<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 APRIL 30, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
COMMISSION FILE NUMBER 0-21180
INTUIT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0034661
(State of incorporation) (IRS employer identification no.)
2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
(Address of principal executive offices)
(650) 944-6000
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
58,761,963 shares of Common Stock, $0.01 par value, as of June 3, 1998
<PAGE> 2
FORM 10-Q
INTUIT INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
------
<S> <C> <C>
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1997 and April 30, 1998............................... 3
Condensed Consolidated Statements of Operations for
the three and nine months ended April 30, 1997 and 1998........ 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended April 30, 1997 and 1998.................. 5
Notes to Condensed Consolidated Financial
Statements..................................................... 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 14
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings................................................... 23
ITEM 2: Changes in Securities............................................... 24
ITEM 6: Exhibits and Reports on Form 8-K.................................... 25
Signatures.......................................................... 27
</TABLE>
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<PAGE> 3
INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
----------- -----------
(In thousands, except par value) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 46,780 $ 63,191
Short-term investments................................................... 158,319 184,067
Marketable securities.................................................... 190,800 479,227
Accounts receivable, net................................................. 42,190 118,676
Note receivable.......................................................... -- 50,000
Inventories.............................................................. 3,295 2,015
Prepaid expenses......................................................... 13,393 23,310
----------- -----------
Total current assets............................................. 454,777 920,486
Property and equipment, net................................................ 83,404 69,575
Purchased intangibles, net................................................. 19,836 11,737
Goodwill, net.............................................................. 26,935 16,166
Other assets............................................................... 2,808 13,397
Investments................................................................ 41,150 11,000
Restricted investments..................................................... 34,766 31,053
----------- -----------
Total assets............................................................... $ 663,676 $ 1,073,414
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 35,688 $ 48,218
Accrued compensation and related liabilities............................. 22,458 22,761
Deferred revenue......................................................... 22,732 28,820
Income taxes payable..................................................... 3,811 6,213
Deferred income taxes.................................................... 27,310 126,219
Other accrued liabilities................................................ 99,583 165,059
----------- -----------
Total current liabilities........................................ 211,582 397,290
Long-term deferred income taxes............................................ 589 117
Long-term obligations...................................................... 36,444 39,173
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value
Authorized - 3,000 shares total; 200 shares designated Series B Junior
Participating
Issued and outstanding - none; none.................................... -- --
Common stock, $0.01 par value
Authorized -- 250,000 shares
Issued and outstanding - 46,942 and 48,679 shares, respectively....... 469 487
Additional paid-in capital............................................... 558,391 603,425
Net unrealized gain on marketable securities............................. 20,668 169,035
Cumulative translation adjustment and other.............................. (1,236) 239
Accumulated deficit...................................................... (163,231) (136,352)
----------- -----------
Total stockholders' equity....................................... 415,061 636,834
----------- -----------
Total liabilities and stockholders' equity................................. $ 663,676 $ 1,073,414
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------------- ------------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts; unaudited)
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 & technical support ........................ 27,040 26,389 95,111 91,821
Selling & marketing ......................................... 40,196 55,067 130,832 134,006
Research & development ...................................... 22,393 25,381 67,784 78,159
General & administrative .................................... 8,737 9,180 31,361 27,387
Charge for purchased research and development ............... 6,080 -- 11,009 --
Amortization of goodwill and purchased intangibles .......... 4,284 3,369 20,778 12,230
--------- --------- --------- ---------
Total costs & 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
--------- --------- --------- ---------
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
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
APRIL 30,
(In thousands, unaudited) 1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................... $ 88,124 $ 26,879
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Net gain on sale of discontinued operations ................ (71,240) --
Loss from discontinued operations offset against gain ...... (9,668) --
Gain on disposal of business, net of tax ................... -- (1,621)
Gain on sale of facility ................................... -- (1,501)
Charge for purchased research and development .............. 11,009 --
Amortization of goodwill and other purchased intangibles.... 22,563 12,793
Depreciation ............................................... 22,220 22,038
Changes in assets and liabilities:
Accounts receivable ..................................... (18,175) (76,486)
Inventories ............................................. 1,984 505
Prepaid expenses ........................................ (459) (5,950)
Deferred income tax assets and liabilities .............. (178) (473)
Accounts payable ........................................ (2,317) 12,530
Accrued compensation and related liabilities ............ 6,031 439
Deferred revenue ........................................ 1,782 6,125
Accrued acquisition liabilities ......................... (5,483) (35,326)
Other accrued liabilities ............................... 54,055 100,264
Income taxes payable .................................... 19,499 13,801
--------- ---------
Net cash provided by operating activities ............. 119,747 74,017
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of facility .................................. -- 9,025
Purchase of property and equipment .............................. (15,895) (29,576)
Sale of marketable securities ................................... 29,500 --
Business acquisitions and disposition, net of cash acquired ..... (34,224) 26,350
Increase in other assets ........................................ (1,202) (6,685)
Purchase of short-term investments .............................. (197,008) (186,869)
Purchase of long-term investments ............................... -- (11,000)
Liquidation and maturity of short-term investments .............. 137,354 164,834
--------- ---------
Net cash used in investing activities ................. (81,475) (33,921)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ............................ (1,427) (4,638)
Net proceeds from issuance of long-term debt .................... 30,277 --
Increase in note receivable ..................................... -- (50,000)
Net proceeds from issuance of common stock ...................... 4,943 30,953
--------- ---------
Net cash provided by (used in) financing activities.... 33,793 (23,685)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ......................... 72,065 16,411
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................. 44,584 46,780
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 116,649 $ 63,191
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. ("Intuit" or "the Company") develops, sells and supports small
business accounting, tax preparation and consumer finance software products,
financial supplies (such as computer checks, invoices and envelopes), and
Internet-based products and services for individuals and small businesses. Our
products and services are designed to automate commonly performed financial
tasks and to simplify the way individuals and small businesses manage their
finances. We sell our products throughout North America and in many
international markets. Sales are made through retail and distribution channels,
direct customer sales and the Internet.
Basis of Presentation
Intuit has prepared the accompanying unaudited condensed consolidated financial
statements in accordance with generally accepted accounting principles for
interim financial statements. We have included all adjustments considered
necessary (such as normal recurring adjustments) to give a fair presentation of
our operating results for the periods shown. Results for the three and nine
months ended April 30, 1998 will not necessarily indicate the results to be
expected for the fiscal year ending July 31, 1998 or any other future period.
The July 31, 1997 balance sheet was derived from audited financial statements
but does not include all disclosures required by generally accepted accounting
principles. These statements and accompanying notes should be read together with
the audited consolidated financial statements for the fiscal year ended July 31,
1997 included in Intuit's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include all of our accounts and those of
our wholly-owned subsidiaries. We have eliminated all significant inter-company
accounts and transactions.
Use of Estimates
To comply with generally accepted accounting principles, we make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Our most significant estimates are related to the
collectibility of accounts receivable, reserves for product returns and
exchanges and reserves for rebates. We also use estimates to determine the
carrying value of goodwill and purchased intangibles. Actual results may differ
from our estimates.
Net Revenue
Intuit recognizes revenue from sales of desktop software products when products
are shipped, less reserves for expected returns from both the retail and direct
channels. To recognize revenue, it must be probable that we will collect the
accounts receivable from our customers. Reserves are provided for excess
quantities of current product versions, as well as previous versions of products
still in the channel when new versions are launched. In some situations, we
receive advance payments from our customers. Revenue associated with these
payments must be deferred until the products are shipped or services are
provided. We also reduce revenue by the estimated cost of rebates when products
are shipped. Warranty reserves are provided at the time revenue is recognized
for the estimated cost of replacing defective products. We recognize Internet
revenue (such as subscription revenues, Internet-based advertising and
transaction revenue) as such fees are earned or services are provided.
-6-
<PAGE> 7
Customer Service and Technical Support
Customer service and technical support costs include order processing, customer
inquiries and telephone assistance. We also include the costs of post-contract
customer support in this expense category.
Cash, Cash Equivalents and Short-Term Investments
Intuit considers highly liquid investments with a maturity of three months or
less at the date of purchase to be cash equivalents. Both cash equivalents and
short-term investments are considered available-for-sale securities and are
carried at amortized cost, which approximates fair value. The following schedule
summarizes the estimated fair value of our cash, cash equivalents and short-term
investments:
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
--------- ---------
(In thousands) (Unaudited)
<S> <C> <C>
Cash and cash equivalents:
Cash .................................................... $ 20,188 $ 28,828
Money market funds ...................................... 3,369 25,863
Commercial paper ........................................ 4,292 --
Municipal bonds ......................................... -- 8,500
U.S. Government securities............................... 18,931 --
--------- ---------
$ 46,780 $ 63,191
========= =========
Short-term investments:
Certificates of deposit ................................. $ 5,075 $ 5,048
Corporate notes ......................................... 37,811 4,501
Municipal bonds ......................................... 140,245 205,571
U.S. Government securities............................... 9,954 --
Restricted investments .................................. (34,766) (31,053)
--------- ---------
$ 158,319 $ 184,067
========= =========
</TABLE>
The estimated fair value of cash equivalents and short-term investments
classified by date of maturity is as follows:
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
--------- --------
(In thousands) (Unaudited)
<S> <C> <C>
Due within one year...................................... $155,832 $129,355
Due after one year....................................... 63,845 120,128
Restricted investments................................... (34,766) (31,053)
-------- -------
$184,911 $218,430
======== =======
</TABLE>
For information about our restricted investments, see Note 8 of these Notes to
Condensed Consolidated Financial Statements. Realized gains and losses from
sales of each type of security for the three and nine months ended April 30,
1998 were immaterial.
Marketable Securities
Intuit carries marketable securities at fair value and includes unrealized gains
and losses, net of tax, in stockholders' equity. We held the following
marketable securities at April 30, 1998:
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<PAGE> 8
<TABLE>
<CAPTION>
GROSS UNREALIZED
--------------------------------------------------
COST GAIN LOSS FAIR VALUE
-------- -------- -------- ----------
(In thousands; unaudited)
<S> <C> <C> <C> <C>
Checkfree Corporation common stock ........... $156,350 $116,600 -- $272,950
Excite, Inc. common stock .................... 39,150 154,787 -- 193,937
Verisign, Inc. common stock .................. 2,000 7,594 -- 9,594
Concentric Network Corporation common stock... -- 2,746 -- 2,746
-------- -------- -------- --------
$197,500 $281,727 -- $479,227
======== ======== ======== ========
</TABLE>
In January 1997, we sold our on-line banking and bill payment transaction
processing business to Checkfree Corporation ("Checkfree"). We obtained
marketable securities in Checkfree as a result of this sale. Note 4 of these
Notes to Condensed Consolidated Financial Statements provides more information
on this sale.
Intuit accounts for the investment in Checkfree as an available-for-sale equity
security, which accordingly is carried at market value. Checkfree common stock
is quoted on the Nasdaq Stock Market under the symbol CKFR. The closing price of
Checkfree common stock at April 30, 1998 was $25.75 per share. At April 30,
1998, we held 10.6 million shares, or approximately 19%, of Checkfree's
outstanding common stock. We have reported the $116.6 million unrealized gain at
April 30, 1998 and the $34.4 million unrealized gain at July 31, 1997, on these
securities as a separate component of stockholders' equity (net of tax).
In June 1997, we purchased 2.9 million shares of common stock of Excite, Inc.
("Excite") as part of an agreement we entered into with Excite. The agreement
provides for the joint development, promotion and distribution of an on-line
financial channel. Since we are restricted from selling the shares until
December 1998, we initially valued the shares at cost, or $39.2 million.
Beginning in January 1998, these shares were adjusted to market value, as
remaining restrictions on the shares expire within 12 months. We consider the
shares to be available-for-sale securities and have included the unrealized gain
of $154.8 million as a separate component of stockholders' equity (net of tax).
Excite's common stock is quoted on the Nasdaq Stock Market under the symbol
XCIT. The closing price of Excite common stock at April 30, 1998, was $66.875
per share. At April 30, 1998, Intuit held approximately 12% of Excite's
outstanding common stock.
Checkfree, Excite, Verisign, Inc. and Concentric Network Corporation are high
technology companies whose stock is subject to substantial volatility and large
market price fluctuations. Accordingly, it is possible that the market price of
one or more of these companies' stocks could decline substantially and quickly,
which could result in a material reduction in the carrying value of these
assets.
Goodwill and Intangible Assets
Components of intangible assets are as follows:
<TABLE>
<CAPTION>
NET BALANCE AT
------------------------
LIFE IN JULY 31, APRIL 30,
YEARS 1997 1998
----- ---- ----
(In thousands) (Unaudited)
<S> <C> <C> <C>
Goodwill...................................... 3 $ 26,935 $16,166
Customer lists................................ 3-5 3,144 1,207
Covenant not to compete....................... 4-5 2,125 367
Purchased technology.......................... 1-5 7,517 5,205
Other intangibles............................. 1-10 7,050 4,958
</TABLE>
Included in the other intangible category are items such as trade names, logos
and other identified intangible assets. Balances presented above are net of
total accumulated amortization of $147.1 million and $92.1 million at July 31,
1997 and April 30, 1998, respectively. The accumulated amortization balance at
July 31, 1997 included $67.8 million relating to our acquisition of Parsons
Technology, Inc. ("Parsons") in September 1994. We subsequently sold Parsons in
August 1997. See Note 4 of these Notes to Condensed Consolidated Financial
Statements.
-8-
<PAGE> 9
Concentration of Credit and Valuation Risk
The personal computer software industry is highly competitive and rapidly
changing. Many circumstances could have an unfavorable impact on Intuit's
operating results. Examples include significant technological changes in the
industry, changes in customer requirements or the emergence of competitive
products or services with new capabilities.
We are also subject to risks related to our significant balances of short-term
investments, marketable securities and trade accounts receivable. At April 30,
1998, we held shares of Checkfree common stock representing approximately 19% of
Checkfree's outstanding common stock. We also held approximately 12% of Excite's
outstanding common stock as of April 30, 1998. Our ability to dispose of both
the Checkfree and Excite stock is restricted by volume trading limitations and
other terms in the agreements under which we acquired the shares. The Excite
shares cannot be sold until December 1998. If there is a permanent decline in
the value of these securities below cost, we will need to report this decline in
earnings. Our remaining portfolio is diversified and consists primarily of
short-term investment-grade securities.
To reduce the credit risk associated with accounts receivable, Intuit performs
ongoing evaluations of customer credit. Generally, no collateral is required. We
maintain reserves for estimated credit losses and these losses have historically
been within our expectations.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 sets standards for reporting comprehensive income in financial
statements. Comprehensive income items include changes in equity (net assets)
that are not included in net income. Examples are foreign currency translation
adjustments and unrealized gains/losses on available-for-sale securities. We are
required to report the disclosures set forth in SFAS 130 beginning with the
quarter ending October 31, 1998.
In June 1997, FASB issued SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information." This statement establishes standards for the way
companies report information about operating segments in financial statements.
It also sets standards for related disclosures about products and services,
geographic areas and major customers. The disclosures prescribed by SFAS 131
will be required beginning in fiscal year 1999.
In October 1997, FASB approved the new American Institute of Certified Public
Accountants Statement of Position, "Software Revenue Recognition" ("SOP 97-2").
SOP 97-2 will be effective for Intuit beginning in the first quarter of fiscal
1999. We do not believe the adoption of SOP 97-2 will have a significant impact
on our revenue recognition policy.
Reclassifications
We have reclassified certain amounts reported in previous financial statements
to conform to the current presentation format.
2. PER SHARE DATA
Basic income per share is computed using the weighted average number of common
shares outstanding during the period. Diluted income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the exercise of stock options under the treasury stock method. The
following table shows the computation of basic and diluted income per share for
the three and nine months ended April 30, 1997 and 1998:
-9-
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
-------------------- --------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts; unaudited)
BASIC:
Weighted average common shares outstanding ... 46,526 48,209 46,322 47,618
======= ======= ======= =======
Net income (loss) ............................ $ 488 $(2,206) $88,124 $26,879
======= ======= ======= =======
Per share amount ............................. $ 0.01 $ (0.05) $ 1.90 $ 0.56
======= ======= ======= =======
DILUTED:
Weighted average common shares outstanding ... 46,526 48,209 46,322 47,618
Equivalent shares issuable upon exercise of
options ................................... 726 -- 1,085 1,942
------- ------- ------- -------
Shares used in per share amounts ............. 47,252 48,209 47,407 49,560
======= ======= ======= =======
Net income (loss) ............................ $ 488 $(2,206) $88,124 $26,879
======= ======= ======= =======
Per share amount ............................. $ 0.01 $ (0.05) $ 1.86 $ 0.54
======= ======= ======= =======
</TABLE>
3. ACQUISITIONS
In September 1996, Intuit acquired GALT Technologies, Inc. for $14.6 million.
GALT was a provider of mutual fund information on the World Wide Web. The
acquisition was treated as a purchase for accounting purposes. We allocated
approximately $8.5 million of the purchase price to identified intangible assets
and goodwill. These assets are being amortized over a period of three years or
less. We also expensed approximately $4.9 million of in-process research and
development in the quarter ended October 31, 1996. Under terms of the agreement,
Intuit issued 212,053 shares of Intuit common stock and options to purchase
approximately 33,686 shares of Intuit common stock to GALT stockholders and
option holders, respectively, at the date of acquisition. Pro forma information
for GALT has not been presented because it is not material.
In March 1997, Intuit KK, a wholly owned subsidiary of Intuit, acquired Nihon
Micom Co. Ltd. ("Nihon Micom"), a Japanese small business accounting software
company, for cash. The purchase price was approximately $39.9 million. In
addition, we assumed liabilities of approximately $9.6 million. The acquisition
was treated as a purchase for accounting purposes. We allocated approximately
$32.8 million of the purchase price to identified intangible assets and
goodwill. These assets are being amortized over a period not to exceed three
years. We also expensed $6.1 million of in-process research and development in
the quarter ended April 30, 1997. Under terms of the agreement, Intuit issued
options to purchase 89,170 shares of Intuit common stock to employees of Nihon
Micom on the date of acquisition and has agreed to issue options to purchase up
to an additional 89,170 shares on or before the second anniversary of the date
of the acquisition. Pro forma information for Nihon Micom has not been presented
because it is not material.
4. DISCONTINUED OPERATIONS AND DIVESTITURES
On January 27, 1997, we sold Intuit Services Corporation ("ISC"), our on-line
banking and bill payment transaction-processing subsidiary, to Checkfree. In
exchange, we received 12.6 million shares of Checkfree common stock. The closing
price of Checkfree common stock was $14.75 per share on January 24, 1997, the
last business day prior to closing. As a result of the transaction, we recorded
a gain on sale of discontinued operations
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<PAGE> 11
of $71.2 million, net of tax, in the quarter ended January 31, 1997. We recorded
the gain net of certain conditional items relating to the business sold. In
February 1997, Intuit sold two million shares of the Checkfree common stock.
On August 7, 1997, we sold Parsons, our consumer software and direct marketing
subsidiary, to Broderbund Software, Inc. for approximately $31 million. As a
result of the sale, Broderbund acquired net assets of approximately $17 million
and Intuit incurred direct costs of approximately $9.5 million. We also recorded
a pre-tax gain of $4.3 million and a related tax provision of $2.7 million in
the quarter ended October 31, 1997.
The following information shows pro forma net revenue, net income from
continuing operations and diluted net income per share from continuing
operations of Intuit as if we had sold Parsons at the beginning of fiscal 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, 1997 APRIL 30, 1997
-------------- --------------
EXCLUDING AS EXCLUDING AS
PARSONS REPORTED PARSONS REPORTED
------- -------- ------- --------
(In thousands, except per share amounts; unaudited)
<S> <C> <C> <C> <C>
Net revenue............................................... $117,826 $136,326 $446,358 $504,810
Net income from continuing operations..................... 135 488 16,423 16,884
Diluted net income per share from continuing operations... $0.00 $0.01 $0.35 $0.36
</TABLE>
5. NOTE RECEIVABLE
On April 30 1998, Intuit provided a short-term unsecured loan in the amount of
$50 million to Excite. The loan is on a parity with all other indebtedness of
Excite but is subordinated to Excite's current $6 million bank credit facility.
The loan bears interest at 5.9% per year and is due no later than October 30,
1998.
6. AGREEMENT WITH AMERICA ONLINE, INC.
On February 17, 1998, we announced a three-year agreement with America Online,
Inc. ("AOL"). Under terms of the agreement, subject to certain limited
exceptions, Intuit is to be the exclusive provider of tax preparation and
filing, multi-carrier life and auto insurance, and multi-lender mortgage
services on both the AOL service and AOL.com, which is AOL's default site for
Internet access by AOL members. In addition, on AOL.com, Intuit is to be the
primary source of financial content for the Personal Finance Web Channel. We
have guaranteed payments to AOL totaling $30 million over three years, of which
approximately $16 million was paid upon signing. The remainder of the guaranteed
payments will be expensed over the expected term of the agreement. AOL will also
be eligible for additional revenue sharing payments once Intuit has recouped
certain advances and other amounts.
Intuit recorded a charge to selling and marketing expense of $16.2 million in
the third quarter of fiscal 1998 in connection with the agreement. This expense
represents the excess of guaranteed payments over the expected future net
revenues from the agreement during the agreement term. Future net revenues were
calculated using estimated gross revenues less the estimated future costs
related to the agreement. The remaining capitalized amount of $13.8 million will
be amortized ratably over the remainder of the term.
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<PAGE> 12
7. OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
-------- -----------
(In thousands) (Unaudited)
<S> <C> <C>
Reserve for returns and exchanges .......... $ 36,310 $ 86,005
Acquisition and disposition related items... 38,866 13,040
Rebates .................................... 2,876 30,337
Post-contract customer support ............. 4,233 4,537
Other accruals ............................. 17,298 31,140
-------- --------
$ 99,583 $165,059
======== ========
</TABLE>
8. NOTES PAYABLE AND COMMITMENTS
In March 1997, our Japanese subsidiary, Intuit KK, entered into a three-year
loan agreement with Japanese banks for approximately $30.3 million used to fund
its acquisition of Nihon Micom. The interest rate is variable based on the Tokyo
inter-bank offered rate or the short-term prime rate offered in Japan. At April
30, 1998, the rate was approximately 1.1%. The fair value of the loan
approximates cost as the interest rate on the borrowings is adjusted
periodically to reflect market rates (which are currently significantly lower in
Japan than in the United States). Intuit has guaranteed the loan and has pledged
approximately $31.1 million, or 110% of the loan balance, of short-term
investments to be restricted as security for the borrowings at April 30, 1998.
Intuit is obligated to pay interest only until March 2000.
9. INCOME TAXES
Intuit computes the provision (benefit) for income taxes by applying the
estimated annual effective tax rate to recurring operations and other taxable
items. The write-off of in-process research and development and the amortization
of goodwill are not tax deductible and therefore not included in the tax
provision.
10. SHAREHOLDER RIGHTS PLAN
On April 29, 1998, the Board of Directors adopted a shareholder rights plan
designed to protect the long-term value of the Company for its shareholders
during any future unsolicited acquisition attempt. In connection with the plan,
the Board declared a dividend of one preferred share purchase right for each
share of Intuit's common stock outstanding on May 11, 1998 (the "Record Date")
and further directed the issuance of one such right with respect to each share
of Intuit's common stock that is issued after the Record Date, except in certain
circumstances. If a person or a group (an "Acquiring Person") acquires 20
percent or more of Intuit's common stock, or announces an intention to make a
tender offer for Intuit's common stock, the consummation of which would result
in a person or group becoming an Acquiring Person, then the rights will be
distributed (the "Distribution Date"). After the Distribution Date, each right
may be exercised for 1/1000th of a share of a newly designated Series B Junior
Participating Preferred stock at an exercise price of $250. The preferred stock
has been structured so that the value of 1/1000th of a share of such preferred
stock will approximate the value of one share of common stock. The rights will
expire on May 1, 2008.
11. LITIGATION
The following class action lawsuits have been filed against Intuit alleging Year
2000 issues with the on-line banking functionality in certain versions of the
Company's Quicken product: Issokson v. Intuit Inc., filed in the Santa Clara
County Superior Court, State of California, on April 29, 1998; Rocco Chilelli v.
Intuit Inc., filed in the New York Supreme Court, State of New York, on May 14,
1998; Rubin v. Intuit Inc., filed in the Santa Clara County Superior Court,
State of California, on May 27, 1998; and Faegenburg v. Intuit Inc., filed in
the New York Supreme Court, State of New York, on May 27, 1998. Intuit does not
believe the lawsuits have merit and intends to defend them vigorously.
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<PAGE> 13
Intuit is subject to other legal proceedings and claims that arise in the course
of its business. Intuit believes that the ultimate amount of liability, if any,
for any pending actions (either alone or combined) will not materially affect
its financial position, results of operations or liquidity. However, the
ultimate outcome of any litigation is uncertain. An unfavorable outcome could
have a material negative impact. In addition, any litigation, regardless of
outcome, can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
12. SUBSEQUENT EVENTS
On May 12, 1998, Intuit announced that its Board of Directors plans to elect
William V. Campbell as Chairman of the Board and William H. Harris, Jr. as
President and Chief Executive Officer at the next regular Board meeting
scheduled for July 28, 1998. Intuit founder Scott D. Cook will become Chairman
of the Executive Committee of the Board and continue to work full-time with the
Company. Mr. Cook currently serves as Chairman of the Board, Mr. Campbell
currently serves as President and Chief Executive Officer and Mr. Harris
currently serves as Executive Vice President. These changes will be effective
August 1, 1998. In addition, the Board elected Mr. Harris as a director of
Intuit, effective May 12, 1998.
On May 18, 1998, Intuit entered into an Asset Purchase Agreement with Lacerte
Software Corporation and Lacerte Educational Services Corporation (together,
"Lacerte") under which it agreed to purchase substantially all of Lacerte's
assets in exchange for $400 million in cash and also agreed to assume
substantially all of Lacerte's liabilities. Lacerte is a leading developer and
marketer of tax preparation software and services for tax professionals. The
consummation of the pending acquisition is subject to certain conditions,
including regulatory approvals. The pending acquisition, which is expected to
close by the end of our first fiscal quarter of 1999, will be funded by a public
offering of 9.0 million shares of common stock, which was completed on May 28,
1998. The pending acquisition, which we plan to treat as a purchase for
accounting purposes, is expected to result in a write-off of approximately $20
million (representing in-process research and development) in the quarter in
which the acquisition is completed. In addition, we expect to capitalize certain
intangible assets in the amount of approximately $390 million, which we expect
to amortize over periods of three to five years.
On May 28, 1998, Intuit sold 9.0 million shares of its Common Stock in a
registered underwritten public offering at a price to the public of $47.375 per
share, providing us with net proceeds of approximately $411 million after
underwriting commissions and estimated expenses. As noted above, $400 million of
these net proceeds are expected to be used to fund the purchase price of the
pending acquisition of Lacerte. On June 3, 1998, the underwriters of the public
offering exercised their over-allotment option to purchase an additional 1
million shares of Intuit common stock at a price of $47.375 per share, providing
us with additional net proceeds of $45.7 million, net of underwriting
commissions.
In May 1998, we participated in the formation of a company, Venture Finance
Software Corp. ("VFSC") to focus on the development of certain Web-oriented
finance products. VFSC has received $23 million through the sale of equity
interests to private investors and obtained conditional commitments to receive
up to an additional $23 million in capital contributions from these investors.
Of the $46 million potential funding for VFSC, venture capital funds managed by
Kleiner Perkins Caufield & Byers, of which L. John Doerr, a director of Intuit,
is a general partner, have agreed to invest up to $1 million. In exchange for
its equity interest in VFSC, Intuit has granted VFSC licenses to certain
technology and intellectual property rights related to certain Web-oriented
finance products and has agreed not to compete with VFSC in certain areas of
server-based personal finance for a period of ten years. Intuit will manage the
development of the new products and the commercialization efforts of VFSC and
has been granted the option to purchase the equity interests of the other
investors in VFSC during a period of time beginning two years after the
formation of VFSC at a price to be determined by a formula. The cost of
exercising the option would be substantial and would result in Intuit's
acquisition of certain intangible assets that would be amortized over the
expected useful life of VFSC's technology. The development of Web-oriented
finance products is subject to significant technological risks, and there can be
no assurance that the development will be successful or that Intuit's purchase
option will be exercised.
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<PAGE> 14
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements about future financial
results and other events that have not yet occurred. Forward-looking statements
include, but are not limited to, statements regarding expected benefits and
effects of our proposed acquisition of Lacerte Software Corporation and Lacerte
Educational Services Corporation (collectively, "Lacerte"), including statements
regarding strategic benefits of the proposed acquisition, Lacerte's potential
contribution to Intuit's revenues and profitability, the effect of the proposed
acquisition on our competitiveness in the market for professional tax software,
and the timing and amount of expenses we may incur as a result of the proposed
acquisition; our strategy and growth expectations with respect to the Internet
and our Internet-based businesses; the expected launch dates for future products
and services, including QuickBooks 6.0 and the services being developed in
connection with the proposed development venture with Bank of America NT&A
("Bank of America"), Tele-Communications, Inc. ("TCI") and At Home Corporation
("@Home"); prospects for our QuickBooks, TurboTax and Quicken '98 products; and
expected trends in certain expenses. Actual results may differ significantly
from our current expectations because of risks and uncertainties about the
future. Such risks include, but are not limited to, completion of the proposed
acquisition of Lacerte; intense competition and pricing pressures; uncertain
growth of the markets for the Company's offerings; rapidly changing technology
and customer demands; the timing and consumer acceptance of new products and
services; possible delays in product launch dates; possible product errors or
other events that lead to greater demand for customer service and technical
support (and therefore greater cost to the Company); the adequacy of our product
return reserves; the Company's dependence on its distribution channels; risks
related to the Company's recent acquisitions; the Company's ability to adapt and
expand its product, service and content offerings for the Internet environment;
the cost of implementing the Company's Internet strategy; the success of
relationships between the Company and third parties that are significant to the
Company's Internet strategy; risks associated with regulated businesses such as
our Internet-based insurance and mortgage marketspaces; and uncertainty as to
the timing and amount of potential Internet-related revenue and profit. In
addition, the Company will not necessarily update the information in this Form
10-Q if any forward-looking statements later turn out to be inaccurate.
Additional information on factors that could affect future results and events is
included in our report on Form 10-K for the fiscal year ended July 31, 1997 and
our Forms 10-Q for the quarters ended October 31, 1997 and January 31, 1998,
filed with the Securities and Exchange Commission.
OVERVIEW
Intuit's mission is to revolutionize the way individuals and small businesses
manage their finances. To achieve this goal, we create, sell and support small
business accounting, tax preparation and consumer finance software products,
financial supplies (such as computer checks, invoices and envelopes), and
Internet-based products and services to individuals and small businesses. Our
revenues come primarily from the United States, Japan, Germany, Canada and the
United Kingdom through both retail distribution channels and direct customer
sales.
While software and related products and services now provide most of our
revenue, Internet-based revenue is growing and has become an important part of
our business strategy in all of our business divisions. Our primary sources of
Internet-based revenue are fees from companies who advertise on Quicken.com and
from certain financial service providers, such as mortgage lenders and insurance
brokers, who obtain customers through Quicken.com. Although substantially all
Internet-based revenues to date have been generated by our tax and consumer
finance divisions, we continue to devote significant financial resources to
developing Internet-related products and services in these and other areas. For
example, during fiscal 1998, we launched our QuickenMortgage on-line mortgage
service, our TurboTax on-line product and our Quicken.com Small Business
website.
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<PAGE> 15
Although Internet revenues are growing rapidly, they represent a small
percentage of our total year-to-date revenue. The Internet is a relatively new
source of revenue for us. We expect Internet revenues to remain insignificant at
least through the remainder of the current fiscal year. Like other companies
establishing Internet-based businesses, we face several significant risks. We
are operating in an environment where the technology, customer demands and other
factors are rapidly changing. We face intense competition from a wide range of
companies. The barriers to entry are low. Consumers may be slow to accept the
Internet as a way to buy goods and services. While we believe that Internet
revenues will continue to grow, the rate of growth cannot be reasonably
estimated and there can be no assurance that growth will continue to occur.
Our business is highly seasonal. Sales of tax products are heavily concentrated
from November through March. Sales of consumer finance products are typically
strongest during the year-end holiday buying season, and therefore major
consumer finance product launches usually occur in the fall to take advantage of
this consumer-buying pattern. These seasonal patterns mean that revenue is
usually strongest during the quarter ending January 31. Intuit experiences lower
revenues for the quarters ending April 30, July 31, and October 31 while
operating expenses to develop and manage its products and services continue
during these periods, which can result in significant operating losses. The
seasonality of our revenue patterns is likely to be exacerbated by our proposed
acquisition of Lacerte. Operating results can also fluctuate for other reasons
such as changes in product release dates, non-recurring events such as
acquisitions and product price cuts in quarters with relatively high fixed
expenses. In particular, there is no seasonal pattern for our QuickBooks product
launches. For example, the third quarter of fiscal 1997 benefited from the
launch of QuickBooks 5.0 in the second quarter of fiscal 1997, but the third
quarter of fiscal 1998 did not receive such a benefit. Because of these factors,
we believe that consecutive quarter comparisons, as well as year-over-year
quarterly comparisons, may not be meaningful and don't necessarily indicate
future performance. Annual comparisons are generally more meaningful when
measuring how we've performed.
We recognize revenue from sales of our desktop software products when products
are shipped, less reserves for expected returns from both the retail and direct
distribution channels. These reserves are difficult to estimate, especially for
seasonal products. If actual returns are significantly higher than our estimated
reserves, this could have a material negative impact on our revenue and
operating results. See Note 1 of the Notes to Condensed Consolidated Financial
Statements regarding net revenue.
On May 18, 1998, Intuit entered into an Asset Purchase Agreement with Lacerte
under which we agreed to purchase substantially all of Lacerte's assets in
exchange for $400 million in cash and to assume substantially all of Lacerte's
liabilities. The consummation of the pending acquisition is subject to certain
conditions, including receipt of regulatory approvals. While we expect to
consummate the pending acquisition in the summer of 1998, no assurances can be
given as to when, or whether, the pending acquisition will be completed. Lacerte
is a leading developer and marketer of tax preparation software and services for
tax professionals. Its products are used primarily by tax professionals to
prepare federal and state income tax returns for individuals and small
businesses, as well as estate, trust and gift tax returns. In its fiscal years
ended March 31, 1997 and 1998, Lacerte had revenue of $68.1 million and $75.6
million, respectively, and income from operations of $23.4 million and $28.9
million, respectively. We believe that the pending acquisition has the potential
to provide Intuit with a number of strategic benefits. We expect that the
pending acquisition will contribute to our recurring revenue base since users of
Lacerte's product offerings, like users of Intuit's tax products, must purchase
annual updates that reflect tax law and tax form changes. If consummated, the
acquisition of Lacerte could also enable us to compete more effectively with
other large providers of tax preparation software. We expect the pending
acquisition to strengthen our presence in the professional tax preparation
software and service offerings, as the Intuit ProSeries product line and
Lacerte's product line can provide complementary solutions for different
practitioner preferences. See Note 12 of the Notes to Condensed Consolidated
Financial Statements for more information about the pending acquisition.
On March 24, 1998, Intuit announced an agreement in principle with Bank of
America, TCI and @Home to form a venture to develop a system designed to deliver
financial services to consumers over their television sets. The venture is
expected to provide financial services from a variety of financial institutions
and other content providers utilizing Intuit technology. The establishment of
this venture is subject to the negotiation and execution of definitive
agreements and all appropriate regulatory approvals, and therefore there can be
no assurance that the venture will be established until such agreements and
approvals are in place.
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<PAGE> 16
On March 30, 1998, Intuit announced an exclusive agreement with MECA under which
MECA will develop and market customized versions of our Quicken personal
financial management software with unique branding and other features for
individual financial institutions for distribution to their customers in the
U.S. and Canada.
In May 1998, we participated in the formation of a joint venture company,
Venture Finance Software Corp. ("VFSC") to focus on the development of certain
Web-oriented finance products. VFSC has received $23 million through the sale of
equity interests to private investors and obtained conditional commitments to
receive up to an additional $23 million in capital contributions from these
investors. In exchange for its equity interest in VFSC, Intuit has granted VFSC
licenses to certain technology and intellectual property rights related to
certain Web-oriented finance products and has agreed with VFSC not to compete in
certain areas of server-based personal finance for a period of ten years. Intuit
will manage the development of the new products and the commercialization
efforts of the joint venture. Intuit has been granted the option to purchase the
equity interests of the other investors in VFSC during a period of time
beginning two years after the formation of VFSC at a price to be determined by a
formula. The cost of exercising the option would be substantial and would result
in Intuit's acquisition of certain intangible assets that would be amortized
over the expected useful life of VFSC's technology. The development of
Web-oriented finance products is subject to significant technological risks, and
there can be no assurance that the development will be successful or that
Intuit's purchase option will be exercised. See Note 12 of the Notes to
Condensed Consolidated Financial Statements for more information about the joint
venture.
RESULTS OF OPERATIONS
The following is selected consolidated statement of operations information for
the three and nine-month periods ended April 30, 1997 and 1998. Investors should
be aware that the following operating results for the three and nine-month
periods ended April 30, 1997 are presented on a pro forma basis that excludes
results for our Parsons subsidiary that was sold on August 7, 1997 (except for
results of the Parsons tax business, which we retained after the sale). These
pro forma tables are being presented for comparative purposes to allow investors
to analyze results on a more consistent basis and are not prepared in accordance
with generally accepted accounting principles (GAAP). For results that include
Parsons activity for fiscal 1997, investors should refer to our Condensed
Consolidated Statements of Operations on page four. For additional pro forma
information about 1997 results without Parsons, see Note 4 of the Notes to
Condensed Consolidated Financial Statements.
NET REVENUE
<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
(Dollars in millions; unaudited) 1997 Change 1998 1997 Change 1998
------------ ------ ----------- ------------ ------ ----------
(Pro forma) (Pro forma)
<S> <C> <C> <C> <C> <C> <C>
Software & other................... $95.2 25% $118.8 $380.7 6% $404.1
% of revenue....................... 81% 84% 85% 85%
Supplies........................... $22.6 3% $23.2 $65.7 9% $71.4
% of revenue....................... 19% 16% 15% 15%
Total ............................. $117.8 21% $142.0 $446.4 7% $475.5
</TABLE>
Small Business Division. Small business division revenues come primarily from
the following sources:
- QuickBooks product line
- Domestic supplies products (including checks, invoices and
envelopes)
- Tax table services
- Support fees charged to customers for telephone assistance
Overall, revenue for the division was down 8% for the three months ended April
30, 1998 and roughly flat for the nine months ended April 30, 1998, compared to
the respective periods a year ago. These results were largely due to
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<PAGE> 17
lower QuickBooks product sales, which were down 30% and 14% for the respective
periods, offset in part by revenue increases for other small business products
and services. This decrease was expected since we had a QuickBooks product
release in the second quarter of fiscal 1997, which benefited third quarter
revenue, whereas there has been no new QuickBooks release to date in fiscal
1998. We expect that our QuickBooks multi-user product will be released in the
fourth quarter of fiscal 1998.
With the QuickBooks multi-user product, we will be targeting the multi-user
market for the first time. While this is an opportunity for future sales growth,
there are also risks. For example, the multi-user version of QuickBooks is
currently expected to have a higher sale price than single-user versions. This
may impact the distribution channels we use for the product. There is also a
risk that the multi-user release date could be delayed. In addition, customer
service and technical support costs may be higher due to the complexity of the
product. If these or other risks occur, our operating results could suffer.
Domestic supplies revenues, which are part of the small business division, grew
by 3% and 10% for the three and nine-month periods ended April 30, 1998,
respectively, due primarily to our increasing base of small business owners (the
table above includes both domestic and international supplies revenue). This
growth was achieved despite the absence of a new QuickBooks product launch to
generate new sales. Unlike software sales, our supplies business is a more
consistent source of revenue that comes from our existing base of customers who
use QuickBooks and Quicken to run their small businesses. While customers may go
long periods of time without buying a new version of software, they will often
buy supplies in-between software purchases. This relatively steady revenue
stream has grown as our customer base of small business owners has increased.
Tax table service revenue grew by 40% and 32% for the three and nine-month
periods ended April 30, 1998, respectively. Fees charged for providing telephone
support to QuickBooks customers increased by approximately 75% for the same
three and nine-month periods. While these are high growth businesses for the
division, they remain a relatively small component of overall division revenues.
During the third quarter of fiscal 1998, we launched our new small business
website, Quicken.com Small Business. This site extends Quicken.com's coverage by
addressing the specific needs of small businesses. Although we expect that this
site will provide an additional source of Internet-based revenue for Intuit in
the future, we can't predict the amount or timing of such revenue.
Tax Division. Tax division revenues come primarily from the following sources:
- TurboTax and MacInTax personal tax preparation product line
- Professional tax preparation products
- Electronic tax return filing fees
Overall, tax division revenues for the three and nine months ended April 30,
1998 were up 53% and 6% respectively, compared to last year. Growth was
unusually high for the three-month period primarily because the recognition of
certain revenues was delayed from the second quarter into the third quarter this
year. For example, certain revenue allocated to our free electronic filing
service that was offered to TurboTax deluxe customers was deferred from the
second quarter into the third quarter. There was no such deferral last year
since we didn't have the free offer. The quarterly revenue increase was also due
to the fact that most of our TurboTax state tax products were released in
January (second quarter) in fiscal 1997, but in February (third quarter) this
year. Year to date revenues increased 6% over the prior year reflecting improved
retail sales of our TurboTax products. Despite aggressive pricing from
competitive products such as H&R Block's TaxCut product, we achieved this growth
through expanded retail distribution channel and rebate programs intended to
maintain our competitive position.
While our TurboTax product line sold well through retail channels this tax
season, it's too early to predict results for the entire year. There is a risk
that retailers will return more unsold tax products than we expect during the
next quarter. Though we believe our reserves for returned products will be
adequate, higher than expected returns could have a negative impact on sales for
the season.
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<PAGE> 18
Our professional tax product sales increased by 25% and 11% for the three and
nine-month periods ended April 30, 1998, respectively, compared to the same
periods last year. We experienced this growth primarily because we have been
successful in retaining our customers from last year and in many cases have
upgraded them to higher-priced products. We have also been successful in
increasing our pay-per-return revenues.
Our Tax division has also experienced growth in Internet-based revenues during
fiscal 1998. Electronic filing revenues have increased significantly, and during
the third quarter we launched TurboTax Online, which allows users to prepare and
file federal 1040 and California state tax returns on-line.
On May 18, 1998, Intuit entered into an Asset Purchase Agreement with Lacerte
under which we agreed to purchase substantially all of Lacerte's assets in
exchange for $400 million in cash and to assume substantially all of Lacerte's
liabilities. The consummation of the pending acquisition is subject to certain
conditions, including receipt of regulatory approvals. Lacerte is a leading
developer and marketer of tax preparation software and services for tax
professionals. Its products are used primarily by tax professionals to prepare
federal and state income tax returns for individuals and small businesses, as
well as estate, trust and gift tax returns. See "Overview," above for more
information about the pending acquisition.
Consumer Finance Division. Consumer finance division revenues come primarily
from the following sources:
- Quicken product line
- Advertising and sponsorship fees from our Quicken.com website
- Fees earned for connecting insurance brokers with insurance
customers through our Quicken InsureMarket service offered
through Quicken.com
- Fees earned for connecting mortgage lenders with mortgage
customers through our QuickenMortgage service offered through
Quicken.com
- Fees earned for connecting Quicken customers with Checkfree's
bill payment services
Total revenue for the consumer finance division was up 31% and 15% for the three
and nine-month periods ended April 30, 1998 respectively, compared to the same
periods a year ago.
Our Quicken product line sales increased 12% and 5% for the three and nine-month
periods ended April 30, 1998 respectively, compared to the same periods a year
ago. This reflects a more favorable sales mix toward our higher-priced deluxe
products, partially offset by lower overall unit sales.
Growth for the division was driven in part by Internet-based revenues, which
grew over 90% for the three and nine-month periods ended April 30, 1998,
respectively, compared to the same periods a year ago. This growth has been
generated in part by collaborating with third party on-line service and content
providers to deliver financial content to their customers through co-branded
content or links to the Quicken.com site. For example, we have an agreement with
Excite under which all Internet users who enter the Excite Business and
Investing channel are sent to a Quicken.com website that is co-branded (with
Excite). This has significantly increased traffic to Quicken.com. In exchange,
we share profits generated from Quicken.com with Excite. In October 1997, we
entered into an exclusive relationship with CNN to provide Quicken.com on FN, a
co-branded personal finance area on CNNfn.com. In February 1998, we entered into
an agreement with AOL under which, subject to certain exceptions, Intuit is to
be the exclusive provider of tax preparation and filing, multi-carrier life and
auto insurance, and multi-lender mortgage services on both the AOL service and
AOL.com, which is AOL's default site for Internet access by AOL members. In
addition, on AOL.com, Intuit is to be the primary source of financial content
for the Personal Finance Web Channel. As of our fiscal third quarter, we have
not yet recognized any revenue from the AOL agreement. We expect to begin
recognizing revenue in our fiscal fourth quarter. See "Operating Expenses,"
below, for a discussion of expenses we are incurring in connection with this
agreement.
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<PAGE> 19
International Division. International division revenues come primarily from the
following sources:
- Japanese small business products
- German Quicken, QuickBooks and Tax products
- Canadian Quicken, QuickBooks and Tax products
- United Kingdom Quicken, QuickBooks and Tax products
We also operate in smaller European, Asian and Latin American markets. For our
international division, revenues were up by 15% and 11% for the three and
nine-month periods ended April 30, 1998, respectively, compared to the same
periods last year. Revenue growth for the quarter was primarily due to the
launch of Quickbooks in Germany and the release of a new version of Quicken in
Europe. We also experienced a strong tax season in Canada. In Japan, revenues
were slightly down for the quarter and up on a year-over-year basis primarily
due to our acquisition of Nihon Micom. Despite a recent economic slowdown in
Japan, unit sales of our small business products have increased this year. This
unit growth was partially offset by the negative impact of a weak Japanese
currency, which translates into fewer U.S. dollars than it did last year. We
expect the international revenue growth of the current quarter to slow since
customers tend to upgrade products quickly.
We have continued to focus our product development in Europe towards small
business products in selected larger markets. As a result, we expect to devote
fewer resources to consumer finance and tax products, and to smaller geographic
markets. There is a risk that this shift in strategy may negatively impact our
international revenue for the remainder of the fiscal year and next fiscal year.
COST OF GOODS SOLD
<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
(Dollars in millions; unaudited) 1997 Change 1998 1997 Change 1998
------------ ------ ---------- ------------ ------- ---------
(Pro forma) (Pro forma)
<S> <C> <C> <C> <C> <C> <C>
Product............................ $24.5 20% $29.3 $100.7 (3%) $97.2
% of revenue....................... 21% 21% 23% 20%
Amortization of purchased
software & other................ $0.5 20% $0.6 $0.7 171% $1.9
% of revenue....................... 0% 0% 0% 0%
</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 business
acquisitions. Excluding the operating results of our divested Parsons subsidiary
for fiscal 1997, total cost of goods sold was 21% and 20% of revenue for the
three and nine months ended April 30, 1998 respectively. This compares to 21%
and 23% for the same periods of the prior year. The improvement in cost of goods
sold for the nine-month period resulted from customers buying more of our CD ROM
products, which cost less to manufacture and ship than disk-based products. We
have also improved the efficiency of our order-taking process in the financial
supplies business, which has reduced costly re-orders. We believe these
improvements are beginning to level off, as evidenced by the fact that cost of
goods sold was essentially the same percentage of revenues in the quarters ended
April 30, 1997 and 1998. While we will continue our efforts to decrease cost of
goods sold as a percentage of net revenue, there can also be no assurance that
they will improve or continue at their current rates. If there are errors in
current or future products, we could experience increases in cost of goods sold
and an adverse effect on operating results. Specifically, the release of our
multi-user version of QuickBooks may increase the risk of product errors for the
remainder of fiscal 1998.
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<PAGE> 20
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
(Dollars in millions; unaudited) 1997 Change 1998 1997 Change 1998
---------- ------- ---------- ---------- ------- ----------
(Pro forma) (Pro forma)
<S> <C> <C> <C> <C> <C> <C>
Customer service
& technical support............. $24.5 8% $26.4 $89.2 3% $ 91.8
% of revenue....................... 21% 19% 20% 19%
Selling & marketing................ $33.1 66% $55.1 $104.5 28% $134.0
% of revenue....................... 28% 39% 23% 28%
Research & development............. $20.3 25% $25.4 $62.0 26% $ 78.2
% of revenue....................... 17% 18% 14% 16%
General & administrative........... $8.2 12% $9.2 $29.4 (7%) $ 27.4
% of revenue....................... 7% 6% 7% 6%
Charge for purchased R&D........... $6.1 (100%) $0.0 $11.0 (100%) $ 0.0
% of revenue....................... 5% 0% 2% 0%
Amortization of goodwill
and purchased intangibles....... $3.0 13% $3.4 $17.0 (28%) $ 12.2
% of revenue...................... 3% 2% 4% 3%
</TABLE>
Customer Service and Technical Support. Excluding the operating results of our
divested Parsons subsidiary for fiscal 1997, customer service and technical
support decreased to 19% of revenue for the three and nine months ended April
30, 1998. This compares to 21% and 20% for the same periods of the prior year.
In the current year, we have benefited from cost reductions due to the
restructuring and consolidation of our technical support facilities in the
United States and Europe in the fourth quarter of fiscal 1997. While we
anticipate that service and support expenses will stay relatively flat or
decrease as a percentage of revenue because of the 1997 restructuring and
increased fees charged for telephone support, there is a risk that these
expenses could increase. For example, our new multi-user QuickBooks product may
result in higher customer service and technical support expenses since customers
are likely to need considerably more assistance with this more complex product.
Selling and Marketing. Excluding the operating results of our divested Parsons
subsidiary for fiscal 1997, selling and marketing expenses were 39% and 28% of
revenue for the three and nine months ended April 30, 1998, respectively,
compared to 28% and 23% for the same periods of the prior year. The significant
increase was due to a charge of $16.2 million related to the AOL agreement in
the third quarter of fiscal 1998. Excluding this charge, selling and marketing
expenses would have been 27% and 25% for the three and nine months ended April
30, 1998, respectively. For the fiscal year to date, we have experienced
increased selling and marketing costs in support of our TurboTax product launch
and international product launches compared to last year.
Research and Development. Excluding the operating results of our divested
Parsons subsidiary for fiscal 1997, research and development expenses increased
to 18% and 16% of revenue for the three and nine months ended April 30, 1998
respectively. This compares to 17% and 14% for the same periods of the prior
year. The development of the multi-user version of QuickBooks contributed to
increasing costs since it has been more expensive to develop than our less
complex single-user products. These increases were also a result of our
increased spending to improve and expand our Internet-based products and
services in an effort to attract more customer traffic to Quicken.com. We
believe that research and development expenses related to Internet-based
products and services will continue to increase as a percentage of net revenue
for the remainder of the fiscal year.
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<PAGE> 21
There is a risk that this could have an adverse effect on our operating results,
particularly if revenue from these services does not meet expectations.
General and Administrative. Excluding the operating results of our divested
Parsons subsidiary for fiscal 1997, general and administrative expenses were 6%
of revenue for the three and nine months ended April 30, 1998. This compares to
7% for the same periods of the prior year.
Charge for Purchased Research and Development. When acquiring a company, we
often have to record a one-time charge for purchased research and development.
This charge represents the value of products we acquire that aren't yet complete
enough to be considered technologically feasible. We recorded such a charge of
$4.9 million in the first quarter of fiscal 1997 when we acquired GALT
Technologies, Inc. and another charge of $6.1 million in the third quarter of
fiscal 1997 when we acquired Nihon Micom. There were no such charges for the
three and nine-month periods ended April 30, 1998. In the quarter in which our
proposed acquisition of Lacerte is completed, we expect to incur an additional
charge of approximately $20 million for purchased research and development.
See "Overview," above.
Other Acquisition Costs. Other acquisition costs include the amortization of
goodwill and purchased intangibles that are recorded as part of an acquisition.
Excluding the operating results of our Parsons subsidiary for fiscal 1997, these
costs increased to $3.4 million in the third quarter of fiscal 1998 compared to
$3.0 million in the third quarter of fiscal 1997. For the nine months ended
April 30, 1998, these costs were $12.2 million compared to $17.0 million for the
same period of the prior year. This year-to-date decrease was due to the fact
that a majority of the intangibles related to our December 1993 acquisition of
Chipsoft Inc. became fully amortized during fiscal 1997. For future periods,
acquisition costs will continue to have an impact on our results. Based on
acquisitions completed as of April 30, 1998, future amortization will reduce net
income by approximately $13.4 million, $11.0 million, $5.3 million and $0.5
million for the years ending July 31, 1998 through 2001, respectively. If our
proposed acquisition of Lacerte is completed, we expect to capitalize certain
intangible assets in the amount of approximately $390 million, which we expect
to amortize over periods of three to five years. Also, if we complete additional
acquisitions in the future, there could be additional amortization charges.
OTHER INCOME
For the three and nine months ended April 30, 1998, interest and other income
and expense, net, remained essentially flat as a percentage of revenue compared
to the same periods of the prior year. The $4.3 million gain on disposal of
business in the nine months ended April 30, 1998 resulted from the sale of
Parsons, our direct marketing subsidiary, in August 1997.
INCOME TAXES
For the three and nine months ended April 30, 1998, we recorded a tax benefit of
$2.0 million and a tax provision of $17.5 million respectively, on a pretax loss
of $4.2 million and pretax income of $44.4 million, respectively. As of April
30, 1998, we have reserved $4.2 million for certain tax assets of our
international subsidiaries. This was based on our belief that we may not receive
the tax benefit of certain loss carryforwards in these foreign countries.
DISCONTINUED OPERATIONS
We sold our ISC subsidiary to Checkfree Corporation in the second quarter of
fiscal 1997. This resulted in a $71.2 million gain, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, our unrestricted cash, cash equivalents and short-term
investments totaled $247.3 million, a $42.2 million increase from July 31, 1997.
Because of the seasonality of our business, liquidity generally improves in our
second and third fiscal quarters. This is because cash receipts are generated
from the sale of our tax products and other product releases that typically
occur during the first two quarters of our fiscal year.
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<PAGE> 22
Our operations provided $74.0 million in cash during the nine months ended April
30, 1998. Primary contributors to cash provided were net income from continuing
operations and an increase in accrued liabilities, including reserves for
rebates, returns and exchanges. Increases were offset by cash used for payments
we made for expenses related to the ISC and Parsons sales, as well as
restructuring charges. We also experienced a significant increase in accounts
receivable balances due to the seasonal nature of our business resulting from
the concentration of product releases in our second fiscal quarter.
Investing activities used $33.9 million in cash for the nine months ended April
30, 1998. We received $26.4 million in cash proceeds from the sale of our
Parsons subsidiary and $9.0 million from the sale of our technical support site
in New Mexico. Uses of cash were driven by net purchases of both short-term and
long-term investments, in addition to purchases of property and equipment.
Capital expenditures are primarily for equipment and facilities to support our
ongoing and expanding operations and information systems.
The $23.7 million in cash used by financing activities is primarily due to the
$50.0 million we loaned to Excite, offset by proceeds from the exercise of
employee stock options. The Excite loan is unsecured, subordinated to Excite's
current bank credit facility and is scheduled to be repaid no later than October
1998. We borrowed $30.3 million from Japanese banks in March 1997 in connection
with our acquisition of Nihon Micom. We have guaranteed the loan and pledged
approximately $31.1 million of short-term investments (110% of the loan balance)
to be restricted as security for the borrowings at April 30, 1998.
Our agreement with AOL obligates us to pay a minimum of $30 million over the
term of the three-year agreement. Of this amount, approximately $16.2 million
was paid to AOL in our third fiscal quarter. In May 1998, we announced plans to
acquire Lacerte, a professional tax-preparation software company for $400
million in cash. To fund the proposed acquisition, we completed a public
offering of 9.0 million shares of common stock on May 28, 1998, and an
additional 1 million shares on June 3, 1998. The net proceeds from the offering
(approximately $456.7 million) are expected to be used primarily for the
acquisition of Lacerte and for general corporate purposes. We currently do not
have any other significant capital expenditure commitments, though we may
require additional cash for strategic projects in the future.
In the normal course of business, we enter into leases for new or expanded
facilities in both domestic and international locations. During 1996, we began
the move of our headquarters from Menlo Park, California to larger facilities in
Mountain View, California. We expect the move to be complete by the end of
calendar year 2000.
We believe that our unrestricted cash, cash equivalents and short-term
investments will be sufficient to meet anticipated seasonal working capital and
capital expenditure requirements for at least the next twelve months.
YEAR 2000
Intuit is in the process of evaluating its internal computer systems, as well as
the software products it sells, to determine whether modifications will be
required to prevent problems related to the Year 2000. Based on preliminary
assessments, Intuit believes that costs required to achieve Year 2000 compliance
(including costs incurred to date) will not be material. However, actual costs
may increase depending on the outcome of its continuing evaluations. In
addition, the products and services of certain other companies with whom Intuit
has strategic relationships may not be Year 2000 compliant, which could create
issues with respect to the use of Intuit's products and services through these
strategic partners.
Four class action lawsuits have recently been filed against Intuit in California
and New York, alleging Year 2000 issues with the on-line banking functionality
in Quicken for Windows versions 5 and 6 and for Quicken for Macintosh versions 6
and 7. Intuit does not believe the lawsuits have merit and intends to defend
them vigorously. Intuit has been working with financial institutions to provide
solutions to its current on-line banking customers and is planning to make such
solutions available before the customers experience any Year 2000 problems. See
Part II, Item 1, "Legal Proceedings," below.
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<PAGE> 23
PART II
ITEM 1
LEGAL PROCEEDINGS
The following class action lawsuits have been filed against Intuit alleging Year
2000 issues with the on-line banking functionality in certain versions of the
Company's Quicken product: Issokson v. Intuit Inc., filed in the Santa Clara
County Superior Court, State of California, on April 29, 1998; Rocco Chilelli v.
Intuit Inc., filed in the New York Supreme Court, State of New York, on May 14,
1998; Rubin v. Intuit Inc., filed in the Santa Clara County Superior Court,
State of California, on May 27, 1998; and Faegenburg v. Intuit Inc., filed in
the New York Supreme Court, State of New York, on May 27, 1998. Intuit does not
believe the lawsuits have merit and intends to defend them vigorously.
Intuit is subject to other legal proceedings and claims that arise in the course
of its business. Intuit believes that the ultimate amount of liability, if any,
for any pending actions (either alone or combined) will not materially affect
its financial position, results of operations or liquidity. However, the
ultimate outcome of any litigation is uncertain. An unfavorable outcome could
have a material negative impact. In addition, any litigation, regardless of
outcome, can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
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<PAGE> 24
ITEM 2
CHANGES IN SECURITIES
On April 29, 1998, the Board of Directors adopted a shareholder rights plan
designed to protect the long-term value of the Company for its shareholders
during any future unsolicited acquisition attempt. In connection with the plan,
the Board declared a dividend of one preferred share purchase right for each
share of Intuit's common stock outstanding on May 11, 1998 (the "Record Date")
and further directed the issuance of one such right with respect to each share
of the Company's common stock that is issued after the Record Date, except in
certain circumstances. The rights will expire on May 1, 2008.
The rights are initially attached to the Company's common stock and will not
trade separately. If a person or a group (an "Acquiring Person") acquires
beneficial ownership of 20 percent or more of Intuit's common stock, or
announces an intention to make a tender offer for Intuit's common stock, the
consummation of which would result in a person or group becoming an Acquiring
Person, then the rights will be distributed (the "Distribution date") and will
thereafter trade separately from the common stock.
After the Distribution date, each right may be exercised for 1/1000th of a share
of a newly designated Series B Junior Participating Preferred stock at an
exercise price of $250. The preferred stock has been structured so that the
value of 1/1000th of a share of such preferred stock will approximate the value
of one share of common stock.
In connection with the adoption of the plan, the Board of Directors also amended
two provisions of Intuit's Bylaws. Special meetings of Intuit shareholders may
now only be called by the Chairman of the Board, the Chief Executive Officer,
the President or by a majority of the Board of Directors. Additionally,
vacancies on the Board of Directors may now be filled until the next annual
meeting of shareholders only by majority vote of the Directors then in office.
The Company filed a Form 8-K on May 5, 1998 to report the adoption of the
shareholder rights plan and the amendments to its bylaws. Further information
regarding our shareholder rights plan can be found in our Form 8-A filed with
the Securities and Exchange Commission on May 5, 1998.
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<PAGE> 25
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
3.1 Bylaws of Intuit, as amended and restated effective April 29,
1998. (Incorporated by reference to Intuit's Report on Form 8-K
filed with the Securities and Exchange Commission on May 5,
1998.)
3.2 Intuit's Certificate of Designations of Series B Junior
Participating Preferred Stock, as filed with the Delaware
Secretary of State on May 5, 1998. (Incorporated by reference to
Intuit's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on May 5, 1998.)
4.1 Rights Agreement dated May 1, 1998, between the Company and
American Stock Transfer and Trust Company, as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series B Junior Participating Preferred Stock,
as Exhibit B the Form of Right Certificate and as Exhibit C the
Summary of Rights to Purchase Preferred Shares. (Incorporated by
reference to the Company's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on May 5,
1998.)
10.01 1993 Equity Incentive Plan, as amended through April 29, 1998.
27.01 Financial Data Schedule (filed in electronic version only)
27.02 Amended Restated Financial Data Schedules (Fiscal 1996 and 1997
Quarters)
27.03 Amended Restated Financial Data Schedules (Fiscal 1998 Quarters)
(b) REPORTS ON FORM 8-K:
(i) On May 5, 1998, Intuit filed a Form 8-K to report under Item 5
its adoption of a shareholder rights plan and amendment of its
Bylaws. No financial statements were filed.
(ii) On May 18, 1998, Intuit filed a Form 8-K to report under Item 5
the following items: (a) certain management changes; (b)
announcement of results for the third quarter of fiscal 1998;
(c) Intuit's proposed purchase of Lacerte Software Corporation
and Lacerte Educational Services Corporation (collectively,
"Lacerte"); (d) the formation of a new company to focus on the
development of certain Web-oriented finance products; and (e)
basic and diluted earnings per share information for prior
periods since the year ended September 30, 1993, as required by
SFAS 128. The Form 8-K included the following financial
statements under Item 7: (a) audited combined financial
statements of Lacerte as of March 31, 1997 and 1998 and for the
three years ended March 31, 1996, 1997 and 1998; (b) unaudited
condensed combined income statement information of Lacerte for
the six-month period ended March 31, 1998; (c) unaudited pro
forma condensed combining financial information of Intuit and
Lacerte to give effect to the net proceeds to Intuit from the
sale of 8.4 million shares of Common Stock at a price of $45.875
per share and to the acquisition of Lacerte by Intuit as if the
merger had taken place at January 31, 1998 (for balance sheet
purposes) and July 31, 1996 for Intuit and August 31, 1996 for
Lacerte (for statement of operations purposes). Also included
are unaudited financial information of Intuit as of April 30,
1998 and for the three-month and nine-month periods ended April
30, 1997 and 1998.
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<PAGE> 26
(iii) On May 19, 1998, Intuit filed a Form 8-K/A, Amendment No. 1,
amending the Form 8-K referred to in paragraph (ii) above, in
order to file the Asset Purchase Agreement between Intuit and
Lacerte as Exhibit 2.01.
(iv) On May 22, 1998, Intuit filed a Form 8-K/A, Amendment No. 2,
amending the Form 8-K referred to in paragraph (ii) above, in
order to file under Item 7 revised unaudited pro forma condensed
combining financial information of Intuit and Lacerte to reflect
an increase in the size of the proposed Common Stock offering by
Intuit from 8.4 million shares to 9 million shares.
(v) On May 22, 1998, Intuit filed a Form 8-K to report under Item 5
that on May 21, 1998 it had entered into an Underwriting
Agreement with Deutsche Morgan Grenfell Inc. and the other
underwriters named therein, providing for a public offering of 9
million shares of Intuit Common Stock at a price to the public
of $47.375 per share ($45.675 per share to Intuit after
underwriting commissions), and granting the underwriters an
option to purchase up to an additional 1.35 million shares to
cover over-allotments, if any. No financial statements were
filed.
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<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTUIT INC.
(REGISTRANT)
Date: June 12, 1998 By: /s/ GREG J. SANTORA
---------------------------------------------
Greg J. Santora
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 28
EXHIBIT INDEX
3.1 Bylaws of Intuit, as amended and restated effective April 29,
1998. (Incorporated by reference to Intuit's Report on Form 8-K
filed with the Securities and Exchange Commission on May 5,
1998.)
3.2 Intuit's Certificate of Designations of Series B Junior
Participating Preferred Stock, as filed with the Delaware
Secretary of State on May 5, 1998. (Incorporated by reference to
Intuit's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on May 5, 1998.)
4.1 Rights Agreement dated May 1, 1998, between the Company and
American Stock Transfer and Trust Company, as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series B Junior Participating Preferred Stock,
as Exhibit B the Form of Right Certificate and as Exhibit C the
Summary of Rights to Purchase Preferred Shares. (Incorporated by
reference to the Company's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on May 5,
1998.)
10.01 1993 Equity Incentive Plan, as amended through April 29, 1998.
27.01 Financial Data Schedule (filed in electronic version only)
27.02 Amended Restated Financial Data Schedules (Fiscal 1996 and 1997
Quarters)
27.03 Amended Restated Financial Data Schedules (Fiscal 1998 Quarters)
<PAGE> 1
EXHIBIT 10.01
INTUIT INC.
1993 EQUITY INCENTIVE PLAN
As Adopted February 1, 1993
and Amended and Restated through April 29, 1998
1. PURPOSE. The purpose of the Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company (or any Parent,
Subsidiary or Affiliate of the Company), by offering those persons an
opportunity to participate in the Company's future performance through awards of
Options, Restricted Stock, Stock Bonuses and Performance Awards. Capitalized
terms are defined in Section 24 if they are not otherwise defined in other
sections of the Plan.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and
19, the total number of Shares reserved and available for grant and issuance
pursuant to Awards under the Plan shall be 13,105,000 Shares. Subject to
Sections 2.2 and 19, Shares will again be available for grant and issuance in
connection with future Awards under the Plan if the Shares: (a) are subject to
issuance upon exercise of an Option but cease to be subject to the Option for
any reason other than exercise of the Option; (b) are subject to an Award that
otherwise terminates without Shares being issued; or (c) are subject to an Award
that is forfeited or are repurchased by the Company at the original issue price.
At all times the Company will reserve and keep available a sufficient number of
Shares to satisfy the requirements of all outstanding Awards granted under the
Plan.
2.2 Adjustment of Shares. If the number of outstanding
Shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company, without consideration, then (a) the number of
Shares reserved for issuance under the Plan, (b) the Exercise Prices of and
number of Shares subject to outstanding Options, and (c) the number of Shares
subject to other outstanding Awards, will be proportionately adjusted, subject
to any required action by the Board or the stockholders of the Company and
compliance with applicable securities laws; provided that fractions of a Share
will not be issued but will either be paid in cash at Fair Market Value, or will
be rounded up to the nearest Share, as determined by the Committee; and provided
further that the Exercise Price of any Option may not be decreased to below the
par value of the Shares.
3. ELIGIBILITY. ISOs may be granted only to employees (including
officers and directors who are also employees) of the Company or of a Parent or
Subsidiary of the Company. All other Awards may be granted to employees,
officers, directors, consultants, independent contractors and advisors of the
Company or any Parent, Subsidiary or Affiliate of the Company; provided that
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under the Plan. Each
person is eligible to receive Awards with respect to an aggregate maximum of
2,000,000 Shares over the term of the Plan.
4. ADMINISTRATION.
4.1 Committee Authority. The Plan shall be administered by
the Committee. Subject to the terms and conditions of the Plan, the Committee
will have full power to implement and carry out the Plan. Without limiting the
previous sentence, the Committee will have the authority to:
(a) construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating to
the Plan, including determining the forms and agreements used in
connection with the Plan; provided that the Committee may
delegate to the President, the Chief Financial Officer or the
officer in charge of Human Resources,
<PAGE> 2
in consultation with the General Counsel, the authority to
approve revisions to the forms and agreements used in connection
with the Plan that are designed to facilitate Plan
administration, and that are not inconsistent with the Plan or
with any resolutions of the Committee relating to the Plan;
(c) select persons to receive Awards; provided that the Committee
may delegate to one or more executive officers of the Company
the authority to grant an Award under the Plan to Participants
who are not Insiders of the Company;
(d) determine the terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination,
or in tandem with, in replacement of, or as alternatives to,
other Awards under the Plan or any other incentive or
compensation plan of the Company or any Parent, Subsidiary or
Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned;
(k) amend the Plan, except for amendments that increase the number
of Shares available for issuance under the Plan or change the
eligibility criteria for participation in the Plan; or any other
amendments that require approval of the stockholders of the
Company; or
(l) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 Committee Interpretation and Discretion. Any
determination made by the Committee with respect to any Award shall be made in
its sole discretion at the time of grant of the Award or, unless in
contravention of any express term of the Plan or Award, at any later time, and
such determination shall be final and binding on the Company and all persons
having an interest in any Award under the Plan. Any dispute regarding the
interpretation of the Plan or any Award Agreement shall be submitted by
Participant or the Company to the Committee for review. The resolution of such a
dispute by the Committee shall be final and binding on the Company and
Participant.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine (i) whether the Options will be ISOs or NQSOs; (ii) the number of
Shares subject to the Option, (iii) the Exercise Price of the Option, (iv) the
period during which the Option may be exercised, and (v) all other terms and
conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under the Plan
will be evidenced by a Stock Option Agreement that will expressly identify the
Option as an ISO or NQSO. The Stock Option Agreement will be substantially in a
form (which need not be the same for each Participant) that the Committee or an
officer of the Company (pursuant to Section 4.1(b)) has from time to time
approved, and will comply with and be subject to the terms and conditions of the
Plan.
5.2 Date of Grant. The date of grant of an Option will be
the date on which the Committee makes the determination to grant the Option,
unless a later date is otherwise specified by the Committee. The Stock Option
Agreement, and a copy of the Plan and the current Prospectus for the Plan (plus
any additional documents required to be delivered under applicable laws), will
be delivered to the Participant within a reasonable time after
2
<PAGE> 3
the Option is granted. The Plan, the Prospectus and other documents may
delivered in any manner (including electronic distribution or posting) that
meets applicable legal requirements.
5.3 Exercise Period and Expiration Date. Options will be
exercisable within the times or upon the occurrence of events determined by the
Committee and set forth in the Stock Option Agreement, subject to the provisions
of Section 5.6, and subject to Company policies established by the Committee (or
by individuals to whom the Committee has delegated responsibility) from time to
time with respect to vesting during leaves of absences. The Stock Option
Agreement shall set forth the last date that the option may be exercised (the
"Expiration Date"); provided that no Option will be exercisable after the
expiration of ten years from the date the Option is granted; and provided
further that no ISO granted to a Ten Percent Stockholder will be exercisable
after the expiration of five years from the date the Option is granted. The
Committee also may provide for Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares subject to the Option as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be less than Fair
Market Value (but not less than the par value of the Shares); provided that (i)
the Exercise Price of an ISO will not be less than the Fair Market Value of the
Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a
Ten Percent Stockholder will not be less than 110% of the Fair Market Value of
the Shares on the date of grant. Payment for the Shares purchased must be made
in accordance with Section 8 of the Plan and the Stock Option Agreement.
5.5 Procedures for Exercise. A Participant may exercise
Options by following the procedures established by the Company's Stock
Administration Department, as communicated and made available to Participants
through the stock pages on the Intuit Legal Department intranet web site, and/or
through the Company's electronic mail system.
5.6 Termination. Any Option granted to a Participant will
cease to vest on the Participant's Termination. Following a Participant's
termination, the Participant's Option may be exercised (to the extent such
Option was exercisable immediately prior to the Termination Date):
(a) no later than 90 days after the Termination Date if a
Participant is Terminated for any reason except death or
Disability, unless a longer time period, not exceeding five
years, is specifically set forth in the Participant's Stock
Option Agreement; provided that no Option may be exercised after
the Expiration Date of the Option; or
(b) no later than (i) twelve months after the Termination Date in
the case of Termination due to Disability or (ii) eighteen
months after the Termination Date in the case of Termination due
to death or if a Participant dies within three months of the
Termination Date, unless a longer time period, not exceeding
five years, is specifically set forth in the Participant's Stock
Option Agreement; provided that no Option may be exercised after
the Expiration Date of the Option.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option; provided that the minimum number will not prevent a Participant from
exercising an Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
the Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If
the Fair Market Value of Shares on the date of grant with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
exceeds $100,000, the Options for the first $100,000 worth of Shares to become
exercisable in that calendar year will be ISOs, and the Options for the Shares
with a Fair Market Value in excess of $100,000 that become exercisable in that
calendar year will be NQSOs. If the Code is amended after the Effective Date of
the Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be automatically
incorporated into the Plan and will apply to any Options granted after the
effective date of the amendment.
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5.9 Notice of Disqualifying Dispositions of Shares Acquired
on Exercise of an ISO. If a Participant sells or otherwise disposes of any
Shares acquired pursuant to the exercise of an ISO on or before the later of (1)
the date two years after the Date of Grant, and (2) the date one year after the
exercise of the ISO (in either case, a "Disqualifying Disposition"), the
Participant must immediately notify the Company in writing of such disposition.
The Participant may be subject to income tax withholding by the Company on the
compensation income recognized by the Participant from the Disqualifying
Disposition.
5.10 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor; provided that any such action may not, without
the written consent of Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected, by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of the Plan for Options
granted on the date the action is taken to reduce the Exercise Price; and
provided, further, that the Exercise Price shall not be reduced below the par
value of the Shares.
5.11 No Disqualification. Notwithstanding any other provision
in the Plan, no term of the Plan relating to ISOs will be interpreted, amended
or altered, and no discretion or authority granted under the Plan will be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK AWARDS. The Committee may award Restricted
Stock Awards under the Plan to any eligible person. The Committee will determine
the number of Shares subject to the Restricted Stock Award, the Purchase Price,
the restrictions on the Shares and all other terms and conditions of the
Restricted Stock Award, subject to the following:
6.1 Restricted Stock Purchase Agreement. All purchases under
a Restricted Stock Award will be evidenced by Restricted Stock Purchase
Agreement, which will be in substantially a form (which need not be the same for
each Participant) that the Committee has from time to time approved, and will
comply with and be subject to the terms and conditions of the Plan. A
Participant can accept a Restricted Stock Award only by signing and delivering
to the Company a Restricted Stock Purchase Agreement, and full payment of the
Purchase Price, within thirty days from the date the Restricted Stock Purchase
Agreement was delivered to the Participant. If the Participant does not accept
the Restricted Stock Award in this manner within thirty days, then the offer of
the Restricted Stock Award will terminate, unless the Committee determines
otherwise.
6.2 Purchase Price. The Purchase Price for a Restricted
Stock Award will be determined by the Committee, and may be less than Fair
Market Value (but not less than the par value of the Shares) on the date the
Restricted Stock Award is granted. Payment of the Purchase Price must be made in
accordance with Section 9 of the Plan and the Restricted Stock Purchase
Agreement, and in accordance with any procedures established by the Company's
Stock Administration Department, as communicated and made available to
Participants through the stock pages on the Intuit Legal Department intranet web
site, and/or through the Company's electronic mail system.
6.3 Terms of Restricted Stock Awards. Restricted Stock
Awards will be subject to all restrictions, if any, that the Committee may
impose. These restrictions may be based on completion of a specified number of
years of service with the Company or upon completion of the performance goals as
set out in advance in the Participant's Restricted Stock Purchase Agreement,
which shall be in substantially in a form (which need not be the same for each
Participant) as the Committee or an officer of the Company (pursuant to Section
4.1(b)) shall from time to time approve, and shall comply with and be subject to
the terms and conditions of the Plan and the Restricted Stock Purchase
Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall:
(a) determine the nature, length and starting date of any Performance Period for
the Restricted Stock Award; (b) select from among the Performance Factors to be
used to measure performance goals, if any; and (c) determine the number of
Shares that may be awarded to the Participant. Prior to the payment for Shares
to be purchased under any Restricted Stock Award, the Committee shall determine
the extent to which such Restricted Stock Award has
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been earned. Performance Periods may overlap and a Participant may participate
simultaneously with respect to Restricted Stock Awards that are subject to
different Performance Periods and having different performance goals and other
criteria; provided, however, that the maximum Restricted Stock Award for each
Participant with respect to any Performance Period shall be thirty percent of
the Shares reserved for issuance under the Plan.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. The Committee may award Stock
Bonuses to any eligible person. No payment will be required for Shares awarded
pursuant to a Stock Bonus. A Stock Bonus may be awarded for past services
already rendered to the Company, or any Parent, Subsidiary or Affiliate of the
Company pursuant to a Stock Bonus Agreement, which shall be in substantially a
form (which need not be the same for each Participant) that the Committee has
from time to time approved, and will comply with and be subject to the terms and
conditions of the Plan.
7.2 Terms of Stock Bonuses. Stock Bonuses will be subject to
all restrictions, if any, that the Committee imposes. These restrictions may be
based upon completion of a specified number of years of service with the Company
or upon completion of the performance goals as set out in advance in the
Participant's Stock Bonus Agreement. The terms of Stock Bonuses may vary from
Participant to Participant and between groups of Participants. Prior to the
grant of a Stock Bonus, the Committee shall: (a) determine the nature, length
and starting date of any Performance Period for the Stock Bonus; (b) select from
among the Performance Factors to be used to measure performance goals; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the issuance of any Shares or other payment to a Participant pursuant to a Stock
Bonus, the Committee will determine the extent to which the Stock Bonus has been
earned. Performance Periods may overlap and a Participant may participate
simultaneously with respect to Stock Bonuses that are subject to different
Performance Periods and having different performance goals and other criteria;
provided, however, that the maximum Stock Bonus for each Participant with
respect to any Performance Period shall be thirty percent of the Shares reserved
for issuance under the Plan.
7.3 Form of Payment to Participant. The Committee will
determine whether a Stock Bonus will be paid to the Participant in the form of
cash, whole Shares, or a combination thereof, based on the Fair Market Value on
the date of payment, and in either a lump sum payment or in installments.
7.4 Termination During Performance Period. If a Participant
is Terminated during a Performance Period for any reason, then the Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Stock Bonus Agreement, unless the Committee determines
otherwise.
8. PERFORMANCE AWARDS.
8.1 Performance Awards. A Performance Award consists of the
grant to a Participant of a specified number of Performance Units. The grant of
a Performance Unit to a Participant will entitle the Participant to receive a
specified dollar value, variable under conditions specified in the Performance
Award, if the performance goals specified in the Performance Award are achieved
and the other terms and conditions of the Performance Award are satisfied.
8.2 Terms of Performance Awards. Each Performance Award
shall be evidenced by a Performance Award Agreement, which shall be in
substantially a form (which need not be the same for each Participant) that the
Committee has from time to time approved, and will comply with and be subject to
the terms and conditions of the Plan. Performance Awards will be subject to all
conditions, if any, that the Committee may impose. Prior to the grant of a
Performance Award, the Committee will: (a) specify the number of Performance
Units granted to the Participant; (b) specify the threshold and maximum dollar
values of Performance Units and the corresponding performance goals; (c)
determine the nature, length and starting date of any Performance Period for the
Performance Award; and (d) specify the Performance Factors to be used to measure
performance goals. Prior to the payment of any Performance Award, the Committee
will determine the extent to which the Performance Units have been earned.
Performance Periods may overlap and a Participant may participate simultaneously
with respect
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to Performance Awards that are subject to different Performance Periods and
having different performance goals and other criteria; provided, however, that
the maximum amount of any Performance Award for each Participant with respect to
any Performance Period shall be the lesser of 250% of Participant's base salary
at the time of the Performance Award or $1,000,000.
8.3 Form of Payment to Participant. Performance Awards may
be paid to a Participant currently or on a deferred basis with such reasonable
interest or dividend equivalent, if any, as the Committee determines. The
Committee will determine whether a Performance Award will be paid in the form of
cash, whole Shares, or a combination thereof, based on the Fair Market Value on
the date of payment, and in either a lump sum payment or in installments.
8.4 Termination During Performance Period. If a Participant
is Terminated during a Performance Period for any reason, then the Participant
will be entitled to payment with respect to the Performance Awards only to the
extent earned as of the date of Termination in accordance with the Performance
Award Agreement, unless the Committee determines otherwise.
9. PAYMENT FOR SHARE PURCHASES.
9.1 Payment. Payment for Shares purchased pursuant to the
Plan may be made by any of the following methods (or any combination of such
methods) that are described in the applicable Stock Option Agreement or other
Award Agreement and that are permitted by law:
(a) in cash (by check);
(b) by cancellation of indebtedness of the Company to the
Participant;
(c) by surrender of Shares that either: (1) were obtained by the
Participant in the public market; or (2) if the Shares were not
obtained in the public market, they have been owned by the
Participant for more than six months and have been paid for
within the meaning of SEC Rule 144 (and, if the Shares were
purchased from the Company by use of a promissory note, the note
has been fully paid with respect to the Shares);
(d) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that a Participant who
is not an employee of the Company may not purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares; and provided, further, that
the portion of the Purchase Price or Exercise Price equal to the
par value of the Shares must be paid in cash.
(e) by waiver of compensation due or accrued to Participant for
services rendered;
(f) by tender of property; or
(g) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from Participant
and an NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to sell a portion of
the Shares purchased in order to pay the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon
receipt of the Shares to forward the Exercise Price
directly to the Company; or
(2) through a "margin" commitment from Participant and an
NASD Dealer whereby Participant irrevocably elects to
exercise the Option and to pledge the Shares purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in
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the amount of the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of the Shares to
forward the Exercise Price directly to the Company.
9.2 Loan Guarantees. The Committee may, in its sole
discretion, help a Participant pay for Shares purchased under the Plan by
authorizing a guarantee by the Company of a third-party loan to the Participant.
9.3 Issuance of Shares. Upon payment of the applicable
Purchase Price or Exercise Price (or a commitment for payment from the NASD
Dealer designated by the Participant in the case of an exercise by means of a
"same-day sale" or "margin" commitment), and compliance with other conditions
and procedures established by the Company for the purchase of shares, the
Company shall issue the Shares registered in the name of Participant (or in the
name of the NASD Dealer designated by the Participant in the case of an exercise
by means of a "same-day sale" or "margin" commitment) and shall deliver
certificates representing the Shares (in physical or electronic form, as
appropriate). The Shares may be subject to legends or other restrictions as
described in Section 14 of the Plan.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued
under Awards granted under the Plan, the Company may require the Participant to
pay to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificate(s) for the
Shares. If a payment in satisfaction of an Award is to be made in cash, the
payment will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may, in its
sole discretion, allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose shall be made in writing in a form acceptable to the
Committee.
11. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any
rights as a stockholder of the Company with respect to any Shares until the
Shares are issued to the Participant. After Shares are issued to the
Participant, the Participant will be a stockholder and have all the rights of a
stockholder with respect to the Shares; provided, however, that if the Shares
are Restricted Stock, any new, additional or different securities the
Participant may become entitled to receive with respect to the Shares by virtue
of a stock dividend, stock split or any other change in the corporate or capital
structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided further, that the Participant will have no right to
retain such dividends or distributions with respect to Shares that are
repurchased at the Participant's original Exercise Price or Purchase Price
pursuant to Section 13.
12. TRANSFERABILITY. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by the Participant, and may not
be made subject to execution, attachment or similar process, otherwise than by
will or by the laws of descent and distribution or as consistent with the Plan
and specific Award Agreement provisions relating thereto. During the lifetime of
the Participant an Award shall be exercisable only by the Participant, and any
elections with respect to an Award may be made only by the Participant.
13. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase all or a portion of a Participant's Shares that are not
"Vested" (as defined in the Award Agreement), following the Participant's
Termination, at any time within ninety days after the later of (i) the
Participant's Termination Date or (ii) the date the Participant purchases Shares
under the Plan, for cash or cancellation of purchase money indebtedness with
respect to Shares, at the Participant's original Exercise Price or Purchase
Price; provided that upon assignment of the right to repurchase, the assignee
must pay the Company, upon assignment of the right to repurchase, cash equal to
the excess of the Fair Market Value of the Shares over the original Purchase
Price.
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14. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan (whether in physical or electronic form, as
appropriate) will be subject to stock transfer orders, legends and other
restrictions that the Committee deems necessary or advisable, including without
limitation restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system on which the Shares may be
listed.
15. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other transfer
instruments approved by the Committee, appropriately endorsed in blank, with the
Company or an agent designated by the Company, to hold in escrow until such
restrictions have lapsed or terminated, and the Committee may cause a legend or
legends referencing such restrictions to be placed on the certificates. Any
Participant who is permitted to execute a promissory note as partial or full
consideration for the purchase of Shares under the Plan will be required to
pledge and deposit with the Company all or part of the Shares purchased as
collateral to secure the payment of the Participant's obligation to the Company
under the promissory note; provided, however, that the Committee may require or
accept other or additional forms of collateral to secure the payment of such
obligation and, in any event, the Company will have full recourse against the
Participant under the promissory note notwithstanding any pledge of the
Participant's Shares or other collateral. In connection with any pledge of the
Shares, the Participant will be required to execute and deliver a written pledge
agreement in a form that the Committee has from time to time approved. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall
not be effective unless the Award is in compliance with all applicable state,
federal and foreign securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
on which the Shares may then be listed, as they are in effect on the date of
grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in the Plan, the Company shall have no
obligation to issue or deliver certificates for Shares under the Plan prior to
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (b) completion of any registration
or other qualification of such shares under any state, federal or foreign law or
ruling of any governmental body that the Company determines to be necessary or
advisable. The Company shall be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state, federal or foreign securities laws, stock exchange or
automated quotation system, and the Company shall have no liability for any
inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award
granted under the Plan shall confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Option previously granted with payment in cash, Shares or other
consideration, based on such terms and conditions as the Committee and the
Participant shall agree.
19. CORPORATE TRANSACTIONS.
19.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
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stockholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Awards may be assumed
or replaced by the successor corporation, which assumption or replacement shall
be binding on all Participants. In the alternative, the successor corporation
may substitute equivalent Awards or provide substantially similar consideration
to Participants as was provided to stockholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue, in
place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant. In the event such successor
corporation, if any, refuses to assume or replace the Awards, as provided above,
pursuant to a transaction described in this Section 19.1, such Awards shall
expire in connection the transaction at such time and on such conditions as the
Board shall determine.
19.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under Section 19.1, in the event of the occurrence of
any transaction described in Section 19.1, any outstanding Awards shall be
treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, sale of assets or other "corporate
transaction."
19.3 Assumption of Awards by the Company. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (a) granting an Award under the Plan in substitution of
such other company's award, or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
20. ADOPTION AND STOCKHOLDER APPROVAL. The Plan became effective on
February 1, 1993, which was the date that it was adopted by the Board (the
"Effective Date") and was approved by the stockholders on February 3, 1993.
21. TERM OF PLAN. The Plan will terminate ten years from the
Effective Date.
22. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan. In addition, pursuant to Section 4.1(k), the Board has delegated to
the Committee the authority to make certain amendments to the Plan.
Notwithstanding the foregoing, neither the Board nor the Committee shall,
without the approval of the stockholders of the Company, amend the Plan in any
manner that requires such stockholder approval pursuant to the Code or the
regulations promulgated thereunder as such provisions apply to ISO plans, or
pursuant to the Exchange Act or any rule promulgated thereunder. In addition,
no amendment that is detrimental to a Participant may be made to any outstanding
Award without the consent of the Participant.
23. NONEXCLUSIVITY OF THE PLAN; UNFUNDED PLAN. Neither the adoption
of the Plan by the Board, the submission of the Plan to the stockholders of the
Company for approval, nor any provision of the Plan shall be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under the
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases. The Plan shall be unfunded. Neither the Company nor the
Board shall be required to segregate any assets that may at any time be
represented by Awards made pursuant to the Plan. Neither the Company, the
Committee, nor the Board shall be deemed to be a trustee of any amounts to be
paid under the Plan.
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24. DEFINITIONS. As used in the Plan, the following terms shall have
the following meanings:
(a) "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled
by, or is under common control with, another corporation, where
"control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the
power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting
securities, by contract or otherwise.
(b) "Award" means any award under the Plan, including any Option,
Restricted Stock or Stock Bonus.
(c) "Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant
setting forth the terms and conditions of the Award.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
(f) "Committee" means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.
Each member of the Committee shall be (i) a "non-employee
director" for purposes of Section 16 and Rule 16b-3 of the
Exchange Act, and (ii) an "outside director" for purposes of
Section 162(m) of the Code, unless the Board has fewer than two
such outside directors.
(g) "Company" means Intuit Inc., a corporation organized under the
laws of the State of Delaware, or any successor corporation.
(h) "Disability" means a disability within the meaning of Section
22(e)(3) of the Code, as determined by the Committee.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
(j) "Exercise Price" means the price at which a Participant who
holds an Option may purchase the Shares issuable upon exercise
of the Option.
(k) "Fair Market Value" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(1) if such Common Stock is then quoted on the NASDAQ
National Market, its last reported sale price on the
NASDAQ National Market on such date or, if no such
reported sale takes place on such date, the average of
the closing bid and asked prices;
(2) if such Common Stock is publicly traded and is then
listed on a national securities exchange, the last
reported sale price on such date or, if no such reported
sale takes place on such date, the average of the
closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed
or admitted to trading;
(3) if such Common Stock is publicly traded but is not
quoted on the NASDAQ National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on such
date, as reported by The Wall Street Journal, for the
over-the-counter market; or
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(4) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
(l) "Insider" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock
are subject to Section 16 of the Exchange Act.
(m) "ISO" means an Incentive Stock Option within the meaning of the
Code.
(n) "NASD Dealer" means broker-dealer that is a member of the
National Association of Securities Dealers, Inc.
(o) "NQSO" means a nonqualified stock option that does not qualify
as an Incentive Stock Option within the meaning of the Code.
(p) "Option" means an award of an option to purchase Shares pursuant
to Section 5 of the Plan.
(q) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at
the time of the granting of an Award under the Plan, each of
such corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(r) "Participant" means a person who receives an Award under the
Plan.
(s) "Performance Award" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 8 of the Plan.
(t) "Performance Factors" means the factors selected by the
Committee from among the following measures to determine whether
the performance goals established by the Committee and
applicable to Awards have been satisfied:
(1) Net revenue and/or net revenue growth;
(2) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(3) Operating income and/or operating income growth;
(4) Net income and/or net income growth;
(5) Earnings per share and/or earnings per share growth;
(6) Total stockholder return and/or total stockholder return
growth;
(7) Return on equity;
(8) Operating cash flow return on income;
(9) Adjusted operating cash flow return on income;
(10) Economic value added; and
(11) Individual business objectives.
11
<PAGE> 12
(u) "Performance Period" means the period of service determined by
the Committee, not to exceed five years, during which years of
service or performance is to be measured for Restricted Stock
Awards, Stock Bonuses or Performance Awards.
(v) "Plan" means this Intuit 1993 Equity Incentive Plan, as amended
from time to time.
(w) "Prospectus" means the prospectus relating to the Plan, as
amended from time to time, that is prepared by the Company and
delivered or made available to Participants pursuant to the
requirements of the Securities Act.
(x) "Purchase Price" means the price to be paid for Shares acquired
under the Plan, other than Shares acquired upon exercise of an
Option.
(y) "Restricted Stock Award" means an award of Shares pursuant to
Section 6 of the Plan.
(z) "SEC" means the Securities and Exchange Commission.
(aa) "Securities Act" means the Securities Act of 1933, as amended,
and the regulations promulgated thereunder.
(bb) "Shares" means shares of the Company's Common Stock $0.01 par
value, reserved for issuance under the Plan, as adjusted
pursuant to Sections 2 and 19, and any successor security.
(cc) "Stock Bonus" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7 of the Plan.
(dd) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if,
at the time of granting of the Award, each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(ee) "Ten Percent Stockholder" means any person who directly or by
attribution owns more than ten percent of the total combined
voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company.
(ff) "Termination" or "Terminated" means, for purposes of the Plan
with respect to a Participant, that the Participant has ceased
to provide services as an employee, director, consultant,
independent contractor or adviser, to the Company or a Parent,
Subsidiary or Affiliate of the Company; provided that a
Participant shall not be deemed to be Terminated if the
Participant is on a leave of absence approved by the Committee
or by an officer of the Company designated by the Committee; and
provided further, that during any approved leave of absence,
vesting of Awards shall be suspended or continue in accordance
with guidelines established from time to time by the Committee.
Subject to the foregoing, the Committee shall have sole
discretion to determine whether a Participant has ceased to
provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 63,191
<SECURITIES> 663,294
<RECEIVABLES> 124,386
<ALLOWANCES> (5,710)
<INVENTORY> 2,015
<CURRENT-ASSETS> 920,486
<PP&E> 128,365
<DEPRECIATION> (58,790)
<TOTAL-ASSETS> 1,073,414
<CURRENT-LIABILITIES> 397,290
<BONDS> 39,173
0
0
<COMMON> 487
<OTHER-SE> 636,347
<TOTAL-LIABILITY-AND-EQUITY> 1,073,414
<SALES> 475,467
<TOTAL-REVENUES> 475,467
<CGS> 97,206
<TOTAL-COSTS> 99,147
<OTHER-EXPENSES> 343,603
<LOSS-PROVISION> 1,106
<INTEREST-EXPENSE> 358
<INCOME-PRETAX> 44,413
<INCOME-TAX> 17,534
<INCOME-CONTINUING> 26,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,879
<EPS-PRIMARY> 0.56<F1>
<EPS-DILUTED> 0.54<F2>
<FN>
<F1>BASIC EPS AS DEFINED BY FAS 128
<F2>DILUTED EPS AS DEFINED BY FAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS 9-MOS
<FISCAL-YEAR-END> JUL-31-1997 JUL-31-1997 JUL-31-1997 JUL-31-1996
<PERIOD-START> AUG-01-1996 AUG-01-1996 AUG-01-1996 AUG-01-1995
<PERIOD-END> APR-30-1997 JAN-31-1997 OCT-31-1996 APR-30-1996
<CASH> 116,649 104,859 45,595 33,434
<SECURITIES> 356,260 350,524 125,205 186,092
<RECEIVABLES> 74,873 152,213 90,346 77,343
<ALLOWANCES> (7,025) (5,936) (5,974) (4,852)
<INVENTORY> 2,756 4,428 4,935 5,829
<CURRENT-ASSETS> 575,610 638,747 302,594 330,697
<PP&E> 142,330 137,129 154,549 137,647
<DEPRECIATION> (63,896) (58,205) (57,380) (42,110)
<TOTAL-ASSETS> 717,898 751,920 439,275 471,224
<CURRENT-LIABILITIES> 265,224 330,590 147,513 156,940
<BONDS> 34,433 5,080 5,259 7,158
0 0 0 0
0 0 0 0
<COMMON> 466 465 463 453
<OTHER-SE> 412,704 413,078 283,219 304,126
<TOTAL-LIABILITY-AND-EQUITY> 717,898 751,920 439,275 471,224
<SALES> 504,810 368,484 102,506 461,808
<TOTAL-REVENUES> 504,810 368,484 102,506 461,808
<CGS> 114,583 85,666 27,045 117,393
<TOTAL-COSTS> 115,263 85,820 27,085 119,651
<OTHER-EXPENSES> 356,875 248,145 114,511 324,267
<LOSS-PROVISION> 5,480 4,632 1,745 3,546
<INTEREST-EXPENSE> 377 259 81 229
<INCOME-PRETAX> 39,284 38,325 (37,042) 23,280
<INCOME-TAX> 22,400 21,929 (8,738) 22,000
<INCOME-CONTINUING> 16,884 16,396 (28,304) 1,280
<DISCONTINUED> 71,240 71,240 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 88,124 87,636 (28,304) 1,280
<EPS-PRIMARY> 1.90<F1> 1.90<F1> (0.61)<F1> 0.03<F1>
<EPS-DILUTED> 1.86<F2> 1.85<F2> (0.61)<F2> 0.03<F2>
<FN>
<F1>BASIC EPS AS DEFINED BY FAS 128.
<F2>DILUTED EPS AS DEFINED BY FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1998
<PERIOD-START> AUG-01-1997 AUG-01-1997
<PERIOD-END> JAN-31-1998 OCT-31-1997
<CASH> 105,532 63,950
<SECURITIES> 537,228 397,679
<RECEIVABLES> 175,427 93,111
<ALLOWANCES> (5,150) (4,364)
<INVENTORY> 4,811 3,888
<CURRENT-ASSETS> 836,470 568,891
<PP&E> 123,330 131,054
<DEPRECIATION> (52,756) (60,145)
<TOTAL-ASSETS> 977,081 759,288
<CURRENT-LIABILITIES> 384,086 253,989
<BONDS> 31,253 36,520
0 0
0 0
<COMMON> 478 473
<OTHER-SE> 560,964 467,781
<TOTAL-LIABILITY-AND-EQUITY> 977,081 759,288
<SALES> 333,471 95,958
<TOTAL-REVENUES> 333,471 95,958
<CGS> 67,875 22,396
<TOTAL-COSTS> 69,228 23,099
<OTHER-EXPENSES> 224,217 98,464
<LOSS-PROVISION> 2,492 0
<INTEREST-EXPENSE> 234 81
<INCOME-PRETAX> 48,618 (19,254)
<INCOME-TAX> 19,533 (6,495)
<INCOME-CONTINUING> 29,085 (12,759)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,085 (12,759)
<EPS-PRIMARY> 0.61<F1> (.27)<F1>
<EPS-DILUTED> 0.59<F2> (.27)<F2>
<FN>
<F1>BASIC EPS AS DEFINED BY FAS 128.
<F2>DILUTED EPS AS DEFINED BY FAS 128.
</FN>
</TABLE>
