Business Context and Reporting Period
Company: Intuit Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: July 31, 1999
Business Overview: Intuit develops desktop software and Internet-based services for small business accounting (QuickBooks), tax preparation (TurboTax, ProSeries, Lacerte), and consumer finance (Quicken). The company is executing a strategy to expand "electronic finance" by integrating desktop software with Internet services such as online payroll, mortgage, and insurance marketspaces.
Key Financial Metrics
| Metric | Fiscal 1999 | Fiscal 1998 |
|---|---|---|
| Net Revenue | $847.6 million | $592.7 million |
| Net Income | $376.5 million | ($12.2 million) loss |
| Diluted EPS | $1.97 | ($0.08) |
| Operating Income | $19.9 million | ($36.6 million) loss |
| Cash & Equivalents | $518.3 million | $138.1 million |
| Total Assets | $2.33 billion | $1.50 billion |
| Long-term Obligations | $36.3 million | $35.6 million |
Segment Revenue Contribution (Fiscal 1999): Tax Division (40%), Small Business Division (35%), Consumer Finance Division (16%), International Division (9%).
Internet Revenue: Approximately 15% of total revenue (9% from products/services, 6% from electronic distribution).
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 43% year-over-year. Excluding the impact of the Lacerte and CRI acquisitions, organic growth was 27%.
- Profitability Surge: The shift from a net loss in 1998 to a net income of $376.5 million in 1999 was primarily driven by a $579.2 million pre-tax gain from the sale and conversion of marketable securities (Excite, Verisign, Concentric). Excluding these gains and acquisition costs, adjusted net income was $88.9 million.
- Acquisition Impact: Significant revenue contributions came from Lacerte Software (acquired June 1998) and Computing Resources, Inc. (CRI, acquired May 1999). Acquisition-related charges totaled $100.7 million in 1999, up from $80.9 million in 1998.
- Cost Structure: Cost of goods sold increased to 25% of revenue (from 20% in 1998) due to higher infrastructure costs for Internet services and service-related programs. Selling and marketing expenses decreased to 23% of revenue.
Guidance, Outlook, and Risks
- Management Commentary: Management expects increased investment in R&D and marketing for Internet initiatives in Fiscal 2000. They anticipate intensified competition in the personal tax market, specifically from Microsoft's expected entry.
- Future Amortization: Future amortization of goodwill and intangibles is expected to reduce net income by approximately $123 million in 2000, $112 million in 2001, and $107 million in 2002, excluding new acquisitions.
- Key Risks:
- Competition: Intense competition from Microsoft (Tax and Consumer Finance), H&R Block (Tax), and new Internet entrants.
- Internet Execution: Risks related to scaling web-based services, maintaining distribution relationships (e.g., AOL, Excite@Home), and handling peak tax season demand.
- Year 2000 (Y2K): Potential operational disruptions and litigation risks regarding Y2K compliance in online banking features. Estimated direct costs for Y2K remediation in Fiscal 2000 are $10–$16 million.
- Investment Volatility: Significant exposure to market fluctuations in Excite@Home, Checkfree, and Security First Technologies holdings.
- Subsequent Events: Announced proposed acquisition of Rock Financial Corporation ($370 million) and completed acquisitions of SecureTax.com and Boston Light Software.
Investor Verification Checklist
- Adjusted Earnings: Verify the company's core operating profitability by excluding the $579.2 million one-time gain from marketable securities.
- Acquisition Integration: Monitor the integration progress and cost synergies of the CRI (payroll) and Lacerte (professional tax) acquisitions.
- Microsoft Competition: Assess the impact of Microsoft's entry into the personal tax market on TurboTax pricing and market share in the upcoming fiscal year.
- Internet Margins: Track the profitability timeline for Internet-based services (Quicken.com, Online Payroll), which currently require significant investment and have lower margins than desktop software.
- Y2K Litigation: Review the status of pending class-action lawsuits regarding Year 2000 compliance in Quicken's online banking features.