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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
MAY 18, 1998
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Date of Report (Date of earliest event reported)
INTUIT INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
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0-21180 77-0034661
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(Commission file number) (I.R.S. Employer Identification No.)
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2535 GARCIA AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
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(Address of principal executive offices, including zip code)
(415) 944-6000
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(Registrant's telephone number, including area code)
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CONTENTS
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Item 5: Other Events................................................... 3
Item 7: Financial Statements and Exhibits ............................. 7
Signatures ............................................................ 8
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ITEM 5. OTHER EVENTS
A. MANAGEMENT CHANGES
On May 12, 1998, Intuit Inc. (the "Company" or "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 of
the Company 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 Harris as a director of the Company, effective May 12, 1998.
Earlier during fiscal 1998, the Company appointed Raymond Stern as
Senior Vice President, Strategy, Finance and Administration, appointed Mari J.
Baker as Senior Vice President, Human Resources and appointed Mark R. Goines as
Senior Vice President, Consumer Finance.
B. ANNOUNCEMENT OF RESULTS FOR THIRD QUARTER OF FISCAL 1998
Included as Exhibit 99.01 hereto, and incorporated herein by
reference, is a copy of certain unaudited financial information of the Company
for the three and nine months ended April 30, 1998. The financial information
included for the quarter ended April 30, 1998 was made publicly available by the
Company on May 18, 1998 but is incomplete as the Company has not yet prepared
full quarterly financial statements (including footnotes) or filed a Form 10-Q
with the Commission with respect to such quarterly results.
Consistent with expected seasonal patterns, for the quarter ended
April 30, 1998, Intuit reported net revenue of $142.0 million, compared to
$136.3 million in the quarter ended April 30, 1997. The Company's operating loss
in the quarter ended April 30, 1998 was $7.3 million, compared to an operating
loss of $1.8 million in the quarter ended April 30, 1997. Net loss for the
quarter ended April 30, 1998 was $2.2 million, or $0.05 per share, compared to
net income of $488,000, or $0.01 per share, in the quarter ended April 30, 1997,
on a diluted basis. The Company incurred acquisition related charges from
previous acquisitions of $4.0 million and a charge of $16.2 million related to
an agreement with America Online, Inc. during the quarter ended April 30, 1998
and in the quarter ended April 30, 1997, the Company had revenue of $18.5
million and expenses of $16.7 million associated with Parsons Technology, a
now-divested business, and incurred acquisition related charges of $10.9
million. Excluding these items, the Company's income from operations for the
quarter ended April 30, 1998 would have been $15.9 million and its revenue and
income from operations for the quarter ended April 30, 1997 would have been
$117.8 million and $10.1 million, respectively. Its net income would have been
$0.20 per share for the quarter ended April 30, 1998 compared to $0.14 per share
for the quarter ended April 30, 1997, on a diluted basis.
Intuit's financial results reflect the highly seasonal nature of its
tax and Quicken products. Historically, revenue is highest in the quarter ended
January 31. The Company experiences significantly lower revenue levels in the
quarters ended April 30, July 31 and October 31, while operating expenses to
develop and manage its products and services continue during these periods.
Although Intuit's financial results are subject to seasonality, Intuit's
quarterly revenue pattern within any given year may vary from year to year due
to non-seasonal factors such as the timing of product introductions. Therefore,
annual results may provide a more meaningful comparison of operating results
than quarter-over-quarter comparisons. In particular, there is no seasonal
pattern for the Company's QuickBooks product launches. For example, the third
quarter of fiscal 1997 benefited materially from the launch of QuickBooks 5.0 in
the second quarter of fiscal 1997, while the third quarter of fiscal 1998
received no such benefit. QuickBooks 6.0 is anticipated to launch at the end of
the fourth quarter of fiscal 1998. On the other hand, revenue for the third
quarter of fiscal 1998 benefited materially from the timing shift of certain tax
revenues from the second quarter into the third quarter due in part to the
deferred accounting recognition of electronic filing service revenue. There are
various risks and uncertainties associated with the foregoing forward-looking
statement regarding the launch of Quickbooks 6.0, including risks of delay,
which are possible given the uncertainties of complex software development. Any
such delay would have a substantial negative impact on revenue and net income
for the fourth quarter of fiscal 1998 and for fiscal 1998 as a whole.
In addition, on April 30, 1998, the Company provided a short-term
unsecured loan (due within less than one year) in the amount of $50 million to
Excite, Inc. and may provide additional financing to Excite in the future. The
loan is on a parity with all other indebtedness of Excite but is subordinated to
Excite's current $6 million credit facility. To the extent that Excite is unable
to, or fails to, satisfy its obligations with respect to this indebtedness, the
Company's operating results and financial condition would be adversely affected.
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C. PROPOSED ACQUISITION OF LACERTE
On May 18, 1998, the Company 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
to assume substantially all of Lacerte's liabilities (the "Pending
Acquisition"). The consummation of the Pending Acquisition is subject to certain
conditions, including receipt of regulatory approvals (such as expiration or
termination of the applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the ("HSR Act")).
While Intuit expects to consummate the Pending Acquisition in the
summer of 1998, no assurance can be given as to when, or whether, the Pending
Acquisition will be completed. The Asset Purchase Agreement entitles either
party to terminate the agreement if the Pending Acquisition has not been
completed by the 120th day after Lacerte files its notification under the HSR
Act (which is expected to occur on or about May 22, 1998), subject to extension
of up to an additional 60 days under certain circumstances. If the Pending
Acquisition is not completed by the applicable date, the Company would be
obligated to pay Lacerte up to $20 million, unless the Company had terminated
the Asset Purchase Agreement as a result of a material breach by Lacerte or as a
result of a material inaccuracy in Lacerte's representations and warranties. In
addition, the Company is entitled to terminate the Asset Purchase Agreement at
any time prior to closing, upon payment to Lacerte of $10 million if such
termination occurs within 60 days of Lacerte's initial filing under the HSR Act
or $20 million if the termination occurs after the initial 60 day period.
The Company intends to use the net proceeds from a public offering
of equity securities to fund the major portion of the cash purchase price of the
Pending Acquisition. However, consummation of the Pending Acquisition is not
conditioned on completion of such offering. If such offering is not completed,
or if less than the full amount contemplated by such offering is raised, the
Company may elect to complete the Pending Acquisition using other cash
resources or to terminate the Pending Acquisition and pay the applicable
termination fee to Lacerte.
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.
Lacerte's products provide an efficient user friendly interface, but are also
designed to support complex returns and analysis. Customers can elect to license
each of Lacerte's programs for a single fee for unlimited annual use or to use
them on a "pay-per-return" or "remote entry processing" basis. Lacerte currently
provides DOS and Windows 95 versions of its products. Lacerte also provides
electronic filing services and offers seminars and self-study tutorials in a
variety of areas related to tax preparation and software usage. In its fiscal
year ended March 31, 1998, Lacerte licensed use of its products to over 30,000
customers, primarily accounting and tax firms.
Lacerte's revenue increased from $62.1 million in fiscal 1996 to
$68.1 million in fiscal 1997 and to $75.6 million in fiscal 1998, primarily as a
result of increases in unit sales. Lacerte's business has provided it with a
relatively stable source of recurring revenue, since users of Lacerte's products
must purchase annual updates that reflect tax law and form changes. Although
prices for Lacerte's products remained relatively stable from fiscal 1996
through fiscal 1998, Lacerte has recently announced modest increases in prices
of many of its products. Lacerte's revenue includes both fees from the license
of its products for unlimited annual use and fees for "remote entry processing"
where the user is charged a fee for each tax return processed. Revenue from
licenses for unlimited annual use is generally recognized at the time of
shipment of the product, although a substantial number of customers pay the
license fee in advance. Remote entry processing revenues are recognized on
electronic delivery to the customer of an encryption key that allows the
customer to prepare a return. Lacerte's revenues are highly seasonal, as sales
of its products are concentrated in the fiscal quarter ended March 31.
Lacerte's operating expenses remained relatively stable from fiscal
1996 through fiscal 1998. Income from operations increased from $19.8 million,
or 31.8% of revenue, in fiscal 1996 to $23.4 million, or 34.3% of revenue, in
fiscal 1997 and $28.9 million, or 38.2% of revenue, in fiscal 1998. A portion of
Lacerte's general and administrative expenses consist of compensation paid to
Lacerte's principal shareholders, who will not remain as employees following the
closing of the Pending Acquisition. Intuit anticipates that increases in other
operating expenses of Lacerte following the acquisition will partially offset
the reduction in compensation expense. Lacerte was not subject to federal income
tax as a result of its election to be treated as an "S" corporation under the
federal income tax laws.
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The Company believes that the Pending Acquisition has the potential
to provide it with a number of strategic benefits. The Company believes that the
Pending Acquisition will contribute to the Company's recurring revenue base
since users of Lacerte's product offerings, like users of the Company's tax
products, must purchase annual updates that reflect tax law and form changes.
Substantially all of Lacerte's customers renew their licenses each year. Lacerte
has been a highly profitable company, and to the extent that Lacerte's
profitability can be sustained following consummation of the Pending
Acquisition, it could make a significant contribution to the Company's earnings.
The Company believes that the acquisition of Lacerte could also
enable the Company to compete more effectively with other large providers of tax
preparation software. As the complexity of professional tax products increases,
the annual cost of producing and supporting these products also increases. The
Company believes that it is critical to expand its customer base in order to
maintain competitive prices. In addition, the Company expects the Pending
Acquisition to strengthen its presence in the professional income tax compliance
market by enhancing and extending its professional tax preparation software and
service offerings, which currently consist primarily of the Company's ProSeries
products. The Intuit ProSeries product line and Lacerte's product line can
provide complementary solutions for different practitioner preferences. Intuit's
ProSeries product line enhances ease of use by permitting data entry directly
into familiar government forms and displaying calculations on-screen. In
contrast, the Lacerte product line is designed to enhance the preparer's
productivity by presenting highly customized input sheets that reduce the time
required to complete data entry. The Company believes that having two different
products will enable it to better meet the needs of prospective customers in
the professional tax compliance market.
The Pending Acquisition, which will be accounted for under the
purchase method of accounting, 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 consummated. In addition, the Company
expects to capitalize certain intangible assets in the amount of approximately
$390 million, which it expects to amortize over periods of three and five years.
Such amortization will have a negative impact on the Company's future operating
results. These purchase price allocations are preliminary and subject to
adjustment, which could be material in amount, based upon the Company's further
analysis. For federal income tax purposes, the Company expects to amortize the
cost of the acquisition over fifteen years and receive tax deductions in the
amount of such amortization.
The foregoing discussion of the Pending Acquisition includes
forward-looking statements regarding the expected benefits and effects of the
Pending Acquisition of Lacerte by the Company, including statements regarding
strategic benefits of the Pending Acquisition, Lacerte's profitability and
contribution to the Company's profitability, the effect of the Pending
Acquisition on the Company's competitiveness in the market for professional
tax software and the timing and amount of expenses to be incurred by the
Company as a result of the Pending Acquisition. The Pending Acquisition and
Lacerte's business are subject to a number of risks that could adversely
affect the Company's ability to achieve the anticipated benefits of the Pending
Acquisition. The Company currently intends that Lacerte will remain as a
separate entity and that its personnel and its sales and marketing, research
and development, customer support and administrative organizations will not be
combined with those of the Company. This could create operating inefficiencies,
could make it more difficult to retain key personnel and could cause
difficulties in communicating with, and sharing information between, the
Company's and Lacerte's operations, including with respect to the preparation
of combined financial statements. These challenges may be exacerbated by the
fact that Lacerte's operations and personnel are located in Texas, where the
Company does not currently have any material operations. The need to focus
management's attention on establishing relationships with, and procedures for
communicating with, Lacerte may reduce the ability of the Company to
successfully pursue other opportunities for a period of time. The departure of
key Lacerte employees or significant numbers of Lacerte employees could have a
material adverse effect on the Company. The Company may face difficulties in
retaining Lacerte's customers, and customers' uncertainties as to the Company's
plans and ability to support both Lacerte's products and its existing ProSeries
software after the acquisition could adversely affect the Company's ability to
retain these customers, which would have a material adverse effect on the
Company. Lacerte is beginning a significant transition of its product line to a
planned 32-bit version, and this transition will require significant development
efforts. There can be no assurance that Lacerte will successfully develop this
version of its products, or that this new version of its products will perform
as expected. Departures of engineering personnel following the acquisition, or
other uncertainties caused by the acquisition, could adversely affect the
ability of Lacerte to develop this product. In the event that the Company and
Lacerte in the future determine to integrate their operations, such integration
could also present a number of risks and result in the diversion of management's
attention.
Under the terms of the Asset Purchase Agreement, the Company is
assuming substantially all of the liabilities related to Lacerte's business
with the exception of certain tax liabilities. If unanticipated liabilities are
discovered after the consummation of the Pending Acquisition, the Company will
likely bear the obligation to satisfy those liabilities, which could have a
material adverse effect on the Company's operating results.
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D. JOINT VENTURE
In May 1998, the Company formed a joint venture company to focus on
development of certain Web-oriented finance products. The joint venture company
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. An affiliate of
Morgan Stanley & Co. Incorporated is the principal investor in this joint
venture company, and a venture capital fund managed by Kleiner Perkins Caufield
& Byers, of which L. John Doerr, a director of the Company, is a general
partner, has agreed to invest $1 million in the joint venture company. In
exchange for its equity interest in the joint venture company, the Company has
granted the joint venture company licenses to certain technology and
intellectual property rights related to certain Web-oriented finance products
and has agreed not to compete in certain areas of server-based personal finance
for a period of ten years. The Company will manage the development of the new
products and the commercialization efforts of the joint venture company and has
been granted the option to purchase the equity interests of the investors in the
joint venture company during a period of time beginning two years after
formation of the joint venture company at a price to be determined by a formula.
The cost of exercising the option to purchase the investors' equity interests
would be substantial and would result in the acquisition of certain intangible
assets that would be amortized over the expected useful life of the new
company'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 the Company's purchase option will be
exercised.
E. SFAS 128 INFORMATION
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standard, No. 128, "Earnings Per Share" (SFAS 128),
which replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Exhibit 99.05 includes basic and
diluted per share information for the quarter ended October 31, 1997 and the
quarters in each of the years ended July 31, 1997 and July 31, 1996 and for the
years ended September 30, 1993, the ten months ended July 31, 1994 and the
years ended July 31, 1995, 1996 and 1997, and such information is incorporated
herein by reference.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Included as Exhibit 99.02 hereto, and incorporated herein by
reference, is a copy of the audited combined financial statements of Lacerte as
of March 31, 1997 and 1998 and for the years ended March 31, 1996, 1997 and
1998. Included as Exhibit 99.03 hereto, and incorporated herein by reference, is
a copy of certain unaudited financial information of Lacerte for the six months
ended March 31, 1998. The unaudited financial information included for the six
months ended March 31, 1998 is incomplete as it was prepared solely for purposes
of preparing pro forma condensed combining statements of operations data and
does not include all of the information required by Regulation S-X for full
quarterly financial statements, such as footnotes.
(b) PRO FORMA FINANCIAL INFORMATION
Included as Exhibit 99.03 hereto, and incorporated herein by
reference, is a copy of the pro forma condensed combining financial information
with respect to the proposed acquisition of Lacerte by the Company, which
combine the statement of operations of the Company for the year ended July 31,
1997 and the six months ended January 31, 1998 with the statements of operations
of Lacerte for the year ended September 30, 1997 and the six months ended March
31, 1998, respectively, as if the Pending Acquisition had occurred as of the
earliest period presented, and the balance sheets of the Company as of January
31, 1998 and of Lacerte as of March 31, 1998, as if the Pending Acquisition had
occurred as of January 31, 1998.
(c) EXHIBITS
The following exhibits are filed herewith:
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Number Description
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*2.01 Asset Purchase Agreement dated as of May 18, 1998 by and
between the Company and Lacerte.
23.01 Consent of Price Waterhouse LLP, Independent Accountants.
99.01 Unaudited financial information of the Company as of April 30,
1997 and for the three and nine month periods then ended.
99.02 Audited Combined Financial Statements of Lacerte as of March
31, 1997 and 1998 and for the years ended March 31, 1996, 1997
and 1998.
99.03 Unaudited condensed combined income statement information of
Lacerte for the six month period ended March 31, 1998.
99.04 Pro forma financial information of the Company and Lacerte.
99.05 Restatement of Earnings Per Share Under Statement of
Financial Accounting Standards No. 128.
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* To be filed by amendment.
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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.
Dated: May 18 , 1998 /s/ Greg J. Santora
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Greg J. Santora
Vice President and Chief
Financial Officer
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EXHIBIT INDEX
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Number Description
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*2.01 Asset Purchase Agreement dated as of May 18, 1998 by and
between the Company and Lacerte.
23.01 Consent of Price Waterhouse LLP, Independent Accountants.
99.01 Unaudited financial information of the Company as of April 30,
1997 and for the three and nine month periods then ended.
99.02 Audited Combined Financial Statements of Lacerte as of March
31, 1997 and 1998 and for the years ended March 31, 1996, 1997
and 1998.
99.03 Unaudited condensed combined income statement information of
Lacerte for the six month period ended March 31, 1998.
99.04 Pro forma financial information of the Company and Lacerte.
99.05 Restatement of Earnings Per Share Under Statement of
Financial Accounting Standards No. 128.
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* To be filed by amendment.
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EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
Supplement constituting part of the Registration Statements on Form S-3 (No.
333-50417 and 33-99646) of Intuit Inc. and in the Registration Statements on
Form S-8 of Intuit Inc. (File Nos. 33-59458, 33-95049, 33-73222, 333-06889,
333-14715, 333-16827, 333-16829, 333-20361, 333-45285, 333-45277 and 333-45287)
and Form S-4 of Intuit Inc. (File No. 33-99644) of our report dated May 15,
1998 relating to the combined financial statements of Lacerte Software
Corporation and Lacerte Educational Services Corporation, which appears in the
Current Report on Form 8-K of Intuit Inc. dated May 18, 1998. We also consent
to the references to us under the heading "Experts" and "Selected Financial
Data of Lacerte" in such Prospectus Supplement. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Data of Lacerte."
PRICE WATERHOUSE LLP
Dallas, Texas
May 18, 1998
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EXHIBIT 99.01
INTUIT INC.
CONDENSEND CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
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1997 1998 1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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Net revenue .......................................... $ 136,326 $ 141,996 $ 504,810 $ 475,467
Costs and expenses:
Cost of goods sold:
Product ........................................ 28,917 29,331 114,583 97,206
Amortization of purchased software and other ... 526 588 680 1,941
Customer service and technical support ............ 27,040 26,389 95,111 91,821
Selling and marketing ............................. 40,196 55,067 130,832 134,006
Research and development .......................... 22,393 25,381 67,784 78,159
General and administrative ........................ 8,737 9,180 31,361 27,387
Charge for purchased research and development ..... 6,080 -- 11,009 --
Other acquisition costs, including amortization of
goodwill and purchased intangibles ............. 4,284 3,369 20,778 12,230
--------- --------- --------- ---------
Total costs and expenses ............................. 138,173 149,305 472,138 442,750
--------- --------- --------- ---------
Income (loss) from operations ........................ (1,847) (7,309) 32,672 32,717
Interest and other income and expense, net ........... 2,806 3,104 6,612 7,375
Gain on disposal of business ......................... -- -- -- 4,321
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Income (loss) from continuing operations before
income taxes ...................................... 959 (4,205) 39,284 44,413
Income tax provision (benefit) ....................... 471 (1,999) 22,400 17,534
--------- --------- --------- ---------
Net income (loss) from continuing operations after
tax ............................................... 488 (2,206) 16,884 26,879
Gain on sale of discontinued operations, net of tax .. -- -- 71,240 --
--------- --------- --------- ---------
Net income (loss) .................................... $ 488 $ (2,206) $ 88,124 $ 26,879
========= ========= ========= =========
Basic net income (loss) per share from continuing
operations ........................................ 0.01 (0.05) 0.36 0.56
Basic net income per share from sale of discontinued
operations ........................................ -- -- 1.54 --
--------- --------- --------- ---------
Basic net income (loss) per share .................... $ 0.01 $ (0.05) $ 1.90 $ 0.56
========= ========= ========= =========
Shares used in per share amounts ..................... 46,526 48,209 46,322 47,618
========= ========= ========= =========
Diluted net income (loss) per share from continuing
operations ........................................ 0.01 (0.05) 0.36 0.54
Diluted net income per share from sale of discontinued
operations ........................................ -- -- 1.50 --
Diluted net income (loss) per share .................. $ 0.01 $ (0.05) $ 1.86 $ 0.54
========= ========= ========= =========
Shares used in per share amounts
47,252 48,209 47,407 49,560
========= ========= ========= =========
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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
April 30,
1998
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ASSETS:
Current assets:
Cash, cash equivalents and short-term investments $ 247,258
Marketable securities 479,227
Accounts receivable, net 118,676
Due from affiliate 50,000
Inventories 2,015
Prepaid expenses 23,310
---------
Total current assets 920,486
Property and equipment, net 69,575
Intangible assets 11,737
Goodwill, net 16,166
Other assets 13,397
Investments 11,000
Restricted investments 31,053
---------
Total assets $1,073,414
=========
LIABILITIES AND STOCKHOLDERS EQUITY:
Current liabilities:
Accounts payable $ 48,218
Accrued compensation and related liabilities 22,761
Deferred revenue 28,820
Income taxes payable 6,213
Deferred income taxes 126,219
Other accrued liabilities 165,059
---------
Total current liabilities 397,290
Long-term obligations 39,173
Long-term deferred income taxes 117
Stockholders' equity 636,834
---------
Total liabilities and stockholders' equity $1,073,414
=========
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EXHIBIT 99.02
LACERTE SOFTWARE CORPORATION AND LACERTE EDUCATIONAL SERVICES CORPORATION
COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998, 1997 AND 1996
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lacerte Software Corporation and Lacerte Educational
Services Corporation
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of changes in stockholders' equity, and of cash
flows present fairly, in all material respects, the combined financial position
of Lacerte Software Corporation and Lacerte Educational Services Corporation
(together the "Company") at March 31, 1998 and 1997, and the combined results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
May 15, 1998
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LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
COMBINED BALANCE SHEETS
MARCH 31, 1998 AND 1997
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1998 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 6,621,427 $ 4,809,957
Accounts receivable 8,512,977 6,987,692
Notes receivable from stockholders 3,067,726 3,212,056
Other assets 163,033 327,846
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Total current assets 18,365,163 15,337,551
Property and equipment, net 2,965,957 2,742,540
Intangible assets, net 1,103,694 1,639,284
Other assets 386,345 546,139
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Total assets $22,821,159 $20,265,514
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 771,421 $ 855,191
Line of credit -- 1,000,000
Accrued compensation 1,702,948 1,516,229
Deferred revenue 1,001,606 1,028,993
Accrued post-contract customer support 2,625,952 2,780,319
Taxes payable and other 1,541,631 1,332,269
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Total current liabilities 7,643,558 8,513,001
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Commitments and Contingencies (Note 7)
Stockholders' equity:
Common stock-Lacerte Software Corporation, no par value
1,000 shares authorized, 1,000 shares issued and outstanding 2,000 2,000
Common stock-Lacerte Educational Services Corporation, no par value
1,000 shares authorized, 1,000 shares issued and outstanding 10,000 10,000
Retained earnings 15,165,601 11,740,513
----------- -----------
Total stockholders' equity 15,177,601 11,752,513
----------- -----------
Total liabilities and stockholders' equity $22,821,159 $20,265,514
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
-2-
<PAGE> 4
LACERTE SOFTWARE CORPORATION and
LACERTE EDUCATIONAL SERVICES CORPORATION
COMBINED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $75,586,314 $68,129,126 $62,081,359
----------- ----------- -----------
Operating expenses:
Cost of revenue 4,480,158 4,369,134 4,244,766
Software support 5,681,081 6,358,806 5,716,357
Research and development 15,470,931 14,041,773 12,313,882
Sales and marketing 4,557,395 4,687,060 4,521,867
General and administrative 16,525,717 15,283,963 15,532,350
----------- ----------- -----------
Total operating expenses 46,715,282 44,740,736 42,329,222
----------- ----------- -----------
Income from operations 28,871,032 23,388,390 19,752,137
Other income, net 712,678 515,587 662,789
----------- ----------- -----------
Income before state income taxes 29,583,710 23,903,977 20,414,926
State tax provision 158,622 463,800 608,605
----------- ----------- -----------
Net income $29,425,088 $23,440,177 $19,806,321
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
-3-
<PAGE> 5
LACERTE SOFTWARE CORPORATION and
LACERTE EDUCATIONAL SERVICES CORPORATION
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Common Stock
-------------------------------------------------------------
Number of Shares Additional Paid-In-Capital
-------------------------------------------------------------
Lacerte Lacerte Lacerte Lacerte Total
Software Eductional Services Software Eductional Services Retained Stockholders'
Corporation Corporation Corporation Corporation Earnings Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 1,000 -- $ 1,000 $ -- $ 11,494,015 $ 11,495,015
Net income -- -- -- -- 19,806,321 19,806,321
Dividend payments -- -- -- -- (23,000,000) (23,000,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1996 1,000 -- 1,000 -- 8,300,336 8,301,336
Net income -- -- -- 23,440,177 23,440,177
Dividend payments -- -- -- (20,000,000) (20,000,000)
Issuance of common stock 1,000 1,000 1,000 10,000 -- 11,000
Dissolution of California
Corporation (Note 1) (1,000) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1997 1,000 1,000 2,000 10,000 11,740,513 11,752,513
Net income -- -- -- -- 29,425,088 29,425,088
Dividend payments -- -- -- -- (26,000,000) (26,000,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1998 1,000 1,000 $ 2,000 $ 10,000 $ 15,165,601 $ 15,177,601
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these combined financial statements.
-4-
<PAGE> 6
LACERTE SOFTWARE CORPORATION and
LACERTE EDUCATIONAL SERVICES CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 29,425,088 $ 23,440,177 $ 19,806,321
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,496,011 1,753,802 1,694,350
Changes in assets and liabilities:
Increase in accounts receivable (1,525,285) (1,089,044) (1,184,267)
Decrease in other assets 324,607 129,010 876,056
Decrease in accounts payable (83,770) (396,043) (16,229)
Increase in accrued compensation 186,719 254,503 314,034
Decrease in deferred revenue (27,387) (51,978) (76,959)
(Decrease) increase in post -contract
customer support (154,367) 180,319 --
Increase in taxes payable and other 209,362 700,325 602,218
------------ ------------ ------------
Net cash provided by operating activities 29,850,978 24,921,071 22,015,524
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,183,838) (1,810,704) (2,487,694)
Issuance of notes receivable from stockholders (4,328,519) (1,919,060) (237,483)
Repayments of notes receivable from stockholders 4,472,849 1,631,597 4,285,591
------------ ------------ ------------
Net cash provided by (used in) investing activities (1,039,508) (2,098,167) 1,560,414
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings on line of credit -- 1,000,000 --
Principal payments on borrowings from line of credit (1,000,000) -- --
Principal payments on notes payable -- (802,403) (882,238)
Dividend payments (26,000,000) (20,000,000) (23,000,000)
Proceeds from issuance of common stock -- 11,000 --
------------ ------------ ------------
Net cash used in financing activities (27,000,000) (19,791,403) (23,882,238)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,811,470 3,031,501 (306,300)
Cash and cash equivalents at beginning of year 4,809,957 1,778,456 2,084,756
------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,621,427 $ 4,809,957 $ 1,778,456
============ ============ ============
Supplemental cash flow information:
Interest paid $ 7,115 $ 23,971 $ 59,489
============ ============ ============
Taxes paid $ 138,795 $ 425,412 $ 542,309
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
-5-
<PAGE> 7
LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
Lacerte Software Corporation ("Lacerte Software") was incorporated in the
State of California in December 1978. In July 1996, Lacerte Software
completed a reorganization resulting in the merger of the California
corporation into a newly created Delaware corporation of the same name. In
connection with the 1996 reorganization, the California corporation was
dissolved. Lacerte Software develops, markets and sells computer software
for the professional tax preparation market.
In April 1996, the stockholders of Lacerte Software formed Lacerte
Educational Services Corporation ("Lacerte Educational"), a Delaware
corporation, to provide seminars and educational services to the
professional tax preparer market. The stockholders of Lacerte Educational
and Lacerte Software are similar such that these entities are companies
under common control.
The accompanying combined financial statements present the combined
balances of Lacerte Software and Lacerte Educational (together the
"Company") for the period after the formation of Lacerte Educational
Services Corporation. All intercompany accounts and transactions have been
eliminated. Prior to the formation of Lacerte Educational, the financial
statements represent the balances and activities of Lacerte Software on a
stand alone basis.
Effective May 1, 1996, Lacerte Software and Lacerte Educational entered
into a Service and Management Agreement. Lacerte Software agreed to
provide Lacerte Educational with support services and Lacerte Educational
agreed to provide Lacerte Software with sales leads for Lacerte Software's
products and services. Lacerte Educational made payments to Lacerte
Software of $300,000 and $210,082 for services provided during fiscal
years ending March 31, 1998 and 1997, respectively. Unpaid balances accrue
interest at 7%. Unpaid balances were $180,237 and $165,937 at March 31,
1998 and 1997, respectively. Such intercompany balances and transactions
have been eliminated in these combined financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management of the
Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of these financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
-6-
<PAGE> 8
LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
In-house
In-house software includes federal and state income tax forms for the tax
preparer market. In-house revenue is generally recognized at the time of
shipment of the Company's software, as no significant vendor obligations
exist and collections of accounts receivable are probable. Advance
payments are recorded as deferred revenue until the related products are
shipped. The Company accrues the cost of providing vendor obligations at
the time of shipment. Such costs are included in accrued post-contract
customer support.
Remote Entry Processing
Remote entry processing has a transaction based fee structure whereby the
user is charged a fee for each tax return processed. Revenue from remote
entry processing is recognized upon delivery of an electronic encryption
key to unlock the Company's software, as no significant future vendor
obligations exist and collections of accounts receivable are probable.
Advance deposits are recorded as deferred revenue until the Company's
software is shipped. Unused deposits are recorded as revenue upon shipment
of the subsequent year's software.
Training revenue
Training revenue is recognized as the services are performed.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are incurred for the development of new
products or bringing about significant improvements to existing products.
Statement of Financial Accounting Standard No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" (SFAS
No. 86), requires the capitalization of certain software development costs
once technological feasibility is established. The capitalized cost is
then amortized on a straight-line basis over the estimated product life,
or based on the ratio of current revenues to total projected product
revenues, whichever is greater. Technological feasibility does not occur
for the Company's products until testing of a working model has been
performed at which time the products are substantially ready for release
to the customer, therefore, no costs have been capitalized with respect to
product development.
INTANGIBLE ASSETS
The cost of identified intangibles is generally amortized on a
straight-line basis over periods ranging from one to seven years. The
carrying value of intangible assets is reviewed by management on a
periodic basis for indications of a potential impairment as required by
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). To date, no impairment has been recorded for the
Company's intangible assets.
-7-
<PAGE> 9
LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS
Cash and cash equivalents includes all highly liquid investment
instruments with an original maturity of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the assets, ranging from three to twenty years. Leasehold
improvements are amortized over the shorter of the remaining term of the
lease or the estimated life of the asset. Expenditures for repairs and
maintenance are charged to expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 31, 1998 and 1997, the Company is not a party to any
off-balance sheet financial instruments. All financial instruments
recorded at March 31, 1998 and 1997 are either of very short maturity or
carry interest rates which approximate market rates. As such, the fair
value of financial instruments approximates their carrying value as of
March 31, 1998 and 1997.
INCOME TAXES
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an "S" corporation. In lieu of federal
corporate income taxes, the stockholders of an "S" corporation are taxed
on their proportionate shares of the Company's taxable income. Therefore,
no provision or liability for federal income taxes has been included in
these financial statements, as the tax effects of the Company's activities
accrue to the individual stockholders.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
years ended March 31, 1998, 1997 and 1996 was approximately $390,585,
$635,995 and $377,779, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
On October 27, 1997, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue
Recognition" ("SoP 97-2"). This statement, which supercedes Statement of
Position 91-1, provides guidance for recognizing revenue on software
transactions. SoP 97-2 is effective for transactions entered into during
fiscal years beginning after December 31, 1997. The Company will adopt SoP
97-2 in its fiscal year ending March 31, 1999 and is currently assessing
the impact of SoP 97-2 on its revenue recognition policy.
-8-
<PAGE> 10
LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about Capital
Structure". The Company adopted the statement effective April 1, 1997. The
adoption did not have a material effect on the Company's combined
financial statements.
3. INTANGIBLE ASSETS
Components of intangible assets are as follows at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Customer lists $ 2,758,131 $ 2,758,131
Covenants not to compete 2,105,000 2,105,000
Other intangibles 598,201 598,201
----------- -----------
5,461,332 5,461,332
Less: accumulated amortization (4,357,638) (3,822,048)
----------- -----------
$ 1,103,694 $ 1,639,284
=========== ===========
</TABLE>
Amortization expense for intangible assets totaled $535,590, $576,840 and
$743,791 for the years ended March 31, 1998, 1997 and 1996, respectively.
In conjunction with the acquisition of the above intangible assets, the
Company issued certain notes payable, some of which were personally
guaranteed by the Company's President and Chief Executive Officer.
Principal payments on notes payable totaled $802,403 and $882,238 for the
years ended March 31, 1997 and 1996, respectively. Related interest
expense was $5,973 and $50,706 for the years ended March 31, 1997 and
1996, respectively.
4. NOTES RECEIVABLE FROM STOCKHOLDERS
During the years ended March 31, 1998, 1997, and 1996, the Company loaned
money to certain stockholders totaling $4,025,000, $1,690,000 and $84,000.
These loans, in the form of notes receivable, are unsecured. Two of the
Company's principal stockholders also have unsecured lines of credit with
the Company. These amounts are due upon demand by the Company. Draws on
these lines of credit totaled $303,519, $229,060 and $155,483 for the
years ended March 31, 1998, 1997 and 1996, respectively. The above notes
receivable and lines of credit are interest bearing at rates ranging from
5% to 7.5%. The Company recognized interest income related to these notes
receivable and lines of credit totaling $224,390, $296,266 and $313,927,
for the years ended March 31, 1998, 1997 and 1996, respectively. Both the
notes receivable and the outstanding borrowings on the lines of credit are
included in notes receivable from stockholders.
-9-
<PAGE> 11
LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. LINE OF CREDIT
In August 1995, the Company entered into an unsecured line of credit
agreement with a bank for an amount up to $2,000,000. Outstanding balances
are payable upon demand with interest to be paid monthly at the bank's
prime rate minus 2% (6.5% at March 31, 1997). At March 31, 1997, the
Company had an outstanding balance of $1,000,000 under this facility.
Available balances under this agreement were $2,000,000 and $1,000,000 at
March 31, 1998 and 1997, respectively. There are no commitment fees
related to this credit facility.
The line of credit is guaranteed by an unsecured personal guarantee of the
Company's President and Chief Executive Officer, supported by an
assignment of a life insurance policy in the amount of $1,000,000. The
premiums for this policy are paid by the Company. The credit facility
contains certain restrictive covenants.
6. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1998 and 1997 is comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Property and equipment $ 3,239,108 $ 2,327,119
Land and building 500,825 500,825
Furniture and fixtures 1,365,707 1,362,028
Computer software 429,017 160,847
Leasehold improvements 1,081,259 1,081,259
----------- -----------
6,615,916 5,432,078
Less: accumulated depreciation (3,649,959) (2,689,538)
----------- -----------
$ 2,965,957 $ 2,742,540
=========== ===========
</TABLE>
Depreciation expense totaled $960,421, $1,176,962 and $950,559 for the
years ended March 31, 1998, 1997 and 1996, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities under a non-cancelable operating
lease, which expires October 31, 2001. In addition to base rent, the
Company is obligated to pay its pro-rata share of operating expenses.
-10-
<PAGE> 12
LACERTE SOFTWARE CORPORATION AND
LACERTE EDUCATIONAL SERVICES CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Future minimum lease commitments under the operating lease as of March 31,
1998 are as follows:
<TABLE>
<CAPTION>
Minimum
Years Ending lease
March 31, payments
---- ----------
<S> <C>
1999 $1,580,809
2000 1,580,809
2001 1,580,809
2002 857,879
==========
$5,600,306
==========
</TABLE>
Rent expense for the years ended March 31, 1998, 1997 and 1996 was
approximately $1,785,114, $1,797,856 and $1,738,580, respectively.
The company entered into a three year contract, which extends through
October 31, 2000, whereby it has committed to purchase at least $900,000
per year of long distance service with a carrier.
8. BENEFIT PLANS
Management Incentive Program
The Company maintains a management incentive program for certain of its
full-time employees. Amounts provided are determined pursuant to criteria
established by the President and Chief Executive Officer. Compensation
expense related to this program was approximately $6,455,295, $5,667,673
and $4,436,730 for the years ended March 31, 1998, 1997 and 1996,
respectively.
401(k) Retirement Savings Plan
The Company maintains a 401(k) retirement savings plan for its full-time
employees. Each participant may elect to contribute from 1% to 14% of his
or her annual salary to the plan, subject to IRS limitations. The Company
matches 50% of employee contributions. Matching contributions were
approximately $649,435, $616,321, and $506,977, respectively, for the
years ended March 31, 1998, 1997, and 1996.
***
<PAGE> 1
EXHIBIT 99.03
LACERTE SOFTWARE CORPORATION AND LACERTE EDUCATIONAL SERVICES CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
1998
------------
(IN THOUSANDS)
<S> <C>
Net revenue............................ $ 64,208
Costs and expenses:
Cost of goods sold:
Product........................... 3,185
Amortization of purchased software
and other....................... --
Customer service and technical
support........................... 3,523
Selling and marketing................ 2,442
Research and development............. 8,925
General and administrative........... 9,150
Other acquisition costs, including
amortization of goodwill and
purchased intangibles............. --
--------
Total costs and expenses........ 27,225
--------
Income (loss) from
operations................... 36,983
Interest and other income and expense,
net.................................. 331
Gain on disposal of business........... --
--------
Net income (loss) before income taxes.. 37,314
Provision for (benefit from) income
taxes................................ 71
--------
Net income (loss)...................... $ 37,243
========
</TABLE>
<PAGE> 1
EXHIBIT 99.04
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
The following pro forma condensed combining statements of operations
are set forth herein to give effect to the net proceeds to the Company from the
sale of 8,400,000 shares of Common Stock at an assumed offering price of $45.875
per share and the acquisition of Lacerte by Intuit as if such acquisition had
occurred as of the beginning of each period presented by combining the
statements of operations data of (i) the Company for the year ended July 31,
1997 and Lacerte for the twelve month period from October 1, 1996 through
September 30, 1997 and (ii) the Company for the six months ended January 31,
1998 and Lacerte for the six months ended March 31, 1998, respectively. The pro
forma condensed combining balance sheet data gives effect to the acquisition of
Lacerte by Intuit as if such acquisition had occurred on January 31, 1998. The
pro forma combined consolidated financial information does not reflect any
potential cost savings which may be obtained following the Pending Acquisition.
The pro forma adjustments and assumptions are based on estimates, evaluations
and other data currently available. In particular, such adjustments include
information based upon the Company's preliminary allocation of the purchase
price for the Pending Acquisition, which is subject to adjustment based upon the
Company's further analysis. The pro forma condensed combining statements of
operations is provided for illustrative purposes only and is not necessarily
indicative of the combined results of operations that would have been reported
had the Pending Acquisition occurred on August 1, 1996, nor does it represent a
forecast of the combined future results of operations for any future period. All
information contained herein should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Form 10-K for the year ended July 31, 1997, the
Financial Statements and Notes thereto of Lacerte included in the Company's Form
8-K dated May 18, 1998 and the Notes to the unaudited pro forma condensed
combining financial information.
<PAGE> 2
<TABLE>
<CAPTION>
INTUIT LACERTE
FOR THE SIX FOR THE SIX
MONTHS MONTHS
ENDED ENDED PRO FORMA
JANUARY 31, MARCH 31, -------------------------
UNAUDITED PRO FORMA CONDENSED 1998 1998 ADJUSTMENTS COMBINED
COMBINING INCOME STATEMENT DATA: ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATE)
<S> <C> <C> <C> <C>
Net revenue............................ $333,471 $ 64,208 $ -- $397,679
Costs and expenses:
Cost of goods sold:
Product........................... 67,875 3,185 -- 71,060
Amortization of purchased software
and other....................... 1,353 -- -- 1,353
Customer service and technical
support........................... 65,432 3,523 -- 68,955
Selling and marketing................ 78,939 2,442 -- 81,381
Research and development............. 52,778 8,925 -- 61,703
General and administrative........... 18,207 9,150 -- 27,357
Other acquisition costs, including
amortization of goodwill and
purchased intangibles............. 8,861 -- 61,316(e) 70,177
-------- -------- -------- --------
Total costs and expenses........ 293,445 27,225 61,316 381,986
-------- -------- -------- --------
Income (loss) from
operations................... 40,026 36,983 (61,316) 15,693
Interest and other income and expense,
net.................................. 4,271 331 -- 4,602
Gain on disposal of business........... 4,321 -- -- 4,321
-------- -------- -------- --------
Net income (loss) before income taxes.. 48,618 37,314 (61,316) 24,616
Provision for (benefit from) income
taxes................................ 19,533 71 (9,672)(f) 9,932
-------- -------- -------- --------
Net income (loss)...................... $ 29,085 $ 37,243 $(51,644) $ 14,684
======== ======== ======== ========
Basic net income per share............. $ 0.61 $ 0.26
======== ========
Shares used in computing basic net
income per share..................... 47,322 8,400(a) 55,722
======== ======== ========
Diluted net income per share........... $ 0.59 $ 0.26
======== ========
Shares used in computing diluted net
income per share..................... 48,929 8,400(a) 57,329
======== ======== ========
</TABLE>
See accompanying notes.
<PAGE> 3
<TABLE>
<CAPTION>
INTUIT LACERTE
FOR THE YEAR FOR THE YEAR PRO FORMA
ENDED ENDED -------------------------
UNAUDITED PRO FORMA CONDENSED JUL. 31, 1997 SEPT. 30, 1997 ADJUSTMENTS COMBINED
COMBINING INCOME STATEMENT DATA: ------------- -------------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue........................ $598,925 $ 69,474 $ -- $668,399
Costs and expenses:
Cost of goods sold:
Product....................... 137,281 4,417 -- 141,698
Amortization of purchased
software and other.......... 1,489 -- -- 1,489
Customer service and technical
support....................... 119,762 5,768 -- 125,530
Selling and marketing............ 162,047 4,499 -- 166,546
Research and development......... 93,018 14,091 -- 107,109
General and administrative....... 37,460 15,620 -- 53,080
Charge for purchased research and
development................... 11,009 -- -- 11,009
Other acquisition costs,
including amortization of
goodwill and purchased
intangibles................... 26,543 -- 122,632(e) 149,175
Restructuring costs.............. 10,356 -- -- 10,356
-------- -------- -------- --------
Total costs and
expenses............... 598,965 44,395 122,632 765,992
-------- -------- -------- --------
Income (loss) from
operations............. (40) 25,079 (122,632) (97,593)
Interest and other income and
expense, net..................... 9,849 471 -- 10,320
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes... 9,809 25,550 (122,632) (87,273)
Provision for (benefit from) income
taxes............................ 12,741 322 (39,155)(f) (26,092)
-------- -------- -------- --------
Income (loss) from continuing
operations....................... (2,932) 25,228 (83,477) (61,181)
Gain from sale of discontinued
operations, net of income tax
provision of $52,617,000......... 71,240 -- -- 71,240
-------- -------- -------- --------
Net income (loss).................. $ 68,308 $ 25,228 $(83,477) $ 10,059
======== ======== ======== ========
Basic loss per share from
continuing operations............ $ (0.06) $ (1.12)
Basic income per share from sale of
discontinued operations.......... 1.53 1.30
-------- --------
Basic net income per share......... $ 1.47 $ 0.18
======== ========
Shares used in computing basic net
loss per share................... 46,424 8,400(a) 54,824
======== ======== ========
Diluted loss per share from
continuing operations............ $ (0.06) $ (1.12)
Diluted income per share from sale
of discontinued operations....... 1.50 1.28
-------- --------
Diluted net income per share....... $ 1.44 $ 0.18
======== ========
Shares used in computing net income
(loss) per share................. 47,448 8,400(a) 55,848
======== ======== ========
</TABLE>
See accompanying notes.
<PAGE> 4
<TABLE>
<CAPTION>
INTUIT LACERTE PRO FORMA
JANUARY 31, MARCH 31, ---------------------------
UNAUDITED PRO FORMA CONDENSED 1998 1998 ADJUSTMENTS COMBINED
COMBINING BALANCE SHEET DATA: ----------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $105,532 $ 6,621 $ 370,677(a)
(400,000)(b) $ 82,830
Short-term investments.......... 143,179 -- -- 143,179
Marketable securities........... 394,049 -- -- 394,049
Accounts receivable, net........ 170,277 8,513 -- 178,790
Notes
receivable -- shareholders... -- 3,068 -- 3,068
Inventories..................... 4,811 -- -- 4,811
Prepaid expenses................ 18,622 163 -- 18,785
-------- -------- --------- ----------
Total current assets.... 836,470 18,365 (29,323) 825,512
Property and equipment, net....... 70,574 2,966 -- 73,540
Intangibles from Lacerte
Acquisition..................... -- -- 394,822(b)
(20,300)(c) 374,522
Purchased intangibles, net........ 13,676 1,104 -- 14,780
Goodwill, net..................... 19,190 -- 19,190
Investments....................... 2,000 -- -- 2,000
Restricted investments............ 32,493 -- -- 32,493
Other assets...................... 2,678 386 -- 3,064
-------- -------- --------- ----------
Total assets............ $977,081 $ 22,821 $ 345,199 $1,345,101
======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................ $ 59,535 $ 771 $ -- $ 60,306
Accrued compensation and related
liabilities.................. 20,595 1,703 -- 22,298
Deferred revenue................ 38,602 1,002 -- 39,604
Income taxes payable............ 16,940 -- (7,714)(c) 9,226
Deferred income taxes........... 92,147 -- -- 92,147
Other accrued liabilities....... 156,267 4,167 10,000(b) 170,434
-------- -------- --------- ----------
Total current
liabilities........... 384,086 7,643 2,286 394,015
Deferred income taxes............. 300 -- -- 300
Long-term notes payable........... 31,253 -- -- 31,253
Commitments and contingencies
Stockholders' equity:
Preferred stock................. -- -- -- --
Common stock.................... 478 -- 84(a) 562
Additional paid-in capital........ 577,542 12 370,593(a)
(12)(d) 948,135
Net unrealized gain on marketable
securities...................... 117,929 -- -- 117,929
Cumulative translation adjustment
and other....................... (361) -- -- (361)
Retained earnings (accumulated
deficit)........................ (134,146) 15,166 (15,166)(d)
7,714(c)
(20,300)(c) (146,732)
-------- -------- --------- ----------
Total stockholders'
equity................ 561,442 15,178 342,913 919,533
-------- -------- --------- ----------
Total liabilities and
stockholders'
equity................ $977,081 $ 22,821 $ 345,199 $1,345,101
======== ======== ========= ==========
</TABLE>
See accompanying notes.
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Note 1. The unaudited pro forma condensed combining balance sheet of Intuit
and Lacerte has been prepared as if the Pending Acquisition, which is being
accounted for as a purchase, was completed as of January 31, 1998. Based on an
aggregate purchase price of $400 million, plus $10 million of direct and
indirect acquisition costs, and approximately $8 million in liabilities assumed,
a total of $418 million was allocated to the Lacerte March 31, 1998 balance
sheet. Actual balance sheets of Intuit and Lacerte will be combined at the
effective date of the Pending Acquisition.
The preliminary allocation of the purchase price among the identifiable
tangible and intangible assets was based on a preliminary appraisal of the fair
market value of those assets. Such preliminary purchase price allocation is
subject to adjustment based upon the Company's further analysis, which
adjustment could be material in amount. Specifically, purchased research and
development was identified and valued through interviews concerning each Lacerte
developmental project. Expected future cash flows of each developmental project
were discounted to present value taking into account risks associated with the
inherent difficulties and uncertainties in completing the project, and thereby
achieving technological feasibility, and risks related to the viability of and
potential changes in future target markets.
The above preliminary analysis and valuation resulted in a value of
approximately $20 million for purchased research and development which has not
yet reached technological feasibility and does not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles, this
amount has been written off as a pro forma adjustment.
Using the same methodology, other intangibles were identified and
preliminarily valued. Expected future cash flows associated with these
intangibles were discounted to present value taking into account risks related
to the characteristics of each item. The amounts preliminarily identified as
intangible assets as well as goodwill arising from the transaction are expected
to be amortized over estimated useful lives ranging from three to five years.
Note 2. The Intuit statement of operations for the year ended July 31, 1997
has been combined with the Lacerte statement of income for the year ended
September 30, 1997. Additionally, the Intuit statement of operations for the six
month period ended January 31, 1998 has been combined with Lacerte's statement
of income for the six month period ended March 31, 1998. This method of
combining the two companies is for the presentation of unaudited pro forma
condensed combining financial statements only. Actual statements of operations
of Intuit and Lacerte will be combined from the effective date of the Pending
Acquisition with no retroactive restatement. The unaudited pro forma condensed
combining financial statements, including the notes thereto, should be read in
conjunction with the historical consolidated financial statements of Intuit and
the combined financial statements of Lacerte for the indicated periods.
Note 3. The unaudited pro forma condensed combining statements of
operations for Intuit and Lacerte have been prepared as if the Pending
Acquisition was completed as of the beginning of each period presented. The
unaudited pro forma combined net loss per share is based on the weighted average
number of common shares of Intuit Common Stock outstanding during the period,
adjusted to give effect to 8,400,000 shares of the Company's Common Stock
assumed to be issued pursuant to the Company's planned public offering, the
proceeds of which are to be used to fund the purchase price for the Pending
Acquisition.
Note 4. Lacerte has elected under the Internal Revenue Code to be an "S"
corporation. In lieu of federal corporate income taxes, the stockholders of an
"S" corporation are taxed on their proportionate shares of the Company's taxable
income. Therefore, no provision or liability for federal income taxes has been
included in Lacerte's financial statements, as the tax effects of the Company's
activities accrue to the individual stockholders. The unaudited pro forma
condensed combining statements of operations include pro forma adjustments to
adjust Lacerte's earnings as if they were subject to the corporate tax treatment
of a "C" corporation.
Note 5. The unaudited pro forma condensed combining statements of
operations for Intuit and Lacerte do not include the approximate $20 million
charge for acquired in-process research and development arising from the Pending
Acquisition, as it is a material nonrecurring charge. This charge will be
included in the actual consolidated statements of operations of Intuit in the
fiscal quarter in which the Pending Acquisition closes.
<PAGE> 6
Note 6. The following pro forma adjustments are reflected in the unaudited
pro forma condensed combining financial information and are required to allocate
the preliminary purchase price and acquisition costs to the net assets to be
acquired from Lacerte based on their fair value, as determined by a preliminary
appraisal, and to reflect the write-off of purchased research and development
identified in the purchase price allocation:
(a) Reflects $370,677,000 of net proceeds to the Company from the sale of
8,400,000 shares of Common Stock at an assumed public offering price of $45.875
per share after deducting the estimated underwriting discount and offering
expenses.
(b) Reflects the allocation of the purchase price, based on fair market
values, to the historical balance sheet.
(c) Reflects the write-off of purchased research and development identified
in the purchase price allocation and the related pro forma tax effects. The pro
forma statements of operations exclude the write-off of purchased research and
development due to its non-recurring nature.
(d) Reflects the elimination of Lacerte's equity accounts.
(e) Reflects the amortization of intangibles associated with the purchase
of Lacerte as if the acquisition was completed as of the beginning of each
period presented. Amortization is over the estimated useful lives of the assets
acquired (generally between three and five years).
(f) Reflects the effect of treating Lacerte as an "S" corporation versus a
"C" corporation for federal and state tax purposes.
<PAGE> 1
EXHIBIT 99.05
RESTATEMENT OF EARNINGS PER SHARE UNDER STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
Restatement of selected financial data is for the quarter ended October 31, 1997
and the quarters in each of the years ended July 31, 1997 and July 31, 1996, and
the year ended September 30, 1993, ten months ended July 31, 1994 and the years
ended July 31, 1995, 1996 and 1997, and related disclosures as prescribed by
SFAS 128, "Earnings per Share" for the three years ended July 31, 1997.
QUARTERLY INFORMATION
The following information restates loss per share amounts under Part I Item I of
Form 10-Q for the quarter ended October 31, 1997.
Quarter Ended
October 31, 1997
-------------------
Loss per share as $(0.27)
previously presented
Loss per share
restated:
Basic:
Continued operations $(0.27)
Total $(0.27)
Diluted:
Continuing operations $(0.27)
Total $(0.27)
The following information restates earnings loss per share amounts under Item 6
of the Form 10-K for fiscal 1997 for the quarters in each of the fiscal years
ended July 31, 1997 and July 31, 1996.
<TABLE>
<CAPTION>
Fiscal 1997
Quarters Ended
--------------------------------------------------
October 31 January 31 April 30 July 31
--------------------------------------------------
<S> <C> <C> <C> <C>
Earnings (loss) per share as
previously presented $(0.61) $2.44 $0.01 $(0.42)
Earnings (loss) per share
restated:
Basic:
Continuing operations $(0.61) $0.96 $0.01 $(0.42)
Total $(0.61) $2.50 $0.01 $(0.42)
Diluted:
Continuing operations $(0.61) $0.94 $0.01 $(0.42)
Total $(0.61) $2.44 $0.01 $(0.42)
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Fiscal 1996
Quarters Ended
--------------------------------------------------
October 31 January 31 April 30 July 31
--------------------------------------------------
<S> <C> <C> <C> <C>
Earnings (loss) per share as
previously presented $(0.46) $0.46 $(0.01) $(0.48)
Earnings (loss) per share
restated:
Basic:
Continuing operations $(0.42) $0.53 $ 0.03 $(0.46)
Total $(0.46) $0.49 $(0.01) $(0.48)
Diluted:
Continuing operations $(0.42) $0.50 $ 0.03 $(0.46)
Total $(0.46) $0.46 $(0.01) $(0.48)
</TABLE>
FISCAL YEAR INFORMATION
The following information restates earnings per share amounts under Item 6 of
the Form 10-K for fiscal 1997 for the year ended September 30, 1993, ten months
ended July 31, 1994 and the years ended July 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended
Years Ended July 31, July 31, September 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) per share as
previously presented $ 1.44 $(0.46) $(1.07) $(5.34) $0.40
Earnings (loss) per share
restated:
Basic:
Continuing operations $(0.06) $(0.32) $(1.07) $(5.34) $0.43
Total $ 1.47 $(0.46) $(1.07) $(5.34) $0.43
Diluted:
Continuing operations $(0.06) $(0.32) $(1.07) $(5.34) $0.40
Total $ 1.44 $(0.46) $(1.07) $(5.34) $0.40
</TABLE>
SFAS 128 DISCLOSURE
The calculation of Basic and Diluted earnings per share for each of the three
years ended July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Years Ended July 31,
------------------------------------
1997 1996 1995
------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net income (loss):
Continuing operations $(2,932) $(14,355) $(44,296)
Total $68,308 $(20,699) $(44,296)
Weighted-average common
shares - Basic 46,424 45,149 41,411
Effect of dilutive stock
options 1,024 -- --
Adjusted weighted-average
common shares and assumed
conversions - Diluted 47,448 45,149 41,411
Earnings (loss) per share - Basic:
Continuing operations $ (0.06) $ (0.32) $ (1.07)
Total $ 1.47 $ (0.46) $ (1.07)
Earnings (loss) per share - Diluted:
Continuing operations $ (0.06) $ (0.32) $ (1.07)
Total $ 1.44 $ (0.46) $ (1.07)
</TABLE>
