our
ability to earn advertising revenue from our Quicken.com site.
- - - In order to succeed in the payroll services business, we must continue to
improve the integration of the operations of our payroll processing
service provider and increasesubsidiary, streamline customer activations for our online payroll
processing service.service and focus our traditional payroll service on existing
distribution channels.
- - - The technology and services of certain alliances for our QuickBooks
Internet Gateway initiative still need to be completed and integrated with
QuickBooks, and are subject to risks and uncertainties involved in the
product development and sales and marketing
implementation processes,process, including technological difficulties, possible
delays, failure to establish necessary supplier and customer relationships, and availability of financial resources. Significant delays in
implementing key services, or failure to implement, could delay or
eliminate our ability to recognize contractually committed revenues.
- - - The anticipated benefits of certain proposed small business services to
Intuit (including the Site Builder website creation tool, Site Solutions
services and QuickBooks Internet Gateway services) will depend on a number
of variables, including the rate at which customers upgrade to QuickBooks
2000 and future versions of the next versionproduct, customer acceptance of QuickBooks,new and
we cannot predictproposed services, and, the upgrade rate.level of satisfaction of third party
participants.
- - - The success of the small business alliances will depend on establishing and
maintaining a number of important business relationships, and there can be
no assurance that key relationships will continue.
- - - Our tax products
must follow a demandingTax and rigid annualQuicken Internet Gateway initiatives, and related new services
to be offered in these areas, are in very early stages. Success of these
initiatives will depend on establishing and maintaining business
relationships with key participants and completing necessary technology
development and release cycle. Ourintegration, as well as achieving broad customer
acceptance of the services to be offered.
- - - We offer electronic bill payment and bill presentment services, and the My
Finances web-based tax preparationpersonal finance management service, through licensing
arrangements with a joint venture in which we are a participant. The
success of these services for Intuit will depend on a number of factors,
including timely and electronic filing services must handle extremely
heavycost-effective completion of ongoing development
efforts, customer demand duringand biller adoption and participation rates, and the
peak tax season.status of the relationship with the joint venture. Intuit has an option to
purchase the interests in the joint venture that it does not currently own
between May 2000 and May 2002, at a formula-driven price that could exceed
$100 million. If we do not exercise the purchase option, our rights to
use the technology developed by the joint venture will be subject to
future negotiation.
- - - We face increasing competition for access to retail and OEM distribution
channels.
- - - The integration of acquired companies poses ongoing operational challenges
and risks. OurIn addition, our recent acquisitions have resulted in
significant acquisition-related expenses.
The
QuickenMortgage- - - Our mortgage business is subject to interest rate fluctuations, and the
impact of interest rates on Intuit's operating results willhas become more
significant as a result ofsince the acquisition of Rock Financial. TheFinancial was completed.
- - - Our recent acquisition
-18-
19
of Rock Financial could have a negative impact on Intuit's relationships
with other lenders that participate in the QuickenMortgageonline mortgage service.
If we fail to provide
responsive customer service and technical support, we could lose customers. We
depend on a single manufacturer for all outsourced aspects of our primary retail
product launches for fiscal 2000. Problems related to the Year 2000 could have a
significant adverse effect on our operations.- - - We hold investments that have been very volatile.
Additional information about factors that could affect future results and events
is included in the our fiscal 1999 Form10-K/Form 10-K/A and other reports filed with the
Securities and Exchange Commission.
OVERVIEW
Intuit's mission is to revolutionize the way individuals and small businesses
manage their finances. As we execute our mission, we have embarked on a strategy
to greatly expand the world of electronic finance. "Electronic finance"
encompasses three types of products and services: (1) desktop software products,
such as Quicken(R), -17-
18
QuickBooks(R) and Quicken TurboTax(R), that operate on
customers' personal computers to automate financial tasks; (2) online products
and services, such as Quicken.com(SM), QuickenMortgage(SM)QuickenLoans(SM), QuickenInsurance(SM)
and WebTurboTax(SM)Quicken TurboTax for the Web(SM), that are delivered via the Internet; and
(3) products and services, such as QuickBooks Online Payroll(SM) service, that
connect Internet-based services with desktop software to enable customers to
integrate their financial activities. Our revenues come primarily from the
United States, Japan, Canada and the United Kingdom, through retail distribution
channels, direct customer sales and via the Internet.
While desktop software and related products and services now provide most of our
revenue, our Internet-based revenue is growing rapidly. For the three months
ended OctoberJanuary 31, 1999,2000, Internet-based revenues grew by 119%approximately 162%
compared to the same period last year and accounted for 19%approximately 21% of
total revenue in the quarter ended OctoberJanuary 31, 1999,2000, compared to 13%approximately
10% in the prior year quarter. We use the term Internet-based revenue to include
revenue from both Internet-enabled products and services as well as revenue from
electronic distribution. Internet products and services include activities where
the customer realizes the value of the goods or services directly on the
Internet or an Intuit server. Internet product revenues include, for example,
advertising revenues generated on our Quicken.com website, online tax
preparation and electronic tax filing revenues, online payroll service revenue
and transaction and processing fees from our online insurance and online
mortgage services. Electronic distribution includes revenues generated by
electronic ordering and/or delivery of traditional desktop software products and
financial supplies. We also use the Internet to host our technical support
website where we can quickly and cost-effectively provide patches for product
bugs and provide customers with answers to frequently asked questions.
While we believe that the Internet provides an opportunity to increase revenue
in fiscal 2000, we also anticipate increasedcontinued increases in spending in an effort
to capitalize on new business opportunities. In particular, we continue to
expect increased research and development expenses due to investments in
Internet-based initiatives. We also anticipate increased selling and marketing
expenses related to these initiatives and because of more intense competition in
the personal tax market during fiscal 2000. While we have made significant
progress in our Internet-based businesses, investors should be aware many of
these businesses are in their initial stages, and are not yet generating
significant revenue or profit. Since Internet-based revenues and expenses cut
across all of our business divisions, we do not report results of our
Internet-based businesses as a separate business segment in our financial
statements. Instead, each of our business divisions reports Internet-based
revenues and expenses that are specific to its operations and are included in
its results.
Our business is highly seasonal. Sales of tax products are heavily concentrated
from November through March. Sales of consumer finance and small business
products are typically strongest during the year-end holiday buying season, and
therefore our major product launches usually occur in the fall to take advantage
of this customer buying pattern. These seasonal patterns mean that revenue is
usually strongest during the quarters ending January 31 and April 30. We
experience lower revenues for the quarters ending July 31 and October 31, while
our operating expenses to develop and manage products and services continue to
be incurred at relatively consistent levels during these periods. These seasonal
trends can result in significant operating losses, particularly in the July 31
and October 31 quarters when our revenues are lower. Operating results can also
fluctuate for other reasons,
-19-
20
such as changes in product release dates, non-recurring events such as
acquisitions and dispositions, and product price cuts in quarters that have
relatively high fixed expenses. Acquisitions and dispositions in particular can
have a significant impact on the comparability of both our quarterly and yearly
results, and acquisition-related expenses have had a negative impact on
earnings.
RESULTS OF OPERATIONS
Set forth below are certain consolidated statements of operations data for the
three-monththree and six-month periods ended OctoberJanuary 31, 19981999 and 1999.2000. Investors should
note that results for the three monthand six-month periods ended OctoberJanuary 31, 19992000
include activity for our CRI subsidiary, which was acquired in May 1999. The
corresponding year ago periodperiods did not include results for CRI (see Note 4).
-18-
19Results for all periods include results for Rock Financial Corporation, which we
acquired in December 1999. The acquisition of Rock has been accounted for as a
pooling of interests, so all prior periods have been restated to reflect
combined results of Rock and Intuit. The inclusion of Rock's results in the
comparison periods for both fiscal 1999 and fiscal 2000 had a significant impact
on our financial results. Rock's revenue declined approximately 50% between the
comparison periods, due to Rock's transition from a traditional mortgage
business to an online mortgage business and the closing of the majority of their
traditional mortgage branch offices, as well as rising interest rates. Although
Rock's operating expenses decreased in absolute dollars between the comparison
periods, they increased significantly as a percentage of revenue and resulted in
operating losses for Rock during the fiscal 2000 comparison periods (compared to
operating profits in the fiscal 1999 periods), which partially offset growth in
operating income for our other businesses as a whole.
Since the business of selling software and related services is considerably
different from our supplies business, we break them out separately for financial
reporting purposes.
NET REVENUE
THREE MONTHS ENDED OCTOBERThree Months Ended January 31, Six Months Ended January 31,
1999 Change 2000 1999 Change 2000
---------------------------- ----------------------------
(Dollars in millions; unaudited)
1998 CHANGE 1999
----------------------------------
Software and other ............................ $ 88.4 53% $135.2344.1 14% $ 392.7 $ 457.4 18% $ 541.7
% of revenue .................. 79% 83%...................... 92% 92% 90% 90%
Supplies ................................................ $ 23.6 18%29.6 11% $ 27.932.8 $ 53.2 14% $ 60.7
% of revenue .................. 21% 17%...................... 8% 8% 10% 10%
Total ......................... $112.0 46% $163.1............................. $ 373.7 14% $ 425.5 $ 510.6 18% $ 602.4
The following revenue discussion is categorized by our business divisions, which
is how we examine results internally. Our domestic supplies business is
considered a part of our small business division while the international
supplies business is considered part of our international division (see Note 6)7).
Small Business Division. Small business division revenues come primarily from
the following sources:
- QuickBooks product line
- Supplies products (including checks, envelopes and invoices)
- Payroll related transaction and subscription feesservices
- Support fees for the QuickBooks Support Network
Overall, revenue for the division was up 67%63% and 64% for the three-month periodthree and six-month
periods ended OctoberJanuary 31, 19992000, respectively, compared to the same periodperiods a
year ago. The increase wasincreases were primarily a result of overall strength exhibited in QuickBooks products. The
increased revenues fromrevenue growth for our
QuickBooks product line were attributable to
increased unit shipments in the three month period ended October 31, 1999
compared to the same quarter of the prior year, and a moderate increase in the
average selling prices of the QuickBooks product driven by consumer preferences
toward higher priced, greater functionality products. In addition, the
acquisition of CRI (acquired in May 19991999) and the launch of our QuickBooks
Online Payroll Service (launched in October 1998 provided additional1998) contributed to revenues during
the three-month and six-month periods
-20-
21
ended January 31, 2000, but did not account for material revenue streams which were not a
significant part of our overall business in the three
month periodand six-month periods ended OctoberJanuary 31, 1998.
Domestic supplies revenues, which are part of the small business division, grew
by 22% for the three month period ended October 31, 1999 as a result of our
increasing base of small business customers who use QuickBooks and Quicken. In
addition, we began charging for shipping and handling for domestic supplies
shipments which also contributed to our domestic supplies revenue stream.1999.
Though they are a smaller component of small business division revenues, tax
tables service revenue and revenue from our QuickBooks Support Network also grew
substantially in the three monthsand six-month periods ended OctoberJanuary 31, 19992000 compared to the same
periodperiods a year ago.
We launched our most recent version of QuickBooks (QuickBooks 2000) in December
1999. The increased revenue from our QuickBooks product line was attributable to
increased unit sales, as well as an increase in the average selling prices of
the QuickBooks product driven by consumer preferences toward higher priced,
greater functionality products. We believe a significant number of customers may
have upgraded earlier than they otherwise may have, due to Year 2000 concerns.
Accordingly, we expect that some of the fiscal 2000 second quarter strength in
QuickBooks revenue is a shift from the second half of the year, and we expect
the revenue growth rate to decline significantly as the year progresses.
QuickBooks 2000 features the QuickBooks Internet Gateway platform of connected
and integrated electronic services, that is designed to offer small businesses
direct access to services from third parties, such as electronic postage and
merchant account services, that can help them more easily and efficiently manage
their business. It also features QuickBooks Site Builder, a new web site
creation and domain name registration tool that enables small businesses to
quickly establish a presence on the Web. Although these new features are
strategically important for Intuit, it is too early to tell how successful these
services will be, or the extent to which they will generate increasing demand
for QuickBooks 2000.
Domestic supplies revenues, which are part of the small business division, grew
by 11% and 14% for the three and six-month periods ended January 31, 2000 as a
result of our increasing base of small business customers who use QuickBooks and
Quicken. In addition, in August 1999, we began charging for shipping and
handling for domestic supplies shipments which also contributed to our domestic
supplies revenue.
We offer different types of payroll services. Our QuickBooks Online Payroll
service, which is offered throughintegrated with our QuickBooks products,
(version 6.0 and QuickBooks 99) and handles all aspects
of payroll processing including calculation and electronic depositing of federal and state payroll tax
withholdings, electronic direct deposit of paychecks, preparation and filing of
quarterly and annual payroll tax returns and creation of employee W-2 forms. Ourwith our CRI subsidiary providesproviding the processing for QuickBooks Online Payroll andservices.
CRI also continues to provide traditional payroll processing services for its
customer base. We also offer QuickPayroll, a subscription-based payroll service
for customers who do not use QuickBooks, as well as a payroll tax table
subscription service for small business customers that need current tax tables
to prepare their own payroll. While the payroll processing business provides us
with a significant opportunity to generate revenue, there are business risks
associated with the payroll processing business and the continued integration of
CRI into our existing business model. For example, if we are unable to provide
accurate and timely payroll information, cash deposits or tax return filings,
that failure could be costly to correct and may have a significant negative
impact on our ability to attract and retain customers, who we believe will have a low tolerance
for payroll processing errors.
-19-
20 Our ability to successfully operate CRI will
depend in part on retaining their existing customers and maintaining
relationships with certain banks and other third parties who we will rely on to
retain existing customers and attract new customers outside of our QuickBooks
customer base. If we are unable to do so, it could result in a negative impact
on our consolidated results. While the customer base for the QuickBooks Online
Payroll service continues to expand, the service is not yet generating material
revenues and we must continue to focus on streamlining the customer activation
process.
Tax Division. Tax division revenues come primarily from the following sources:
- Quicken TurboTax and MacInTax personal desktop tax preparation
products
- Professional tax preparation products (ProSeries and Lacerte
product lines)
- ElectronicQuicken TurboTax for the Web electronic tax return preparation services
and electronic filing fees
Due to the seasonal nature of the tax business, the first quarter normally
generates very little revenue from tax products. The majority ofservices
-21-
22
Overall, tax division revenues generally occurfor the three and six-months ended January 31,
2000 declined by 8% and 6% respectively, compared to the same periods last year.
The declines in our secondrevenue were due primarily to an aggressive marketing and
third fiscal quarters.
The development and launch of ourpricing strategy for Quicken TurboTax in response to a very competitive market
for desktop personal tax software. We lowered average selling prices, and we
also bundled electronic filing and state tax products with certain versions of
Quicken TurboTax, which required us to defer recognition of approximately $30
million of revenue from the second quarter to the remainder of the fiscal year.
While we have experienced significant unit sales growth for the 1999 tax year
was completed on schedule, and products reached retail shelves in early
December. However, there are still ongoing risks associated with our tax
business including the risk of increased competitionquarter ended
January 31, 2000, we continue to experience extreme pricing pressures from Microsoft's expected
entrance into the personal tax preparation market. If Microsoft enters the
market, its superior financial resources and historically strong presence in
retail distribution channels could result in an increasingly competitive
environment this tax season and beyond. We also face continued competition fromboth
H&R Block's aggressively priced TaxCut product and the challenge of developing
and launching high-quality products that accurately reflect new tax legislation.
If thefrom Microsoft's TaxSaver
product, including free product offerings from Microsoft. The increased
competition has resulted in lower average selling priceprices in response to these
pricing pressures.
It is currently too early to predict the final level of demand for the Quicken
TurboTax product line through our taxretail distribution channels. Although the
number of units sold is currently higher in the current fiscal year to date
compared to the same period a year ago, revenue is lower due to lower average
selling prices. We expect our reserves for returned products werewill be adequate to
decrease or if we were
to lose significant market share ascover retailers' returns of unsold products during the next three quarters,
though higher than expected returns could have a resultnegative impact on revenue for
the season. Because of increased future competition,
our operating results would suffer. While we have undertaken product developmentthese and marketing efforts intended to address competitive pressures,other uncertainties, revenues and operating
results for this tax season will be unknown until late in the fiscal year.
In connection with ourWe have experienced significantly higher revenues and volume for Quicken
TurboTax for the Web and for electronic filing services,compared to last year, as an
increasing number of customers gain Internet access and become more accustomed
to processing transactions on-line. We expect that as the tax filing deadline
nears, we also facemay experience a dramatic increase in demand for both Web tax
preparation and electronic filing services. To deal with the challengeexpected increases
in demand, we have increased our capacity and have developed a contingency plan
to provide additional capacity if necessary. However, the exact level of maintainingdemand
is very difficult to predict, and we could experience significant negative
financial and public relations consequences if our capacity to serve our web tax
preparation and electronic filing customers is insufficient during the peak
filing period, or if the service during peak volumeis unavailable for other reasons such as
technical difficulties at our data center. We have not experienced any service
times. We experienced a brief
interruptioninterruptions thus far in the current tax filing season. However, we did have
some interruptions in our electronic filing services in February 1999 and on
April 11-12, 1999, routine server maintenance procedures took longer than expected,
resulting in a 14-hour outage for the electronic filing service. We1999. Although we do not believe thisthose service outage had a material financial impact,outages prevented
customers from completing and filing their returns in a timely manner, or posed
a risk that customer data would be lost or corrupted. However,corrupted, we did experience negative
publicity.
The exact level of demandRevenues for Web TurboTaxour professional tax (ProSeries) products and electronic
filingproducts from our
Lacerte subsidiary increased by 10% for the 1999 tax yearthree and six-month periods ended
January 31, 2000 compared to the same periods last year. This growth is
very difficultattributable to predict,a combination of a continued shift to higher priced products and
growth in our customer base due in part to our acquisitions of Compucraft and
TaxByte during 1999. In addition, we couldcontinue to experience adverse financial and public relations consequences if these services
are unavailable due to technical difficulties or other reasons.a high customer
renewal rate.
Consumer Finance Division. Consumer finance division revenues come primarily
from the following sources:
- Quicken product line
- Advertising and sponsorship fees from the consumer areas of our
Quicken.com website
- Implementation, marketing and transaction fees from financial
institutions (including marketspace participants) providing
services through Quicken and Quicken.com
- On-line consumer mortgage placement and servicing fees through
QuickenLoans
Overall, consumer finance division revenues were up 27%9% and 5% for the three-month
periodthree and
six-month periods ended OctoberJanuary 31, 19992000 compared to the same periodperiods a year
ago. The increases are due primarily to strong revenue growth for our Quicken
product line and growth in Internet-based revenues, offset in part by a
significant decline in revenues for Rock's mortgage business from the year-ago
periods. Quicken revenue increased compared to the same periodperiods of the prior
year primarily due to strong consumer demand and the four week earlier launch of Quicken 2000 compared
to the product release date in the prior year,resulting from aggressive retail
-22-
23
promotions with our tax products and lower than expected product rebate
redemptions related to Quicken 99. It is too earlyWe believe some customers may have upgraded
during the second quarter, due to determine whetherYear 2000 concerns. Accordingly, some of the
fiscal 2000 second quarter strength in Quicken 2000 will continue its strongrevenue may be a shift from the
third quarter, and we expect the revenue growth forrate may decline as the rest of the year.year
progresses.
Our Quicken product line faces many challenges in the desktop personal financial
software market. For example, we continue to face competition from Microsoft's
Money product. In addition, personal financial software functionality is
increasingly becoming available on the Internet at no cost, which has a negative
impact on desktop -20-
21
product sales. There is also an increasing emphasis on
packaging desktop software with original equipment manufacturers' personal
computers, which results in lower revenues per unit shipped.
Consumer division revenue growth also benefited from an increase in certain
Internet-based revenue compared to the same periodperiods last year. This increase was
largely due to higher advertising, sponsorship and transaction-related revenue
through Quicken.com QuickenMortgage, QuickenInsurance and Quicken. However, revenue growth was not uniform across
all of our Internet product and service offerings in the Consumer division. For
example, advertising revenue from our QuickenMortgage
marketspaceQuicken.com site has grown relatively
rapidly whilerapidly. However, revenue from our QuickenInsurance
marketspace has grown atQuickenLoans was substantially lower than in the
same periods a slower pace.
On December 8, 1999, we completedyear ago. QuickenLoans now encompasses Intuit's online mortgage
business as well as the proposed acquisitiononline and traditional mortgage businesses of Rock
Financial, Corporation, a provider of on-line consumer mortgages. We expect that this
acquisition will allow us to manage the entire loan process, from application
and approval through closing, which we believe will enable usacquired in December 1999. The decline in mortgage revenue
was primarily due to generate
significantly more revenue per loan. We anticipate that Rock will perform loan
processing functions similarRock's decision to those provided by Mortgage.com under a
Distribution, Marketing, Facilities and Services Agreement with Intuit. That
agreement was terminatedclose many of its traditional mortgage
branch offices in order to focus resources on October 7, 1999 and the services will be phased out
over the next twelve months.Internet-based lending, as well as
increasing interest rates. Growth in mortgage transaction fees may continue to
be adversely impacted if interest rates continue to rise. The negative impact of
interest rate increases could be exacerbated by the acquisition of Rock because
of our increased fixed cost infrastructure.rise, and as we continue to
phase out Rock's traditional mortgage business. In addition, the acquisition of
Rock will continue to result in new business risks and integration challenges
common in all acquisitions. For example, our ability to successfully facilitate
the application, approval, and closing process in loan applications on a timely
basis will have a significant impact on our ability to attract customers to the
service. Our ability to successfully operate Rock will depend in part on
maintaining relationships with certain banks and other third parties who we will
rely on to provide access to capital, and later, service the loans. If we are
unable to do so, it could have a negative impact on our consolidated results.
The rapid growth we've experienced in our Internet products and services has
been generated in part by collaborating with third party online service and
content providers such as At Home Corporation (doing business as "Excite@Home")
and AOL, which have helped to increase traffic to our Quicken.com website. The
Excite@Home agreement calls for us to share revenue generated from our
Quicken.com site and the AOL agreement calls for us to make significant
guaranteed payments to AOL over the term of the agreement. While the Internet
provides a significant opportunity for revenue growth, our financial commitments
to these and other third party providers are significant and we must continue to
increase traffic and revenue in order for our Internet businesses to become
profitable. Our ability to maintain important relationships with Internet
portals, distributors and content providers will also have an impact on traffic
and revenues. If our website traffic and revenue expectations aren't met, there
could be a significant negative impact on our operating results.
International Division. International division revenues come primarily from the
following sources:
- Japanese QuickBooks and other small business products
- GermanCanadian Quicken, QuickBooks and Tax products
- CanadianGerman Quicken, QuickBooks and Tax products
- United Kingdom Quicken and QuickBooks products
In addition to the above, we also operate in smaller European, Asian and Latin
American markets. Overall, international division revenues increased 36%37% for the
three-month periodthree and six-month periods ended OctoberJanuary 31, 19992000 compared to the same periodperiods
last year. This increase is a result of stronger sales of Quicken and QuickBooks
in both Canada and the U.K., higher sales of the Yayoi small business product in
Japan, and favorable currency fluctuations in Japan. -21-Partially offsetting these
increases were declines in revenues, but increased profitability in
-23-
2224
Germany due to a shift in our business model from direct participation in the
market to a third party distribution arrangement.
COST OF GOODS SOLD
THREE MONTHS ENDED OCTOBERThree Months Ended January 31, Six Months Ended January 31,
(Dollars in millions; unaudited) 1998 CHANGE 1999 ---------------------------------Change 2000 1999 Change 2000
-------------------------- ----------------------------
Product ..................................... $35.2 55% $54.7.................... $ 70.2 33% $ 93.1 $ 109.2 37% $ 149.5
% of revenue ................................ 31% 34%............... 19% 22% 21% 25%
Amortization of purchased .. $ 1.9 32% $ 2.5 $ 3.7 32% $ 4.9
software & other
.. $ 1.8 33% $ 2.4
% of revenue ................................ 2%............... 1% 1% 1% 1%
Total ....................................... $37.0 54% $57.1...................... $ 72.1 33% $ 95.6 $ 112.9 37% $ 154.4
% of revenue ................................ 33% 35%............... 19% 22% 22% 26%
There are two components of cost of goods sold. The largest is the direct cost
of manufacturing and shipping products and offering services. The second
component is the amortization of purchased software, which is the cost of
products obtained through acquisitions. Total cost of goods sold increased to
35%22% and 26% of revenue for the three monthsand six-months ended OctoberJanuary 31, 19992000
compared to 33%19% and 22% for the same periodperiods of the prior year. This increase isThese increases
are primarily attributable to two factors. First, consistent with our growing
Internet-based business, we are experiencing a significant increase in related
hardware and infrastructure costs as we purchase equipment to increase our
Internet capability. These costs are classified as cost of goods sold and, as a
percentage of revenue, are significantly higher than the costs of goods sold for
our traditional desktop software business. Second, our service businesses, such
as payroll processing and QuickBooks Support Network, generally have higher cost
of goods sold thancompared to the sale of packaged software. As these businesses
grow to a higher proportion of total revenue, we anticipate that our cost of
goods sold will continue to increase. IfNote that results from CRI, our payroll
processing subsidiary that we experience errorsacquired in current or future products, there could be incremental
increasesMay 1999, are included in fiscal 2000
results but not in the fiscal 1999 comparison periods, which contributed to the
year-over-year increase in cost of goods sold that could adversely affect our operating
results.sold.
OPERATING EXPENSES
THREE MONTHS ENDED OCTOBERThree Months Ended January 31, Six Months Ended January 31,
(Dollars in millions; unaudited) 1998 CHANGE 1999 ----------------------------------Change 2000 1999 Change 2000
-------------------------- ----------------------------
Customer service & technical support ...... $29.8 15% $34.3.... $ 41.1 16% $ 47.7 $ 72.0 14% $ 82.0
% of revenue .............................. 27% 21%............................ 11% 11% 14% 14%
Selling & marketing ....................... $45.1 28% $57.6..................... $ 71.2 21% $ 86.1 $ 124.3 26% $ 156.0
% of revenue .............................. 40% 35%............................ 19% 20% 24% 26%
Research & development .................... $33.7 24% $41.7.................. $ 36.4 21% $ 44.0 $ 70.0 22% $ 85.8
% of revenue .............................. 30% 26%............................ 10% 10% 14% 14%
General and administrative ................ $13.5 39% $18.7.............. $ 19.6 19% $ 23.3 $ 38.9 15% $ 44.8
% of revenue .............................. 12% 11%............................ 5% 5% 8% 7%
Charge for purchased research
and development ........................................................ $ -- N/A $ -- $ -- N/A $ 1.3
% of revenue .......................................................... N/A 1%N/A N/A 0%
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Other acquisition costs, including
amortization of goodwill and purchased
intangibles ............................... $21.0 73% $36.4............................. $ 21.0 115% $ 45.2 $ 41.9 95% $ 81.6
% of revenue .............................. 19% 22%............................ 6% 11% 8% 14%
Other acquisition related costs -costs-
amortization of deferred compensation ........ $ -- N/A $ 0.71.0 $ -- N/A $ 1.7
% of revenue .......................................................... N/A 0% N/A 0%
Reorganization costs .................... $ 2.0 (100)% $ -- $ 2.0 75% $ 3.5
% of revenue ............................ 1% N/A 0% 1%
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23
While all operating expenses experienced increases for the three months ended
October 31, 1999, compared to the same period of the prior year, our percentage
growth in revenues was greater than the percentage growth in our operating
expenses across all areas except acquisition related costs. As a result,
operating expenses as a percentage of revenues experienced significant declines.
It is too early to determine whether growth in revenues will continue to exceed
the growth in operating expenses for the rest of the year.
Customer Service and Technical Support. Customer service and technical support
expenses decreased to 21%were flat as a percentage of revenue for the three monthsand six-month
periods ended OctoberJanuary 31, 19992000 compared to 27% for the same periodperiods of the prior year.
In addition to the less
rapid growth of all operating expenses compared to revenues, this improvement
reflects the acquisition of CRI which experiences comparatively lower customer
service and technical support expenses as a percentage of revenue. We have also benefited from our efforts to provide customer service and technical
support less expensively through websites and other electronic means. During the second
and third quarters of fiscal 1999, many customers experienced unusually long
hold times for customer service calls. We may need to increaseHowever,
we increased our investment in customer service and technical support expenses as a percentage of revenue induring the remainder of
fiscal 2000 comparison periods in orderanticipation of increased call volumes
relating to improve customer service levelspotential year 2000 issues, and also to handle
customer questions relating to Year 2000 compliance issues. To date, call
volumes related to Year 2000 issues have been lower than we expected. It's
possible that we will receive a large volume of Y2K calls latersupport two major product
launches in the second quarter. See "Yearquarter (QuickBooks 2000" below. We also expect a significant increase in call
volumes during and Quicken TurboTax for the
second quarter related to major product launches by our1999 tax and small business divisions. If these potential increases in call volume
overlap to any significant extent, or if we experience product errors, poor
service levels or service outages for our web-base products, we could face
significant capacity problems and increased customer service and technical
support expenses, as well as customer dissatisfaction.year).
Selling and Marketing. Selling and marketing expenses were 35%20% and 26% of
revenue for the three monthsand six-months ended OctoberJanuary 31, 19992000 compared to 40%19% and
24% for the same periodperiods of the prior year. In addition to the less rapid growth of all operating expenses
compared to revenues, this decrease is also the result of our acquisition of
CRI, which experiences comparatively lower selling and marketing expenses as a
percentage of revenue. Despite the decreaseThe increases in selling and
marketing expenses as
a percentage of revenue in the first quarter of fiscal 2000, comparedcosts are attributable to the first quarteraggressive marketing programs relating
to the expansion of fiscal 1999, weour Internet-based businesses and the increasingly
competitive personal tax market. We continue to expect that selling and
marketing costs as a percentage of revenue towill increase slightly infor fiscal 2000
compared to fiscal 1999. We anticipate increased selling and marketing expenses related1999 as we continue to aggressively market our Internet-based
businesses and as a result of moreface intense competition in the personal tax market during fiscal 2000.for the rest
of the 1999 tax season.
Research and Development. Research and development expenses decreased to 26%were 10% and 14% of
revenue for the three monthsand six-months ended OctoberJanuary 31, 19992000 compared to 30%10% and
14% of revenue for the same periodperiods of the prior year. In additionWe continue to the less rapid growth of all operating
expenses compared to revenues, this decrease is dueinvest in part to our acquisition
of CRI which experiences comparatively lower
research and development expenses
asdue to our efforts to develop our Internet-based
businesses. As a percentage of revenue. Weresult, we expect our Internet-based businesses will continue
to result inrequire significant development expensesexpenditures in fiscal 2000 despite
lower expenses as a percentage of revenue for the three months ended October 31,
1999.and beyond.
If such expenses exceed our current expectations, they may have an adverse
effect on operating results. This could occur, for example, if we were to
undertake a costly product development venture in response to competitive
pressures or other market conditions.
General and Administrative. General and administrative expenses decreased to 11%were 5% and 7%
of revenue for the three monthsand six-months ended OctoberJanuary 31, 19992000 compared to 12%5%
and 8% for the same periodperiods of the prior year. For fiscal 2000, we expect
general and administrative expenses to remain roughly flat as a percentage of
revenue compared to fiscal 1999.
Charge for Purchased Research and Development. For the threesix months ended OctoberJanuary
31, 1999,2000, we recorded a chargecharges for purchased research and development as a result
of our Boston Light and Hutchison acquisitions. In connection with these
acquisitions, we used third party appraisers' estimates to determine the value
of in-process projects under development for which technological feasibility had
not been established. The total value of these projects at the time of the
acquisitions was determined to be approximately $1.3 million and has
beenwas expensed in
the three months ended October 31, 1999. The value of the projects was
determined by estimating the costs to develop the in-process technology into
commercially feasible products, estimating the net cash flows we believed would
result from the products and discounting these net cash flows back to their
present value. We believe the products related to these charges will be
completed during our fiscal year 2000, and that the risk of these products not
being
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26
successfully completed is low. However, if they are not
successfully completed, there could be a negative impact on our results.
Other Acquisition Costs. Other acquisition costs include the amortization of
goodwill and purchased intangibles and deferred compensation costs that are
recorded as part of an acquisition. These costs increased to $37.0$48.7 million and
$88.2 million for the three monthsand six-months ended OctoberJanuary 31, 19992000 compared to
$21.0$22.9 million and $45.6 million for the same periodperiods of the prior year. This
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24
increase wasThese
increases ware primarily attributable to the amortization of intangibles
associated with our acquisition of CRI in May 1999, and our acquisitions of
Secure Tax, Boston Light and Hutchison in August 1999, and Turning Mill Software
in November 1999.
The high levels of non-cash amortization expense related to completed
acquisitions will continue to have a negative impact on operating results in
future periods. Assuming no additional acquisitions and no impairment of value
resulting in an acceleration of amortization, future amortization will reduce
net income bybe
approximately $97.9$163.7 million, $88.8$145.5 million, $85.7$140.2 million and $56.2$90.9 million
for the years ending July 31, 2000 through 2003, respectively. If we complete
additional acquisitions or accelerate amortization in the future, there could be
an incremental negative impact on operating results.
Reorganization Costs. Reorganization costs represent the costs associated with
Rock's closure of numerous branch offices in Michigan prior to its acquisition
by Intuit as the mortgage business began to transition from a traditional
branch-based business to an on-line transactional-based business. These costs
increased to $3.5 million for the six-month period ended January 31, 2000 from
$2.0 million for the same period of the prior year.
OTHER INCOME
For the three monthsand six-months ended OctoberJanuary 31, 1999,2000, interest and other income
and expense, net, increased to $8.5$7.0 million and $15.5 million compared to $3.3$4.0
million and $7.3 million for the same periodperiods a year ago, reflecting increased
cash and short-term investment balances. We have elected to report our Excite@HomeAt Home
common stock as a trading security and are required to mark to market the
fluctuations in the stock price and report the fluctuations in our earnings. For
the three monthsand six-months ended OctoberJanuary 31, 1999,2000, we reported a losslosses arising from
fluctuations in the share price of Excite@HomeAt Home of $17.3 million.$2.8 million and $20.1 million,
respectively. In the same period a year ago, we did not report a gain or a loss
for changes in the market value of Excite, Inc. ("Excite"), one of the
predecessor companies of Excite@Home in our earnings, since that security was
not classified as a trading security. We did, however, report a realized gain of
$10.1 million for both the three and six-month periods from a year ago from the
sales of Checkfree, Verisign, and Concentric common stock.
INCOME TAXES
For the three monthsand six-months ended OctoberJanuary 31, 1999,2000, we recorded an income tax
benefitprovisions (benefits) of $31.8$29.6 million and ($4.6) million on a pretax lossincome
(loss) of $93.5 million.$86.8 million ($13.3) million, respectively. This compares to an income
tax benefitprovisions of $15.5$31.2 million and $17.7 million on a pretax lossincome of $64.7$124.4
million and $65.9 million, respectively for the same periodperiods of the prior year.
At OctoberJanuary 31, 1999,2000, there was a valuation allowance of $11.6 million for tax
assets of our international subsidiaries based on management's assessment that
we may not receive the benefit of certain loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At OctoberJanuary 31, 1999,2000, our unrestricted cash and cash equivalents totaled $286.4$377.7
million, a $231.9$176.5 million decrease from July 31, 1999. The decrease was a result
of net cash used by operations and investing activities, partially offset by cash provided by
financing and operations activities. It wasCash 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.
Our operations used $59.1provided $44.3 million in cash during the threesix months ended
OctoberJanuary 31, 1999.2000. Primary sources of cash were an increase of $54.6 million in
accounts payable and $63.9 million in other accrued liabilities. The
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27
increases in accrued liabilities and accounts payable are driven by the
seasonality of our business and the resulting increases in accruals for product
returns, customer rebates and accrued technical support expenses. In addition,
cash was generated by an increase in deferred revenues of $40.4 million due
primarily to the deferral of state tax product and electronic filing revenues
which will be realized in our third and fourth fiscal quarters. Cash was also
generated by the decrease of $32.2 million in prepaid expenses due primarily to
the completion of acquisitions in the first quarter. Primary uses of cash
included the net loss of $61.7$8.6 million, an increase of $185.4 million in accounts
receivable due to the large volumes of $23.6 million as well asseasonal product shipments to retailers
and distributors that typically occur in our second fiscal quarter and a
significant decrease in income taxes payable as a result of the payment of taxes
for our fiscal year ended July 31, 1999.
The increase in accounts receivable was
attributable to revenue growth for the three months ended October 31, 1999. Uses
of cash were offset by adjustments made for non-cash expenses such as
acquisition charges and depreciation, the loss from our trading security
Excite@Home. We also experienced significant decreases in prepaid expenses,
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25
accrued liabilities and deferred revenue. Decreases in prepaid expenses resulted
from the completion of acquisitions in the first quarter, while the increase in
accrued liabilities was driven by increased product returns reserves for the
September 1999 launch of Quicken 2000. The increase in deferred revenues was due
primarily to the increase in professional tax product orders which will ship at
a later date.
Investing activities used $185.6$242.6 million in cash for the threesix months ended
OctoberJanuary 31, 1999.2000. Uses of cash included net purchases of $110.2 million in
short-term investments in addition toand purchases of $51.9 million in property and equipment.
Property and equipment purchases during the quarter were made to support our ongoing operations,
information system upgrades and our growing Internet-based businesses. We also
used $54.6 million in cash for our acquisitions of Boston Light, SecureTax and Hutchison.
Financing activities provided $21.8 million in the first quarter, primarily
attributable to proceeds from the exercise of employee stock options. This was
partially offset by a decrease in our line of credit as we funded new consumer
mortgage loans during the period.
We currently hold investments in a number of publicly traded companies (see Note
1). The volatility of the stock market and the potential risk of fluctuating
stock prices may have an impact on our future liquidity. Due to our reporting of
the Excite@HomeAt Home shares as a trading security, future fluctuations in the carrying
value of Excite@HomeAt Home will impact our earnings (see Note 1). If future declines in
our other marketable securities are deemed to be permanent, they will also
impact our earnings.
Financing activities provided $12.8 million in the first quarter, primarily
attributable to proceeds from the exercise of employee stock options.
In connection with our acquisition of CRI (see Note 4), we are required to pay
three annual installments of $25 million in each of the next three fiscal years.
In the normal course of business, we enter into leases for new or expanded
facilities in both domestic and international locations. We also evaluate the
merits of acquiring technology or businesses, or establishing strategic
relationships with and investing in other companies. Accordingly, it is possible
that we may decide to use cash and cash equivalents to fund such activities in
the future. For example, if we exercise our option to purchase VFSC (see Note
10)11) and elect to pay all or a significant portion of the exercise price in cash,
this would have a negative impact on our liquidity.
We believe that our unrestricted cash, cash equivalents and short-term
investments will be sufficient to meet anticipated seasonal working capital and
capital expenditure requirements for at least the next twelve months.
YEAR 2000
The following is a Year 2000 readiness disclosure under the Year 2000
Information and Readiness Disclosure Act.
Intuit has established a Year 2000 Project Office to address the impact of the year
2000 date transition on its operations, products and services globally. In
1998, we established this office to coordinate a number of existing projects and
put in place a formal, structured year 2000 process moving forward. The Project
Office has a dedicated Program Manager who reports directly to Intuit's senior
management, and status is reported regularly to the Audit Committee of Intuit's
Board of Directors.
We have
adopted a five-phase approach that we believe follows standard industry
practices for reviewing and preparing the significant
elements of operations, products and services for the Year 2000 date transition.
Phase One (initiation)
involves increasing company awareness by educating and involvingThrough the date of this filing, we have had no major Y2K-related issues. In
addition, all appropriate
levels of management regarding the need to address Year 2000 issues. Phase Two
(inventory) consists of identifying all of our systems, products and
relationships that may be impacted by Year 2000. Phase Three (assessment)
involves determining our current state of Year 2000 readiness for those areas
identifiedsubstantive claims in the inventory phase and prioritizing areas that need to be fixed.
Phase Four (action) consists of developing Year 2000 solutions where required,
and completing a comprehensive test cycle for all appropriate inventoried items.
Phase Five (implementation) consists of rolling out Year 2000 solutions for
affected products, services and technologies and implementing maintenance and
support processes to maintain ongoing compliance.
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26
As a software developer, we have three key areas of focus: (1)lawsuits filed against Intuit in
connection with alleged Y2K problems with our products and services; (2) our internal systems (including information technology systems
such as financial and order entry systems and non-information technology systems
such as phones and facilities); and (3) the readiness of third partiesservices have been
dismissed, with whom
we have significant business relationships. Substantially all of our efforts in
the product area have now completed the implementation phase and our efforts are
primarily focused on providing our customer base with confirmation of product
compliance and remediation options, where required. Remaining efforts in the
product area are expected to be completed by December 31, 1999.only one possible appeal remaining. Customers can find Intuit's
Year 2000 Readiness Disclosure about our products, and order free solutions,
where required, on our Corporate Year 2000 Resource Center at
www.intuit.com/y2k.
Substantially all of the action and implementation efforts
for the majority of our internal systems have been completed and remaining
efforts in the internal systems area are expected to be completed by December
31, 1999. As most companies are experiencing, there is an extensive on-going
maintenance effort required to continually review the compliance statements of
our software and hardware vendors and to verify that our technology remains
compliant. We will continue to work with our third party vendors to review the
status of their efforts and have dedicated considerable time and effort on
testing activities with our key vendors. We are not currently aware of any
material Y2K issues with key third parties that are likely to affect us.
However, this understanding is based on information they have provided to us,
and it is difficult to get a definitive understanding of the Y2K status of any
third parties.
Costs directly attributed to our Year 2000 project were approximately $6.5
million in fiscal 1999. This figure is comprised primarily of hardware,
software, internal resources and consulting fees necessary for our Year 2000
testing activities during fiscal 1999. We currently anticipate direct costs in the range of $10$8
to $16$12 million for fiscal year 2000, resulting from the
completion of the project phases and the transition into anincluding costs associated with
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28
ongoing maintenance and support activity in fiscal year 2000. We believe that the nature of our
products2000, and the size and profile of our customer base is likely to lead to a
significant increase in the calls to our customer support centers throughout the
remainder of calendar 1999 and early 2000. These support operations may
experience call volumes not experienced to date and we have developed plans that
should allow us to handle the increases in calls that we have internally
forecasted. If call levels and the timing of calls are consistent with our
forecasts, we do not expect to incur material incremental costs related to Y2K
call volume. To date, call volumes have been lower than our forecast. We are
unable to determine what portion of the additional forecasted calls may come
later in the year (in which case we could face significant capacity problems
because of resource constraints), and what portion of the calls will not come
at all (for customers who do not experience any Y2K problems). In parallel, we
have initiated a number of proactive communications to our customer base and the
media in an attempt to increase Y2K awareness concerning our products and
services and reduce the likelihood of unanticipated end of year demand for Y2K
solutions and/or technical support. Our ability to handle significant volumes of
Y2K-related calls may also be impacted by additional resources required to
support major product launches by our tax and small business divisions, which
are taking place during our second fiscal quarter. Additionally, there will beincluding
costs associated with the manufacture and distribution of free solutions for
products that are not Year 2000 compliant or in certain cases that willwere not be
tested for Year 2000 compliance. We believeAlthough the provision of free solutions may
resulthas
probably resulted in some lost revenue for new product upgrades, to within a range of $10 to $17
million, althoughwe believe the
exact amount will depend on customer response to the Year
2000 issue.
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27
In an effort to reduce the risks associated with the Year 2000, we have
incorporated contingency planning as part of our five-phase plan, building upon
disaster recovery and contingency planning that we already have in place. This
includes identifying areas where we are most vulnerable to Year 2000 risk and
putting contingency plans in place before we experience potential failures.
Despite our establishment of contingency plans throughout the company, we may
not anticipate or adequately provide for all contingencies.
Although we are dedicating substantial resources toward attaining Year 2000
readiness, there is no assurance that welost revenue will be successful in our efforts to
address Year 2000 issues. If we are not successful, there could be significant
adverse effects on our operations. For example, failure to achieve Year 2000
readiness for our internal systems could delay our ability to manufacture and
ship products, disrupt our customer service and technical support facilities, or
interrupt customer access to our online products and services. If our products
are not Year 2000 ready, we could suffer lost sales or other negative
consequences resulting from customer dissatisfaction, including additional
litigation (see discussion below). We also rely heavily on third parties such as
manufacturing suppliers, service providers, financial institutions and a large
retail distribution channel. If these or other third parties experience Year
2000 failures or malfunctions, there could be a material negative impact on our
ability to conduct ongoing operations. Many of our products are significantly
interconnected with heavily regulated financial institutions. Our relationships
with financial institutions could be adversely impacted if we do not achieve
Year 2000 readiness in a manner and on a time schedule that permits them to
comply with regulatory requirements. We may also incur additional costs if we
are required to accelerate our Year 2000 readiness to meet financial institution
requirements. As with all companies, we also rely on other more widely used
entities such as government agencies, public utilities and other external forces
common to business and industry. Consequently, if such entities were to
experience Year 2000 failures, this could disrupt our ability to conduct ongoing
operations.
Several class action lawsuits were filed against Intuit in California and New
York, alleging Year 2000 issues with the online banking functionality in certain
versions of our Quicken products but these lawsuits were dismissed by the
courts. It is possible that we will face additional lawsuits. We continue to
work with financial institutions to provide solutions to their current online
banking customers and have made such solutions available before customers
experience any Year 2000 problems. See "Legal Proceedings" for more information.
The above discussion regarding costs, risks and estimated completion dates for
the Year 2000 is based on our best estimates given information that is currently
available, and is subject to change. As we continue to progress with this
initiative, we may discover that actual results will differ materially from
these estimates.
-27-less than $5 million.
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ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT PORTFOLIO
We do not hold derivative financial instruments in our short-term investment
portfolio. Our short-term investments consist of instruments that meet high
quality standards consistent with our investment policy. This policy dictates
that we diversify our holdings and limit our short-term investments to a maximum
of $5 million to any one issuer. Our policy also dictates that all short-term
investments mature in 30 months or less.
MARKETABLE SECURITIES
We also carry significant balances in marketable equity securities as of OctoberJanuary
31, 1999.2000. These securities are subject to considerable market risk due to their
volatility. See Note 1 of the financial statement notes for more information
regarding risks related to our investments in marketable securities.
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. In a higher interest rate environment, borrower
demand for mortgage loans declines. 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 mortgage loans we hold for
sale in the secondary market and ultimately the gain on the sale of those
mortgage loans. In addition, interest rate movements affect the interest income
earned on investments we hold in our short-term investment portfolio and the
value of those investments.
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 Loans and our
government-insured loans (together, "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.
Management actively monitors and manages our exposure to interest rate risk on
Prime Loans, which is incurred in the normal course of business. The committed
and closed pipelines of Prime Loans, as well as the related forward commitments
and derivatives, are valued daily. We refer to the loans, pipeline, commitments
and derivatives together as the "hedge position." The hedge position is
evaluated 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 do not enter into instruments for trading purposes. Our
interest rate risk exposure is evaluated daily using models which estimate
changes in the fair value of the hedge position and compare those changes
against the fair value of the underlying assets and commitments.
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30
PRINCIPAL AMOUNTS BY EXPECTED MATURITY:
(in thousands, except interest rates)
PERIOD ENDING JANUARY 31, FAIR VALUE
EXPECTED MATURITY DATE JANUARY 31,
---------------------------------------------------
2000 2001 2002 2003 2004 TOTAL 2000
---- ---- ---- ---- ---- ----- -----------
ASSETS:
Mortgage Loans................... $38,386 -- -- -- -- $38,386 $39,183
Average Interest Rate........ 8.97% 8.97%
LIABILITIES:
Lines of Credit.................. $ 3,283 -- -- -- -- $ 3,283 $ 3,291
Average Interest Rate........ 6.64% 6.64%
Based on the carrying values of our mortgage loans and lines of credit that we
held at January 31, 2000, we do not believe that short-term changes in interest
rates would have a material effect on the interest income we earn on loans held
for sale in the secondary market, interest expense on our lines of credit or
the value of mortgage loans that we hold for sale in the secondary market. See
Notes 1 and 5 of the financial statement notes for more information regarding
risks related to our mortgage loans and lines of credit.
IMPACT OF FOREIGN CURRENCY RATE CHANGES
During fiscal 1999, the currency of our Japanese subsidiary strengthened while
the currencies of our other subsidiaries remained essentially stable. As of
OctoberJanuary 31, 1999,2000, the currency of our Japanese subsidiary has continued to
strengthen and the currencies of our other subsidiaries have remained
essentially stable since the end of our 1999 fiscal year. Because we translate
foreign currencies into U.S.U.S dollars for reporting purposes, currency
fluctuations can have an impact, though generally immaterial, on our results. We
believe that our exposure to currency exchange fluctuation risk is
insignificant, primarily because our international subsidiaries invoice
customers and satisfy their financial obligations almost exclusively in their
local currencies. For the quarter ended OctoberJanuary 31, 1999,2000, there was an
immaterial currency exchange impact from our intercompany transactions. Currency
exchange risk is also minimized since foreign debt is due almost exclusively in
local foreign currencies. As of OctoberJanuary 31, 1999,2000, we did not engage in foreign
currency hedging activities.
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2931
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PART II
ITEM 1
LEGAL PROCEEDINGS
- - --------------------------------------------------------------------------------
Intuit was a defendant in the following two consolidated class action lawsuits (one in
California and one in New York) which alleged that certain of its Quicken
products have on-line banking functions that are not Year 2000 compliant: (1) In re Intuit Inc. Year 2000compliant. With
respect to the California Litigation (consolidated in Santa Clara County, California Superior
Court from Alan Issokson v. Intuit Inc. (filed April 29, 1998 in the Santa Clara
County, California Superior Court); Joseph Rubin v. Intuit Inc. (filed May 27,
1998 in the Santa Clara County, California Superior Court); Donald Colbourn v.
Intuit Inc. (filed June 4, 1998 in the San Mateo County, California Superior
Court)); and (2) In re Intuit Inc. Year 2000 Litigation (consolidated in the New
York Supreme Court, New York County from Rocco Chilelli v. Intuit Inc. (filed
May 13, 1998 in the New York Supreme Court, Nassau County); Glenn Faegenburg v.
Intuit Inc. (filed May 27, 1998 in the New York Supreme Court, New York County);
and Jerald M. Stein v. Intuit Inc. (filed June 23, 1998 in the New York Supreme
Court, New York County)). The lawsuits were substantively similar. The lawsuits
asserted breach of implied warranty claims, violations of federal and/or state
consumer protection laws, and violations of various state business practices
laws. The plaintiffs sought compensatory damages, disgorgement of profits, and
(in some cases) attorneys' fees.
Intuit successfully had the original complaint and subsequent consolidated
amended complaint dismissed with leave to amend. The plaintiffs then filed a
third amended complaint and Intuit filed a demurrer in response to it, seeking
dismissal of the complaint. Onlitigation, on October 13, 1999 the court sustained Intuit's
demurrer and dismissed
the case without leave to amend. The only remaining issue relates to a potential
award of attorneys' fees.
We also filed motionsfees to dismiss in the New York actions and, onplaintiffs. On December 1, 1998,1999, the court
granted our motion to dismiss all the New York actions with prejudice. Although
plaintiffs filed a Notice of Appeal, Intuit understands that
plaintiffsthey failed to perfect the appeal.
Accordingly, Intuit understands that this case is also now over.
In addition, a suit was filed in the Contra Costa County, California Superior
Court by an individual consumer against various retailers, including Circuit
City Stores, CompUSA, Fry's Electronics, Office Depot, The Good Guys and others,
alleging that these retailers have sold software and hardware products which are
not Year 2000 compliant, including at least one product published by Intuit. One
of the defendants in this action, Fry's Electronics, filed a cross-complaint
against various software publishers and hardware manufacturers, including
Intuit, asserting a claim for indemnity in the main action. In September 1999,
Fry's Electronics reached a settlement with the plaintiffs. All the cross
defendants, including Intuit, then filed a demurrer to the cross-complaint. On
Tuesday, December 7, 1999 the court granted the demurrer and dismissed the case without
leave to amend. UnlessIf Fry's Electronics appealsdoes not appeal this ruling by April 4,
2000, this lawsuit against Intuit iswill also nowbe over.
On March 3, 2000 a class action lawsuit, Bruce v. Intuit Inc., was filed in the
United States District Court, Central District of California, Eastern Division.
On March 8, 2000 a virtually identical lawsuit, Rubin v. Intuit Inc., was filed
in the United States District Court, Southern District of New York. Both actions
claim that private customer information entered into Intuit's Quicken.com
website was intentionally and secretly disclosed to third-party advertisers. The
two lawsuits allege identical causes of actions for invasion of privacy and
violations of federal statutes related to electronic communications. The
lawsuits seek injunctive relief, an order to disgorge profits related to the
alleged acts, and statutory and other damages. As of March 10, 2000, neither
lawsuit had been served on Intuit.
We are subject to other legal proceedings and claims that arise in the normal
course of our business. We currently believe that the ultimate amount of
liability, if any, for any pending actions (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.
-29--31-
3032
- - --------------------------------------------------------------------------------
ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
- - --------------------------------------------------------------------------------
(a) On September 8, 1999, our Board of Directors declared a three-for-one
stock split, to be effected as a stock dividend of two shares of common
stock for each share of Intuit's common stock outstanding. Stockholders
of record on September 20, 1999 were issued two additional shares of
common stock for each share of Intuit's common stock held on that date.
The payment date for the stock dividend was September 30, 1999.Not applicable.
(b) On December 1, 1999, we amended our Certificate of Incorporation to
increase the authorized shares of common stock to 750,000,000 shares.
This amendment was approved by stockholders on November 30, 1999 (see
Item 4 below). The Board has the right to determine when and on what
terms shares of the newly authorized common stock will be issued.
Existing stockholders will not have any rights to purchase any newly
issued shares in order to maintain their proportionate ownership
interests. If Intuit issues additional shares of common stock or
securities convertible into common stock in the future, it would dilute
the voting rights of existing stockholders and could also dilute
earnings per share and book value per share of existing stockholders.
The increase in authorized common stock could discourage or hinder
efforts by other parties to obtain control of Intuit.Not applicable.
(c) On August 2, 1999January 24, 2000, we issued 299,940and sold 225,000 shares of our common
stock as
partial considerationto Stephen M. Bennett, our recently appointed President and Chief
Executive Officer, pursuant to two Restricted Stock Purchase Agreements.
The purchase price for our acquisitionthe shares was $0.01 per share, for an aggregate
purchase price of Boston Light Software
Corporation, a Massachusetts corporation that provides electronic
commerce tools for small businesses. Intuit issued these shares to five
principal stockholders in connection with the merger transaction in
which Boston Light became a wholly-owned subsidiary of Intuit.$2,250. The shares issued in this transaction were issued without registration
under the Securities Act of 1993, Actas amended (the "1933 Act"), in
reliance on an exemption under Section 3(a)(10)4(2) of the 1933 Act, after a hearing onAct. The shares
are subject to vesting over periods of up to 10 years. Any unvested
shares may be repurchased by Intuit for the fairness of the transaction. The
California Department of Corporations issued a Permit for Qualification
of the Securitiesoriginal purchase price if
Mr. Bennett's employment with Intuit is terminated under Section 25121 of the California Corporate
Securities Law of 1968.
-30-certain
circumstances.
(d) Not applicable.
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3133
- - --------------------------------------------------------------------------------
ITEM 4
SUBMISSION OF5
OTHER MATTERS
TO A VOTE OF SECURITY HOLDERS- - --------------------------------------------------------------------------------
AtCHANGES IN EXECUTIVE OFFICERS AND BOARD OF DIRECTORS
On January 24, 2000, Stephen M. Bennett was appointed President and Chief
Executive Officer and a member of the Board of Directors. William V. Campbell
stepped down as Acting Chief Executive Officer but remains Chairman of the
Board.
As of March 13, 2000, Intuit's Annual Meeting of Stockholders on November 30, 1999, our
stockholders voted on the following proposals:
1. Proposal to elect directors:executive officers are as follows:
For Withheld Unvoted
---NAME POSITION
- - ---- --------
-------
Christopher W. Brody 172,997,600 102,820 0
William V. Campbell 172,997,750 102,670 0
Scott D. Cook 172,997,750 102,670 0
L. John Doerr 172,997,600 102,820 0
Donna L. Dubinsky 172,997,474 109,946 0
Michael R. Hallman 172,997,000 103,420 0
William H. Harris, Jr. 172,968,597 131,823 0
Burton J. McMurtry 172,944,403 106,017 0
2. Proposal to amend Intuit's CertificateStephen M. Bennett President and Chief Executive Officer
Scott D. Cook Chairman of Incorporation to increase the numberExecutive Committee of sharesthe Board of
authorized common stock by 500,000,000 shares:
For 161,413,642
Against 11,534,561
Abstain 152,217
Unvoted 0
3. Proposal to amend Intuit's CertificateDirectors
Eric C.W. Dunn Senior Vice President and Chief Technology Officer
Alan A. Gleicher Senior Vice President, International
James J. Heeger Senior Vice President, Small Business Division
David A. Kinser Senior Vice President, Service Delivery and Operations
Greg J. Santora Senior Vice President, Finance, and Chief Financial
Officer
Raymond G. Stern Senior Vice President, Corporate Strategy and Marketing
Larry J. Wolfe Senior Vice President, Tax Division
Sonita J. Ahmed Vice President, Finance
Kristen S. Brown Vice President, Corporate Development
Caroline F. Donahue Vice President, Sales
Linda Fellows Vice President, Treasurer and Director of Incorporation to (i) increase
the number of shares of authorized preferred stock by 3,655,082 shares;Investor
Relations
Daniel B. Gilbert Vice President, Quicken Loans
Larry King, Jr. Vice President, Payroll Services Group
Elisabeth M. Lang Vice President, Corporate Public Relations and
(ii) eliminate all authorized Series A Preferred Stock:
For 70,995,629
Against 78,438,619
Abstain 166,111
Unvoted 23,500,061
4. Proposal to amend Intuit's 1993 Equity Incentive Plan to increase the
number of shares of common stock available for issuance thereunder by
8,900,000 shares:
For 96,326,401
Against 76,585,036
Abstain 188,983
Unvoted 0
5 Proposal to amend Intuit's 1996 Employee Stock Purchase Plan to
increase the number of shares of common stock available for issuance
thereunder by 400,000 shares:
For 171,262,828
Against 1,685,669
Abstain 151,923
Unvoted 0
-31-Marketing Communications
Carol Novello Vice President, Financial Supplies Group
Enrico Roderick Vice President, Personal Finance Group
Catherine L. Valentine Vice President, General Counsel and Secretary
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6. Proposal to amend Intuit's 1996 Directors Stock Option Plan to (i)
increase the number of shares of common stock available for issuance
thereunder by 100,000 shares; (ii) increase the size of future option
grants to reflect our recent 3-for-1 stock split; and (iii) lengthen
the vesting period for future option grants:
For 129,538,463
Against 43,360,663
Abstain 201,294
Unvoted 0
7. Proposal to ratify the selection of Ernst & Young LLP as Intuit's independent
auditors for fiscal 2000:
For 172,921,061
Against 80,192
Abstain 99,167
Unvoted 0
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3334
- - --------------------------------------------------------------------------------
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
- - --------------------------------------------------------------------------------
(a)(A) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
2.01(1) Agreement and Plan of Merger among Intuit, Merger Sub 1, Inc.,
Merger Sub 2, Inc., Rock Financial Corporation and Title Source,
Inc., dated October 6, 1999 (schedules and similar attachments
will be furnished to the Commission upon request)
2.02* Non-Competition Agreement by and among Intuit, Rock Financial
Corporation and Daniel Gilbert, dated October 6, 1999
3.01(2) Certificate of Increase of Series B Junior Participating
Preferred Stock dated November 9, 1999
3.02(2) Certificate of Amendment to Intuit's Certificate of Incorporation
dated November 30, 1999
3.03(2) Second Amended and Restated Rights Agreement, dated October 15,
1999
10.01(2) Rock Financial Corporation Amended and Restated 1996 Stock Option
Plan and related documents
10.02(3) Intuit Inc. 1993 Equity Incentive Plan and related documents, as
amended through November 30, 1999
10.03(4)10.01 Intuit Inc. 1996 Employee Stock Purchase Plan, as amended through
November 30, 1999
10.04(5)January 19, 2000
10.02 Employment Agreement between Intuit and Stephen M. Bennett dated January
21, 2000
10.03 Intuit Inc. 1996 DirectorsRestricted Stock Option Plan,Purchase Agreements between Intuit and
related
documents, as amended through November 30,Stephen M. Bennett dated January 24, 2000
10.04 Confidential Agreement and General Release of Claims between Intuit Inc.
and William H. Harris, Jr., dated September 23, 1999
10.05(6) Boston Light Software Corp. 1999 Amended and Restated Stock
Option/Stock Issuance Plan and related documents
10.06(7) The Hutchison Avenue Software Corporation Stock Option Plan and
related documents
27.01*27.01 Financial Data Schedule (filed only in electronic format) period ended
January 31, 2000
27.02 Financial Data Schedule (filed only in electronic format) period ended
January 31, 1999
- - ----------------
* Filed with this Form 10-Q
(1) Filed as an exhibit to Intuit's Form S-4 registration statement (file
no. 333-90393), filed with the Commission on November 5, 1999 and
incorporated by reference
(2) Filed as an exhibit to Intuit's Form S-8 registration statement (file
no. 333-92503), filed with the Commission on December 10, 1999 and
incorporated by reference
(3) Filed as an exhibit to Intuit's Form S-8 registration statement (file
no. 333-92517), filed with the Commission on December 10, 1999 and
incorporated by reference
(4) Filed as an exhibit to Intuit's Form S-8 registration statement (file
no. 333-92513), filed with the Commission on December 10, 1999 and
incorporated by reference
(5) Filed as an exhibit to Intuit's Form S-8 registration statement (file
no. 333-92515), filed with the Commission on December 10, 1999 and
incorporated by reference
(6) Filed as an exhibit to Intuit's Form S-8 registration statement (file
no. 333-84385), filed with the Commission on August 2, 1999 and
incorporated by reference
(7) Filed as an exhibit to Intuit's Form S-8 registration statement (file
no. 333-85349), filed with the Commission on August 17, 1999 and
incorporated by reference
(b)(B) REPORTS ON FORM 8-K:
(1) On September 14, 1999,January 25, 2000, Intuit filed a report on Form 8-K to report under Item
5 that on September 9, 1999, its Boardthe appointment of Directors had
declared a three-for-one stock split, to be effectedStephen M. Bennett as a stock
dividend.
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34
(2) On September 24, 1999, Intuit filed a report on Form 8-K to report
under Item 5 that its President and Chief Executive
Officer had
resigned, and that its current Chairman had been named as Acting Chief
Executive Officer pending selection of a new Chief Executive Officer.
(3) On November 24, 1999, Intuit filed a report on Form 8-K to report under
Item 5 its financial results for the quarter ended October 31, 1999.
Intuit's balance sheet and statement of operations as of and for the
three months ended October 31, 1998 and 1999 were included in the Form
8-K.board member.
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35
- - --------------------------------------------------------------------------------
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: December 14,March 16, 1999 By: /s/ Greg J. Santora
---------------------------------------------------------------------------------
Greg J. Santora
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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36
EXHIBIT INDEX
Exhibit
NumberNumber.. Description Page
- - ------ ----------- ----
2.02 Non-Competition10.01 Intuit Inc. 1996 Employee Stock Purchase Plan, as amended through
January 19, 2000.......................................................
10.02 Employment Agreement bybetween Intuit and amongStephen M. Bennett dated
January 21, 2000.......................................................
10.03 Intuit Rock Financial CorporationInc. Form of Restricted Stock Purchase Agreements between
Intuit and Daniel Gilbert,Stephen M. Bennett dated October 6, 1999...................................................January 24, 2000...................
10.04 Confidential Agreement and General Release of Claims between
Intuit Inc. and William H. Harris, Jr., dated September 23, 1999.......
27.01 Financial Data Schedule (filed only in electronic format)............................... period
ended January 31, 2000 ................................................
27.02 Financial Data Schedule (filed only in electronic format) period
ended January 31, 1999 ................................................
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