e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended July 31, 2010
OR
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 0-21180
INTUIT INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State of incorporation)
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77-0034661
(IRS Employer Identification No.) |
2700 Coast Avenue, Mountain View, CA 94043
(Address of principal executive offices, including zip code)
(650) 944-6000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which Registered |
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Common Stock, $0.01 par value
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NASDAQ Global Select Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. Yes o No þ
Indicate by 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes þ No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of Intuit Inc. outstanding common stock held by non-affiliates of Intuit
as of January 29, 2010, the last business day of our most recently completed second fiscal quarter,
based on the closing price of $29.61 reported by the NASDAQ Global Select Market on that date, was
$8.3 billion.
There were 317,535,557 shares of Intuit voting common stock outstanding as of August 31, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for its Annual Meeting of Stockholders
to be held on January 19, 2011 are incorporated by reference in Part III of this Annual Report on
Form 10-K.
INTUIT INC.
FISCAL 2010 FORM 10-K
INDEX
Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries, Quicken and Mint, among others,
are registered trademarks and/or registered service marks of Intuit Inc., or one of its
subsidiaries, in the United States and other countries. Other parties marks are the property of
their respective owners.
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This Annual Report on Form 10-K contains forward-looking statements that involve risks and
uncertainties. Please see the section entitled Forward-Looking Statements and Risk Factors in
Item 1A of this Report for important information to consider when evaluating these statements.
PART I
ITEM 1
BUSINESS
CORPORATE BACKGROUND
General
Intuit Inc. is a leading provider of business and financial management solutions for small and
medium-sized businesses, consumers, accounting professionals and financial institutions. Our
flagship products and services, including QuickBooks, Quicken and TurboTax, simplify small business
management and payroll processing, personal finance, and tax preparation and filing. ProSeries and
Lacerte are Intuits leading tax preparation offerings for professional accountants. Our Intuit
Financial Services business provides online banking solutions and services to banks and credit
unions that help them make it easier for consumers and businesses to manage their money and pay
their bills.
We had revenue of $3.5 billion in our fiscal year ended July 31, 2010, and had approximately 7,700
employees in major offices in the United States, Canada, India, the United Kingdom and other
locations at that time.
Intuit was incorporated in California in March 1984. We reincorporated in Delaware and completed
our initial public offering in March 1993. Our principal executive offices are located at 2700
Coast Avenue, Mountain View, California, 94043, and our main telephone number is 650-944-6000. Our
corporate website, www.intuit.com, provides materials for investors and information relating to
Intuits corporate governance. The content on any website referred to in this filing is not
incorporated by reference into this filing unless expressly noted otherwise. When we refer to we,
our or Intuit in this Annual Report on Form 10-K, we mean the current Delaware corporation
(Intuit Inc.) and its California predecessor, as well as all of our consolidated subsidiaries.
Available Information
We file reports required of public companies with the Securities and Exchange Commission (SEC).
These include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, proxy statements and other reports, and amendments to these reports. The public may read and
copy the materials we file with or furnish to the SEC at the SECs Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. We make available free of charge on the
Investor Relations section of our corporate website all of the reports we file with or furnish to
the SEC as soon as reasonably practicable after the reports are filed or furnished. Copies of this
Annual Report on Form 10-K may also be obtained without charge by contacting Investor Relations,
Intuit Inc., P.O. Box 7850, Mountain View, California 94039-7850 or by calling 650-944-6000.
BUSINESS OVERVIEW
Intuits Mission
We seek to be a premier innovative growth company that improves our customers financial lives so
profoundly they cant imagine going back to the old way.
Our customers include small and medium-sized businesses, consumers, accounting professionals and
financial institutions. We help them solve important business and financial management problems,
such as running a small business, paying bills and income taxes, or managing personal finances. Our
innovative products and services simplify the lives of approximately 50 million people, helping
them save and make money.
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Emerging technology and market trends are changing the way people live and work, and the way we
help customers. Were connecting those customers to our solutions and with each other in ways that
add more value to our products and services. Were taking a global view as well, whether helping
our customers expand their business to overseas markets, creating and selling our own products in
emerging nations, or extending our hiring horizons beyond geographic borders.
Our Business Portfolio
We organize our portfolio of businesses into four principal categories Small Business Group,
Tax, Financial Services and Other Businesses. These categories include seven financial reporting
segments.
Small Business Group: This category includes three segments Financial Management Solutions,
Employee Management Solutions, and Payment Solutions.
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Our Financial Management Solutions segment includes QuickBooks financial and business
management software and services; technical support; financial supplies; and Intuit
Websites, which provides website design and hosting services for small and medium-sized
businesses. |
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Our Employee Management Solutions segment provides payroll products and services for
small businesses. |
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Our Payment Solutions segment provides merchant services for small businesses,
including credit and debit card processing, electronic check conversion and automated
clearing house services. |
Tax: This category includes two segments Consumer Tax and Accounting Professionals.
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Our Consumer Tax segment includes TurboTax income tax preparation products and services
for consumers and small businesses. |
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Our Accounting Professionals segment includes Lacerte and ProSeries professional tax
products and services. This segment also includes QuickBooks Premier Accountant Edition and
the QuickBooks ProAdvisor Program for accounting professionals. |
Financial Services: This segment consists primarily of outsourced online services for banks and
credit unions provided by our Intuit Financial Services business. These include comprehensive
online financial management solutions for consumers and businesses.
Other Businesses: This segment includes Quicken personal finance products and services, Mint.com
online personal finance services, Intuit Health online patient-to-provider communication solutions,
and our businesses in Canada and the United Kingdom.
Our Growth Strategy
We innovate to drive growth, adapting our approach to meet changing demographic, technology, market
and geographic trends. We build innovative offerings to solve our customers problems, based upon
our three-point growth strategy.
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Driving growth in our core businesses. Were committed to helping consumers, small
businesses and accountants save and make money through our core business offerings,
including TurboTax, Quicken, QuickBooks, ProSeries and Lacerte. In addition, we offer other
relevant products to encourage existing customers to upgrade to more feature-rich versions
that meet their personal and business needs. |
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Building adjacent businesses and entering new geographies. By pursuing partnerships,
completing acquisitions and creating new offerings, were accelerating our entry into new
businesses, such as employee management and customer management. Intuit Websites, for
example, gives us a new front door to cross-sell other products and services, such as
electronic payments, online payroll and, eventually, QuickBooks. Our investment in
healthcare offerings and our recent acquisition of Medfusion have expanded our portfolio of
software-as-a-service offerings. And our new Intuit Money Manager offering in India expands
our global reach into emerging markets. |
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Accelerating our transition to connected services. Through our Connected Services
strategy, were providing new ways for people and businesses to connect with each other and
leverage their data, whether through desktop, laptop or handheld devices. In a world with
expanded connectivity, people expect access to services and information any time, any
place. Through this strategy we intend to delight customers by |
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offering easy-to-use connected services that solve their problems, while building durable
competitive advantage for Intuit. |
This strategy recognizes the emergence and influence of the digital generation, the increasing
relevance of social networks, and customers growing reliance on the Web, mobile and
information-based technology to manage important tasks. It also acknowledges the potential of new
market opportunities in rapidly developing economies. The end result is a global market that is
shifting from traditional services that are paper-based, human-produced, and brick-and-mortar
bound, to one where people understand, demand and embrace the benefits of connected services.
Our Connected Services Vision
We provide connected services in three ways:
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Software-advantaged Services: We enable customers to seamlessly connect software, such
as QuickBooks, to other offerings, including small business payroll or merchant services.
This can create powerful solutions that we believe give us a competitive advantage. |
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Software as a Service: We offer hosted services, also known as SaaS, to connect
customers to our online offerings. Through TurboTax Online, online payroll services for
small businesses, Intuit Websites, QuickBooks Online, online banking services for financial
institutions, Mint.com, and patient-to-provider communication services, we deliver clear
benefits and add value for our customers. |
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Platform as a Service: We are increasingly using our products as a platform to connect
people to each other and to us allowing them to share information and solve problems
together. The Intuit Partner Platform enables third-party developers to create and sell
applications to our customers. This provides customers with new solutions and functionality
and gives developers a valuable audience. |
We continue to make significant progress in this environment. Overall, connected services generated
nearly 60 percent of our revenue in the 2010 fiscal year. Software-as-a-service offerings by
themselves produced roughly one-third of our revenue.
To compete in this connected world, we plan to take advantage of three emerging technology and
market trends:
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Social: As businesses and consumers become increasingly connected, people shape product
development, share their expertise and influence opinion like never before. Customers can
share advice with each other by using the online forums available in each of our major
products. In a social world, people connect and contribute to our product offerings. For
example, our TurboTax Live Community allows participants to submit and answer each others
questions while preparing their income tax returns. |
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Mobile: As technology moves from the desktop to the palmtop, we are creating mobile
services that deliver in the pocket any place at any time thats convenient for
customers. Intuit GoPayment, for example, helps small businesses improve sales and cash
flow by accepting credit card payments on their mobile phones. |
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Global: As geographic borders become less important to businesses, we are working to
help customers take advantage of a global marketplace and find new customers in new
markets. Intuit Money Manager, our first product for the emerging markets, helps people in
India better manage their bank accounts. |
Summary
Generations age. Borders blur. Technology advances. As the way we live and work evolves, we adapt
our strategy to meet and lead these changes. Yet our commitment remains consistent: Developing
innovative products and services that are so convenient and easy to use that customers actively
recommend them to others. Its been our success formula for more than a quarter-century as weve
worked to solve peoples important business and financial management problems. And well maintain
that commitment as we continue to evolve, working to help people solve each others problems,
connecting people to people and to solutions, wherever they are, whenever they want them.
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PRODUCTS AND SERVICES
We offer our products and services in the seven business segments described in Business Overview
above. The following table shows the classes of similar products or services that accounted for 10%
or more of total net revenue in the last three fiscal years.
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Fiscal |
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Fiscal |
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2010 |
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2009 |
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2008 |
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Financial Management Solutions |
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18 |
% |
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19 |
% |
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20 |
% |
Employee Management Solutions |
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12 |
% |
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12 |
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11 |
% |
Consumer Tax |
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33 |
% |
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32 |
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31 |
% |
Accounting Professionals |
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11 |
% |
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11 |
% |
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11 |
% |
Financial Services |
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10 |
% |
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10 |
% |
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10 |
% |
Our products and services are sold mainly in the United States and are described below.
International total net revenue was less than 5% of consolidated total net revenue for fiscal 2010,
2009 and 2008. For financial information about these segments, see Managements Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 and Note 15 to the financial
statements in Item 8 of this report.
Financial Management Solutions
QuickBooks Software. Our QuickBooks product line brings bookkeeping capabilities and business
management tools to small and medium-sized business users in an easy-to-use design that does not
require them to be familiar with debit and credit accounting. We offer a range of products to suit
the needs of different types of businesses. Our desktop software products include QuickBooks Simple
Start, which provides accounting functionality suitable for very small, less complex businesses;
QuickBooks Pro and QuickBooks Pro for Mac, which provide accounting functionality suitable for
slightly larger businesses; QuickBooks Premier, which provides small businesses with advanced
accounting functionality and business planning tools; and QuickBooks Enterprise Solutions, designed
for larger businesses. Our Premier and Enterprise products also come in a range of
industry-specific editions, including Contractor, Manufacturing and Wholesale, Nonprofit,
Professional Services, and Retail. In addition, we offer a Web-based version of QuickBooks called
QuickBooks Online that is suitable for multiple users working in various locations.
QuickBooks Technical Support. We offer several technical support options to our QuickBooks
customers. These include support plans that are sold separately and priced based on the length of
the plan. We also offer a free self-help information section on our QuickBooks.com website and free
access to the QuickBooks Community, an online forum where QuickBooks users can share information
with each other.
Websites for Small Businesses. Our Intuit Websites offering helps small businesses establish a
presence on the Web, maintain and promote their websites, and sell or market their products and
services online.
Financial Supplies. We offer a range of financial supplies designed for small businesses and
individuals that use QuickBooks and Quicken. These include paper checks, envelopes, invoices and
deposit slips as well as business identity products such as business cards and stationery. We also
offer tax forms, tax return presentation folders and other supplies for professional tax preparers.
Our customers can personalize many of these products to incorporate their logos and use a variety
of color, font and design options.
QuickBase. Our QuickBase offering is a Software as a Service (SaaS) platform that allows business
users to select ready-made online workgroup applications or create custom solutions for their
businesses. The most common solutions include project collaboration, sales team management and
employee management. QuickBase customers pay a monthly or annual subscription fee that varies based
on the number of users and the amount of data and file storage they need.
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Intuit Developer Network. The Intuit Developer Network is an initiative that encourages
third-party software developers to build applications that exchange data with QuickBooks and other
Intuit products by giving them
access to certain application programming interfaces. The Intuit Developer Network has launched the
Intuit Partner Platform, which allows developers to sell online applications to Intuits customers.
Developers in this program build on Intuits platform or any platform they choose, but all
applications must integrate with the platform in specific ways. Developers who register with the
Intuit Developer Network have access to the latest QuickBooks software development kit, the Intuit
Partner Platform, QuickBooks software downloads, and member benefits such as marketing tools,
developer forums and one-on-one engineering support. At July 31, 2010, approximately 365
third-party applications were available for QuickBooks and other Intuit products at
www.marketplace.intuit.com.
Employee Management Solutions
QuickBooks Payroll. QuickBooks Payroll is a family of products sold on a subscription basis to
small businesses that use QuickBooks and prepare their own payroll or want some assistance with
preparing their payroll. It is also sold to accountants who use QuickBooks and help their clients
manage their payrolls. The product family includes:
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QuickBooks Basic Payroll, which provides payroll tax tables and payroll reports; |
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QuickBooks Enhanced Payroll, which provides payroll tax tables, payroll reports, federal
and state payroll tax forms, and eFile & Pay for federal and state payroll taxes; |
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QuickBooks Enhanced Payroll for Accountants, which has several accountant-specific
features in addition to the features in QuickBooks Enhanced Payroll; and |
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QuickBooks Online Payroll, for use with QuickBooks Online. |
We also offer QuickBooks Assisted Payroll, through which we provide the back-end aspects of payroll
processing, including tax payments and filings, for customers who process their payrolls using
QuickBooks. Direct deposit is included with QuickBooks Online Payroll and available with each of
the other offerings for an additional fee.
Intuit Online Payroll. Intuit Online Payroll provides small business payroll services that do not
require customers to use QuickBooks. This offering is sold on a subscription basis and includes
online payroll tax calculation, payroll reports, federal and state payroll tax forms, electronic
payment of federal and state payroll taxes, and direct deposit.
Other Employee Management Solutions. We offer workers compensation administration and 401(k)
administration services to small business employers for additional fees.
Payment Solutions
Merchant Services. We offer a full range of merchant services to small businesses that include
credit card, debit card, electronic benefits, and gift card processing services; check
verification, check guarantee, and electronic check conversion, including automated clearing house
(ACH) and Check 21 capabilities; and Web-based transaction processing services for online
merchants. In addition to transaction processing services, we provide a full range of support for
our clients that includes customer service, merchant and consumer collections, chargeback and
retrieval support, and fraud and loss prevention screening.
Point of Sale Solutions. We offer Cash Register Plus, an entry level product for small retail
businesses that helps them manage detailed sales data, track customers, and manage daily tasks more
efficiently. We also offer Basic, Pro and Multi-Store versions of QuickBooks Point of Sale, which
help retailers process sales using barcodes, track inventory and customer purchases, and integrate
with QuickBooks. We sell these software products with or without the accompanying hardware.
Consumer Tax
Our TurboTax products and services are designed to enable individuals and small business owners to
prepare and file their own federal and state personal and small business income tax returns quickly
and accurately. They are designed to be easy to use, yet sophisticated enough for complex tax
returns.
Tax Return Preparation Offerings. For the 2009 tax season we offered a range of software products
and services that included desktop and online versions of TurboTax Basic, for simple returns;
TurboTax Deluxe, for taxpayers who itemize deductions; TurboTax Premier, for taxpayers who own
investments or rental property; and TurboTax
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Home and Business, for small business owners. We also
offered TurboTax Business desktop software for larger businesses; TurboTax Free Edition online for
the simplest returns; and SnapTax, an application that allowed
California users with simple federal and state returns to prepare and electronically file them from
their iPhones. These offerings are subject to change for the 2010 tax season. TurboTax Live
Community is an online forum where participants can learn from and share information with other
users while preparing their income tax returns.
Electronic Filing and Other Services. Through our electronic filing center, our desktop and online
tax preparation customers can electronically file their federal income tax returns, as well as
state returns in all states that support electronic filing. For the 2009 tax year our online tax
preparation and filing services were offered through the websites of nearly 4,000 financial
institutions, more than 1,000 electronic retailers and other merchants, and on Yahoo!® Finance Tax
Center. Financial institutions can offer our online tax services to their end users through a link
to TurboTax Online or through TurboTax for Online Banking, which provides functionality that is
integrated with their online banking services.
Intuit Tax Freedom Project. Under the Intuit Tax Freedom Project, we provide online federal and
state income tax return preparation and electronic filing services at no charge to eligible
taxpayers. In fiscal 2010 we provided approximately 1.4 million free federal returns under this
initiative. We are a member of the Free File Alliance, a consortium of private sector companies
that has entered into an agreement with the federal government to provide free online federal tax
preparation and filing services to eligible taxpayers. See also Competition Consumer Tax later
in this Item 1 for more information on the Free File Alliance.
Accounting Professionals
Our Accounting Professionals segment provides software and services for accountants and tax
preparers in public practice. These include offerings that help professional accountants and tax
preparers provide accounting, payroll, tax planning and tax compliance services to their individual
and business clients, and that help them manage their own practices more effectively.
Tax Offerings. Our tax offerings for accounting professionals are Lacerte and ProSeries. Lacerte
software is designed for full-service accounting firms that prepare the most complex returns. We
offer two versions of our ProSeries software: ProSeries Professional Edition, designed for
year-round tax practices that prepare moderately complex tax returns; and ProSeries Basic Edition,
designed for the needs of smaller and seasonal tax practices. Accounting professionals license
these tax products for a flat fee for unlimited use, or use them to print or electronically file
tax returns on a pay-per-return basis. Accountants and tax preparers using Lacerte and ProSeries
can file their clients tax returns using our electronic filing services.
Accounting Offerings. Our accounting offering for professionals, QuickBooks Premier Accountant
Edition, provides the tools and file-sharing capabilities needed to efficiently complete
bookkeeping, trial balance, write-up, and financial reporting tasks. Our QuickBooks ProAdvisor
Program is a subscription-based membership that provides QuickBooks and QuickBooks Payroll software
for professional accountants, technical support, training, product certification, access to
marketing tools and discounts on products purchased on behalf of clients.
Financial Services
Our Intuit Financial Services business (formerly known as Digital Insight) provides outsourced
online banking solutions that are hosted in our data centers and delivered as on-demand services to
medium-sized financial institutions. We also work with these financial institutions to provide
other Intuit products and services, such as TurboTax for Online Banking, to their end users. No
single financial institution accounted for more than 10% of this segments total net revenue in
fiscal 2010, 2009 or 2008.
Consumer Banking. We offer online banking services that financial institutions make available to
their retail customers. These services include the ability to view transaction history, account
balances, check images and statements; fund transfers between accounts; inter-institutional
transfers; bill payment and bill presentment; Personal FinanceWorks, our comprehensive online
personal financial management solution; and TurboTax for Online Banking, which provides tax
preparation and filing services that are integrated with online banking.
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Business Banking. We also offer online banking services that financial institutions make available
to their business customers. These services include features similar to those of our consumer
offering as well as lockbox reporting;
payroll direct deposit; wire and inter-account fund transfers; account reconciliations; foreign
exchange trade; and Small Business FinanceWorks, our online business financial management solution.
Other Businesses
Personal Finance
Our personal finance offerings help users organize, understand and manage their personal finances.
Our Quicken line of desktop software products allow customers to reconcile bank accounts, pay
bills, record credit card and other transactions, and track investments, mortgages and other assets
and liabilities. Quicken also allows customers to flag their tax-related financial transactions and
download that information into our TurboTax consumer tax return preparation software. We offer
Quicken Starter Edition and Quicken Deluxe as well as Quicken Premier, which offers more robust
investment and tax planning tools; Quicken Home and Business, which allows customers to manage both
personal and small business finances in one application; and Quicken for Mac. Our Mint.com personal
finance service is free to users and shows them all of their financial accounts in one online
location; provides tools that help them set up budgets and monitor spending; identifies
money-saving ideas; and provides step-by-step guidance and advice on achieving their financial
goals. We also offer a Mint application on mobile devices such as the iPhone.
Intuit Health
In May 2010 we acquired Medfusion, Inc., which provides online patient-to-provider communication
solutions. Services are delivered through a standard Web browser on a subscription basis and
typically include features such as appointment scheduling, patient pre-registration, prescription
renewal and electronic bill payment.
Global Business
In Canada, we offer versions of QuickBooks that we have localized, that is, customized to meet
the unique needs of customers in that specific international location. These include QuickBooks
software offerings, payroll offerings and service plans. We also offer consumer tax return
preparation software, professional tax preparation products and services, and localized versions of
Quicken in Canada. In the United Kingdom, we offer localized versions of QuickBooks and QuickBooks
Payroll, including products and services sold in partnership with banks.
PRODUCT DEVELOPMENT
Since the markets for software and related services are characterized by rapid technological
change, shifting customer needs and frequent new product introductions and enhancements, a
continuous high level of investment is required to innovate and quickly develop new products and
services as well as enhance existing offerings. Our product development efforts are becoming more
important than ever as we pursue our Connected Services strategy, which reflects a world where
people and businesses are increasingly connected by technology and expect access to services at any
time in any place.
We develop many of our products and services internally. We have a number of United States and
foreign patents and pending applications that relate to various aspects of our products and
technology. We supplement our internal development efforts by acquiring or licensing products and
technology from third parties, and establishing other relationships that enable us to enhance or
expand our offerings more rapidly. We expect to expand our third party technology relationships as
we continue to pursue our Connected Services strategy.
Our traditional core desktop software products QuickBooks, TurboTax, Lacerte, ProSeries and
Quicken tend to have predictable annual development and product release cycles. We also develop
innovative new offerings such as Intuit GoPayment for which development cycles can be more rapid.
Developing consumer and professional tax software and services presents unique challenges because
of the demanding development cycle required to accurately incorporate tax law and tax form changes
within a rigid timetable. The development timing for our payroll, merchant services, financial
institutions, and patient-to-provider communication offerings varies with
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business needs and
regulatory requirements and the length of the development cycle depends on the scope and complexity
of each particular project.
In our Financial Services business, we have developed interfaces with the systems of many of the
major providers of core processing software and services to financial institutions. These system
interfaces allow us to access a financial institutions host system to provide end users access to
their account data. In addition to developing new interfaces, we continue to enhance our many
existing interfaces in order to deliver more robust connectivity and increase operating
efficiencies.
We continue to make substantial investments in research and development, and we expect to focus our
future research and development efforts on enhancing existing products and services and on
developing new products and services that will offer increased ease of use, be customized for
specific customer categories, be Web-based or mobile, and feature improved integration with other
Intuit and third party products and services and with our internal information systems. We also
expect to continue to focus significant research and development efforts on ongoing projects to
update the technology platforms for several of our offerings. Our research and development expenses
were $573 million or 17% of total net revenue in fiscal 2010; $556 million or 18% of total net
revenue in fiscal 2009; and $593 million or 20% of total net revenue in fiscal 2008.
SEASONALITY
Our QuickBooks, Consumer Tax and Accounting Professionals businesses are highly seasonal. Revenue
from our QuickBooks software products tends to be highest during our second and third fiscal
quarters. Sales of income tax preparation products and services are heavily concentrated in the
period from November through April. In our Consumer Tax business, a greater proportion of our
revenue has been occurring later in this seasonal period due in part to the growth in sales of
TurboTax Online, for which revenue is recognized upon printing or electronic filing of a tax
return. The seasonality of our Consumer Tax and Accounting Professionals revenue is also affected
by the timing of the availability of tax forms from taxing agencies and the ability of those
agencies to receive electronic tax return submissions. Delays in the availability of tax forms or
the ability of taxing agencies to receive submissions can cause revenue to shift from our second
fiscal quarter to our third fiscal quarter. These seasonal patterns mean that our total net revenue
is usually highest during our second quarter ending January 31 and third quarter ending April 30.
We typically report losses in our first quarter ending October 31 and fourth quarter ending July
31, when revenue from our tax businesses is minimal while operating expenses continue at relatively
consistent levels. We believe the seasonality of our revenue and profitability is likely to
continue in the future.
MARKETING, SALES AND DISTRIBUTION CHANNELS
Markets
Our primary target customers are small and medium-sized businesses, consumers, accounting
professionals, and medium-sized financial institutions. The markets in which we compete have always
been characterized by rapid technological change, shifting customer needs, and frequent new product
introductions and enhancements by competitors. Over the past several years, the widespread
availability of the Internet has accelerated the pace of change and revolutionized the way that
customers learn about and purchase products and services. Real-time, personalized online shopping
experiences are rapidly becoming the standard. In addition, many customers now begin their shopping
process in one channel and ultimately make their purchase in a different channel. This drives the
need to create integrated multi-channel shop and buy experiences. Market and industry changes are
quickly rendering existing products and services obsolete, so our success depends on our ability to
respond rapidly to these changes with new business models, updated competitive strategies, new or
enhanced products and services, alternative distribution methods and other changes in the way we do
business.
Our target customers for online banking services are medium-sized financial institutions seeking an
outsourced solution that allows them to compete with the larger national banks in their market. We
also provide online financial management solutions to financial institution customers of core
processors.
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Marketing Programs
To sell our products and services to small and medium-sized businesses, consumers and accounting
professionals, we use a variety of marketing programs to generate software orders, stimulate demand
and generally maintain and increase customer awareness of our products and services. These programs
include Web marketing and targeted advertising, including purchasing key words from major search
engine companies; direct-response mail and email campaigns; telephone solicitations; newspaper,
magazine, billboard, radio and television advertising; and promotional offers that we coordinate
with major retailers. We also use workflow-integrated in-product discovery in some of our software
products to market other related products and services, including third-party products and
services.
In our Financial Services business, our marketing efforts are primarily focused on identifying
potential financial institution clients and marketing our online banking services to consumer and
business end users in cooperation with our financial institution clients. We also work with these
financial institutions to provide other Intuit products and services, such as TurboTax for Online
Banking, to their end users.
Sales and Distribution Channels
Multi-Channel Shop and Buy Experiences. Our consumer and small and medium-sized business customers
increasingly use the Internet to research both online and desktop products and services. Some
customers buy and use our products and services entirely online. Others purchase desktop products
and services using the Internet. Still others prefer to make their final decision at a retail
location. We coordinate our websites, promotions and retail displays in support of this integrated
multi-channel shop and buy model.
Direct Sales Channel. We sell many of our products and services for small and medium-sized
businesses, consumers and accounting professionals directly to our customers through our websites
and call centers. Telesales continues to be an effective channel for serving customers that want
live help selecting the products and services that are right for their needs.
In our Financial Services business, we sell our products and services to financial institutions
using a direct sales model and, to a lesser but increasing extent, in cooperation with core
processing partners. Our typical sales cycle is approximately nine to eighteen months for new
financial institutions and four to six months for add-on sales to existing customers.
Retail Channel. We sell our QuickBooks, TurboTax and Quicken desktop software as well as our
QuickBooks Payroll and Intuit Online Payroll services and merchant credit card payment processing
services at retail locations across the United States. We sell these products and services directly
and through distributors to office supply superstores, warehouse clubs, consumer electronics
retailers, general mass merchandisers, online retailers, and catalogers. In Canada and other
international markets we also rely on distributors and other third parties who sell products into
the retail channel. The retail channel provides broad customer reach through retailer-sponsored
advertising and exposure to retail foot traffic. This channel also gives us the opportunity to
communicate our product and service lineup and messages through multiple touch points and allows us
to serve our customers at relatively modest cost.
Other Channels. We have strategies to address the alliance partner, solution provider and personal
computer hardware manufacturer channels. Revenue from these channels is currently less significant
than revenue from our direct and retail channels, but it is growing. We sell our consumer and small
business products and services through selected alliance partners, primarily banks, credit unions,
and securities and investment firms. These alliance partners help us reach new customers at the
point of transaction and drive growth and market share by extending our online reach. Solution
providers combine our products and services with value-added marketing, sales and technical
expertise to deliver a complete solution at the local level. Relationships with selected personal
computer hardware manufacturers help us attract new customers for our core software offerings. As
we expand our mobile and global offerings, we expect that key strategic partnerships will become
increasingly important to our business. For example, we plan to market and sell some of our
offerings through mobile phone service and hardware providers.
In our Financial Services business, we have joint marketing arrangements with several core
processing vendors. They include Fiserv, Inc.; Open Solutions, Inc.; Fidelity Information Services,
Inc.; Metavante Corporation (now
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part of Fidelity Information Services); and Computer Services Inc.
To deliver bill payment and bill presentment
services to our financial institution customers, we also maintain value-added reseller
relationships with major providers such as Metavante Corporation and CheckFree Corporation (part of
Fiserv).
COMPETITION
Overview
We face intense competition in all of our businesses, both domestically and internationally.
Competitive interest and expertise in many of the markets we serve, particularly small business,
consumer tax and online banking, have grown markedly over the past few years and we expect this
trend to continue. Some of our existing competitors have significantly greater financial, technical
and marketing resources than we do. In addition, the competitive landscape can shift rapidly as new
companies enter markets in which we compete. This is particularly true for online products and
services, where the barriers to entry are lower than they are for desktop software products and
services. To attract customers, many online competitors are offering free or low-priced entry-level
products which we must take into account in our pricing strategies.
Our most obvious competition comes from other companies that offer technology solutions similar to
ours. However, for many of our products and services, other important competitive alternatives for
customers are third party service providers such as professional accountants and seasonal assisted
tax preparation businesses. Manual tools and processes, or general-purpose software, are also
important competitive alternatives. Many of our new customers previously used pencil and paper or
software such as word processors and spreadsheets, rather than competitors software and services,
to perform financial tasks. We believe that there is a long-term trend away from manual methods and
toward the use of both desktop and online software to accomplish these tasks that will continue to
provide growth opportunities.
Competition Specific to Business Segments
Small Business Group. Our QuickBooks desktop product is the leading small business financial
management software in the U.S. retail channel. Our small business products and services face
competitive challenges from companies such as NetSuite Inc. and The Sage Group plc, which offer
software and associated services that directly target small business customers. Increasingly, our
small business products and services also face competition from free or low-cost online accounting
offerings as well as free online banking and bill payment services offered by financial
institutions and others. In our payroll business we compete directly with Automatic Data
Processing, Inc. (ADP), Paychex and many other companies with payroll offerings, including online
payroll offerings. In our merchant services business we also compete directly with large financial
institutions such as Wells Fargo, JP Morgan Chase and Bank of America and with many payment
processors, including First Data Corporation, Elavon, Global Payments and FIS-Certegy.
Consumer Tax. In the private sector we face intense competition from H&R Block, which provides
assisted tax preparation services in its stores and a competing software offering called H&R Block
At Home, and from several other tax preparation service providers and online offerings, including
2nd Story Softwares TaxACT. These competing offerings subject us to significant price pressure.
We also face competitive challenges in our Consumer Tax business from publicly funded government
entities that offer electronic tax preparation and filing services at no cost to individual
taxpayers. We are a member of the Free File Alliance, a consortium of private sector companies that
has entered into an agreement with the federal government. Under this agreement, the member
companies provide online federal tax preparation and filing services at no cost to eligible federal
taxpayers, and the federal government has agreed not to provide a competing service. Approximately
20 states have also adopted Free File Alliance public-private agreements while approximately 20
other states offer some form of direct government tax preparation and filing services free to
qualified taxpayers. We continue to actively work with others in the private and public sectors to
advance the goals of the Free File Alliance policy initiative and to support successful
public-private partnerships. However, future administrative, regulatory or legislative activity in
this area could harm our Consumer Tax business.
Accounting Professionals. Our Lacerte professional tax offerings face competition from
competitively-priced tax and accounting solutions that include integration with non-tax
functionality. These include CCHs ProSystems fx
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Office Suite and Thomson Reuters CS Professional
Suite and GoSystems Tax. Our ProSeries professional tax
offerings face competition from CCHs ATX and TaxWise offerings. We also face growing competition
from online tax and accounting offerings, which may be marketed more effectively or have lower
pricing than our offerings for accounting professionals.
Financial Services. The market for online banking services is highly competitive. In the area of
consumer online banking, a number of companies offer outsourced online banking services to
financial institutions, including Online Resources, S1 Corporation and FundsXpress (a subsidiary of
First Data Corporation). In addition, several companies whose primary offerings are core processing
or bill payment processing services also provide online banking services. These companies include
Fiserv, Inc., Open Solutions, Inc., Fidelity Information Services, Inc., Jack Henry and Metavante
Corporation (now part of Fidelity Information Services). In addition, many of these firms offer our
products through a referral or reseller arrangement with us. We also compete for new customers with
relatively recent entrants into the online financial management solutions market. As we negotiate
service contract renewals with current customers, competitive pressures may require us to make
concessions on pricing and other material terms to convince these customers to remain with us.
Competitive Factors
We believe the most important competitive factors for our core offerings QuickBooks, TurboTax,
Lacerte, ProSeries and Quicken are ease of use, product features, size of the installed customer
base, brand name recognition, value proposition, cost, reliability, and product and support
quality. Access to distribution channels is also important for our QuickBooks, TurboTax and Quicken
software products. In addition, support from accounting professionals and the ability for customers
to upgrade within product families as their businesses grow are significant competitive factors for
our QuickBooks products. Productivity is an important competitive factor for the full-service
accounting firms to which we market our Lacerte software products. We believe we compete
effectively on these factors as our QuickBooks, TurboTax, and Quicken products are the leading
products in the U.S. retail sales channel for their respective categories.
For our service offerings such as small business payroll, merchant payment processing, outsourced
online banking, and patient-to-provider communication solutions, features and ease of use, the
integration of these products with related software, brand name recognition, effective
distribution, quality of support, cost, and scalability of operations are important competitive
factors.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
We provide customer service and technical support by telephone, e-mail, online chat, text
messaging, online communities, and our customer service and technical support websites. We have
full-time and outsourced customer service and technical support staffs. We supplement these staffs
with seasonal employees and additional outsourcing during periods of peak call volumes, such as
during the tax return filing season or following a major product launch. We outsource to several
firms domestically and internationally. Most of our internationally outsourced consumer and small
business customer service and technical support personnel are currently located in India and the
Philippines.
We offer free self-help information through our technical support websites for our QuickBooks,
TurboTax, Accounting Professionals and Quicken software products. Customers can use our websites to
find answers to commonly asked questions and check on the status of orders. Under certain support
plans, customers can also use our websites to receive product updates electronically. Support
alternatives and fees vary by product. We also sponsor online user communities such as Intuit
Community for small businesses and accounting professionals, and TurboTax Live Community, where
consumers can share knowledge and product advice with each other.
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MANUFACTURING AND DISTRIBUTION
Desktop Software and Supplies
The key processes in manufacturing desktop software are manufacturing compact discs (CDs), printing
boxes and related materials, and assembling and shipping the final products.
For retail manufacturing, we have an agreement with Arvato Digital Services, Inc. (ADiS), a
division of Bertelsmann AG, under which ADiS provides a majority of the manufacturing volume for
our launches of QuickBooks, TurboTax and Quicken, as well as for day-to-day replenishment after
product launches. ADiS has operations in multiple locations that can provide redundancy if
necessary. We also have an agreement with JVC America Inc. under which JVC provides secondary
outsourced manufacturing volume for these launches and for day-to-day replenishment.
For retail distribution, we have an agreement with ADiS under which ADiS handles all logistics
services. Our retail product launches are operationally complex. Our model for product delivery for
retail launches and replenishment is a hybrid of direct to store deliveries and shipments to
central warehouse locations. This allows improved inventory management by our retailers. We also
ship products for many of our smaller retail customers through distributors.
ADiS also provides most of the manufacturing volume and distribution services for our direct
desktop software orders. We have an exclusive agreement with Harland Clarke, a division of M&F
Worldwide Corporation, to fulfill orders for all of our printed checks and most other products for
our financial supplies business.
We have multiple sources for all of our raw materials and availability has historically not been a
significant problem for us.
Prior to major product releases for our core desktop software products we tend to have significant
levels of backlog, but at other times backlog is minimal and we typically ship products within a
few days of receiving an order. Because of this fluctuation in backlog, we believe that backlog is
not a reliable predictor of our future core desktop software sales.
Online Products and Services
Intuits data centers house most of the systems, networks and databases required to operate and
deliver our online products and services. These include QuickBooks Online, online payroll services,
merchant payment processing services, website hosting services for small businesses, TurboTax
Online, consumer and professional electronic tax filing services, outsourced online banking
services, Mint.com, and patient-to-provider communication services. Through our data centers, we
connect customers to our products and services and store customer and business information. As our
businesses continue to move toward delivering more online products and services in conjunction with
our Connected Services strategy, our infrastructure will become even more critical in the future.
Currently we have a number of data centers primarily located in the western United States. Over
time we expect to transition to fewer data centers in more geographically diverse locations. In
fiscal 2008 and 2009 we built a data center in Washington state that we began occupying in the
second half of fiscal 2009. We expect this data center to support the hosting and high availability
requirements of many of our existing and future connected services offerings. We are also executing
a plan to create a new primary backup facility at a co-located data center in Nevada.
PRIVACY AND SECURITY OF CUSTOMER INFORMATION AND TRANSACTIONS
We are subject to various federal, state and international laws and regulations and to financial
institution requirements relating to the privacy and security of customer and employee personal
information. We are also subject to laws and regulations that apply to the Internet, behavioral
tracking, telemarketing, email activities, data hosting and retention, financial and health
information, and credit reporting. Additional laws in all of these areas are likely to be passed in
the future, which could result in significant limitations on or changes to the ways in which we
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can collect, use, host, store or transmit the personal information and data of our customers or
employees, communicate with our customers, and deliver products and services, or may significantly
increase our compliance costs. If our business expands to new industry segments and new uses of
data that are regulated for privacy and security, or to countries outside the United States that
have strict data protections laws, our compliance requirements and costs will increase.
Through a Master Privacy Policy Framework designed to be consistent with globally recognized
privacy principles, we comply with United States federal and other country guidelines and practices
to help ensure that customers and employees are aware of, and can control, how we use information
about them. Our primary websites, such as QuickBooks.com and TurboTax.com, have been certified by
TRUSTe, an independent organization that operates a website privacy certification program
representing industry standard practices to address users and regulators concerns about online
privacy. We also use privacy statements to provide notice to customers of our privacy practices, as
well as provide them the opportunity to furnish instructions with respect to use of their personal
information. We participate in industry groups whose purpose is to influence public policy and
industry best practices for privacy and security.
To address security concerns, we use security safeguards to help protect the systems and the
information customers give to us from loss, misuse and unauthorized alteration. Whenever customers
transmit sensitive information, such as a credit card number or tax return data, to us through one
of our websites we use industry standards to encrypt the data as it is transmitted to us. We work
to protect our systems from unauthorized internal or external access using numerous commercially
available computer security products as well as internally developed security procedures and
practices.
GOVERNMENT REGULATION
The financial services industry is subject to extensive and complex federal and state regulation.
Our financial institution customers, which include commercial banks and credit unions, operate in
markets that are subject to rigorous regulatory oversight and supervision. The compliance of our
products and services with these requirements depends on a variety of factors including the
particular functionality, the interactive design and the charter or license of the financial
institution. Our financial services customers must independently assess and determine what is
required of them under these regulations and are responsible for ensuring that our systems and the
design of their websites conform to their regulatory obligations.
Our Intuit Financial Services business is not directly subject to federal or state regulations
specifically applicable to financial institutions such as banks and credit unions. However, as a
provider of services to financial institutions, this business is examined by the Federal Financial
Institution Examination Council under the Information Technology examination guidelines. Although
we believe we are not subject to direct supervision by federal and state banking agencies with
regard to other regulations, we have from time to time agreed to examinations of our business and
operations by these agencies.
Our Consumer Tax and Accounting Professionals businesses are also subject to federal and state
government requirements, including regulations related to the electronic filing of tax returns, the
provision of tax preparer assistance and the use and disclosure of customer information. In
addition, we offer certain other products and services, such as small business payroll, payments,
and patient-to-provider communication solutions, which are subject to special regulatory
requirements. As we expand our financial institutions, tax and small business products and
services, we may become subject to additional government regulation. New laws or regulations may be
adopted in these areas that could impose significant limitations on our business and increase our
cost of compliance. We continually analyze new business opportunities, both domestically and
internationally, and new businesses and business models that we pursue may require additional costs
for regulatory compliance.
We are subject to federal and state laws and government regulations concerning employee safety and
health and environmental matters. The Occupational Safety and Health Administration, the
Environmental Protection Agency, and other federal and state agencies have the authority to put
regulations in place that may have an impact on our operations.
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INTELLECTUAL PROPERTY
Our success depends on our proprietary technology embodied in our offerings. We protect this
proprietary technology by relying on a variety of intellectual property mechanisms, including
copyright, patent, trade secret and trademark laws, restrictions on disclosure and other methods.
For example, we regularly file applications for patents, copyrights and trademarks and service
marks in order to protect intellectual property that we believe is important to our business. We
currently hold a small but growing patent portfolio. We also have a number of registered trademarks
that include Intuit, QuickBooks, TurboTax, Lacerte, ProSeries, Quicken and Mint. We have registered
these and other trademarks and service marks in the United States and, depending on the relevance
of each brand to other markets, in many foreign countries. Most registrations can be renewed
perpetually at 10-year intervals. We also license intellectual property from third parties for use
in our products.
Although our portfolio of patents is growing, the patents that have been issued to us could be
determined to be invalid and may not be enforceable against competitive products in every
jurisdiction. In addition, third parties have asserted and may, in the future, assert infringement
claims against us and our customers. These claims and any litigation may result in invalidation of
our proprietary rights or a finding of infringement along with an assessment of damages.
Litigation, even if without merit, could result in substantial costs and diversion of resources and
management attention. In addition, third party licenses may not continue to be available to us on
commercially acceptable terms, or at all.
EMPLOYEES
As of July 31, 2010, we had approximately 7,700 employees in major offices in the United States,
Canada, India, the United Kingdom and other locations. We believe our future success and growth
will depend on our ability to attract and retain qualified employees in all areas of our business.
We do not currently have any collective bargaining agreements with our employees, and we believe
employee relations are generally good. Although we have employment-related agreements with a number
of key employees, these agreements do not guarantee continued service. We believe we offer
competitive compensation and a good working environment. We were named one of Fortune magazines
100 Best Companies to Work For in each of the last nine years. However, we face intense
competition for qualified employees, and we expect to face continuing challenges in recruiting and
retention.
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ITEM 1A
RISK FACTORS
Forward-Looking Statements and Risk Factors
This Annual Report on Form 10-K contains forward-looking statements. All statements in this report,
other than statements that are purely historical, are forward-looking statements. Words such as
expect, anticipate, intend, plan, believe, forecast, estimate, seek, and similar
expressions also identify forward-looking statements. In this report, forward-looking statements
include, without limitation, the following:
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our expectations and beliefs regarding future conduct and growth of the business; |
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our expectations regarding competition and our ability to compete effectively; |
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our expectations regarding the development of future products, services, business models
and technology platforms and our research and development efforts; |
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the assumptions underlying our critical accounting policies and estimates, including our
estimates regarding product rebate and return reserves; stock volatility and other
assumptions used to estimate the fair value of share-based compensation; the fair value of
goodwill; and expected future amortization of acquired intangible assets; |
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our belief that our exposure to currency exchange fluctuation risk will not be
significant in the future; |
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our assessments and estimates that determine our effective tax rate; |
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our belief that our income tax valuation allowance is sufficient; |
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our belief that our cash and cash equivalents, investments and cash generated from
operations will be sufficient to meet our working capital, capital expenditure and other
liquidity requirements for at least the next 12 months; |
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our belief that our facilities are adequate for our near-term needs and that we will be
able to locate additional facilities as needed; and |
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our assessments and beliefs regarding the future outcome of pending legal proceedings
and the liability, if any, that Intuit may incur as a result of those proceedings. |
We caution investors that forward-looking statements are only predictions based on our current
expectations about future events and are not guarantees of future performance. We encourage you to
read carefully all information provided in this report and in our other filings with the SEC before
deciding to invest in our stock or to maintain or change your investment. These forward-looking
statements are based on information as of the filing date of this Annual Report, and we undertake
no obligation to revise or update any forward-looking statement for any reason.
Because forward-looking statements involve risks and uncertainties, there are important factors
that may cause actual results to differ materially from those contained in the forward-looking
statements. These factors include the following:
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We face intense competitive pressures that may harm our operating results.
We face intense competition in all of our businesses, and we expect competition to remain intense
in the future. Our competitors may introduce superior products and services, reduce prices, have
greater technical, marketing and other resources, have greater name recognition, have larger
installed bases of customers, have well-established relationships with our current and potential
customers, advertise aggressively or beat us to market with new products and services. We also
face intensified competition from providers of free accounting, tax, banking and other financial
services. In order to compete, we have also introduced free offerings in several categories, but
we may not be able to attract customers or effectively monetize all of these offerings, and
customers who have formerly paid for Intuits products and services may elect to use free offerings
instead. These competitive factors may diminish our revenue and profitability, and harm our ability
to acquire and retain customers.
Our consumer tax business also faces significant competition from the public sector, where we face
the risk of federal and state taxing authorities developing software or other systems to facilitate
tax return preparation and electronic filing at no charge to taxpayers. These or similar programs
may be introduced or expanded in the future, which may cause us to lose customers and revenue.
Although the Free File Alliance has kept the federal government from being a direct competitor to
Intuits tax offerings, it has fostered additional online competition and may cause us to lose
significant revenue opportunities. The current agreement with the Free File Alliance is scheduled
to expire in October 2014. We anticipate that governmental encroachment at both the federal and
state levels may present a continued competitive threat to our business for the foreseeable future.
Future revenue growth depends upon our ability to adapt to technological change and successfully
introduce new and enhanced products, services and business models.
The Software as a Service (SaaS), desktop software and mobile technology industries are
characterized by rapidly changing technology, evolving industry standards and frequent new product
introductions. As we continue to grow our SaaS and other offerings, we must continue to innovate
and develop new products and features to meet changing customer needs and attract and retain
talented software developers. We need to continue to develop our skills, tools and capabilities to
capitalize on existing and emerging technologies, which require us to devote significant resources.
A number of our businesses also derive a significant amount of their revenue from one-time upfront
license fees and rely on customer upgrades and service offerings to generate a significant portion
of their revenues. In addition, our consumer and professional tax businesses depend significantly
on revenue from customers who return each year to use our updated tax preparation and filing
software and services. As our existing products mature, encouraging customers to purchase product
upgrades becomes more challenging unless new product releases provide features and functionality
that have meaningful incremental value. If we are not able to develop and clearly demonstrate the
value of new or upgraded products or services to our customers, our revenues may be harmed. In
addition, as we continue to introduce and expand our new business models, including offerings that
are subscription-based or that are free to end users, we may be unsuccessful in monetizing or
increasing customer adoption of these offerings.
In some cases, we may expend a significant amount of resources and management attention on
offerings that do not ultimately succeed in their markets. We have encountered difficulty in
launching new products and services in the past. If we misjudge customer needs in the future, our
new products and services may not succeed and our revenues and earnings may be harmed. We have
also invested, and in the future expect to invest, in new business models, strategies and
initiatives. Such endeavors may involve significant risks and uncertainties, including distraction
of management from current operations, expenses associated with the strategies and inadequate
return on investments. Because these new initiatives are inherently risky, they may not be
successful and may harm our financial condition and operating results.
Business interruption or failure of our information technology and communication systems may impair
the availability of our products and services, which may damage our reputation and harm our future
financial results.
As we continue to transition our business to more connected services, we become more dependent on
the continuing operation and availability of our information technology and communication systems
and those of our external
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service providers. We do not have redundancy for all of our systems, many of our critical
applications reside in only one of our data centers, and our disaster recovery planning may not
account for all eventualities. In addition, we are in the process of updating our customer facing
applications and the supporting information technology infrastructure to meet our customers
expectations for continuous service availability. Any difficulties in upgrading these applications
or infrastructure or failure of our systems or those of our service providers may result in
interruptions in our service, which may reduce our revenues and profits, cause us to lose customers
and damage our reputation. Any prolonged interruptions at any time may result in lost customers,
additional refunds of customer charges, negative publicity and increased operating costs, any of
which may significantly harm our business, financial condition and results of operations.
We are in the process of migrating our applications and infrastructure to new data centers. If we
do not execute the transition to the new data centers in an effective manner, we may experience
unplanned service disruptions or unforeseen increases in costs which may harm our operating results
and our business. We do not maintain real-time back-up of all our data, and in the event of
significant system disruption we may experience loss of data or processing capabilities, which may
cause us to lose customers and may materially harm our reputation and our operating results.
Our business operations, data centers, information technology and communications systems are
vulnerable to damage or interruption from natural disasters, human error, malicious attacks, fire,
power loss, telecommunications failures, computer viruses, computer denial of service attacks,
terrorist attacks and other events beyond our control. The majority of our research and development
activities, our corporate headquarters, our principal information technology systems, and other
critical business operations are located near major seismic faults. We do not carry earthquake
insurance for direct quake-related losses. Our future financial results may be materially harmed in
the event of a major earthquake or other natural or man-made disaster.
We rely on internal systems and external systems maintained by manufacturers, distributors and
other service providers to take and fulfill customer orders, handle customer service requests and
host certain online activities. Any interruption or failure of our internal or external systems
may prevent us or our service providers from accepting and fulfilling customer orders or cause
company and customer data to be unintentionally disclosed. Our continuing efforts to upgrade and
expand our network security and other information systems as well as our high-availability
capabilities may be costly, and problems with the design or implementation of system enhancements
may harm our business and our results of operations.
Our hosting, collection, use and retention of personal customer information and data create risk
that may harm our business.
A number of our businesses collect, use and retain large amounts of personal customer information
and data, including credit card numbers, tax return information, bank account numbers and
passwords, personal and business financial data, social security numbers, healthcare information
and payroll information. We may also develop new business models that use certain personal
information, or data derived from personal information. In addition, we collect and maintain
personal information of our employees in the ordinary course of our business. Some of this personal
customer and employee information is held and some transactions are executed by third parties. In
addition, as many of our products and services are Web-based, the amount of data we store for our
users on our servers (including personal information) has been increasing. We and our vendors use
commercially available security technologies to protect transactions and personal information. We
use security and business controls to limit access and use of personal information. However,
individuals or third parties may be able to circumvent these security and business measures, and
errors in the storage, use or transmission of personal information may result in a breach of
customer or employee privacy or theft of assets, which may require notification under applicable
data privacy regulations. We employ contractors, temporary and seasonal employees who may have
access to the personal information of customers and employees or who may execute transactions in
the normal course of their duties. While we conduct background checks of our employees and other
individuals and limit access to systems and data, it is possible that one or more of these
individuals may circumvent these controls, resulting in a security breach.
The ability to execute transactions and the possession and use of personal information and data in
conducting our business subjects us to legislative and regulatory burdens that may require
notification to customers or employees of a security breach, restrict our use of personal
information and hinder our ability to acquire new customers or market
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to existing customers. As our business continues to expand to new industry segments that may be
more highly regulated for privacy and data security, and to countries outside the United States
that have more strict data protection laws, our compliance requirements and costs may increase. We
have incurred and may continue to incur significant expenses to comply with mandatory privacy
and security standards and protocols imposed by law, regulation, industry standards or contractual
obligations.
A major breach of our security measures or those of third parties that execute transactions or hold
and manage personal information may have serious negative consequences for our businesses,
including possible fines, penalties and damages, reduced customer demand for our services, harm to
our reputation and brands, further regulation and oversight by federal or state agencies, and loss
of our ability to provide financial transaction services or accept and process customer credit card
orders or tax returns. From time to time, we detect, or receive notices from customers or public
or private agencies that they have detected, vulnerabilities in our servers, our software or
third-party software components that are distributed with our products. The existence of
vulnerabilities, even if they do not result in a security breach, may harm customer confidence and
require substantial resources to address, and we may not be able to discover or remediate such
security vulnerabilities before they are exploited. In addition, hackers develop and deploy
viruses, worms and other malicious software programs that may attack our offerings. Although this
is an industry-wide problem that affects software across platforms, it is increasingly affecting
our offerings because hackers tend to focus their efforts on the more popular programs and
offerings and we expect them to continue to do so. If hackers were able to circumvent our security
measures, we may lose personal information. Although we have commercially available network and
application security, internal control measures, and physical security procedures to safeguard our
systems, there can be no assurance that a security breach, loss or theft of personal information
will not occur, which may harm our business, customer reputation and future financial results and
may require us to expend significant resources to address these problems, including notification
under data privacy regulations.
If we are unable to develop, manage and maintain critical third party business relationships, our
business may be adversely affected.
Our growth is dependent on the strength of our business relationships and our ability to continue
to develop, maintain and leverage new and existing relationships. We rely on various third party
partners, including software and service providers, suppliers, vendors, manufacturers,
distributors, financial institutions, core processors, licensing partners and development partners,
among others, in many areas of our business in order to deliver our offerings and operate our
business. We also rely on third parties to support the operation of our business by maintaining
our physical facilities, equipment, power systems and infrastructure. In certain instances, these
third party relationships are sole source or limited source relationships and can be difficult to
replace or substitute depending on the level of integration of the third partys products or
services into, or with, our offerings and/or the general availability of such third partys
products and services. In addition, there may be few or no alternative third party providers or
vendors in the market. The failure of third parties to provide acceptable and high quality
products, services and technologies or to update their products, services and technologies may
result in a disruption to our business operations, which may reduce our revenues and profits, cause
us to lose customers and damage our reputation. Alternative arrangements and services may not be
available to us on commercially reasonable terms or we may experience business interruptions upon a
transition to an alternative partner.
In particular, we have relationships with banks, credit unions or other financial institutions,
both as customers and as suppliers of certain critical services we offer to our other customers.
If macroeconomic conditions or other factors cause any of these institutions to fail, consolidate
or institute cost-cutting efforts, our business and financial results may suffer and we may be
unable to offer those services to our customers.
Increased government regulation of our businesses may harm our operating results.
Many of our businesses are in highly regulated areas, including our tax, payroll, payments,
financial services and healthcare businesses. The application of these laws and regulations to our
businesses is often unclear and compliance with these regulations may involve significant costs or
require changes to our business practices that result in reduced revenue. In addition, there have
been significant new regulations and heightened focus by the government on many of these areas.
20
In addition, as we seek to grow our business, we may expand into more highly-regulated businesses
or countries, which may require increased investment in compliance and auditing functions or new
technologies in order to meet regulatory standards. Government authorities may enact other laws,
rules or regulations that place new burdens or restrictions on our business or determine that our
operations are directly subject to existing rules or regulations, such as requirements related to
data collection, use, transmission, retention and processing, which may make our business more
costly, less efficient or impossible to conduct, and may require us to modify our current or future
products or services, which may harm our future financial results.
The tax preparation industry continues to receive heightened attention from federal and state
governments. New legislation, regulation, public policy considerations or litigation by the
government or private entities may result in greater oversight of the tax preparation industry,
restrict the types of products and services that we can offer or the prices we can charge, or
otherwise cause us to change the way we operate our tax businesses or offer our tax products and
services. This in turn may increase our cost of doing business and limit our revenue opportunities.
We are also required to comply with a variety of state revenue agency standards in order to
successfully operate our tax preparation and electronic filing services. Changes in state-imposed
requirements by one or more of the states, including the required use of specific technologies or
technology standards, may significantly increase the costs of providing those services to our
customers and may prevent us from delivering a quality product to our customers in a timely manner.
Our Financial Services business provides services to banks, credit unions and other financial
institutions that are subject to extensive and complex federal and state regulation. As a result,
our financial institution customers require that our products and services comply with the
regulations applicable to these customers. If we are unable to comply with these regulations, we
may incur significant costs and penalties, face litigation or governmental proceedings, and lose
our ability to sell to these customers. Any of these adverse events may harm our future financial
results and our reputation.
If we fail to process transactions effectively or fail to adequately protect against disputed or
potential fraudulent activities, our revenue and earnings may be harmed.
Our operations process a significant volume and dollar value of transactions on a daily basis,
especially in our payroll and payments businesses. Due to the size and volume of transactions that
we handle, effective processing systems and controls are essential to ensure that transactions are
handled appropriately. Despite our efforts, it is possible that we may make errors or that funds
may be misappropriated due to fraud. In our payroll and payments businesses, we have been
experiencing an increasing amount of fraudulent activities not only by our customers, but also
targeted fraud by third parties aimed directly at our offerings. In addition to any direct damages
and fines that any such problems may create, which may be substantial, the loss of customer
confidence in our controls may seriously harm our business. The systems supporting our business
are comprised of multiple technology platforms that are difficult to scale. If we are unable to
effectively manage our systems and processes we may be unable to process customer data in an
accurate, reliable and timely manner, which may harm our business. In our payments processing
service business if merchants for whom we process payment transactions are unable to pay refunds
due to their customers in connection with disputed or fraudulent merchant transactions, we may be
required to pay those amounts and our payments may exceed the amount of the customer reserves we
have established to make such payments.
Third parties claiming that we infringe their proprietary rights may cause us to incur significant
legal expenses and prevent us from selling our products.
As the number of products in the software industry increases and the functionality of these
products further overlap, and as we acquire technology through acquisitions or licenses, we may
become increasingly subject to infringement claims, including patent, copyright, and trademark
infringement claims. Litigation may be necessary to determine the validity and scope of the patent
rights of others. We have received an increasing number of allegations of patent infringement
claims in the past and expect to receive more claims in the future based on allegations that our
offerings infringe upon patents held by third parties. Some of these claims are the subject of
pending litigation against us and against some of our customers. These claims may involve patent
holding companies or other adverse patent owners who have no relevant product revenues of their
own, and against whom our own patents may provide little or no deterrence. The ultimate outcome of
any allegation is uncertain and, regardless of outcome, any such claim, with or without merit, may
be time consuming to defend, result in costly litigation, divert managements time
21
and attention from our business, require us to stop selling, delay shipping or redesign our
products, or require us to pay monetary damages for royalty or licensing fees, or to satisfy
indemnification obligations that we have with some of our customers. Our failure to obtain
necessary license or other rights, or litigation arising out of intellectual property claims may
harm our business.
We rely on third party intellectual property in our products and services.
Many of our products and services include intellectual property of third parties, which we license
under agreements that must be renewed or renegotiated from time to time. We may not be able to
obtain licenses to these third party technologies or content on reasonable terms, or at all. If we
are unable to obtain the rights necessary to use this intellectual property in our products and
services, we may not be able to sell the affected offerings, which may in turn harm our future
financial results. Also, we and our customers have been and may continue to be subject to
infringement claims as a result of the third party intellectual property incorporated in to our
offerings. Although we try to mitigate this risk and we may not be ultimately liable for any
potential infringement, pending claims require us to use significant resources, require management
attention and could result in loss of customers.
Some of our offerings include third-party software that is licensed under so-called open source
licenses, some of which may include a requirement that, under certain circumstances, we make
available, or grant licenses to, any modifications or derivative works we create based upon the
open source software. Although we have established internal review and approval processes to
mitigate these risks, we may not be sure that all open source software is submitted for approval
prior to use in our products. Many of the risks associated with usage of open source may not be
eliminated, and may, if not properly addressed, harm our business.
We expect copying and misuse of our intellectual property to be a persistent problem which may
cause lost revenue and increased expenses.
Policing unauthorized use and copying of our products is difficult, expensive, and time consuming.
Current U.S. laws that prohibit copying give us only limited practical protection from software
piracy and the laws of many other countries provide very little protection. We frequently
encounter unauthorized copies of our software being sold through online marketplaces. Although we
continue to evaluate and put in place technology solutions to attempt to lessen the impact of
piracy and engage in efforts to educate consumers and public policy leaders on these issues and
cooperate with industry groups in their efforts to combat piracy, we expect piracy to be a
persistent problem that results in lost revenues and increased expenses.
Because competition for our key employees is intense, we may not be able to attract, retain and
develop the highly skilled employees we need to support our planned growth.
Much of our future success depends on the continued service and availability of skilled personnel,
including members of our executive team, and those in technical, marketing and staff positions.
Experienced personnel in the software and Software as a Service industries are in high demand and
competition for their talents is intense, especially in California and India, where the majority of
our employees are located. Also, as we strive to continue to adapt to technological change and
introduce new and enhanced products and business models, we must be able to secure, maintain and
develop the right quality and quantity of engaged and committed talent. Although we strive to be
an employer of choice, we may not be able to continue to successfully attract, retain and develop
key personnel which may cause our business to suffer.
As our product and service offerings become more tightly integrated, we may be required to
recognize the related revenue over relatively longer periods of time.
Our expanding range of products and services, and the combinations in which we offer them, generate
different revenue streams than our traditional desktop software businesses, and the accounting
policies that apply to revenue from these offerings are complex. For example, as we offer online
services bundled with other products, we may be required to defer a higher percentage of our
product revenue into future fiscal periods. In addition, as we offer more services on a
subscription basis, we recognize revenue from those services over the periods in which the services
are provided. This may result in significant shifts of revenue from quarter to quarter, or from one
fiscal year to the next.
22
The nature of our products and services necessitates timely product launches and if we experience
significant product quality problems or delays, it may harm our revenue, earnings and reputation.
All of our tax products and many of our non-tax products have rigid development timetables that
increase the risk of errors in our products and the risk of launch delays. Our tax preparation
software product development cycle is particularly challenging due to the need to incorporate
unpredictable tax law and tax form changes each year and because our customers expect high levels
of accuracy and a timely launch of these products to prepare and file their taxes by the tax filing
deadline. Due to the complexity of our products and the condensed development cycles under which
we operate, our products sometimes contain bugs that may unexpectedly interfere with the
operation of the software. The complexity of our products may also make it difficult for us to
consistently deliver offerings that contain the features, functionality and level of accuracy that
our customers expect. When we encounter problems we may be required to modify our code, distribute
patches to customers who have already purchased the product and recall or repackage existing
product inventory in our distribution channels. If we encounter development challenges or discover
errors in our products late in our development cycle it may cause us to delay our product launch
date. Any major defects or launch delays may lead to loss of customers and revenue, negative
publicity, customer and employee dissatisfaction, reduced retailer shelf space and promotions, and
increased operating expenses, such as inventory replacement costs, legal fees or payments resulting
from our commitment to reimburse penalties and interest paid by customers due solely to calculation
errors in our consumer tax preparation products.
Our revenue and earnings are highly seasonal and our quarterly results fluctuate significantly.
Several of our businesses are highly seasonal causing significant quarterly fluctuations in our
financial results. Revenue and operating results are usually strongest during the second and third
fiscal quarters ending January 31 and April 30 due to our tax businesses contributing most of their
revenue during those quarters and the timing of the release of our small business software products
and upgrades. We experience lower revenues, and significant operating losses, in the first and
fourth quarters ending October 31 and July 31. Our financial results may also fluctuate from
quarter to quarter and year to year due to a variety of factors, including changes in product sales
mix that affect average selling prices; product release dates; the timing of delivery of federal
and state tax forms; the timing of our discontinuation of support for older product offerings;
changes to our bundling strategy, such as the inclusion of upgrades with certain offerings; changes
to how we communicate the availability of new functionality in the future (any of which may impact
the pattern of revenue recognition); and the timing of acquisitions, divestitures, and goodwill and
acquired intangible asset impairment charges.
We are frequently a party to litigation and regulatory inquiries which could result in an
unfavorable outcome and have an adverse effect on our business, financial condition, results of
operation and cash flows.
We are subject to various legal proceedings, claims and regulatory inquiries that have arisen out
of the ordinary conduct of our business and are not yet resolved and additional claims and
inquiries may arise in the future. The number and significance of these claims and inquiries have
increased as our businesses have evolved. Any proceedings, claims or inquiries initiated by or
against us, whether successful or not, may be time consuming; result in costly litigation, damage
awards, injunctive relief or increased costs of business; require us to change our business
practices; require significant amounts of management time; result in diversion of significant
operations resources; or otherwise harm of business and future financial results.
The continued global economic downturn may harm our business and financial condition.
The continued global economic downturn has caused disruptions and extreme volatility in global
financial markets and increased rates of default and bankruptcy, and has impacted consumer and
small business spending. These macroeconomic developments have affected and may continue to
negatively affect our business and financial condition. In particular, because the majority of our
revenue is derived from sales within the U.S., economic conditions in the U.S. have an even greater
impact on us than companies with a more diverse international presence. Potential new customers
may not purchase or delay purchase of our products and services, and many of our existing customers
may discontinue purchasing or delay upgrades of our existing products and services, thereby
negatively impacting our revenues and future financial results. Decreased consumer spending levels
may also reduce credit and debit card transaction processing volumes causing reductions in our
payments revenue. Poor economic conditions and high unemployment has caused, and may continue to
cause, a significant decrease in the number of tax returns
23
filed, which may have a significant effect on the number of tax returns we prepare and file. In
addition, weakness in the end-user consumer and small business markets may negatively affect the
cash flow of our distributors and resellers who may, in turn, delay paying their obligations to us,
which may increase our credit risk exposure and cause delays in our recognition of revenue or
future sales to these customers. Additionally, if macroeconomic or other factors continue to cause
banks, credit unions, mortgage lenders and other financial institutions to fail, or result in
further cost-cutting efforts or consolidation of these entities, we may lose current or potential
customers, achieve less revenue per customer and/or lose valuable relationships with such of these
entities that provide critical services to our customers. Any of these events may harm our
business and our future financial results.
We regularly invest resources to update and improve our internal information technology systems and
software platforms. Should our investments not succeed, or if delays or other issues with new or
existing internal technology systems and software platforms disrupt our operations, our business
could be harmed.
We rely on our network and data center infrastructure and internal technology systems for many of
our development, marketing, operational, support, sales, accounting and financial reporting
activities. We are continually investing resources to update and improve these systems and
environments in order to meet existing, as well as the growing and changing requirements of our
business and customers. If we experience prolonged delays or unforeseen difficulties in updating
and upgrading our systems and architecture, we may experience outages and may not be able to
deliver certain offerings and develop new offerings and enhancements that we need to remain
competitive. Such improvements and upgrades are often complex, costly and time consuming. In
addition such improvements can be challenging to integrate with our existing technology systems, or
may uncover problems with our existing technology systems. Unsuccessful implementation of hardware
or software updates and improvements could result in outages, disruption in our business
operations, loss of revenue or damage to our reputation.
Our international operations are subject to increased risks which may harm our business, operating
results, and financial condition.
In addition to uncertainty about our ability to generate revenues from our foreign operations and
expand into international markets, there are risks inherent in doing business internationally,
including:
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trade barriers and changes in trade regulations; |
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difficulties in developing, staffing, and simultaneously managing a large number of
varying foreign operations as a result of distance, language, and cultural differences; |
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stringent local labor laws and regulations; |
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profit repatriation restrictions, and foreign currency exchange restrictions; |
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political or social unrest, economic instability, repression, or human rights issues; |
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geopolitical events, including acts of war and terrorism; |
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import or export regulations; |
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compliance with U.S. laws such as the Foreign Corrupt Practices Act, and local laws
prohibiting corrupt payments to government officials; |
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different and more stringent user protection, data protection, privacy and other laws;
and |
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risks related to other government regulation or required compliance with local laws. |
Violations of the complex foreign and U.S. laws and regulations that apply to our international
operations may result in fines, criminal actions or sanctions against us, our officers or our
employees, prohibitions on the conduct of our business and damage to our reputation. Although we
have implemented policies and procedures designed to promote compliance with these laws, there can
be no assurance that our employees, contractors or agents will not violate our policies. These
risks inherent in our international operations and expansion increase our costs of doing business
internationally and may result in harm to our business, operating results, and financial condition.
If actual product returns exceed returns reserves our future financial results may be harmed.
We ship more desktop software products to our distributors and retailers than we expect them to
sell, in order to reduce the risk that distributors or retailers may run out of products. This is
particularly true for our Consumer Tax products, which have a short selling season and for which
returns occur primarily in our fiscal third and fourth quarters. Like many software companies that
sell their products through distributors and retailers, we have historically accepted significant
product returns. We establish reserves against revenue for product returns in our financial
statements based on estimated returns and we closely monitor product sales and inventory in the
retail
24
channel in an effort to maintain adequate reserves. In the past, returns have not differed
significantly from these reserves. However, if we experience actual returns that significantly
exceed reserves, it may result in lower net revenue.
Unanticipated changes in our income tax rates may affect our future financial results.
Our future effective income tax rates may be favorably or unfavorably affected by unanticipated
changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or
their interpretation. In addition, we are subject to the continuous examination of our income tax
returns by the Internal Revenue Service and other tax authorities. We regularly assess the
likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our
provision for income taxes. These continuous examinations may result in unforeseen tax-related
liabilities, which may harm our future financial results.
Amortization of acquired intangible assets and impairment charges may cause significant fluctuation
in our net income.
Our acquisitions have resulted in significant expenses, including amortization and impairment of
acquired technology and other acquired intangible assets, and impairment of goodwill. Total costs
and expenses in these categories were approximately $91 million in fiscal 2010, $101 million in
fiscal 2009, and $90 million in fiscal 2008. Although under current accounting rules goodwill is
not amortized, we may incur impairment charges related to the goodwill already recorded and to
goodwill arising out of future acquisitions. We test the impairment of goodwill annually in our
fourth fiscal quarter or more frequently if indicators of impairment arise. The timing of the
formal annual test may result in charges to our statement of operations in our fourth fiscal
quarter that may not have been reasonably foreseen in prior periods. At July 31, 2010, we had $1.9
billion in goodwill and $256 million in net acquired intangible assets on our balance sheet, both
of which may be subject to impairment charges in the future. New acquisitions, and any impairment
of the value of acquired intangible assets, may have a significant negative impact on our future
financial results.
Our acquisition and divestiture activities may disrupt our ongoing business, may involve increased
expenses and may present risks not contemplated at the time of the transactions.
We have acquired and may continue to acquire companies, products and technologies that complement
our strategic direction. Acquisitions involve significant risks and uncertainties, including:
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inability to successfully integrate the acquired technology and operations into our
business and maintain uniform standards, controls, policies, and procedures; |
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inability to realize synergies expected to result from an acquisition; |
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challenges retaining the key employees, customers, resellers and other business partners
of the acquired operation; |
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the internal control environment of an acquired entity may not be consistent with our
standards and may require significant time and resources to improve; |
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unidentified issues not discovered in our due diligence process, including product or
service quality issues, intellectual property issues and legal contingencies. |
Because acquisitions and divestitures are inherently risky, our transactions may not be successful
and may, in some cases, harm our operating results or financial condition. If we use debt to fund
acquisitions or for other purposes, our interest expense and leverage may increase significantly.
If we issue equity securities as consideration in an acquisition, current shareholders percentage
ownership and earnings per share may be diluted.
We have issued $1 billion in a debt offering and may incur other debt in the future, which may
adversely affect our financial condition and future financial results.
In fiscal 2007 we issued $500 million in senior unsecured notes due in March 2012 and $500 million
in senior unsecured notes due in March 2017. As this debt matures, we will have to expend
significant resources to either repay or refinance these notes. If we decide to refinance the
notes, we may be required to do so on different or less favorable terms or we may be unable to
refinance the notes at all, both of which may adversely affect our financial condition.
25
We have also entered into a $500 million five-year revolving credit facility. Although we have no
current plans to request any advances under this credit facility, we may use the proceeds of any
future borrowing for general corporate purposes or for future acquisitions or expansion of our
business.
This debt may adversely affect our financial condition and future financial results by, among other
things:
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increasing our vulnerability to downturns in our business, to competitive
pressures and to adverse economic and industry conditions; |
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requiring the dedication of a portion of our expected cash from operations
to service our indebtedness, thereby reducing the amount of expected cash flow
available for other purposes, including capital expenditures and acquisitions; and |
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limiting our flexibility in planning for, or reacting to, changes in our
businesses and our industries. |
Our current revolving credit facility imposes restrictions on us, including restrictions on our
ability to create liens on our assets and the ability of our subsidiaries to incur indebtedness,
and require us to maintain compliance with specified financial ratios. Our ability to comply with
these ratios may be affected by events beyond our control. In addition, our long-term
non-convertible debt includes covenants that may adversely affect our ability to incur certain
liens or engage in certain types of sale and leaseback transactions. If we breach any of the
covenants under our long-term debt or our revolving credit facility and do not obtain a waiver from
the lenders, then, subject to applicable cure periods, any outstanding indebtedness may be declared
immediately due and payable.
In addition, changes by any rating agency to our credit rating may negatively impact the value and
liquidity of both our debt and equity securities. If our credit ratings are downgraded or other
negative action is taken, the interest rate payable by us under our revolving credit facility may
increase. In addition, any downgrades in our credit ratings may affect our ability to obtain
additional financing in the future and may affect the terms of any such financing.
We are subject to risks associated with information disseminated through our services.
The law relating to the liability of online services companies for information carried on or
disseminated through their services is often unsettled. Claims may be made against online services
companies under both U.S. and foreign law for defamation, libel, invasion of privacy, negligence,
copyright or trademark infringement, or other theories based on the nature and content of the
materials disseminated through their services. Certain of our services include content generated
by users. Although this content is not generated by us, claims of defamation or other injury may
be made against us for that content. Any costs incurred as a result of this potential liability may
harm our business.
Our business depends on our strong reputation and the value of our brands.
Developing and maintaining awareness of our brands is critical to achieving widespread acceptance
of our existing and future products and services and is an important element in attracting new
customers. Adverse publicity (whether or not justified) relating to activities by our employees or
agents may tarnish our reputation and reduce the value of our brands. Damage to our reputation and
loss of brand equity may reduce demand for our products and services and thus have an adverse
effect on our future financial results, as well as require additional resources to rebuild our
reputation and restore the value of the brands.
26
ITEM 1B
UNRESOLVED STAFF COMMENTS
None.
ITEM 2
PROPERTIES
Our principal locations, their purposes and the expiration dates for the leases on facilities at
those locations as of July 31, 2010 are shown in the table below. We have renewal options on many
of our leases.
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Principal |
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Approximate |
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Lease |
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Square |
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Expiration |
Location |
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Purpose |
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Feet |
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Dates |
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Mountain View and Menlo Park, California |
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Principal offices, corporate headquarters and headquarters for Financial Management Solutions and Employee Management Solutions businesses |
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754,000 |
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2012 - 2018 |
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San Diego, California |
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Headquarters for Consumer Tax business, general office space and data center |
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537,000 |
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2012 - 2017 |
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Woodland Hills, Westlake Village and Calabasas, California |
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Headquarters for Payment Solutions and Financial Services businesses and data centers |
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274,000 |
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2011 - 2018 |
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Quincy, Washington |
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Data center |
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240,000 |
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Owned |
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Plano, Texas |
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Headquarters for Accounting Professionals business and data center |
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166,000 |
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2011 |
We also lease or own facilities in a number of other domestic locations and internationally in
Canada, India, the United Kingdom and several other locations. We believe our facilities are
adequate for our current and near-term needs, and that we will be able to locate additional
facilities as needed. See Note 10 to the financial statements in Item 8 of this report for more
information about our lease commitments.
ITEM 3
LEGAL PROCEEDINGS
Intuit is subject to certain routine legal proceedings, as well as demands, claims and threatened
litigation, that arise in the normal course of our business, including assertions that we may be
infringing patents or other intellectual property rights of others. We currently believe that the
ultimate amount of liability, if any, for any pending claims of any type (either alone or combined)
will not materially affect our financial position, results of operations or cash flows. The
ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an
adverse impact on Intuit because of defense costs, negative publicity, diversion of management
resources and other factors. Our failure to obtain necessary license or other rights, or litigation
arising out of intellectual property claims could adversely affect our business.
27
ITEM 4
RESERVED
PART II
ITEM 5
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Intuits common stock is quoted on the NASDAQ Global Select Market under the symbol INTU. The
following table shows the range of high and low sale prices reported on the NASDAQ Global Select
Market for the periods indicated. The closing price of Intuits common stock on August 31, 2010 was
$42.74.
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High |
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Low |
Fiscal year ended July 31, 2009 |
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First quarter |
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$ |
32.00 |
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$ |
21.76 |
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Second quarter |
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26.24 |
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20.18 |
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Third quarter |
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28.32 |
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21.07 |
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Fourth quarter |
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30.01 |
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22.76 |
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|
|
Fiscal year ended July 31, 2010 |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
31.29 |
|
|
$ |
27.20 |
|
Second quarter |
|
|
31.97 |
|
|
|
28.79 |
|
Third quarter |
|
|
36.43 |
|
|
|
29.00 |
|
Fourth quarter |
|
|
40.00 |
|
|
|
33.24 |
|
Stockholders
As of September 8, 2010 we had approximately 750 record holders and approximately 143,000
beneficial holders of our common stock.
Dividends
Intuit has never paid any cash dividends on its common stock. We follow a disciplined capital
allocation process that funds internal development of offerings and services, enables external
investment in skills, technologies or companies that accelerate our growth, and returns funds not
used in the business to shareholders through our stock repurchase program. We do not anticipate
paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
Our acquisition of Mint Software Inc. is described in Item 7 of this report under Liquidity and
Capital Resources Business Combinations. In connection with our acquisition of all of the
outstanding equity interests of Mint, on November 2, 2009 we issued approximately 231,000 shares of
our common stock to the sole stockholder of the Series D Preferred Stock of Mint. The shares of our
common stock were unregistered and issued pursuant to Regulation D of the Securities Act of 1933,
as amended. In connection with the issuance, we relied upon, among other things, investment
representations made by the stockholder in a written agreement. Pursuant to the merger agreement,
each outstanding share of Series D Preferred Stock of Mint was converted into a number of shares of
our common stock, in accordance with an exchange ratio. The Intuit common stock issued at the
closing of the acquisition had an aggregate value of approximately $6.7 million.
28
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Stock repurchase activity during the three months ended July 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Approximate |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Dollar Value |
|
|
|
|
|
|
|
|
|
|
Purchased |
|
of Shares |
|
|
|
|
|
|
|
|
|
|
as Part of |
|
That May Yet |
|
|
Total Number |
|
Average |
|
Publicly |
|
Be Purchased |
|
|
of Shares |
|
Price Paid |
|
Announced |
|
Under |
Period |
|
Purchased |
|
per Share |
|
Plans |
|
the Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2010 through
May 31, 2010 |
|
|
500,000 |
|
|
$ |
34.96 |
|
|
|
500,000 |
|
|
$ |
132,520,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2010 through
June 30, 2010 |
|
|
1,868,857 |
|
|
$ |
36.28 |
|
|
|
1,868,857 |
|
|
$ |
64,718,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2010 through
July 31, 2010 |
|
|
1,752,397 |
|
|
$ |
36.93 |
|
|
|
1,752,397 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,121,254 |
|
|
$ |
36.40 |
|
|
|
4,121,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
1. |
|
All shares purchased as part of publicly announced plans during the three months ended July
31, 2010 were purchased under a plan we announced on November 19, 2009 under which we were
authorized to repurchase up to $600 million of our common stock from time to time over a
three-year period ending on November 20, 2012. At July 31, 2010, we had expended all funds
authorized by our Board of Directors for stock repurchases. On August 19, 2010 we announced a
new stock repurchase program under which we are authorized to repurchase up to an additional
$2 billion of our common stock from time to time over a three-year period ending on August 16,
2013. |
29
Company Stock Price Performance
The graph below compares the cumulative total stockholder return on Intuit common stock for the
last five full fiscal years with the cumulative total returns on the S&P 500 Index and the Morgan
Stanley High Technology Index for the same period. The graph assumes that $100 was invested in
Intuit common stock and in each of the other indices on July 31, 2005 and that all dividends were
reinvested. Intuit has never paid cash dividends on its stock. The comparisons in the graph below
are based on historical data with Intuit common stock prices based on the closing price on the
dates indicated and are not intended to forecast the possible future performance of Intuits
common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Intuit Inc., the S&P 500 Index
and the Morgan Stanley Technology Index
*$100 invested on 7/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending July 31.
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/05 |
|
7/06 |
|
7/07 |
|
7/08 |
|
7/09 |
|
7/10 |
Intuit Inc. |
|
|
100.00 |
|
|
|
128.63 |
|
|
|
119.33 |
|
|
|
113.88 |
|
|
|
123.75 |
|
|
|
165.63 |
|
S&P 500 |
|
|
100.00 |
|
|
|
105.38 |
|
|
|
122.39 |
|
|
|
108.81 |
|
|
|
87.09 |
|
|
|
99.14 |
|
Morgan Stanley Technology |
|
|
100.00 |
|
|
|
94.62 |
|
|
|
129.86 |
|
|
|
124.89 |
|
|
|
111.41 |
|
|
|
124.28 |
|
30
ITEM 6
SELECTED FINANCIAL DATA
The following tables show Intuits selected financial information for the past five fiscal years.
The comparability of the information is affected by a variety of factors, including acquisitions
and divestitures of businesses, issuance of long-term debt, share-based compensation expense,
amortization of acquired technology and other acquired intangible assets, and repurchases of common
stock under our stock repurchase programs.
On July 6, 2006 we implemented a two-for-one stock split in the form of a 100% stock dividend. All
share and per share figures in the selected financial data below reflect this stock split.
In fiscal 2007 we acquired Digital Insight Corporation for a total purchase price of approximately
$1.34 billion. In that fiscal year we also issued $1 billion in senior notes. In fiscal 2008, 2009
and 2010 we acquired several smaller companies, including Homestead Technologies Inc., Electronic
Clearing House, Inc., PayCycle, Inc., Mint Software Inc. and Medfusion, Inc. We have included the
results of operations for each of them in our consolidated results of operations from their
respective dates of acquisition.
During fiscal 2007 and fiscal 2008 we transitioned certain outsourced payroll customers in
connection with a sale of assets to Automatic Data Processing, Inc. (ADP). In addition, we sold our
Intuit Technology Solutions business in fiscal 2006, our Intuit Distribution Management Solutions
business in fiscal 2008, and our Intuit Real Estate Solutions business in fiscal 2010. We accounted
for these three businesses as discontinued operations and, accordingly, we have reclassified the
selected financial data for all periods presented to reflect them as such.
To better understand the information in these tables, investors should read Managements
Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this report,
and the financial statements and related notes in Item 8 of this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations Data |
|
Fiscal |
|
(In millions, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
3,455 |
|
|
$ |
3,109 |
|
|
$ |
2,993 |
|
|
$ |
2,606 |
|
|
$ |
2,241 |
|
Total costs and expenses |
|
|
2,592 |
|
|
|
2,426 |
|
|
|
2,349 |
|
|
|
1,976 |
|
|
|
1,675 |
|
Operating income from continuing operations |
|
|
863 |
|
|
|
683 |
|
|
|
644 |
|
|
|
630 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
included in total costs and expenses |
|
|
134 |
|
|
|
130 |
|
|
|
111 |
|
|
|
75 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
|
539 |
|
|
|
447 |
|
|
|
447 |
|
|
|
439 |
|
|
|
381 |
|
Net income from discontinued operations |
|
|
35 |
|
|
|
|
|
|
|
30 |
|
|
|
1 |
|
|
|
36 |
|
Net income |
|
|
574 |
|
|
|
447 |
|
|
|
477 |
|
|
|
440 |
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from
continuing operations |
|
$ |
1.71 |
|
|
$ |
1.39 |
|
|
$ |
1.36 |
|
|
$ |
1.28 |
|
|
$ |
1.10 |
|
Basic net income per share from
discontinued operations |
|
|
0.11 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
1.82 |
|
|
$ |
1.39 |
|
|
$ |
1.45 |
|
|
$ |
1.28 |
|
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from
continuing operations |
|
$ |
1.66 |
|
|
$ |
1.35 |
|
|
$ |
1.32 |
|
|
$ |
1.24 |
|
|
$ |
1.06 |
|
Diluted net income per share from
discontinued operations |
|
|
0.11 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
1.77 |
|
|
$ |
1.35 |
|
|
$ |
1.41 |
|
|
$ |
1.24 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data |
|
At July 31, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments |
|
$ |
1,622 |
|
|
$ |
1,347 |
|
|
$ |
828 |
|
|
$ |
1,303 |
|
|
$ |
1,198 |
|
Long-term investments |
|
|
91 |
|
|
|
97 |
|
|
|
288 |
|
|
|
|
|
|
|
|
|
Working capital |
|
|
1,074 |
|
|
|
884 |
|
|
|
307 |
|
|
|
792 |
|
|
|
801 |
|
Total assets |
|
|
5,198 |
|
|
|
4,826 |
|
|
|
4,667 |
|
|
|
4,252 |
|
|
|
2,770 |
|
Long-term debt |
|
|
998 |
|
|
|
998 |
|
|
|
998 |
|
|
|
998 |
|
|
|
|
|
Other long-term obligations |
|
|
158 |
|
|
|
187 |
|
|
|
122 |
|
|
|
57 |
|
|
|
14 |
|
Total stockholders equity |
|
|
2,821 |
|
|
|
2,557 |
|
|
|
2,080 |
|
|
|
2,036 |
|
|
|
1,739 |
|
32
ITEM 7
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
includes the following sections:
|
|
|
Executive Overview that discusses at a high level our operating results and some of the
trends that affect our business. |
|
|
|
|
Critical Accounting Policies and Estimates that we believe are important to
understanding the assumptions and judgments underlying our financial statements. |
|
|
|
|
Results of Operations that includes a more detailed discussion of our revenue and
expenses. |
|
|
|
|
Liquidity and Capital Resources which discusses key aspects of our statements of cash
flows, changes in our balance sheets and our financial commitments. |
You should note that this MD&A discussion contains forward-looking statements that involve risks
and uncertainties. Please see the section entitled Forward-Looking Statements and Risk Factors at
the beginning of Item 1A for important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the financial statements and related notes in Item 8
of this report. In fiscal 2008 we acquired Homestead Technologies Inc. and Electronic Clearing
House, Inc. (ECHO), in fiscal 2009 we acquired PayCycle, Inc., and in fiscal 2010 we acquired Mint
Software Inc. and Medfusion, Inc. We have included the results of operations for each of them in
our consolidated results of operations from their respective dates of acquisition.
We have reclassified our financial statements for all periods presented to reflect our Intuit
Distribution Management Solutions and Intuit Real Estate Solutions businesses as discontinued
operations. See Results of Operations Discontinued Operations and Dispositions later in this
Item 7 for more information. Unless otherwise noted, the following discussion pertains only to our
continuing operations.
Executive Overview
This overview provides a high level discussion of our operating results and some of the trends that
affect our business. We believe that an understanding of these trends is important in order to
understand our financial results for fiscal 2010 as well as our future prospects. This summary is
not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion
and analysis provided elsewhere in this Annual Report on Form 10-K.
Overview of Financial Results
Total net revenue for fiscal 2010 was $3.5 billion, an increase of 11% compared with fiscal 2009.
Revenue was higher in all of our business segments. Consumer Tax segment revenue increased $150
million or 15% due to growth in TurboTax Online units. Operating income from continuing operations
increased 26% in fiscal 2010 compared with fiscal 2009. Cost of service and other revenue as a
percentage of related revenue was slightly lower in fiscal 2010 due to unit growth in TurboTax
Online units. Operating expenses increased due to incentive compensation that was directly related
to our financial results and the addition of operating expenses for acquired businesses. Net income
from continuing operations increased 21% in fiscal 2010 compared with fiscal 2009. Our effective
tax rate for fiscal 2010 was approximately 34% and our effective tax rate for fiscal 2009 was
approximately 31%. Due to all of the foregoing factors, diluted net income per share from
continuing operations of $1.66 for fiscal 2010 grew 23% compared with fiscal 2009.
We ended fiscal 2010 with cash, cash equivalents and investments totaling $1.6 billion. In fiscal
2010 we generated cash from operations, from the issuance of common stock under employee stock
plans, and from the sale of our Intuit Real Estate Solutions business. During the same period we
used cash for the repurchase of shares of our common stock under our stock repurchase programs, for
net purchases of investments, for the acquisitions of Mint and Medfusion, and for capital
expenditures. At July 31, 2010, we had expended all funds authorized by our Board of Directors for
stock repurchases. On August 19, 2010 we announced a new stock repurchase program under which we
are authorized to repurchase up to an additional $2 billion of our common stock from time to time
over a three-year period ending on August 16, 2013.
33
Seasonality
Our QuickBooks, Consumer Tax and Accounting Professionals offerings are highly seasonal. Revenue
from our QuickBooks software products tends to be highest during our second and third fiscal
quarters. Sales of income tax preparation products and services are heavily concentrated in the
period from November through April. In our Consumer Tax business, a greater proportion of our
revenue has been occurring later in this seasonal period due in part to the growth in sales of
TurboTax Online, for which revenue is recognized upon printing or electronic filing of a tax
return. These seasonal patterns mean that our total net revenue is usually highest during our
second quarter ending January 31 and third quarter ending April 30. We typically report losses in
our first quarter ending October 31 and fourth quarter ending July 31, when revenue from our tax
businesses is minimal while operating expenses continue at relatively consistent levels. We believe
the seasonality of our revenue and profitability is likely to continue in the future.
Critical Accounting Policies and Estimates
In preparing our financial statements, we make estimates, assumptions and judgments that can have a
significant impact on our net revenue, operating income or loss and net income or loss, as well as
on the value of certain assets and liabilities on our balance sheet. We believe that the estimates,
assumptions and judgments involved in the accounting policies described below have the greatest
potential impact on our financial statements, so we consider these to be our critical accounting
policies. Senior management has reviewed the development and selection of these critical accounting
policies and their disclosure in this Annual Report on Form 10-K with the Audit and Risk Committee
of our Board of Directors.
Revenue Recognition
We derive revenue from the sale of packaged software products, license fees, software
subscriptions, product support, hosting services, payroll services, merchant services, professional
services, transaction fees and multiple element arrangements that may include any combination of
these items. We follow the appropriate revenue recognition rules for each type of revenue. For
additional information, see Revenue Recognition in Note 1 to the financial statements in Item 8
of this report. We generally recognize revenue when persuasive evidence of an arrangement exists,
we have delivered the product or performed the service, the fee is fixed or determinable and
collectibility is probable. However, determining whether and when some of these criteria have been
satisfied often involves assumptions and judgments that can have a significant impact on the timing
and amount of revenue we report. For example, for multiple element arrangements we must make
assumptions and judgments in order to allocate the total price among the various elements we must
deliver, to determine whether undelivered services are essential to the functionality of the
delivered products and services, to determine whether vendor-specific evidence of fair value exists
for each undelivered element and to determine whether and when each element has been delivered. If
we were to change any of these assumptions or judgments, it could cause a material increase or
decrease in the amount of revenue that we report in a particular period. Amounts for fees collected
or invoiced and due relating to arrangements where revenue cannot be recognized are reflected on
our balance sheet as deferred revenue and recognized when the applicable revenue recognition
criteria are satisfied.
In connection with the sale of certain products, we provide a limited amount of free technical
support assistance to customers. We do not defer the recognition of any revenue associated with
sales of these products since the cost of providing this free technical support is insignificant.
The technical support is generally provided within one year after the associated revenue is
recognized and free product enhancements are minimal and infrequent. We accrue the estimated cost
of providing this free support upon product shipment.
Return and Rebate Reserves
As part of our revenue recognition policy, we estimate future product returns and rebate payments
and establish reserves against revenue at the time of sale based on these estimates. Our return
policy allows distributors and retailers, subject to contractual limitations, to return purchased
products. Product returns by distributors and retailers relate primarily to the return of excess
and obsolete products. In determining our product returns reserves, we consider the volume and
price mix of products in the retail channel, historical return rates for prior releases of the
34
product, trends in retailer inventory and economic trends that might impact customer demand for our
products (including the competitive environment and the timing of new releases of our products). We
fully reserve for excess and obsolete products in the distribution channels.
Our rebate reserves include distributor and retailer sales incentive rebates and end-user rebates.
Our estimated reserves for distributor and retailer incentive rebates are based on distributors
and retailers actual performance against the terms and conditions of rebate programs, which we
typically establish annually. Our reserves for end-user rebates are estimated based on the terms
and conditions of the specific promotional rebate program, actual sales during the promotion and
historical redemption trends by product and by type of promotional program.
In the past, actual returns and rebates have not differed significantly from the reserves that we
have established. However, actual returns and rebates in any future period are inherently
uncertain. If we were to change our assumptions and estimates, our revenue reserves would change,
which would impact the net revenue we report. If actual returns and rebates are significantly
greater than the reserves we have established, the actual results would decrease our future
reported revenue. Conversely, if actual returns and rebates are significantly less than our
reserves, this would increase our future reported revenue. For example, if we had increased our
fiscal 2010 returns reserves by 1% of non-consignment sales to retailers for QuickBooks, TurboTax
and Quicken, our total net revenue for fiscal 2010 would have been about $3 million lower.
Allowance for Doubtful Accounts
We make ongoing assumptions relating to the collectibility of our accounts receivable. The accounts
receivable amounts presented on our balance sheets include reserves for accounts that might not be
paid. In determining the amount of these reserves, we consider our historical level of credit
losses. We also make judgments about the creditworthiness of significant customers based on ongoing
credit evaluations, and we assess current economic trends that might impact the level of credit
losses in the future. Our reserves have generally been adequate to cover our actual credit losses.
However, since we cannot reliably predict future changes in the financial stability of our
customers, we cannot guarantee that our reserves will continue to be adequate. If actual credit
losses are significantly greater than the reserve we have established, that would increase our
general and administrative expenses and reduce our reported net income. Conversely, if actual
credit losses are significantly less than our reserve, this would eventually decrease our general
and administrative expenses and increase our reported net income. We had a total of $157 million in
gross accounts receivable on our balance sheet at July 31, 2010.
Fair Value of Investments
As described in Note 2 to the financial statements in Item 8 of this report, we estimate the fair
value of our available-for-sale securities each quarter. These investments consist of cash
equivalents, municipal bonds, U.S. treasury securities, U.S. agency securities, corporate notes and
municipal auction rate securities. Fair value is defined as the price that would be received from
the sale of an asset or paid to transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement
date. When identical or similar assets are traded in active markets, the level of judgment required
to estimate their fair value is relatively low. This is generally true for our cash equivalents,
which we consider to be Level 1 assets, and our municipal bonds, U.S. agency securities and
corporate notes, which we consider to be Level 2 assets. However, significant judgment is required
to estimate the fair value of assets and liabilities when observable inputs are not available
(Level 3). For example, we use a discounted cash flow model to estimate the fair value of our
municipal auction rate securities because we have determined that the market for those securities
is inactive. We based this determination on the fact that due to a decrease in liquidity in the
global credit markets, regularly scheduled auctions for the municipal auction rate securities we
hold have generally failed since February 2008. Some of the key inputs to our discounted cash flow
model are inherently uncertain. The key inputs include projected future interest rates; the likely
timing of principal repayments; the probability of full repayment; publicly available pricing data
for recently issued similar securities that are not subject to auctions; and the impact of the
reduced liquidity for auction rate securities. At July 31, 2010, we held a total of $87 million in
municipal auction rate securities.
We record unrealized gains and losses on our available-for-sale securities in other comprehensive
income in the equity section of our balance sheet until the security is sold or we determine that
the decrease in fair value is other-than-temporary. We consider a number of factors in determining
whether to recognize an impairment charge, including the reason for the decrease in fair value, the
severity of the decrease in fair value, the length of time that
35
the fair value has been less than the cost basis of the security, the financial condition and
near-term prospects of the issuer, and whether we intend to sell or may be required to sell the
security before anticipated recovery of our cost basis. Changes in our estimates of the fair values
of our available-for-sale securities may result in material increases or decreases in our net
income in the period in which the change occurs.
Fair Value of Nonfinancial Assets and Nonfinancial Liabilities
We estimate the fair values of nonfinancial assets and nonfinancial liabilities that we do not
recognize or disclose at fair value on a recurring basis (at least annually) in accordance with
authoritative guidance. These include nonfinancial assets acquired and liabilities assumed in a
business combination, reporting units measured at fair value in a goodwill impairment test, and
other nonfinancial assets or liabilities measured at fair value for impairment testing.
We define fair value as the price that would be received from the sale of an asset or paid to
transfer a liability in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Given the nature of
nonfinancial assets and liabilities, evaluating their fair value from the perspective of a market
participant is inherently complex. For example, if there are no known markets or we do not have
access to any markets, we are required to identify hypothetical market participants and develop a
hypothetical market based on the expected assumptions of those market participants. In addition, we
are required to consider and use all appropriate valuation methods. Using multiple valuation
methods can yield a range of possible results, which we must evaluate in order to choose the most
representative point within the range.
Assumptions and estimates about future values can be affected by a variety of internal and external
factors. Changes in these factors may require us to revise our estimates and record future
impairment charges for goodwill and acquired intangible assets, or retroactively adjust provisional
amounts that we have recorded for the fair values of assets and liabilities in connection with
business combinations. These charges and adjustments could materially decrease our operating income
and net income and result in lower asset values on our balance sheet.
Business Combinations
As
described in Note 1, Description of Business and Summary of Significant Accounting Policies
Business Combinations, in Item 8 of this report, under the acquisition method of accounting we
generally recognize the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interests in an acquiree at their fair values as of the date of acquisition. We
measure goodwill as the excess of consideration transferred, which we also measure at fair value,
over the net of the acquisition date fair values of the identifiable assets acquired and
liabilities assumed. The acquisition method of accounting requires us to make significant estimates
and assumptions regarding the fair values of the elements of a business combination as of the date
of acquisition, including the fair values of identifiable intangible assets, deferred tax asset
valuation allowances, liabilities related to uncertain tax positions, and contingencies. This
method also requires us to refine these estimates over a one-year measurement period to reflect new
information obtained about facts and circumstances that existed as of the acquisition date that, if
known, would have affected the measurement of the amounts recognized as of that date. If we are
required to retroactively adjust provisional amounts that we have recorded for the fair values of
assets and liabilities in connection with acquisitions, these adjustments could materially decrease
our operating income and net income and result in lower asset values on our balance sheet.
Significant estimates and assumptions in estimating the fair value of acquired technology, customer
lists, and other identifiable intangible assets include future cash flows that we expect to
generate from the acquired assets. If the subsequent actual results and updated projections of the
underlying business activity change compared with the assumptions and projections used to develop
these values, we could record impairment charges. In addition, we have estimated the economic lives
of certain acquired assets and these lives are used to calculate depreciation and amortization
expense. If our estimates of the economic lives change, depreciation or amortization expenses could
be accelerated or slowed.
36
Goodwill,
Acquired Intangible Assets and Other Long-Lived Assets Impairment Assessments
We estimate the fair value of acquired intangible assets and other long-lived assets that have
finite useful lives whenever an event or change in circumstances indicates that the carrying value
of the asset may not be recoverable. We test for potential impairment of goodwill and other
intangible assets that have indefinite useful lives annually in our fourth fiscal quarter or
whenever indicators of impairment arise. The timing of the annual test may result in charges to our
statement of operations in our fourth fiscal quarter that could not have been reasonably foreseen
in prior periods.
As described in Note 1 to the financial statements in Item 8 of this report, in order to estimate
the fair value of goodwill we use a weighted combination of a discounted cash flow model (known as
the income approach) and comparisons to publicly traded companies engaged in similar businesses
(known as the market approach). The income approach requires us to use a number of assumptions,
including market factors specific to the business, the amount and timing of estimated future cash
flows to be generated by the business over an extended period of time, long-term growth rates for
the business, and a rate of return that considers the relative risk of achieving the cash flows and
the time value of money. We evaluate cash flows at the reporting unit level and the number of
reporting units that we have identified may make impairment more probable than it would be at a
company with fewer reporting units and more integrated operations following acquisitions. Although
the assumptions we use in our discounted cash flow model are consistent with the assumptions we use
to generate our internal strategic plans and forecasts, significant judgment is required to
estimate the amount and timing of future cash flows from each reporting unit and the relative risk
of achieving those cash flows. When using the market approach, we make judgments about the
comparability of publicly traded companies engaged in similar businesses. We base our judgments on
factors such as size, growth rates, profitability, risk, and return on investment. We also make
judgments when adjusting market multiples of revenue, operating income, and earnings for these
companies to reflect their relative similarity to our own businesses. We had a total of $1.9
billion in goodwill on our balance sheet at July 31, 2010. See Note 5 to the financial statements
in Item 8 of this report for a summary of goodwill by reportable segment.
We estimate the recoverability of acquired intangible assets and other long-lived assets that have
finite useful lives by comparing the carrying amount of the asset to the future undiscounted cash
flows that we expect the asset to generate. In order to estimate the fair value of those assets, we
estimate the present value of future cash flows from those assets. The key assumptions that we use
in our discounted cash flow model are the amount and timing of estimated future cash flows to be
generated by the asset over an extended period of time and a rate of return that considers the
relative risk of achieving the cash flows and the time value of money. Significant judgment is
required to estimate the amount and timing of future cash flows and the relative risk of achieving
those cash flows. We also make judgments about the remaining useful lives of acquired intangible
assets and other long-lived assets that have finite lives. We had a total of $256 million in net
acquired intangible assets on our balance sheet at July 31, 2010.
Assumptions and estimates about future values and remaining useful lives are complex and often
subjective. They can be affected by a variety of factors, including external factors such as
industry and economic trends, and internal factors such as changes in our business strategy and our
internal forecasts. For example, if our future operating results do not meet current forecasts or
if we experience a sustained decline in our market capitalization that is determined to be
indicative of a reduction in fair value of one or more of our reporting units, we may be required
to record future impairment charges for goodwill and acquired intangible assets. Impairment charges
could materially decrease our future net income and result in lower asset values on our balance
sheet.
In the fourth quarter of fiscal 2010 we performed our annual goodwill impairment test. As described
in Note 1, Description of Business and Summary of Significant Accounting Policies Goodwill,
Acquired Intangible Assets and Other Long-Lived Assets, in step one of that test we compared the
estimated fair value of each reporting unit to its carrying value. The estimated fair values of all
of our reporting units exceeded their carrying values and we concluded that they were not impaired.
Consequently, we recorded no goodwill impairment charges for the twelve months ended July 31, 2010.
During our fiscal 2010 goodwill impairment analysis, we concluded that the estimated fair values of
all of our reporting units substantially exceeded their carrying values. The estimated fair value
of our Financial Services reporting unit exceeded its carrying value of $1.1 billion by
approximately 18%, compared with approximately 5%
37
in the fourth quarter of fiscal 2009. In the course of estimating the fair value of our Financial
Services reporting unit, we considered the extent to which it was consistently meeting or exceeding
internal financial expectations and key business milestones, and the extent to which it was
consistently meeting or exceeding the financial performance of similar lines of business within
comparable companies. The fiscal 2010 increase in fair value for this reporting unit was
predominantly due to increases in revenue, operating income, and earnings multiples for comparable
publicly traded companies engaged in similar businesses, which are key inputs to the market
approach analysis that we perform.
As discussed above, estimates of fair value for all of our reporting units can be affected by a
variety of external and internal factors. The recent global economic downturn has caused
significant disruptions in global financial markets and in the banking and financial services
industry. Potential events or circumstances that could reasonably be expected to negatively affect
the key assumptions we used in estimating the fair value of our Financial Institutions reporting
unit include the consolidation or failure of financial institutions, which may result in a smaller
market for our products and services and may cause us to lose relationships with key customers, and
cost-cutting efforts by financial institutions, which may cause us to lose current or potential
customers or achieve less revenue per customer. If the estimated fair value of our Financial
Institutions reporting unit declines due to any of these factors, we may be required to record
future goodwill impairment charges.
Accounting for Share-Based Compensation Plans
At July 31, 2010, there was $280 million of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under all equity compensation plans which
we will amortize to expense in the future. Total unrecognized compensation cost will be adjusted
for future changes in estimated forfeitures. We expect to recognize that cost over a weighted
average vesting period of 2.1 years.
We use a lattice binomial model and the assumptions described in Note 12 to the financial
statements in Item 8 of this report to estimate the fair value of stock options granted. We
estimate the expected term of options granted based on implied exercise patterns using a binomial
model. We estimate the volatility of our common stock at the date of grant based on the implied
volatility of publicly traded one-year and two-year options on our common stock. Our decision to
use implied volatility was based upon the availability of actively traded options on our common
stock and our assessment that implied volatility is more representative of future stock price
trends than historical volatility. We base the risk-free interest rate that we use in our option
valuation model on the implied yield in effect at the time of option grant on constant maturity
U.S. Treasury issues with equivalent remaining terms. We have never paid any cash dividends on our
common stock and we do not anticipate paying any cash dividends in the foreseeable future.
Consequently, we use an expected dividend yield of zero in our option valuation model. We estimate
forfeitures at the time of grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. We use historical data to estimate pre-vesting option
forfeitures and record share-based compensation expense only for those awards that are expected to
vest. We amortize the fair value of options on a straight-line basis over the requisite service
periods of the awards, which are generally the vesting periods. We may elect to use different
assumptions under our option valuation model in the future, which could materially affect our net
income or loss and net income or loss per share.
Restricted stock units (RSUs) granted typically vest based on continued service. We value these
time-based RSUs at the date of grant using the intrinsic value method and amortize those values on
a straight-line basis adjusted for estimated forfeitures over the restriction period. Certain RSUs
granted to senior management vest based on the achievement of pre-established performance or market
goals. We estimate the fair value of performance-based RSUs at the date of grant using the
intrinsic value method and the probability that the specified performance criteria will be met. We
amortize those fair values over the requisite service period adjusted for estimated forfeitures for
each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at
the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the
requisite service period adjusted for estimated forfeitures for each separately vesting tranche of
the award.
Legal Contingencies
We are subject to certain legal proceedings, as well as demands, claims and threatened litigation
that arise in the normal course of our business. We review the status of each significant matter
quarterly and assess our potential financial exposure. If the potential loss from any claim or
legal proceeding is considered probable and the amount
38
can be reasonably estimated, we record a liability and an expense for the estimated loss.
Significant judgment is required in both the determination of probability and the determination of
whether an exposure is reasonably estimable. Our accruals are based on the best information
available at the time. As additional information becomes available, we reassess the potential
liability related to our pending claims and litigation and may revise our estimates. Potential
legal liabilities and the revision of estimates of potential legal liabilities could have a
material impact on our financial position and results of operations.
Income
Taxes Estimates of Deferred Taxes, Valuation Allowances and Uncertain Tax Positions
We estimate our income taxes based on the various jurisdictions where we conduct business.
Significant judgment is required in determining our worldwide income tax provision. The calculation
of our tax liabilities involves dealing with uncertainties in the application of complex tax rules
and the potential for future adjustment of our uncertain tax positions by the United States
Internal Revenue Service or other taxing jurisdictions. We estimate our current tax liability and
assess temporary differences that result from differing treatments of certain items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which we show
on our balance sheet. We must then assess the likelihood that our deferred tax assets will be
realized. To the extent we believe that realization is not likely, we establish a valuation
allowance. When we establish a valuation allowance or increase this allowance in an accounting
period, we record a corresponding tax expense in our statement of operations.
At July 31, 2010, we had net deferred tax assets of $158 million which included a valuation
allowance of $8 million for certain state and foreign net operating loss carryforwards. We recorded
the valuation allowance to reflect uncertainties about whether we will be able to utilize some of
our deferred tax assets before they expire. The valuation allowance is based on our estimates of
taxable income for the jurisdictions in which we operate and the period over which our deferred tax
assets will be realizable. While we have considered future taxable income in assessing the need for
a valuation allowance, we could in the future be required to increase the valuation allowance to
take into account additional deferred tax assets that we may be unable to realize. An increase in
the valuation allowance would have an adverse impact, which could be material, on our income tax
provision and net income in the period in which we record the increase.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first
step is to evaluate the tax position taken or expected to be taken in a tax return by determining
if the weight of available evidence indicates that it is more likely than not that the tax position
will be sustained upon audit, including resolution of any related appeals or litigation processes.
For tax positions that are more likely than not of being sustained upon audit, the second step is
to measure the tax benefit as the largest amount that is more than 50% likely of being realized
upon settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate
our uncertain tax positions on a quarterly basis. Our evaluations are based upon a number of
factors, including changes in facts or circumstances, changes in tax law, correspondence with tax
authorities during the course of audits and effective settlement of audit issues. Changes in the
recognition or measurement of uncertain tax positions could result in material increases or
decreases in our income tax expense in the period in which we make the change, which could have a
material impact on our effective tax rate and operating results.
39
Results of Operations
Financial Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
3,455 |
|
|
$ |
3,109 |
|
|
$ |
2,993 |
|
|
|
11 |
% |
|
|
4 |
% |
Operating income from
continuing operations |
|
|
863 |
|
|
|
683 |
|
|
|
644 |
|
|
|
26 |
% |
|
|
6 |
% |
Net income from continuing
operations |
|
|
539 |
|
|
|
447 |
|
|
|
447 |
|
|
|
21 |
% |
|
|
0 |
% |
Diluted net income per share
from continuing operations |
|
$ |
1.66 |
|
|
$ |
1.35 |
|
|
$ |
1.32 |
|
|
|
23 |
% |
|
|
2 |
% |
Fiscal 2010 Compared with Fiscal 2009
Total net revenue increased $346 million or 11% in fiscal 2010 compared with fiscal 2009. In our
Small Business Group, Financial Management Solutions segment revenue increased 6% due to strength
in Intuit Websites and higher average selling prices for QuickBooks. Employee Management Solutions
segment revenue increased 15% due to our July 2009 acquisition of PayCycle and price increases for
desktop payroll customers. Payment Solutions segment revenue increased 8% due to growth in the
merchant customer base, partially offset by lower transaction volume per merchant. In our Tax
businesses, Consumer Tax segment revenue increased 15% due to 19% growth in TurboTax Online units.
Accounting Professionals segment revenue grew 6% due to price increases. Financial Services segment
revenue increased 7% due to growth in bill-pay end users and transaction volumes and higher
FinanceWorks revenue. Other Businesses segment revenue increased 22% due to higher Quicken revenue
and a favorable currency impact in our Canadian business.
Operating income from continuing operations increased $180 million or 26% in fiscal 2010 compared
with fiscal 2009. Total costs and expenses were $166 million higher in fiscal 2010. Total costs and
expenses for fiscal 2010 increased about $38 million due to higher cost of service and other
revenue associated with growth in service and other revenue; about $42 million due to higher
incentive compensation expenses that were directly related to our financial performance; and about
$46 million due to operating expenses for PayCycle, Mint and Medfusion. See Cost of Revenue and
Operating Expenses later in this Item 7 for more information.
Net income from continuing operations increased $92 million or 21% in fiscal 2010 compared with
fiscal 2009. Our effective tax rate for fiscal 2010 was approximately 34% and our effective tax
rate for fiscal 2009 was approximately 31%. See Income Taxes later in this item 7 for more
information on the discrete tax items that affected both of these effective tax rates.
Due to all of the foregoing factors, diluted net income per share from continuing operations of
$1.66 in fiscal 2010 increased 23% compared with $1.35 in fiscal 2009.
Fiscal 2009 Compared with Fiscal 2008
Total net revenue increased $116 million or 4% in fiscal 2009 compared with fiscal 2008. Consumer
Tax segment revenue increased $67 million or 7% in fiscal 2009 due to 36% growth in TurboTax Online
units, which more than offset an 11% decrease in TurboTax desktop units. Payment Solutions segment
revenue increased $37 million or 15% in fiscal 2009 due to growth in the core merchant services
customer base and revenue from ECHO, partially offset by a decline in transaction processing volume
per customer. Employee Management Solutions segment revenue increased $28 million or 8% in fiscal
2009 due to the realization of the full effect of pricing changes made in fiscal 2008. Accounting
Professionals segment revenue increased $25 million or 8% in fiscal 2009 due to price increases and
Financial Services revenue increased $12 million or 4% due to growth in online banking and bill-pay
end users, partially offset by a decline in revenue per end user. Revenue in our Other Businesses
segment decreased $41 million or 16% in fiscal 2009 and revenue in our Financial Management
Solutions segment decreased $13
40
million or 2%. We believe that fiscal 2009 revenue in these two segments was affected by slower
small business and consumer spending. See Business Segment Results later in this Item 7 for more
information.
Operating income from continuing operations for fiscal 2009 increased $39 million or 6% compared
with fiscal 2008. Total costs and expenses were $77 million higher in fiscal 2009. In fiscal 2009
total costs and expenses increased about $49 million due to our fiscal 2008 acquisitions of
Homestead and ECHO; about $31 million due to higher advertising and other marketing expenses to
support the launch and subsequent promotion of TurboTax 2008 and QuickBooks 2009; about $27 million
due to higher depreciation expense for investments in our infrastructure; about $19 million due to
higher share-based compensation expense; and about $13 million due to a charge for the historical
use of certain technology licensing rights. These increases in total costs and expenses were
partially offset by decreases of about $45 million due to lower performance incentive payouts and
about $33 million in compensation and benefit savings due to lower staffing levels and lower
severance related charges in fiscal 2009. See Cost of Revenue and Operating Expenses later in
this Item 7 for more information.
Net income from continuing operations was flat in fiscal 2009 compared with fiscal 2008. In fiscal
2008 we recorded a pre-tax gain of $52 million on the sale of certain outsourced payroll assets;
there was no comparable transaction in fiscal 2009. See Discontinued Operations and Dispositions
later in this Item 7 for more information. In addition, interest and other income decreased $25
million in fiscal 2009 compared with fiscal 2008. The impact of lower interest rates more than
offset the impact of higher average invested balances and resulted in $19 million lower interest
income. Our effective tax rate for fiscal 2009 was approximately 31% and our effective tax rate for
fiscal 2008 was approximately 35%. See Income Taxes later in this Item 7 for more information
about our effective tax rates for these periods.
Due to the foregoing factors, diluted net income per share from continuing operations of $1.35 in
fiscal 2009 increased 2% compared with $1.32 in fiscal 2008.
Business Segment Results
The information below is organized in accordance with our seven reportable business segments.
Results for our Other Businesses segment have been adjusted for all periods presented to exclude
results for our Intuit Real Estate Solutions business, which became a discontinued operation in the
second quarter of fiscal 2010. See Note 8 to the financial statements in Item 8 of this report for
more information.
Segment operating income is segment net revenue less segment cost of revenue and operating
expenses. Segment expenses do not include certain costs, such as corporate selling and marketing,
product development, and general and administrative expenses and share-based compensation expenses,
which are not allocated to specific segments. These unallocated costs totaled $609 million in
fiscal 2010, $514 million in fiscal 2009 and $542 million in fiscal 2008. Unallocated costs
increased in fiscal 2010 compared with fiscal 2009 due to increases in corporate selling and
marketing expenses in support of the growth of our businesses. Segment expenses also do not include
amortization of acquired technology and amortization of other acquired intangible assets. See Note
15 to the financial statements in Item 8 of this report for reconciliations of total segment
operating income to consolidated operating income for each fiscal year presented.
We calculate revenue growth rates and segment operating margin figures using dollars in thousands.
Those results may vary slightly from figures calculated using the dollars in millions presented.
41
Financial Management Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
382 |
|
|
$ |
383 |
|
|
$ |
446 |
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
229 |
|
|
|
196 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
611 |
|
|
$ |
579 |
|
|
$ |
592 |
|
|
|
6 |
% |
|
|
-2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
18 |
% |
|
|
19 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
152 |
|
|
$ |
113 |
|
|
$ |
170 |
|
|
|
34 |
% |
|
|
-33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
25 |
% |
|
|
20 |
% |
|
|
29 |
% |
|
|
|
|
|
|
|
|
Financial Management Solutions (FMS) product revenue is derived primarily from QuickBooks
desktop software products and financial supplies such as paper checks, envelopes, invoices,
business cards and business stationery. FMS service and other revenue is derived primarily from
QuickBooks Online; QuickBooks support plans; Intuit Websites, which provides website design and
hosting services for small and medium-sized businesses; QuickBase; and royalties from small
business online services.
Fiscal 2010 Compared with Fiscal 2009
FMS total net revenue increased $32 million or 6% in fiscal 2010 compared with fiscal 2009. About
half of this increase was due to Intuit Websites customer growth. In our QuickBooks desktop
business, higher average selling prices more than offset a 2% decline in total paid QuickBooks
software units. Average selling prices were higher in fiscal 2010 because we offered fewer
promotional discounts compared with fiscal 2009. QuickBooks Online and QuickBooks Enterprise
Solutions customer growth also contributed to higher revenue in fiscal 2010.
FMS segment operating income as a percentage of related revenue increased to 25% in fiscal 2010
from 20% in fiscal 2009 due to the increase in revenue described above, partially offset by higher
cost of revenue and customer service expenses associated with growth in Intuit Websites. Fiscal
2010 operating income also benefited from a decrease of about $16 million in staffing expenses
compared with fiscal 2009.
Fiscal 2009 Compared with Fiscal 2008
FMS total net revenue decreased $13 million or 2% in fiscal 2009 compared with fiscal 2008.
Excluding revenue from Homestead (now known as Intuit Websites), which we acquired in December
2007, FMS total net revenue decreased 6% in fiscal 2009. Total QuickBooks software unit sales,
including activations of our free Simple Start offering, were up 6% in fiscal 2009 compared with
fiscal 2008. Revenue per QuickBooks unit was lower in fiscal 2009 due to price promotion programs
in some of our sales channels. QuickBooks Online subscriptions grew 11% and active QuickBooks
Enterprise Solutions customers were up 12% in fiscal 2009 compared with fiscal 2008.
FMS segment operating income as a percentage of related revenue decreased to 20% in fiscal 2009
from 29% in fiscal 2008 due to the decrease in revenue described above and higher costs and
expenses. Selling and marketing expenses increased approximately $41 million in fiscal 2009,
including about $13 million due to our fiscal 2008 acquisition of Homestead and about $15 million
due to higher advertising and other marketing expenses to support the launch and subsequent
promotion of QuickBooks 2009. Product development expenses increased approximately $7 million in
fiscal 2009 compared with fiscal 2008.
42
Employee Management Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
249 |
|
|
$ |
237 |
|
|
$ |
213 |
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
169 |
|
|
|
128 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
418 |
|
|
$ |
365 |
|
|
$ |
337 |
|
|
|
15 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
12 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
253 |
|
|
$ |
208 |
|
|
$ |
166 |
|
|
|
22 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
60 |
% |
|
|
57 |
% |
|
|
49 |
% |
|
|
|
|
|
|
|
|
Employee Management Solutions (EMS) product revenue is derived primarily from QuickBooks Basic
Payroll and QuickBooks Enhanced Payroll, which are products sold on a subscription basis that offer
payroll tax tables, payroll reports, federal and state payroll tax forms, and electronic tax
payment and filing to small businesses that prepare their own payrolls. EMS service and other
revenue is derived primarily from QuickBooks Online Payroll, Intuit Online Payroll, fees for direct
deposit services, and other small business payroll and employee management services. Service and
other revenue for this segment also includes interest earned on funds held for customers.
Fiscal 2010 Compared with Fiscal 2009
EMS total net revenue increased $53 million or 15% in fiscal 2010 compared with fiscal 2009.
Revenue was higher in fiscal 2010 due to our July 2009 acquisition of PayCycle and price increases
for desktop payroll customers.
EMS segment operating income as a percentage of related revenue increased to 60% in fiscal 2010
from 57% in fiscal 2009. Higher revenue was partially offset by higher costs and expenses due to
our acquisition of PayCycle.
Fiscal 2009 Compared with Fiscal 2008
EMS total net revenue increased $28 million or 8% in fiscal 2009 compared with fiscal 2008 due
predominantly to the realization of the full effect in fiscal 2009 of pricing changes made in
fiscal 2008. PayCycle, which we acquired in July 2009, had a negligible effect on fiscal 2009 EMS
revenue.
EMS segment operating income as a percentage of related revenue increased to 57% in fiscal 2009
from 49% in fiscal 2008 due to higher revenue and lower costs and expenses. Total EMS costs and
expenses decreased approximately $13 million due to about $22 million in lower Small Business Group
common cost allocations partially offset by about $9 million in charges for asset write-downs and
consolidation of workforces that resulted from our July 2009 acquisition of PayCycle.
Payment Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
31 |
|
|
$ |
28 |
|
|
$ |
33 |
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
282 |
|
|
|
263 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
313 |
|
|
$ |
291 |
|
|
$ |
254 |
|
|
|
8 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
9 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
67 |
|
|
$ |
31 |
|
|
$ |
43 |
|
|
|
112 |
% |
|
|
-26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
21 |
% |
|
|
11 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
43
Payment Solutions product revenue is derived primarily from Point of Sale solutions. Payment
Solutions service revenue is derived primarily from merchant services for small businesses that
include credit card, debit card, electronic benefits, and gift card processing services; check
verification, check guarantee and electronic check conversion, including automated clearing house
(ACH) and Check 21 capabilities; and Web-based transaction processing services for online
merchants. Service and other revenue for this segment also includes interest earned on funds held
for customers.
Fiscal 2010 Compared with Fiscal 2009
Payment Solutions total net revenue increased $22 million or 8% in fiscal 2010 compared with fiscal
2009, driven by 17% growth in the merchant customer base. Transaction volume per merchant declined
3% in fiscal 2010 compared with fiscal 2009, reflecting continued lower levels of consumer
spending.
Payment Solutions segment operating income as a percentage of related revenue increased to 21% in
fiscal 2010 from 11% in fiscal 2009. In fiscal 2010, operating income was higher due to the
increase in revenue described above and decreases of about $9 million in the allocation of
facilities expenses and about $8 million in staffing expenses.
Fiscal 2009 Compared with Fiscal 2008
Payment Solutions total net revenue increased $37 million or 15% in fiscal 2009 compared with
fiscal 2008. Revenue in fiscal 2009 increased due to 14% growth in our core merchant services
customer base and revenue from ECHO, which we acquired in February 2008. Transaction volume per
customer was down about 8% in fiscal 2009 compared with fiscal 2008, reflecting an overall
reduction in consumer spending associated with the economic environment. Excluding revenue from
ECHO, Payment Solutions segment revenue increased approximately 8% in fiscal 2009 compared with
fiscal 2008.
Payment Solutions segment operating income as a percentage of related revenue decreased to 11% in
fiscal 2009 from 17% in fiscal 2008. Higher fiscal 2009 revenue as described above was more than
offset by a $49 million increase in segment costs and expenses. In fiscal 2009 total segment
expense included increases of about $15 million due to our February 2008 acquisition of ECHO; about
$11 million for higher cost of revenue in the core merchant services business; about $7 million for
higher sales and marketing expenses and about $4 million for higher product development expenses in
the core merchant services business; and about $4 million for higher depreciation from
infrastructure investments.
Consumer Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
275 |
|
|
$ |
256 |
|
|
$ |
311 |
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
871 |
|
|
|
740 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
1,146 |
|
|
$ |
996 |
|
|
$ |
929 |
|
|
|
15 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
33 |
% |
|
|
32 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
746 |
|
|
$ |
629 |
|
|
$ |
588 |
|
|
|
19 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
65 |
% |
|
|
63 |
% |
|
|
63 |
% |
|
|
|
|
|
|
|
|
Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer and
small business desktop tax return preparation software. Consumer Tax service and other revenue is
derived primarily from TurboTax Online tax return preparation services and electronic tax filing
services.
44
Fiscal 2010 Compared with Fiscal 2009
Consumer Tax total net revenue increased $150 million or 15% in fiscal 2010 compared with fiscal
2009. Total federal TurboTax units were up 11% and TurboTax Online federal units grew 19% in fiscal
2010. Online federal units represented more than 70% of total federal TurboTax units for the 2009
consumer tax season.
Consumer Tax segment operating income as a percentage of related revenue increased to 65% in fiscal
2010 from 63% in fiscal 2009. The growth in fiscal 2010 Consumer Tax revenue was partially offset
by higher segment costs and expenses, including an increase of about $11 million in advertising and
other marketing and sales expenses to support the launch and subsequent promotion of TurboTax 2009.
Fiscal 2009 Compared with Fiscal 2008
Consumer Tax total net revenue increased $67 million or 7% in fiscal 2009 compared with fiscal
2008. The fiscal 2009 revenue increase was due to 36% growth in federal TurboTax Online units,
which more than offset an 11% decrease in federal TurboTax desktop units. We included federal
electronic filing services with our TurboTax desktop software for the first time in the 2008 tax
year. Net of related price increases, we estimate that this decision resulted in a reduction of
about $25 million in Consumer Tax segment revenue for fiscal 2009.
Consumer Tax segment operating income as a percentage of related revenue was flat at 63% in fiscal
2009 and fiscal 2008. The growth in fiscal 2009 Consumer Tax revenue was partially offset by higher
segment costs and expenses, including an increase of about $16 million in advertising and other
marketing expenses to support the launch and subsequent promotion of TurboTax 2008 and an increase
of about $7 million in research and development expenses.
Accounting Professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
303 |
|
|
$ |
322 |
|
|
$ |
302 |
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
70 |
|
|
|
30 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
373 |
|
|
$ |
352 |
|
|
$ |
327 |
|
|
|
6 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
210 |
|
|
$ |
186 |
|
|
$ |
162 |
|
|
|
13 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
56 |
% |
|
|
53 |
% |
|
|
50 |
% |
|
|
|
|
|
|
|
|
Accounting Professionals product revenue is derived primarily from ProSeries and Lacerte
professional tax preparation software products and from QuickBooks Premier Accountant Edition and
ProAdvisor Program for professional accountants. Accounting Professionals service and other revenue
is derived primarily from electronic tax filing services, bank product transmission services and
training services.
Fiscal 2010 Compared with Fiscal 2009
Accounting Professionals total net revenue for fiscal 2010 increased $21 million or 6% compared
with fiscal 2009 due to price increases.
Accounting Professionals segment operating income as a percentage of related revenue increased to
56% in fiscal 2010 from 53% in fiscal 2009 due to higher revenue and operating efficiencies
achieved in this segments product development and customer support functions in fiscal 2010.
45
Fiscal 2009 Compared with Fiscal 2008
Accounting Professionals total net revenue increased $25 million or 8% in fiscal 2009 compared with
fiscal 2008 due to price increases.
Accounting Professionals segment operating income as a percentage of related revenue increased to
53% in fiscal 2009 from 50% in fiscal 2008 due to higher revenue and relatively stable costs and
expenses in fiscal 2009.
Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
332 |
|
|
|
311 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
332 |
|
|
$ |
311 |
|
|
$ |
298 |
|
|
|
7 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
10 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
71 |
|
|
$ |
69 |
|
|
$ |
57 |
|
|
|
2 |
% |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
21 |
% |
|
|
22 |
% |
|
|
19 |
% |
|
|
|
|
|
|
|
|
Our Financial Services segment was previously known as our Financial Institutions segment.
Financial Services service and other revenue is derived primarily from outsourced online banking
software products that are hosted in our data centers and delivered as on-demand service offerings
to banks and credit unions.
Fiscal 2010 Compared with Fiscal 2009
Financial Services total net revenue increased $21 million or 7% in fiscal 2010 compared with
fiscal 2009. Revenue growth was driven about equally by higher bill-pay revenue and higher
FinanceWorks revenue. Bill-pay revenue grew due to an 18% increase in bill-pay end users and higher
transaction volumes. Lower revenue per user partially offset growth in the bill-pay end user
customer base. FinanceWorks was introduced during fiscal 2009.
Financial Services segment operating income as a percentage of related revenue decreased slightly
to 21% in fiscal 2010 from 22% in fiscal 2009 due to higher revenue partially offset by higher
segment costs and expenses. Cost of revenue increased about $14 million due to volume, sales mix
and higher data center costs.
Fiscal 2009 Compared with Fiscal 2008
Financial Services total net revenue increased $13 million or 4% in fiscal 2009 compared with
fiscal 2008. Internet banking end users increased 3% and bill-pay end users were up 20% in fiscal
2009. Lower revenue per user partially offset growth in the Internet banking and bill-pay customer
bases.
Financial Services segment operating income as a percentage of related revenue increased to 22% in
fiscal 2009 from 19% in fiscal 2008 due to higher revenue and relatively stable costs and expenses
in fiscal 2009.
46
Other Businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
2010-2009 |
|
|
2009-2008 |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
172 |
|
|
$ |
150 |
|
|
$ |
178 |
|
|
|
|
|
|
|
|
|
Service and other revenue |
|
|
90 |
|
|
|
65 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
$ |
262 |
|
|
$ |
215 |
|
|
$ |
256 |
|
|
|
22 |
% |
|
|
-16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total revenue |
|
|
7 |
% |
|
|
7 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
64 |
|
|
$ |
62 |
|
|
$ |
90 |
|
|
|
5 |
% |
|
|
-31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of related revenue |
|
|
25 |
% |
|
|
29 |
% |
|
|
35 |
% |
|
|
|
|
|
|
|
|
Other Businesses consist primarily of Quicken, Mint.com, Intuit Health (anchored by Medfusion,
Inc., which we acquired in May 2010) and our businesses in Canada and the United Kingdom. Quicken
product revenue is derived primarily from Quicken desktop software products. Quicken service and
other revenue is derived primarily from fees from consumer online transactions and Quicken Loans
trademark royalties. Mint.com service revenue is derived primarily from lead generation fees.
Intuit Health service revenue is derived from online patient-to-provider communication services. In
Canada, product revenue is derived primarily from localized versions of QuickBooks and Quicken as
well as consumer desktop tax return preparation software and professional tax preparation products.
Service revenue in Canada consists primarily of revenue from payroll services and QuickBooks
support plans. In the United Kingdom, product revenue is derived primarily from localized versions
of QuickBooks and QuickBooks Payroll.
Fiscal 2010 Compared with Fiscal 2009
Other Businesses total net revenue increased $47 million or 22% in fiscal 2010 compared with fiscal
2009. Revenue increased in fiscal 2010 due to 23% higher Quicken revenue that was driven by higher
unit sales and a favorable foreign currency impact in our Canadian business. The weaker U.S. dollar
accounted for approximately seven percentage points of Other Businesses segment revenue growth in
fiscal 2010 compared with fiscal 2009.
Other Businesses segment operating income as a percentage of related revenue decreased to 25% in
fiscal 2010 from 29% in fiscal 2009. Higher fiscal 2010 revenue as described above was offset by
higher costs and expenses associated with our November 2009 acquisition of Mint and by our
continued investment in emerging market opportunities. Canadian costs and expenses were also higher
in the 2010 periods due to the weaker U.S. dollar.
Fiscal 2009 Compared with Fiscal 2008
Other Businesses total net revenue decreased $41 million or 16% in fiscal 2009 compared with fiscal
2008. Quicken sales were down 15% in fiscal 2009, which we believe was due to the overall reduction
in consumer spending. In addition, the stronger U.S. dollar contributed to a decline in revenues
from our businesses in Canada and the UK, lowering Other Businesses segment revenue growth by
approximately seven percentage points in fiscal 2009 compared with fiscal 2008.
Other Businesses segment operating income as a percentage of related revenue decreased to 29% in
fiscal 2009 from 35% in fiscal 2008 due to the decrease in segment revenue in fiscal 2009. The
impact of foreign exchange rates lowered revenue from our businesses in Canada and the United
Kingdom by approximately $23 million, and also lowered total segment costs and expenses by
approximately $13 million.
47
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Fiscal |
|
|
Related |
|
|
Fiscal |
|
|
Related |
|
|
Fiscal |
|
|
Related |
|
(Dollars in millions) |
|
2010 |
|
|
Revenue |
|
|
2009 |
|
|
Revenue |
|
|
2008 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
$ |
144 |
|
|
|
10 |
% |
|
$ |
156 |
|
|
|
11 |
% |
|
$ |
154 |
|
|
|
10 |
% |
Cost of service and other
revenue |
|
|
460 |
|
|
|
23 |
% |
|
|
422 |
|
|
|
24 |
% |
|
|
381 |
|
|
|
25 |
% |
Amortization of acquired
technology |
|
|
49 |
|
|
|
n/a |
|
|
|
59 |
|
|
|
n/a |
|
|
|
55 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
653 |
|
|
|
19 |
% |
|
$ |
637 |
|
|
|
20 |
% |
|
$ |
590 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our cost of revenue has three components: (1) cost of product revenue, which includes the
direct costs of manufacturing and shipping our desktop software products; (2) cost of service and
other revenue, which reflects direct costs associated with providing services, including data
center costs related to delivering online services, and costs associated with revenue sharing and
online transactions revenue; and (3) amortization of acquired technology, which represents the cost
of amortizing developed technologies that we have obtained through acquisitions over their useful
lives.
Fiscal 2010 Compared with Fiscal 2009
Cost of product revenue as a percentage of product revenue decreased slightly to 10% in fiscal 2010
from 11% in fiscal 2009 due to product mix. Cost of service and other revenue as a percentage of
service and other revenue decreased to 23% in fiscal 2010 from 24% in fiscal 2009 due to unit
growth in TurboTax Online, which has relatively lower costs of revenue compared with our other
service offerings.
Amortization of acquired technology decreased in fiscal 2010 compared with fiscal 2009 due to the
completion of the amortization for certain Intuit Financial Services intangible assets that we
acquired in fiscal 2007. Partially offsetting this decrease, we recorded a charge of $6 million for
certain acquired technology that we no longer intend to use in our Financial Management Solutions
segment.
Fiscal 2009 Compared with Fiscal 2008
Cost of product revenue as a percentage of product revenue increased slightly to 11% in fiscal 2009
from 10% in fiscal 2008 due to product mix. Cost of service and other revenue as a percentage of
service and other revenue decreased slightly to 24% in fiscal 2009 from 25% in fiscal 2008 due to
unit growth in TurboTax Online and consumer electronic tax filing services, which have relatively
lower costs of service revenue compared with our other service offerings. Partially offsetting this
benefit, fiscal 2009 cost of service and other revenue included a $13 million charge for the
historical use of certain technology licensing rights that we acquired in May 2009.
Amortization of acquired technology increased in fiscal 2009 compared with fiscal 2008 due
primarily to the amortization of Homestead and ECHO purchased intangible assets, which we acquired
in fiscal 2008.
48
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
Fiscal |
|
|
Net |
|
|
Fiscal |
|
|
Net |
|
|
Fiscal |
|
|
Net |
|
(Dollars in millions) |
|
2010 |
|
|
Revenue |
|
|
2009 |
|
|
Revenue |
|
|
2008 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
976 |
|
|
|
28 |
% |
|
$ |
907 |
|
|
|
29 |
% |
|
$ |
841 |
|
|
|
28 |
% |
Research and development |
|
|
573 |
|
|
|
17 |
% |
|
|
556 |
|
|
|
18 |
% |
|
|
593 |
|
|
|
20 |
% |
General and administrative |
|
|
348 |
|
|
|
10 |
% |
|
|
284 |
|
|
|
9 |
% |
|
|
290 |
|
|
|
10 |
% |
Amortization of other
purchased intangible assets |
|
|
42 |
|
|
|
1 |
% |
|
|
42 |
|
|
|
1 |
% |
|
|
35 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
1,939 |
|
|
|
56 |
% |
|
$ |
1,789 |
|
|
|
57 |
% |
|
$ |
1,759 |
|
|
|
59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 Compared with Fiscal 2009
Total operating expenses as a percentage of total net revenue decreased slightly to 56% in fiscal
2010 from 57% in fiscal 2009. Revenue grew $346 million and total operating expenses increased $150
million in fiscal 2010. Total operating expenses increases included about $42 million due to higher
expenses for incentive compensation that were directly related to our financial results and about
$46 million for the operating expenses of acquired businesses.
Fiscal 2009 Compared with Fiscal 2008
Total operating expenses as a percentage of total net revenue decreased to 57% in fiscal 2009 from
59% in fiscal 2008. Revenue grew $116 million and total operating expenses increased $30 million.
Total operating expenses increased about $32 million for the operating expenses of acquired
businesses; about $31 million for advertising and other marketing expenses to support the launch
and subsequent promotion of TurboTax 2008 and QuickBooks 2009; about $27 million due to higher
depreciation expense for investments in our infrastructure; and about $17 million due to higher
share-based compensation expense. Share-based compensation expense was higher in fiscal 2009
compared with fiscal 2008 due to our broad use of restricted stock units in addition to stock
options. These increases were partially offset by decreases of about $45 million due to lower
performance incentive payouts and about $33 million in compensation and benefit savings due to
lower staffing levels and lower severance related charges in fiscal 2009.
Acquisition-related charges increased in fiscal 2009 compared with fiscal 2008 primarily due to the
amortization of Homestead and ECHO purchased intangible assets, which we acquired in fiscal 2008.
Non-Operating Income and Expenses
Interest Expense
In March 2007 we issued $1 billion in senior notes. Interest expense of $61 million in fiscal 2010,
$51 million in fiscal 2009, and $52 million in fiscal 2008 consisted primarily of interest on $500
million in principal amount of the senior notes at 5.40% and interest on $500 million in principal
amount of the senior notes at 5.75%. The senior notes are due in March 2012 and March 2017 and are
redeemable by Intuit at any time, subject to a make-whole premium.
49
Interest and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9 |
|
|
$ |
21 |
|
|
$ |
39 |
|
Net gains (losses) on executive deferred
compensation plan assets |
|
|
4 |
|
|
|
(6 |
) |
|
|
(3 |
) |
Quicken Loans royalties and fees |
|
|
|
|
|
|
8 |
|
|
|
8 |
|
Net foreign exchange gain (loss) |
|
|
1 |
|
|
|
(1 |
) |
|
|
1 |
|
Other |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income |
|
$ |
13 |
|
|
$ |
21 |
|
|
$ |
46 |
|
|
|
|
|
|
|
|
|
|
|
Interest and other income consists primarily of interest income. The impact of lower interest
rates more than offset the impact of higher average invested balances and resulted in lower
interest income in fiscal 2010 compared with fiscal 2009 and in fiscal 2009 compared with fiscal
2008. In accordance with generally accepted accounting principles, we record gains and losses
associated with executive deferred compensation plan assets in interest and other income and gains
and losses associated with the related liabilities in operating expense. The total amounts recorded
in operating expense generally offset the total amounts recorded in interest and other income.
Total interest and other income for fiscal 2009 and 2008 included royalties and fees from trademark
license and distribution agreements that we entered into when we sold our Quicken Loans mortgage
business in July 2002.
Income Taxes
Effective Tax Rate
Our effective tax rate for fiscal 2010 was approximately 34%. In that year we recorded discrete tax
benefits of approximately $20 million that were related to foreign tax credit benefits associated
with the distribution of profits from certain of our non-U.S. subsidiaries and our plans to
indefinitely reinvest substantially all remaining non-U.S. earnings in support of our international
expansion plans. Excluding those discrete tax benefits, our effective tax rate for fiscal 2010 was
approximately 36% and did not differ significantly from the federal statutory rate of 35%. State
income taxes were partially offset by the benefit we received from the domestic production
activities deduction and the federal research and experimentation credit.
Our effective tax rate for fiscal 2009 was approximately 31%. In that year we recorded discrete tax
benefits of approximately $18 million for a favorable agreement with a state tax authority with
respect to certain tax years including years ended prior to fiscal 2009 and approximately $7
million for the reinstatement of the federal research and experimentation credit through December
31, 2009 that was retroactive to January 1, 2008. Excluding those discrete tax benefits, our
effective tax rate for that period was approximately 35% and did not differ significantly from the
federal statutory rate of 35%. State income taxes were offset by the benefit we received from the
federal research and experimentation credit, the domestic production activities deduction, and tax
exempt interest income.
Our effective tax rate for fiscal 2008 was approximately 35% and did not differ significantly from
the federal statutory rate of 35%. State income taxes were offset by the benefit we received from
tax exempt interest income, the domestic production activities deduction, and the federal research
and experimentation credit.
See Note 11 to the financial statements in Item 8 of this report for more information about our
effective tax rates.
Tax Carryforwards
At July 31, 2010, we had total federal net operating loss carryforwards of approximately $84
million that will start to expire in fiscal 2020. Utilization of the net operating losses is
subject to annual limitation. The annual limitation may result in the expiration of net operating
losses before utilization.
50
At July 31, 2010, we had excess federal foreign tax credits of approximately $22 million, of which
$2 million can be carried back and $20 million can be carried forward. The foreign tax credit
carryforwards will start to expire in fiscal 2020. Our ability to utilize foreign tax credits is
dependent upon having sufficient foreign source income during the carryforward period. The foreign
source income limitation may result in the expiration of foreign tax credits before utilization.
At July 31, 2010, we had total state net operating loss carryforwards of approximately $163 million
for which we have recorded a deferred tax asset of $9 million and a valuation allowance of $7
million. The state net operating losses will start to expire in fiscal 2014. Utilization of the net
operating losses is subject to annual limitation. The annual limitation may result in the
expiration of net operating losses before utilization.
Net Deferred Tax Assets
At July 31, 2010, we had net deferred tax assets of $158 million which included a valuation
allowance of $8 million for certain state and foreign net operating loss carryforwards. We recorded
the valuation allowance to reflect uncertainties about whether we will be able to utilize some of
our deferred tax assets before they expire. While we believe our current valuation allowance is
sufficient, we could in the future be required to increase the valuation allowance to take into
account additional deferred tax assets that we may be unable to realize. We assess the need for an
adjustment to the valuation allowance on a quarterly basis. The assessment is based on our
estimates of future sources of taxable income for the jurisdictions in which we operate and the
periods over which our deferred tax assets will be realizable. See Note 11 to the financial
statements in Item 8 of this report for more information.
Discontinued Operations and Dispositions
During fiscal 2010 and 2008 we sold the businesses and assets described below. See Note 8 to the
financial statements in Item 8 of this report for a more complete description of these discontinued
operations and dispositions and for a summary of the impact that they have had on our statements of
operations for those fiscal years.
Intuit Real Estate Solutions Discontinued Operations
In January 2010 we sold our Intuit Real Estate Solutions (IRES) business for $128 million in cash
and recorded a net gain on disposal of $35 million. IRES was part of our Other Businesses segment.
We have accounted for IRES as a discontinued operation and segregated its operating results from
continuing operations in our statements of operations for all periods prior to the sale. Revenue
from IRES was $33 million in fiscal 2010, $74 million in fiscal 2009 and $78 million in fiscal
2008.
Intuit Distribution Management Solutions Discontinued Operations
In August 2007 we sold our Intuit Distribution Management Solutions (IDMS) business for $100
million in cash and recorded a net gain on disposal of $28 million. IDMS was part of our Other
Businesses segment. We have accounted for IDMS as a discontinued operation and segregated its
operating results from continuing operations in our statements of operations for all periods prior
to the sale. Revenue from IDMS was $2 million in fiscal 2008.
Sale of Outsourced Payroll Assets
In March 2007 we sold certain assets related to our Complete Payroll and Premier Payroll Service
businesses to Automatic Data Processing, Inc. (ADP). Pursuant to the terms of the purchase
agreement, customers transitioned to ADP over a period of approximately one year from the date of
sale. We recorded a pre-tax gain of $52 million in fiscal 2008 for customers who transitioned to
ADP during that year. We recorded a total pre-tax gain of $83 million from the inception of this
transaction through its completion in the third quarter of fiscal 2008. The assets were part of our
Employee Management Solutions segment.
51
Liquidity and Capital Resources
Overview
At July 31, 2010, our cash, cash equivalents and investments totaled $1.6 billion, an increase of
$275 million from July 31, 2009 due to the factors described in Statements of Cash Flows below.
Our primary source of liquidity has been cash from operations, which entails the collection of
accounts receivable for products and services. Our primary uses of cash have been for research and
development programs, selling and marketing activities, capital projects, acquisitions of
businesses, debt service costs and repurchases of our common stock. On August 19, 2010 we announced
a new stock repurchase program under which we are authorized to repurchase up to an additional $2
billion of our common stock from time to time over a three-year period ending on August 16, 2013.
See Stock Repurchase Programs later in this Item 7 for more information.
In March 2007 we issued five-year and ten-year senior unsecured notes totaling $1 billion. We also
have a $500 million unsecured revolving line of credit facility. To date we have not borrowed under
the facility. The senior notes and the revolving line of credit are described later in this Item 7.
The following table summarizes selected measures of our liquidity and capital resources at the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
July 31, |
|
|
$ |
|
|
% |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments |
|
$ |
1,622 |
|
|
$ |
1,347 |
|
|
$ |
275 |
|
|
|
20 |
% |
Long-term investments |
|
|
91 |
|
|
|
97 |
|
|
|
(6 |
) |
|
|
(6 |
%) |
Long-term debt |
|
|
998 |
|
|
|
998 |
|
|
|
|
|
|
|
0 |
% |
Working capital |
|
|
1,074 |
|
|
|
884 |
|
|
|
190 |
|
|
|
21 |
% |
Ratio of current assets to current liabilities |
|
|
1.9 |
: 1 |
|
|
1.8 |
: 1 |
|
|
|
|
|
|
|
|
Auction Rate Securities
At July 31, 2010, we held a total of $87 million in municipal auction rate securities which we
classified as long-term investments based on the maturities of the underlying securities. All of
these securities are rated A or better by the major credit rating agencies and are generally
collateralized by student loans guaranteed by the U.S. Department of Education. Due to a decrease
in liquidity in the global credit markets, in February 2008 auctions began failing for the
municipal auction rate securities we held and in accordance with authoritative guidance we began
estimating their fair value based on a discounted cash flow model that we prepared. See Note 2 to
the financial statements in Item 8 of this report for more information. In November 2008 we
accepted an offer from UBS AG (UBS), one of the broker-dealers for our municipal auction rate
securities, which gave us the option to sell UBS all of the municipal auction rate securities that
we held through them at par. In June 2010 UBS settled the remaining balance of $110 million in
municipal auction rate securities subject to the offer at par. Based on our expected operating cash
flows and our other sources of cash, we do not believe that the reduction in liquidity of the
municipal auction rate securities we held at July 31, 2010 will have a material impact on our
overall ability to meet our liquidity needs.
52
Statements of Cash Flows
The following table summarizes selected items from our statements of cash flows for fiscal 2010,
2009 and 2008. See the financial statements in Item 8 of this report for complete statements of
cash flows for those periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
998 |
|
|
$ |
812 |
|
|
$ |
830 |
|
Investing activities |
|
|
(997 |
) |
|
|
(432 |
) |
|
|
(87 |
) |
Financing activities |
|
|
(467 |
) |
|
|
(110 |
) |
|
|
(586 |
) |
Effect of exchange rate changes on cash |
|
|
1 |
|
|
|
(4 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
(465 |
) |
|
$ |
266 |
|
|
$ |
158 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
During fiscal 2010 we generated $998 million in cash from our continuing operations. This included
net income from continuing operations of $539 million, and adjustments for depreciation and
amortization of $256 million and share-based compensation of $135 million. Amortization expense was
lower in fiscal 2010 compared with 2009 due to the completion of the amortization for certain
Intuit Financial Services intangible assets that we acquired in fiscal 2007. Partially offsetting
this decrease, fiscal 2010 amortization expense included a charge of $6 million for the write-off
of certain acquired technology that we no longer intend to use in our Financial Management
Solutions segment.
During fiscal 2009 we generated $812 million in cash from our continuing operations. This included
net income from continuing operations of $447 million, and adjustments for depreciation and
amortization of $275 million and share-based compensation of $133 million. Depreciation expense
increased in fiscal 2009 compared with fiscal 2008 due in part to depreciation for a new data
center that we began occupying in the second half of fiscal 2009. Share-based compensation
increased in fiscal 2009 compared with fiscal 2008 due to our broad use of restricted stock units
in addition to stock options.
During fiscal 2008 we generated $830 million in cash from our continuing operations. This included
net income from continuing operations of $447 million, and adjustments for depreciation and
amortization of $217 million and share-based compensation of $113 million. Depreciation expense
increased in fiscal 2008 compared with fiscal 2007 due in part to the amortization of leasehold
improvements for new office facilities that we occupied in early fiscal 2008. Amortization expense
increased in the same period primarily due to our February 2007 acquisition of Digital Insight.
Share-based compensation increased in fiscal 2008 compared with fiscal 2007 due to our broad use of
restricted stock units in addition to stock options.
Investing Activities
We used $997 million in cash for investing activities during fiscal 2010. We received a net $122
million in cash from the sale of our Intuit Real Estate Solutions business. We used $895 million in
cash for net purchases of investments, $218 million in cash for acquisitions of businesses
(primarily Mint and Medfusion), and $130 million in cash for capital expenditures.
We used $432 million in cash for investing activities during fiscal 2009, including $161 million
for the acquisition of businesses (primarily PayCycle), $182 million for capital expenditures, and
$67 million for net purchases of investments. Capital expenditures in fiscal 2009 included
investments in a new data center which we began occupying in the second half of fiscal 2009.
We used $87 million in cash for investing activities during fiscal 2008, including $256 million for
acquisitions of businesses (primarily Homestead and ECHO) and $306 million for capital
expenditures, partially offset by the receipt of $348 million from net sales of investments and the
receipt of $132 million from the sale of our Intuit
53
Distribution Management Solutions business and certain outsourced payroll assets. Capital
expenditures in fiscal 2008 included investments in a new data center and expansion of office
capacity to support the expected growth in our business.
Financing Activities
We used $467 million in cash for financing activities during fiscal 2010, including $900 million
for the repurchase of common stock under our stock repurchase programs partially offset by the
receipt of $440 million from the issuance of common stock under employee stock plans.
We used $110 million in cash for financing activities during fiscal 2009, including $300 million
for the repurchase of common stock under our stock repurchase programs partially offset by receipt
of $198 million from the issuance of common stock under employee stock plans.
We used $586 million in cash for financing activities during fiscal 2008, including $800 million
for the repurchase of common stock under our stock repurchase programs partially offset by $203
million from the issuance of common stock under employee stock plans.
Stock Repurchase Programs
Our Board of Directors has authorized a series of common stock repurchase programs. Shares of
common stock repurchased under these programs become treasury shares. During fiscal 2010 we
repurchased 28.7 million shares of our common stock under these programs for $900 million; during
fiscal 2009 we repurchased 10.9 million shares for $300 million; and during fiscal 2008 we
repurchased 27.2 million shares for $800 million. At July 31, 2010, we had expended all funds
authorized by our Board of Directors for stock repurchases. On August 19, 2010 we announced a new
stock repurchase program under which we are authorized to repurchase up to an additional $2 billion
of our common stock from time to time over a three-year period ending on August 16, 2013.
Business Combinations
We completed the business combinations and acquisitions described below during the three fiscal
years ended July 31, 2010. We have included the results of operations for each of them in our
consolidated results of operations from their respective dates of acquisition. Their results of
operations for periods prior to the dates of acquisition were not material, individually or in the
aggregate, when compared with our consolidated results of operations.
On May 21, 2010 we acquired privately held Medfusion, Inc. for total consideration of approximately
$89 million. The total consideration included approximately $10 million for the fair value of cash
retention bonuses that will be charged to expense over a three year service period. Medfusion is a
provider of online patient-to-provider communication solutions and became part of our Other
Businesses segment.
On November 2, 2009 we acquired all of the outstanding equity interests of Mint Software Inc. for
total consideration of approximately $170 million. The total consideration included approximately
$24 million for cash retention bonuses and the fair value of assumed equity awards and Intuit
common stock issued to the holder of Mint Series D Preferred Stock. The total of $24 million will
be charged to expense over a three year service period. Mint is a provider of online personal
finance services and became part of our Other Businesses segment.
On July 23, 2009 we acquired all of the outstanding equity interests of PayCycle, Inc. for a total
purchase price of approximately $169 million, including the fair value of certain assumed stock
options. PayCycle is a provider of online payroll solutions to small businesses and became part of
our Employee Management Solutions segment.
On February 29, 2008 we acquired all of the outstanding equity interests of Electronic Clearing
House, Inc. (ECHO) for a total purchase price of approximately $131 million in cash. ECHO is a
provider of electronic payment processing services to small businesses and became part of our
Payment Solutions segment.
On December 18, 2007 we acquired Homestead Technologies Inc., including all of its outstanding
equity interests, for total consideration of approximately $170 million on a fully diluted basis.
The total consideration was comprised of the purchase price of $146 million (which included the
fair value of vested stock options assumed) plus the $24
54
million fair value of unvested stock options and restricted stock units assumed. Homestead is a
provider of website design and hosting services to small businesses and became part of our
Financial Management Solutions segment.
Commitments for Senior Unsecured Notes
On March 12, 2007 we issued $500 million of 5.40% senior unsecured notes due on March 15, 2012 (the
2012 Notes) and $500 million of 5.75% senior unsecured notes due on March 15, 2017 (the 2017 Notes)
(together, the Notes). The Notes are redeemable by Intuit at any time, subject to a make-whole
premium. Interest is payable semiannually on March 15 and September 15. At July 31, 2010, our
maximum commitment for interest payments under the Notes was $255 million.
We monitor the credit markets as part of our ongoing cash management activities. We currently
intend to either pay off the 2012 Notes when they become due using operating cash or refinance
those notes if the credit markets are favorable at that time.
Unsecured Revolving Credit Facility
On March 22, 2007 we entered into an agreement with certain institutional lenders for a $500
million unsecured revolving credit facility that will expire on March 22, 2012. Advances under the
credit facility will accrue interest at rates that are equal to, at our election, either Citibanks
base rate or the London InterBank Offered Rate (LIBOR) plus a margin that ranges from 0.18% to
0.575% based on our senior debt credit ratings. The applicable interest rate will be increased by
0.05% for any period in which the total principal amount of advances and letters of credit under
the credit facility exceeds $250 million. The agreement includes covenants that require us to
maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and
amortization (EBITDA) of not greater than 3.25 to 1.00 and a ratio of annual EBITDA to interest
payable of not less than 3.00 to 1.00. We were in compliance with these covenants at July 31, 2010.
We may use amounts borrowed under this credit facility for general corporate purposes or for future
acquisitions or expansion of our business. To date we have not borrowed under the credit facility.
We monitor counterparty risk associated with the institutional lenders that are providing the
credit facility. We currently believe that the credit facility will be available to us should we
choose to borrow under it.
Liquidity and Capital Resource Requirements
We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing
strategic relationships with and investing in other companies. We may decide to use cash and cash
equivalents, investments, and our revolving line of credit facility to fund such activities in the
future.
Based on past performance and current expectations, we believe that our cash and cash equivalents,
investments and cash generated from operations will be sufficient to meet anticipated seasonal
working capital needs, capital expenditure requirements, contractual obligations, commitments and
other liquidity requirements associated with our operations for at least the next 12 months.
Off-Balance Sheet Arrangements
At July 31, 2010, we did not have any significant off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of Regulation S-K.
55
Contractual Obligations
The following table summarizes our known contractual obligations to make future payments at July
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than |
|
|
|
|
(In millions) |
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due under executive deferred
compensation plan |
|
$ |
43 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43 |
|
Senior unsecured notes |
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
|
|
1,000 |
|
Interest and fees due on long-term
obligations |
|
|
56 |
|
|
|
84 |
|
|
|
58 |
|
|
|
57 |
|
|
|
255 |
|
License fee payable (1) |
|
|
10 |
|
|
|
20 |
|
|
|
20 |
|
|
|
40 |
|
|
|
90 |
|
Operating leases |
|
|
53 |
|
|
|
88 |
|
|
|
70 |
|
|
|
71 |
|
|
|
282 |
|
Purchase obligations (2) |
|
|
61 |
|
|
|
31 |
|
|
|
6 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (3) |
|
$ |
223 |
|
|
$ |
723 |
|
|
$ |
154 |
|
|
$ |
668 |
|
|
$ |
1,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In May 2009 we entered into an agreement to license certain technology for $20 million
in cash and $100 million payable over ten fiscal years. See Note 10 to the financial
statements in Item 8 of this report for more information. |
|
(2) |
|
Represents agreements to purchase products and services that are enforceable, legally
binding and specify terms, including: fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing of the payments. |
|
(3) |
|
Excludes $20 million of non-current uncertain tax benefits which are included in other
long-term obligations on our balance sheet at July 31, 2010. We have not included this
amount in the table above because we cannot make a reasonably reliable estimate regarding
the timing of settlements with taxing authorities, if any. |
Recent Accounting Pronouncements
For a description of recent accounting pronouncements and the potential impact of these
pronouncements on our financial position, results of operations and cash flows, see Note 1 to the
financial statements in Item 8 of this report.
56
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment Portfolio
There has been significant deterioration and instability in the financial markets during fiscal
2009 and 2010. This period of extraordinary disruption and readjustment in the financial markets
exposes us to additional investment risk. The value and liquidity of the securities in which we
invest could deteriorate rapidly and the issuers of these securities could be subject to credit
rating downgrades. In light of the current market conditions and these additional risks, we
actively monitor market conditions and developments specific to the securities in which we invest.
We believe that we take a conservative approach to investing our funds in that we invest only in
highly-rated securities and diversify our portfolio of investments. While we believe we take
prudent measures to mitigate investment related risks, such risks cannot be fully eliminated
because of market circumstances that are outside our control.
Our investments consist of instruments that meet quality standards that are consistent with our
investment policy. This policy specifies that, except for direct obligations of the United States
government, securities issued by agencies of the United States government, and money market funds,
we diversify our investments by limiting our holdings with any individual issuer. We do not hold
derivative financial instruments in our portfolio of investments.
The following table presents our portfolio of cash equivalents and available-for-sale debt
securities as of July 31, 2010 by stated maturity. The table is classified by the original maturity
date listed on the security and includes cash equivalents, which consist primarily of money market
funds. At July 31, 2010, the weighted average tax adjusted interest rate earned on our money market
accounts was 0.42% and the weighted average tax adjusted interest rate earned on our investments
was 1.10%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending July 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 and |
|
|
|
|
(In millions) |
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
330 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
330 |
|
Investments |
|
|
433 |
|
|
|
366 |
|
|
|
164 |
|
|
|
10 |
|
|
|
4 |
|
|
|
581 |
|
|
|
1,558 |
|
Long-term
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
763 |
|
|
$ |
366 |
|
|
$ |
164 |
|
|
$ |
10 |
|
|
$ |
4 |
|
|
$ |
668 |
|
|
$ |
1,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Risk
Our cash equivalents and investments are subject to market risk due to changes in interest rates.
Interest rate movements affect the interest income we earn on cash equivalents and investments and
the value of those investments. Should the Federal Reserve Target Rate increase by 25 basis points
from the level of July 31, 2010, the value of our investments would decrease by approximately $3
million. Should the Federal Reserve Target Rate increase by 100 basis points from the level of July
31, 2010, the value of our investments would decrease by approximately $11 million.
We are also exposed to the impact of changes in interest rates as they affect our $500 million
revolving credit facility. Advances under the credit facility accrue interest at rates that are
equal to Citibanks base rate or the London InterBank Offered Rate (LIBOR) plus a margin that
ranges from 0.18% to 0.575% based on our senior debt credit ratings. Consequently, our interest
expense would fluctuate with changes in the general level of these interest rates if we were to
borrow any amounts under the credit facility. At July 31, 2010, no amounts were outstanding under
the credit facility.
On March 12, 2007 we issued $500 million of 5.40% senior unsecured notes due on March 15, 2012 and
$500 million of 5.75% senior unsecured notes due on March 15, 2017. We carry these senior notes at
face value less unamortized discount on our balance sheets. Since these senior notes bear interest
at fixed rates, we have no financial statement risk associated with changes in interest rates.
However, the fair value of these notes fluctuates when interest rates change. See Note 2 and Note
10 to the financial statements in Part 8 of this report for more information.
57
Impact of Foreign Currency Rate Changes
The functional currencies of our international operating subsidiaries are generally the local
currencies. We translate the assets and liabilities of our foreign subsidiaries at the exchange
rates in effect on the balance sheet date. We translate their revenue, costs and expenses at the
average rates of exchange in effect during the period. We include translation gains and losses in
the stockholders equity section of our balance sheets. We include net gains and losses resulting
from foreign exchange transactions in interest and other income in our statements of operations.
Since we translate foreign currencies (primarily Canadian dollars, British pounds, Indian rupees
and Singapore dollars) into U.S dollars for financial reporting purposes, currency fluctuations can
have an impact on our financial results. The historical impact of currency fluctuations has
generally been immaterial. We believe that our exposure to currency exchange fluctuation risk is
not significant primarily because our global subsidiaries invoice customers and satisfy their
financial obligations almost exclusively in their local currencies. Although the impact of currency
fluctuations on our financial results has generally been immaterial in the past and we believe that
for the reasons cited above currency fluctuations will not be significant in the future, there can
be no guarantee that the impact of currency fluctuations will not be material in the future. As of
July 31, 2010 we did not engage in foreign currency hedging activities.
58
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. |
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
The following financial statements are filed as part of this Report: |
2. |
|
INDEX TO FINANCIAL STATEMENT SCHEDULES |
|
|
|
The following financial statement schedule is filed as part of this Report and should be
read in conjunction with the Consolidated Financial Statements: |
|
|
All other schedules not listed above have been omitted because they are inapplicable or are
not required. |
59
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Intuit Inc.
We have audited the accompanying consolidated balance sheets of Intuit Inc. as of July 31, 2010 and
2009, and the related consolidated statements of operations, stockholders equity and cash flows
for each of the three years in the period ended July 31, 2010. Our audits also included the
financial statement schedule listed in the Index at Item 15(a) 2. These financial statements and
schedule are the responsibility of Intuit Inc.s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Intuit Inc. at July 31, 2010 and 2009, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended July 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Intuit Inc.s internal control over financial reporting as of July 31, 2010,
based on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated September 16, 2010
expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
September 16, 2010
60
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Intuit Inc.
We have audited Intuit Inc.s internal control over financial reporting as of July 31, 2010, based
on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Intuit Inc.s management
is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the companys internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies and procedures may deteriorate.
In our opinion, Intuit Inc. maintained, in all material respects, effective internal control over
financial reporting as of July 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the fiscal 2010 consolidated financial statements of Intuit Inc. and our
report dated September 16, 2010 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
September 16, 2010
61
INTUIT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
1,412 |
|
|
$ |
1,376 |
|
|
$ |
1,483 |
|
Service and other |
|
|
2,043 |
|
|
|
1,733 |
|
|
|
1,510 |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,455 |
|
|
|
3,109 |
|
|
|
2,993 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
144 |
|
|
|
156 |
|
|
|
154 |
|
Cost of service and other revenue |
|
|
460 |
|
|
|
422 |
|
|
|
381 |
|
Amortization of acquired technology |
|
|
49 |
|
|
|
59 |
|
|
|
55 |
|
Selling and marketing |
|
|
976 |
|
|
|
907 |
|
|
|
841 |
|
Research and development |
|
|
573 |
|
|
|
556 |
|
|
|
593 |
|
General and administrative |
|
|
348 |
|
|
|
284 |
|
|
|
290 |
|
Amortization of other acquired intangible assets |
|
|
42 |
|
|
|
42 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
2,592 |
|
|
|
2,426 |
|
|
|
2,349 |
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations |
|
|
863 |
|
|
|
683 |
|
|
|
644 |
|
Interest expense |
|
|
(61 |
) |
|
|
(51 |
) |
|
|
(52 |
) |
Interest and other income, net |
|
|
13 |
|
|
|
21 |
|
|
|
46 |
|
Gain on sale of outsourced payroll assets |
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
815 |
|
|
|
653 |
|
|
|
690 |
|
Income tax provision |
|
|
276 |
|
|
|
206 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
|
539 |
|
|
|
447 |
|
|
|
447 |
|
Net income from discontinued operations |
|
|
35 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
574 |
|
|
$ |
447 |
|
|
$ |
477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from
continuing operations |
|
$ |
1.71 |
|
|
$ |
1.39 |
|
|
$ |
1.36 |
|
Basic net income per share
from discontinued operations |
|
|
0.11 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
1.82 |
|
|
$ |
1.39 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic per share amounts |
|
|
316 |
|
|
|
322 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from
continuing operations |
|
$ |
1.66 |
|
|
$ |
1.35 |
|
|
$ |
1.32 |
|
Diluted net income per share from
discontinued operations |
|
|
0.11 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
1.77 |
|
|
$ |
1.35 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted per share amounts |
|
|
325 |
|
|
|
330 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
62
INTUIT INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
(Dollars in millions, except par value; shares in thousands) |
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
214 |
|
|
$ |
679 |
|
Investments |
|
|
1,408 |
|
|
|
668 |
|
Accounts receivable, net of allowance for doubtful
accounts of $22 and $16 |
|
|
135 |
|
|
|
135 |
|
Income taxes receivable |
|
|
27 |
|
|
|
67 |
|
Deferred income taxes |
|
|
117 |
|
|
|
92 |
|
Prepaid expenses and other current assets |
|
|
57 |
|
|
|
43 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
Current assets before funds held for customers |
|
|
1,958 |
|
|
|
1,696 |
|
Funds held for customers |
|
|
337 |
|
|
|
272 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,295 |
|
|
|
1,968 |
|
|
|
|
|
|
|
|
|
|
Long-term investments |
|
|
91 |
|
|
|
97 |
|
Property and equipment, net |
|
|
510 |
|
|
|
527 |
|
Goodwill |
|
|
1,914 |
|
|
|
1,754 |
|
Acquired intangible assets, net |
|
|
256 |
|
|
|
291 |
|
Long-term deferred income taxes |
|
|
41 |
|
|
|
36 |
|
Other assets |
|
|
91 |
|
|
|
77 |
|
Long-term assets of discontinued operations |
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,198 |
|
|
$ |
4,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
143 |
|
|
$ |
103 |
|
Accrued compensation and related liabilities |
|
|
206 |
|
|
|
171 |
|
Deferred revenue |
|
|
387 |
|
|
|
360 |
|
Income taxes payable |
|
|
14 |
|
|
|
|
|
Other current liabilities |
|
|
134 |
|
|
|
153 |
|
Current liabilities of discontinued operations |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
Current liabilities before customer fund deposits |
|
|
884 |
|
|
|
812 |
|
Customer fund deposits |
|
|
337 |
|
|
|
272 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,221 |
|
|
|
1,084 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
998 |
|
|
|
998 |
|
Other long-term obligations |
|
|
158 |
|
|
|
187 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,377 |
|
|
|
2,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value |
|
|
|
|
|
|
|
|
Authorized - 1,345 shares total; 145 shares designated
Series A; 250 shares designated Series B
Junior
Participating |
|
|
|
|
|
|
|
|
Issued and
outstanding - None |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value |
|
|
3 |
|
|
|
3 |
|
Authorized - 750,000 shares |
|
|
|
|
|
|
|
|
Outstanding - 313,861 shares at July 31, 2010
and 322,766 shares at July 31, 2009 |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
2,725 |
|
|
|
2,544 |
|
Treasury stock, at cost |
|
|
(3,315 |
) |
|
|
(2,846 |
) |
Accumulated other comprehensive income |
|
|
11 |
|
|
|
7 |
|
Retained earnings |
|
|
3,397 |
|
|
|
2,849 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,821 |
|
|
|
2,557 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
5,198 |
|
|
$ |
4,826 |
|
|
|
|
|
|
|
|
See accompanying notes.
63
INTUIT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Treasury |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders |
|
(Dollars in millions, shares in thousands) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Income |
|
|
Earnings |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007 |
|
|
339,157 |
|
|
$ |
3 |
|
|
$ |
2,249 |
|
|
$ |
(2,207 |
) |
|
$ |
6 |
|
|
$ |
1,985 |
|
|
$ |
2,036 |
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477 |
|
|
|
477 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478 |
|
Issuance of common stock under
employee stock plans |
|
|
10,267 |
|
|
|
|
|
|
|
|
|
|
|
214 |
|
|
|
|
|
|
|
(11 |
) |
|
|
203 |
|
Restricted stock units released, net of taxes |
|
|
347 |
|
|
|
|
|
|
|
(6 |
) |
|
|
7 |
|
|
|
|
|
|
|
(7 |
) |
|
|
(6 |
) |
Assumed vested stock options from
purchase acquisitions |
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Stock repurchases under stock
repurchase programs |
|
|
(27,171 |
) |
|
|
|
|
|
|
|
|
|
|
(800 |
) |
|
|
|
|
|
|
|
|
|
|
(800 |
) |
Tax benefit from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
Other |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
Balance at July 31, 2008 |
|
|
322,600 |
|
|
|
3 |
|
|
|
2,412 |
|
|
|
(2,786 |
) |
|
|
7 |
|
|
|
2,444 |
|
|
|
2,080 |
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447 |
|
|
|
447 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447 |
|
Issuance of common stock under
employee stock plans |
|
|
10,107 |
|
|
|
|
|
|
|
|
|
|
|
219 |
|
|
|
|
|
|
|
(21 |
) |
|
|
198 |
|
Restricted stock units released, net of taxes |
|
|
966 |
|
|
|
|
|
|
|
(15 |
) |
|
|
21 |
|
|
|
|
|
|
|
(21 |
) |
|
|
(15 |
) |
Stock repurchases under stock
repurchase programs |
|
|
(10,907 |
) |
|
|
|
|
|
|
|
|
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
(300 |
) |
Tax benefit from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
Other |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
Balance at July 31, 2009 |
|
|
322,766 |
|
|
|
3 |
|
|
|
2,544 |
|
|
|
(2,846 |
) |
|
|
7 |
|
|
|
2,849 |
|
|
|
2,557 |
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
574 |
|
|
|
574 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
578 |
|
Issuance of common stock under
employee stock plans |
|
|
18,286 |
|
|
|
|
|
|
|
38 |
|
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
440 |
|
Restricted stock units released, net of taxes |
|
|
1,554 |
|
|
|
|
|
|
|
(26 |
) |
|
|
28 |
|
|
|
|
|
|
|
(26 |
) |
|
|
(24 |
) |
Stock repurchases under stock
repurchase programs |
|
|
(28,745 |
) |
|
|
|
|
|
|
|
|
|
|
(900 |
) |
|
|
|
|
|
|
|
|
|
|
(900 |
) |
Tax benefit from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135 |
|
Other |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
Balance at July 31, 2010 |
|
|
313,861 |
|
|
$ |
3 |
|
|
$ |
2,725 |
|
|
$ |
(3,315 |
) |
|
$ |
11 |
|
|
$ |
3,397 |
|
|
$ |
2,821 |
|
|
|
|
See accompanying notes.
64
INTUIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
574 |
|
|
$ |
447 |
|
|
$ |
477 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
148 |
|
|
|
149 |
|
|
|
117 |
|
Amortization of acquired intangible assets |
|
|
108 |
|
|
|
126 |
|
|
|
100 |
|
Share-based compensation |
|
|
135 |
|
|
|
133 |
|
|
|
113 |
|
Gain on sale of outsourced payroll assets |
|
|
|
|
|
|
|
|
|
|
(52 |
) |
Pre-tax gain on sale of discontinued operations (1) |
|
|
(58 |
) |
|
|
|
|
|
|
(46 |
) |
Deferred income taxes |
|
|
(69 |
) |
|
|
22 |
|
|
|
61 |
|
Tax benefit from share-based compensation plans |
|
|
36 |
|
|
|
18 |
|
|
|
38 |
|
Excess tax benefit from share-based compensation plans |
|
|
(18 |
) |
|
|
(9 |
) |
|
|
(21 |
) |
Other |
|
|
23 |
|
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
305 |
|
|
|
452 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
2 |
|
|
|
(18 |
) |
|
|
11 |
|
Prepaid expenses, income taxes and other current assets |
|
|
20 |
|
|
|
(12 |
) |
|
|
(14 |
) |
Accounts payable |
|
|
40 |
|
|
|
(7 |
) |
|
|
(18 |
) |
Accrued compensation and related liabilities |
|
|
33 |
|
|
|
(55 |
) |
|
|
29 |
|
Deferred revenue |
|
|
32 |
|
|
|
26 |
|
|
|
47 |
|
Income taxes payable |
|
|
14 |
|
|
|
(18 |
) |
|
|
(15 |
) |
Other liabilities |
|
|
(22 |
) |
|
|
(3 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Total changes in operating assets and liabilities |
|
|
119 |
|
|
|
(87 |
) |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
998 |
|
|
|
812 |
|
|
|
830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale debt securities |
|
|
(3,029 |
) |
|
|
(550 |
) |
|
|
(934 |
) |
Sales of available-for-sale debt securities |
|
|
1,660 |
|
|
|
426 |
|
|
|
1,045 |
|
Maturities of available-for-sale debt securities |
|
|
474 |
|
|
|
57 |
|
|
|
237 |
|
Investment of funds held for customers
as cash equivalents in available-for-sale
debt securities |
|
|
147 |
|
|
|
|
|
|
|
|
|
Net change in funds held for customers
as cash equivalents |
|
|
(65 |
) |
|
|
366 |
|
|
|
(290 |
) |
Net change in customer fund deposits |
|
|
65 |
|
|
|
(366 |
) |
|
|
290 |
|
Purchases of property and equipment |
|
|
(74 |
) |
|
|
(131 |
) |
|
|
(262 |
) |
Capitalization of internal use software |
|
|
(56 |
) |
|
|
(51 |
) |
|
|
(44 |
) |
Acquisitions of businesses, net of cash acquired |
|
|
(218 |
) |
|
|
(161 |
) |
|
|
(256 |
) |
Acquisitions of intangible assets |
|
|
(13 |
) |
|
|
(20 |
) |
|
|
|
|
Proceeds from divestiture of businesses |
|
|
122 |
|
|
|
|
|
|
|
97 |
|
Cash received from acquirer of outsourced payroll assets |
|
|
|
|
|
|
|
|
|
|
35 |
|
Other |
|
|
(10 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(997 |
) |
|
|
(432 |
) |
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock under stock plans |
|
|
440 |
|
|
|
198 |
|
|
|
203 |
|
Tax payments related to issuance of restricted stock units |
|
|
(24 |
) |
|
|
(15 |
) |
|
|
(6 |
) |
Purchases of treasury stock |
|
|
(900 |
) |
|
|
(300 |
) |
|
|
(800 |
) |
Excess tax benefit from share-based compensation plans |
|
|
18 |
|
|
|
9 |
|
|
|
21 |
|
Other |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(467 |
) |
|
|
(110 |
) |
|
|
(586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
|
1 |
|
|
|
(4 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(465 |
) |
|
|
266 |
|
|
|
158 |
|
Cash and cash equivalents at beginning of period |
|
|
679 |
|
|
|
413 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
214 |
|
|
$ |
679 |
|
|
$ |
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
61 |
|
|
$ |
56 |
|
|
$ |
56 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
277 |
|
|
$ |
190 |
|
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
|
License fee payable incurred for acquisition of purchased
intangible assets |
|
$ |
|
|
|
$ |
69 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because the cash flows of our discontinued operations were not material for any period presented, we have
not segregated the cash flows of those businesses on these statements of cash flows. We have presented
the effect of the gains on disposal of discontinued operations on these statements of cash flows. See
Note 8. |
See accompanying notes.
65
INTUIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Intuit Inc. provides business and financial management solutions for small and medium-sized
businesses, consumers, accounting professionals and financial institutions. Our flagship products
and services, including QuickBooks, Quicken and TurboTax, simplify small business management and
payroll processing, personal finance, and tax preparation and filing. ProSeries and Lacerte are
Intuits tax preparation offerings for professional accountants. Our Financial Services business,
formerly known as Digital Insight, provides online banking solutions and services to banks and
credit unions that help them make it easier for consumers and businesses to manage their money and
pay their bills. Incorporated in 1984 and headquartered in Mountain View, California, we sell our
products and services primarily in the United States.
Basis of Presentation
These consolidated financial statements include the financial statements of Intuit and its wholly
owned subsidiaries. We have eliminated all significant intercompany balances and transactions in
consolidation. We have reclassified certain amounts previously reported in our financial statements
to conform to the current presentation, including amounts related to discontinued operations and
reportable segments.
In fiscal 2008 we acquired Homestead Technologies Inc. and Electronic Clearing House, Inc. (ECHO),
in fiscal 2009 we acquired PayCycle, Inc., and in fiscal 2010 we acquired Mint Software Inc. and
Medfusion, Inc. Accordingly, we have included the results of operations for these companies in our
consolidated results of operations from their respective dates of acquisition. See Note 7.
As discussed in Note 8, in August 2007 we sold our Intuit Distribution Management Solutions
business and in January 2010 we sold our Intuit Real Estate Solutions business. We have
reclassified our financial statements for all periods prior to the sales to reflect these
businesses as discontinued operations. Unless noted otherwise, discussions in these notes pertain
to our continuing operations.
Seasonality
Our QuickBooks, Consumer Tax and Accounting Professionals offerings are highly seasonal. Revenue
from our QuickBooks software products tends to be highest during our second and third fiscal
quarters. Sales of income tax preparation products and services are heavily concentrated in the
period from November through April. These seasonal patterns mean that our total net revenue is
usually highest during our second quarter ending January 31 and third quarter ending April 30. We
typically report losses in our first quarter ending October 31 and fourth quarter ending July 31,
when revenue from our tax businesses is minimal while operating expenses continue at relatively
consistent levels.
Use of Estimates
We make estimates and assumptions that affect the amounts reported in the financial statements and
the disclosures made in the accompanying notes. For example, we use estimates in determining the
appropriate levels of reserves for product returns and rebates, the collectibility of accounts
receivable, the appropriate levels of various accruals, the amount of our worldwide tax provision
and the realizability of deferred tax assets. We also use estimates in determining the remaining
economic lives and carrying values of acquired intangible assets, property and equipment, and other
long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units,
share-based compensation and illiquid municipal auction rate securities. Despite our intention to
establish accurate estimates and use reasonable assumptions, actual results may differ from our
estimates.
66
Revenue Recognition
We derive revenue from the sale of packaged software products, license fees, software
subscriptions, product support, hosting services, payroll services, merchant services, professional
services, transaction fees and multiple element arrangements that may include any combination of
these items. We recognize revenue when persuasive evidence of an arrangement exists, we have
delivered the product or performed the service, the fee is fixed or determinable and collectibility
is probable.
In some situations, we receive advance payments from our customers. We defer revenue associated
with these advance payments and the relative fair value of undelivered elements under multiple
element arrangements until we ship the products or perform the services.
We account for cash consideration (such as sales incentives) that we give to our customers or
resellers as a reduction of revenue rather than as an operating expense unless we receive a benefit
that we can identify and for which we can reasonably estimate the fair value.
Product Revenue
We recognize revenue from the sale of our packaged software products and supplies when legal title
transfers, which is generally when our customers download products from the Web, when we ship the
products or, in the case of certain agreements, when products are delivered to retailers. We sell
some of our QuickBooks, Consumer Tax and Quicken products on consignment to certain retailers. We
recognize revenue for these consignment transactions only when the end-user sale has occurred. For
products that are sold on a subscription basis and include periodic updates, we recognize revenue
ratably over the contractual time period. We record revenue net of our sales tax obligations.
We reduce product revenue from distributors and retailers for estimated returns that are based on
historical returns experience and other factors, such as the volume and price mix of products in
the retail channel, return rates for prior releases of the product, trends in retailer inventory
and economic trends that might impact customer demand for our products (including the competitive
environment and the timing of new releases of our product). We also reduce product revenue for the
estimated redemption of rebates on certain current product sales. Our estimated reserves for
distributor and retailer sales incentive rebates are based on distributors and retailers actual
performance against the terms and conditions of rebate programs. Our reserves for end user rebates
are estimated based on the terms and conditions of the specific promotional rebate program, actual
sales during the promotion and historical redemption trends by product and by type of promotional
program.
Service Revenue
We recognize revenue from payroll processing and payroll tax filing services as the services are
performed, provided we have no other remaining obligations to these customers. We generally require
customers to remit payroll tax funds to us in advance of the applicable payroll due date via
electronic funds transfer. We include in total net revenue the interest earned on invested balances
resulting from timing differences between when we collect these funds from customers and when we
remit the funds to outside parties.
We offer several technical support plans and recognize support revenue over the life of the plans.
Service revenue also includes Web services such as QuickBooks Online and TurboTax Online, and
electronic tax filing services in both our Consumer Tax and Accounting Professionals segments.
Service revenue for electronic payment processing services that we provide to merchants is recorded
net of interchange fees charged by credit card associations because we do not control these fees.
We recognize revenue from our outsourced online banking services for financial institutions, for
which we host our consumer online banking and business banking applications, in two ways. Revenue
earned for upfront fees for implementation services is recognized ratably over the greater of the
initial life of the customer contract or the estimated life of the customer service relationship,
which is approximately seven years. Revenue and amounts billed for recurring monthly services are
earned as services are performed.
67
Other Revenue
Other revenue consists primarily of revenue from revenue-sharing arrangements with third-party
service providers. We recognize transaction fees from revenue-sharing arrangements as end-user
sales are reported to us by these partners.
Multiple Element Arrangements
We enter into certain revenue arrangements for which we are obligated to deliver multiple products
and/or services (multiple elements). For these arrangements, which generally include software
products, we allocate and defer revenue for the undelivered elements based on their vendor-specific
objective evidence of fair value (VSOE). VSOE is the price charged when that element is sold
separately.
In situations where VSOE exists for all elements (delivered and undelivered), we allocate the total
revenue to be earned under the arrangement among the various elements, based on their relative fair
value. For arrangements where VSOE exists only for the undelivered elements, we defer the full fair
value of the undelivered elements and recognize the difference between the total arrangement fee
and the amount deferred for the undelivered items as revenue. If VSOE does not exist for an
undelivered service element, we recognize the revenue from the entire arrangement as the services
are delivered. If VSOE does not exist for undelivered elements that are specified products or
features, we defer revenue until the earlier of the delivery of all elements or the point at which
we determine VSOE for these undelivered elements.
We recognize revenue related to the delivered products or services only if: (1) the above revenue
recognition criteria are met; (2) any undelivered products or services are not essential to the
functionality of the delivered products and services; (3) payment for the delivered products or
services is not contingent upon delivery of the remaining products or services; and (4) we have an
enforceable claim to receive the amount due in the event that we do not deliver the undelivered
products or services.
Shipping and Handling
We record the amounts we charge our customers for the shipping and handling of our software
products as product revenue and we record the related costs as cost of product revenue in our
statements of operations. Product revenue from shipping and handling was less than 2% of total
product revenue for the twelve months ended July 31, 2010, 2009 and 2008.
Customer Service and Technical Support
We include the costs of providing customer service under paid technical support contracts on the
cost of service and other revenue line in our statements of operations. We include customer service
and free technical support costs in selling and marketing expense in our statements of operations.
Customer service and technical support costs include costs associated with performing order
processing, answering customer inquiries by telephone and through websites, e-mail and other
electronic means, and providing free technical support assistance to customers. In connection with
the sale of certain products, we provide a limited amount of free technical support assistance to
customers. We do not defer the recognition of any revenue associated with sales of these products,
since the cost of providing this free technical support is insignificant. The technical support is
generally provided within one year after the associated revenue is recognized and free product
enhancements are minimal and infrequent. We accrue the estimated cost of providing this free
support upon product shipment.
Software Development Costs
We expense software development costs as we incur them until technological feasibility has been
established, at which time those costs are capitalized until the product is available for general
release to customers. To date, our software has been available for general release concurrent with
the establishment of technological feasibility and, accordingly, we have not capitalized any
development costs. Costs we incur to enhance our existing products or after the general release of
the service using the product are expensed in the period they are incurred and included in research
and development expense in our statements of operations.
68
Internal Use Software
We capitalize costs related to computer software obtained or developed for internal use. Software
obtained for internal use has generally been enterprise-level business and finance software that we
customize to meet our specific operational needs. Software developed for internal use has generally
been used to deliver hosted services to our customers. Costs incurred in the application
development phase are capitalized and amortized over their useful lives, which are generally three
to five years.
Advertising
We expense all advertising costs as we incur them to selling and marketing expense in our
statements of operations. We recorded advertising expense of approximately $153 million for the
twelve months ended July 31, 2010, $142 million for the twelve months ended July 31, 2009 and $121
million for the twelve months ended July 31, 2008.
Leases
We review all leases for capital or operating classification at their inception. We use our
incremental borrowing rate in the assessment of lease classification and define the initial lease
term to include the construction build-out period but to exclude lease extension periods. We
conduct our operations primarily under operating leases. For leases that contain rent escalations,
we record the total rent payable during the lease term, as defined above, on a straight-line basis
over the term of the lease. We record the difference between the rent paid and the straight-line
rent in a deferred rent account in other current liabilities or other long-term obligations, as
appropriate, on our balance sheets.
We record landlord allowances as deferred rent liabilities in other current liabilities or other
long-term obligations, as appropriate, on our balance sheets. We record landlord cash incentives as
operating activity on our statements of cash flows. We record other landlord allowances as non-cash
investing and financing activities on our statements of cash flows. We classify the amortization of
landlord allowances as a reduction of occupancy expense in our statements of operations.
Capitalization of Interest Expense
We capitalize interest on capital projects, including facilities build-out projects and internal
use computer software projects. Capitalization commences with the first expenditure for the project
and continues until the project is substantially complete and ready for its intended use. We
amortize capitalized interest to depreciation expense using the straight-line method over the same
lives as the related assets. Capitalized interest was less than $10 million for the twelve months
ended July 31, 2010, 2009 and 2008.
Foreign Currency
The functional currencies of our international operating subsidiaries are generally the local
currencies. We translate the assets and liabilities of our foreign subsidiaries at the exchange
rates in effect on the balance sheet date. We translate their revenue, costs and expenses at the
average rates of exchange in effect during the period. We include translation gains and losses in
the stockholders equity section of our balance sheets. We include net gains and losses resulting
from foreign exchange transactions in interest and other income in our statements of operations.
Income Taxes
We estimate our income taxes based on the various jurisdictions where we conduct business.
Significant judgment is required in determining our worldwide income tax provision. We estimate our
current tax liability and assess temporary differences that result from differing treatments of
certain items for tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which we show on our balance sheet. We must then assess the likelihood that our
deferred tax assets will be realized. To the extent we believe that realization is not likely, we
establish a valuation allowance. When we establish a valuation allowance or increase this allowance
in an accounting period, we record a corresponding income tax expense in our statement of
operations.
69
We review the need for a valuation allowance to reflect uncertainties about whether we will be able
to utilize some of our deferred tax assets before they expire. The valuation allowance analysis is
based on our estimates of taxable income for the jurisdictions in which we operate and the periods
over which our deferred tax assets will be realizable. While we have considered future taxable
income in assessing the need for a valuation allowance for the periods presented, we could be
required to record a valuation allowance to take into account additional deferred tax assets that
we may be unable to realize. An increase in the valuation allowance would have an adverse impact,
which could be material, on our income tax provision and net income in the period in which we
record the increase.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first
step is to evaluate the tax position taken or expected to be taken in a tax return by determining
if the weight of available evidence indicates that it is more likely than not that the tax position
will be sustained upon audit, including resolution of any related appeals or litigation processes.
For tax positions that are more likely than not of being sustained upon audit, the second step is
to measure the tax benefit as the largest amount that is more than 50% likely of being realized
upon settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate
our uncertain tax positions on a quarterly basis. Our evaluations are based upon a number of
factors, including changes in facts or circumstances, changes in tax law, correspondence with tax
authorities during the course of audits and effective settlement of audit issues. Changes in the
recognition or measurement of uncertain tax positions could result in material increases or
decreases in our income tax expense in the period in which we make the change, which could have a
material impact on our effective tax rate and operating results.
Historically we have considered all undistributed earnings of our foreign subsidiaries to be
temporarily invested outside the United States and, accordingly, we provided U.S. taxes on those
earnings. Subsequent to our distribution of non-U.S. earnings in April 2010, our plans are to
indefinitely reinvest substantially all of the earnings of our foreign subsidiaries in support of
our international expansion plans. We provide no U.S. taxes on earnings that we consider to be
indefinitely reinvested. See Note 11 for more information.
A description of our accounting policies associated with tax-related contingencies and valuation
allowances assumed as a part of a business combination is provided under Business Combinations
below.
Computation of Net Income Per Share
We compute basic net income or loss per share using the weighted average number of common shares
outstanding during the period. We compute diluted net income per share using the weighted average
number of common shares and dilutive potential common shares outstanding during the period.
Dilutive potential common shares consist of the shares issuable upon the exercise of stock options
and upon the vesting of restricted stock units (RSUs) under the treasury stock method.
We include stock options with combined exercise prices, unrecognized compensation expense and tax
benefits that are less than the average market price for our common stock, and RSUs with combined
unrecognized compensation expense and tax benefits that are less than the average market price for
our common stock, in the calculation of diluted net income per share. We exclude stock options with
combined exercise prices, unrecognized compensation expense and tax benefits that are greater than
the average market price for our common stock, and RSUs with combined unrecognized compensation
expense and tax benefits that are greater than the average market price for our common stock, from
the calculation of diluted net income per share because their effect is anti-dilutive. Under the
treasury stock method, the amount that must be paid to exercise stock options, the amount of
compensation expense for future service that we have not yet recognized for stock options and RSUs,
and the amount of tax benefits that will be recorded in additional paid-in capital when the awards
become deductible are assumed to be used to repurchase shares.
70
The following table presents the composition of shares used in the computation of basic and diluted
net income per share for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
539 |
|
|
$ |
447 |
|
|
$ |
447 |
|
Net income from discontinued operations |
|
|
35 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
574 |
|
|
$ |
447 |
|
|
$ |
477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
316 |
|
|
|
322 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
316 |
|
|
|
322 |
|
|
|
329 |
|
Dilutive common equivalent shares from
stock options and restricted stock awards |
|
|
9 |
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
outstanding |
|
|
325 |
|
|
|
330 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from
continuing operations |
|
$ |
1.71 |
|
|
$ |
1.39 |
|
|
$ |
1.36 |
|
Basic net income per share from
discontinued operations |
|
|
0.11 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
1.82 |
|
|
$ |
1.39 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from
continuing operations |
|
$ |
1.66 |
|
|
$ |
1.35 |
|
|
$ |
1.32 |
|
Diluted net income per share from
discontinued operations |
|
|
0.11 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
1.77 |
|
|
$ |
1.35 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average stock options and
restricted stock units excluded from
calculation due to anti-dilutive effect |
|
|
8 |
|
|
|
24 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents and Investments
We consider highly liquid investments with maturities of three months or less at the date of
purchase to be cash equivalents. Cash equivalents consist primarily of AAA-rated money market funds
in all periods presented. Investments consist of available-for-sale investment-grade debt
securities and municipal auction rate securities that we carry at fair value. Long-term investments
consist primarily of municipal auction rate securities that we carry at fair value. Due to a
decrease in liquidity in the global credit markets, we estimate the fair values of these municipal
auction rate securities based on a discounted cash flow model that we prepare. See Note 2 for more
information. Except for direct obligations of the United States government, securities issued by
agencies of the United States government, and money market funds, we diversify our investments by
limiting our holdings with any individual issuer.
71
We use the specific identification method to compute gains and losses on investments. We include
unrealized gains and losses on investments, net of tax, in the stockholders equity section of our
balance sheets. We generally classify available-for-sale debt securities as current assets based
upon our ability and intent to use any and all of these securities as necessary to satisfy the
significant short-term liquidity requirements that may arise from the highly seasonal nature of our
businesses. Because of our significant business seasonality, stock repurchase programs and
acquisition opportunities, cash flow requirements may fluctuate dramatically from quarter to
quarter and require us to use a significant amount of the investments we hold as available-for-sale
securities.
Accounts Receivable and Allowances for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and are not interest bearing. We maintain
an allowance for doubtful accounts to reserve for potentially uncollectible receivables. We review
our accounts receivable by aging category to identify significant customers or invoices with known
disputes or collectibility issues. For those invoices not specifically reviewed, we provide
reserves based on the age of the receivable. In determining the amount of the reserve, we make
judgments about the creditworthiness of significant customers based on ongoing credit evaluations.
We also consider our historical level of credit losses and current economic trends that might
impact the level of future credit losses. When we determine that amounts are uncollectible we write
them off against the allowance.
Funds Held for Customers and Customer Fund Deposits
Funds held for customers represent cash held on behalf of our customers that is invested in cash
and cash equivalents and available-for-sale investment-grade debt securities. Customer fund
deposits consist of amounts we owe on behalf of our customers, such as direct deposit payroll funds
and payroll taxes.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. We calculate
depreciation using the straight-line method over the estimated useful lives of the assets, which
range from two to 30 years. We amortize leasehold improvements using the straight-line method over
the lesser of their estimated useful lives or remaining lease terms. We include the amortization of
assets that are recorded under capital leases in depreciation expense.
Business Combinations
On August 1, 2009 we adopted the acquisition method of accounting for business combinations. The
acquisition method of accounting requires us to use significant estimates and assumptions,
including fair value estimates, as of the business combination date and to refine those estimates
as necessary during the measurement period (defined as the period, not to exceed one year, in which
we may adjust the provisional amounts recognized for a business combination) in a manner that is
generally similar to the previous purchase method of accounting.
Under the acquisition method of accounting we recognize separately from goodwill the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree,
generally at the acquisition date fair value. We measure goodwill as of the acquisition date as the
excess of consideration transferred, which we also measure at fair value, over the net of the
acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that we
incur to complete the business combination such as investment banking, legal and other professional
fees are not considered part of consideration and we charge them to general and administrative
expense as they are incurred. Under the acquisition method we also account for acquired company
restructuring activities that we initiate separately from the business combination.
Should the initial accounting for a business combination be incomplete by the end of a reporting
period that falls within the measurement period, we report provisional amounts in our financial
statements. During the measurement period, we adjust the provisional amounts recognized at the
acquisition date to reflect new information obtained about facts and circumstances that existed as
of the acquisition date that, if known, would have affected the measurement of the amounts
recognized as of that date and we record those adjustments to our financial statements. We apply
those measurement period adjustments that we determine to be significant retrospectively to
comparative information in our financial statements, including adjustments to depreciation and
amortization expense.
72
Under the acquisition method of accounting for business combinations, if we identify changes
to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax
positions during the measurement period and they relate to new information obtained about facts and
circumstances that existed as of the acquisition date, those changes are considered a measurement
period adjustment and we record the offset to goodwill. We record all other changes to deferred tax
asset valuation allowances and liabilities related to uncertain tax positions in current period
income tax expense. This accounting applies to all of our acquisitions regardless of acquisition
date.
Goodwill, Acquired Intangible Assets and Other Long-Lived Assets
Goodwill
We record goodwill when the fair value of consideration transferred in a business combination
exceeds the fair value of the identifiable assets acquired and liabilities assumed. Goodwill and
other intangible assets that have indefinite useful lives are not amortized, but we test them for
impairment annually during our fourth fiscal quarter and whenever an event or change in
circumstances indicates that the carrying value of the asset may not be recoverable.
For goodwill, we perform a two-step impairment test. In the first step, we compare the fair value
of each reporting unit to its carrying value. Our reporting units are consistent with the
reportable segments described in Note 15. In accordance with authoritative guidance, we define fair
value as the price that would be received from the sale of an asset or paid to transfer a liability
in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. We consider and use all valuation methods that
are appropriate in estimating the fair value of our reporting units and generally use a weighted
combination of income and market approaches. Under the income approach, we estimate the fair value
of each reporting unit based on the present value of future cash flows. We use a number of
assumptions in our discounted cash flow model, including market factors specific to the business,
the amount and timing of estimated future cash flows to be generated by the business over an
extended period of time, long-term growth rates for the business, and a rate of return that
considers the relative risk of achieving the cash flows and the time value of money. Under the
market approach, we estimate the fair value of each reporting unit based on market multiples of
revenue, operating income, and earnings for comparable publicly traded companies engaged in similar
businesses. If the estimated fair value of the reporting unit exceeds the carrying value of the net
assets assigned to that unit, goodwill is not impaired and no further analysis is required.
If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair
value of the unit, we perform the second step of the impairment test. In this step we allocate the
fair value of the reporting unit calculated in step one to all of the assets and liabilities of
that unit, as if we had just acquired the reporting unit in a business combination. The excess of
the fair value of the reporting unit over the total amount allocated to the assets and liabilities
represents the implied fair value of goodwill. If the carrying value of a reporting units goodwill
exceeds its implied fair value, we would record an impairment loss equal to the difference. We
recorded no goodwill impairment charges for the twelve months ended July 31, 2010, 2009 or 2008.
Acquired Intangible Assets and Other Long-Lived Assets
We generally record acquired intangible assets that have finite useful lives, such as acquired
technology, in connection with business combinations. We amortize the cost of acquired intangible
assets on a straight-line basis over their estimated useful lives, which range from two to nine
years. We review intangible assets that have finite useful lives and other long-lived assets
whenever an event or change in circumstances indicates that the carrying value of the asset may not
be recoverable. We estimate the recoverability of these assets by comparing the carrying amount of
the asset to the future undiscounted cash flows that we expect the asset to generate. We estimate
the fair value of assets that have finite useful lives based on the present value of future cash
flows for those assets. If the carrying value of an asset with a finite life exceeds its estimated
fair value, we would record an impairment loss equal to the difference. We recorded no impairment
charges for acquired intangible assets for the twelve months ended July 31, 2010, 2009 or 2008.
Share-Based Compensation Plans
We estimate the fair value of stock options granted using a lattice binomial model and a multiple
option award approach. We use historical data to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to vest. We amortize the
fair value of stock options on a straight-line basis over the requisite service periods of the
awards, which are generally the vesting periods.
73
Restricted stock units (RSUs) granted typically vest based on continued service. We value these
time-based RSUs at the date of grant using the intrinsic value method and amortize those values on
a straight-line basis adjusted for estimated forfeitures over the restriction period. Certain RSUs
granted to senior management vest based on the achievement of pre-established performance or market
goals. We estimate the fair value of performance-based RSUs at the date of grant using the
intrinsic value method and the probability that the specified performance criteria will be met. We
amortize those fair values over the requisite service period adjusted for estimated forfeitures for
each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at
the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the
requisite service period adjusted for estimated forfeitures for each separately vesting tranche of
the award.
See Note 12 for a description of our share-based compensation plans and more information on the
assumptions we use to calculate the fair value of share-based compensation.
Concentration of Credit Risk and Significant Customers and Suppliers
We operate in markets that are highly competitive and rapidly changing. Significant technological
changes, shifting customer needs, the emergence of competitive products or services with new
capabilities and other factors could negatively impact our operating results.
We are also subject to risks related to changes in the value of our significant balance of
investments. Our portfolio of investments consists of investment-grade securities. Except for
direct obligations of the United States government, securities issued by agencies of the United
States government and money market funds, we diversify our investments by limiting our holdings
with any individual issuer.
We sell a significant portion of our products through third-party retailers and distributors. As a
result, we face risks related to the collectibility of our accounts receivable. To appropriately
manage this risk, we perform ongoing evaluations of customer credit and limit the amount of credit
extended as we deem appropriate, but generally do not require collateral. We maintain reserves for
estimated credit losses and these losses have historically been within our expectations. However,
since we cannot predict future changes in the financial stability of our customers, we cannot
guarantee that our reserves will continue to be adequate. No customer accounted for 10% or more of
total net revenue for the twelve months ended July 31, 2010, 2009 or 2008, nor did any customer
account for 10% or more of total accounts receivable at July 31, 2010 or 2009.
We rely primarily on one third-party vendor to perform the manufacturing and distribution functions
for our retail desktop software products. We also have a key single-source vendor that prints and
fulfills orders for most of our financial supplies business. While we believe that relying on key
vendors improves the efficiency and reliability of our business operations, relying on any one
vendor for a significant aspect of our business can have a significant negative impact on our
revenue and profitability if that vendor fails to perform at acceptable service levels for any
reason, including financial difficulties of the vendor.
Recent Accounting Pronouncements
ASU 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements a
Consensus of the FASB Emerging Issues Task Force
In October 2009 the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue Recognition
(Topic 605) Multiple-Deliverable Revenue Arrangements a Consensus of the FASB Emerging Issues
Task Force. This update provides amendments to the criteria in ASC Topic 605, Revenue
Recognition, for separating consideration in multiple-deliverable arrangements by establishing a
selling price hierarchy. The selling price used for each deliverable will be based on
vendor-specific objective evidence (VSOE) if available, third-party evidence if VSOE is not
available, or estimated selling price if neither VSOE nor third-party evidence is available. ASU
2009-13 also eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all deliverables using the
relative selling price method. ASU 2009-13 is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, which means that it will
be effective for our fiscal year beginning August 1, 2010. We are in the process of evaluating this
update
74
and therefore have not yet determined the impact that adoption of ASU 2009-13 will have on our
financial position, results of operations or cash flows.
2. Fair Value Measurements
Fair Value Hierarchy
The authoritative guidance defines fair value as the price that would be received from the sale of
an asset or paid to transfer a liability in an orderly transaction between market participants on
the measurement date. When determining fair value, we consider the principal or most advantageous
market for an asset or liability and assumptions that market participants would use when pricing
the asset or liability. In addition, we consider and use all valuation methods that are appropriate
in estimating the fair value of an asset or liability.
The authoritative guidance establishes a fair value hierarchy that is based on the extent and level
of judgment used to estimate the fair value of assets and liabilities. In general, the
authoritative guidance requires us to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. An asset or liabilitys categorization within the
fair value hierarchy is based upon the lowest level of input that is significant to the measurement
of its fair value. The three levels of input defined by the authoritative guidance are as follows:
|
|
|
Level 1 uses unadjusted quoted prices that are available in active markets for identical
assets or liabilities. |
|
|
|
Level 2 uses inputs other than quoted prices included in Level 1 that are either
directly or indirectly observable through correlation with market data. These include
quoted prices in active markets for similar assets or liabilities: quoted prices for
identical or similar assets or liabilities in markets that are not active; and inputs to
valuation models or other pricing methodologies that do not require significant judgment
because the inputs used in the model, such as interest rates and volatility, can be
corroborated by readily observable market data for substantially the full term of the
assets or liabilities. |
|
|
|
Level 3 uses one or more unobservable inputs that are supported by little or no market
activity and that are significant to the determination of fair value. Level 3 assets and
liabilities include those whose fair values are determined using pricing models, discounted
cash flow methodologies or similar valuation techniques and significant management judgment
or estimation. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes financial assets and financial liabilities that we measured at fair
value on a recurring basis at the dates indicated, classified in accordance with the fair value
hierarchy described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2010 |
|
|
At July 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
(In millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents, primarily
money market funds |
|
$ |
330 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
330 |
|
|
$ |
893 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
|
|
|
|
1,050 |
|
|
|
|
|
|
|
1,050 |
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
448 |
|
Municipal auction rate
securities |
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
245 |
|
|
|
245 |
|
Corporate notes |
|
|
|
|
|
|
334 |
|
|
|
|
|
|
|
334 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
44 |
|
U.S. agency securities |
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt
securities |
|
|
|
|
|
|
1,558 |
|
|
|
87 |
|
|
|
1,645 |
|
|
|
|
|
|
|
517 |
|
|
|
245 |
|
|
|
762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair
value on a recurring basis |
|
$ |
330 |
|
|
$ |
1,558 |
|
|
$ |
87 |
|
|
$ |
1,975 |
|
|
$ |
893 |
|
|
$ |
517 |
|
|
$ |
245 |
|
|
$ |
1,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
$ |
|
|
|
$ |
1,086 |
|
|
$ |
|
|
|
$ |
1,086 |
|
|
$ |
|
|
|
$ |
1,001 |
|
|
$ |
|
|
|
$ |
1,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Carrying value on our balance sheets at July 31, 2010 and July 31, 2009 was $998
million. See Note 9. |
75
The following table summarizes our cash equivalents and available-for-sale debt securities by
balance sheet classification and level in the fair value hierarchy at the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2010 |
|
|
At July 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
(In millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In cash and cash equivalents |
|
$ |
143 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
143 |
|
|
$ |
621 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
621 |
|
In funds held for customers |
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
187 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
330 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
330 |
|
|
$ |
893 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In investments |
|
$ |
|
|
|
$ |
1,408 |
|
|
$ |
|
|
|
$ |
1,408 |
|
|
$ |
|
|
|
$ |
517 |
|
|
$ |
151 |
|
|
$ |
668 |
|
In funds held for customers |
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In long-term investments |
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
94 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt
securities |
|
$ |
|
|
|
$ |
1,558 |
|
|
$ |
87 |
|
|
$ |
1,645 |
|
|
$ |
|
|
|
$ |
517 |
|
|
$ |
245 |
|
|
$ |
762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We value our Level 1 assets, consisting primarily of money market funds, using quoted prices
in active markets for identical instruments. Financial assets whose fair values we measure using
Level 2 inputs consist of municipal bonds, corporate notes and U.S. agency securities. We measure
the fair values of these assets using quoted prices in active markets for similar instruments.
Financial liabilities whose fair values we measure using Level 2 inputs consist of long-term debt.
See Note 10. We measure the fair value of our long-term debt based on the trading prices of the
senior notes and the interest rates we could obtain for other borrowings with similar terms.
There were no significant transfers into or out of Levels 1, 2 or 3 during the twelve months ended
July 31, 2010 or 2009. Financial assets whose fair values we measure using significant unobservable
(Level 3) inputs consist of municipal auction rate securities that are included in investments and
long-term investments on our balance sheets. The following table presents a reconciliation of
activity for our Level 3 assets for the twelve months ended July 31, 2010 and July 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Auction Rate Securities |
|
|
|
|
|
|
|
Long-Term |
|
|
|
|
(In millions) |
|
Investments |
|
|
Investments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008 |
|
$ |
|
|
|
$ |
285 |
|
|
$ |
285 |
|
Transfers from long-term to current |
|
|
175 |
|
|
|
(175 |
) |
|
|
|
|
Settlements at par |
|
|
(24 |
) |
|
|
(16 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009 |
|
|
151 |
|
|
|
94 |
|
|
|
245 |
|
Settlements at par |
|
|
(151 |
) |
|
|
(7 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010 |
|
$ |
|
|
|
$ |
87 |
|
|
$ |
87 |
|
|
|
|
|
|
|
|
|
|
|
In February 2008 auctions began failing for the municipal auction rate securities we held and
in accordance with authoritative guidance we began estimating their fair value based on a
discounted cash flow model that we prepared. The municipal auction rate securities we held were
rated A or better by the major credit rating agencies and were generally collateralized by student
loans guaranteed by the U.S. Department of Education. On November 4, 2008 we accepted an offer from
UBS AG (UBS), one of the broker-dealers for our municipal auction rate securities, which gave us
the option to sell UBS all of the municipal auction rate securities that we held through them at
par value. In June 2010 UBS settled the remaining balance of $110 million in municipal auction rate
securities subject to the offer at par. We accounted for the put option at its cost of zero on the
date that we entered into the agreement because we considered the value of the securities subject
to the put option to be substantially equal to their par values at that date. Based on the
maturities of the underlying securities, we classified the remaining balance of $87 million in
municipal auction rate securities that we held as long-term investments on our balance sheet at
July 31, 2010.
76
We estimated the fair values of the municipal auction rate securities we held at July 31,
2010, 2009 and 2008 based on a discounted cash flow model that we prepared. Key inputs to our
discounted cash flow model included the projected future interest rates; the likely timing of
principal repayments; the probability of full repayment considering guarantees by the U.S.
Department of Education of the underlying student loans or insurance by other third parties;
publicly available pricing data for recently issued student loan backed securities that are not
subject to auctions; and the impact of the reduced liquidity for auction rate securities.
The following table presents information about significant inputs to our discounted cash flow model
at the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inputs to Model at |
|
|
July 31, |
|
July 31, |
|
July 31, |
|
|
2010 |
|
2009 |
|
2008 |
Range of average projected
future yield rates |
|
|
1.48% - 2.65% |
|
|
|
0.63% - 3.78% |
|
|
|
2.57% - 4.48% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of overall discount rates
used in model (like-kind security
yield rate plus illiquidity factor) |
|
|
1.52% - 1.77% |
|
|
|
1.61% - 1.86% |
|
|
|
3.45% - 3.70% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Like-kind security yield rate |
|
|
0.27% |
|
|
|
0.36% |
|
|
|
2.20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of illiquidity factors |
|
125 - 150 bps |
|
|
125 - 150 bps |
|
|
125 - 150 bps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected holding period in years |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
Using our discounted cash flow model we determined that the fair values of the municipal
auction rate securities we held at July 31, 2010, 2009 and 2008 were approximately equal to their
par values. As a result, we recorded no decrease in the fair values of those securities for the
twelve months then ended. We do not intend to sell our municipal auction rate securities and it is
not more likely than not that we will be required to sell them before recovery at par, which may be
at maturity. Based on our expected operating cash flows and our other sources of cash, we do not
believe that the reduction in liquidity of our municipal auction rate securities will have a
material impact on our overall ability to meet our liquidity needs.
3. Cash and Cash Equivalents, Investments and Funds Held for Customers
The following table summarizes our cash and cash equivalents, investments and funds held for
customers by balance sheet classification at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
July 31, 2009 |
|
(In millions) | |
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Classification on balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
214 |
|
|
$ |
214 |
|
|
$ |
679 |
|
|
$ |
679 |
|
Investments |
|
|
1,407 |
|
|
|
1,408 |
|
|
|
666 |
|
|
|
668 |
|
Funds held for customers |
|
|
336 |
|
|
|
337 |
|
|
|
272 |
|
|
|
272 |
|
Long-term investments |
|
|
91 |
|
|
|
91 |
|
|
|
97 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, investments
and funds held for customers |
|
$ |
2,048 |
|
|
$ |
2,050 |
|
|
$ |
1,714 |
|
|
$ |
1,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
The following table summarizes our cash and cash equivalents, investments and funds held for
customers by investment category at the dates indicated. See Note 2 for more information on our
municipal auction rate securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
July 31, 2009 |
|
(In millions) | |
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Type of issue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
401 |
|
|
$ |
401 |
|
|
$ |
951 |
|
|
$ |
951 |
|
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
1,049 |
|
|
|
1,050 |
|
|
|
447 |
|
|
|
448 |
|
Municipal auction rate securities |
|
|
87 |
|
|
|
87 |
|
|
|
245 |
|
|
|
245 |
|
Corporate notes |
|
|
333 |
|
|
|
334 |
|
|
|
43 |
|
|
|
44 |
|
U.S. agency securities |
|
|
174 |
|
|
|
174 |
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
|
1,643 |
|
|
|
1,645 |
|
|
|
760 |
|
|
|
762 |
|
Other long-term investments |
|
|
4 |
|
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, investments
and funds held for customers |
|
$ |
2,048 |
|
|
$ |
2,050 |
|
|
$ |
1,714 |
|
|
$ |
1,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We include realized gains and losses on our available-for-sale debt securities in interest and
other income, net in our statements of operations. Gross realized gains and losses on our
available-for-sale debt securities for the twelve months ended July 31, 2010, 2009 and 2008 were
not significant.
We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in
accumulated other comprehensive income in the stockholders equity section of our balance sheets.
Gross unrealized gains and losses on our available-for-sale debt securities at July 31, 2010 and
July 31, 2009 were not significant.
We periodically review our investment portfolios to determine if any investment is
other-than-temporarily impaired due to changes in credit risk or other potential valuation
concerns. We believe that the investments that we held at July 31, 2010 were not
other-than-temporarily impaired. While certain available-for-sale debt securities have fair values
that are below cost, we do not intend to sell these securities and it is not more likely than not
that we will be required to sell them before recovery at par, which may be at maturity. The
unrealized losses at July 31, 2010 are due to changes in interest rates, including market credit
spreads, and not due to increased credit risks associated with the specific securities.
The following table summarizes our available-for-sale debt securities classified by the stated
maturity date of the security at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
July 31, 2009 |
|
(In millions) | |
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
$ |
432 |
|
|
$ |
433 |
|
|
$ |
185 |
|
|
$ |
186 |
|
Due within two years |
|
|
365 |
|
|
|
366 |
|
|
|
159 |
|
|
|
160 |
|
Due within three years |
|
|
164 |
|
|
|
164 |
|
|
|
5 |
|
|
|
5 |
|
Due after three years |
|
|
682 |
|
|
|
682 |
|
|
|
411 |
|
|
|
411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
$ |
1,643 |
|
|
$ |
1,645 |
|
|
$ |
760 |
|
|
$ |
762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities due after three years in the table above included $87
million and $230 million in municipal auction rate securities at July 31, 2010 and July 31, 2009.
See Note 2 for more information. Of the remaining available-for-sale debt securities at July 31,
2010, 89% had an interest reset date, put date or mandatory call date within two years of that
date.
78
4. Property and Equipment
Property and equipment consisted of the following at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Life in |
|
July 31, |
|
(Dollars in millions) |
|
Years |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
3-5 |
|
$ |
475 |
|
|
$ |
460 |
|
Computer software |
|
3-5 |
|
|
359 |
|
|
|
351 |
|
Furniture and fixtures |
|
5 |
|
|
64 |
|
|
|
62 |
|
Leasehold improvements |
|
2-11 |
|
|
229 |
|
|
|
216 |
|
Land |
|
NA |
|
|
4 |
|
|
|
3 |
|
Buildings |
|
5-30 |
|
|
202 |
|
|
|
202 |
|
Capital in progress |
|
NA |
|
|
59 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,392 |
|
|
|
1,334 |
|
Less accumulated depreciation and amortization |
|
|
|
|
(882 |
) |
|
|
(807 |
) |
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
|
|
$ |
510 |
|
|
$ |
527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA = Not Applicable
Capital in progress consists primarily of costs related to internal use software projects. As
discussed in Note 1, Description of Business and Summary of Significant Accounting Policies -
Software Development Costs, we capitalize costs related to the development of computer software
for internal use. We capitalized internal use software costs totaling $56 million for the twelve
months ended July 31, 2010; $52 million for the twelve months ended July 31, 2009; and $44 million
for the twelve months ended July 31, 2008. These amounts included capitalized labor costs of $28
million, $17 million and $16 million. Costs related to internal use software projects are included
in the capital in progress category of property and equipment until project completion, at which
time they are transferred to the computer software category and amortized on a straight-line basis
over their useful lives, which are generally three to five years.
5. Goodwill and Acquired Intangible Assets
Goodwill
Changes in the carrying value of goodwill by reportable segment during the twelve months ended July
31, 2010 and July 31, 2009 were as shown in the following table. Our reportable segments are
described in Note 15.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
Goodwill |
|
|
Balance |
|
|
Goodwill |
|
|
Balance |
|
|
|
July 31, |
|
|
Acquired/ |
|
|
July 31, |
|
|
Acquired/ |
|
|
July 31, |
|
(In millions) | |
2008 |
|
|
Adjusted |
|
|
2009 |
|
|
Adjusted |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Management Solutions |
|
$ |
153 |
|
|
$ |
(1 |
) |
|
$ |
152 |
|
|
$ |
(1 |
) |
|
$ |
151 |
|
Employee Management Solutions |
|
|
152 |
|
|
|
122 |
|
|
|
274 |
|
|
|
(3 |
) |
|
|
271 |
|
Payment Solutions |
|
|
181 |
|
|
|
1 |
|
|
|
182 |
|
|
|
|
|
|
|
182 |
|
Consumer Tax |
|
|
30 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Accounting Professionals |
|
|
90 |
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
90 |
|
Financial Services |
|
|
1,002 |
|
|
|
7 |
|
|
|
1,009 |
|
|
|
|
|
|
|
1,009 |
|
Other Businesses |
|
|
18 |
|
|
|
(1 |
) |
|
|
17 |
|
|
|
164 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,626 |
|
|
$ |
128 |
|
|
$ |
1,754 |
|
|
$ |
160 |
|
|
$ |
1,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
The increase in goodwill in our Other Businesses segment during the twelve months ended July
31, 2010 was due to the acquisitions of Mint Software Inc. and Medfusion, Inc. The increase in
goodwill in our Employee Management Solutions segment during the twelve months ended July 31, 2009
was due to the acquisition of PayCycle, Inc. See Note 7.
Acquired Intangible Assets
The following table shows the cost, accumulated amortization and weighted average life in years for
our acquired intangible assets at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
Not to |
|
|
|
|
|
|
Customer |
|
|
Purchased |
|
|
Names |
|
|
Compete |
|
|
|
|
(Dollars in millions) |
|
Lists |
|
|
Technology |
|
|
and Logos |
|
|
or Sue |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
438 |
|
|
$ |
414 |
|
|
$ |
35 |
|
|
$ |
36 |
|
|
$ |
923 |
|
Accumulated amortization |
|
|
(328 |
) |
|
|
(301 |
) |
|
|
(21 |
) |
|
|
(17 |
) |
|
|
(667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangible assets, net |
|
$ |
110 |
|
|
$ |
113 |
|
|
$ |
14 |
|
|
$ |
19 |
|
|
$ |
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average life in years |
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
|
|
8 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
417 |
|
|
$ |
386 |
|
|
$ |
25 |
|
|
$ |
35 |
|
|
$ |
863 |
|
Accumulated amortization |
|
|
(286 |
) |
|
|
(255 |
) |
|
|
(18 |
) |
|
|
(13 |
) |
|
|
(572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangible assets, net |
|
$ |
131 |
|
|
$ |
131 |
|
|
$ |
7 |
|
|
$ |
22 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average life in years |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increases in the cost of acquired intangible assets during the twelve months ended July
31, 2010 were primarily due to our acquisitions of Mint and Medfusion. The increases in the cost of
acquired intangible assets during the twelve months ended July 31, 2009 were primarily due to our
acquisitions of certain technology licensing rights and PayCycle. See Note 10 for more information
about the technology licensing rights and Note 7 for more information about our acquisitions of
PayCycle, Mint and Medfusion.
80
The following table shows the expected future amortization expense for our acquired intangible
assets at July 31, 2010. Amortization of acquired technology is charged to cost of service and
other revenue and amortization of acquired technology in our statements of operations. Amortization
of other acquired intangible assets such as customer lists is charged to amortization of other
acquired intangible assets in our statements of operations. If impairment events occur, they could
accelerate the timing of acquired intangible asset charges.
|
|
|
|
|
|
|
Expected |
|
|
|
Future |
|
|
|
Amortization |
|
(In millions) | |
Expense |
|
|
|
|
|
|
Twelve months ending July 31, |
|
|
|
|
2011 |
|
$ |
75 |
|
2012 |
|
|
54 |
|
2013 |
|
|
33 |
|
2014 |
|
|
30 |
|
2015 |
|
|
26 |
|
Thereafter |
|
|
38 |
|
|
|
|
|
Total expected future amortization expense |
|
$ |
256 |
|
|
|
|
|
|
|
|
|
|
6. Accumulated Other Comprehensive Income
We add components of other comprehensive income, such as changes in the fair value of
available-for-sale debt securities and foreign currency translation adjustments, to our net income
to arrive at comprehensive net income. For the twelve months ended July 31, 2010, 2009 and 2008,
other comprehensive income was not significant. The balances in accumulated other comprehensive
income in the equity section of our balance sheets at July 31, 2010 and July 31, 2009 consisted
primarily of cumulative foreign currency translation adjustments and were also not significant.
7. Business Combinations
We completed the business combinations and acquisitions described below during the three fiscal
years ended July 31, 2010. We have included the results of operations for each of them in our
consolidated results of operations from their respective dates of acquisition. Their results of
operations for periods prior to the dates of acquisition were not material, individually or in the
aggregate, when compared with our consolidated results of operations. The fair values assigned to
the identifiable intangible assets acquired were based on estimates and assumptions determined by
management.
Fiscal 2010 Business Combinations
Medfusion, Inc.
On May 21, 2010 we acquired privately held Medfusion, Inc. for total consideration of approximately
$89 million. The total consideration included approximately $10 million for the fair value of cash
retention bonuses that will be charged to expense over a three year service period. Medfusion is a
provider of online patient-to-provider communication solutions and became part of our Other
Businesses segment. We acquired Medfusion to expand our online healthcare offerings in support of
our Connected Services strategy.
Under the acquisition method of accounting we allocated the fair value of the total consideration
transferred to the tangible and identifiable intangible assets acquired and liabilities assumed
based on their estimated fair values on the date of acquisition. We recorded the excess of
consideration over the aggregate fair values as goodwill. Using information available at the time
the acquisition closed, we allocated approximately $8 million of the consideration
to net tangible liabilities and approximately $23 million of the consideration to identified
intangible assets. We
81
recorded the excess consideration of approximately $62 million as goodwill,
none of which is deductible for income tax purposes. The identified intangible assets are being
amortized over a weighted average life of six years.
Mint Software Inc.
On November 2, 2009 we acquired all of the outstanding equity interests of Mint Software Inc. for
total consideration of approximately $170 million. The total consideration included approximately
$24 million for cash retention bonuses and the fair value of assumed equity awards and Intuit
common stock issued to the holder of Mint Series D Preferred Stock. The total of $24 million will
be charged to expense over a three year service period. Mint is a provider of online personal
finance services and became part of our Other Businesses segment. We acquired Mint to expand our
online personal finance offerings in support of our Connected Services strategy.
Under the acquisition method of accounting we allocated the fair value of the total consideration
transferred to the tangible and identifiable intangible assets acquired and liabilities assumed
based on their estimated fair values on the date of acquisition. We recorded the excess of
consideration over the aggregate fair values as goodwill. Using information available at the time
the acquisition closed, we allocated approximately $1 million of the consideration to net tangible
assets and approximately $43 million of the consideration to identified intangible assets. We
recorded the excess consideration of approximately $102 million as goodwill, none of which is
deductible for income tax purposes. The identified intangible assets are being amortized over a
weighted average life of seven years.
Fiscal 2009 Acquisitions
PayCycle, Inc.
On July 23, 2009 we acquired all of the outstanding equity interests of PayCycle, Inc. for a total
purchase price of approximately $169 million, including the fair value of certain assumed stock
options. PayCycle is a provider of online payroll solutions to small businesses and became part of
our Employee Management Solutions segment. We acquired PayCycle to expand our online payroll
offerings in support of our Connected Services strategy.
Under the purchase method of accounting we allocated the total purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. We recorded the excess of purchase price over the aggregate fair
values as goodwill. Using information available at the time the acquisition closed, we allocated
approximately $5 million of the purchase price to net tangible assets and approximately $42 million
of the purchase price to identified intangible assets. We recorded the excess purchase price of
approximately $122 million as goodwill, none of which is deductible for income tax purposes. The
identified intangible assets are being amortized over a weighted average life of seven years.
Fiscal 2008 Acquisitions
Electronic Clearing House, Inc.
On February 29, 2008 we acquired all of the outstanding equity interests of Electronic Clearing
House, Inc. (ECHO) for a total purchase price of approximately $131 million in cash. ECHO is a
provider of electronic payment processing services to small businesses and became part of our
Payment Solutions segment. We acquired ECHO in order to expand our merchant services capabilities.
Under the purchase method of accounting we allocated the total purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. We recorded the excess of purchase price over the aggregate fair
values as goodwill. Using information available at the time the acquisition closed, we allocated
approximately $6 million of the purchase price to net tangible assets and approximately $44 million
of the purchase price to identified intangible assets. We recorded the excess purchase price of
approximately $81 million as goodwill, none of which is deductible for income tax purposes. The
identified intangible assets are being amortized over a weighted average life of eight years.
82
Homestead Technologies Inc.
On December 18, 2007 we acquired Homestead Technologies Inc., including all of its outstanding
equity interests, for total consideration of approximately $170 million on a fully diluted basis.
The total consideration was comprised of the purchase price of $146 million (which included the
fair value of vested stock options assumed) plus the $24 million fair value of unvested stock
options and restricted stock units assumed. Homestead is a provider of website design and hosting
services to small businesses and became part of our Financial Management Solutions segment. We
acquired Homestead as part of our strategy to help small businesses acquire and serve customers
online.
Under the purchase method of accounting we allocated the total purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. We recorded the excess of purchase price over the aggregate fair
values as goodwill. Using information available at the time the acquisition closed, we allocated
approximately $14 million of the purchase price to net tangible assets and approximately $22
million of the purchase price to identified intangible assets. We recorded the excess purchase
price of approximately $110 million as goodwill, none of which is deductible for income tax
purposes. In the third quarter of fiscal 2008 we recorded an $11 million increase to tangible
assets and a corresponding decrease to goodwill. The increase in the tangible assets was the result
of a determination made after we obtained additional information regarding the realizability of
certain deferred tax assets not previously recorded. The identified intangible assets are being
amortized over a weighted average life of five years.
8. Discontinued Operations and Dispositions
Discontinued Operations
On January 15, 2010 we sold our Intuit Real Estate Solutions (IRES) business for approximately $128
million in cash and recorded a net gain on disposal of $35 million, which included $72 million for
goodwill and $23 million for income taxes. The decision to sell IRES was a result of managements
desire to focus resources on Intuits core products and services. IRES was part of our Other
Businesses segment. We determined that IRES became a discontinued operation in the second quarter
of fiscal 2010. We have therefore segregated the net assets and operating results of IRES from
continuing operations on our balance sheets and in our statements of operations for all periods
prior to the sale. Assets held for sale at July 31, 2009 consisted primarily of goodwill. Because
IRES operating cash flows were not material for any period presented, we have not segregated them
from continuing operations on our statements of cash flows. We have presented the effect of the net
gain on disposal of IRES in net income from discontinued operations on our statements of cash flows
for the twelve months ended July 31, 2010.
In August 2007 we sold our Intuit Distribution Management Solutions (IDMS) business for
approximately $100 million in cash and recorded a net gain on disposal of $28 million, which
included $42 million for goodwill and $18 million for income taxes. The decision to sell IDMS was a
result of managements desire to focus resources on Intuits core products and services. IDMS was
part of our Other Businesses segment. We determined that IDMS became a discontinued operation in
the fourth quarter of fiscal 2007. We have therefore segregated the operating results of IDMS from
continuing operations in our statements of operations for all periods prior to the sale. Because
IDMS operating cash flows were not material for any period presented, we have not segregated them
from continuing operations on our statements of cash flows. We have presented the effect of the
gain on disposal of IDMS on our statement of cash flows for the twelve months ended July 31, 2008.
83
Net revenue and net income from discontinued operations were as shown in the following table for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
July 31, |
|
(In millions) | |
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
IDMS |
|
$ |
|
|
|
$ |
|
|
|
$ |
2 |
|
IRES |
|
|
33 |
|
|
|
74 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue from discontinued operations |
|
$ |
33 |
|
|
$ |
74 |
|
|
$ |
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from IDMS discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1 |
) |
Gain on disposal of IDMS |
|
|
|
|
|
|
|
|
|
|
28 |
|
Net income from IRES discontinued operations |
|
|
|
|
|
|
|
|
|
|
4 |
|
Gain on disposal of IRES |
|
|
35 |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Total net income from discontinued operations |
|
$ |
35 |
|
|
$ |
|
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of Outsourced Payroll Assets
In March 2007 we sold certain assets related to our Complete Payroll and Premier Payroll Service
businesses to Automatic Data Processing, Inc. (ADP). In the twelve months ended July 31, 2008 we
recorded a pre-tax gain of $52 million on our statement of operations for customers who
transitioned to ADP during that period. We received a total purchase price of $94 million and
recorded a total pre-tax gain of $83 million from the inception of this transaction through its
completion in the third quarter of fiscal 2008. The assets were part of our Employee Management
Solutions segment. We did not account for this transaction as a discontinued operation because the
operations and cash flows of the assets could not be clearly distinguished, operationally or for
financial reporting purposes, from the rest of our outsourced payroll business.
9. Current Liabilities
Unsecured Revolving Credit Facility
On March 22, 2007 we entered into an agreement with certain institutional lenders for a $500
million unsecured revolving credit facility that will expire on March 22, 2012. Advances under the
credit facility will accrue interest at rates that are equal to, at our election, either Citibanks
base rate or the London InterBank Offered Rate (LIBOR) plus a margin that ranges from 0.18% to
0.575% based on our senior debt credit ratings. The applicable interest rate will be increased by
0.05% for any period in which the total principal amount of advances and letters of credit under
the credit facility exceeds $250 million. The agreement includes covenants that require us to
maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and
amortization (EBITDA) of not greater than 3.25 to 1.00 and a ratio of annual EBITDA to interest
payable of not less than 3.00 to 1.00. We were in compliance with these covenants at July 31, 2010.
We may use amounts borrowed under this credit facility for general corporate purposes or for future
acquisitions or expansion of our business. To date we have not borrowed under this credit facility.
84
Other Current Liabilities
Other current liabilities were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
(In millions) | |
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Reserve for product returns |
|
$ |
20 |
|
|
$ |
22 |
|
Reserve for rebates |
|
|
11 |
|
|
|
30 |
|
Current portion of license fee payable |
|
|
10 |
|
|
|
10 |
|
Current portion of deferred rent |
|
|
7 |
|
|
|
7 |
|
Interest payable |
|
|
21 |
|
|
|
21 |
|
Executive deferred compensation plan |
|
|
43 |
|
|
|
37 |
|
Other |
|
|
22 |
|
|
|
26 |
|
|
|
|
|
|
|
|
Total other current liabilities |
|
$ |
134 |
|
|
$ |
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Long-Term Obligations and Commitments
Long-Term Debt
On March 12, 2007 we issued $500 million of 5.40% senior unsecured notes due on March 15, 2012 and
$500 million of 5.75% senior unsecured notes due on March 15, 2017 (together, the Notes), for a
total principal amount of $1 billion. We carried the Notes at face value less the unamortized
discount of $2 million on our balance sheets at July 31, 2010 and July 31, 2009. The Notes are
redeemable by Intuit at any time, subject to a make-whole premium. The Notes include covenants that
limit our ability to grant liens on our facilities and to enter into sale and leaseback
transactions, subject to significant allowances. We paid $56 million in cash for interest on the
Notes during each of the twelve months ended July 31, 2010, 2009 and 2008.
Other Long-Term Obligations
Other long-term obligations were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
(In millions) | |
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Total license fee payable |
|
$ |
65 |
|
|
$ |
71 |
|
Total deferred rent |
|
|
60 |
|
|
|
64 |
|
Long-term deferred revenue |
|
|
29 |
|
|
|
20 |
|
Long-term income tax liabilities |
|
|
20 |
|
|
|
48 |
|
Other |
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Total long-term obligations |
|
|
177 |
|
|
|
207 |
|
Less current portion (included in other
current liabilities) |
|
|
(19 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
Long-term obligations due after one year |
|
$ |
158 |
|
|
$ |
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2009 we entered into an agreement to license certain technology for $20 million in cash
and $100 million payable over ten fiscal years. The total present value of the arrangement was
approximately $89 million. The total license fee payable in the table above includes imputed
interest through the dates indicated.
85
Operating Lease Commitments
We lease office facilities and equipment under various operating lease agreements. Our facilities
leases generally provide for periodic rent increases and many contain escalation clauses and
renewal options. Certain leases require us to pay property taxes, insurance and routine
maintenance. Annual minimum commitments under all of these leases are shown in the table below.
|
|
|
|
|
|
|
Operating |
|
|
|
Lease |
|
(In millions) | |
Commitments |
|
|
|
|
|
|
Fiscal year ending July 31, |
|
|
|
|
2011 |
|
$ |
53 |
|
2012 |
|
|
47 |
|
2013 |
|
|
41 |
|
2014 |
|
|
37 |
|
2015 |
|
|
33 |
|
Thereafter |
|
|
71 |
|
|
|
|
|
Total operating lease commitments |
|
$ |
282 |
|
|
|
|
|
|
|
|
|
|
Rent expense totaled $43 million for the twelve months ended July 31, 2010; $44 million for
the twelve months ended July 31, 2009; and $48 million for the twelve months ended July 31, 2008.
Unconditional Purchase Obligations
In the ordinary course of business we enter into certain unconditional purchase obligations with
our suppliers. These are agreements to purchase products and services that are enforceable, legally
binding, and specify terms that include fixed or minimum quantities to be purchased; fixed, minimum
or variable price provisions; and the approximate timing of the payments. At July 31, 2010, our
unconditional purchase obligations totaled approximately $98 million.
11. Income Taxes
The provision for income taxes from continuing operations consisted of the following for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions) | |
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
231 |
|
|
$ |
160 |
|
|
$ |
178 |
|
State |
|
|
44 |
|
|
|
7 |
|
|
|
35 |
|
Foreign |
|
|
33 |
|
|
|
12 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
179 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(15 |
) |
|
|
24 |
|
|
|
13 |
|
State |
|
|
(1 |
) |
|
|
7 |
|
|
|
9 |
|
Foreign |
|
|
(16 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
27 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes from
continuing operations |
|
$ |
276 |
|
|
$ |
206 |
|
|
$ |
243 |
|
|
|
|
|
|
|
|
|
|
|
86
The sources of income from continuing operations before the provision for income taxes
consisted of the following for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions) | |
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
779 |
|
|
$ |
627 |
|
|
$ |
662 |
|
Foreign |
|
|
36 |
|
|
|
26 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
815 |
|
|
$ |
653 |
|
|
$ |
690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Differences between income taxes calculated using the federal statutory income tax rate of 35%
and the provision for income taxes from continuing operations were as follows for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions) | |
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
$ |
815 |
|
|
$ |
653 |
|
|
$ |
690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax |
|
$ |
285 |
|
|
$ |
229 |
|
|
$ |
242 |
|
State income tax, net of federal benefit |
|
|
27 |
|
|
|
9 |
|
|
|
29 |
|
Federal research and experimentation credits |
|
|
(8 |
) |
|
|
(20 |
) |
|
|
(7 |
) |
Domestic production activities deduction |
|
|
(14 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
Share-based compensation |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
Tax exempt interest |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(12 |
) |
Effects of non-U.S. operations |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
Other, net |
|
|
4 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes from
continuing operations |
|
$ |
276 |
|
|
$ |
206 |
|
|
$ |
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2010 we recorded discrete tax benefits of approximately $20 million that were related
to foreign tax credits associated with the distribution of profits from certain of our non-U.S.
subsidiaries and our plans to indefinitely reinvest substantially all remaining non-U.S. earnings
in support of our international expansion plans. This tax benefit is shown in the table above on
the effects of non-U.S. operations line.
In January 2009 we entered into a favorable agreement with a state tax authority with respect to
certain tax years including years ended prior to fiscal 2009. As a result of this agreement, we
recorded a discrete tax benefit of approximately $18 million during the twelve months ended July
31, 2009.
In October 2008 changes in federal tax law resulted in the reinstatement of the federal research
and experimentation credit through December 31, 2009 that was retroactive to January 1, 2008. We
recorded a discrete tax benefit of approximately $7 million for the retroactive amount related to
fiscal year 2008 during the twelve months ended July 31, 2009.
Excess tax benefits associated with stock option exercises are credited to stockholders equity.
The reductions of income taxes payable resulting from the exercise of employee stock options and
other employee stock programs that were credited to stockholders equity were approximately $36
million for the twelve months ended July 31, 2010, $18 million for the twelve months ended July 31,
2009, and $38 million for the twelve months ended July 31, 2008.
87
Significant deferred tax assets and liabilities were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accruals and reserves not currently deductible |
|
$ |
30 |
|
|
$ |
31 |
|
Deferred rent |
|
|
10 |
|
|
|
12 |
|
Accrued and deferred compensation |
|
|
18 |
|
|
|
1 |
|
Loss and tax credit carryforwards |
|
|
63 |
|
|
|
46 |
|
Property and equipment |
|
|
8 |
|
|
|
5 |
|
Share-based compensation |
|
|
89 |
|
|
|
92 |
|
Other, net |
|
|
4 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
222 |
|
|
|
198 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
55 |
|
|
|
59 |
|
Other, net |
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
56 |
|
|
|
64 |
|
|
|
|
|
|
|
|
Total net deferred tax assets |
|
|
166 |
|
|
|
134 |
|
Valuation allowance |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
Total net deferred tax assets, net of
valuation allowance |
|
$ |
158 |
|
|
$ |
128 |
|
|
|
|
|
|
|
|
We have provided a valuation allowance related to the benefits of certain state and foreign
net operating loss carryforwards that we believe are unlikely to be realized. The valuation
allowance increased $2 million during the twelve months ended July 31, 2010, increased $6 million
during the twelve months ended July 31, 2009, and decreased $3 million during the twelve months
ended July 31, 2008. The valuation allowance increased during the twelve months ended July 31, 2010
primarily due to state net operating loss carryforwards acquired in business combinations. These
primarily California net operating loss carryforwards are unlikely to be realized as a result of
the California legislation enacted in 2009 and effective for our fiscal 2012 which limits expected
sources of future California taxable income for fiscal 2012 and beyond.
We provide U.S. income taxes on the earnings of non-U.S. subsidiaries unless the subsidiaries
earnings are considered indefinitely reinvested outside the U.S. At July 31, 2010, there were no
cumulative amount of earnings upon which U.S. income taxes have not been provided and no
unrecognized deferred tax liability.
The components of total net deferred tax assets, net of valuation allowances, as shown on our
balance sheets were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Current deferred income taxes |
|
$ |
117 |
|
|
$ |
92 |
|
Long-term deferred income taxes |
|
|
41 |
|
|
|
36 |
|
|
|
|
|
|
|
|
Total net deferred tax assets, net of
valuation allowance |
|
$ |
158 |
|
|
$ |
128 |
|
|
|
|
|
|
|
|
At July 31, 2010, we had total federal net operating loss carryforwards of approximately $84
million that will start to expire in fiscal 2020. Utilization of the net operating losses is
subject to annual limitation. The annual limitation may result in the expiration of net operating
losses before utilization.
88
At July 31, 2010, we had excess federal foreign tax credits of approximately $22 million, of which
$2 million can be carried back and $20 million can be carried forward. The foreign tax credit
carryforwards will start to expire in fiscal 2020. Our ability to utilize foreign tax credits is
dependent upon having sufficient foreign source income during the carryforward period. The foreign
source income limitation may result in the expiration of foreign tax credits before utilization.
At July 31, 2010, we had total state net operating loss carryforwards of approximately $163 million
for which we have recorded a deferred tax asset of $9 million and a valuation allowance of $7
million. The state net operating losses will start to expire in fiscal 2014. Utilization of the net
operating losses is subject to annual limitation. The annual limitation may result in the
expiration of net operating losses before utilization.
Unrecognized Tax Benefits
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Gross unrecognized tax benefits,
beginning balance |
|
$ |
40 |
|
|
$ |
45 |
|
|
$ |
33 |
|
Increases related to tax positions from prior
fiscal years, including acquisitions |
|
|
3 |
|
|
|
10 |
|
|
|
14 |
|
Decreases related to tax positions from prior
fiscal years |
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(1 |
) |
Increases related to tax positions taken during
current fiscal year |
|
|
3 |
|
|
|
4 |
|
|
|
8 |
|
Settlements with tax authorities |
|
|
|
|
|
|
(8 |
) |
|
|
(8 |
) |
Lapses of statutes of limitations |
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits,
ending balance |
|
$ |
35 |
|
|
$ |
40 |
|
|
$ |
45 |
|
|
|
|
|
|
|
|
|
|
|
The total amount of our unrecognized tax benefits at July 31, 2010 was $35 million. Net of
related deferred tax assets, unrecognized tax benefits were $30 million at that date. If we were to
recognize these net benefits, our income tax expense would reflect a favorable net impact of $30
million. We do not believe that it is reasonably possible that there will be a significant increase
or decrease in unrecognized tax benefits over the next 12 months.
We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S.
federal and the State of California. For U.S. federal tax returns we are no longer subject to tax
examinations for fiscal 2006 and for years prior to fiscal 2005. For California tax returns we are
no longer subject to tax examinations for years prior to fiscal 2005.
We recognize interest and penalties related to unrecognized tax benefits within the provision for
income taxes. Amounts accrued at July 31, 2010 and July 31, 2009 for the payment of interest and
penalties were not significant. The amounts of interest and penalties that we recognized during the
twelve months ended July 31, 2010, 2009 and 2008 were also not significant.
89
12. Stockholders Equity
Stock Repurchase Programs
Intuits Board of Directors has authorized a series of common stock repurchase programs. Shares of
common stock repurchased under these programs become treasury shares. Under these programs, we
repurchased 28.7 million shares of our common stock for $900 million during the twelve months ended
July 31, 2010; 10.9 million shares for $300 million during the twelve months ended July 31, 2009;
and 27.2 million shares for $800 million during the twelve months ended July 31, 2008. At July 31,
2010, we had expended all funds authorized by our Board of Directors for stock repurchases. On
August 19, 2010 we announced a new stock repurchase program under which we are authorized to
repurchase up to an additional $2 billion of our common stock from time to time over a three-year
period ending on August 16, 2013.
Repurchased shares of our common stock are held as treasury shares until they are reissued or
retired. When we reissue treasury stock, if the proceeds from the sale are more than the average
price we paid to acquire the shares we record an increase in additional paid-in capital.
Conversely, if the proceeds from the sale are less than the average price we paid to acquire the
shares, we record a decrease in additional paid-in capital to the extent of increases previously
recorded for similar transactions and a decrease in retained earnings for any remaining amount.
Description of 2005 Equity Incentive Plan
Our stockholders initially approved our 2005 Equity Incentive Plan (2005 Plan) on December 9, 2004.
Under the 2005 Plan, we are permitted to grant incentive and non-qualified stock options,
restricted stock awards, restricted stock units (RSUs), stock appreciation rights and stock bonus
awards to our employees, non-employee directors and consultants. The 2005 Plan provides for the
automatic grant of restricted stock units to non-employee directors according to a formula in the
plan document. For other awards, the Compensation and Organizational Development Committee of our
Board of Directors or its delegates determine who will receive grants, when those grants will be
exercisable, their exercise price and other terms. Our stockholders have approved amendments to the
2005 Plan to permit the issuance of up to 65,000,000 shares under the 2005 Plan. At July 31, 2010,
there were approximately 9 million shares available for grant under this plan. Up to 50% of equity
awards granted each year under the 2005 Plan may have an exercise or purchase price per share that
is less than full fair market value on the date of grant. All stock options granted to date under
the 2005 Plan have exercise prices equal to the fair market value of our stock on the date of
grant. All RSUs are considered to be granted at less than the fair market value of our stock on the
date of grant because they have no exercise price. Stock options granted under the 2005 Plan
typically vest over three years based on continued service and have a seven year term. RSUs granted
under the 2005 Plan typically vest over three years based on continued service. Certain RSUs
granted to senior management vest based on the achievement of pre-established performance or market
goals.
Description of Employee Stock Purchase Plan
On November 26, 1996 our stockholders initially adopted our Employee Stock Purchase Plan (ESPP)
under Section 423 of the Internal Revenue Code. The ESPP permits our eligible employees to make
payroll deductions to purchase our stock on regularly scheduled purchase dates at a discount. Our
stockholders have approved amendments to the ESPP to permit the issuance of up to 16,800,000 shares
under the ESPP, which expires on July 27, 2015. Offering periods under the ESPP are three months in
duration and shares are purchased at 85% of the lower of the closing price for Intuit common stock
on the first day or the last day of the offering period.
Under the ESPP, employees purchased 1,120,030 shares of Intuit common stock during the twelve
months ended July 31, 2010; 1,368,005 shares during the twelve months ended July 31, 2009; and
1,164,977 shares during the twelve months ended July 31, 2008. At July 31, 2010, there were
2,621,325 shares available for issuance under this plan.
90
Share-Based Compensation Expense
The following table summarizes the total share-based compensation expense that we recorded for the
periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
1 |
|
Cost of service and other revenue |
|
|
7 |
|
|
|
7 |
|
|
|
6 |
|
Selling and marketing |
|
|
41 |
|
|
|
45 |
|
|
|
36 |
|
Research and development |
|
|
41 |
|
|
|
39 |
|
|
|
32 |
|
General and administrative |
|
|
44 |
|
|
|
37 |
|
|
|
36 |
|
Discontinued operations |
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
|
135 |
|
|
|
133 |
|
|
|
113 |
|
Income tax benefit |
|
|
(48 |
) |
|
|
(48 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
Decrease in net income |
|
$ |
87 |
|
|
$ |
85 |
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.28 |
|
|
$ |
0.26 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.27 |
|
|
$ |
0.26 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
Determining Fair Value
Valuation and Amortization Method. We estimate the fair value of stock options granted using a
lattice binomial model and a multiple option award approach. Our stock options have various
restrictions, including vesting provisions and restrictions on transfer, and are often exercised
prior to their contractual maturity. We believe that lattice binomial models are more capable of
incorporating the features of our stock options than closed-form models such as the Black Scholes
model. The use of a lattice binomial model requires the use of extensive actual employee exercise
behavior and a number of complex assumptions including the expected volatility of our stock price
over the term of the options, risk-free interest rates and expected dividends. We amortize the fair
value of options on a straight-line basis over the requisite service periods of the awards, which
are generally the vesting periods.
Restricted stock units (RSUs) granted typically vest based on continued service. We value these
time-based RSUs at the date of grant using the intrinsic value method and amortize those values on
a straight-line basis adjusted for estimated forfeitures over the restriction period. Certain RSUs
granted to senior management vest based on the achievement of pre-established performance or market
goals. We estimate the fair value of performance-based RSUs at the date of grant using the
intrinsic value method and the probability that the specified performance criteria will be met. We
amortize those fair values over the requisite service period adjusted for estimated forfeitures for
each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at
the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the
requisite service period adjusted for estimated forfeitures for each separately vesting tranche of
the award.
Expected Term. The expected term of options granted represents the period of time that they are
expected to be outstanding and is a derived output of the lattice binomial model. The expected term
of stock options is impacted by all of the underlying assumptions and calibration of our model. The
lattice binomial model assumes that option exercise behavior is a function of the options
remaining vested life and the extent to which the market price of our common stock exceeds the
option exercise price. The lattice binomial model estimates the probability of exercise as a
function of these two variables based on the history of exercises and cancellations on all past
option grants made by us.
Expected Volatility. We estimate the volatility of our common stock at the date of grant based on
the implied volatility of one-year and two-year publicly traded options on our common stock. Our
decision to use implied
91
volatility was based upon the availability of actively traded options on our common stock and our
assessment that implied volatility is more representative of future stock price trends than
historical volatility.
Risk-Free Interest Rate. We base the risk-free interest rate that we use in our option valuation
model on the implied yield in effect at the time of option grant on constant maturity U.S. Treasury
issues with equivalent remaining terms.
Dividends. We have never paid any cash dividends on our common stock and we do not anticipate
paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend
yield of zero in our option valuation model.
Forfeitures. We estimate forfeitures at the time of grant and revise those estimates in subsequent
periods if actual forfeitures differ from those estimates. We use historical data to estimate
pre-vesting option forfeitures and record share-based compensation expense only for those awards
that are expected to vest.
We used the following assumptions to estimate the fair value of stock options granted and shares
purchased under our Employee Stock Purchase Plan for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions for stock options: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility (range) |
|
|
24% - 30 |
% |
|
|
28% - 44 |
% |
|
|
28% - 34 |
% |
Weighted average expected volatility |
|
|
28 |
% |
|
|
31 |
% |
|
|
33 |
% |
Risk-free interest rate (range) |
|
|
1.37% - 2.82 |
% |
|
|
1.13% - 3.08 |
% |
|
|
2.11% - 4.56 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions for ESPP: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility (range) |
|
|
22% - 29 |
% |
|
|
35% - 53 |
% |
|
|
31% - 37 |
% |
Weighted average expected volatility |
|
|
26 |
% |
|
|
42 |
% |
|
|
33 |
% |
Risk-free interest rate (range) |
|
|
0.04% - 0.16 |
% |
|
|
0.04% - 0.84 |
% |
|
|
1.11% - 4.15 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
92
Stock Option Activity and Related Share-Based Compensation Expense
A summary of activity under all share-based compensation plans for the fiscal periods indicated was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Shares |
|
|
|
|
|
Weighted Average |
|
|
Available |
|
Number of |
|
Exercise Price |
(Shares in thousands) |
|
for Grant |
|
Shares |
|
Per Share |
|
|
|
|
|
|
|
Balance at July 31, 2007 |
|
|
6,411 |
|
|
|
54,490 |
|
|
$ |
24.05 |
|
Additional shares authorized |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
Options assumed and converted in connection
with acquisitions |
|
|
|
|
|
|
648 |
|
|
|
2.00 |
|
Options granted |
|
|
(8,320 |
) |
|
|
8,320 |
|
|
|
27.99 |
|
Restricted stock units granted |
|
|
(3,046 |
) |
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
(9,101 |
) |
|
|
19.37 |
|
Options canceled or expired (1) |
|
|
2,311 |
|
|
|
(4,151 |
) |
|
|
30.91 |
|
Restricted stock units forfeited (1) |
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008 |
|
|
7,976 |
|
|
|
50,206 |
|
|
|
24.70 |
|
Additional shares authorized |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
Options assumed and converted in connection
with acquisitions |
|
|
|
|
|
|
178 |
|
|
|
6.45 |
|
Options granted |
|
|
(6,538 |
) |
|
|
6,538 |
|
|
|
28.83 |
|
Restricted stock units granted |
|
|
(6,242 |
) |
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
(8,760 |
) |
|
|
19.37 |
|
Options canceled or expired (1) |
|
|
2,208 |
|
|
|
(2,488 |
) |
|
|
29.20 |
|
Restricted stock units forfeited (1) |
|
|
682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009 |
|
|
8,086 |
|
|
|
45,674 |
|
|
|
26.00 |
|
Additional shares authorized |
|
|
9,000 |
|
|
|
|
|
|
|
|
|
Options assumed and converted in connection
with business combinations |
|
|
|
|
|
|
372 |
|
|
|
3.08 |
|
Options granted |
|
|
(6,338 |
) |
|
|
6,338 |
|
|
|
35.93 |
|
Restricted stock units granted |
|
|
(5,253 |
) |
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
(17,212 |
) |
|
|
24.00 |
|
Options canceled or expired (1) |
|
|
2,089 |
|
|
|
(2,579 |
) |
|
|
29.46 |
|
Restricted stock units forfeited (1) |
|
|
1,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010 |
|
|
8,761 |
|
|
|
32,593 |
|
|
$ |
28.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stock options and restricted stock units canceled, expired or forfeited under our
2005 Equity Incentive Plan are returned to the pool of shares available for grant. Stock
options and restricted stock units canceled, expired or forfeited under older expired plans
are not returned to the pool of shares available for grant. |
The weighted average fair values of options granted during the twelve months ended July 31,
2010 was $8.73 per share; during the twelve months ended July 31, 2009 was $7.86 per share; and
during the twelve months ended July 31, 2008 was $8.36 per share. The total fair value of options
vested during those periods was $57 million, $58 million and $61 million.
93
Options outstanding, exercisable and expected to vest, and exercisable as of July 31, 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
|
|
|
|
Remaining |
|
Average |
|
Aggregate |
|
|
Number |
|
Contractual |
|
Exercise |
|
Intrinsic |
|
|
of Shares |
|
Life |
|
Price per |
|
Value |
|
|
(in thousands) |
|
(in Years) |
|
Share |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
|
32,593 |
|
|
|
4.37 |
|
|
$ |
28.45 |
|
|
$ |
368 |
|
Options exercisable
and expected to vest |
|
|
31,240 |
|
|
|
4.29 |
|
|
$ |
28.28 |
|
|
$ |
358 |
|
Options exercisable |
|
|
20,201 |
|
|
|
3.26 |
|
|
$ |
26.34 |
|
|
$ |
271 |
|
Options expected to vest are unvested shares net of expected forfeitures. The aggregate
intrinsic value of options outstanding at July 31, 2010 is calculated as the difference between the
exercise price of the underlying options and the market price of our common stock for shares that
were in-the-money at that date. In-the-money options at July 31, 2010 were options that had
exercise prices that were lower than the $39.75 market price of our common stock at that date. The
aggregate intrinsic value of options exercised during the twelve months ended July 31, 2010 was
$157 million; during the twelve months ended July 31, 2009 was $79 million; and during the twelve
months ended July 31, 2008 was $97 million.
We recorded $67 million, $63 million and $57 million in share-based compensation expense for stock
options, restricted stock, and our Employee Stock Purchase Plan for the twelve months ended July
31, 2010, 2009 and 2008. The total tax benefits related to this share-based compensation expense
were $24 million, $22 million and $20 million.
At July 31, 2010, there was $104 million of unrecognized compensation cost related to non-vested
stock options and restricted stock that we will amortize to expense in the future. Unrecognized
compensation cost will be adjusted for future changes in estimated forfeitures. We expect to
recognize that cost over a weighted average vesting period of 2.3 years.
We received $413 million, $169 million and $176 million in cash from option exercises under all
share-based payment arrangements for the twelve months ended July 31, 2010, 2009 and 2008. The cash
tax benefits that we realized related to tax deductions for non-qualified option exercises and
disqualifying dispositions under all share-based payment arrangements totaled $61 million, $32
million and $38 million for those periods.
Due to our ongoing program of repurchasing our common stock on the open market, at July 31, 2010 we
had approximately 116 million treasury shares. We satisfy option exercises and RSU vesting from
this pool of treasury shares.
94
Restricted Stock Unit Activity and Related Share-Based Compensation Expense
A summary of restricted stock unit (RSU) activity for the periods indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Number |
|
Grant Date |
|
|
of Shares |
|
Fair Value |
|
|
|
|
|
|
|
|
|
Nonvested at July 31, 2007 |
|
|
2,504 |
|
|
$ |
29.88 |
|
Granted |
|
|
3,046 |
|
|
|
28.24 |
|
Restricted stock units assumed
and converted in connection
with acquisitions |
|
|
562 |
|
|
|
29.78 |
|
Vested |
|
|
(484 |
) |
|
|
25.96 |
|
Forfeited |
|
|
(631 |
) |
|
|
29.52 |
|
|
|
|
|
|
|
|
Nonvested at July 31, 2008 |
|
|
4,997 |
|
|
|
29.29 |
|
Granted |
|
|
6,242 |
|
|
|
26.09 |
|
Vested |
|
|
(1,150 |
) |
|
|
30.54 |
|
Forfeited |
|
|
(691 |
) |
|
|
28.53 |
|
|
|
|
|
|
|
|
Nonvested at July 31, 2009 |
|
|
9,398 |
|
|
|
27.06 |
|
Granted |
|
|
5,253 |
|
|
|
36.24 |
|
Restricted stock granted
in connection with
business combinations |
|
|
231 |
|
|
|
29.14 |
|
Vested |
|
|
(2,172 |
) |
|
|
29.30 |
|
Forfeited |
|
|
(1,179 |
) |
|
|
26.46 |
|
|
|
|
|
|
|
|
Nonvested at July 31, 2010 |
|
|
11,531 |
|
|
$ |
30.93 |
|
|
|
|
|
|
|
|
The total fair value of RSUs vested was $64 million during the twelve months ended July 31,
2010; $35 million during the twelve months ended July 31, 2009; and $11 million during the twelve
months ended July 31, 2008. We recorded $68 million, $70 million and $56 million in share-based
compensation expense for RSUs for those periods. The total tax benefit related to this RSU
compensation expense was $25 million, $26 million and $25 million for those periods.
At July 31, 2010, there was $176 million of unrecognized compensation cost related to non-vested
RSUs that we will amortize to expense in the future. Unrecognized compensation cost will be
adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a
weighted average vesting period of 1.9 years.
The cash tax benefits that we realized for tax deductions for RSUs totaled $24 million during the
twelve months ended July 31, 2010; $14 million during the twelve months ended July 31, 2009; and $3
million during the twelve months ended July 31, 2008.
13. Benefit Plans
Executive Deferred Compensation Plan
In December 2004 we initially adopted our 2005 Executive Deferred Compensation Plan, which became
effective January 1, 2005. We adopted this plan to meet the requirements for deferred compensation
under Section 409A of the Internal Revenue Code. The plan provides that executives who meet minimum
compensation requirements are eligible to defer up to 75% of their salaries, bonuses and
commissions. We have agreed to credit the participants contributions with earnings that reflect
the performance of certain independent investment funds. We may also make
discretionary employer contributions to participant accounts in certain circumstances. The timing,
amounts and
95
vesting schedules of employer contributions are at the sole discretion of the
Compensation and Organizational Development Committee of our Board of Directors or its delegate.
The benefits under this plan are unsecured. Participants are generally eligible to receive payment
of their vested benefit at the end of their elected deferral period or after termination of their
employment with Intuit for any reason or at a later date to comply with the restrictions of Section
409A. Discretionary company contributions and the related earnings vest completely upon the
participants disability, death or a change of control of Intuit. We made employer contributions to
the plan of less than $1 million during the twelve months ended July 31, 2010, 2009, and 2008.
We had liabilities related to this plan of $43 million at July 31, 2010 and $37 million at July 31,
2009. We have matched the plan liabilities with similar performing assets. These assets are
recorded in other long-term assets while liabilities related to obligations are recorded in other
current liabilities on our balance sheets.
401(k) Plan
In the United States, employees who participate in the Intuit Inc. 401(k) Plan may contribute up to
20% of pre-tax compensation, subject to Internal Revenue Service limitations and the terms and
conditions of the plan. We match a portion of employee contributions, currently 150% of the first
$1,000 and up to 75% of the next six percent of salary, subject to Internal Revenue Service
limitations. Matching contributions were $32 million for the twelve months ended July 31, 2010; $35
million for the twelve months ended July 31, 2009; and $34 million for the twelve months ended July
31, 2008.
14. Litigation
Intuit is subject to certain routine legal proceedings, as well as demands, claims and threatened
litigation, that arise in the normal course of our business, including assertions that we may be
infringing patents or other intellectual property rights of others. We currently believe that the
ultimate amount of liability, if any, for any pending claims of any type (either alone or combined)
will not materially affect our financial position, results of operations or cash flows. The
ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an
adverse impact on Intuit because of defense costs, negative publicity, diversion of management
resources and other factors. Our failure to obtain necessary license or other rights, or litigation
arising out of intellectual property claims could adversely affect our business.
15. Segment Information
We have defined seven reportable segments, described below, based on factors such as how we manage
our operations and how our chief operating decision maker views results. We define the chief
operating decision maker as our Chief Executive Officer and our Chief Financial Officer. Our chief
operating decision maker organizes and manages our business primarily on the basis of product and
service offerings.
Financial Management Solutions product revenue is derived primarily from QuickBooks desktop
software products and financial supplies such as paper checks, envelopes, invoices, business cards
and business stationery. Financial Management Solutions service and other revenue is derived
primarily from QuickBooks Online; QuickBooks support plans; Intuit Websites, which provides website
design and hosting services for small and medium-sized businesses; QuickBase; and royalties from
small business online services.
Employee Management Solutions product revenue is derived primarily from QuickBooks Basic Payroll
and QuickBooks Enhanced Payroll, which are products sold on a subscription basis that offer payroll
tax tables, payroll reports, federal and state payroll tax forms, and electronic tax payment and
filing to small businesses that prepare their own payrolls. Employee Management Solutions service
and other revenue is derived from QuickBooks Online Payroll, Intuit Online Payroll, fees for direct
deposit services, and other small business payroll services. Service and other revenue for this
segment also includes interest earned on funds held for customers.
Payment Solutions product revenue is derived primarily from Point of Sale solutions. Payment
Solutions service and other revenue is derived primarily from merchant services for small
businesses that include credit card, debit card
and gift card processing services; check verification, check guarantee and electronic check
conversion, including
96
automated clearing house (ACH) and Check 21 capabilities; and Web-based
transaction processing services for online merchants. Service and other revenue for this segment
also includes interest earned on funds held for customers.
Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer and
small business desktop tax return preparation software. Consumer Tax service and other revenue is
derived primarily from TurboTax Online tax return preparation services and electronic tax filing
services.
Accounting Professionals product revenue is derived primarily from ProSeries and Lacerte
professional tax preparation software products and from QuickBooks Premier Accountant Edition and
ProAdvisor Program for professional accountants. Accounting Professionals service and other revenue
is derived primarily from electronic tax filing services, bank product transmission services and
training services.
Financial Services service and other revenue is derived primarily from outsourced online banking
software products that are hosted in our data centers and delivered as on-demand service offerings
to banks and credit unions.
Other Businesses consist primarily of Quicken, Mint.com, Intuit Health, and our businesses in
Canada and the United Kingdom. Quicken product revenue is derived primarily from Quicken desktop
software products. Quicken service and other revenue is derived primarily from fees from consumer
online transactions and Quicken Loans trademark royalties. Mint.com service and other revenue is
derived primarily from lead generation fees. Intuit Health service and other revenue is derived
from online patient-to-provider communication services. In Canada, product revenue is derived
primarily from localized versions of QuickBooks and Quicken as well as consumer desktop tax return
preparation software and professional tax preparation products. Service and other revenue in Canada
consists primarily of revenue from payroll services and QuickBooks support plans. In the United
Kingdom, product revenue is derived primarily from localized versions of QuickBooks and QuickBooks
Payroll.
All of our business segments except Other Businesses operate primarily in the United States and
sell primarily to customers in the United States. International total net revenue was less than 5%
of consolidated total net revenue for the twelve months ended July 31, 2010, 2009 and 2008.
We include expenses such as corporate selling and marketing, product development, and general and
administrative expenses and share-based compensation expenses, which are not allocated to specific
segments, in unallocated corporate items. Unallocated corporate items also include amortization of
acquired intangible assets and acquisition-related charges.
The accounting policies of our reportable segments are the same as those described in the summary
of significant accounting policies in Note 1. Except for goodwill and acquired intangible assets,
we do not generally track assets by reportable segment and, consequently, we do not disclose total
assets by reportable segment. See Note 5 for goodwill by reportable segment.
97
The following table shows our financial results by reportable segment for the periods indicated.
Results for our Other Businesses segment have been adjusted for all periods presented to exclude
results for our Intuit Real Estate Solutions business, which became a discontinued operation in the
second quarter of fiscal 2010. See Note 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Management Solutions |
|
$ |
611 |
|
|
$ |
579 |
|
|
$ |
592 |
|
Employee Management Solutions |
|
|
418 |
|
|
|
365 |
|
|
|
337 |
|
Payment Solutions |
|
|
313 |
|
|
|
291 |
|
|
|
254 |
|
Consumer Tax |
|
|
1,146 |
|
|
|
996 |
|
|
|
929 |
|
Accounting Professionals |
|
|
373 |
|
|
|
352 |
|
|
|
327 |
|
Financial Services |
|
|
332 |
|
|
|
311 |
|
|
|
298 |
|
Other Businesses |
|
|
262 |
|
|
|
215 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
3,455 |
|
|
$ |
3,109 |
|
|
$ |
2,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Management Solutions |
|
$ |
152 |
|
|
$ |
113 |
|
|
$ |
170 |
|
Employee Management Solutions |
|
|
253 |
|
|
|
208 |
|
|
|
166 |
|
Payment Solutions |
|
|
67 |
|
|
|
31 |
|
|
|
43 |
|
Consumer Tax |
|
|
746 |
|
|
|
629 |
|
|
|
588 |
|
Accounting Professionals |
|
|
210 |
|
|
|
186 |
|
|
|
162 |
|
Financial Services |
|
|
71 |
|
|
|
69 |
|
|
|
57 |
|
Other Businesses |
|
|
64 |
|
|
|
62 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
1,563 |
|
|
|
1,298 |
|
|
|
1,276 |
|
Unallocated corporate items: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
(134 |
) |
|
|
(130 |
) |
|
|
(111 |
) |
Other common expenses |
|
|
(475 |
) |
|
|
(384 |
) |
|
|
(431 |
) |
Amortization of acquired technology |
|
|
(49 |
) |
|
|
(59 |
) |
|
|
(55 |
) |
Amortization of other acquired intangible assets |
|
|
(42 |
) |
|
|
(42 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
Total unallocated corporate items |
|
|
(700 |
) |
|
|
(615 |
) |
|
|
(632 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating income from continuing operations |
|
$ |
863 |
|
|
$ |
683 |
|
|
$ |
644 |
|
|
|
|
|
|
|
|
|
|
|
98
16. Selected Quarterly Financial Data (Unaudited)
The following tables contain selected quarterly financial data for the twelve months ended July 31,
2010 and July 31, 2009. We accounted for our Intuit Real Estate Solutions and Intuit Distribution
Management Solutions businesses as discontinued operations and as a result have segregated their
operating results from continuing operations in our statements of operations and in these tables.
See Note 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 Quarter Ended |
|
(In millions, except per share amounts) |
|
October 31 |
|
|
January 31 |
|
|
April 30 |
|
|
July 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
474 |
|
|
$ |
837 |
|
|
$ |
1,607 |
|
|
$ |
537 |
|
Cost of revenue |
|
|
166 |
|
|
|
178 |
|
|
|
157 |
|
|
|
152 |
|
All other costs and expenses |
|
|
408 |
|
|
|
520 |
|
|
|
562 |
|
|
|
449 |
|
Operating income (loss) from continuing operations |
|
|
(100 |
) |
|
|
139 |
|
|
|
888 |
|
|
|
(64 |
) |
Net income (loss) from continuing operations |
|
|
(69 |
) |
|
|
80 |
|
|
|
576 |
|
|
|
(48 |
) |
Net income (loss) from discontinued operations |
|
|
1 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(68 |
) |
|
|
114 |
|
|
|
576 |
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share from
continuing operations |
|
$ |
(0.21 |
) |
|
$ |
0.25 |
|
|
$ |
1.83 |
|
|
$ |
(0.15 |
) |
Basic net income per share from
discontinued operations |
|
|
|
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(0.21 |
) |
|
$ |
0.36 |
|
|
$ |
1.83 |
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share from
continuing operations |
|
$ |
(0.21 |
) |
|
$ |
0.25 |
|
|
$ |
1.78 |
|
|
$ |
(0.15 |
) |
Diluted net income per share from
discontinued operations |
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
(0.21 |
) |
|
$ |
0.35 |
|
|
$ |
1.78 |
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 Quarter Ended |
|
(In millions, except per share amounts) |
|
October 31 |
|
|
January 31 |
|
|
April 30 |
|
|
July 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
462 |
|
|
$ |
773 |
|
|
$ |
1,417 |
|
|
$ |
457 |
|
Cost of revenue |
|
|
149 |
|
|
|
168 |
|
|
|
164 |
|
|
|
156 |
|
All other costs and expenses |
|
|
388 |
|
|
|
494 |
|
|
|
488 |
|
|
|
419 |
|
Operating income (loss) from continuing operations |
|
|
(75 |
) |
|
|
111 |
|
|
|
765 |
|
|
|
(118 |
) |
Net income (loss) from continuing operations |
|
|
(52 |
) |
|
|
86 |
|
|
|
485 |
|
|
|
(72 |
) |
Net income (loss) from discontinued operations |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
1 |
|
Net income (loss) |
|
|
(52 |
) |
|
|
85 |
|
|
|
485 |
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share from
continuing operations |
|
$ |
(0.16 |
) |
|
$ |
0.27 |
|
|
$ |
1.51 |
|
|
$ |
(0.22 |
) |
Basic net income (loss) per share from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(0.16 |
) |
|
$ |
0.27 |
|
|
$ |
1.51 |
|
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share from
continuing operations |
|
$ |
(0.16 |
) |
|
$ |
0.26 |
|
|
$ |
1.47 |
|
|
$ |
(0.22 |
) |
Diluted net income (loss) per share from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
(0.16 |
) |
|
$ |
0.26 |
|
|
$ |
1.47 |
|
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
100
Valuation And Qualifying Accounts
Schedule II
INTUIT INC.
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
Charged to |
|
|
|
|
|
|
|
|
Beginning |
|
Expense/ |
|
|
|
|
|
Ending |
(In millions) |
|
Balance |
|
Revenue |
|
Deductions |
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
16 |
|
|
$ |
23 |
|
|
$ |
(17 |
) |
|
$ |
22 |
|
Reserve for product returns |
|
|
22 |
|
|
|
101 |
|
|
|
(103 |
) |
|
|
20 |
|
Reserve for rebates |
|
|
30 |
|
|
|
84 |
|
|
|
(103 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
16 |
|
|
$ |
14 |
|
|
$ |
(14 |
) |
|
$ |
16 |
|
Reserve for product returns |
|
|
28 |
|
|
|
107 |
|
|
|
(113 |
) |
|
|
22 |
|
Reserve for rebates |
|
|
13 |
|
|
|
114 |
|
|
|
(97 |
) |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
15 |
|
|
$ |
15 |
|
|
$ |
(14 |
) |
|
$ |
16 |
|
Reserve for product returns |
|
|
26 |
|
|
|
105 |
|
|
|
(103 |
) |
|
|
28 |
|
Reserve for rebates |
|
|
19 |
|
|
|
67 |
|
|
|
(73 |
) |
|
|
13 |
|
|
|
|
|
Note: |
|
Additions to the allowance for doubtful accounts are charged to general and administrative
expense. Additions to the reserves for product returns and rebates are charged against
revenue. |
101
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based upon an evaluation of the effectiveness of disclosure controls and procedures, Intuits Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that as of the end of the
period covered by this Annual Report on Form 10-K our disclosure controls and procedures as defined
under Exchange Act Rules 13a-15(e) and 15d-15(e) were effective to provide reasonable assurance
that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified by the Securities and Exchange Commission
and is accumulated and communicated to management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of July 31, 2010 based on the guidelines established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on the results of this evaluation, our management has concluded
that our internal control over financial reporting was effective as of July 31, 2010 to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with generally accepted
accounting principles. We reviewed the results of managements assessment with the Audit and Risk
Committee of Intuits Board of Directors.
Ernst & Young LLP, an independent registered public accounting firm, independently assessed the
effectiveness of our internal control over financial reporting as of July 31, 2010. Ernst & Young
has issued an attestation report concurring with managements assessment, which is included in Part
II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, there has not occurred any change in our internal control
over financial reporting that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B
OTHER INFORMATION
None.
102
PART III
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except for the information about our executive officers shown below, the information required for
this Item 10 is incorporated by reference from our Proxy Statement to be filed in connection with
our January 2011 Annual Meeting of Stockholders.
We maintain a Code of Conduct and Ethics that applies to all employees, including all officers. We
also maintain a Board of Directors Code of Ethics that applies to all members of our Board of
Directors. Our Code of Conduct and Ethics and Board of Directors Code of Ethics incorporate
guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance
with applicable laws and regulations. Our Code of Conduct and Ethics and Board of Directors Code of
Ethics are published on our Investor Relations website at
http://investors.intuit.com/governance.cfm and
http://investors.intuit.com/directors.cfm,
respectively. We disclose amendments to certain provisions of our Code of Conduct and Ethics and
Board of Directors Code of Ethics, or waivers of such provisions granted to executive officers and
directors, on this website.
EXECUTIVE OFFICERS
The following table shows Intuits executive officers as of August 31, 2010 and their areas of
responsibility. Their biographies follow the table.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
|
|
|
|
|
|
|
|
|
Brad D. Smith |
|
|
46 |
|
|
President, Chief Executive Officer and Director |
Scott D. Cook |
|
|
58 |
|
|
Chairman of the Executive Committee |
Laura A. Fennell |
|
|
49 |
|
|
Senior Vice President, General Counsel and Corporate Secretary |
Sasan K. Goodarzi |
|
|
42 |
|
|
Senior Vice President and General Manager, Intuit Financial Services Division |
Daniel R. Maurer |
|
|
54 |
|
|
Senior Vice President and General Manager, Consumer Group |
Kiran M. Patel |
|
|
62 |
|
|
Executive Vice President and General Manager, Small Business Group |
R. Neil Williams |
|
|
57 |
|
|
Senior Vice President and Chief Financial Officer |
Jeffrey P. Hank |
|
|
50 |
|
|
Vice President, Corporate Controller |
|
|
|
|
|
|
|
|
|
Mr. Smith has been President and Chief Executive Officer and a member of the Board of Directors
since January 2008. He was Senior Vice President and General Manager, Small Business Division from
May 2006 to December 2007 and Senior Vice President and General Manager, QuickBooks from May 2005
to May 2006. He also served as Senior Vice President and General Manager, Consumer Tax Group from
March 2004 until May 2005 and as Vice President and General Manager of Intuits Accountant Central
and Developer Network from February 2003 to March 2004. Prior to joining Intuit in February 2003,
Mr. Smith was Senior Vice President of Marketing and Business Development at ADP, a provider of
business outsourcing solutions, where he held several executive positions from 1996 to 2003. Mr.
Smith also serves on the Board of Directors of Yahoo! Inc. Mr. Smith holds a Bachelors degree in
Business Administration from Marshall University and a Masters degree in Management from Aquinas
College.
Mr. Cook, a founder of Intuit, has been an Intuit director since March 1984 and is currently
Chairman of the Executive Committee. He served as Intuits Chairman of the Board from February 1993
through July 1998. From April 1984 to April 1994, he served as Intuits President and Chief
Executive Officer. Mr. Cook also serves on the board of directors of eBay Inc. and The Procter &
Gamble Company. Mr. Cook holds a Bachelor of Arts degree in Economics and Mathematics from the
University of Southern California and a Masters degree in Business Administration from Harvard
Business School.
Ms. Fennell has been Senior Vice President, General Counsel and Corporate Secretary since February
2007. She joined Intuit as Vice President, General Counsel and Corporate Secretary in April 2004.
Prior to joining Intuit, Ms. Fennell spent nearly eleven years at Sun Microsystems, Inc., most
recently as Vice President of Corporate Legal
103
Resources, as well as Acting General Counsel. Prior
to joining Sun, she was an associate attorney at Wilson Sonsini, Goodrich & Rosati PC. Ms. Fennell
holds a Bachelor of Science degree in Business Administration from California State University,
Chico and a Juris Doctor from the University of Santa Clara.
Mr. Goodarzi has been Senior Vice President and General Manager, Intuit Financial Services since
September 2007. From September 2005 to September 2007 he served as Intuits Vice President,
Professional Tax and from June 2004 to September 2005 he served as Vice President of the
Intuit-Branded Software Businesses. Previously, from 2002 to June 2004, Mr. Goodarzi was president
of the products group in the process systems division of Invensys, a provider of process automation
and controls. Prior to working at Invensys, he held senior leadership roles at Honeywell. Mr.
Goodarzi holds a Bachelors degree in Electrical Engineering from the University of Central Florida
and a Masters degree in Business Administration from the Kellogg School of Management at
Northwestern University.
Mr. Maurer has been Senior Vice President and General Manager of Intuits Consumer Group since
December 2008. From February 2008 to December 2008, he was Senior Vice President and Chief
Marketing Officer. From January 2006 to February 2008 he was Vice President of Marketing for
Intuits Consumer Tax Group. Prior to joining Intuit, Mr. Maurer served as Vice President of
strategy at The Campbells Soup Company from 2002 to December 2005 and held senior marketing
positions at The Proctor & Gamble Company. Mr. Maurer holds a Bachelors Degree in Marketing and
Finance from the University of Wisconsin.
Mr. Patel has been Executive Vice President and General Manager, Small Business Group since
December 2008. He was Senior Vice President and General Manager, Consumer Tax Group from June 2007
to December 2008 and Chief Financial Officer from September 2005 to January 2008. From August 2001
to September 2005, Mr. Patel served as Executive Vice President and Chief Financial Officer of
Solectron Corporation, a provider of electronics supply chain services, where he led finance,
legal, investor relations and business development activities. From October 2000 to May 2001, he
was the Chief Financial Officer of iMotors, an Internet-based value-added retailer of used cars.
Previously, Mr. Patel had a 27-year career with Cummins Inc., where he served in a broad range of
finance positions, most recently as Chief Financial Officer and Executive Vice President. Mr. Patel
also serves on the board of directors of KLA-Tencor Corporation. Mr. Patel holds a Bachelor of
Science degree in Electrical Engineering and a Masters degree in Business Administration from the
University of Tennessee, and he is a certified public accountant.
Mr. Williams joined Intuit in January 2008 as Senior Vice President and Chief Financial Officer.
Beginning in 2001, he served as Executive Vice President of Visa U.S.A., Inc., the leading payments
company in the U.S., and then from November 2004 to September 2007 served as Chief Financial
Officer, leading all financial functions for the company and its subsidiaries. During the same
period, Mr. Williams held the dual role of Chief Financial Officer for Inovant LLC, Visas global
IT organization responsible for global transactions processing and technology development. Mr.
Williams holds a Bachelors degree in Business Administration from the University of Southern
Mississippi and he is a certified public accountant.
Mr. Hank has been Vice President, Corporate Controller since June 2005. He joined Intuit in October
2003 as Director, Accounting Principles Group. From June 2002 until September 2003, Mr. Hank was an
Audit Partner at KPMG LLP. From September 1994 until June 2002, Mr. Hank was an Audit Partner at
Arthur Andersen LLP. Mr. Hank holds a Bachelor of Science degree in Business Administration
Accounting and Finance from the University of California at Berkeley.
104
ITEM 11
EXECUTIVE COMPENSATION
The information required for this Item is incorporated by reference from our Proxy Statement to be
filed for our January 2011 Annual Meeting of Stockholders.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required for this Item is incorporated by reference from our Proxy Statement to be
filed for our January 2011 Annual Meeting of Stockholders.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required for this Item is incorporated by reference from our Proxy Statement to be
filed for our January 2011 Annual Meeting of Stockholders.
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required for this Item is incorporated by reference from our Proxy Statement to be
filed for our January 2011 Annual Meeting of Stockholders.
105
PART IV
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) |
|
The following documents are filed as part of this report: |
|
1. |
|
Financial Statements See Index to Consolidated Financial Statements in Part II,
Item 8. |
|
|
2. |
|
Financial Statement Schedules See Index to Consolidated Financial Statements in
Part II, Item 8. |
|
|
3. |
|
Exhibits |