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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended JULY 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission File Number 0-21180
INTUIT INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0034661
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(State of Incorporation) (IRS Employer Identification No.)
2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
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(Address of Principal Executive Offices, including zip code)
(415) 944-6000
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(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of September 30, 1996, there were 46,245,474 shares of the Registrant's
common stock, $0.01 par value, outstanding, which is the only outstanding class
of common or voting stock of the registrant. As of that date, the aggregate
market value of the shares of common stock held by non-affiliates of the
registrant (based on the closing price for the common stock as quoted by the
Nasdaq National Market on such date), was approximately $1,120,469,364.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in November 1996 are incorporated by reference into
Part III of this Form 10-K.
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FISCAL 1996 FORM 10-K
INTUIT INC.
INDEX
ITEM PAGE
PART I
ITEM 1: Business.......................................................... 3
ITEM 2: Properties........................................................ 22
ITEM 3: Legal Proceedings................................................. 23
ITEM 4: Submission of Matters to a Vote of Security Holders............... 25
Executive Officers and Key Employees of the Registrant............ 25
PART II
ITEM 5: Market for Registrant's Common Equity
and Related Stockholder Matters............................... 28
ITEM 6: Selected Consolidated Financial Data.............................. 29
ITEM 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 30
ITEM 8: Financial Statements and Supplemental Data........................ 43
ITEM 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 62
PART III
ITEM 10: Directors and Executive Officers of the Registrant................ 62
ITEM 11: Executive Compensation............................................ 62
ITEM 12: Security Ownership of Certain Beneficial Owners
and Management................................................ 62
ITEM 13: Certain Relationships and Related Transactions.................... 62
PART IV
ITEM 14: Exhibits, Financial Statement Schedules,
and Reports on Form 8-K....................................... 63
Signatures .............................................................. 67
Intuit, the Intuit logo, IntelliCharge, MacInTax, Quicken, QuickBooks,
QuickVerse, TurboTax, Announcements, QuickSteuer and ProSeries, among others,
are registered trademarks and/or registered service marks of Intuit Inc. or one
of its subsidiaries. OpenExchange, QFN, NETworth, Quicken Live, InsureMarket,
Kobanto, Family Lawyer, Investor Insight, Personal Tax Edge, QuickBooks Pro,
QuickPay, QuickEntry and QuickTax, among others, are trademarks and/or service
marks of Intuit Inc. or one of its subsidiaries. Other brands or products
contained in this document are trademarks, service marks, registered trademarks
or registered service marks of their respective holders and should be treated as
such.
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PART I
ITEM 1
BUSINESS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This Form 10-K of Intuit
Inc. ("Intuit" or the "Company") contains forward-looking statements that are
subject to risks and uncertainties. Statements indicating that the Company
"expects," "estimates" or "believes" are forward-looking, as are all other
statements concerning future financial results, product offerings or other
events that have not yet occurred. There are several important factors that
could cause actual results or events to differ materially from those anticipated
by the forward-looking statements contained in this Form 10-K. Such factors
include, but are not limited to: the growth rates of the Company's market
segments; the positioning of the Company's products in those segments; the
Company's ability to effectively manage its various businesses, and the growth
of its businesses, in a rapidly changing environment; the timing of new product
introductions; retail sell-through of the Company's products; the emergence of
the Internet, resulting in new competition and unclear consumer demands; the
Company's ability to adapt and expand its product offerings for the Internet
environment; variations in the cost of, and demand for, customer service and
technical support; price pressures and the competitive environment in the
consumer and small business software and supplies industry; the possibility of
calculation errors or other "bugs" in the Company's software products; the
emergence of the electronic financial services marketplace; the cost of
implementing the Company's electronic financial services strategy; consumer
acceptance of online financial service offerings; the Company's ability to
establish successful strategic relationships with financial institutions and
processors of financial information; changing alliances among financial
institutions and other strategic partners; the emergence of competition from
these entities as well as from other software companies; changes in laws that
may govern any of the Company's products or services; the timing and consumer
acceptance of new product releases and services (including current users'
willingness to upgrade from older versions of the Company's products); the
consummation of possible acquisitions; the Company's ability to integrate
acquired operations into its existing business; the Company's ability to
successfully transition its online banking and bill payment operations to
CheckFree Corporation; possible fluctuations in value of the Company's
investment in CheckFree Corporation; and the Company's ability to penetrate
international markets and manage its international operations. Additional
information on these and other risk factors is included elsewhere in this Form
10-K.
OVERVIEW
COMPANY BACKGROUND
Intuit's mission is to improve the way individuals and small businesses manage
their financial affairs. To that end, Intuit develops, markets and supports
personal finance, small business accounting, tax preparation and other consumer
software products, and related supplies and electronic financial services that
enable individuals, professionals and small businesses to automate commonly
performed financial tasks and better organize, understand, manage and plan their
financial lives. Intuit employs a variety of consumer marketing research
techniques to define and design its products and services so that they will be
easy to use and responsive to customers' needs. The Company's product
development strategy focuses on products that give new and existing customers
added value and provide Intuit with opportunities for follow-on sales and
recurring revenue. For example, the Company has developed several complementary
products that share financial information, so that customers can use several
Intuit products in conjunction with one another. This provides the Company with
the opportunity to cross-sell additional products to its existing customer base.
The Company recently announced several Internet-related strategic initiatives
that are intended to facilitate communications between the Company's customers
and their financial service providers, and to support the Company's goal of
offering an expanding range of financial services to its customers. See
"Overview - Internet Strategic Initiatives."
Intuit's primary product and service offerings are in the following areas:
personal finance products, including Quicken(R) and Quicken Financial Planner;
small business accounting products, including QuickBooks(R) and QuickPay(TM);
personal and professional tax preparation products, including TurboTax(R) and
TurboTax ProSeries(R); other consumer software products offered by the Company's
Parsons Technology, Inc. subsidiary ("Parsons"), including Quicken Family
Lawyer(TM), Personal Tax Edge(TM) and Announcements(R); electronic financial
services,
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including online banking and bill payment services, Investor Insight(TM), the
NETworth: The Internet Investor Network web site ("NETworth"(TM)) offered by the
Company's GALT Technologies, Inc. subsidiary ("GALT"), and the InsureMarket(SM)
web site offered by the Company's Interactive Insurance Services Corp.
subsidiary ("IIS"); and supplies, such as checks, invoice forms, envelopes and
deposit slips, for use in conjunction with the Company's software products.
Quicken Financial Network ("QFN"(TM)), which is Intuit's World Wide Web site,
serves as a vehicle for offering some of the Company's electronic financial
services as well as a source of other financial information and services. The
Company's principal products and services are described below under "Products
and Services."
Intuit commenced operations in March 1983 and was incorporated in California in
March 1984. In March 1993, the Company was reincorporated in Delaware. The
Company's principal executive offices are located at 2535 Garcia Avenue,
Mountain View, California, 94043, and its telephone number is (415) 944-6000.
Unless otherwise indicated herein, the "Company" and "Intuit" refer to Intuit
Inc., a Delaware corporation, its California predecessor, and its subsidiaries.
INTERNET STRATEGIC INITIATIVES
On September 16, 1996, the Company announced three Internet-related strategic
initiatives designed to accelerate the adoption of electronic financial data
exchange and communication among individuals and small businesses and their
financial service providers. First, the Company announced plans to "open" the
architecture of its software products to financial service providers so that
such providers can connect directly through the Internet to their customers who
use Intuit products. By contrast, communications and exchange of data between
Intuit customers and their financial institutions are currently routed through
the Company's private network. This opening of the connectivity capability of
the Company's products will be introduced in stages, with Internet connections
for investment activities and online banking and bill payment activities
expected during calendar 1997.
Second, the Company announced that it would coordinate efforts with several
third parties to develop a comprehensive framework for exchanging financial data
over the Internet in an integrated collection of specifications and protocols
called OpenExchange(TM). OpenExchange is intended to make it easier and less
expensive for a wide range of financial service providers to build links for
electronic financial data exchange and communications using the Internet.
OpenExchange is expected to allow any front-end software or interface that uses
OpenExchange to connect with any back-end processing system that uses
OpenExchange, giving financial service providers significant flexibility in
providing services to their customers. OpenExchange is also intended to support
a wide range of financial activities involving many types of financial service
providers, including banks, brokerage firms, mutual fund companies and insurance
companies, and to support multiple PC platforms and other electronic devices.
The Company expects that OpenExchange will also incorporate protocols designed
to provide end-to-end security for financial data, including industry protocols
such as Secure Sockets Layer (SSL) v.3.0. The Company expects that OpenExchange
will be licensed for free and without restriction to financial service
providers, although technology providers such as Intuit may seek to charge
customers and/or financial service providers for the use of specific
implementations within their own products.
Third, the Company announced the signing of an agreement pursuant to which it
plans to sell its banking and bill payment processing subsidiary, Intuit
Services Corporation ("ISC"), to CheckFree Corporation ("CheckFree"), in
exchange for 12.6 million shares of the common stock of CheckFree (representing
approximately 23% of the resulting CheckFree shares outstanding). CheckFree is a
leading home banking and electronic bill payment processor. The Company expects
that the transaction will allow the Company to reallocate management and
financial resources to its core businesses and to other emerging business
opportunities (particularly those involving the Internet and electronic
financial services), while still participating indirectly in the banking and
bill payment processing business through its investment in CheckFree. The
closing of this transaction, which is expected to occur by early calendar 1997,
is subject to numerous conditions, including regulatory approval and the
approval of CheckFree's stockholders. See also "Overview - Pending Sale of ISC"
and Note 12 of Notes to Consolidated Financial Statements.
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EXPANSION OF ELECTRONIC FINANCIAL SERVICES
The Company believes that it may be able to improve its competitive position by
extending its business into the emerging electronic financial services market.
The Company defines electronic financial services as electronically-enabled
financial transactions and electronically-enabled marketing and sales of
financial products. Intuit has recently invested significant resources to
develop and acquire products and services for this market, including its
acquisitions of IIS, a developer of an Internet-based system that allows
consumers to obtain insurance information from national insurance carriers, and
GALT, a provider of mutual fund information through its NETworth web site. The
Company's recently announced Internet strategic initiatives (described above)
are designed to facilitate expansion of the Company's electronic financial
services business. Intuit currently works with financial institutions to offer a
number of online services, including online banking, electronic bill payment and
online tools, such as Investor Insight and NETworth for evaluating investments,
that extend the capabilities of Intuit's software products and increase the
automation of financial tasks. The Company is evaluating additional
opportunities related to electronic financial services, including products that
will enable users of Quicken to download brokerage account statements and
execute securities trades through participating financial institutions. The
Company expects to invest significant resources in developing and enhancing its
electronic financial service offerings during fiscal 1997.
EXPANSION INTO INTERNATIONAL MARKETS
During fiscal 1996, Intuit took several steps to increase its presence in
international markets. The Company introduced several additional international
products in the UK, Canada, Germany, France, Spain and Mexico. In addition, in
April 1996, Milkyway KK ("Milkyway"), Intuit's subsidiary in Japan acquired in
January 1996, released Kobanto(TM), its first small business accounting software
product for Windows. Although the Company did experience significant growth in
its international operations during fiscal 1996, its German subsidiary
experienced delays in executing two critical product launches in the second
quarter of fiscal 1996. See "Business - International" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations - Twelve Months Ended July 31, 1996 and 1995." There can
be no assurance that sales of international products will continue to grow at
the rate experienced during fiscal 1996, or that other product launch
difficulties will not be encountered in the future.
RECENT CORPORATE TRANSACTIONS
The Company has historically pursued a strategy of acquiring other businesses in
order to obtain complementary products and technologies and to obtain a presence
in new markets. During the past three years, the Company completed several such
acquisitions. In December 1993, the Company acquired ChipSoft, Inc.
("ChipSoft"), a publicly-held developer and marketer of tax preparation software
products. In April 1994, the Company purchased certain assets of the
professional tax preparation software business of Best Programs, Inc. ("Best").
In July 1994, the Company acquired National Payment Clearinghouse, Inc., a
privately-held provider of automated bill payment services, which is now the
Company's ISC subsidiary. (See "Overview - Pending Sale of ISC.") In September
1994, the Company acquired Parsons, a privately-held consumer software publisher
that emphasizes direct sales and marketing. In March 1995, the Company formed
Quicken Investment Services, Inc. ("QISI"), a wholly-owned subsidiary and
registered investment adviser that offers the Company's financial planning
products. In June 1995, the Company acquired Personal News, Inc. ("PNI"), a
privately-held provider of online investment research data. In June 1995, the
Company purchased certain assets of Mysterious Pursuit Pty. Ltd. ("Mysterious
Pursuit"), a privately-held Australian company that develops tax software. In
January 1996, the Company acquired Milkyway, a provider of PC-based financial
software in Japan. In June 1996, the Company acquired IIS, developer of an
Internet-based system that allows consumers to obtain insurance information from
national insurance carriers. In September 1996, the Company completed its
acquisition of GALT, a provider of mutual fund information through its NETworth
web site. See Notes 2 and 12 of Notes to Consolidated Financial Statements for
additional discussion of the transactions described above. Although the Company
believes these transactions were in the best interests of the Company and its
stockholders, there are significant risks associated with such transactions. See
"Management of Growth" and "Products and Services - Electronic Financial
Services."
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PENDING SALE OF ISC
On September 15, 1996 the Company and ISC signed an Agreement and Plan of Merger
(the "Plan") with CheckFree and a wholly-owned CheckFree subsidiary pursuant to
which the Company agreed to sell ISC to CheckFree in a tax-free merger
transaction in exchange for 12.6 million shares of CheckFree common stock (the
"CheckFree Shares"). Based on the closing price of CheckFree's common stock on
September 13, 1996 (the last business day before the transaction was announced),
the CheckFree Shares have a value of approximately $227.6 million and will
represent approximately 23% of CheckFree's outstanding common stock after
issuance, based on CheckFree's current outstanding shares. (The Company expects
to reduce its holdings to under 20% in order to account for its investment under
the cost method of accounting. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.") The Plan provides that, under
certain conditions, the Company will indemnify CheckFree for certain losses
arising from breaches of the Company's representations, warranties and covenants
in the Plan in an amount of up to 35% of the value of the CheckFree Shares, and
that 10% of the CheckFree Shares will be withheld in escrow for one year
following closing of the transaction to secure CheckFree's indemnity rights. In
addition, the Company has agreed to pay CheckFree the amount (if any) by which
ISC's revenues for the 12-month period ending July 31, 1997 are less than $46
million.
It is expected that the CheckFree Shares to be issued to the Company in exchange
for ISC will be registered with the Securities and Exchange Commission on a Form
S-4 registration statement and, in addition, CheckFree will grant the Company
certain demand and piggyback registration rights with respect to the CheckFree
Shares. The Company and CheckFree have also entered into a Stock Restriction
Agreement that restricts the Company's ability to increase its ownership of
CheckFree stock and to effect certain sales of CheckFree stock, and restricts
the manner in which the Company may deal with CheckFree and its stockholders in
connection with certain corporate proceedings and transactions.
Pursuant to the Plan, the Company, ISC and CheckFree expect to entered into
ancillary agreements addressing certain support, licensing and transition
issues, providing for certain payments by CheckFree to the Company in exchange
for certain license rights, and ensuring the Company's access to certain
technologies. Pursuant to the Plan, the Company will not compete with certain
electronic payment processing businesses for up to five years.
The consummation of these proposed transactions is subject to the satisfaction
of several conditions, including without limitation the approval of CheckFree's
stockholders and the absence of objection to the transaction by federal
antitrust authorities under the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
FISCAL YEAR CHANGE
As a result of the Company's change in its fiscal year effective August 1, 1994,
comparative financial information contained in this Form 10-K for the twelve
months ended July 31, 1994 is unaudited. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Fiscal Year Change."
PRODUCTS AND SERVICES
Intuit's primary product and service offerings are in the following areas:
personal finance products; small business accounting products; tax preparation
products; other consumer software products; electronic financial services; and
supplies such as checks and invoice forms. The Company's principal offerings in
each area are described below. For a discussion of revenues contributed by
software products and services and supplies, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PERSONAL FINANCE PRODUCTS
Intuit develops, markets and supports personal finance software products for
several personal computer operating environments, including Windows 3.1, Windows
95 and Macintosh OS. Quicken was introduced in October 1984 and has since been
enhanced and upgraded a number of times. Quicken allows users to organize,
understand and manage their personal finances. Designed to look and work like a
checkbook, Quicken provides users with an easy-
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to-use method for recording and categorizing their financial transactions. Once
entered, the financial information can be analyzed and displayed using a broad
set of reports and graphs. Quicken also allows users to reconcile their bank
accounts and track credit card purchases, investments, cash and other assets and
liabilities. Online banking features in Quicken ease data entry by allowing
users to download bank transaction information directly from participating
financial institutions. Quicken also enables users to schedule bill payments,
using either the online payment services of participating financial institutions
or directly through ISC. The online service processes payment requests by
printing and mailing computer checks or by initiating electronic payments. The
Investor Insight feature in Quicken (which is also available as a stand-alone
product) gives users online access to a variety of investment research tools.
See "Electronic Financial Services" for more details on these banking and
investment services. During fiscal 1996, the Company took steps to implement its
Internet strategy by incorporating into Quicken a version of Netscape Navigator,
free access to QFN (Intuit's World Wide Web site) and low-cost full Internet
access through service provider Concentric Network Corp. During the first
quarter of fiscal 1997, the Company plans to release new versions of Quicken,
including Quicken Deluxe 6 for Windows on CD-ROM and an enhanced version of
Quicken for the Macintosh, which will include a variety of new online features.
The Company also offers certain personal finance products through its QISI
subsidiary, which is a registered investment adviser under the Investment
Advisers Act of 1940. See "Regulated Businesses." Quicken Financial Planner
assists the user in creating a personal financial and retirement plan, based on
the user's current financial profile and financial and retirement goals. It
provides sample asset allocation guidelines to help the user determine how to
invest based on the desired rate of return. Mutual Fund Finder, which is a
feature of Quicken Financial Planner, provides the user with historical mutual
fund data from a Morningstar, Inc. database. This information can be updated on
a quarterly basis. Mutual Fund Finder also identifies specific funds for the
user based on designated criteria relating to risk and return, expenses and
other factors. In September 1996, the Company announced Fidelity QFP, which is a
specific version of Quicken Financial Planner designed for customers who have
401(k) retirement plans with Fidelity Investments ("Fidelity"). The product will
allow information from a user's retirement account with Fidelity to be
transferred to the software. This will simplify incorporation of the user's
individual financial information into the financial plan created by the
software.
SMALL BUSINESS ACCOUNTING PRODUCTS
Recognizing the widespread customer use of Quicken products for small business
applications, Intuit developed a similar family of products for small business
owners that provide the more extensive functions they require while maintaining
ease of use.
QuickBooks, which was first introduced in April 1992, was developed to address
the needs of the small business user but shares many of Quicken's most popular
features, including an easy-to-use design that does not require the user to be
familiar with traditional double-entry accounting concepts. For example,
QuickBooks supports both cash-based and accrual-based accounts payable with
separate entry of bills and automatic generation of accounts payable checks
based on outstanding vendor balances. In addition, QuickBooks offers automation
of payroll tasks, flexible invoicing, including printing on pre-printed forms,
letterhead or plain paper, full tracking and aging of invoices, inventory
tracking and audit trail creation. During 1996, Intuit introduced a version of
QuickBooks for the German accounting market, and Milkyway introduced Kobanto,
the Company's first Windows-based small business accounting software product for
the Japanese market.
QuickBooks Pro(TM) is an enhanced version of QuickBooks developed to address the
needs of small businesses in the U.S. that are project, job or time based, such
as contractors, consultants, lawyers, accountants and subcontractors. Many of
these businesses currently use manual methods or general purpose software
systems (including spreadsheets and word processors) to do time tracking and job
estimating, but these systems generally are not integrated with the businesses'
accounting programs. QuickBooks Pro allows users to integrate time tracking, job
estimating and project costing with accounting and payroll.
Payroll functionality is integrated into the Windows and Macintosh versions of
QuickBooks and QuickBooks Pro. QuickPay is an add-on product for Quicken and the
DOS version of QuickBooks that calculates and tracks gross salary and payroll
deductions and is targeted to small businesses that do not use an outside
payroll service. A related
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service offering is Intuit's Payroll Tax Table Update Service, a disk-based data
service that provides customers with new tax table files when relevant federal,
state or local payroll tax rates change.
TAX PREPARATION PRODUCTS
Intuit develops, markets and supports tax preparation software products
(including TurboTax, MacInTax(R), Personal Tax Edge and TurboTax ProSeries) for
individual consumers and small business owners for use in preparing their own
tax returns and for professional tax preparers for use in preparing their
clients' tax returns. Intuit's tax preparation software allows both individual
taxpayers and professional tax preparers to automate the process of preparing
tax returns. This software simplifies the process of preparing tax returns by
reducing calculation time and errors, automatically transferring data between
forms, checking for missing and incomplete information, and aiding in the
organization of tax records.
Tax preparation software must be rewritten each year to reflect annual changes
in tax laws and forms, and customers must purchase new versions each year in
order to file accurate tax returns using such software. As a result, tax
preparation software generates recurring revenues that historically have been
more regular and predictable than upgrade revenues typical of other types of
personal computer software. A change in this pattern could have a material
adverse effect on Intuit's operating results and financial condition. In
addition, the government's late release of federal and state tax forms and laws
requires rapid development and release of these products, thus creating some
risk of product errors and the costs associated therewith. During fiscal 1995
the Company identified calculation errors in certain tax products that
necessitated a charge of $1.3 million to cover the cost of revisions and other
remedial actions. A similar occurrence during fiscal 1996 resulted in a charge
of approximately $1.2 million. See "Product Development and Marketing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Twelve Months Ended July 31, 1996 and
1995."
Consumer Tax Preparation Products. Intuit's TurboTax and MacInTax tax
preparation software products for consumers are designed to be easy to use for
computer users of all skill levels, yet sufficiently sophisticated to prepare
complex returns. The programs also help users to identify tax deductions that
might otherwise be missed, as well as entries that might trigger an IRS 1040
audit. For its consumer products, Intuit currently provides 45 state tax
preparation products (one for the District of Columbia and each state that
imposes an individual income tax) for both Macintosh and Windows-based
computers. Intuit has recently expanded its consumer tax preparation products to
include products for certain international markets. See "International."
Intuit generally releases a "HeadStart" preliminary edition of its federal
TurboTax product and a generic "HeadStart" state tax return program in October
or November of each year. These preliminary editions enable customers to
organize their tax records and to make tax-planning decisions. Intuit generally
releases final editions in January or February after all of the relevant forms
have been made available by the IRS and various state tax agencies. Final
editions, which are available at no charge to purchasers of the HeadStart
edition, automatically transfer data previously entered into preliminary
editions.
Personal Tax Edge and Personal Tax Edge Preparer's Edition are consumer and
professional tax preparation products, respectively, that are designed for less
complex federal income tax returns. State Tax Edge(TM) is available for 45
states. A planning version of Personal Tax Edge is made available in advance of
release of the final version. The Company acquired Personal Tax Edge products
through its acquisition of Parsons in September 1994, and the products continue
to be marketed by Parsons primarily through direct sales efforts.
Small Business Tax Preparation Products. TurboTax for Business and MacInTax for
Business are tax return preparation products that enable small business owners
to prepare their own business tax returns. Intuit develops, markets and supports
separate programs for preparing federal and certain state S corporation, C
corporation and partnership returns, as well as programs that enable individuals
with sole proprietorships to complete their federal and state tax returns.
Professional Tax Preparation Products. Intuit's professional tax preparation
products are designed for use by tax preparers and accountants who prepare tax
returns for individuals and small businesses. Intuit believes that small to
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mid-size independent tax preparers currently comprise the largest segment of its
professional tax customer base. Intuit's TurboTax ProSeries includes a broad
suite of products that prepare individual income, corporate, partnership,
fiduciary and not-for-profit federal tax returns, as well as many state
equivalents. A number of add-on modules are provided, including client
organizer, practice management, networking, asset management and electronic
filing capabilities. Certain of the Company's professional tax products are also
sold bundled under the Power Tax name. For the 1997 tax season, the Company
plans to introduce QuickEntry(TM), a feature designed to improve the
productivity of tax professionals by reducing the time required to enter client
data.
Electronic Filing. In fiscal 1996, the Company was awarded several government
contracts totaling approximately $4 million to develop and support software for
the Internal Revenue Service. This software was part of a $17 million IRS
project called CyberFile that was designed to allow individual taxpayers to
electronically file their federal income tax returns from their home computers.
While the Company delivered its contractual components of the project and
received payment under the contracts, CyberFile has not been activated due to
concerns raised by other government agencies relating to the security of
electronically transmitted tax information.
OTHER CONSUMER SOFTWARE PRODUCTS
Intuit and the Company's Parsons subsidiary offer a product called Quicken
Financial Suite, which combines the Quicken Deluxe, Quicken Financial Planner
and Quicken Family Lawyer software products into a single product. In addition,
through Parsons, Intuit utilizes direct marketing techniques to sell software
products that assist consumers in managing various aspects of their personal
affairs. These products, which are distributed primarily through Parsons'
substantial direct distribution channel, include Quicken Family Lawyer, which
enables consumers to prepare legal forms and documents such as wills, powers of
attorney and promissory notes; Personal Tax Edge (see "Consumer Tax Products"
above); Announcements, which enables consumers to create personalized greeting
cards, banners, posters and other documents; and QuickVerse(R), a computerized
digest that enables users to quickly locate Biblical references. The Company
develops, licenses or acquires software products such as these in order to
leverage its direct-mail customer base.
ELECTRONIC FINANCIAL SERVICES
As a complement to its personal financial software products, Intuit offers
value-added services that further automate financial transactions for its users.
In addition to the services described below, the Company is developing
additional electronic financial service offerings that it expects to make
available during fiscal 1997. Revenues from these services have not been
significant during the past three years. The Company's recently announced
Internet strategic initiatives are expected to facilitate the longer-term
expansion of this business by streamlining electronic financial data exchange
and communications among individuals, small businesses and their financial
service providers. See "Overview - Internet Strategic Initiatives" above.
Although the Company expects that electronic financial services such as
InsureMarket and NETworth will become an increasingly significant portion of the
Company's business during the next several years (see "Other Electronic
Financial Services"), there can be no assurance that this will be the case.
Furthermore, the Company's recently announced agreement to sell its ISC
subsidiary to CheckFree will leave the Company with only an indirect
participation in the banking and bill payment processing business (through its
investment in CheckFree). See "Overview - Pending Sale of ISC."
Online Banking and Bill Payment Services. The Company offers a variety
of online banking and bill payment services in conjunction with participating
financial institutions. Fees charged to customers for these services are set by
each financial institution, with the Company receiving monthly per-subscriber
fees from the financial institutions.
Online banking is a service available through Quicken that was introduced in the
first quarter of fiscal 1996. The online banking services allow users with
accounts at participating financial institutions to download, and automatically
categorize into Quicken accounts, data from bank accounts, brokerage cash
accounts or charge accounts, thereby eliminating the need for customers to
manually enter this data into Quicken files. Online banking also enables users
to check on current account balances, transfer funds between accounts, determine
whether a given transaction has cleared and reconcile accounts. Intuit's ISC
subsidiary is currently responsible for online
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connections between the financial institutions and end users. See "Overview -
Pending Sale of ISC" and the discussion below regarding the recently announced
agreement to sell ISC to CheckFree.
In connection with its online banking services, Intuit currently has
relationships with approximately 40 financial institutions, including six of the
ten largest domestic banks and American Express, which is the largest U.S.
proprietary charge card issuer. In addition, in May 1996, the Company announced
plans to work with two of the financial service industry's leading processing
companies (Electronic Payment Services, Inc. and M&I Data Services) to enable
the financial institutions that are customers of these processing companies to
offer online banking, online bill payment and other online financial services
through their existing processor or service provider connections.
Online bill payment, a feature also available through Quicken, enables users to
pay bills by transmitting payment instructions via modem to ISC. Intuit began to
provide electronic bill payment service for Quicken through its ISC subsidiary
during the first quarter of fiscal 1996. Payments are processed electronically
through the automated clearing house system for merchants that have made
arrangements through their financial institutions for electronic payment
(approximately 3% of merchants currently). All other payments are made via paper
checks through the U.S. mail. This service is offered primarily through
financial institutions with which the Company has relationships, but for its
customers who do not bank at participating institutions, Intuit makes online
bill payment (referred to as "retail bill payment") available for a monthly fee.
Retail bill payment accounts represent approximately 10% of current bill payment
customers.
Intuit introduced its new BankNOW software product in September 1996. This
product allows PC users who are subscribers to America Online to perform basic
online banking functions such as checking account balances, transferring funds
between accounts, and scheduling bill payments. BankNOW is designed for
consumers who want fast, simple online banking but who do not require the more
complete financial organization and tracking functions offered in personal
financial management software such as Quicken.
If the sale of ISC to CheckFree is consummated, the Company will no longer
receive revenue directly from currently participating financial institutions in
connection with online banking and bill payment services, as these revenues will
be paid to CheckFree. However, Intuit expects that it will market and resell
bill payment services (performed by CheckFree) to end users. In addition, if the
sale of ISC is completed, Intuit expects to receive significant royalty payments
from CheckFree in exchange for, among other things, Intuit enabling a direct
electronic link between Quicken customers and CheckFree's back-end processing
services. See "Overview - Pending Sale of ISC." As part of the proposed sale of
ISC to CheckFree, Intuit and CheckFree have agreed that, following the
expiration of Intuit's current contracts with financial institutions (which will
be assumed by CheckFree), Intuit will allow CheckFree to access Quicken
customers only on behalf of financial institutions that have been authorized by
Intuit to connect to Quicken customers. Intuit expects that it will negotiate
with financial institutions to receive a connectivity fee for allowing the
financial institutions to connect to users of Intuit products using the
OpenExchange Protocol. See "Overview - Internet Strategic Initiatives." However,
there can be no assurance that these arrangements will generate significant
revenue for Intuit. If the proposed agreement to sell ISC to CheckFree is not
consummated as currently anticipated, Intuit expects that, in the near term, it
would continue to operate its banking and bill payment services as currently
operated.
Other Electronic Financial Services. Investor Insight is an online service
accessible both through a stand-alone software product and certain versions of
Quicken. Investor Insight gives users access to investment research tools,
including stock price quotes, recent financial market news, analysts' ratings
and research reports, analyses of price movements over five years and the
ability to chart and analyze individual securities or groups of securities.
Users are charged a monthly fee for the Investor Insight service. Investor
Insight can be accessed through Quicken and QFN. ISC currently operates the
servers that provide the Investor Insight service. If CheckFree's proposed
purchase of ISC is completed as expected, Intuit will continue to receive all
revenues generated by Investor Insight and CheckFree will continue to operate
the servers, with Intuit reimbursing CheckFree for its direct costs in
connection with such operation.
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Quicken Financial Network, or QFN, is an Intuit web site that serves as a
vehicle for offering some of Intuit's financial services (such as Investor
Insight, Quicken InsureMarket and NETworth), as well as a source for other
information and services relating to financial topics. The goal of QFN is to
provide a location on the World Wide Web where consumers can access a variety of
news, information, products and services to help them better manage their
financial lives. Users can access QFN through versions of Quicken that include
Netscape Navigator. In addition, users can access QFN by using any standard
Internet connection and browser. There is no fee for accessing QFN except for
telecommunications charges through phone companies and Internet service
providers. The Company receives advertising revenue from companies that offer
their services through QFN, but such revenues have not been material to date.
Quicken InsureMarket, offered by the Company's IIS subsidiary, provides an
interactive Internet link between consumers and national insurance carriers and
their agents, to enable consumers to obtain information about insurance.
InsureMarket became available in a "preview" version in June 1996 and, as of
October 1996, consumers in selected states can obtain quotes and other
information concerning term life insurance from participating insurance
carriers, contact agents for certain participating carriers, and purchase
certain policies online. In the future, the Company expects that consumers will
also be able to obtain similar services for auto, home owners' and small
business insurance. IIS expects to derive revenue from these services through
initial and ongoing annual participation fees from insurance companies that
offer policies, as well as commissions on policies sold. IIS must provide these
services in accordance with applicable state insurance regulations. See
"Regulated Businesses."
NETworth is a mutual fund service available through Intuit's subsidiary, GALT.
It provides investment resources for individual investors, including online
presentations from approximately 60 mutual fund families, integrated with free
mutual fund performance information from Morningstar, Inc.'s database of more
than 7,500 mutual funds, net asset value and stock price graphs, quotes and the
ability to keep track of a personal portfolio. NETworth can be accessed through
QFN, or directly from the Internet. Intuit receives initial and ongoing annual
participation fees from mutual fund companies that participate in the NETworth
site, as well as flat monthly fees from such funds for some services.
Intuit's IntelliCharge(R) credit card service combines credit card use with
software and communications technology to provide users of the Quicken Affinity
Card (a credit card offered through Travelers' Bank) with an electronically
transmitted statement from which data can be transferred to and categorized by
Quicken. Customers who receive data via modem are not charged for this service.
Intuit receives a fee from Travelers for each customer that signs up for a
Quicken Affinity Card, as well as a portion of any interest charges paid by the
customer. ISC currently performs certain processing functions in connection with
the Intellicharge service. If CheckFree's proposed purchase of ISC is completed
as expected, Intuit will continue to market the Intellicharge service and
receive all revenues generated by it, and will pay CheckFree to continue
providing processing services.
The market for electronic financial services is relatively new. Although demand
for the Company's personal finance, small business accounting, tax preparation
and other consumer software products and related supplies and electronic
services has grown in recent years, the Company believes it must extend its
business into electronic financial services in order to remain competitive. If
this market fails to grow or grows more slowly than anticipated, or if the
Company, despite an investment of significant resources, is unable to establish
services that achieve a significant degree of acceptance in this new market, the
Company's business, operating results and financial condition could be
materially adversely affected. Further, entry into the electronic financial
market carries with it additional liability risks. For example, errors in
transactions or misdirection of funds can result in significant liability and,
in certain cases, penalties may be mandated by federal law. In addition, certain
software that is essential to communications among customers, financial
institutions and the hub for online banking and bill payment services is
provided and maintained by a single third party under a license agreement with
Intuit. It is anticipated that, in connection with the proposed sale of ISC, the
hub and the license for such software will be transferred to CheckFree. Although
Intuit believes that it currently has a satisfactory contractual and business
relationship with this third party, termination of this relationship could
interrupt Intuit's ability to make available certain services. There can be no
assurance that the Company's efforts to expand its electronic financial services
will be effective, will reduce costs or will be accepted by consumers and
merchants.
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SUPPLIES
Intuit develops and markets a range of supplies designed to be used in
conjunction with its personal and business finance software products to further
automate transaction execution and record keeping. Intuit's line of supplies,
which includes paper checks, invoice forms, envelopes, deposit slips and address
stamps, enables users to save time and utilize professional-quality forms.
Supplies generate recurring revenue and add value and functionality to Intuit's
software products. Because virtually all of the supplies products involve
printing to the customers' specifications, these products are sold directly to
users. Customers receive supplies catalogs and order forms with most Intuit
software products to encourage supplies sales. Users may also order
electronically at any time using the Intuit Marketplace feature in Intuit's
software products. Revenue from supplies products increased 21% from the twelve
months ended July 31, 1994 to fiscal 1995, and 28% from fiscal 1995 to fiscal
1996, due to the growth of the Company's small business financial products, as
well as enhanced direct marketing efforts that have enabled customers to
purchase products directly by telephone. However, supplies revenue has declined
as a percentage of total net revenue over the past three years. The Company
faces increased competition and price pressure in its supplies business. The
supplies business can also be negatively affected by changes in paper check
printing and formatting requirements. In addition, demand for supplies may be
negatively impacted as some of the Company's customers shift to electronic bill
payment services.
In September 1995, the Company entered into an exclusive five-year contract with
John H. Harland Co. ("Harland") to produce all of its computer checks, invoice
forms and deposit slips. Harland is thus the sole source for Intuit's supplies
products. Accordingly, Intuit's ability to provide its supplies products is
dependent on continued good relations with this vendor, and the failure of
Harland to continue to provide supplies on a timely basis would have a material
adverse effect on Intuit's operating results and financial condition.
PRODUCT DEVELOPMENT AND MARKETING
Intuit believes that successful products must be easy to use and responsive to
the specific needs and use patterns of its customers, and the Company strives to
develop its products in accordance with these consumer marketing principles.
Accordingly, Intuit attempts to define desirable new products and enhancements
to existing products by conducting market research and working closely with its
current and prospective customers to determine their needs and requirements and
to obtain their input regarding desired product functions. New products and
enhancements are then designed based on this consumer input and, when possible,
field-tested by actual users who further critique the product and suggest
modifications. Once a product is released, customer reactions and input continue
to be monitored to assist in the development of product enhancements and
upgrades.
In addition, Intuit strives to define and develop products and upgrades that
will stimulate ongoing sales to repeat customers. For example, Intuit has
developed certain complementary products that can share information when used in
conjunction with other Intuit products. These integrated products provide added
value and functionality to new and existing customers and expand Intuit's sales
opportunities. Intuit also attempts to exploit new technologies such as CD-ROM
and the Internet to expand the features and functions of its products and
generate revenue from sales of upgrades.
The development of tax preparation software is unique in the personal computer
software industry because a rigorous annual development cycle is mandated by the
adoption of new tax laws and forms by the federal and state governments each
year. The uncertain timing of the release of tax forms by the IRS and state
government agencies and the complexity of the tax laws create a need for
flexible, highly sophisticated development management schedules. Intuit uses the
same development architectures for both its consumer and professional tax
software products. This gives the Company increased operating leverage compared
to tax preparation software companies that produce only consumer tax products or
only professional tax products.
Intuit's research and development expenses for the twelve months ended July 31,
1994 were $28.7 million, compared to $57.3 million in fiscal 1995 and $75.6
million in fiscal 1996 (not including charges of $151.9 million, $52.5 million
and $8.0 million, respectively, for purchased in-process research and
development). Intuit substantially increased actual spending on research and
development during fiscal 1995 in order to develop new
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products, as well as to adapt existing products for international markets. This
pattern continued through fiscal 1996, as the Company devoted significant
research and development resources to its electronic financial services,
including the integration of Internet access, QFN and online banking and bill
payment features into Quicken, as well as to developing products for the Windows
95 platform. The Company intends to continue to increase research and
development spending in absolute dollars during fiscal 1997.
Software products such as those offered by the Company often contain errors or
"bugs" that can adversely affect the performance of the products, produce
incorrect results and/or damage a user's data. If products are released that
contain errors, the Company may lose customer acceptance of its products, as
well as market share, and may be required to issue maintenance releases or pay
refunds or other compensation to users. Any of such steps, if taken, could have
a material adverse effect on Intuit's operating results. In the past, the
Company has discovered significant software defects in its products that have
adversely affected its business and operating results. For example, during 1995
the Company notified its customers that several of its tax products for the 1994
tax year had defects and released revised versions of the software at no charge.
These defects resulted in negative publicity, customer dissatisfaction and a
$1.3 million expense in the second quarter of fiscal 1995. Less serious defects
were discovered during fiscal 1996 and although the defects did not have a
serious impact on customer satisfaction, the Company incurred expenses of
approximately $1.2 million to correct the problem. In addition, as the Company
expands its participation in the electronic financial services markets, software
reliability and security demands will increase. The Company is working to
improve its quality assurance and test procedures, and with the fall 1996
introduction of its Quicken Live(TM) feature in its Quicken line of products,
the Company will be able to provide "patches" for software defects to online
customers more quickly via electronic delivery. However, there can be no
assurance that errors or omissions will not be found in new products or releases
after commencement of commercial shipments, resulting in substantial costs,
negative publicity, customer dissatisfaction, loss of market share or failure to
achieve any significant degree of market acceptance. Any such occurrence could
have a material adverse effect upon the Company's business, operating results
and financial condition.
Intuit currently has a number of new product development efforts under way or
planned to commence in the future. There can be no assurance that the Company
will be successful in developing, introducing and marketing product
enhancements, new products and services, or versions of existing products and
services for other platforms, or will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of these
products and services, or that its new or enhanced products and services will
adequately meet the requirements of the marketplace and achieve any significant
degree of market acceptance. Delays in the commencement of commercial
availability of new or enhanced products and services may result in customer
dissatisfaction and delay or loss of revenue. If the Company is unable, for
technological or other reasons, to develop and introduce new or enhanced
products or services in a timely manner in response to changing market
conditions or customer requirements, or if such new or existing products and
services do not achieve a significant degree of market acceptance, the Company's
business, operating results and financial condition would be materially
adversely affected.
Since its inception, Intuit has relied on a variety of marketing approaches and
has applied consumer mass marketing concepts from other industries to the
marketing of software products. Examples include Intuit's use of direct-response
TV and radio advertising and consumer public relations and its early penetration
of emerging low-price retail channels such as computer superstores, discount
chains, and warehouse and club stores.
The markets in which the Company competes are characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards, changing customer requirements and
new competitors. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices,
including changes in tax laws, regulations or procedures, can render existing
products obsolete and unmarketable. The Company's future success depends upon
its ability to enhance its existing products and services, develop new products
and services that address the changing requirements of its customers, develop
additional products and services for new or other platforms and environments
(such as the Internet) and anticipate or respond to technological advances,
emerging industry standards and practices and changes in tax laws, regulations
and procedures in a timely, cost-effective manner. In response to major industry
changes reflected by the increasing popularity of the Internet among consumers
and financial service providers, the Company has
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expanded its Internet strategy. See "Overview - Internet Strategic Initiatives."
There can be no assurance that such initiatives can be successfully implemented
or that they will result in increased revenue or profits for the Company.
Conversely, there can be no assurance that consumers' use of the Internet,
particularly for commercial transactions, will continue to increase as rapidly
as it has during the past few years.
SALES AND DISTRIBUTION
Intuit markets its products through distributors and retailers, by direct sales
to new and existing customers and to OEMs. A small but increasing proportion of
direct sales are made via the Internet. Certain foreign markets are also
addressed by developer-distributors that both produce and distribute products
locally and pay royalties to Intuit. The Company's electronic financial services
are currently sold to end users primarily through banks and other financial
institutions, with a smaller proportion sold directly to Intuit customers.
Revenue generated from sales to retailers and distributors accounted for 68% of
total revenue during the ten months ended July 31, 1994, compared to 59% during
fiscal 1995 and 58% during fiscal 1996. Intuit's products are carried broadly by
retail software outlets, computer superstores, office and warehouse clubs and
general mass merchandisers. North American sales to the retail channel are made
both by Intuit directly to retailers such as Best Buy, Egghead, Price Costco and
Sam's, and by distributors, including Ingram, and GT Interactive, to such
dealers as CompUSA, Office Depot, Computer City, Staples, Office Max and
Walmart. In the ten months ended July 31, 1994, fiscal 1995 and fiscal 1996,
sales to Ingram accounted for 14%, 12% and 13% of the Company's net revenue,
respectively, and sales to Merisel accounted for 14%, 8% and 5% of net revenue,
respectively. No other customer accounted for more than 10% of net revenue
during these periods. See Note 8 of Notes to Consolidated Financial Statements.
To augment its retail sales efforts, Intuit from time to time has participated
in creating bundled product offerings with other hardware and software
manufacturers in OEM relationships. To date, the majority of bundles have been
for special editions of Quicken for Windows that have more limited feature sets
than the standard version of the product. In some cases, OEMs purchase
fully-assembled products directly from Intuit, although recently the trend has
been towards "diskless" bundles, under which the OEM pre-installs the software
on personal computers or included CD-ROMs and includes only documentation. The
prices that Intuit receives for OEM sales are typically significantly lower than
distributor or direct sale prices, and in certain instances, OEMs receive the
products at no cost. While this practice generates little revenue and reduces
Intuit's operating margins in the short term, the Company believes that this
channel is strategically important because it allows the Company to acquire
large numbers of new customers with the potential to generate future sales of
software upgrades, electronic financial services and other Intuit products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Twelve Months Ended July 31, 1996 and
1995." The practice is also important in responding to the current competitive
environment for personal finance software. See "Competition."
Direct sales continue to be an important sales channel for Intuit, particularly
for small business and tax products and products offered through Parsons. For
example, during fiscal 1996, all of Intuit's professional tax and supplies
products and tax table service revenues, approximately 37% of its small business
accounting product revenues, and approximately 39% of its personal tax software
product revenues were from sales directly by Intuit to end users utilizing
targeted direct-mail solicitations and direct-response advertising in selected
magazines and newspapers. In addition, almost all Parsons sales are made through
direct-mail offers and outbound telemarketing. Intuit believes that direct-mail
advertising, in addition to generating orders, stimulates retail demand and
increases general consumer awareness of Intuit's products. Accordingly, during
fiscal 1996, the Company expanded its direct marketing activities in order to
sell products directly to its growing registered customer base and to reach
potential new customers.
Payment terms for retailers and distributors are generally net 30 to 45 days.
The Company has a liberal return policy for its distributors and retailers,
although they are encouraged to make returns within certain time periods,
particularly for tax products. The Company generally has an unconditional return
policy for consumers who purchase products directly from the Company.
Historically, the Company's returns have not materially varied from reserves
established for such returns.
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INTERNATIONAL
Intuit has developed versions of Quicken for sale in Australia, Canada, France,
Germany, Spain, the United Kingdom, Austria, South Africa and certain Latin
American countries, and versions of QuickBooks for the United Kingdom, Germany,
Australia and South Africa. Milkyway, the Company's Japanese subsidiary, now
offers a Windows 95 version of Kobanto, a small business software product, as
well as other products. Intuit also produces personal tax preparation products
for certain international markets: QuickTax in Canadian and Australian markets
and QuickSteuer(R) in Germany. In June 1995, the Company purchased the tangible
assets and intellectual property of Mysterious Pursuit, an outside developer of
tax software for the Australian, German, New Zealand and United Kingdom markets.
During fiscal 1996, the Company closed its operations in Australia and has
integrated certain of these products into the Intuit product line. Intuit may
introduce versions of its products in other countries based on customer demand
and available resources.
The development of products for foreign markets requires substantial additional
time, effort and expense because of the large differences among countries'
financial practices and cultures. Although international revenue has been
limited to date, Intuit believes that it may increase substantially over the
next several years. The Company intends to establish additional international
operations, hire additional personnel and recruit additional international
resellers in order to attempt to increase international revenue. Although the
Company did experience significant growth in international operations in fiscal
1996, its German subsidiary had experienced delays in two critical product
launches in the second quarter of fiscal 1996, resulting in late delivery of
products to retail channels and excess inventory levels in the distribution
channel. In addition, international growth slowed from the first half of fiscal
1996 to the second half of fiscal 1996, due to general weakness in European
consumer software markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations - Twelve
Months Ended July 31, 1996 and 1995" and Note 8 of Notes to Consolidated
Financial Statements. To the extent that the Company is unable to expand
international revenue in a timely and cost-effective manner, the Company's
business, operating results and financial condition could be materially
adversely affected. There can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products.
The Company's international revenue is currently denominated in a variety of
foreign currencies and the Company does not currently engage in any hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in the currency
exchange rates in the future will not have a material adverse effect on the
Company's business, operating results and financial condition. See Note 1 of
Notes to Consolidated Financial Statements. Additional risks inherent in the
Company's international business activities include unexpected changes in
regulatory requirements, tariffs and other trade barriers, costs of localizing
products for foreign countries, lack of acceptance of localized products in
foreign countries, longer accounts receivable payment cycles, fluctuations in
foreign currency values, difficulties in collecting payment, difficulties in
managing international operations, compliance with a wide variety of financial
reporting requirements and systems, which can result in accounting and
forecasting errors, potentially adverse tax consequences including repatriation
of earnings, reduced protection for the Company's intellectual property rights
and the burdens of complying with a wide variety of foreign laws. There can be
no assurance that such factors will not have a material adverse effect on the
Company's future international revenue and, consequently, the Company's
business, operating results and financial condition.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Intuit provides technical support and customer service for its products by
telephone, mail, facsimile, electronic bulletin boards and modem. Intuit has
installed sophisticated call-handling and facsimile processing equipment to
improve the efficiency of its support and customer service operations. The
Company operates major telephone support centers in Tucson, Arizona;
Fredericksburg, Virginia; Hiawatha, Iowa; Downers Grove and Aurora, Illinois
(where ISC is currently located); and Rio Rancho, New Mexico. In addition, the
Company's supplies business has a telesales and service center in Mountain View,
California. During periods of peak call volumes, Intuit hires substantial
numbers of temporary employees, and also outsources part of its customer service
function, to assist the
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full-time staff in serving customers. Despite its efforts to staff and equip its
customer service and support functions appropriately, from time to time during
peak periods Intuit's ability to respond to customer orders and support calls in
a timely manner may be temporarily impaired due to constraints on available
personnel or internal systems. In addition, delays in order fulfillment, and
events such as the occurrence of unexpected product errors, may result in
unusually high volumes of customer calls that temporarily exceed Intuit's
response capacity. For example, the Company experienced significant operational
problems as a result of inadequacies in certain of its systems, procedures and
controls when, during the quarter ended January 31, 1995 and following weeks,
Intuit's existing direct order entry systems were unable to process all of the
orders received on a timely basis. This resulted in a number of problems,
including adverse publicity, lost business and customer dissatisfaction. During
fiscal 1996, the Company's online banking and bill payment customers experienced
difficulties in connecting to these services, requiring the Company to invest in
correcting certain operational problems during the fiscal year. Such occurrences
in the future can be expected to adversely affect Intuit's customer
relationships and sales.
In the future, Intuit will be required to continue to improve its management
controls and reporting systems and procedures on a timely basis as well as to
expand, train and manage its employee work force. These tasks are made more
difficult as a result of the seasonal nature of the Company's business, and the
challenges these tasks pose will require substantial time and attention from
management. To address these areas, during fiscal 1996, the Company made
significant investments in facilities and infrastructure related to customer
service and technical support, devoted significant resources to increase
staffing and training of customer service and support personnel in order to
increase capacity and improve service levels, and invested in correcting
operational problems relating to its network services. Although the Company is
taking steps to improve its internal systems, procedures and controls, there can
be no assurance that the Company will be successful in doing so. Failure to do
so would have a material adverse effect upon the Company's business, operating
results and financial condition.
In the past, the Company has generally not charged customers for technical
support and customer services. However, during fiscal 1996 it began charging its
QuickBooks and QuickBooks Pro customers for telephone support. The Company
believes that this step is consistent with industry trends in the small business
products market. The Company also began charging for support on older DOS
versions of Quicken during fiscal 1996. The Company's primary competitors in the
personal finance market do not currently charge customers for support services.
The Company may institute support fees for other products in the future. The
Company will evaluate its recent decisions to implement support fees in light of
customer reaction, and will consider adjusting its policies if there is
significant unfavorable customer reaction. There has been no significant adverse
customer reaction to date with respect to QuickBooks and Quicken for DOS support
fees. However, there can be no assurance that these new policies will not have a
material adverse impact on customer relations.
MANUFACTURING AND SHIPPING; BACKLOG
Intuit outsources the majority of its software manufacturing and distribution,
including diskette purchase and duplication, printing of manuals and boxes,
assembly of final product, and shipping. Outsourcers are contractually required
to adhere to strict quality guidelines defined and measured by Intuit. Intuit
maintains a small in-house manufacturing and distribution facility to ship a
large number of products that have a relatively small volume, predominantly to
direct customers. Customer returns for direct sales are primarily handled
in-house, while returns from the retail distribution channel are handled
primarily by a third party. Intuit normally ships products within one week after
receipt of an order, with the exception of tax preparation software. Orders for
tax software are usually taken beginning in late April (for professional tax
products) and in late September (for consumer tax products) and the tax products
are shipped when available, typically between October and March. Intuit has
relatively little backlog at any time and does not consider backlog to be a
significant indicator of future performance.
SEASONALITY; QUARTERLY FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
The Company's business has experienced, and is expected to continue to
experience, substantial seasonality, due principally to the timing of the tax
return preparation season, the timing of product launches for new or updated
versions of products and, to a lesser extent, to consumer software buying
patterns. Sales of the Company's tax products are concentrated in the period
from November, when certain professional tax products are released,
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through March, when consumers purchase the products in advance of the April 15
tax return filing deadline. Sales of the Company's Quicken product are typically
strongest during the year-end holiday buying season. As a result of these
seasonal patterns, the Company generated income from operations before
acquisition-related charges during its fiscal quarters ended January 31, 1995
and 1996 and April 30, 1995 and 1996. Intuit normally experiences significant
losses from operations before acquisition-related charges during its July and
October fiscal quarters because lower seasonal revenues are more than offset by
continuing operating expenses necessary to support direct marketing campaigns,
research and development and infrastructure requirements, among other items. See
Note 11 of Notes to Consolidated Financial Statements. The Company's
historically reported quarters have not reflected the full effect of this
seasonal pattern, principally because, with the exception of Milkyway, all of
the Company's business acquisitions were accounted for using the purchase method
of accounting, and therefore included the revenues and expenses of the acquired
companies only from the closing dates of the acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's quarterly operating results have fluctuated significantly in the
past, and are likely to fluctuate significantly in the future, based upon a
number of factors. In addition to seasonal factors described above, the
Company's quarterly operating results can be affected significantly by the
number and timing of new product or version releases by the Company, the timing
of product announcements or introductions by the Company's competitors,
discretionary marketing and promotional expenditures, research and development
expenditures and a variety of non-recurring events, such as acquisitions.
Products are generally shipped as orders are received, so the Company's backlog
at any given time is not material. Consequently, quarterly sales and operating
results depend primarily on the volume and timing of orders received during the
quarter, which are difficult to forecast. A significant portion of the Company's
operating expenses are relatively fixed, and planned variable expenditures are
based on sales forecasts. If revenue levels are below expectations, operating
results are likely to be materially adversely affected. In particular, net
income, if any, may be disproportionately affected because only a small portion
of the Company's expenses varies with revenue in the short term. In response to
competition, the Company may also choose to reduce prices or increase spending,
which may adversely affect the Company's operating results and financial
condition.
Although the Company has experienced significant growth in revenue in recent
years, there can be no assurance that the Company will sustain such revenue
growth in the future or be profitable on an operating basis in any specific
future period. Due to the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
The unpredictability of the Company's financial results may have a significant
impact on the market value of the Company's common stock. For example, following
the second quarter of fiscal 1996, the Company announced that its net income for
fiscal 1996 would not increase from fiscal 1995. This projection was below the
expectations of public market analysts and investors and the price of the
Company's common stock was materially adversely affected. It is possible that in
future periods, the Company's revenue or operating results may differ from
expectations and that the price of the Company's common stock may fluctuate as a
result. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview" and "- Certain Factors that May Affect Future
Results."
COMPETITION
The markets for the Company's products, both domestic and international, are
intensely competitive, subject to rapid change and characterized by constant
pressures to reduce prices, incorporate new product features and accelerate the
release of new products and product enhancements. Intuit believes that the
principal competitive factors in the software industry are product features and
quality, reliability, ease of use, brand name, access to distribution channels,
quality of support services, and price. The Company encounters competition from
a number of sources, and many of the Company's competitors or potential
competitors, notably Microsoft Corporation ("Microsoft"), have significantly
greater financial, technical and marketing resources and broader product lines
than the Company. A variety of potential actions by any of the Company's
competitors, including reduction of product prices, increased promotion,
announcement or accelerated introduction of new or enhanced products, product
giveaways or product bundling could have a material adverse effect on the
Company's business, operating results and financial condition. The software
industry, including the Company, has experienced a significant platform shift
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from DOS to Windows, and more recently to Windows 95. There is increased
competition on the Windows and Windows 95 platforms, including lower-priced
products or free promotional products that compete with the Company's software.
In order to respond to these competitive factors, the Company may use price
reductions and/or other promotional offers, resulting in reduced gross margins.
Prolonged price competition would have a material adverse effect on Intuit's
business, operating results and financial condition. As platform shifts and
other technological changes continue to occur, there are risks that competitors
may respond more quickly than the Company to new or emerging technologies or
changes in customer requirements such as the introduction of new personal
computer software or hardware platforms or changes in online or financial
telecommunications technology. Accordingly, it is possible that current or
potential competitors could rapidly acquire significant market share.
Conversely, it is possible that customers may not accept a platform that the
Company has chosen or will choose to pursue. Further consolidation of the
software industry or changes in the personal computer industry could lead to
increased competition in technological innovation and pricing strategies.
Only a small percentage of products introduced in the consumer software market
achieves any degree of sustained market acceptance. There can be no assurance
that the Company will be able to successfully compete against current or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect upon its business, operating results and financial
condition.
The Company expects that Microsoft will be a formidable competitor in the
markets in which the Company currently competes and will compete in the future.
In connection with the Company's proposed merger with Microsoft that was
announced in October 1994 and terminated in May 1995, the Company shared
business information with Microsoft. Although the Company believes only a
limited amount of confidential information was disclosed to Microsoft, there can
be no assurance that Microsoft will not use information made available to it to
compete with the Company. Microsoft's Money products are being aggressively
promoted with free product offers through various distribution channels,
including the Internet. Microsoft also includes Money in its Home Essentials
software package, and can be expected to take additional actions to distribute
its products to a wide customer base. These actions will create additional
competitive pressure for the Company's Quicken products.
In addition to Microsoft, the Company's products and services also compete with
products and services offered by a number of other companies, many of which have
greater resources and/or broader product lines than the Company. In the market
for personal finance products, the Company also competes with MECA Software,
Inc. (a company owned by a consortium of banks, including Bank of America and
NationsBank), among others. In addition, the Company faces increasing
competition from financial institutions, such as Citibank, Charles Schwab and
others, that are developing their own financial software and web sites. Such
institutions could opt to support only their internally developed products, both
Quicken as well as proprietary products, or a wide variety of software
solutions. The Company's small business products compete with Peachtree
accounting software from ADP, as well as products from Sage and BestWare, among
others. In the personal tax area, the Company competes with Block Financial
Corporation and Computer Associates, Inc., among others. The professional tax
preparation market is highly fragmented. Intuit's principal competition includes
Arthur Andersen, Lacerte Software Corporation, Commerce Clearing House/Computax,
SCS/Compute, Creative Solutions, Pencil Pushers, Inc. and CLR Fasttax. Because
there are relatively low barriers to entry, the Company expects competition to
increase from both established and emerging companies to the extent the markets
addressed by the Company continue to develop and expand.
In the area of electronic financial services, the online banking and bill
payment services provided to financial institutions customers by the Company are
in competition with Visa Interactive, as well as a number of banks such as Wells
Fargo, NationsBank, Bank of America and Citibank. It is possible that some or
all of the financial institutions that currently have contractual arrangements
with the Company will begin to offer their own online banking and/or bill
payment services. If the Company's sale of ISC to CheckFree is completed as
expected, the Company will no longer be competing directly in the "back-end"
bill pay processing market. Investor Insight and NETworth compete with large,
established online financial publishers such as Dow Jones, ValueLine and
Morningstar. The principal competitors for the Company's QFN web site are the
financial areas on online services, as well as standalone financially-oriented
web sites like Quote.com.
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Intuit's supplies products compete with those of a number of business forms
companies, such as Deluxe Business Systems, New England Business Services and
Moore Business Forms. In addition, several direct mail check printers have begun
offering computer checks and forms in addition to their personal check lines.
Intuit believes that its success in the supplies business results from a number
of factors, including its direct access to its software user base through in-box
advertising, price, service, product quality, speed of delivery and guaranteed
compatibility with Intuit software products. There can be no assurance, however,
that these factors will continue to allow Intuit to maintain its existing level
of, or generate additional, supplies revenue.
MANAGEMENT OF GROWTH
The Company has experienced significant growth during the past three years, both
internally generated and through mergers and acquisitions. Since September 1993,
Intuit has acquired ChipSoft, Best's professional tax product line, ISC,
Parsons, Mysterious Pursuit's tax software technology, PNI, IIS and GALT, and
has added support centers in Tucson, Arizona; Fredericksburg, Virginia;
Hiawatha, Iowa; Downers Grove and Aurora, Illinois; and Rio Rancho, New Mexico.
These acquisitions and additions have expanded the Company's size and number of
product lines, increased the number of its employees and resulted in the Company
having a number of geographically dispersed domestic offices and operations, in
addition to expanding international offices and operations. There are
significant risks associated with this growth. Certain of the Company's
acquisitions have involved issuances of equity securities, the incurrence of
debt and contingent liabilities, and amortization expenses related to goodwill
and other intangible assets, which have adversely affected the Company's
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations." The Company's ability to integrate and organize its new businesses
and to successfully predict and manage its growth will require improvements in
its operational, financial and management information systems. Although the
Company has taken steps to improve its internal processes, it has experienced
significant operational difficulties in its order entry and shipping systems and
in providing technical support to customers in the past. See "Customer Service
and Technical Support." It has also experienced excess capacity at certain call
centers due to rapid expansion. There can be no assurance that similar problems
will not occur in the future or that they will not have a material adverse
effect on the Company's results of operations. In particular, the process of
integrating acquired companies' operations, technologies and products into the
Company's operations has in the past, and may in the future, result in
unforeseen operating difficulties and expenditures, requiring significant
management attention that would otherwise be available for the ongoing
development of the Company's business. Moreover, there can be no assurance that
the anticipated benefits of any specific acquisition will be realized.
The Company may in the future pursue new technologies or businesses, some of
which may be accomplished internally and some of which may be accomplished
through joint ventures or acquisitions of complementary product lines,
technologies or businesses. Future acquisitions by the Company involve the risks
described above, as well as the risks of entering markets in which the Company
has no or limited direct prior experience, the potential loss of key employees
of the acquired company and of Intuit, and the possibility of additional
regulatory burdens. In the event that the Company pursues such new businesses or
technologies, either through internal generation or through joint ventures or
acquisitions, there can be no assurance that the Company's business, operating
results and financial condition would not be materially adversely affected.
REGULATED BUSINESSES
Certain aspects of the Company's current products and services are subject to
federal and state regulation, either directly or indirectly, as described below.
It is possible that these products and services will become more heavily
regulated in the future, or that other existing or new products and services
will become subject to government regulation.
Quicken Investment Services, Inc. ("QISI"), the Company's subsidiary that offers
Quicken Financial Planner and certain investment-related features of other
Intuit products, is registered as an investment adviser under the federal
Investment Advisers Act of 1940, and QISI and certain of its officers are
registered under the investment adviser laws in certain states. As a result of
this registration, QISI is subject to a variety of regulatory requirements that
do not typically apply to software companies. Compliance with these regulatory
requirements imposes restrictions on
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QISI's business practices in a variety of areas, including advertising and
distribution arrangements, and also requires allocation of material financial,
legal and management resources. QISI could also be subject to liability and/or
injunctive actions for failure to comply with investment adviser regulatory
requirements.
The Company's IIS subsidiary, which runs the InsureMarket web site, is required
to be licensed as an insurance producer by the insurance regulator of each state
in which IIS engages in the solicitation, negotiation or effectuation of
insurance policies. IIS is currently in the process of obtaining the necessary
licenses in all fifty states. Until IIS is licensed as an insurance producer by
a state, IIS will be unable to engage in any activities requiring such
licensing. In addition to requiring an insurance producer license, state
insurance laws regulate other business activities of IIS, including advertising,
handling of fiduciary funds, information practices, record keeping and sharing
of compensation with unlicensed parties. Failure to comply with such regulations
could expose IIS to administrative penalties and sanctions. Compliance with the
requirements of state insurance laws will require allocation of material
financial, legal and management resources of IIS.
Certain bill payment services that the Company provides directly to consumers
are subject to the Electronic Funds Transfer Act and regulations promulgated by
the Federal Reserve Board and implemented by the Federal Trade Commission.
Banking and bill payment services that the Company provides to financial
institutions and, indirectly, to their customers, are not directly subject to
regulation under certain laws and regulations applicable to banks and other
financial institutions. However, the Company's provision of such services may
indirectly be affected as a result of limitations that such laws and regulations
may impose on financial institutions in their contractual arrangements with the
Company. In addition, the Company has made changes in certain of its products to
facilitate regulatory compliance by financial institutions. Moreover, to the
extent that the Company serves as a third-party processor or service provider to
banks and other financial institutions, the Company is directly subject to
Federal Reserve Board regulations and to regulation by federal or state
regulators of each such bank or financial institution, including the Office of
the Comptroller of the Currency, the Office of Thrift Supervision, the Federal
Reserve Bank for the district in which the given bank or financial institution
is located, the Federal Deposit Insurance Corporation, the National Credit Union
Administration and state banking regulators. Failure to comply with such
regulations could expose the Company to penalties and sanctions, and compliance
with such regulatory requirements requires allocation of material financial,
legal and management resources of the Company. Certain of these regulatory
requirements will become inapplicable following the planned sale of ISC.
The Company is currently evaluating additional electronic financial services,
including investment account statement download and online trading capabilities.
Although the Company will attempt to structure these services in a manner that
minimizes regulatory burdens, it is possible that these services, or other
investment-related services offered in the future, may require regulatory
compliance, such as registration as a broker-dealer under federal and/or state
securities or other applicable laws, or other regulation by state regulators.
Even if the Company is not required to register as a broker-dealer, it may be
impacted by broker-dealer regulations indirectly, as a result of limitations
such regulations may impose on financial and investment institutions in their
contractual arrangements with the Company.
PROPRIETARY RIGHTS
Intuit regards its software as proprietary and relies primarily on a combination
of copyright, trademark and trade secret laws, employee and third-party
nondisclosure agreements, and other intellectual property protection methods to
protect its products and technology. Intuit also has been granted seven patents
and has eight patent applications pending with respect to methods of processing
financial data and other processes used in certain of the Company's products.
However, Intuit believes that the ownership of patents is not presently a
significant factor in its business and that its success does not depend on the
ownership of patents, but primarily on the innovative skills, technical
competence and marketing abilities of its personnel. Intuit may not always own
the software and related technologies used in its product and service offerings.
For example, Intuit engaged an outside software development house to develop
system software that routes data between Quicken users and banks. Ownership of
this software was retained by the developer and is licensed to Intuit. Although
Intuit believes that it currently has satisfactory contractual and business
relationships with this developer, termination of this relationship could
interrupt Intuit's ability to provide certain services.
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Intuit generally has no signed license agreements with the end users of its
products and does not copy-protect its software. In addition, existing copyright
laws afford only limited protection, and it may be possible for unauthorized
third parties to copy Intuit's products or to reverse engineer or obtain and use
information that Intuit regards as proprietary. There can be no assurance that
Intuit's competitors will not independently develop technologies that are
substantially equivalent to, or superior to, Intuit's technologies. Policing
unauthorized use of Intuit's products is difficult and, while Intuit is unable
to determine the extent to which software piracy of its products exists,
software piracy can be expected to be a persistent problem. In addition, the
laws of certain countries in which Intuit's products are or may be distributed
do not protect Intuit's products and intellectual property rights to the same
extent as the laws of the United States.
Intuit believes that its products, trademarks and other proprietary rights do
not infringe upon the proprietary rights of third parties. From time to time,
however, Intuit has received communications from third parties asserting that
features or content of certain of its products, or its use of certain
trademarks, may infringe upon intellectual property rights of such parties. To
date, no such claim has resulted in currently pending litigation except as
described in "Legal Proceedings" or in the payment of any claims. However,
Intuit cannot predict whether the impact of any known claims will be material.
As the number of software products in the industry increases and the
functionality of these products further overlaps, Intuit believes that software
products increasingly will become the subject of claims that they infringe the
rights of others. There can be no assurance that third parties will not assert
infringement claims against Intuit in the future or that any such assertion will
not result in costly litigation or require Intuit to obtain a license to
intellectual property rights of third parties. There can be no assurance that
such licenses will be available on reasonable terms, or at all.
EMPLOYEES
As of September 30, 1996, Intuit and its domestic subsidiaries had approximately
3,184 full-time domestic employees, and its international subsidiaries had an
aggregate of 290 full-time employees. Intuit and its employees are not parties
to any collective bargaining agreements, and Intuit believes that its relations
with its employees are good. The Company has an employment agreement with
William V. Campbell (the Company's President and Chief Executive Officer) that
is terminable at will by either party. Intuit believes its future success and
growth will depend in large measure upon its ability to attract and retain
qualified technical, management, marketing, product development and sales
personnel. Although the Company believes it offers competitive compensation,
there is intense competition in the software industry for qualified personnel
and the Company, like many of its competitors, has experienced difficulty hiring
and retaining employees. In particular, employee morale and retention have been
hindered by recent significant declines in the price of the Company's common
stock, which reduced or eliminated the value of stock options held by many
employees. To address this problem, in September 1996, the Company offered to
lower the exercise prices on existing options to the fair market value of the
Company's common stock on September 18, 1996 for all outstanding options with a
higher exercise price (except options held by the Company's Chief Executive
Officer and Senior and Executive Vice Presidents). Any option holder electing to
reprice an option will not be permitted to exercise the repriced option, even if
it is vested, for a certain period of time. See Note 12 of Notes to Consolidated
Financial Statements.
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ITEM 2
PROPERTIES
The Company's principal offices are located in Mountain View, California, with
additional leased office and manufacturing space in Palo Alto and San Diego,
California. The Mountain View facilities are occupied pursuant to long-term
leases entered into in November 1994. These facilities will replace the
Company's facilities in Palo Alto in a staged move that began in December 1995
and is currently expected to be completed during calendar 1997. Intuit has
committed to spend approximately $47.2 million for the Mountain View leases over
their remaining terms (which range from seven to eight years). Two of the
Mountain View buildings are not currently occupied but are subleased by Intuit
in their entirety. In June 1995, the Company entered into a build-to-suit lease
for approximately 140,000 square feet of new office space in San Diego to
replace existing facilities. The relocation to this new facility was completed
in June 1996. Intuit has committed to spend approximately $15.2 million for the
new San Diego lease over its eight-year term.
In addition to the facilities noted above, Intuit leases property in Tucson,
Arizona and Fredericksburg, Virginia (where two of the Company's call centers
are located); Hiawatha, Iowa (where its Parsons subsidiary, as well as a new
call center, are located); Downers Grove and Aurora, Illinois (where its ISC
subsidiary and a call center are located); Pittsburgh, Pennsylvania (where GALT
is located); Alexandria, Virginia (where IIS is located); and in Canada,
England, France, Germany, Japan and the Netherlands (where foreign subsidiaries
are located). Intuit occupies its call center facilities in Rio Rancho, New
Mexico, pursuant to a long-term financing arrangement under which the Company
will take title to the property for a nominal sum in September 2014. See Note 4
of Notes to Consolidated Financial Statements. Intuit also owns two additional
properties in Hiawatha, Iowa, which are occupied by its Parsons subsidiary.
Intuit believes that its facilities are adequate for its current and near-term
needs and that additional space is available to provide for anticipated growth.
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ITEM 3
LEGAL PROCEEDINGS
On March 29, 1994, Joann McGovern filed a class action lawsuit against ChipSoft
(which was subsequently merged into the Company) in the Chancery Division,
Circuit Court of Cook County, Illinois, on behalf of the plaintiff and other
purchasers of the 1993 HeadStart version of the Company's TurboTax tax
preparation software (the "Product"). The plaintiff asserts claims for breach of
express and implied warranties and violation of the Illinois Consumer Fraud Act
and seeks, on behalf of herself and purported class members, refund of the
purchase price as well as consequential and punitive damages. The plaintiff
claims that the packaging of the Product was false and misleading in that it did
not adequately apprise purchasers of the need to obtain the final version of
TurboTax (which the plaintiff admits was available free of charge) in order to
prepare final tax forms for filing with the IRS. In October 1995, the Company
obtained summary judgment on the plaintiff's claims for breach of express and
implied warranties. On January 4, 1996 the plaintiff's motion for class
certification for the Illinois Consumer Fraud Act claim was denied. The
plaintiff is seeking judicial review of an issue relating to this determination.
On September 19, 1996 the Company filed a motion for summary judgment on the
plaintiff's Illinois Consumer Fraud Act claim, with a hearing currently
scheduled for December 12, 1996. The Company believes that the plaintiff's
claims are without merit and intends to defend the litigation vigorously.
On August 23, 1995, Interactive Gift Express, Inc. filed a patent infringement
suit in the United States District Court for the Southern District of New York
against the Company and seventeen other defendants alleging infringement of U.S.
Patent No. 4,528,643 and seeking unspecified damages. Interactive Gift Express
subsequently changed its name to E-Data Corp. The complaint did not specify
which products of the Company allegedly infringed the patent, and did not
indicate which claims of the patent are allegedly infringed. On August 26, 1996,
the plaintiff filed a report identifying which claims of the patent were
allegedly infringed and providing its interpretation of the claims, and also
stating that the Company was infringing the subject patent by "selling software
online." The parties have not yet begun to engage in discovery, which the
Company believes may be material. Although discovery has not yet commenced,
based on the investigation conducted by the Company to date and a review of its
products, the Company believes that the complaint is without merit and intends
to defend the litigation vigorously.
On June 26, 1996, Barbara Hubbard, a former corporate controller of the Company,
filed a lawsuit against the Company and its Chairman, its President and its
former Chief Financial Officer, in the Santa Clara County, California, Superior
Court, alleging sex discrimination, wrongful discharge, breach of contract,
defamation and violations of the California Labor Code. The complaint seeks
damages in an unspecified amount. The Company has answered the complaint,
denying all material allegations, with the individual defendants demurring.
Intuit believes that the complaint is without merit and intends to defend the
litigation vigorously.
On July 31, 1996, Trio Systems L.L.C. ("Trio") filed a lawsuit against the
Company in the U.S. District Court, Central District of California (Los Angeles)
alleging copyright infringement and violation of a license agreement. The
complaint seeks declaratory relief, rescission and $60 million in damages. Trio
alleges that the Company infringed Trio's copyrights in certain software by,
among other things, allegedly violating the license that was attached to the
software in various forms, and by allegedly making copies of the software
without the authorization of Trio, or in violation of various terms of the
license. Trio also contends that the Company has violated the terms of the
license by publishing software that contains software belonging to Trio under
conditions that allegedly violate the terms of the license. The Company answered
the complaint on September 3, 1996, denying all material allegations, and
discovery is proceeding. On September 30, 1996, Trio filed a motion for a
preliminary injunction seeking to prevent the Company from shipping any Intuit
products containing Trio software, including Quicken products. The Company has
filed a response to this motion and a hearing on the motion is scheduled for
October 28, 1996. The Company intends to oppose the motion vigorously and
expects that its new Quicken products will be available for purchase on October
24, 1996. Although discovery has just begun, based on the investigation
conducted by the Company to date and a review of its products, the Company
believes that the complaint is without merit and intends to defend the
litigation vigorously.
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Financial Courseware Ltd. ("FCL"), an Irish company, has a software product
named "Intuition" that is used for teaching financial terminology within
institutions. FCL has opposed the Company's application to register "Intuit" as
a trademark in Canada, Germany, Switzerland and the United Kingdom. In
Switzerland, the Company's application was rejected, and the Company has
appealed. The oppositions remain pending in the other three countries. In
December 1995, FCL initiated proceedings against Intuit Ltd. (the Company's
United Kingdom subsidiary) in Ireland seeking to enjoin use of the Intuit mark
in Ireland and accounting for damages. A response and counterclaim have been
filed denying all claims and seeking to restrict FCL's rights under its
registration. Direct negotiations among the principals of FCL and the Company
have commenced, but it is too soon to determine how the matter will be resolved.
The Company is also subject to other legal proceedings and claims that arise in
the ordinary course of its business. Management currently believes that the
ultimate amount of liability, if any, with respect to any pending actions,
either individually or in the aggregate, will not materially affect the
financial position, results of operations or liquidity of the Company. However,
the ultimate outcome of any litigation is uncertain. If an unfavorable outcome
were to occur, the impact could be material. Furthermore, any litigation,
regardless of outcome, can have an adverse impact on the Company as a result of
defense costs, diversion of management resources and other factors.
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ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
quarter ended July 31, 1996.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The executive officers and key employees of Intuit are as follows:
NAME AGE POSITION
- ---- --- --------
Scott D. Cook 44 Chairman of the Board of Directors
William V. Campbell 56 President, Chief Executive Officer and Director
Michael A. Ahearn 49 Vice President, Human Resources
Mari J. Baker 31 Vice President and General Manager, Personal Finance Group
Eric C.W. Dunn 38 Senior Vice President, Consumer/International Division
Alan A. Gleicher 44 Vice President, Sales
Mark R. Goines 43 Vice President and General Manager, International Group
William H. Harris, Jr. 40 Executive Vice President, Financial Services and Tax Division
James J. Heeger 40 Chief Financial Officer and Senior Vice President, Finance,
Customer Services and Operations
Virginia L. Miller 45 Treasurer and Director of Investor Relations
John Monson 41 Senior Vice President, Small Business Division
Carl J. Reese 39 Vice President, Tax Software Engineering
Daniel N. Rudolph 39 Vice President and General Manager, Banking Services
Greg J. Santora 45 Corporate Controller
William C. Shepard 53 Vice President and General Manager, Professional Products Group
William L. Strauss 38 Vice President, Customer Services
Catherine L. Valentine 44 General Counsel and Corporate Secretary
Larry J. Wolfe 45 Vice President and General Manager, Personal Tax Products Group
- --------------------------
Mr. Cook, a founder of Intuit, has been a director of the Company since March
1984 and Intuit's Chairman of the Board of Directors since March 1993. From
March 1984 to April 1994, he also served as President and Chief Executive
Officer of Intuit. Mr. Cook also serves on the board of directors of Broderbund
Software, Inc. Mr. Cook holds a Bachelor of Arts degree in economics and
mathematics from the University of Southern California and a Masters in Business
Administration from Harvard University.
Mr. Campbell joined Intuit as its President and Chief Executive Officer and a
director in April 1994. Mr. Campbell was President and Chief Executive Officer
of GO Corporation, a pen-based computing software company, from January 1991 to
December 1993. He was President and CEO of Claris Corporation, a software
subsidiary of Apple Computer Inc., from 1987 to January 1991. Mr. Campbell also
serves on the board of directors of SanDisk, Inc. Mr. Campbell holds both a
Bachelors and a Masters degree in economics from Columbia University.
Mr. Ahearn joined Intuit as its Vice President of Human Resources in September
1993. From 1987 to 1993, he held a variety of human resources roles within Apple
Computer, Inc., including Vice President Worldwide Human Resources for Claris
Corp., Apple's wholly-owned software subsidiary, from 1991 to 1993. Mr. Ahearn
holds a Bachelor of Arts degree in economics from Amherst College and a Masters
in Business Administration from Boston College.
Ms. Baker became Intuit's Vice President and General Manager of the Personal
Finance Group in July 1996. From April to July 1996, she served as Vice
President of the Company's Financial Supplies Group, and she served as Vice
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President of International from September 1994 to April 1996. From January 1994
through September 1994, Ms. Baker was Vice President of Marketing for Now
Software, Inc., a personal and small business software company. Ms. Baker first
joined Intuit in April 1989 and served in various marketing positions until she
left the Company in December 1993. Ms. Baker holds Bachelor of Arts degrees in
economics and sociology from Stanford University. Ms. Baker also serves on the
Board of Trustees for Stanford University.
Mr. Dunn became Senior Vice President of the Consumer/International Division in
July 1996. He served as Vice President and General Manager of Intuit's Personal
Finance Group from May 1994 to July 1996, and served as the Company's Chief
Financial Officer and a director from September 1986 to December 1993. He also
served as Intuit's Corporate Secretary from March 1991 to December 1993. From
December 1993 to May 1994, Mr. Dunn was an Intuit Fellow. Mr. Dunn holds a
Bachelor of Arts degree in physics and a Masters in Business Administration from
Harvard University.
Mr. Gleicher joined Intuit as Vice President of Sales in December 1993. From
September 1990 until Intuit's acquisition of ChipSoft in December 1993, Mr.
Gleicher served as ChipSoft's President, Personal Tax Division. Mr. Gleicher has
a Bachelors degree in economics and business finance from San Diego State
University. He also earned a certificate from the Marketing Management Program
at Stanford University.
Mr. Goines became Vice President and General Manager of the International Group
in April 1996. He initially joined Intuit as Vice President and General Manager
of Personal Tax Products in December 1993 in connection with the Company's
acquisition of ChipSoft. From April 1991 to December 1993, Mr. Goines served as
the Director of Product Management of ChipSoft. Mr. Goines holds a Bachelor of
Science degree and a Masters in Business Administration from the University of
California at Berkeley.
Mr. Harris became an Executive Vice President of Intuit in December 1993, in
connection with the Company's acquisition of ChipSoft. He has been head of the
Financial Services and Tax Division since July 1996. From January 1992 to
December 1992, Mr. Harris served as President and Chief Operating Officer of
ChipSoft; and from June 1991 to January 1992, he was Executive Vice President
and Chief Operating Officer of ChipSoft. Mr. Harris earned a Bachelor of Arts
degree in American Studies from Middlebury College in Vermont and a Masters in
Business Administration from Harvard University.
Mr. Heeger became Chief Financial Officer of the Company in April 1996, and has
been Senior Vice President in charge of the Finance, Customer Services and
Operations functions since July 1996. He served as Vice President and General
Manager of the Company's Supplies Group from December 1993 to April 1996 and
served as Intuit's Vice President of Operations from August 1993 to December
1993. From September 1982 to August 1993, Mr. Heeger served in a number of
marketing and operations roles at Hewlett-Packard Company. From 1987 to August
1993, he was responsible for distribution of Hewlett-Packard's personal computer
products. Mr. Heeger received a Bachelor of Science degree in management from
the Massachusetts Institute of Technology and a Masters in Business
Administration from Stanford University.
Ms. Miller joined the Company as Treasurer and Director of Investor Relations in
March 1996. From 1985 through 1995, Ms. Miller was Treasurer of The Vons
Companies, Inc., a retail supermarket company. Ms. Miller holds a Bachelor of
Arts degree in liberal arts from the University of Illinois and a Masters in
Business Administration from DePaul University.
Mr. Monson became Senior Vice President of the Small Business Division in July
1996. He served as Vice President and General Manager of Intuit's Business
Products Group from May 1994 to July 1996 and as Intuit's Vice President of
Marketing from January 1989 to May 1994. Mr. Monson holds a Bachelor of Arts
degree in mathematics from Whitman College and a Masters of Management degree in
marketing and finance from Northwestern University.
Mr. Reese became the Vice President of Tax Software Engineering in December 1993
in connection with the Company's acquisition of ChipSoft. Mr. Reese joined
ChipSoft in October 1992 as its Vice President of Tax Software Engineering.
Prior to joining ChipSoft, Mr. Reese was employed by Jostens Learning
Corporation, an
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educational software company, where he served as Director of Instructional
Management Systems from May 1990 to October 1992. Mr. Reese holds a Bachelor of
Science degree from Lehigh University.
Mr. Rudolph became Vice President of the Banking Business Division in August
1996. He has served as General Manager of the division since February 1996. From
June 1993 to February 1996, he served as Director of Marketing for the Company's
Business Products Group. Prior to joining Intuit, Mr. Rudolph was employed by
Mark Products, Inc., a manufacturer of pressurization and leak locating
equipment, software and services for the telecommunications industry, where he
served as Executive Vice President and Chief Operating Officer from 1987 to
1993. Mr. Rudolph holds a Bachelor of Arts degree in economics from Williams
College and a Masters in Business Administration from Stanford University.
Mr. Santora joined Intuit as Corporate Controller in January 1996. From 1983 to
1995, Mr. Santora held a variety of senior financial positions at Apple Computer
Inc., including Senior Finance Director of Apple Americas from May 1992 to
January 1996 and Director of Internal Audit from May 1991 to May 1992. Mr.
Santora, who is a certified public accountant, holds a Bachelor of Science
degree in accounting from the University of Illinois and a Masters in Business
Administration from San Jose State University.
Mr. Shepard became Intuit's Vice President of the Professional Products Group in
December 1993 in connection with the Company's acquisition of ChipSoft. Mr.
Shepard joined ChipSoft in February 1993 as its Director of Development, GUI
Income Tax Applications and became Vice President and General Manager of its
Professional Products Group in July 1993. Prior to joining ChipSoft, Mr. Shepard
was employed by SCS/Compute & Accountants Microsystems, Inc., where he served in
various capacities, including Executive Vice President, Product Development and
Support from May 1990 through January 1993. Mr. Shepard holds a Bachelor of
Science in mathematics from the University of Washington.
Mr. Strauss has been Intuit's Vice President of Customer Services since December
1993. He also served as Vice President of Operations from December 1993 to May
1995. Mr. Strauss was the Director of Operations at ChipSoft from August 1992
until the Company's acquisition of ChipSoft in December 1993. From July 1989
until August 1992, Mr. Strauss was Senior Vice President of Customer Service and
Credit at Hanover Direct, a direct marketing catalog company. Mr. Strauss holds
a Bachelors degree in accounting from Syracuse University.
Ms. Valentine joined Intuit as General Counsel in September 1994 and has served
as Corporate Secretary since April 1996. From November 1993 to September 1994,
she was Gene