10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on June 12, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 APRIL 30, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
COMMISSION FILE NUMBER 0-21180
INTUIT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0034661
(State of incorporation) (IRS employer identification no.)
2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
(Address of principal executive offices)
(650) 944-6000
(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.
58,761,963 shares of Common Stock, $0.01 par value, as of June 3, 1998
FORM 10-Q
INTUIT INC.
INDEX
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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
See accompanying notes to condensed consolidated financial statements.
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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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
See accompanying notes to condensed consolidated financial statements.
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INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. ("Intuit" or "the Company") develops, sells and supports small
business accounting, tax preparation and consumer finance software products,
financial supplies (such as computer checks, invoices and envelopes), 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 and distribution channels,
direct customer sales and 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 (such as normal recurring adjustments) to give a fair presentation of
our operating results for the periods shown. Results for the three and nine
months ended April 30, 1998 will not necessarily indicate the results to be
expected for the fiscal year ending July 31, 1998 or any other future period.
The July 31, 1997 balance sheet was derived from audited financial statements
but does not include all disclosures required by generally accepted accounting
principles. These statements and accompanying notes should be read together with
the audited consolidated financial statements for the fiscal year ended July 31,
1997 included in Intuit's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include all of our accounts and those of
our wholly-owned subsidiaries. We have eliminated all significant inter-company
accounts and transactions.
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
accompanying notes. Our most significant estimates are related to the
collectibility of accounts receivable, reserves for product returns and
exchanges and reserves for rebates. We also use estimates to determine the
carrying value of goodwill and purchased intangibles. Actual results may differ
from our estimates.
Net Revenue
Intuit recognizes revenue from sales of desktop software products when products
are shipped, less reserves for expected returns from both the retail and direct
channels. To recognize revenue, it must be probable that we will collect the
accounts receivable from our customers. Reserves are provided for excess
quantities of current product versions, as well as previous versions of products
still in the channel when new versions are launched. In some situations, we
receive advance payments from our customers. Revenue associated with these
payments must be 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 Internet
revenue (such as subscription revenues, Internet-based advertising and
transaction revenue) as such fees are earned or services are provided.
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Customer Service and Technical Support
Customer service and technical support costs include order processing, customer
inquiries and telephone assistance. We also include the costs of post-contract
customer support in this expense category.
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. The following schedule
summarizes the estimated fair value of our cash, cash equivalents and short-term
investments:
The estimated fair value of cash equivalents and short-term investments
classified by date of maturity is as follows:
For information about our restricted investments, see Note 8 of these Notes to
Condensed Consolidated Financial Statements. Realized gains and losses from
sales of each type of security for the three and nine months ended April 30,
1998 were immaterial.
Marketable Securities
Intuit carries marketable securities at fair value and includes unrealized gains
and losses, net of tax, in stockholders' equity. We held the following
marketable securities at April 30, 1998:
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In January 1997, we sold our on-line banking and bill payment transaction
processing business to Checkfree Corporation ("Checkfree"). We obtained
marketable securities in Checkfree as a result of this sale. Note 4 of these
Notes to Condensed Consolidated Financial Statements provides more information
on this sale.
Intuit accounts 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 Stock Market under the symbol CKFR. The closing price of
Checkfree common stock at April 30, 1998 was $25.75 per share. At April 30,
1998, we held 10.6 million shares, or approximately 19%, of Checkfree's
outstanding common stock. We have reported the $116.6 million unrealized gain at
April 30, 1998 and the $34.4 million unrealized gain at July 31, 1997, on these
securities as a separate component of stockholders' equity (net of tax).
In June 1997, we purchased 2.9 million shares of common stock of Excite, Inc.
("Excite") as part of an agreement we entered into with Excite. The agreement
provides for the joint development, promotion and distribution of an on-line
financial channel. Since we are restricted from selling the shares until
December 1998, we initially valued the shares at cost, or $39.2 million.
Beginning in January 1998, these shares were adjusted to market value, as
remaining restrictions on the shares expire within 12 months. We consider the
shares to be available-for-sale securities and have included the unrealized gain
of $154.8 million as a separate component of stockholders' equity (net of tax).
Excite's common stock is quoted on the Nasdaq Stock Market under the symbol
XCIT. The closing price of Excite common stock at April 30, 1998, was $66.875
per share. At April 30, 1998, Intuit held approximately 12% of Excite's
outstanding common stock.
Checkfree, Excite, Verisign, Inc. and Concentric Network Corporation are high
technology companies whose stock is subject to substantial volatility and large
market price fluctuations. 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.
Goodwill and Intangible Assets
Components of intangible assets are as follows:
Included in the other intangible category are items such as trade names, logos
and other identified intangible assets. Balances presented above are net of
total accumulated amortization of $147.1 million and $92.1 million at July 31,
1997 and April 30, 1998, respectively. The accumulated amortization balance at
July 31, 1997 included $67.8 million relating to our acquisition of Parsons
Technology, Inc. ("Parsons") in September 1994. We subsequently sold Parsons in
August 1997. See Note 4 of these Notes to Condensed Consolidated Financial
Statements.
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Concentration of Credit and Valuation Risk
The personal computer software industry 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 April 30,
1998, we held shares of Checkfree common stock representing approximately 19% of
Checkfree's outstanding common stock. We also held approximately 12% of Excite's
outstanding common stock as of April 30, 1998. Our ability to dispose of both
the Checkfree and Excite stock is restricted by volume trading limitations and
other terms in the agreements under which we acquired the shares. The Excite
shares cannot be sold until December 1998. If there is a permanent decline in
the value of these securities below cost, we will need to report this decline in
earnings. 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 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 sets standards for reporting comprehensive income in financial
statements. Comprehensive income items include changes in equity (net assets)
that are not included in net income. Examples are foreign currency translation
adjustments and unrealized gains/losses on available-for-sale securities. We are
required to report the disclosures set forth in SFAS 130 beginning with the
quarter ending October 31, 1998.
In June 1997, FASB issued SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information." This statement establishes standards for the way
companies report information about operating segments in financial statements.
It also sets standards for related disclosures about products and services,
geographic areas and major customers. The disclosures prescribed by SFAS 131
will be required beginning in fiscal year 1999.
In October 1997, FASB approved the new American Institute of Certified Public
Accountants Statement of Position, "Software Revenue Recognition" ("SOP 97-2").
SOP 97-2 will be effective for Intuit beginning in the first quarter of fiscal
1999. We do not believe the adoption of SOP 97-2 will have a significant impact
on our revenue recognition policy.
Reclassifications
We have reclassified certain amounts reported in previous financial statements
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. The
following table shows the computation of basic and diluted income per share for
the three and nine months ended April 30, 1997 and 1998:
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3. ACQUISITIONS
In September 1996, Intuit acquired GALT Technologies, Inc. for $14.6 million.
GALT was a provider of mutual fund information on the World Wide Web. The
acquisition was treated as a purchase for accounting purposes. We allocated
approximately $8.5 million of the purchase price to identified intangible assets
and goodwill. These assets are being amortized over a period of three years or
less. We also expensed approximately $4.9 million of in-process research and
development in the quarter ended October 31, 1996. Under terms of the agreement,
Intuit issued 212,053 shares of Intuit common stock and options to purchase
approximately 33,686 shares of Intuit common stock to GALT stockholders and
option holders, respectively, at the date of acquisition. Pro forma information
for GALT has not been presented because it is not material.
In March 1997, Intuit KK, a wholly owned subsidiary of Intuit, acquired Nihon
Micom Co. Ltd. ("Nihon Micom"), a Japanese small business accounting software
company, for cash. The purchase price was approximately $39.9 million. In
addition, we assumed liabilities of approximately $9.6 million. The acquisition
was treated as a purchase for accounting purposes. We allocated approximately
$32.8 million of the purchase price to identified intangible assets and
goodwill. These assets are being amortized over a period not to exceed three
years. We also expensed $6.1 million of in-process research and development in
the quarter ended April 30, 1997. Under terms of the agreement, Intuit issued
options to purchase 89,170 shares of Intuit common stock to employees of Nihon
Micom on the date of acquisition and has agreed to issue options to purchase up
to an additional 89,170 shares on or before the second anniversary of the date
of the acquisition. Pro forma information for Nihon Micom has not been presented
because it is not material.
4. DISCONTINUED OPERATIONS AND DIVESTITURES
On January 27, 1997, we sold Intuit Services Corporation ("ISC"), our on-line
banking and bill payment transaction-processing subsidiary, to Checkfree. In
exchange, we received 12.6 million shares of Checkfree common stock. The closing
price of Checkfree common stock was $14.75 per share on January 24, 1997, the
last business day prior to closing. As a result of the transaction, we recorded
a gain on sale of discontinued operations
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of $71.2 million, net of tax, in the quarter ended January 31, 1997. We recorded
the gain net of certain conditional items relating to the business sold. In
February 1997, Intuit sold two million shares of the Checkfree common stock.
On August 7, 1997, we sold Parsons, our consumer software and direct marketing
subsidiary, to Broderbund Software, Inc. for approximately $31 million. As a
result of the sale, Broderbund acquired net assets of approximately $17 million
and Intuit incurred direct costs of approximately $9.5 million. We also recorded
a pre-tax gain of $4.3 million and a related tax provision of $2.7 million in
the quarter ended October 31, 1997.
The following information shows pro forma net revenue, net income from
continuing operations and diluted net income per share from continuing
operations of Intuit as if we had sold Parsons at the beginning of fiscal 1997:
5. NOTE RECEIVABLE
On April 30 1998, Intuit provided a short-term unsecured loan in the amount of
$50 million to Excite. The loan is on a parity with all other indebtedness of
Excite but is subordinated to Excite's current $6 million bank credit facility.
The loan bears interest at 5.9% per year and is due no later than October 30,
1998.
6. AGREEMENT WITH AMERICA ONLINE, INC.
On February 17, 1998, we announced a three-year agreement with America Online,
Inc. ("AOL"). Under terms of the agreement, subject to certain limited
exceptions, Intuit is to be the exclusive provider of tax preparation and
filing, multi-carrier life and auto insurance, and multi-lender mortgage
services on both the AOL service and AOL.com, which is AOL's default site for
Internet access by AOL members. In addition, on AOL.com, Intuit is to be the
primary source of financial content for the Personal Finance Web Channel. We
have guaranteed payments to AOL totaling $30 million over three years, of which
approximately $16 million was paid upon signing. The remainder of the guaranteed
payments will be expensed over the expected term of the agreement. AOL will also
be eligible for additional revenue sharing payments once Intuit has recouped
certain advances and other amounts.
Intuit recorded a charge to selling and marketing expense of $16.2 million in
the third quarter of fiscal 1998 in connection with the agreement. This expense
represents the excess of guaranteed payments over the expected future net
revenues from the agreement during the agreement term. Future net revenues were
calculated using estimated gross revenues less the estimated future costs
related to the agreement. The remaining capitalized amount of $13.8 million will
be amortized ratably over the remainder of the term.
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7. OTHER ACCRUED LIABILITIES
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 interest rate is variable based on the Tokyo
inter-bank offered rate or the short-term prime rate offered in Japan. At April
30, 1998, the rate was approximately 1.1%. 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). Intuit has guaranteed the loan and has pledged
approximately $31.1 million, or 110% of the loan balance, of short-term
investments to be restricted as security for the borrowings at April 30, 1998.
Intuit is obligated to pay interest only until March 2000.
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. The write-off of in-process research and development and the amortization
of goodwill are not tax deductible and therefore not included in the tax
provision.
10. SHAREHOLDER RIGHTS PLAN
On April 29, 1998, the Board of Directors adopted a shareholder rights plan
designed to protect the long-term value of the Company for its shareholders
during any future unsolicited acquisition attempt. In connection with the plan,
the Board declared a dividend of one preferred share purchase right for each
share of Intuit's common stock outstanding on May 11, 1998 (the "Record Date")
and further directed the issuance of one such right with respect to each share
of Intuit's common stock that is issued after the Record Date, except in certain
circumstances. If a person or a group (an "Acquiring Person") acquires 20
percent or more of Intuit's common stock, or announces an intention to make a
tender offer for Intuit's common stock, the consummation of which would result
in a person or group becoming an Acquiring Person, then the rights will be
distributed (the "Distribution Date"). After the Distribution Date, each right
may be exercised for 1/1000th of a share of a newly designated Series B Junior
Participating Preferred stock at an exercise price of $250. The preferred stock
has been structured so that the value of 1/1000th of a share of such preferred
stock will approximate the value of one share of common stock. The rights will
expire on May 1, 2008.
11. LITIGATION
The following class action lawsuits have been filed against Intuit alleging Year
2000 issues with the on-line banking functionality in certain versions of the
Company's Quicken product: Issokson v. Intuit Inc., filed in the Santa Clara
County Superior Court, State of California, on April 29, 1998; Rocco Chilelli v.
Intuit Inc., filed in the New York Supreme Court, State of New York, on May 14,
1998; Rubin v. Intuit Inc., filed in the Santa Clara County Superior Court,
State of California, on May 27, 1998; and Faegenburg v. Intuit Inc., filed in
the New York Supreme Court, State of New York, on May 27, 1998. Intuit does not
believe the lawsuits have merit and intends to defend them vigorously.
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Intuit is subject to other legal proceedings and claims that arise in the course
of its business. Intuit believes that the ultimate amount of liability, if any,
for any pending actions (either alone or combined) will not materially affect
its financial position, results of operations or liquidity. However, the
ultimate outcome of any litigation is uncertain. An unfavorable outcome could
have a material negative impact. In addition, any litigation, regardless of
outcome, can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
12. SUBSEQUENT EVENTS
On May 12, 1998, Intuit announced that its Board of Directors plans to elect
William V. Campbell as Chairman of the Board and William H. Harris, Jr. as
President and Chief Executive Officer at the next regular Board meeting
scheduled for July 28, 1998. Intuit founder Scott D. Cook will become Chairman
of the Executive Committee of the Board and continue to work full-time with the
Company. Mr. Cook currently serves as Chairman of the Board, Mr. Campbell
currently serves as President and Chief Executive Officer and Mr. Harris
currently serves as Executive Vice President. These changes will be effective
August 1, 1998. In addition, the Board elected Mr. Harris as a director of
Intuit, effective May 12, 1998.
On May 18, 1998, Intuit entered into an Asset Purchase Agreement with Lacerte
Software Corporation and Lacerte Educational Services Corporation (together,
"Lacerte") under which it agreed to purchase substantially all of Lacerte's
assets in exchange for $400 million in cash and also agreed to assume
substantially all of Lacerte's liabilities. Lacerte is a leading developer and
marketer of tax preparation software and services for tax professionals. The
consummation of the pending acquisition is subject to certain conditions,
including regulatory approvals. The pending acquisition, which is expected to
close by the end of our first fiscal quarter of 1999, will be funded by a public
offering of 9.0 million shares of common stock, which was completed on May 28,
1998. The pending acquisition, which we plan to treat as a purchase for
accounting purposes, is expected to result in a write-off of approximately $20
million (representing in-process research and development) in the quarter in
which the acquisition is completed. In addition, we expect to capitalize certain
intangible assets in the amount of approximately $390 million, which we expect
to amortize over periods of three to five years.
On May 28, 1998, Intuit sold 9.0 million shares of its Common Stock in a
registered underwritten public offering at a price to the public of $47.375 per
share, providing us with net proceeds of approximately $411 million after
underwriting commissions and estimated expenses. As noted above, $400 million of
these net proceeds are expected to be used to fund the purchase price of the
pending acquisition of Lacerte. On June 3, 1998, the underwriters of the public
offering exercised their over-allotment option to purchase an additional 1
million shares of Intuit common stock at a price of $47.375 per share, providing
us with additional net proceeds of $45.7 million, net of underwriting
commissions.
In May 1998, we participated in the formation of a company, Venture Finance
Software Corp. ("VFSC") to focus on the development of certain Web-oriented
finance products. VFSC has received $23 million through the sale of equity
interests to private investors and obtained conditional commitments to receive
up to an additional $23 million in capital contributions from these investors.
Of the $46 million potential funding for VFSC, venture capital funds managed by
Kleiner Perkins Caufield & Byers, of which L. John Doerr, a director of Intuit,
is a general partner, have agreed to invest up to $1 million. In exchange for
its equity interest in VFSC, Intuit has granted VFSC licenses to certain
technology and intellectual property rights related to certain Web-oriented
finance products and has agreed not to compete with VFSC in certain areas of
server-based personal finance for a period of ten years. Intuit will manage the
development of the new products and the commercialization efforts of VFSC and
has been granted the option to purchase the equity interests of the other
investors in VFSC during a period of time beginning two years after the
formation of VFSC at a price to be determined by a formula. The cost of
exercising the option would be substantial and would result in Intuit's
acquisition of certain intangible assets that would be amortized over the
expected useful life of VFSC's technology. The development of Web-oriented
finance products is subject to significant technological risks, and there can be
no assurance that the development will be successful or that Intuit's purchase
option will be exercised.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements about future financial
results and other events that have not yet occurred. Forward-looking statements
include, but are not limited to, statements regarding expected benefits and
effects of our proposed acquisition of Lacerte Software Corporation and Lacerte
Educational Services Corporation (collectively, "Lacerte"), including statements
regarding strategic benefits of the proposed acquisition, Lacerte's potential
contribution to Intuit's revenues and profitability, the effect of the proposed
acquisition on our competitiveness in the market for professional tax software,
and the timing and amount of expenses we may incur as a result of the proposed
acquisition; our strategy and growth expectations with respect to the Internet
and our Internet-based businesses; the expected launch dates for future products
and services, including QuickBooks 6.0 and the services being developed in
connection with the proposed development venture with Bank of America NT&A
("Bank of America"), Tele-Communications, Inc. ("TCI") and At Home Corporation
("@Home"); prospects for our QuickBooks, TurboTax and Quicken '98 products; and
expected trends in certain expenses. Actual results may differ significantly
from our current expectations because of risks and uncertainties about the
future. Such risks include, but are not limited to, completion of the proposed
acquisition of Lacerte; intense competition and pricing pressures; uncertain
growth of the markets for the Company's offerings; rapidly changing technology
and customer demands; the timing and consumer acceptance of new products and
services; possible delays in product launch dates; possible product errors or
other events that lead to greater demand for customer service and technical
support (and therefore greater cost to the Company); the adequacy of our product
return reserves; the Company's dependence on its distribution channels; risks
related to the Company's recent acquisitions; the Company's ability to adapt and
expand its product, service and content offerings for the Internet environment;
the cost of implementing the Company's Internet strategy; the success of
relationships between the Company and third parties that are significant to the
Company's Internet strategy; risks associated with regulated businesses such as
our Internet-based insurance and mortgage marketspaces; and uncertainty as to
the timing and amount of potential Internet-related revenue and profit. In
addition, the Company will not necessarily update the information in this Form
10-Q if any forward-looking statements later turn out to be inaccurate.
Additional information on factors that could affect future results and events is
included in our report on Form 10-K for the fiscal year ended July 31, 1997 and
our Forms 10-Q for the quarters ended October 31, 1997 and January 31, 1998,
filed with the Securities and Exchange Commission.
OVERVIEW
Intuit's mission is to revolutionize the way individuals and small businesses
manage their finances. To achieve this goal, we create, sell and support small
business accounting, tax preparation and consumer finance software products,
financial supplies (such as computer checks, invoices and envelopes), and
Internet-based products and services to individuals and small businesses. Our
revenues come primarily from the United States, Japan, Germany, Canada and the
United Kingdom through both retail distribution channels and direct customer
sales.
While software and related products and services now provide most of our
revenue, Internet-based revenue is growing and has become an important part of
our business strategy in all of our business divisions. Our primary sources of
Internet-based revenue are fees from companies who advertise on Quicken.com and
from certain financial service providers, such as mortgage lenders and insurance
brokers, who obtain customers through Quicken.com. Although substantially all
Internet-based revenues to date have been generated by our tax and consumer
finance divisions, we continue to devote significant financial resources to
developing Internet-related products and services in these and other areas. For
example, during fiscal 1998, we launched our QuickenMortgage on-line mortgage
service, our TurboTax on-line product and our Quicken.com Small Business
website.
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Although Internet revenues are growing rapidly, they represent a small
percentage of our total year-to-date revenue. The Internet is a relatively new
source of revenue for us. We expect Internet revenues to remain insignificant at
least through the remainder of the current fiscal year. Like other companies
establishing Internet-based businesses, we face several significant risks. We
are operating in an environment where the technology, customer demands and other
factors are rapidly changing. We face intense competition from a wide range of
companies. The barriers to entry are low. Consumers may be slow to accept the
Internet as a way to buy goods and services. While we believe that Internet
revenues will continue to grow, the rate of growth cannot be reasonably
estimated and there can be no assurance that growth will continue to occur.
Our business is highly seasonal. Sales of tax products are heavily concentrated
from November through March. Sales of consumer finance products are typically
strongest during the year-end holiday buying season, and therefore major
consumer finance product launches usually occur in the fall to take advantage of
this consumer-buying pattern. These seasonal patterns mean that revenue is
usually strongest during the quarter ending January 31. Intuit experiences lower
revenues for the quarters ending April 30, July 31, and October 31 while
operating expenses to develop and manage its products and services continue
during these periods, which can result in significant operating losses. The
seasonality of our revenue patterns is likely to be exacerbated by our proposed
acquisition of Lacerte. Operating results can also fluctuate for other reasons
such as changes in product release dates, non-recurring events such as
acquisitions and product price cuts in quarters with relatively high fixed
expenses. In particular, there is no seasonal pattern for our QuickBooks product
launches. For example, the third quarter of fiscal 1997 benefited from the
launch of QuickBooks 5.0 in the second quarter of fiscal 1997, but the third
quarter of fiscal 1998 did not receive such a benefit. Because of these factors,
we believe that consecutive quarter comparisons, as well as year-over-year
quarterly comparisons, may not be meaningful and don't necessarily indicate
future performance. Annual comparisons are generally more meaningful when
measuring how we've performed.
We recognize revenue from sales of our desktop software products when products
are shipped, less reserves for expected returns from both the retail and direct
distribution channels. These reserves are difficult to estimate, especially for
seasonal products. If actual returns are significantly higher than our estimated
reserves, this could have a material negative impact on our revenue and
operating results. See Note 1 of the Notes to Condensed Consolidated Financial
Statements regarding net revenue.
On May 18, 1998, Intuit entered into an Asset Purchase Agreement with Lacerte
under which we agreed to purchase substantially all of Lacerte's assets in
exchange for $400 million in cash and to assume substantially all of Lacerte's
liabilities. The consummation of the pending acquisition is subject to certain
conditions, including receipt of regulatory approvals. While we expect to
consummate the pending acquisition in the summer of 1998, no assurances can be
given as to when, or whether, the pending acquisition will be completed. Lacerte
is a leading developer and marketer of tax preparation software and services for
tax professionals. Its products are used primarily by tax professionals to
prepare federal and state income tax returns for individuals and small
businesses, as well as estate, trust and gift tax returns. In its fiscal years
ended March 31, 1997 and 1998, Lacerte had revenue of $68.1 million and $75.6
million, respectively, and income from operations of $23.4 million and $28.9
million, respectively. We believe that the pending acquisition has the potential
to provide Intuit with a number of strategic benefits. We expect that the
pending acquisition will contribute to our recurring revenue base since users of
Lacerte's product offerings, like users of Intuit's tax products, must purchase
annual updates that reflect tax law and tax form changes. If consummated, the
acquisition of Lacerte could also enable us to compete more effectively with
other large providers of tax preparation software. We expect the pending
acquisition to strengthen our presence in the professional tax preparation
software and service offerings, as the Intuit ProSeries product line and
Lacerte's product line can provide complementary solutions for different
practitioner preferences. See Note 12 of the Notes to Condensed Consolidated
Financial Statements for more information about the pending acquisition.
On March 24, 1998, Intuit announced an agreement in principle with Bank of
America, TCI and @Home to form a venture to develop a system designed to deliver
financial services to consumers over their television sets. The venture is
expected to provide financial services from a variety of financial institutions
and other content providers utilizing Intuit technology. The establishment of
this venture is subject to the negotiation and execution of definitive
agreements and all appropriate regulatory approvals, and therefore there can be
no assurance that the venture will be established until such agreements and
approvals are in place.
-15-
On March 30, 1998, Intuit announced an exclusive agreement with MECA under which
MECA will develop and market customized versions of our Quicken personal
financial management software with unique branding and other features for
individual financial institutions for distribution to their customers in the
U.S. and Canada.
In May 1998, we participated in the formation of a joint venture company,
Venture Finance Software Corp. ("VFSC") to focus on the development of certain
Web-oriented finance products. VFSC has received $23 million through the sale of
equity interests to private investors and obtained conditional commitments to
receive up to an additional $23 million in capital contributions from these
investors. In exchange for its equity interest in VFSC, Intuit has granted VFSC
licenses to certain technology and intellectual property rights related to
certain Web-oriented finance products and has agreed with VFSC not to compete in
certain areas of server-based personal finance for a period of ten years. Intuit
will manage the development of the new products and the commercialization
efforts of the joint venture. Intuit has been granted the option to purchase the
equity interests of the other investors in VFSC during a period of time
beginning two years after the formation of VFSC at a price to be determined by a
formula. The cost of exercising the option would be substantial and would result
in Intuit's acquisition of certain intangible assets that would be amortized
over the expected useful life of VFSC's technology. The development of
Web-oriented finance products is subject to significant technological risks, and
there can be no assurance that the development will be successful or that
Intuit's purchase option will be exercised. See Note 12 of the Notes to
Condensed Consolidated Financial Statements for more information about the joint
venture.
RESULTS OF OPERATIONS
The following is selected consolidated statement of operations information for
the three and nine-month periods ended April 30, 1997 and 1998. Investors should
be aware that the following operating results for the three and nine-month
periods ended April 30, 1997 are presented on a pro forma basis that excludes
results for our Parsons subsidiary that was sold on August 7, 1997 (except for
results of the Parsons tax business, which we retained after the sale). These
pro forma tables are being presented for comparative purposes to allow investors
to analyze results on a more consistent basis and are not prepared in accordance
with generally accepted accounting principles (GAAP). For results that include
Parsons activity for fiscal 1997, investors should refer to our Condensed
Consolidated Statements of Operations on page four. For additional pro forma
information about 1997 results without Parsons, see Note 4 of the Notes to
Condensed Consolidated Financial Statements.
NET REVENUE
Small Business Division. Small business division revenues come primarily from
the following sources:
- QuickBooks product line
- Domestic supplies products (including checks, invoices and
envelopes)
- Tax table services
- Support fees charged to customers for telephone assistance
Overall, revenue for the division was down 8% for the three months ended April
30, 1998 and roughly flat for the nine months ended April 30, 1998, compared to
the respective periods a year ago. These results were largely due to
-16-
lower QuickBooks product sales, which were down 30% and 14% for the respective
periods, offset in part by revenue increases for other small business products
and services. This decrease was expected since we had a QuickBooks product
release in the second quarter of fiscal 1997, which benefited third quarter
revenue, whereas there has been no new QuickBooks release to date in fiscal
1998. We expect that our QuickBooks multi-user product will be released in the
fourth quarter of fiscal 1998.
With the QuickBooks multi-user product, we will be targeting the multi-user
market for the first time. While this is an opportunity for future sales growth,
there are also risks. For example, the multi-user version of QuickBooks is
currently expected to have a higher sale price than single-user versions. This
may impact the distribution channels we use for the product. There is also a
risk that the multi-user release date could be delayed. In addition, customer
service and technical support costs may be higher due to the complexity of the
product. If these or other risks occur, our operating results could suffer.
Domestic supplies revenues, which are part of the small business division, grew
by 3% and 10% for the three and nine-month periods ended April 30, 1998,
respectively, due primarily to our increasing base of small business owners (the
table above includes both domestic and international supplies revenue). This
growth was achieved despite the absence of a new QuickBooks product launch to
generate new sales. Unlike software sales, our supplies business is a more
consistent source of revenue that comes from our existing base of customers who
use QuickBooks and Quicken to run their small businesses. While customers may go
long periods of time without buying a new version of software, they will often
buy supplies in-between software purchases. This relatively steady revenue
stream has grown as our customer base of small business owners has increased.
Tax table service revenue grew by 40% and 32% for the three and nine-month
periods ended April 30, 1998, respectively. Fees charged for providing telephone
support to QuickBooks customers increased by approximately 75% for the same
three and nine-month periods. While these are high growth businesses for the
division, they remain a relatively small component of overall division revenues.
During the third quarter of fiscal 1998, we launched our new small business
website, Quicken.com Small Business. This site extends Quicken.com's coverage by
addressing the specific needs of small businesses. Although we expect that this
site will provide an additional source of Internet-based revenue for Intuit in
the future, we can't predict the amount or timing of such revenue.
Tax Division. Tax division revenues come primarily from the following sources:
- TurboTax and MacInTax personal tax preparation product line
- Professional tax preparation products
- Electronic tax return filing fees
Overall, tax division revenues for the three and nine months ended April 30,
1998 were up 53% and 6% respectively, compared to last year. Growth was
unusually high for the three-month period primarily because the recognition of
certain revenues was delayed from the second quarter into the third quarter this
year. For example, certain revenue allocated to our free electronic filing
service that was offered to TurboTax deluxe customers was deferred from the
second quarter into the third quarter. There was no such deferral last year
since we didn't have the free offer. The quarterly revenue increase was also due
to the fact that most of our TurboTax state tax products were released in
January (second quarter) in fiscal 1997, but in February (third quarter) this
year. Year to date revenues increased 6% over the prior year reflecting improved
retail sales of our TurboTax products. Despite aggressive pricing from
competitive products such as H&R Block's TaxCut product, we achieved this growth
through expanded retail distribution channel and rebate programs intended to
maintain our competitive position.
While our TurboTax product line sold well through retail channels this tax
season, it's too early to predict results for the entire year. There is a risk
that retailers will return more unsold tax products than we expect during the
next quarter. Though we believe our reserves for returned products will be
adequate, higher than expected returns could have a negative impact on sales for
the season.
-17-
Our professional tax product sales increased by 25% and 11% for the three and
nine-month periods ended April 30, 1998, respectively, compared to the same
periods last year. We experienced this growth primarily because we have been
successful in retaining our customers from last year and in many cases have
upgraded them to higher-priced products. We have also been successful in
increasing our pay-per-return revenues.
Our Tax division has also experienced growth in Internet-based revenues during
fiscal 1998. Electronic filing revenues have increased significantly, and during
the third quarter we launched TurboTax Online, which allows users to prepare and
file federal 1040 and California state tax returns on-line.
On May 18, 1998, Intuit entered into an Asset Purchase Agreement with Lacerte
under which we agreed to purchase substantially all of Lacerte's assets in
exchange for $400 million in cash and to assume substantially all of Lacerte's
liabilities. The consummation of the pending acquisition is subject to certain
conditions, including receipt of regulatory approvals. Lacerte is a leading
developer and marketer of tax preparation software and services for tax
professionals. Its products are used primarily by tax professionals to prepare
federal and state income tax returns for individuals and small businesses, as
well as estate, trust and gift tax returns. See "Overview," above for more
information about the pending acquisition.
Consumer Finance Division. Consumer finance division revenues come primarily
from the following sources:
- Quicken product line
- Advertising and sponsorship fees from our Quicken.com website
- Fees earned for connecting insurance brokers with insurance
customers through our Quicken InsureMarket service offered
through Quicken.com
- Fees earned for connecting mortgage lenders with mortgage
customers through our QuickenMortgage service offered through
Quicken.com
- Fees earned for connecting Quicken customers with Checkfree's
bill payment services
Total revenue for the consumer finance division was up 31% and 15% for the three
and nine-month periods ended April 30, 1998 respectively, compared to the same
periods a year ago.
Our Quicken product line sales increased 12% and 5% for the three and nine-month
periods ended April 30, 1998 respectively, compared to the same periods a year
ago. This reflects a more favorable sales mix toward our higher-priced deluxe
products, partially offset by lower overall unit sales.
Growth for the division was driven in part by Internet-based revenues, which
grew over 90% for the three and nine-month periods ended April 30, 1998,
respectively, compared to the same periods a year ago. This growth has been
generated in part by collaborating with third party on-line service and content
providers to deliver financial content to their customers through co-branded
content or links to the Quicken.com site. For example, we have an agreement with
Excite under which all Internet users who enter the Excite Business and
Investing channel are sent to a Quicken.com website that is co-branded (with
Excite). This has significantly increased traffic to Quicken.com. In exchange,
we share profits generated from Quicken.com with Excite. In October 1997, we
entered into an exclusive relationship with CNN to provide Quicken.com on FN, a
co-branded personal finance area on CNNfn.com. In February 1998, we entered into
an agreement with AOL under which, subject to certain exceptions, Intuit is to
be the exclusive provider of tax preparation and filing, multi-carrier life and
auto insurance, and multi-lender mortgage services on both the AOL service and
AOL.com, which is AOL's default site for Internet access by AOL members. In
addition, on AOL.com, Intuit is to be the primary source of financial content
for the Personal Finance Web Channel. As of our fiscal third quarter, we have
not yet recognized any revenue from the AOL agreement. We expect to begin
recognizing revenue in our fiscal fourth quarter. See "Operating Expenses,"
below, for a discussion of expenses we are incurring in connection with this
agreement.
-18-
International Division. International division revenues come primarily from the
following sources:
- Japanese small business products
- German Quicken, QuickBooks and Tax products
- Canadian Quicken, QuickBooks and Tax products
- United Kingdom Quicken, QuickBooks and Tax products
We also operate in smaller European, Asian and Latin American markets. For our
international division, revenues were up by 15% and 11% for the three and
nine-month periods ended April 30, 1998, respectively, compared to the same
periods last year. Revenue growth for the quarter was primarily due to the
launch of Quickbooks in Germany and the release of a new version of Quicken in
Europe. We also experienced a strong tax season in Canada. In Japan, revenues
were slightly down for the quarter and up on a year-over-year basis primarily
due to our acquisition of Nihon Micom. Despite a recent economic slowdown in
Japan, unit sales of our small business products have increased this year. This
unit growth was partially offset by the negative impact of a weak Japanese
currency, which translates into fewer U.S. dollars than it did last year. We
expect the international revenue growth of the current quarter to slow since
customers tend to upgrade products quickly.
We have continued to focus our product development in Europe towards small
business products in selected larger markets. As a result, we expect to devote
fewer resources to consumer finance and tax products, and to smaller geographic
markets. There is a risk that this shift in strategy may negatively impact our
international revenue for the remainder of the fiscal year and next fiscal year.
COST OF GOODS SOLD
There are two components of cost of goods sold. The largest is the direct cost
of manufacturing and shipping products. The second component is the amortization
of purchased software, which is the cost of products obtained through business
acquisitions. Excluding the operating results of our divested Parsons subsidiary
for fiscal 1997, total cost of goods sold was 21% and 20% of revenue for the
three and nine months ended April 30, 1998 respectively. This compares to 21%
and 23% for the same periods of the prior year. The improvement in cost of goods
sold for the nine-month period resulted from customers buying more of our CD ROM
products, which cost less to manufacture and ship than disk-based products. We
have also improved the efficiency of our order-taking process in the financial
supplies business, which has reduced costly re-orders. We believe these
improvements are beginning to level off, as evidenced by the fact that cost of
goods sold was essentially the same percentage of revenues in the quarters ended
April 30, 1997 and 1998. While we will continue our efforts to decrease cost of
goods sold as a percentage of net revenue, there can also be no assurance that
they will improve or continue at their current rates. If there are errors in
current or future products, we could experience increases in cost of goods sold
and an adverse effect on operating results. Specifically, the release of our
multi-user version of QuickBooks may increase the risk of product errors for the
remainder of fiscal 1998.
-19-
OPERATING EXPENSES
Customer Service and Technical Support. Excluding the operating results of our
divested Parsons subsidiary for fiscal 1997, customer service and technical
support decreased to 19% of revenue for the three and nine months ended April
30, 1998. This compares to 21% and 20% for the same periods of the prior year.
In the current year, we have benefited from cost reductions due to the
restructuring and consolidation of our technical support facilities in the
United States and Europe in the fourth quarter of fiscal 1997. While we
anticipate that service and support expenses will stay relatively flat or
decrease as a percentage of revenue because of the 1997 restructuring and
increased fees charged for telephone support, there is a risk that these
expenses could increase. For example, our new multi-user QuickBooks product may
result in higher customer service and technical support expenses since customers
are likely to need considerably more assistance with this more complex product.
Selling and Marketing. Excluding the operating results of our divested Parsons
subsidiary for fiscal 1997, selling and marketing expenses were 39% and 28% of
revenue for the three and nine months ended April 30, 1998, respectively,
compared to 28% and 23% for the same periods of the prior year. The significant
increase was due to a charge of $16.2 million related to the AOL agreement in
the third quarter of fiscal 1998. Excluding this charge, selling and marketing
expenses would have been 27% and 25% for the three and nine months ended April
30, 1998, respectively. For the fiscal year to date, we have experienced
increased selling and marketing costs in support of our TurboTax product launch
and international product launches compared to last year.
Research and Development. Excluding the operating results of our divested
Parsons subsidiary for fiscal 1997, research and development expenses increased
to 18% and 16% of revenue for the three and nine months ended April 30, 1998
respectively. This compares to 17% and 14% for the same periods of the prior
year. The development of the multi-user version of QuickBooks contributed to
increasing costs since it has been more expensive to develop than our less
complex single-user products. These increases were also a result of our
increased spending to improve and expand our Internet-based products and
services in an effort to attract more customer traffic to Quicken.com. We
believe that research and development expenses related to Internet-based
products and services will continue to increase as a percentage of net revenue
for the remainder of the fiscal year.
-20-
There is a risk that this could have an adverse effect on our operating results,
particularly if revenue from these services does not meet expectations.
General and Administrative. Excluding the operating results of our divested
Parsons subsidiary for fiscal 1997, general and administrative expenses were 6%
of revenue for the three and nine months ended April 30, 1998. This compares to
7% for the same periods of the prior year.
Charge for Purchased Research and Development. When acquiring a company, we
often have to record a one-time charge for purchased research and development.
This charge represents the value of products we acquire that aren't yet complete
enough to be considered technologically feasible. We recorded such a charge of
$4.9 million in the first quarter of fiscal 1997 when we acquired GALT
Technologies, Inc. and another charge of $6.1 million in the third quarter of
fiscal 1997 when we acquired Nihon Micom. There were no such charges for the
three and nine-month periods ended April 30, 1998. In the quarter in which our
proposed acquisition of Lacerte is completed, we expect to incur an additional
charge of approximately $20 million for purchased research and development.
See "Overview," above.
Other Acquisition Costs. Other acquisition costs include the amortization of
goodwill and purchased intangibles that are recorded as part of an acquisition.
Excluding the operating results of our Parsons subsidiary for fiscal 1997, these
costs increased to $3.4 million in the third quarter of fiscal 1998 compared to
$3.0 million in the third quarter of fiscal 1997. For the nine months ended
April 30, 1998, these costs were $12.2 million compared to $17.0 million for the
same period of the prior year. This year-to-date decrease was due to the fact
that a majority of the intangibles related to our December 1993 acquisition of
Chipsoft Inc. became fully amortized during fiscal 1997. For future periods,
acquisition costs will continue to have an impact on our results. Based on
acquisitions completed as of April 30, 1998, future amortization will reduce net
income by approximately $13.4 million, $11.0 million, $5.3 million and $0.5
million for the years ending July 31, 1998 through 2001, respectively. If our
proposed acquisition of Lacerte is completed, we expect to capitalize certain
intangible assets in the amount of approximately $390 million, which we expect
to amortize over periods of three to five years. Also, if we complete additional
acquisitions in the future, there could be additional amortization charges.
OTHER INCOME
For the three and nine months ended April 30, 1998, interest and other income
and expense, net, remained essentially flat as a percentage of revenue compared
to the same periods of the prior year. The $4.3 million gain on disposal of
business in the nine months ended April 30, 1998 resulted from the sale of
Parsons, our direct marketing subsidiary, in August 1997.
INCOME TAXES
For the three and nine months ended April 30, 1998, we recorded a tax benefit of
$2.0 million and a tax provision of $17.5 million respectively, on a pretax loss
of $4.2 million and pretax income of $44.4 million, respectively. As of April
30, 1998, we have reserved $4.2 million for certain tax assets of our
international subsidiaries. This was based on our belief that we may not receive
the tax benefit of certain loss carryforwards in these foreign countries.
DISCONTINUED OPERATIONS
We sold our ISC subsidiary to Checkfree Corporation in the second quarter of
fiscal 1997. This resulted in a $71.2 million gain, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, our unrestricted cash, cash equivalents and short-term
investments totaled $247.3 million, a $42.2 million increase from July 31, 1997.
Because of the seasonality of our business, liquidity generally improves in our
second and third fiscal quarters. This is because cash receipts are generated
from the sale of our tax products and other product releases that typically
occur during the first two quarters of our fiscal year.
-21-
Our operations provided $74.0 million in cash during the nine months ended April
30, 1998. Primary contributors to cash provided were net income from continuing
operations and an increase in accrued liabilities, including reserves for
rebates, returns and exchanges. Increases were offset by cash used for payments
we made for expenses related to the ISC and Parsons sales, as well as
restructuring charges. We also experienced a significant increase in accounts
receivable balances due to the seasonal nature of our business resulting from
the concentration of product releases in our second fiscal quarter.
Investing activities used $33.9 million in cash for the nine months ended April
30, 1998. We received $26.4 million in cash proceeds from the sale of our
Parsons subsidiary and $9.0 million from the sale of our technical support site
in New Mexico. Uses of cash were driven by net purchases of both short-term and
long-term investments, in addition to purchases of property and equipment.
Capital expenditures are primarily for equipment and facilities to support our
ongoing and expanding operations and information systems.
The $23.7 million in cash used by financing activities is primarily due to the
$50.0 million we loaned to Excite, offset by proceeds from the exercise of
employee stock options. The Excite loan is unsecured, subordinated to Excite's
current bank credit facility and is scheduled to be repaid no later than October
1998. We borrowed $30.3 million from Japanese banks in March 1997 in connection
with our acquisition of Nihon Micom. We have guaranteed the loan and pledged
approximately $31.1 million of short-term investments (110% of the loan balance)
to be restricted as security for the borrowings at April 30, 1998.
Our agreement with AOL obligates us to pay a minimum of $30 million over the
term of the three-year agreement. Of this amount, approximately $16.2 million
was paid to AOL in our third fiscal quarter. In May 1998, we announced plans to
acquire Lacerte, a professional tax-preparation software company for $400
million in cash. To fund the proposed acquisition, we completed a public
offering of 9.0 million shares of common stock on May 28, 1998, and an
additional 1 million shares on June 3, 1998. The net proceeds from the offering
(approximately $456.7 million) are expected to be used primarily for the
acquisition of Lacerte and for general corporate purposes. We currently do not
have any other significant capital expenditure commitments, though we may
require additional cash for strategic projects in the future.
In the normal course of business, we enter into leases for new or expanded
facilities in both domestic and international locations. During 1996, we began
the move of our headquarters from Menlo Park, California to larger facilities in
Mountain View, California. We expect the move to be complete by the end of
calendar year 2000.
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
Intuit is in the process of evaluating its internal computer systems, as well as
the software products it sells, to determine whether modifications will be
required to prevent problems related to the Year 2000. Based on preliminary
assessments, Intuit believes that costs required to achieve Year 2000 compliance
(including costs incurred to date) will not be material. However, actual costs
may increase depending on the outcome of its continuing evaluations. In
addition, the products and services of certain other companies with whom Intuit
has strategic relationships may not be Year 2000 compliant, which could create
issues with respect to the use of Intuit's products and services through these
strategic partners.
Four class action lawsuits have recently been filed against Intuit in California
and New York, alleging Year 2000 issues with the on-line banking functionality
in Quicken for Windows versions 5 and 6 and for Quicken for Macintosh versions 6
and 7. Intuit does not believe the lawsuits have merit and intends to defend
them vigorously. Intuit has been working with financial institutions to provide
solutions to its current on-line banking customers and is planning to make such
solutions available before the customers experience any Year 2000 problems. See
Part II, Item 1, "Legal Proceedings," below.
-22-
PART II
ITEM 1
LEGAL PROCEEDINGS
The following class action lawsuits have been filed against Intuit alleging Year
2000 issues with the on-line banking functionality in certain versions of the
Company's Quicken product: Issokson v. Intuit Inc., filed in the Santa Clara
County Superior Court, State of California, on April 29, 1998; Rocco Chilelli v.
Intuit Inc., filed in the New York Supreme Court, State of New York, on May 14,
1998; Rubin v. Intuit Inc., filed in the Santa Clara County Superior Court,
State of California, on May 27, 1998; and Faegenburg v. Intuit Inc., filed in
the New York Supreme Court, State of New York, on May 27, 1998. Intuit does not
believe the lawsuits have merit and intends to defend them vigorously.
Intuit is subject to other legal proceedings and claims that arise in the course
of its business. Intuit believes that the ultimate amount of liability, if any,
for any pending actions (either alone or combined) will not materially affect
its financial position, results of operations or liquidity. However, the
ultimate outcome of any litigation is uncertain. An unfavorable outcome could
have a material negative impact. In addition, any litigation, regardless of
outcome, can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
-23-
ITEM 2
CHANGES IN SECURITIES
On April 29, 1998, the Board of Directors adopted a shareholder rights plan
designed to protect the long-term value of the Company for its shareholders
during any future unsolicited acquisition attempt. In connection with the plan,
the Board declared a dividend of one preferred share purchase right for each
share of Intuit's common stock outstanding on May 11, 1998 (the "Record Date")
and further directed the issuance of one such right with respect to each share
of the Company's common stock that is issued after the Record Date, except in
certain circumstances. The rights will expire on May 1, 2008.
The rights are initially attached to the Company's common stock and will not
trade separately. If a person or a group (an "Acquiring Person") acquires
beneficial ownership of 20 percent or more of Intuit's common stock, or
announces an intention to make a tender offer for Intuit's common stock, the
consummation of which would result in a person or group becoming an Acquiring
Person, then the rights will be distributed (the "Distribution date") and will
thereafter trade separately from the common stock.
After the Distribution date, each right may be exercised for 1/1000th of a share
of a newly designated Series B Junior Participating Preferred stock at an
exercise price of $250. The preferred stock has been structured so that the
value of 1/1000th of a share of such preferred stock will approximate the value
of one share of common stock.
In connection with the adoption of the plan, the Board of Directors also amended
two provisions of Intuit's Bylaws. Special meetings of Intuit shareholders may
now only be called by the Chairman of the Board, the Chief Executive Officer,
the President or by a majority of the Board of Directors. Additionally,
vacancies on the Board of Directors may now be filled until the next annual
meeting of shareholders only by majority vote of the Directors then in office.
The Company filed a Form 8-K on May 5, 1998 to report the adoption of the
shareholder rights plan and the amendments to its bylaws. Further information
regarding our shareholder rights plan can be found in our Form 8-A filed with
the Securities and Exchange Commission on May 5, 1998.
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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
3.1 Bylaws of Intuit, as amended and restated effective April 29,
1998. (Incorporated by reference to Intuit's Report on Form 8-K
filed with the Securities and Exchange Commission on May 5,
1998.)
3.2 Intuit's Certificate of Designations of Series B Junior
Participating Preferred Stock, as filed with the Delaware
Secretary of State on May 5, 1998. (Incorporated by reference to
Intuit's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on May 5, 1998.)
4.1 Rights Agreement dated May 1, 1998, between the Company and
American Stock Transfer and Trust Company, as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series B Junior Participating Preferred Stock,
as Exhibit B the Form of Right Certificate and as Exhibit C the
Summary of Rights to Purchase Preferred Shares. (Incorporated by
reference to the Company's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on May 5,
1998.)
10.01 1993 Equity Incentive Plan, as amended through April 29, 1998.
27.01 Financial Data Schedule (filed in electronic version only)
27.02 Amended Restated Financial Data Schedules (Fiscal 1996 and 1997
Quarters)
27.03 Amended Restated Financial Data Schedules (Fiscal 1998 Quarters)
(b) REPORTS ON FORM 8-K:
(i) On May 5, 1998, Intuit filed a Form 8-K to report under Item 5
its adoption of a shareholder rights plan and amendment of its
Bylaws. No financial statements were filed.
(ii) On May 18, 1998, Intuit filed a Form 8-K to report under Item 5
the following items: (a) certain management changes; (b)
announcement of results for the third quarter of fiscal 1998;
(c) Intuit's proposed purchase of Lacerte Software Corporation
and Lacerte Educational Services Corporation (collectively,
"Lacerte"); (d) the formation of a new company to focus on the
development of certain Web-oriented finance products; and (e)
basic and diluted earnings per share information for prior
periods since the year ended September 30, 1993, as required by
SFAS 128. The Form 8-K included the following financial
statements under Item 7: (a) audited combined financial
statements of Lacerte as of March 31, 1997 and 1998 and for the
three years ended March 31, 1996, 1997 and 1998; (b) unaudited
condensed combined income statement information of Lacerte for
the six-month period ended March 31, 1998; (c) unaudited pro
forma condensed combining financial information of Intuit and
Lacerte to give effect to the net proceeds to Intuit from the
sale of 8.4 million shares of Common Stock at a price of $45.875
per share and to the acquisition of Lacerte by Intuit as if the
merger had taken place at January 31, 1998 (for balance sheet
purposes) and July 31, 1996 for Intuit and August 31, 1996 for
Lacerte (for statement of operations purposes). Also included
are unaudited financial information of Intuit as of April 30,
1998 and for the three-month and nine-month periods ended April
30, 1997 and 1998.
-25-
(iii) On May 19, 1998, Intuit filed a Form 8-K/A, Amendment No. 1,
amending the Form 8-K referred to in paragraph (ii) above, in
order to file the Asset Purchase Agreement between Intuit and
Lacerte as Exhibit 2.01.
(iv) On May 22, 1998, Intuit filed a Form 8-K/A, Amendment No. 2,
amending the Form 8-K referred to in paragraph (ii) above, in
order to file under Item 7 revised unaudited pro forma condensed
combining financial information of Intuit and Lacerte to reflect
an increase in the size of the proposed Common Stock offering by
Intuit from 8.4 million shares to 9 million shares.
(v) On May 22, 1998, Intuit filed a Form 8-K to report under Item 5
that on May 21, 1998 it had entered into an Underwriting
Agreement with Deutsche Morgan Grenfell Inc. and the other
underwriters named therein, providing for a public offering of 9
million shares of Intuit Common Stock at a price to the public
of $47.375 per share ($45.675 per share to Intuit after
underwriting commissions), and granting the underwriters an
option to purchase up to an additional 1.35 million shares to
cover over-allotments, if any. No financial statements were
filed.
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTUIT INC.
(REGISTRANT)
Date: June 12, 1998 By: /s/ GREG J. SANTORA
---------------------------------------------
Greg J. Santora
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-27-
EXHIBIT INDEX
3.1 Bylaws of Intuit, as amended and restated effective April 29,
1998. (Incorporated by reference to Intuit's Report on Form 8-K
filed with the Securities and Exchange Commission on May 5,
1998.)
3.2 Intuit's Certificate of Designations of Series B Junior
Participating Preferred Stock, as filed with the Delaware
Secretary of State on May 5, 1998. (Incorporated by reference to
Intuit's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on May 5, 1998.)
4.1 Rights Agreement dated May 1, 1998, between the Company and
American Stock Transfer and Trust Company, as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series B Junior Participating Preferred Stock,
as Exhibit B the Form of Right Certificate and as Exhibit C the
Summary of Rights to Purchase Preferred Shares. (Incorporated by
reference to the Company's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on May 5,
1998.)
10.01 1993 Equity Incentive Plan, as amended through April 29, 1998.
27.01 Financial Data Schedule (filed in electronic version only)
27.02 Amended Restated Financial Data Schedules (Fiscal 1996 and 1997
Quarters)
27.03 Amended Restated Financial Data Schedules (Fiscal 1998 Quarters)