<PAGE> 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 OCTOBER 31, 1997
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.
47,377,149 shares of Common Stock, $0.01 par value, as of December 2, 1997
<PAGE> 2
- --------------------------------------------------------------------------------
FORM 10-Q
INTUIT INC.
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
-------
<S> <C>
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1997 and October 31, 1997.............................. 3
Condensed Consolidated Statements of Operations for
the three months ended October 31, 1996 and 1997................ 4
Condensed Consolidated Statements of Cash Flows for
the three months ended October 31, 1996 and 1997................ 5
Notes to Condensed Consolidated Financial
Statements...................................................... 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 12
PART II OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K.................................. 18
Signatures........................................................ 19
</TABLE>
-2-
<PAGE> 3
INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
---------- ----------
(In thousands, except par value) (Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 46,780 $ 63,950
Short-term investments ............................................... 158,319 109,994
Marketable securities ................................................ 190,800 287,685
Accounts receivable, net ............................................. 42,190 88,747
Inventories .......................................................... 3,295 3,888
Prepaid expenses ..................................................... 13,393 14,627
--------- ---------
Total current assets ......................................... 454,777 568,891
Property and equipment, net ............................................ 83,404 70,909
Purchased intangibles, net ............................................. 19,836 16,511
Goodwill, net .......................................................... 26,935 23,452
Investments ............................................................ 41,150 43,150
Restricted investments ................................................. 34,766 34,262
Other assets ........................................................... 2,808 2,113
--------- ---------
Total assets ........................................................... $ 663,676 $ 759,288
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 35,688 $ 37,493
Accrued compensation and related liabilities ......................... 22,458 19,542
Deferred revenue ..................................................... 22,732 24,218
Income taxes payable ................................................. 3,811 --
Deferred income taxes ................................................ 27,310 60,647
Other accrued liabilities ............................................ 99,583 112,089
--------- ---------
Total current liabilities .................................... 211,582 253,989
Long-term deferred income taxes ........................................ 589 525
Long-term notes payable ................................................ 36,444 36,520
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value
Authorized -- 3,000 shares
Issued and outstanding -- none ..................................... -- --
Common stock, $0.01 par value
Authorized -- 250,000 shares
Issued and outstanding - 46,942 and 47,297 shares, respectively .... 469 473
Additional paid-in capital ........................................... 558,391 566,165
Net unrealized gain on marketable securities ......................... 20,668 78,801
Cumulative translation adjustment and other .......................... (1,236) (1,195)
Accumulated deficit .................................................. (163,231) (175,990)
--------- ---------
Total stockholders' equity ................................... 415,061 468,254
--------- ---------
Total liabilities and stockholders' equity ............................. $ 663,676 $ 759,288
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE> 4
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
1996 1997
--------- ---------
(In thousands, except per share amounts; unaudited)
<S> <C> <C>
Net revenue ............................................... $ 102,506 $ 95,958
Costs and expenses:
Cost of goods sold:
Product .............................................. 27,045 22,396
Amortization of purchased software ................... 40 703
Customer service and technical support .................. 27,512 27,921
Selling and marketing ................................... 37,401 31,949
Research and development ................................ 22,461 26,144
General and administrative .............................. 11,906 8,509
Charge for purchased research and development ........... 4,929 --
Amortization of goodwill and purchased intangibles ...... 10,302 3,941
--------- ---------
Total costs and expenses ........................ 141,596 121,563
--------- ---------
Loss from operations ............................ (39,090) (25,605)
Interest and other income and expense, net ................ 2,048 2,030
Gain on disposal of business .............................. -- 4,321
--------- ---------
Loss before income taxes .................................. (37,042) (19,254)
Income tax benefit ........................................ (8,738) (6,495)
--------- ---------
Net loss .................................................. $ (28,304) $ (12,759)
========= =========
Net loss per share ........................................ $ (0.61) $ (0.27)
========= =========
Shares used in computing net loss per share ............... 46,049 47,085
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE> 5
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
1996 1997
--------- -------
(In thousands; unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $(28,304) $(12,759)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on disposal of business, net of tax ............................. -- (1,621)
Charge for purchased research and development ........................ 4,929 --
Amortization of goodwill and other purchased intangibles ............. 10,412 4,573
Depreciation ......................................................... 7,712 7,346
Changes in assets and liabilities:
Accounts receivable ............................................... (34,639) (46,557)
Inventories ....................................................... (487) (1,368)
Prepaid expenses .................................................. (13,563) 2,733
Deferred income tax assets and liabilities ........................ (38) (5,479)
Accounts payable .................................................. 4,232 1,805
Accrued compensation and related liabilities ...................... 2,886 (2,780)
Deferred revenue .................................................. 11,486 1,523
Accrued acquisition liabilities ................................... (94) (15,396)
Other accrued liabilities ......................................... 17,167 19,504
Income taxes payable .............................................. 2,335 (4,387)
-------- --------
Net cash used in operating activities ........................... (15,966) (52,863)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................................ (8,620) (8,694)
Payment for acquisitions, net of cash acquired ............................ 235 --
Proceeds from business sold ............................................... -- 26,350
(Increase) decrease in other assets ....................................... (119) 759
Purchase of short-term investments ........................................ (61,526) (17,797)
Purchase of long-term investments ......................................... -- (2,000)
Liquidation of short-term investments ..................................... 85,852 66,626
-------- --------
Net cash provided by investing activities ....................... 15,822 65,244
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ...................................... (324) (865)
Net proceeds from issuance of common stock ................................ 1,479 5,654
-------- --------
Net cash provided by financing activities ....................... 1,155 4,789
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................... 1,011 17,170
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 44,584 46,780
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 45,595 $ 63,950
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE> 6
- --------------------------------------------------------------------------------
INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. ("Intuit" or the "Company") is a leading developer of small business
accounting, tax preparation and consumer finance software. Intuit develops,
markets and supports software products and services that enable individuals,
professionals and small businesses to automate commonly performed financial
tasks and better organize, understand, manage and plan their financial lives.
Principal products include small business accounting software, personal and
professional tax preparation software, consumer finance and Internet-based
products and services and financial supplies, such as invoice forms and checks,
for use with certain Intuit products. Intuit markets its products through
distributors and retailers and by direct sales to OEMs and individual users.
Intuit's customers are located primarily in North America, Europe and Asia.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and include all adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for a fair presentation of the
operating results for the periods shown. Results of operations for the quarter
ended October 31, 1997 are not necessarily indicative of the results to be
expected for the fiscal year ending July 31, 1998 or any other future period.
These condensed consolidated financial statements and notes thereto should be
read in conjunction with the audited consolidated financial statements for the
fiscal year ended July 31, 1997 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include the accounts of Intuit and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Significant estimates are used in determining both the collectibility of
accounts receivable and reserves for returns and exchanges, and in assessing the
carrying value of goodwill and purchased intangibles. Actual results could
differ from those estimates.
Net Revenue
Revenue is generally recognized at the time of shipment, net of allowances for
estimated future returns and for excess quantities in distribution channels,
provided that no significant vendor obligations exist and collections of
accounts receivable are probable. Reserves are provided for quantities of
current product versions that are considered excess and for inventories of all
previous versions of products at the time new product versions are introduced.
Advance payments are recorded as deferred revenue until the products are shipped
or services are provided. Rebate costs are provided at the time revenue is
recognized. Intuit provides warranty reserves for the estimated cost of
replacing defective products at the time revenue is recognized. Internet-based
revenue is recognized as fees are earned or services are provided.
-6-
<PAGE> 7
Customer Service and Technical Support
Customer service and technical support costs include order processing, customer
inquiries and telephone assistance. The costs of post-contract customer support
are included in customer service and technical support expenses and are not
included in cost of goods sold.
Cash, Cash Equivalents, Short-Term Investments and Marketable Securities
Intuit considers all highly liquid investments purchased with a maturity of
three months or less at the date of acquisition 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 is a summary of the estimated fair value of cash, cash equivalents
and short-term investments:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
--------- ---------
(In thousands)
<S> <C> <C>
Cash and cash equivalents:
Cash ..................... $ 20,188 $ 26,985
Money market funds ....... 3,369 4,972
Commercial paper ......... 4,292 6,998
Municipal bonds .......... -- 24,995
U.S. Government securities 18,931 --
--------- ---------
$ 46,780 $ 63,950
========= =========
Short-term investments:
Certificates of deposit .. $ 5,075 $ 99
Commercial paper ......... -- 1,492
Corporate notes .......... 37,811 20,436
Municipal bonds .......... 140,245 115,356
U.S. Government securities 9,954 6,873
Restricted investments ... (34,766) (34,262)
--------- ---------
$ 158,319 $ 109,994
========= =========
</TABLE>
At July 31, 1997 and October 31, 1997, Intuit held marketable securities in
Checkfree Corporation ("Checkfree") with a cost of $156.4 million and a fair
value of $190.8 million and $286.2 million, respectively. At October 31, 1997,
Intuit also held securities in Concentric Network Corporation with zero cost and
a fair value of $1.5 million. Marketable securities are carried at fair value
and unrealized gains and losses, net of tax, are included in stockholders'
equity. As of July 31, 1997, these investments had generated a gross unrealized
gain of $34.4 million before a tax provision of $13.8 million. As of October 31,
1997, these investments had generated a gross unrealized gain of $131.3 million
before a tax provision of $52.5 million. Realized gains and losses from sales of
each type of security for the quarter ended October 31, 1997 were immaterial.
Marketable securities in Checkfree were obtained as a result of Intuit's sale of
its online banking and bill payment transaction processing business to Checkfree
in January 1997. For more information on this sale, see Note 3 of Notes to
Condensed Consolidated Financial Statements. For information about restricted
investments, see Note 6 of Notes to Condensed Consolidated Financial Statements.
-7-
<PAGE> 8
The estimated fair value of cash equivalents and short-term investments by
contractual maturity is as follows:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
--------- ---------
(In thousands)
<S> <C> <C>
Due within one year .. $ 155,832 $ 149,847
Due after one year ... 63,845 31,374
Restricted investments (34,766) (34,262)
--------- ---------
$ 184,911 $ 146,959
========= =========
</TABLE>
Goodwill and Intangible Assets
The excess cost over the fair value of net assets acquired (goodwill) is
generally amortized on a straight-line basis over periods not exceeding 3 years.
The cost of identified intangibles is generally amortized on a straight-line
basis over periods from 1 to 10 years. The carrying value of goodwill and
intangible assets is reviewed on a regular basis for the existence of facts or
circumstances, both internal and external, that may suggest impairment. To date,
no such impairment has been indicated. Should there be an impairment in the
future, the Company will measure the amount of the impairment based on
undiscounted expected future cash flows from the impaired assets. The cash flow
estimates that will be used will reflect management's best estimates, using
appropriate and customary assumptions and projections at the time. Components of
intangible assets are as follows:
<TABLE>
<CAPTION>
NET BALANCE AT
LIFE IN JULY 31, OCTOBER 31,
YEARS 1997 1997
------- -------- -----------
(In thousands)
<S> <C> <C> <C>
Goodwill ................... 3 $ 26,935 $ 23,452
Customer lists ............. 3-5 3,144 2,102
Covenant not to compete..... 4-5 2,125 567
Purchased technology ....... 1-5 7,517 7,070
Other intangibles .......... 1-10 7,050 6,772
</TABLE>
Other intangibles include items such as trade names, logos and other identified
intangible assets. The balances presented above are net of total accumulated
amortization of $147.1 million and $83.8 million at July 31, 1997 and October
31, 1997, respectively. The accumulated amortization balance at July 31, 1997
included $67.8 million relating to the acquisition of Parsons Technology, Inc.
("Parsons") in September 1994.
Concentration of Credit Risk
Intuit's product revenues are concentrated in the personal computer software
industry, which is highly competitive and rapidly changing. Significant
technological changes in the industry or in customer requirements, or the
emergence of competitive products with new capabilities or technologies, could
adversely affect Intuit's operating results.
Intuit is subject to concentration of credit and/or valuation risk because it
holds short-term investments, marketable securities and trade accounts
receivable. Intuit holds shares of Checkfree common stock as marketable
securities, representing approximately 19% of Checkfree's outstanding common
stock at October 31, 1997. Intuit also holds approximately 18% of Excite's
outstanding common stock as of October 31, 1997. The Company's ability to
dispose of both the Checkfree and Excite stock is restricted by volume trading
limitations and other contractual arrangements. No Excite shares may be sold
prior to December 1998 and these shares are therefore currently accounted for as
a long-term investment, rather than as marketable securities. If marketable
securities experience a permanent decline in value below cost, it will be
reported in earnings. Intuit's remaining investment portfolio is
-8-
<PAGE> 9
diversified and generally consists of short-term investment grade securities.
The Company performs ongoing customer credit evaluations to decrease the credit
risk associated with accounts receivable. Generally, no collateral is required.
Intuit maintains reserves for estimated credit losses and such losses have
historically been within management's expectations.
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share," which will require a change in the method used to compute earnings per
share and is effective for interim and annual periods ending after December 15,
1997. Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. There would have been no
effect on primary earnings per share for the quarters ended October 31, 1996 and
1997. Intuit has not yet determined what the impact of SFAS 128 will be on the
calculation of fully diluted earnings per share.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains/losses on
available for sale securities. The disclosure prescribed by SFAS 130 is required
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 establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company has not yet
determined the impact, if any, of adopting this standard. The disclosures
prescribed by SFAS 131 are required in fiscal year 1999.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation format.
2. ACQUISITIONS
In September 1996, Intuit completed its acquisition of GALT Technologies, Inc.,
a provider of mutual fund information on the World Wide Web. The acquisition was
treated as a purchase for accounting purposes. Under the terms of the
acquisition 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. Of
the purchase price of $14.6 million, approximately $8.5 million was allocated to
identified intangible assets and goodwill, which is being amortized over a
period not to exceed three years. Approximately $4.9 million of in-process
research and development was expensed in the quarter ended October 31, 1996. Pro
forma information has not been presented because it is not material.
In February 1997, Intuit's French subsidiary completed its acquisition of Somma
France S.A.R.L., a French small business accounting software company, for a
purchase price of approximately $2.3 million. In addition, assumed liabilities
were $0.8 million. The cash acquisition was treated as a purchase for accounting
purposes. Approximately $2.5 million was allocated to identified intangible
assets and goodwill, which is being amortized over a period not to exceed three
years. Pro forma information for Somma has not been presented because it is not
material.
In March 1997, Intuit KK, a wholly owned subsidiary of Intuit, completed its
acquisition of Nihon Micom Co. Ltd. ("Nihon Micom"), a Japanese small business
accounting software company, for cash. The acquisition was treated as a purchase
for accounting purposes. The purchase price of the acquisition was approximately
$39.9 million. In addition, liabilities of approximately $9.6 million were
assumed. Approximately $32.8 million was allocated to identified intangible
assets and goodwill, which is being amortized over a period not to exceed three
years. An in-
-9-
<PAGE> 10
process research and development charge of $6.1 million was expensed in the
quarter ended April 30, 1997. Under the 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. Pro forma information for Nihon Micom has not
been presented because it is not material.
Consistent with the guidelines established by SFAS 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise Marketed," for each
acquisition accounted for as a purchase, Intuit determined the amounts allocated
to developed and in-process research and development based on whether
technological feasibility had been achieved and whether there was an alternative
future use for the technology. Due to the absence of detailed program designs,
evidence of technological feasibility was established through the existence of a
completed working model at which point functions, features and technical
performance requirements can be demonstrated. As of the respective dates of the
acquisitions, Intuit concluded that the in-process research and development had
no alternative future use after taking into consideration the potential for
usage of the software in different products, resale of the software and internal
usage.
3. DISCONTINUED OPERATIONS AND DIVESTITURES
On January 27, 1997, Intuit completed the sale of its online banking and bill
payment transaction processing subsidiary, Intuit Services Corporation ("ISC"),
to Checkfree in exchange for 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 divestiture,
Intuit recorded a gain on sale of discontinued operations of $71.2 million, net
of tax, in the quarter ended January 31, 1997. This gain has been recorded net
of certain contingent items relating to the divested business. In February 1997,
Intuit sold two million shares of the acquired Checkfree common stock, reducing
its investment in Checkfree to approximately 19.6% of the resulting 54.2 million
shares of Checkfree common stock outstanding following consummation of the
transaction.
The divested online banking and bill payment business of ISC was accounted for
as a discontinued operation. Operating results for discontinued operations for
the period beginning August 1, 1996 until the close of the sale on January 27,
1997 were deferred. These losses were approximately $5.8 million, net of a tax
benefit of approximately $3.9 million, and were netted against the gain on sale
of discontinued operations.
On August 7, 1997, the Company completed the sale of Parsons, its consumer
software and direct marketing subsidiary, to Broderbund Software, Inc. for
approximately $31 million. Net assets assumed by Broderbund as a result of the
sale were approximately $17 million and direct costs incurred by Intuit relating
to the sale were approximately $9.5 million. As a result of the divestiture, the
Company 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 loss and net loss per
share of Intuit as if the disposition of Parsons had taken place as of the
beginning of fiscal 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, 1996
----------------
(In thousands, except per share amounts)
<S> <C>
Net revenue .................................. $ 84,781
Net loss ..................................... (27,842)
Net loss per share ........................... $ (0.60)
</TABLE>
4. INVESTMENTS
In June 1997, Intuit purchased 2.9 million shares of Excite common stock for
$13.50 per share, or approximately $39.2 million. The shares represented
approximately 19% of Excite's outstanding common stock after the transaction.
Under the purchase agreement, Intuit may not sell any shares until December
1998, and sales after
-10-
<PAGE> 11
December 1998 are restricted. Intuit is currently carrying
this investment at cost as a long-term asset. As resale restrictions lapse over
time, unrestricted shares will be accounted for as marketable securities.
5. OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
-------- --------
(In thousands)
<S> <C> <C>
Reserve for returns and exchanges .............. $ 36,310 $ 46,282
Acquisition and disposition related items ...... 38,866 32,970
Rebates ........................................ 2,876 6,950
Post-contract customer support ................. 4,233 5,006
Other accruals ................................. 17,298 20,881
-------- --------
$ 99,583 $112,089
======== ========
</TABLE>
6. NOTES PAYABLE AND COMMITMENTS
In March 1995, Intuit entered into a 20-year loan for $4.0 million for its
technical support site in New Mexico. The interest rate was variable with a
maximum rate of 10%. At October 31, 1997, the interest rate was 8.5%. The fair
value of the loan approximated cost, as the interest rate on the borrowings was
adjusted periodically to reflect market rates. This property was disposed of and
the note was repaid on November 3, 1997.
In March 1997, Intuit's 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 interbank offered rate ("TIBOR") or the short-term prime rate offered in
Japan. At October 31, 1997, the interest rate was approximately 0.9%. 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). The loan is guaranteed by Intuit and
Intuit has pledged approximately $34.3 million, or 110% of the loan balance, of
short-term investments to be restricted as security for the borrowings at
October 31, 1997.
7. INCOME TAXES
The provision for income taxes was computed by applying the estimated annual
effective tax rate to recurring operations and amortization of intangible
assets, exclusive of the write-off of in-process research and development and
the amortization of goodwill. The benefit for the quarter ended October 31, 1997
is offset by a provision for the gain on disposal of business.
8. LITIGATION
Intuit is subject to 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.
9. SUBSEQUENT EVENTS
On December 2, 1997, the Company announced a five-year agreement with CNNfn.com,
a financial news web site, to create a co-branded personal finance channel. The
channel is expected to include business news and financial information including
areas such as banking, investing, taxes, home mortgages and insurance, auto
insurance and auto financing. Under terms of the agreement, the companies will
share revenue generated by the channel.
-11-
<PAGE> 12
- --------------------------------------------------------------------------------
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CAUTIONS ABOUT FORWARD LOOKING STATEMENTS
This section of the 10-Q contains forward-looking information about future
financial results and other events that have not yet occurred. For example,
statements like Intuit "expects" or "anticipates" are forward looking. This
information includes, but is not limited to, information about the prospects for
QuickBooks, Quicken 1998, Intuit's Internet-based businesses and expected trends
in operating expenses. Investors should be aware that actual results may differ
materially from the Company's expectations because of risks and uncertainties
about the future. Such factors include, but are not limited to, intense
competition and pricing pressures; uncertain growth of the markets for the
Company's offerings; possible delays in product launch dates; product errors or
other events that lead to greater demand for customer service and technical
support; risks associated with regulated businesses such as insurance and
mortgage lending; the Company's ability to adapt and expand its product, service
and content offerings for the Internet environment; the timing and consumer
acceptance of new products and services; the cost of implementing the Company's
Internet strategy; and uncertainty as to timing and amount of potential
Internet-related revenue and profit. In addition, the Company will not
necessarily update the information in this 10-Q if any forward-looking
information later turns out to be inaccurate. Additional information on factors
that could affect future results and events is included in the Company's report
on Form 10-K for its fiscal year ended July 31, 1997 filed with the Securities
and Exchange Commission.
OVERVIEW
Intuit's mission is to revolutionize the way individuals and small businesses
organize, understand, manage and plan their financial lives. To achieve this,
the Company develops, markets and supports small business accounting, tax
preparation and consumer finance software products and related supplies and
services. Revenues come primarily from the United States, Japan, Germany,
Canada, the United Kingdom and France through both retail distribution channels
and direct customer sales. While substantially all of Intuit's revenue now comes
from its core desktop computer software and related products and services,
Internet-based products and services are an increasingly important part of
Intuit's business strategy. In the first quarter of 1998, the Company continued
to devote significant financial resources to developing Internet-related
products and services.
Intuit's business is highly seasonal. Sales of tax products are heavily
concentrated from December through March due to the tax return filing season.
Sales of consumer finance products are typically strongest during the year-end
holiday buying season, so major consumer product launches usually occur in the
fall to take advantage of this consumer buying pattern. These seasonal patterns
mean that financial results are usually strongest during the quarters ending
January 31 and April 30, and that operating losses have historically occurred
for the quarters ending July 31 and October 31. Operating results can also
fluctuate from quarter to quarter for other reasons, such as changes in product
launch dates, non-recurring events such as acquisitions, and product price cuts
in quarters with relatively high fixed expenses. Because of these factors, the
Company believes that consecutive quarterly comparisons of operating results are
not meaningful and don't necessarily indicate future performance.
The Company recognizes revenue at the time products are shipped, less reserves
for expected returns from both the retail and direct channels. These return
reserves are difficult to predict, especially for seasonal products. If at any
point returns are materially higher than reserved amounts, this could have a
material negative impact on both revenue and operating results.
There have been a number of recent one-time, non-recurring events that have had
a significant impact on the Company. In the second quarter of fiscal 1997,
Intuit sold its electronic banking and bill payment subsidiary, Intuit Services
Corporation ("ISC"), to Checkfree Corporation ("Checkfree"). The sale resulted
in a gain, net of tax, of $71.2 million. In the third quarter of fiscal 1997,
Intuit's Japanese subsidiary, Intuit KK, acquired Nihon Micom Co. Ltd. ("Nihon
Micom"), a Japanese small business accounting software company, for
approximately $39.9
-12-
<PAGE> 13
million. In the fourth quarter of fiscal 1997, Intuit recorded a $10.4 million
charge from restructuring technical support operations in the United States and
Europe. In the fourth quarter of fiscal 1997, Intuit announced an agreement with
Excite, Inc. ("Excite") making Intuit the exclusive provider of personal
financial content for all of Excite's Internet services. The Company expects the
agreement to result in increased traffic to its Internet-based products and
services that should eventually generate revenue for Intuit and Excite from a
combination of advertising, marketing and participation-based fees. Pursuant to
the agreement, Intuit and Excite jointly launched a new finance channel called
"Excite Business & Investing by Quicken.com," in the first quarter of fiscal
1998. In the first quarter of fiscal 1998, the Company also completed the sale
of its consumer software and direct marketing subsidiary, Parsons Technology,
Inc. ("Parsons") to Broderbund Software. The Parsons sale resulted in a pre-tax
gain of $4.3 million and a related tax provision of $2.7 million.
RESULTS OF OPERATIONS
Set forth below are certain consolidated statement of operations data, including
percentage of net revenue, for the quarters ended October 31, 1997 and 1996.
Investors should note that results for the quarter ended October 1996 include
operating activity for the divested Parsons subsidiary that was sold on August
7, 1997. For Intuit's pro forma results for the first fiscal quarter of 1997
excluding the effect of Parsons, see Note 3 to the Condensed Consolidated
Financial Statements.
NET REVENUE
<TABLE>
<CAPTION>
Three Months Ended October 31,
1996 Change 1997
--------- ------ --------
(Dollars in millions)
<S> <C> <C> <C>
Software ..................... $ 84.5 (12)% $ 74.1
% of revenue ................ 82% 77%
Supplies ..................... $ 18.0 22% $ 21.9
% of revenue ................ 18% 23%
Total $ 102.5 (6)% $ 96.0
</TABLE>
Excluding operations for the divested Parsons subsidiary in the first quarter of
fiscal 1997, total revenue increased by 13% for the first quarter of fiscal 1998
compared to the same quarter of the prior fiscal year. Parsons represented 17%
of total revenue for the first quarter of fiscal 1997.
Small Business Division. The Company's small business division derives revenue
from sales of the QuickBooks product line, financial supplies products, payroll
tax table services and support fees paid by QuickBooks users who are charged for
telephone assistance. The QuickBooks product line, which is sold through both
direct and retail channels, experienced approximately 30% sales growth for the
quarter ended October 31, 1997 over the same quarter of the prior year, due
primarily to strong retail demand. Financial supplies revenue, which includes
the sale of invoices, checks and envelopes to the Company's small business
customers, was up 22% from the same quarter of the prior year. Though they are
smaller components of the small business division, payroll tax table and fee for
support revenues also grew significantly over the comparable quarter of fiscal
1997. In October 1997, the Company released "Quicken Home & Business," a new
consumer finance product targeted at customers who use Quicken to manage their
small businesses. While it is too early to determine whether this product will
be successful, there is a risk that it may have a negative impact on QuickBooks
product sales in fiscal 1998. In addition, Intuit plans to introduce a new
multi-user version of QuickBooks late in fiscal 1998. While this product
represents a significant opportunity for future sales, a delay in releasing this
version could result in an adverse effect on the Company's revenues and
operating results for fiscal 1998.
Tax Division. Due to the seasonal nature of the tax business, the first quarter
normally generates very little revenue from tax products. The majority of tax
division sales generally occur in the Company's second quarter. Intuit believes
the approaching tax season presents both significant opportunity and risk. There
is opportunity because newly passed federal tax legislation may bring new users
to the personal tax preparation market. Risks include
-13-
<PAGE> 14
increased competition anticipated from H&R Block's aggressively priced TaxCut
product, the challenge of rapidly developing and launching high-quality products
that accurately reflect the new tax legislation, and the challenge of retaining
customers who have traditionally purchased tax products from the divested
Parsons subsidiary. While the Company has undertaken product development and
marketing efforts intended to take advantage of opportunities, the impact on the
Company's revenues and operating results will be unknown until the second fiscal
quarter and beyond.
Consumer Finance Division. The consumer finance division includes personal
finance desktop software (primarily Quicken) and Internet-based products and
services available through Quicken.com, including those offered jointly by
Intuit and Excite. Overall, consumer finance revenue increased 12% from the
first quarter of fiscal 1997 to the first quarter of fiscal 1998. However,
revenue for the current quarter included a $10 million fee from Checkfree for
connecting Quicken customers to Checkfree's on-line banking and bill payment
services. Without this fee, consumer finance revenue declined by approximately
15% in the first quarter of fiscal 1998 compared to the first quarter of fiscal
1997. Intuit received a similar $10 million fee in the second quarter of fiscal
1997 but will not receive any additional fees from Checkfree in the future.
In October 1997, the Company released its Quicken 1998 product line, including
"Quicken Home & Business." For the current quarter, the Company experienced a
23% reduction in Quicken revenue compared to the same quarter a year ago. This
downward trend is consistent with recent sales of the Quicken product line,
which declined by approximately 20% in the 1997 fiscal year compared to fiscal
1996. It is too early to determine whether Quicken 1998 will experience a
similar decline in subsequent quarters.
Internet-based revenue includes advertising, marketing and participation-based
fees generated by on-line banking, Intuit's Quicken.com web site and web-based
services offered jointly by Intuit and Excite. Pursuant to Intuit's agreement
with Excite, certain revenue related to the Quicken.com site is split with
Excite. Internet-based revenue for the first quarter of fiscal 1998 increased by
approximately 75% over the prior year quarter, though it only represents
approximately 5% of the Company's total revenue. The increase in Internet-based
revenue is a result of expansion of the Quicken.com site, and the agreement with
Excite, which have led to increased advertising and other fees. While
Internet-based businesses represent a significant opportunity for future revenue
growth, they are expected to remain an insignificant contributor to the
Company's total revenue for the remainder of fiscal 1998. Because the Internet
is relatively new, the Company's investment into these initiatives is risky.
Intuit expects revenue from Internet-based offerings to continue to grow, though
the rate of growth and impact on operating results cannot be reasonably
estimated.
International Division. International revenue in the first quarter of 1998 grew
by approximately 4% from the same quarter a year ago. The modest growth rate was
due to a stronger dollar, a weaker than expected Japanese computer market and
the fact that the Company's German subsidiary did not release a new version of
Quicken as it did in the first quarter of fiscal 1997. This was offset somewhat
by higher than expected revenue in the U.K., Canada and France. Intuit believes
that the stronger dollar and the weak Japanese economy may continue to have a
negative impact on revenues in Japan for the remainder of the fiscal year.
COST OF GOODS SOLD
<TABLE>
<CAPTION>
Three Months Ended October 31,
1996 Change 1997
------- ------- ---------
(Dollars in millions)
<S> <C> <C> <C>
Product ........................................ $ 27.1 (17)% $ 22.4
% of revenue ................................... 26% 23%
Amortization of purchased software & other ..... $ 0.0 100% $ 0.7
% of revenue ................................... 0% 1%
</TABLE>
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
acquisition. Total cost of goods sold decreased to 23% of net revenue for the
first quarter of fiscal 1998
-14-
<PAGE> 15
compared to 26% for the first quarter of fiscal 1997. Excluding the operating
results for the divested Parsons subsidiary in the first quarter of fiscal 1997,
cost of goods sold represented 27% of revenue. The current year improvement was
the result of a continuing shift of consumer preferences toward CD ROM products,
which cost less to manufacture and ship than disk-based products. Improvements
were also due to a more efficient order taking process in the financial supplies
business, which resulted in fewer re-orders. Additionally, the $10 million fee
received from Checkfree had a positive impact on cost of goods sold as a percent
of revenue since no cost of sales expenses were associated with the fee. While
the Company plans to take steps intended to continue to decrease cost of goods
sold as a percentage of net revenue, there can be no assurance that this will
occur or that margins will continue at their current rates. If there are errors
in Intuit's current or future products, there could be increases in cost of
goods sold and an adverse effect on operating results. Specifically, the impact
of the tax law changes on Intuit's tax preparation products and the release of
the multi-user version of QuickBooks may increase the risk of product errors for
the remainder of fiscal 1998.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months Ended October 31,
1996 Change 1997
------- ------ -------
(Dollars in millions)
<S> <C> <C> <C>
Customer service & technical support .............. $ 27.5 1% $ 27.9
% of revenue ..................................... 27% 29%
Selling & marketing ............................... $ 37.4 (14)% $ 32.0
% of revenue ..................................... 36% 33%
Research & development ............................ $ 22.5 16% $ 26.2
% of revenue ..................................... 22% 27%
General and administrative ........................ $ 11.9 (29)% $ 8.5
% of revenue ..................................... 12% 9%
Charge for purchased research and development...... $ 4.9 (100)% $ 0.0
% of revenue ..................................... 5% 0%
Other acquisition costs, including amortization of
goodwill and purchased intangibles............... $ 10.3 (62)% $ 3.9
% of revenue ..................................... 10% 4%
</TABLE>
Customer Service and Technical Support. Excluding operations for the divested
Parsons subsidiary in the first quarter of fiscal 1997, customer service and
technical support expenses decreased to 29% of net revenue for the first quarter
of fiscal 1998 compared to 31% in the same quarter of the prior year. This
improvement is primarily due to a decrease in costs resulting from the
restructuring and consolidation of Intuit's technical support facilities in the
United States and Europe in the fourth quarter of fiscal 1997. These cost
reductions were partially offset by additional expenses that were incurred in an
effort to convert tax software customers of the divested Parsons subsidiary to
the Company's TurboTax products. While the Company anticipates that expenses
will continue to decrease as a percentage of sales because of the restructuring
and other cost saving initiatives, there is a risk that expenses could increase
significantly if there are greater than expected customer service and technical
support demands. Such increases in demand could occur if the current year's tax
products contain errors. This has a higher risk of occurring considering the
many changes that will be incorporated into this year's products because of
recent tax legislation. The new multi-user QuickBooks product may also result in
significantly higher customer service and technical support expenses since
customers are likely to need considerably more assistance with this more complex
product.
-15-
<PAGE> 16
Selling and Marketing. Excluding operations for the divested Parsons subsidiary
in the first quarter of fiscal 1997, selling and marketing expenses remained
essentially flat at 33% of revenue for the first quarter of fiscal 1998 and
1997.
Research and Development. Excluding operations for the divested Parsons
subsidiary in the first quarter of fiscal 1997, research and development
expenses increased to 27% of net revenue for the first quarter of fiscal 1998
compared to 25% in the prior year quarter. This increase reflects Intuit's
increasing investment in Internet-related initiatives. The Company expects that
expenses for the development of both existing and future Internet-based
offerings will continue to result in higher research and development expenses as
a percentage of net revenue for the remainder of the fiscal year. While the
degree of potential increases in research and development expenses cannot be
estimated, they may have an adverse effect on operating results, particularly if
revenue from these services does not meet expectations.
General and Administrative. Excluding operations for the divested Parsons
subsidiary in the first quarter of fiscal 1997, general and administrative
expenses decreased to 9% of net revenue for the first quarter of fiscal 1998
compared to 13% in the same quarter for the prior fiscal year. This decrease is
primarily the result of a reduction in bad debt expense due to fewer financially
distressed members of the Company's retail and distribution channel in the
current quarter compared to the same quarter of the prior fiscal year.
Charge for Purchased Research and Development. Purchased research and
development charges are one-time expenses incurred as part of an acquisition
based on the amount of the purchase price allocated to acquired products that
are under development. A one-time charge of $4.9 million was recorded in the
first quarter of fiscal 1997 for the acquisition of GALT Technologies Inc. There
were no one-time charges or acquisitions for the first quarter of fiscal 1998.
Other Acquisition Costs. Other acquisition costs include the amortization of
goodwill and purchased intangibles that are recorded as part of an acquisition.
These costs decreased to $3.9 million in the first quarter of fiscal 1998
compared to $10.3 million in the first quarter of fiscal 1997. This was
primarily attributable to the fact that a majority of the intangibles related to
the December 1993 Chipsoft acquisition became fully amortized during fiscal
1997. 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 by approximately $12.7 million, $11.1 million, $5.6 million and $0.6
million for the years ending July 31, 1998 through 2001, respectively. If Intuit
completes additional acquisitions in the future, there could be an incremental
negative impact on operating results from future amortization relating to such
acquisitions.
OTHER INCOME
<TABLE>
<CAPTION>
Three Months Ended October 31,
1996 Change 1997
------ ----- ------
(Dollars in millions)
<S> <C> <C> <C>
Interest and other income and expense, net. $ 2.0 0% $ 2.0
% of revenue .............................. 2% 2%
Gain on disposal of business .............. $ 0.0 100% $ 4.3
% of revenue .............................. 0% 4%
</TABLE>
For the current quarter, interest and other income and expense, net, remained
essentially flat as a percentage of revenue compared to the prior year quarter.
The $4.3 million gain on disposal of business in the current fiscal quarter
resulted from the sale of Parsons, Intuit's direct marketing subsidiary, in
August 1997.
-16-
<PAGE> 17
INCOME TAXES
<TABLE>
<CAPTION>
Three Months Ended October 31,
1996 Change 1997
------- ------ -------
(Dollars in millions)
<S> <C> <C> <C>
Income tax benefit ............... $ (8.7) (25)% $ (6.5)
% of revenue ..................... (8)% (7)%
</TABLE>
For the quarter ended October 31, 1997, Intuit recorded an income tax benefit of
$6.5 million on a pretax loss of $19.3 million. This compares to the quarter
ended October 31, 1996 which resulted in an income tax benefit of $8.7 million
on a pretax loss of $37.0 million. The tax provision reflects the non-deductible
status of both in-process research and development charges and the amortization
of goodwill. The benefit for the quarter ended October 31, 1997 is offset by a
provision resulting from the gain on disposal of Parsons. At October 31, 1997,
there was a valuation allowance of $4.2 million for tax assets of Intuit's
international subsidiaries based on management's assessment that the Company may
not receive the benefit of certain loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company had $173.9 million in cash and short-term
investments, a $31.2 million decrease from July 31, 1997. The decrease was
primarily due to the seasonality of the Company's business, which typically
results in the majority of net revenues and cash receipts occurring in the
January and April quarters. During the quarter ended October 31, 1997, operating
activities used $52.9 million in cash driven by net losses and higher accounts
receivable balances as a result of the launch of Quicken 1998 in late October. A
reduction in acquisition- related liabilities also resulted in a $15.4 million
use of cash due to the Company's payment of accrued expenses related to the sale
of ISC, the acquisition of Nihon Micom and the divestiture of Parsons. These
uses of cash were offset by an increase in accrued liabilities of $19.5 million.
This increase was primarily attributable to the October 1997 launch of Quicken,
which resulted in increased reserves for product returns.
The first quarter of fiscal 1998 generated $65.2 million from investing
activities. The majority of this cash was generated from the sale of short-term
investments in order to fund first quarter operations. The Company also received
$26.4 million in cash proceeds for the sale of its Parsons subsidiary offset by
$8.7 million in funds spent on the purchase of property and equipment. Financing
activities provided $4.8 million in the first quarter primarily attributable to
proceeds from the exercise of employee stock options.
Intuit enters into leases for new or expanded facilities in the normal course of
its business. During 1996, Intuit began moving its headquarters from Menlo Park,
California to larger facilities in Mountain View, California. The move is
expected to be complete by the end of calendar year 2000. The Company leases
various other properties throughout the world. Intuit has no other significant
capital expenditure commitments, although there may be additional cash
requirements for strategic acquisitions in the future.
The Company believes that its cash and short-term investments will be sufficient
to meet anticipated seasonal working capital and capital expenditure
requirements for at least the next twelve months.
-17-
<PAGE> 18
- --------------------------------------------------------------------------------
PART II: OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
<TABLE>
<CAPTION>
<S> <C>
Exhibit 2.01 Stock Purchase Agreement dated as of August 6, 1997 by and
among Intuit Inc., Broderbund Software, Inc. and Parsons
Technology, Inc. (1)
Exhibit 2.02 Distribution, Assumption and Assignment Agreement dated as of
August 7, 1997 between Intuit Inc. and Parsons Technology, Inc.
(1)
Exhibit 11.01 Computation of net loss per share
Exhibit 27.01 Financial Data Schedule (filed only in electronic format)
</TABLE>
- ----------
(1) Incorporated by reference from Intuit's report on Form 8-K filed with the
Securities and Exchange Commission on August 22, 1997.
(b) REPORTS ON FORM 8-K:
On August 22, 1997, the Company filed a report on Form 8-K with the
Securities and Exchange Commission to report the Company's divestiture of
its subsidiary, Parsons Technology, Inc. The report included an unaudited
pro forma condensed balance sheet at April 30, 1997, unaudited pro forma
condensed statements of operations for the twelve months ended July 31,
1996 and for the nine months ended April 30, 1997, and notes thereto, as
described more fully in Item 7 of the report.
-18-
<PAGE> 19
- --------------------------------------------------------------------------------
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 12, 1997 By: /s/ GREG J. SANTORA
----------------------------------------
Greg J. Santora
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-19-
<PAGE> 20
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
<TABLE>
<CAPTION>
<S> <C>
Exhibit 2.01 Stock Purchase Agreement dated as of August 6, 1997 by and
among Intuit Inc., Broderbund Software, Inc. and Parsons
Technology, Inc. (1)
Exhibit 2.02 Distribution, Assumption and Assignment Agreement dated as of
August 7, 1997 between Intuit Inc. and Parsons Technology, Inc.
(1)
Exhibit 11.01 Computation of net loss per share
Exhibit 27.01 Financial Data Schedule (filed only in electronic format)
</TABLE>
- ----------
(1) Incorporated by reference from Intuit's report on Form 8-K filed with the
Securities and Exchange Commission on August 22, 1997.
<PAGE> 1
- --------------------------------------------------------------------------------
INTUIT INC. EXHIBIT 11.01
COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share amounts; unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
1996 1997
-------- --------
<S> <C> <C>
Primary and Fully Diluted
Computation of common and common equivalent shares outstanding:
Weighted average common shares outstanding 46,049 47,085
Equivalent shares issuable upon exercise of options (1) -- --
-------- --------
Shares used in computing per share amounts 46,049 47,085
======== ========
Net loss $(28,304) $(12,759)
======== ========
Net loss per share $ (0.61) $ (0.27)
======== ========
- -------------
(1) Dilutive shares are not included in periods with a net loss.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 63,950
<SECURITIES> 397,679
<RECEIVABLES> 93,111
<ALLOWANCES> (4,364)
<INVENTORY> 3,888
<CURRENT-ASSETS> 568,891
<PP&E> 131,054
<DEPRECIATION> (60,145)
<TOTAL-ASSETS> 759,288
<CURRENT-LIABILITIES> 253,989
<BONDS> 36,520
0
0
<COMMON> 473
<OTHER-SE> 467,781
<TOTAL-LIABILITY-AND-EQUITY> 759,288
<SALES> 95,958
<TOTAL-REVENUES> 95,958
<CGS> 22,396
<TOTAL-COSTS> 23,099
<OTHER-EXPENSES> 98,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (19,254)
<INCOME-TAX> (6,495)
<INCOME-CONTINUING> (12,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,759)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
