e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended January 31, 2007
OR
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o |
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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
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77-0034661 |
(State of incorporation)
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(IRS employer identification no.) |
2700 Coast Avenue, Mountain View, CA 94043
(Address of principal executive offices)
(650) 944-6000
(Registrants telephone number, including area code)
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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. 342,568,181 shares of Common Stock, $0.01 par value, were
outstanding at February 23, 2007.
INTUIT INC.
FORM 10-Q
INDEX
Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries and Quicken, 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. QuickBooks: Simple Start Edition, Innovative Merchant
Solutions, QuickTax, TaxWiz and ProFile, among others, are trademarks and/or 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.
2
PART I
ITEM 1
FINANCIAL STATEMENTS
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended |
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Six Months Ended |
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January 31, |
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January 31, |
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January 31, |
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January 31, |
|
(In thousands, except per share amounts; unaudited) |
|
2007 |
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2006 |
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|
2007 |
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|
2006 |
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|
Net revenue: |
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|
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|
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Product |
|
$ |
549,539 |
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|
$ |
557,079 |
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|
$ |
761,959 |
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|
$ |
739,533 |
|
Service and other |
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|
213,768 |
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|
185,625 |
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|
363,419 |
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|
307,242 |
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Total net revenue |
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763,307 |
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|
742,704 |
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1,125,378 |
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1,046,775 |
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Costs and expenses: |
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Cost of revenue: |
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Cost of product revenue |
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68,253 |
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71,739 |
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|
105,596 |
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|
104,170 |
|
Cost of service and other revenue |
|
|
70,293 |
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|
63,393 |
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|
|
138,665 |
|
|
|
122,641 |
|
Amortization of purchased intangible assets |
|
|
2,583 |
|
|
|
2,763 |
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|
4,891 |
|
|
|
5,712 |
|
Selling and marketing |
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221,440 |
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|
196,903 |
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|
376,538 |
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344,333 |
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Research and development |
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115,474 |
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100,084 |
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|
235,688 |
|
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|
197,364 |
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General and administrative |
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68,606 |
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|
65,297 |
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145,994 |
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|
128,892 |
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Acquisition-related charges |
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2,334 |
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|
3,553 |
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|
5,176 |
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7,312 |
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|
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Total costs and expenses |
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548,983 |
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503,732 |
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1,012,548 |
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910,424 |
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Operating income from continuing operations |
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214,324 |
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238,972 |
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112,830 |
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|
136,351 |
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Interest and other income |
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|
11,046 |
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5,566 |
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21,336 |
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11,870 |
|
Gains on marketable equity securities and other
investments, net |
|
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|
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|
3,027 |
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|
|
1,221 |
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7,294 |
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Income from continuing operations before
income taxes |
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|
225,370 |
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|
247,565 |
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|
135,387 |
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|
155,515 |
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Income tax provision |
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|
79,673 |
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|
|
92,074 |
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|
48,405 |
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|
57,635 |
|
Minority interest, net of tax |
|
|
335 |
|
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|
244 |
|
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|
550 |
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|
244 |
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Net income from continuing operations |
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145,362 |
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|
155,247 |
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86,432 |
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|
97,636 |
|
Net income from discontinued operations |
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27,726 |
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39,533 |
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Net income |
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$ |
145,362 |
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$ |
182,973 |
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$ |
86,432 |
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$ |
137,169 |
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Basic net income per share from
continuing operations |
|
$ |
0.42 |
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$ |
0.44 |
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$ |
0.25 |
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$ |
0.28 |
|
Basic net income per share from
discontinued operations |
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|
0.08 |
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|
|
|
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|
0.11 |
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Basic net income per share |
|
$ |
0.42 |
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$ |
0.52 |
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$ |
0.25 |
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$ |
0.39 |
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Shares used in basic per share calculation |
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|
347,185 |
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|
350,292 |
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346,700 |
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352,552 |
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Diluted net income per share from
continuing operations |
|
$ |
0.40 |
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$ |
0.43 |
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$ |
0.24 |
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|
$ |
0.27 |
|
Diluted net income per share from
discontinued operations |
|
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|
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|
0.07 |
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|
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|
0.11 |
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|
Diluted net income per share |
|
$ |
0.40 |
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$ |
0.50 |
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$ |
0.24 |
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$ |
0.38 |
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Shares used in diluted per share calculation |
|
|
360,573 |
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|
363,582 |
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360,654 |
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365,200 |
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See accompanying notes.
3
INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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January 31, |
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July 31, |
|
(In thousands; unaudited) |
|
2007 |
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2006 |
|
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
286,328 |
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$ |
179,601 |
|
Investments |
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|
849,228 |
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|
1,017,599 |
|
Accounts receivable, net |
|
|
310,506 |
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|
97,797 |
|
Income taxes receivable |
|
|
9,318 |
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|
64,178 |
|
Deferred income taxes |
|
|
56,016 |
|
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|
47,199 |
|
Prepaid expenses and other current assets |
|
|
100,824 |
|
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|
53,357 |
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|
Current assets before funds held for payroll customers |
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|
1,612,220 |
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|
1,459,731 |
|
Funds held for payroll customers |
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411,774 |
|
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|
357,299 |
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Total current assets |
|
|
2,023,994 |
|
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|
1,817,030 |
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Property and equipment, net |
|
|
205,377 |
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|
194,434 |
|
Goodwill, net |
|
|
555,023 |
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|
504,991 |
|
Purchased intangible assets, net |
|
|
57,350 |
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|
59,521 |
|
Long-term deferred income taxes |
|
|
135,358 |
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|
144,697 |
|
Loans to officers |
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|
8,865 |
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|
8,865 |
|
Other assets |
|
|
48,032 |
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|
40,489 |
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|
Total assets |
|
$ |
3,033,999 |
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|
$ |
2,770,027 |
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|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
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Current liabilities: |
|
|
|
|
|
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|
|
Accounts payable |
|
$ |
120,300 |
|
|
$ |
70,808 |
|
Accrued compensation and related liabilities |
|
|
138,145 |
|
|
|
171,903 |
|
Deferred revenue |
|
|
295,463 |
|
|
|
293,113 |
|
Income taxes payable |
|
|
35,984 |
|
|
|
33,560 |
|
Other current liabilities |
|
|
189,328 |
|
|
|
89,291 |
|
|
|
|
|
|
|
|
Current liabilities before payroll customer fund deposits |
|
|
779,220 |
|
|
|
658,675 |
|
Payroll customer fund deposits |
|
|
411,774 |
|
|
|
357,299 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,190,994 |
|
|
|
1,015,974 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Long-term obligations |
|
|
18,378 |
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|
|
15,399 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
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|
Minority interest |
|
|
978 |
|
|
|
568 |
|
Stockholders equity: |
|
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|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital |
|
|
2,170,715 |
|
|
|
2,092,914 |
|
Treasury stock, at cost |
|
|
(2,015,164 |
) |
|
|
(1,944,036 |
) |
Accumulated other comprehensive income |
|
|
13,790 |
|
|
|
1,084 |
|
Retained earnings |
|
|
1,654,308 |
|
|
|
1,588,124 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,823,649 |
|
|
|
1,738,086 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,033,999 |
|
|
$ |
2,770,027 |
|
|
|
|
|
|
|
|
See accompanying notes.
4
INTUIT
INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Additional |
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|
|
|
|
|
|
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Other |
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|
Total |
|
|
|
Common Stock |
|
|
Paid In |
|
|
Treasury |
|
|
Deferred |
|
|
Comprehensive |
|
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Retained |
|
|
Stockholders |
|
(Dollars in thousands; unaudited) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Compensation |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Equity |
|
|
|
|
|
Balance at July 31, 2006 |
|
|
344,170,779 |
|
|
$ |
3,442 |
|
|
$ |
2,089,472 |
|
|
$ |
(1,944,036 |
) |
|
$ |
|
|
|
$ |
1,084 |
|
|
$ |
1,588,124 |
|
|
$ |
1,738,086 |
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,432 |
|
|
|
86,432 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,706 |
|
|
|
|
|
|
|
12,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,138 |
|
Issuance of common stock upon
exercise of options and other post-split |
|
|
6,026,114 |
|
|
|
60 |
|
|
|
10,202 |
|
|
|
122,379 |
|
|
|
|
|
|
|
|
|
|
|
(20,639 |
) |
|
|
112,002 |
|
Issuance of common stock pursuant to
Employee Stock Purchase Plan post-split |
|
|
490,297 |
|
|
|
5 |
|
|
|
|
|
|
|
11,795 |
|
|
|
|
|
|
|
|
|
|
|
395 |
|
|
|
12,195 |
|
Issuance of common stock pursuant to
vesting of restricted stock units
post-split |
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Stock repurchases under stock
repurchase programs post-split |
|
|
(6,660,000 |
) |
|
|
(67 |
) |
|
|
|
|
|
|
(205,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(205,373 |
) |
Tax benefit from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
29,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,430 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
38,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,171 |
|
|
Balance at January 31, 2007 |
|
|
344,027,362 |
|
|
$ |
3,440 |
|
|
$ |
2,167,275 |
|
|
$ |
(2,015,164 |
) |
|
$ |
|
|
|
$ |
13,790 |
|
|
$ |
1,654,308 |
|
|
$ |
1,823,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid In |
|
|
Treasury |
|
|
Deferred |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders |
|
(Dollars in thousands; unaudited) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Compensation |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Equity |
|
|
|
|
|
Balance at July 31, 2005 |
|
|
179,270,062 |
|
|
$ |
1,793 |
|
|
$ |
1,976,161 |
|
|
$ |
(1,557,833 |
) |
|
$ |
(16,283 |
) |
|
$ |
174 |
|
|
$ |
1,291,487 |
|
|
$ |
1,695,499 |
|
Reclassification of deferred compensation
balance upon adoption of SFAS 123(R) |
|
|
|
|
|
|
|
|
|
|
(16,283 |
) |
|
|
|
|
|
|
16,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,169 |
|
|
|
137,169 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,138 |
|
|
|
|
|
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,307 |
|
Issuance of common stock upon
exercise of options and other pre-split |
|
|
4,199,173 |
|
|
|
42 |
|
|
|
|
|
|
|
191,326 |
|
|
|
|
|
|
|
|
|
|
|
(54,187 |
) |
|
|
137,181 |
|
Issuance of common stock pursuant to
Employee Stock Purchase Plan pre-split |
|
|
271,581 |
|
|
|
2 |
|
|
|
|
|
|
|
12,453 |
|
|
|
|
|
|
|
|
|
|
|
(2,085 |
) |
|
|
10,370 |
|
Stock repurchases under stock
repurchase programs pre-split |
|
|
(9,913,913 |
) |
|
|
(99 |
) |
|
|
|
|
|
|
(494,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(494,981 |
) |
Tax benefit from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
29,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,076 |
|
Share-based compensation (1) |
|
|
|
|
|
|
|
|
|
|
38,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,450 |
|
|
Balance at January 31, 2006 |
|
|
173,826,903 |
|
|
$ |
1,738 |
|
|
$ |
2,027,404 |
|
|
$ |
(1,848,936 |
) |
|
$ |
|
|
|
$ |
1,312 |
|
|
$ |
1,372,384 |
|
|
$ |
1,553,902 |
|
|
|
|
|
(1) |
|
Includes $38,173 for continuing operations and $277 for Intuit Information Technology Solutions discontinued operations. |
Note: We effected a two-for-one stock split in the form of a 100% stock dividend on July 6, 2006.
See accompanying notes.
5
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
145,362 |
|
|
$ |
182,973 |
|
|
$ |
86,432 |
|
|
$ |
137,169 |
|
Net income from discontinued operations |
|
|
|
|
|
|
(27,726 |
) |
|
|
|
|
|
|
(39,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
|
145,362 |
|
|
|
155,247 |
|
|
|
86,432 |
|
|
|
97,636 |
|
Adjustments to reconcile net income from continuing operations
to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
21,061 |
|
|
|
22,616 |
|
|
|
43,336 |
|
|
|
45,761 |
|
Acquisition-related charges |
|
|
2,334 |
|
|
|
3,553 |
|
|
|
5,176 |
|
|
|
7,312 |
|
Amortization of purchased intangible assets |
|
|
2,583 |
|
|
|
2,763 |
|
|
|
4,891 |
|
|
|
5,712 |
|
Amortization of other purchased intangible assets |
|
|
2,734 |
|
|
|
2,259 |
|
|
|
5,305 |
|
|
|
4,290 |
|
Share-based compensation |
|
|
19,312 |
|
|
|
17,749 |
|
|
|
38,171 |
|
|
|
38,173 |
|
Amortization of premiums and discounts on available-for-sale
debt securities |
|
|
1,071 |
|
|
|
972 |
|
|
|
1,961 |
|
|
|
2,066 |
|
Net gains on marketable equity securities and other investments |
|
|
|
|
|
|
(3,027 |
) |
|
|
(1,221 |
) |
|
|
(7,294 |
) |
Deferred income taxes |
|
|
(6,552 |
) |
|
|
(4,128 |
) |
|
|
(9,399 |
) |
|
|
(1,608 |
) |
Tax benefit from share-based compensation plans |
|
|
12,634 |
|
|
|
26,554 |
|
|
|
29,430 |
|
|
|
29,076 |
|
Excess tax benefit from share-based compensation plans |
|
|
(7,967 |
) |
|
|
(12,446 |
) |
|
|
(16,720 |
) |
|
|
(13,385 |
) |
Other |
|
|
394 |
|
|
|
302 |
|
|
|
743 |
|
|
|
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
192,966 |
|
|
|
212,414 |
|
|
|
188,105 |
|
|
|
208,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(215,488 |
) |
|
|
(245,772 |
) |
|
|
(212,884 |
) |
|
|
(232,851 |
) |
Prepaid expenses, taxes and other current assets |
|
|
66,985 |
|
|
|
70,864 |
|
|
|
8,727 |
|
|
|
32,370 |
|
Accounts payable |
|
|
22,619 |
|
|
|
28,937 |
|
|
|
48,970 |
|
|
|
59,602 |
|
Accrued compensation and related liabilities |
|
|
47,436 |
|
|
|
43,917 |
|
|
|
(33,726 |
) |
|
|
(20,482 |
) |
Deferred revenue |
|
|
19,052 |
|
|
|
(17,825 |
) |
|
|
2,273 |
|
|
|
(23,062 |
) |
Income taxes payable |
|
|
18,415 |
|
|
|
8,343 |
|
|
|
2,702 |
|
|
|
(8,428 |
) |
Other liabilities |
|
|
91,152 |
|
|
|
66,473 |
|
|
|
102,264 |
|
|
|
57,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in operating assets and liabilities |
|
|
50,171 |
|
|
|
(45,063 |
) |
|
|
(81,674 |
) |
|
|
(135,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
of continuing operations |
|
|
243,137 |
|
|
|
167,351 |
|
|
|
106,431 |
|
|
|
72,591 |
|
Net cash provided by operating activities of
discontinued operations |
|
|
|
|
|
|
3,109 |
|
|
|
|
|
|
|
14,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
243,137 |
|
|
|
170,460 |
|
|
|
106,431 |
|
|
|
86,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale debt securities |
|
|
(479,703 |
) |
|
|
(392,673 |
) |
|
|
(880,578 |
) |
|
|
(681,792 |
) |
Liquidation of available-for-sale debt securities |
|
|
495,550 |
|
|
|
271,213 |
|
|
|
985,747 |
|
|
|
826,282 |
|
Maturity of available-for-sale debt securities |
|
|
26,784 |
|
|
|
31,665 |
|
|
|
61,614 |
|
|
|
52,440 |
|
Proceeds from the sale of marketable equity securities |
|
|
|
|
|
|
4,235 |
|
|
|
858 |
|
|
|
4,235 |
|
Net change in funds held for payroll customers money
market funds and other cash equivalents |
|
|
24,438 |
|
|
|
(78,576 |
) |
|
|
(54,475 |
) |
|
|
(66,170 |
) |
Purchases of property and equipment |
|
|
(23,683 |
) |
|
|
(22,855 |
) |
|
|
(52,906 |
) |
|
|
(47,912 |
) |
Proceeds from sale of property |
|
|
22 |
|
|
|
334 |
|
|
|
22 |
|
|
|
334 |
|
Change in other assets |
|
|
(2,026 |
) |
|
|
(1,925 |
) |
|
|
(6,704 |
) |
|
|
(6,379 |
) |
Net change in payroll customer fund deposits |
|
|
(24,438 |
) |
|
|
78,576 |
|
|
|
54,475 |
|
|
|
66,170 |
|
Acquisitions of businesses and intangible assets, net of cash acquired |
|
|
(1,991 |
) |
|
|
(23,733 |
) |
|
|
(61,993 |
) |
|
|
(33,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
of continuing operations |
|
|
14,953 |
|
|
|
(133,739 |
) |
|
|
46,060 |
|
|
|
113,327 |
|
Net cash provided by investing activities of
discontinued operations |
|
|
20,989 |
|
|
|
171,833 |
|
|
|
20,989 |
|
|
|
171,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
35,942 |
|
|
|
38,094 |
|
|
|
67,049 |
|
|
|
285,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in long-term obligations |
|
|
(874 |
) |
|
|
(260 |
) |
|
|
(1,315 |
) |
|
|
(894 |
) |
Net proceeds from issuance of common stock under stock plans |
|
|
41,299 |
|
|
|
126,083 |
|
|
|
124,197 |
|
|
|
147,551 |
|
Purchase of treasury stock |
|
|
(205,373 |
) |
|
|
(300,181 |
) |
|
|
(205,373 |
) |
|
|
(494,981 |
) |
Excess tax benefit from share-based compensation plans |
|
|
7,967 |
|
|
|
12,446 |
|
|
|
16,720 |
|
|
|
13,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(156,981 |
) |
|
|
(161,912 |
) |
|
|
(65,771 |
) |
|
|
(334,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
|
(1,844 |
) |
|
|
1,090 |
|
|
|
(982 |
) |
|
|
1,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
120,254 |
|
|
|
47,732 |
|
|
|
106,727 |
|
|
|
38,864 |
|
Cash and cash equivalents at beginning of period |
|
|
166,074 |
|
|
|
74,974 |
|
|
|
179,601 |
|
|
|
83,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
286,328 |
|
|
$ |
122,706 |
|
|
$ |
286,328 |
|
|
$ |
122,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Intuit Inc. provides business, financial management and tax solutions for small businesses,
consumers and accountants. Our flagship software products include QuickBooks, TurboTax, Lacerte,
ProSeries and Quicken. Founded in 1983 and headquartered in Mountain View, California, we sell our
products and services primarily in the United States. At January 31, 2007, we had approximately
8,100 employees in the United States and internationally in Canada and several other locations.
Basis of Presentation
The condensed 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. The condensed consolidated financial statements also include the
financial position, results of operations and cash flows of Superior Bankcard Services, LLC (SBS),
an entity that acquires merchant accounts for our Innovative Merchant Solutions business. We are
allocated 51% of the earnings and losses of this entity and 100% of the losses in excess of the
minority interest capital balances. We therefore eliminate the portion of the SBS financial results
that pertain to the minority interests on a separate line in our statements of operations and
balance sheets.
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. We have also combined other revenue and cost of other revenue with service revenue and
cost of service revenue. Other revenue was less than 5% of total net revenue for the three and six
months ended January 31, 2007 and 2006.
Our Board of Directors authorized a two-for-one stock split which was effected in the form of a
100% stock dividend on July 6, 2006 to stockholders of record on June 21, 2006. All share and per
share figures in the statements of operations and the notes to the financial statements
retroactively reflect this stock split.
We have included all normal recurring adjustments and the adjustments for discontinued operations
that we considered necessary to give a fair presentation of our operating results for the periods
presented. These condensed consolidated financial statements and accompanying notes should be read
together with the audited consolidated financial statements included in our Annual Report on Form
10-K for the fiscal year ended July 31, 2006. Results for the three and six months ended January
31, 2007 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2007
or any other future period.
Our QuickBooks, Consumer Tax and Professional Tax businesses are highly seasonal. Some of our other
offerings are also seasonal, but to a lesser extent. Revenue from many of our small business
software products, including QuickBooks, tends to be at its peak around calendar year end, although
the timing of new product releases or changes in our offerings can materially shift revenue between
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.
Computation of Net Income (Loss) 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 under the treasury stock method. In loss periods,
basic net loss per share and diluted net loss per share are identical since the effect of potential
common shares is anti-dilutive and therefore excluded.
7
We include stock options with combined exercise prices and unrecognized compensation expense 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 and unrecognized
compensation expense 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, and the amount of tax
benefits that will be recorded in additional paid-in capital when the award becomes deductible are
assumed to be used to repurchase shares.
The following table presents the composition of shares used in the computation of basic and diluted
net loss per share for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
145,362 |
|
|
$ |
155,247 |
|
|
$ |
86,432 |
|
|
$ |
97,636 |
|
Net income from discontinued operations |
|
|
|
|
|
|
27,726 |
|
|
|
|
|
|
|
39,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
145,362 |
|
|
$ |
182,973 |
|
|
$ |
86,432 |
|
|
$ |
137,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
347,185 |
|
|
|
350,292 |
|
|
|
346,700 |
|
|
|
352,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
347,185 |
|
|
|
350,292 |
|
|
|
346,700 |
|
|
|
352,552 |
|
Dilutive common equivalent shares from
stock options and restricted stock awards |
|
|
13,388 |
|
|
|
13,290 |
|
|
|
13,954 |
|
|
|
12,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
outstanding |
|
|
360,573 |
|
|
|
363,582 |
|
|
|
360,654 |
|
|
|
365,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share from
continuing operations |
|
$ |
0.42 |
|
|
$ |
0.44 |
|
|
$ |
0.25 |
|
|
$ |
0.28 |
|
Basic net income per share from
discontinued operations |
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.42 |
|
|
$ |
0.52 |
|
|
$ |
0.25 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from
continuing operations |
|
$ |
0.40 |
|
|
$ |
0.43 |
|
|
$ |
0.24 |
|
|
$ |
0.27 |
|
Diluted net income per share from
discontinued operations |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
0.11 |
|
Diluted net income per share |
|
$ |
0.40 |
|
|
$ |
0.50 |
|
|
$ |
0.24 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average stock options and
restricted stock awards excluded from
calculation due to anti-dilutive effect: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options with combined exercise prices
and unamortized fair values that were greater
than the average market price for the common
stock during the period |
|
|
9,805 |
|
|
|
15,174 |
|
|
|
9,697 |
|
|
|
18,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Share-Based Compensation Plans
Effective August 1, 2006, we began using a lattice binomial model to estimate the fair value of
stock options granted. Prior to that date we used the Black Scholes valuation model. This change
did not have a material impact on our financial position, results of operations or cash flows. Our
stock options have various restrictions, including vesting provisions and restrictions on transfer,
and are often exercised prior to their contractual maturity. We therefore 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 data 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.
Significant Customers
No customer accounted for 10% or more of total net revenue in the three and six months ended
January 31, 2007 or 2006. At January 31, 2007, the account of one retail customer represented
approximately 18% of total accounts receivable and the account of another retail customer
represented approximately 17% of total accounts receivable. No customer accounted for 10% or more
of total accounts receivable at July 31, 2006. Amounts due from Rock Acquisition Corporation, the
purchaser of our Quicken Loans mortgage business, under certain licensing and distribution
agreements comprised approximately 10% of accounts receivable at July 31, 2006. Amounts due from
Rock at January 31, 2007 were not significant.
Recent Accounting Pronouncements
FIN 48, Accounting for Uncertainty in Income Taxes
In June 2006 the Financial Accounting Standards Board (FASB) issued Financial Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. It
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The requirements of FIN 48 are effective for our
fiscal year beginning August 1, 2007. We are in the process of evaluating this guidance and
therefore have not yet determined the impact that the adoption of FIN 48 will have on our financial
position, results of operations or cash flows.
SFAS 157, Fair Value Measurements
In September 2006 the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 provides enhanced
guidance for using fair value to measure assets and liabilities. The standard also responds to
investors requests for expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the effect of fair value
measurements on earnings. SFAS 157 applies whenever other standards require or permit assets or
liabilities to be measured at fair value. This standard does not expand the use of fair value in
any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years. We are in the
process of evaluating this standard and therefore have not yet determined the impact that the
adoption of SFAS 157 will have on our financial position, results of operations or cash flows.
SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities
In February 2007 the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS 159 provides companies with an option to report selected financial
assets and liabilities at fair value. The standards objective is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. The standard requires companies to provide additional
information that will help investors and other users of financial statements to more easily
understand the effect of the companys choice to use fair value on its earnings. It also requires
companies to display the fair value of those assets and liabilities for which the company has
chosen to use fair value on the face of the balance sheet. The new standard does not eliminate
disclosure requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in SFAS 157, Fair Value Measurements, and SFAS
107, Disclosures about Fair Value of Financial Instruments. SFAS 159 is effective as
9
of the start of fiscal years beginning after November 15, 2007. Early adoption is permitted.
We are in the process of evaluating this standard and therefore have not yet determined the impact
that the adoption of SFAS 159 will have on our financial position, results of operations or cash
flows.
2. Cash and Cash Equivalents, Investments and Funds Held for Payroll Customers
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 money market funds in all
periods presented. Investments consist of available-for-sale investment-grade debt securities that
we carry at fair value. Funds held for payroll customers consist of cash, cash equivalents and
available-for-sale investment-grade debt securities. Except for direct obligations of the United
States government, securities issued by agencies of the United States government, and money market
or cash management funds, we diversify our investments by limiting our holdings with any individual
issuer.
The following table summarizes our cash and cash equivalents, investments and funds held for
payroll customers by balance sheet classification at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2007 |
|
|
July 31, 2006 |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Classification on balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
286,328 |
|
|
$ |
286,328 |
|
|
$ |
179,601 |
|
|
$ |
179,601 |
|
Investments |
|
|
849,570 |
|
|
|
849,228 |
|
|
|
1,018,364 |
|
|
|
1,017,599 |
|
Funds held for payroll customers |
|
|
411,825 |
|
|
|
411,774 |
|
|
|
357,299 |
|
|
|
357,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, investments
and funds held for payroll customers |
|
$ |
1,547,723 |
|
|
$ |
1,547,330 |
|
|
$ |
1,555,264 |
|
|
$ |
1,554,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our cash and cash equivalents, investments and funds held for
payroll customers by investment category at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2007 |
|
|
July 31, 2006 |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Type of issue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
604,006 |
|
|
$ |
604,006 |
|
|
$ |
442,880 |
|
|
$ |
442,880 |
|
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
933,717 |
|
|
|
933,353 |
|
|
|
1,102,384 |
|
|
|
1,101,719 |
|
U.S. government securities |
|
|
10,000 |
|
|
|
9,971 |
|
|
|
10,000 |
|
|
|
9,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
|
943,717 |
|
|
|
943,324 |
|
|
|
1,112,384 |
|
|
|
1,111,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, investments
and funds held for payroll customers |
|
$ |
1,547,723 |
|
|
$ |
1,547,330 |
|
|
$ |
1,555,264 |
|
|
$ |
1,554,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We accumulate unrealized gains and losses on our available-for-sale debt securities, net of
tax, in accumulated other comprehensive income (loss) in the equity section of our balance sheets.
Gross unrealized gains and losses on our available-for-sale debt securities were as follows at the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
Gross unrealized gains |
|
$ |
63 |
|
|
$ |
20 |
|
Gross unrealized losses |
|
|
(456 |
) |
|
|
(785 |
) |
|
|
|
|
|
|
|
Net unrealized losses |
|
$ |
(393 |
) |
|
$ |
(765 |
) |
|
|
|
|
|
|
|
10
The following table summarizes the fair value and gross unrealized losses related to 67
available-for-sale debt securities, aggregated by type of investment and length of time that
individual securities have been in a continuous unrealized loss position, at January 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In a Loss Position for |
|
|
In a Loss Position for |
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total in a Loss Position |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
(In thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
$ |
182,975 |
|
|
$ |
(230 |
) |
|
$ |
44,925 |
|
|
$ |
(197 |
) |
|
$ |
227,900 |
|
|
$ |
(427 |
) |
U.S. government securities |
|
|
59 |
|
|
|
|
|
|
|
9,941 |
|
|
|
(29 |
) |
|
|
10,000 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
183,034 |
|
|
$ |
(230 |
) |
|
$ |
54,866 |
|
|
$ |
(226 |
) |
|
$ |
237,900 |
|
|
$ |
(456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 we held at January 31, 2007 were not
other-than-temporarily impaired. While certain available-for-sale debt securities have fair values
that are below cost, we believe that if the securities were held to maturity it is probable that
principal and interest would be collected in accordance with contractual terms. We believe that the
unrealized losses at January 31, 2007 are due to changes in interest rates and not due to increased
credit risk.
We include realized gains and losses on our available-for-sale debt securities in interest and
other income in our statements of operations. Gross realized gains and losses on our
available-for-sale debt securities were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
$ |
21 |
|
|
$ |
|
|
|
$ |
21 |
|
|
$ |
10 |
|
Gross realized losses |
|
|
(12 |
) |
|
|
(98 |
) |
|
|
(20 |
) |
|
|
(488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized losses |
|
$ |
9 |
|
|
$ |
(98 |
) |
|
$ |
1 |
|
|
$ |
(478 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our available-for-sale debt securities held in investments and
funds held for payroll customers, classified by the stated maturity date of the security.
|
|
|
|
|
|
|
|
|
|
|
January 31, 2007 |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
$ |
196,090 |
|
|
$ |
195,881 |
|
Due within two years |
|
|
38,181 |
|
|
|
38,114 |
|
Due within three years |
|
|
6,715 |
|
|
|
6,711 |
|
Due after three years |
|
|
702,731 |
|
|
|
702,618 |
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
$ |
943,717 |
|
|
$ |
943,324 |
|
|
|
|
|
|
|
|
Approximately 94% of our available-for-sale debt securities at January 31, 2007 had an
interest reset date, put date or mandatory call date within one year.
3. Goodwill and Purchased Intangible Assets
Our August 2006 acquisition of StepUp Commerce, Inc. increased the cost basis of goodwill and
intangible assets by $50.4 million and $8.9 million during the six months ended January 31, 2007.
StepUp became part of our QuickBooks segment. See Note 5.
11
4. Comprehensive Net Income (Loss)
SFAS 130, Reporting Comprehensive Income, establishes standards for reporting and displaying
comprehensive net income (loss) and its components in stockholders equity. SFAS 130 requires that
the components of other comprehensive income (loss), such as changes in the fair value of
available-for-sale securities and foreign currency translation adjustments, be added to our net
income (loss) to arrive at comprehensive net income (loss). Other comprehensive income (loss) items
have no impact on our net income (loss) as presented in our statements of operations.
The components of accumulated other comprehensive income (loss), net of income taxes, were as
follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on |
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
Marketable |
|
|
Derivative |
|
|
Currency |
|
|
|
|
(In thousands) |
|
Investments |
|
|
Securities |
|
|
Instruments |
|
|
Translation |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2006 |
|
$ |
(462 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,546 |
|
|
$ |
1,084 |
|
Unrealized gains, net of income tax provisions
of $148 and $8,805 |
|
|
225 |
|
|
|
|
|
|
|
13,459 |
|
|
|
|
|
|
|
13,684 |
|
Reclassification adjustment for realized gain
included in net income, net of income
tax benefit |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Translation adjustment, net of income tax
provision of $641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(977 |
) |
|
|
(977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
224 |
|
|
|
|
|
|
|
13,459 |
|
|
|
(977 |
) |
|
|
12,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2007 |
|
$ |
(238 |
) |
|
$ |
|
|
|
$ |
13,459 |
|
|
$ |
569 |
|
|
$ |
13,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2005 |
|
$ |
(582 |
) |
|
$ |
1,451 |
|
|
$ |
|
|
|
$ |
(695 |
) |
|
$ |
174 |
|
Unrealized losses, net of income tax benefits
of $95 and $73 |
|
|
(155 |
) |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
(273 |
) |
Reclassification adjustment for realized
loss (gain) included in net income, net of
income tax provision of $182 and benefit
of $965 |
|
|
296 |
|
|
|
(1,575 |
) |
|
|
|
|
|
|
|
|
|
|
(1,279 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,690 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
141 |
|
|
|
(1,693 |
) |
|
|
|
|
|
|
2,690 |
|
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 31, 2006 |
|
$ |
(441 |
) |
|
$ |
(242 |
) |
|
$ |
|
|
|
$ |
1,995 |
|
|
$ |
1,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income (loss) was as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
145,362 |
|
|
$ |
182,973 |
|
|
$ |
86,432 |
|
|
$ |
137,169 |
|
Other comprehensive income |
|
|
11,991 |
|
|
|
21 |
|
|
|
12,706 |
|
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income, net of income taxes |
|
$ |
157,353 |
|
|
$ |
182,994 |
|
|
$ |
99,138 |
|
|
$ |
138,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) netted against
other comprehensive income |
|
$ |
9,381 |
|
|
$ |
(953 |
) |
|
$ |
9,594 |
|
|
$ |
(951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12
5. Acquisitions
StepUp Commerce, Inc.
In August 2006 we acquired all of the outstanding shares of StepUp Commerce, Inc. (StepUp) for a
total purchase price of approximately $60 million in cash. We deposited $7.5 million of the total
purchase price in a third-party escrow account to be held through January 2008 to cover breaches of
representations and warranties set forth in the purchase agreement, should they arise. StepUp
provides services that allow small businesses to present their product information and images to
online shoppers. We acquired StepUp as part of our Right for Me initiative to offer a wider range
of business solutions for small businesses. StepUp became part of our QuickBooks segment. Tangible
assets and liabilities acquired were not significant. We allocated $8.9 million of the purchase
price to identified intangible assets and recorded the excess purchase price of $50.4 million as
goodwill, none of which is deductible for income tax purposes. The identified intangible assets are
being amortized over terms ranging from three to five years. In accordance with purchase accounting
rules, we have included StepUps results of operations in our consolidated results of operations
from the date of acquisition. StepUps results of operations for periods prior to the date of
acquisition were not material when compared with our consolidated results.
Digital Insight Corporation
In November 2006 we entered into a definitive agreement to acquire all of the outstanding shares of
common stock of Digital Insight Corporation (Digital Insight) for $39.00 per share, for a total
purchase price of approximately $1.35 billion including the value of assumed vested options. The
transaction was completed on February 6, 2007. We partially financed the transaction with a $1.0
billion 364-day bridge credit facility (see Note 8) and funded the remainder of the purchase price
with our existing cash balances. Subject to market conditions, we intend to refinance the bridge
credit facility with longer-term non-convertible debt during the third quarter of fiscal 2007.
Digital Insight is a provider of outsourced online banking applications and services to banks,
credit unions and savings and loan associations and together with our existing financial
institutions business, which was part of our Other Businesses segment, will become a separate
reportable segment beginning in the third quarter of fiscal 2007.
As a result of our acquisition of Digital Insight, we may incur restructuring costs during the year
commencing with the closing of the acquisition. In accordance with Emerging Issues Task Force Issue
No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, these
costs will be recognized as assumed liabilities with a resulting increase in goodwill. Should they
occur, the restructuring costs will primarily consist of severance payments associated with Digital
Insight employees and costs to vacate certain Digital Insight facilities that existed prior to the
closing of the Acquisition. Intuit may also incur costs associated with canceling or reducing
Digital Insights existing purchase commitments for materials, equipment and services. Management
is continuing to assess and formulate the restructuring plan and the timing and financial impact
cannot yet be fully determined.
Electronic Clearing House Inc.
In December 2006 we entered into a definitive agreement to acquire all of the outstanding shares of
common stock of Electronic Clearing House Inc. (ECHO) for $18.75 per share, for a total purchase
price of approximately $142 million. ECHO is a provider of electronic payment services and will
become part of our Payroll and Payments segment. The transaction is subject to ECHO shareholder
approval and other customary closing conditions and is expected to close during the third quarter
of fiscal 2007.
6. Discontinued Operations
In December 2005 we sold our Intuit Information Technology Solutions (ITS) business for
approximately $200 million in cash. The buyer deposited approximately $20 million of the total
purchase price in a third-party escrow account to be held through December 2006 to cover breaches
of representations and warranties set forth in the purchase agreement, should they arise. We
received the full escrow amount in January 2007.
In accordance with the provisions of SFAS 144, Accounting for the Impairment or Disposal of
Long-lived Assets, we accounted for the sale of ITS as discontinued operations. We have therefore
segregated the operating results and cash flows of ITS from continuing operations in our financial
statements for all periods prior to the sale. For the three and six months ended January 31, 2006,
we recorded net revenue from ITS of $5.8 million and $20.2 million
13
and net income from ITS operations of $1.9 million and $5.2 million. We recorded a net gain on
disposal of ITS of $34.3 million in the six months ended January 31, 2006.
7. Industry Segment and Geographic Information
SFAS 131, Disclosures about Segments of an Enterprise and Related Information, establishes
standards for the way in which public companies disclose certain information about operating
segments in their financial reports. Consistent with SFAS 131, we have defined five 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. We have aggregated two operating segments to
form our Payroll and Payments reportable segment.
QuickBooks product revenue is derived primarily from QuickBooks desktop software products and
financial supplies such as paper checks, envelopes and invoices. QuickBooks service and other
revenue is derived primarily from QuickBooks Online Edition, QuickBooks support plans and royalties
from small business online services.
Payroll and Payments product revenue is derived primarily from QuickBooks Payroll, a family of
products sold on a subscription basis offering payroll tax tables, forms and electronic tax payment
and filing to small businesses that prepare their own payrolls. Payroll and Payments service and
other revenue is derived from small business payroll services as well as from merchant services
such as credit and debit card processing provided by our Innovative Merchant Solutions business.
Service and other revenue for this segment also includes interest earned on funds held for payroll
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 filing
services.
Professional Tax product revenue is derived primarily from Lacerte and ProSeries professional tax
preparation software products. Professional Tax service and other revenue is derived primarily from
electronic filing services, bank product transmission services and training services.
Other Businesses consist primarily of Quicken and Canada. Quicken product revenue is derived
primarily from Quicken desktop software products. Quicken service and other revenue consists
primarily of fees from consumer online transactions and from Quicken-branded credit card and bill
payment offerings that we provide through our partners. In Canada, product revenue is derived
primarily from localized versions of QuickBooks and Quicken as well as QuickTax and TaxWiz consumer
desktop tax return preparation software and ProFile professional tax preparation products. Service
and other revenue in Canada consists primarily of revenue from payroll services and QuickBooks
support plans.
Our QuickBooks, Payroll and Payments, Consumer Tax and Professional Tax segments operate primarily
in the United States. All of our segments sell primarily to customers located in the United States.
International total net revenue was less than 5% of consolidated total net revenue for all periods
presented.
We include costs such as corporate general and administrative expenses and share-based compensation
expenses that are not allocated to specific segments in a category we call Corporate. The Corporate
category also includes amortization of purchased intangible assets, acquisition-related charges,
impairment of goodwill and purchased intangible assets, interest and other income, and realized net
gains or losses on marketable equity securities and other investments.
The accounting policies of the reportable segments are the same as those described in the summary
of significant accounting policies in Note 1 to the financial statements in our Annual Report on
Form 10-K for the fiscal year ended July 31, 2006, as updated in Note 1 to the financial statements
in this Quarterly Report on Form 10-Q. Except for goodwill and purchased intangible assets, we do
not generally track assets by reportable segment and, consequently, we do not disclose total assets
by reportable segment.
14
The following tables show our financial results by reportable segment for the three and six months
ended January 31, 2007 and 2006. We have combined other revenue with service revenue. Other revenue
was less than 5% of total net revenue for each of those periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Three Months Ended
January 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
144,338 |
|
|
$ |
51,274 |
|
|
$ |
168,256 |
|
|
$ |
125,585 |
|
|
$ |
60,086 |
|
|
$ |
|
|
|
$ |
549,539 |
|
Service and other revenue |
|
|
20,069 |
|
|
|
86,896 |
|
|
|
57,207 |
|
|
|
5,130 |
|
|
|
44,466 |
|
|
|
|
|
|
|
213,768 |
|
|
|
|
Total net revenue |
|
|
164,407 |
|
|
|
138,170 |
|
|
|
225,463 |
|
|
|
130,715 |
|
|
|
104,552 |
|
|
|
|
|
|
|
763,307 |
|
|
|
|
Segment operating
income |
|
|
53,680 |
|
|
|
60,252 |
|
|
|
111,772 |
|
|
|
80,471 |
|
|
|
34,584 |
|
|
|
|
|
|
|
340,759 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121,518 |
) |
|
|
(121,518 |
) |
|
|
|
Subtotal |
|
|
53,680 |
|
|
|
60,252 |
|
|
|
111,772 |
|
|
|
80,471 |
|
|
|
34,584 |
|
|
|
(121,518 |
) |
|
|
219,241 |
|
Amortization of purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,583 |
) |
|
|
(2,583 |
) |
Acquisition-related charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,334 |
) |
|
|
(2,334 |
) |
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,046 |
|
|
|
11,046 |
|
Realized net gain on
marketable equity
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
53,680 |
|
|
$ |
60,252 |
|
|
$ |
111,772 |
|
|
$ |
80,471 |
|
|
$ |
34,584 |
|
|
$ |
(115,389 |
) |
|
$ |
225,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Three Months Ended
January 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
160,903 |
|
|
$ |
48,782 |
|
|
$ |
139,023 |
|
|
$ |
146,983 |
|
|
$ |
61,388 |
|
|
$ |
|
|
|
$ |
557,079 |
|
Service and other revenue |
|
|
17,969 |
|
|
|
71,137 |
|
|
|
51,303 |
|
|
|
3,540 |
|
|
|
41,676 |
|
|
|
|
|
|
|
185,625 |
|
|
|
|
Total net revenue |
|
|
178,872 |
|
|
|
119,919 |
|
|
|
190,326 |
|
|
|
150,523 |
|
|
|
103,064 |
|
|
|
|
|
|
|
742,704 |
|
|
|
|
Segment operating
income |
|
|
69,045 |
|
|
|
50,094 |
|
|
|
107,079 |
|
|
|
105,078 |
|
|
|
29,225 |
|
|
|
|
|
|
|
360,521 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,233 |
) |
|
|
(115,233 |
) |
|
|
|
Subtotal |
|
|
69,045 |
|
|
|
50,094 |
|
|
|
107,079 |
|
|
|
105,078 |
|
|
|
29,225 |
|
|
|
(115,233 |
) |
|
|
245,288 |
|
Amortization of purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,763 |
) |
|
|
(2,763 |
) |
Acquisition-related charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,553 |
) |
|
|
(3,553 |
) |
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,566 |
|
|
|
5,566 |
|
Realized net gain on
marketable equity
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,027 |
|
|
|
3,027 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
69,045 |
|
|
$ |
50,094 |
|
|
$ |
107,079 |
|
|
$ |
105,078 |
|
|
$ |
29,225 |
|
|
$ |
(112,956 |
) |
|
$ |
247,565 |
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Six Months Ended
January 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
258,710 |
|
|
$ |
102,217 |
|
|
$ |
171,601 |
|
|
$ |
134,010 |
|
|
$ |
95,421 |
|
|
$ |
|
|
|
$ |
761,959 |
|
Service and other revenue |
|
|
39,361 |
|
|
|
161,471 |
|
|
|
66,686 |
|
|
|
6,387 |
|
|
|
89,514 |
|
|
|
|
|
|
|
363,419 |
|
|
|
|
Total net revenue |
|
|
298,071 |
|
|
|
263,688 |
|
|
|
238,287 |
|
|
|
140,397 |
|
|
|
184,935 |
|
|
|
|
|
|
|
1,125,378 |
|
|
|
|
Segment operating
income |
|
|
83,083 |
|
|
|
107,949 |
|
|
|
76,828 |
|
|
|
58,522 |
|
|
|
46,366 |
|
|
|
|
|
|
|
372,748 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249,851 |
) |
|
|
(249,851 |
) |
|
|
|
Subtotal |
|
|
83,083 |
|
|
|
107,949 |
|
|
|
76,828 |
|
|
|
58,522 |
|
|
|
46,366 |
|
|
|
(249,851 |
) |
|
|
122,897 |
|
Amortization of purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,891 |
) |
|
|
(4,891 |
) |
Acquisition-related charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,176 |
) |
|
|
(5,176 |
) |
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,336 |
|
|
|
21,336 |
|
Realized net gain on
marketable equity
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
|
|
1,221 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
83,083 |
|
|
$ |
107,949 |
|
|
$ |
76,828 |
|
|
$ |
58,522 |
|
|
$ |
46,366 |
|
|
$ |
(237,361 |
) |
|
$ |
135,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Six Months Ended
January 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
248,621 |
|
|
$ |
94,631 |
|
|
$ |
141,813 |
|
|
$ |
155,094 |
|
|
$ |
99,374 |
|
|
$ |
|
|
|
$ |
739,533 |
|
Service and other revenue |
|
|
34,972 |
|
|
|
128,890 |
|
|
|
56,400 |
|
|
|
4,326 |
|
|
|
82,654 |
|
|
|
|
|
|
|
307,242 |
|
|
|
|
Total net revenue |
|
|
283,593 |
|
|
|
223,521 |
|
|
|
198,213 |
|
|
|
159,420 |
|
|
|
182,028 |
|
|
|
|
|
|
|
1,046,775 |
|
|
|
|
Segment operating
income |
|
|
86,440 |
|
|
|
86,537 |
|
|
|
82,809 |
|
|
|
83,118 |
|
|
|
42,461 |
|
|
|
|
|
|
|
381,365 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231,990 |
) |
|
|
(231,990 |
) |
|
|
|
Subtotal |
|
|
86,440 |
|
|
|
86,537 |
|
|
|
82,809 |
|
|
|
83,118 |
|
|
|
42,461 |
|
|
|
(231,990 |
) |
|
|
149,375 |
|
Amortization of purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,712 |
) |
|
|
(5,712 |
) |
Acquisition-related charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,312 |
) |
|
|
(7,312 |
) |
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,870 |
|
|
|
11,870 |
|
Realized net gain on
marketable equity
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,294 |
|
|
|
7,294 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
86,440 |
|
|
$ |
86,537 |
|
|
$ |
82,809 |
|
|
$ |
83,118 |
|
|
$ |
42,461 |
|
|
$ |
(225,850 |
) |
|
$ |
155,515 |
|
|
|
|
16
8. Current Liabilities and Commitments
Deferred Revenue
In some situations, we receive advance payments from our customers. We also offer multiple element
arrangements to 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. Deferred revenue consisted of the following at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Product and product-related services |
|
$ |
269,243 |
|
|
$ |
269,867 |
|
Customer support |
|
|
26,220 |
|
|
|
23,246 |
|
|
|
|
|
|
|
|
Total deferred revenue |
|
$ |
295,463 |
|
|
$ |
293,113 |
|
|
|
|
|
|
|
|
Other Current Liabilities
Other current liabilities were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Reserve for product returns |
|
$ |
68,028 |
|
|
$ |
29,385 |
|
Reserve for rebates |
|
|
33,925 |
|
|
|
8,996 |
|
Executive deferred compensation plan |
|
|
34,966 |
|
|
|
27,798 |
|
Other |
|
|
52,409 |
|
|
|
23,112 |
|
|
|
|
|
|
|
|
Total other current liabilities |
|
$ |
189,328 |
|
|
$ |
89,291 |
|
|
|
|
|
|
|
|
The balances of several of our other current liabilities, particularly our reserves for
product returns and rebates, are affected by the seasonality of our business. See Note 1.
Operating Leases
We lease office facilities and equipment under various operating lease agreements. In November 2006
we entered into an agreement under which we will lease approximately 167,000 square feet of office
space in a new building to be constructed by the landlord in Woodland Hills, California for our
Innovative Merchant Solutions business. The lease term is 10 years beginning on October 1, 2008. We
estimate that our total minimum commitment for this lease is approximately $70 million.
Bridge Credit Facility
In connection with our February 2007 acquisition of Digital Insight Corporation (see Note 5), on
January 31, 2007 Intuit entered into a $1.0 billion unsecured bridge credit facility with two
institutional lenders that expires on February 5, 2008. At our election, advances under this bridge
facility accrue interest at rates that are equal to Citibanks base rate plus 0.05% or the London
InterBank Offered Rate (LIBOR) plus 0.45%. The instruments governing the bridge credit facility
include 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 three-to-one and a
ratio of annual EBITDA to interest payable of not less than three-to-one. We were in compliance
with these covenants at January 31, 2007. On February 6, 2007 we borrowed the entire $1.0 billion
available under the bridge credit facility at an initial interest rate of 5.77% to pay a portion of
the Digital Insight purchase price. Subject to market conditions, we intend to refinance the bridge
credit facility with longer-term non-convertible debt during the third quarter of fiscal 2007.
17
Derivative Instruments
In December 2006 we entered into a $500 million notional amount five-year forward starting swap and
a $500 million notional amount 10-year forward starting swap designated as cash flow hedges of the
interest payments on fixed-rate non-convertible debt we intend to issue in the third quarter of
fiscal 2007 to refinance the bridge credit facility described above. Under these interest rate
swap contracts, we make fixed-rate interest payments and receive variable-rate interest payments
based on the London Interbank Offered Rate (LIBOR). The effect of these swaps is to offset changes
in the fixed rate between the date we entered into the interest rate swaps and the expected
issuance date of the debt. The unrealized gains of $22.3 million ($13.5 million net of tax) related
to changes in the value of the interest rate swaps during the three months ended January 31, 2007
were included net of tax in other comprehensive income on our balance sheet. Once we issue the
fixed-rate debt, the interest rate swaps will be settled and the cumulative gains or losses related
to changes in their value at that time will be amortized using the effective yield method as an
adjustment of interest expense over the term of the related debt in our statements of operations.
At January 31, 2007, the fair values of the interest rate swaps designated as hedges of our future
debt totaled $22.3 million and were included in other current assets on our balance sheet.
9. Income Taxes
We compute our provision for or benefit from income taxes by applying the estimated annual
effective tax rate to income or loss from recurring operations and other taxable items. Our
effective tax rate for the three months ended January 31, 2007 was approximately 35% and did not
differ from the federal statutory rate. State income taxes were offset by the benefit we received
from federal and state research and experimental credits and tax exempt interest income. Our
effective tax rate for the six months ended January 31, 2007 was approximately 36% and differed
from the federal statutory rate of 35% due to state income taxes, which were partially offset by
the benefit we received from federal and state research and experimental credits and tax exempt
interest income. In addition, we benefited from the retroactive extension of the federal research
and experimental credit in both fiscal 2007 periods. Our effective tax rate for the three and six
months ended January 31, 2006 was approximately 37% and differed from the federal statutory rate of
35% due to state income taxes, which were partially offset by the benefit we received from federal
and state research and experimental credits and tax exempt interest income.
In accordance with SFAS 123(R), which we adopted on August 1, 2005, tax savings from expected
future deductions based on the expense attributable to our stock option plans are reflected in the
federal and state tax provisions for the three and six months ended January 31, 2007 and 2006.
Tax deductions associated with stock option exercises related to grants vesting prior to August 1,
2005 are credited to stockholders equity. Excess tax benefits associated with stock option
exercises related to grants vesting on or after August 1, 2005 are also 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 $12.6 million and $29.4 million for the three and six months ended January 31, 2007
and $26.6 million and $29.1 million for the three and six months ended January 31, 2006.
In December 2006 the Tax Relief and Health Care Act of 2006 was signed into law. The Act includes a
reinstatement of the federal research and experimental credit retroactive to January 1, 2006. We
recorded a discrete tax benefit of approximately $3.7 million for the retroactive amount related to
fiscal 2006 during the three months ended January 31, 2007. The credit as reinstated has an
expiration date of December 31, 2007.
10. Stockholders Equity
Stock Split
Our Board of Directors authorized a two-for-one stock split which was effected in the form of a
100% stock dividend on July 6, 2006 to stockholders of record on June 21, 2006. All share and per
share figures in the statements of operations and notes to the financial statements retroactively
reflect this stock split. This stock split was an equity restructuring that is considered a
modification under SFAS 123(R), but it did not result in a change in fair value of any equity
awards.
18
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. We repurchased 6.7 million
shares for $205.4 million under these programs during the three and six months ended January 31,
2007. We repurchased 5.6 million and 9.9 million shares for $300.2 million and $495.0 million under
these programs during the three and six months ended January 31, 2006. Authorized funds of $301.2
million remained under our stock repurchase programs at January 31, 2007.
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.
Share-Based Compensation Plans
Description of Share-Based Compensation Plans
Under our 2005 Equity Incentive Plan, we are permitted to grant incentive and non-qualified stock
options, restricted stock awards, restricted stock units and stock bonus awards to our employees,
non-employee directors and consultants. In December 2006 our stockholders authorized an additional
10,000,000 shares for a total of 36,000,000 shares authorized under the 2005 Plan. Up to 50% of
equity awards granted each year can be at less than full fair market value. All 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. Options granted under the 2005 Plan typically vest over three years based on
continued service and have a seven-year term. Prior to the fourth quarter of fiscal 2006, we
granted restricted stock units under the 2005 Plan primarily to certain executive officers. In the
fourth quarter of fiscal 2006, the Compensation Committee of our Board of Directors approved the
use of restricted stock units for employees at all job levels in order to provide a competitive
form of equity incentive that would have value regardless of fluctuations in Intuits stock price.
Restricted stock units granted under the 2005 Plan typically vest over three years based on
continued service and are payable in shares of our common stock upon vesting. Restricted stock
units granted to certain executive officers are subject to the achievement of performance goals
established by the Compensation Committee, including targets based upon both Intuits net revenue
and operating income. Outstanding awards that were originally granted under several predecessor
plans also remain in effect in accordance with their terms. In addition, we maintain an Employee
Stock Purchase Plan that was amended in December 2006 to increase the total shares available for
issuance to 13,800,000 shares. The 2005 Plan, its predecessor plans and our Employee Stock Purchase
Plan are described more fully in our Annual Report on Form 10-K for the fiscal year ended July 31,
2006.
19
Share-Based Compensation Expense
The following table summarizes the total share-based compensation expense for stock options,
restricted stock awards, restricted stock units and our Employee Stock Purchase Plan that we
recorded for continuing operations for the periods shown. The share-based compensation expense that
we recorded for discontinued operations for the three and six months ended January 31, 2006 was
nominal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
$ |
262 |
|
|
$ |
245 |
|
|
$ |
480 |
|
|
$ |
533 |
|
Cost of service and other revenue |
|
|
644 |
|
|
|
496 |
|
|
|
1,261 |
|
|
|
1,133 |
|
Selling and marketing |
|
|
5,759 |
|
|
|
5,250 |
|
|
|
11,497 |
|
|
|
11,557 |
|
Research and development |
|
|
5,560 |
|
|
|
4,684 |
|
|
|
10,862 |
|
|
|
10,294 |
|
General and administrative |
|
|
7,087 |
|
|
|
7,074 |
|
|
|
14,071 |
|
|
|
14,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease of operating income from
continuing operations and income from
continuing operations before income taxes |
|
|
19,312 |
|
|
|
17,749 |
|
|
|
38,171 |
|
|
|
38,173 |
|
Income tax benefit |
|
|
(6,850 |
) |
|
|
(6,491 |
) |
|
|
(13,650 |
) |
|
|
(14,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease of net income from continuing
operations |
|
$ |
12,462 |
|
|
$ |
11,258 |
|
|
$ |
24,521 |
|
|
$ |
24,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease of net income per share from
continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2007, there was $135.7 million of total unrecognized compensation cost related
to non-vested share-based compensation arrangements granted under all equity compensation plans
which we expect to recognize as 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 2.0 years.
20
Distribution and Dilutive Effect of Options
The following table shows certain information about net grants of options and restricted stock
units as well as grants to Named Executives for the periods indicated. We define net grants as
options granted less options canceled or expired and restricted stock units granted less restricted
stock units canceled or expired. Named Executives are defined as our chief executive officer and
each of the four other most highly compensated executive officers during the fiscal periods
presented. Options and restricted stock units granted to our Named Executives as a percentage of
total options granted may vary significantly from quarter to quarter, due in part to the timing of
annual performance-based grants to Named Executives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six |
|
|
|
|
Months |
|
|
|
|
Ended |
|
Twelve Months Ended |
|
|
January 31, |
|
July 31, |
|
July 31, |
|
|
2007 |
|
2006 |
|
2005 |
Net grants of options and RSUs during the period
as a percentage of outstanding shares |
|
|
0.6 |
% |
|
|
2.3 |
% |
|
|
1.8 |
% |
Grants to Named Executives during the period
as a percentage of total grants |
|
|
5.9 |
% |
|
|
3.1 |
% |
|
|
6.2 |
% |
Grants to Named Executives during the period
as a percentage of outstanding shares |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.2 |
% |
Options and RSUs held by Named Executives as a
percentage of total options and RSUs outstanding |
|
|
16.6 |
% |
|
|
14.1 |
% |
|
|
13.0 |
% |
11. Litigation
Muriel Siebert & Co., Inc. v. Intuit Inc., Index No. 03-602942, Court of Appeals, State of New York
On September 17, 2003 Muriel Siebert & Co., Inc. filed a complaint against Intuit alleging various
claims for breach of contract, breach of express and implied covenants of good faith and fair
dealing, breach of fiduciary duty, misrepresentation and/or fraud, and promissory estoppel. The
allegations relate to Quicken Brokerage powered by Siebert, a strategic alliance between the two
companies. The complaint seeks compensatory damages of up to $11.1 million, punitive damages of up
to $33.0 million, and other damages. Intuit unsuccessfully sought to compel the matter to
arbitration. On February 7, 2005 Intuit filed a motion to dismiss all but one of the plaintiffs
claims in New York state court. On September 6, 2005 the court dismissed Sieberts fraud and
punitive damages claims. The case is now stayed pending appellate review by the Court of Appeals of
the State of New York of certain procedural issues in the case. Intuit believes this lawsuit is
without merit and will vigorously defend the litigation.
Other Litigation Matters
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.
12. Subsequent Events
On February 2, 2007, we entered into a definitive agreement to sell certain assets related to our
Complete Payroll and Premier Payroll Service businesses to Automatic Data Processing, Inc. (ADP)
for a price of up to approximately $135 million in cash. The final purchase price is contingent
upon, among other things, the number of customers that transition to ADP. The assets were part of
our Payroll and Payments segment. In accordance with the provisions of
21
SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets, we have not accounted
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 the entity. The transaction is expected to close during the third quarter of fiscal
2007 and the gain on the sale of the assets will be recognized as customers are transitioned
pursuant to the agreement.
In February 2007 we received commitment letters from certain institutional lenders for a five-year
revolving line of credit facility in a maximum principal amount of $500 million. We expect the
instruments governing the facility to include certain financial covenants. We intend to enter into
the revolving line of credit facility during the third quarter of fiscal 2007. 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.
22
ITEM 2
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. |
|
|
|
|
Significant changes since our most recent Annual Report on Form 10-K in the Critical
Accounting Policies and Estimates that we believe are important to understanding the
assumptions and judgments underlying our financial statements. |
|
|
|
|
Results of Operations that begins with an overview followed by 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 Item 1A in Part II of this Quarterly Report on Form 10-Q 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 1
and our Annual Report on Form 10-K for the fiscal year ended July 31, 2006. As discussed below, we
sold our Intuit Information Technology Solutions (ITS) business in December 2005. We accounted for
this business as a discontinued operation and have accordingly reclassified our financial
statements for all periods prior to the sale to reflect ITS as discontinued operations. Unless
noted otherwise, the following discussion pertains only to our continuing operations.
Our Board of Directors authorized a two-for-one stock split which was effected in the form of a
100% stock dividend on July 6, 2006 to stockholders of record on June 21, 2006. All share and per
share figures in this MD&A and the statements of operations and the notes to the financial
statements retroactively reflect this stock split.
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 the second quarter and first six months of fiscal 2007 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 Quarterly Report on
Form 10-Q.
About Intuit
Intuit is a leading provider of business, financial management and tax solutions for small
businesses, consumers and accountants. We organize our business into the following five segments:
|
|
|
Our QuickBooks segment includes QuickBooks accounting and business management software
and technical support as well as financial supplies for small businesses. |
|
|
|
|
Our Payroll and Payments segment includes payroll products and services and merchant
services such as credit and debit card processing for small businesses. |
|
|
|
|
Consumer Tax includes our TurboTax consumer and small business tax return preparation
products and services. |
|
|
|
|
Professional Tax includes our Lacerte and ProSeries professional tax products and
services. |
|
|
|
|
Other Businesses includes our Quicken personal finance products and services, Intuit
Real Estate Solutions, Intuit Distribution Management Solutions, and our businesses in
Canada and the United Kingdom. |
In February 2007 we completed the acquisition of Digital Insight, a provider of outsourced online
banking applications and services to banks, credit unions and savings and loan associations.
Together with our existing financial institutions business, which was part of our Other Businesses
segment, Digital Insight will become a separate reportable segment beginning in the third quarter
of fiscal 2007.
23
Seasonality
Our QuickBooks, Consumer Tax and Professional Tax businesses are highly seasonal. Some of our other
offerings are also seasonal, but to a lesser extent. Revenue from many of our small business
software products, including QuickBooks, tends to be at its peak around calendar year end, although
the timing of new product releases or changes in our offerings can materially shift revenue between
quarters. Sales of income tax preparation products and services are heavily concentrated in the
period from November through April. As a result, 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. In MD&A we
focus on year-to-date results for our seasonal businesses as they are generally more meaningful
than quarterly results.
Overview of Financial Results
Total net revenue for the first half of fiscal 2007 was $1.125 billion, up 8% compared with the
first half of fiscal 2006. The fiscal 2007 revenue increase was primarily due to revenue growth in
our Consumer Tax and Payroll and Payments segments, and to a lesser extent to higher revenue in our
QuickBooks segment offset by lower revenue in our Professional Tax segment. We estimate that
changes in our Professional Tax offerings and delay of delivery of certain product elements for the
2006 tax year caused approximately $29 million in revenue to be deferred until the third quarter of
fiscal 2007. This was $27 million more than we deferred in the second quarter of fiscal 2006.
We expect revenue growth in the third quarter of fiscal 2007 to be affected by several
timing-related factors, including the deferral of Professional Tax revenue discussed above and
expected continuing growth in TurboTax Online, which generates revenue primarily in our third
quarter. We also believe that the continuing trend among individual taxpayers toward the use of
both online and desktop software, rather than manual methods, to prepare their own income tax
returns will continue to be important to the growth of our Consumer Tax business.
Operating income from continuing operations of $112.8 million for the first six months of fiscal
2007 decreased 17% compared with $136.4 million for the first six months of fiscal 2006. Fiscal
2007 operating income from continuing operations was affected by the deferral of Professional Tax
revenue described above and by higher total operating costs and expenses. Total operating costs and
expenses for the first half of fiscal 2007 grew 11% compared with the first six months of fiscal
2006, which is comparable to the growth rates for total operating costs and expenses that we have
experienced during the past three fiscal years. Higher operating expenses in the first half of
fiscal 2007 reflect continued investment in research and development for existing small business
and Consumer Tax offerings and for new offerings as well as increases in advertising and other
marketing spending to support the launch of our QuickBooks and Consumer Tax offerings.
Net income from continuing operations of $86.4 million for the first six months of fiscal 2007
decreased 11% compared with $97.6 million for the first six months of fiscal 2006. Lower fiscal
2007 operating income from continuing operations was partially offset by higher interest income.
Interest income increased in the fiscal 2007 period due to higher interest rates and higher average
invested balances. Diluted net income per share from continuing operations of $0.24 for the first
half of fiscal 2007 also decreased 11% compared with $0.27 for the same period of fiscal 2006. Our
effective tax rates for the first six months of fiscal 2007 and 2006 were approximately 36% and
37%.
In November 2006 we entered into a definitive agreement to acquire all of the outstanding shares of
common stock of Digital Insight Corporation (Digital Insight) for a total purchase price of
approximately $1.35 billion including the value of assumed vested options. The transaction was
completed on February 6, 2007. Digital Insight is a provider of outsourced online banking
applications and services to banks, credit unions and savings and loan associations and together
with our existing financial institutions business, which was part of our Other Businesses segment,
will become a separate reportable segment beginning in the third quarter of fiscal 2007. We
partially financed the transaction by borrowing $1.0 billion under a 364-day bridge credit facility
and funded the remainder of the purchase price with our existing cash balances. Subject to market
conditions, we intend to refinance the bridge credit facility with longer-term non-convertible debt
during the third quarter of fiscal 2007. Our future operating results will reflect interest expense
related to these borrowings.
In December 2006 we entered into a definitive agreement to acquire all of the outstanding shares of
common stock of Electronic Clearing House Inc. (ECHO) for a total purchase price of approximately
$142 million in cash. ECHO is a provider of electronic payment services and will become part of our
Payroll and Payments segment. The
24
transaction is subject to ECHO shareholder approval and other
customary closing conditions and is expected to close during the third quarter of fiscal 2007.
We ended the second quarter of fiscal 2007 with cash and investments totaling $1.1 billion. In the
first six months of fiscal 2007 we generated cash from operations, from net sales of investments
and by issuing common stock under employee stock plans. During the same period we used cash for the
purchase of StepUp Commerce, Inc. and for purchases of property and equipment. We also repurchased
6.7 million shares of our common stock for $205.4 million under our stock repurchase programs
during the first half of fiscal 2007. At January 31, 2007, authorized funds of $301.2 million
remained available for stock repurchases.
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 in Managements Discussion
and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the fiscal year ended July 31, 2006 have the greatest potential impact on our financial statements,
so we consider them to be our critical accounting policies and estimates. Except as discussed in
Accounting for Share-Based Compensation below, we believe that during the first six months of
fiscal 2007 there were no significant changes in those critical accounting policies and estimates.
Senior management has reviewed the development and selection of our critical accounting policies
and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit Committee
of our Board of Directors.
Accounting for Share-Based Compensation
Effective August 1, 2006, we began using a lattice binomial model to estimate the fair value of
stock options granted. Prior to that date we used the Black Scholes valuation model. This change
did not have a material impact on our financial position, results of operations or cash flows. Our
stock options have various restrictions, including vesting provisions and restrictions on transfer,
and are often exercised prior to their contractual maturity. We therefore 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 data and the use of 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 may elect to use different assumptions in our
lattice binomial option valuation model in the future, which could materially affect our net income
or loss and net income or loss per share.
Results of Operations
Financial Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD |
|
YTD |
|
|
|
|
except per |
|
Q2 |
|
Q2 |
|
$ |
|
% |
|
Q2 |
|
Q2 |
|
$ |
|
% |
share amounts) |
|
FY07 |
|
FY06 |
|
Change |
|
Change |
|
FY07 |
|
FY06 |
|
Change |
|
Change |
|
Total net revenue |
|
$ |
763.3 |
|
|
$ |
742.7 |
|
|
$ |
20.6 |
|
|
|
3 |
% |
|
$ |
1,125.4 |
|
|
$ |
1,046.8 |
|
|
$ |
78.6 |
|
|
|
8 |
% |
Operating income
from continuing
operations |
|
|
214.3 |
|
|
|
239.0 |
|
|
|
(24.7 |
) |
|
|
(10 |
%) |
|
|
112.8 |
|
|
|
136.4 |
|
|
|
(23.6 |
) |
|
|
(17 |
%) |
Net income from
continuing
operations |
|
|
145.4 |
|
|
|
155.2 |
|
|
|
(9.8 |
) |
|
|
(6 |
%) |
|
|
86.4 |
|
|
|
97.6 |
|
|
|
(11.2 |
) |
|
|
(11 |
%) |
Diluted net income
per share from
continuing
operations |
|
$ |
0.40 |
|
|
$ |
0.43 |
|
|
$ |
(0.03 |
) |
|
|
(7 |
%) |
|
$ |
0.24 |
|
|
$ |
0.27 |
|
|
$ |
(0.03 |
) |
|
|
(11 |
%) |
Net cash provided by
operating activities
of continuing
operations |
|
$ |
243.1 |
|
|
$ |
167.4 |
|
|
$ |
75.7 |
|
|
|
45 |
% |
|
$ |
106.4 |
|
|
$ |
72.6 |
|
|
$ |
33.8 |
|
|
|
47 |
% |
25
Total net revenue increased $20.6 million or 3% in the second quarter of fiscal 2007 and $78.6
million or 8% in the first six months of fiscal 2007 compared with the same periods of fiscal 2006.
Total net revenue was higher in the first half of fiscal 2007 due primarily to revenue growth in
our Consumer Tax and Payroll and Payments segments, and to a lesser extent to higher revenue in our
QuickBooks segment which was offset by lower revenue in our Professional Tax segment. We estimate
that changes in our Professional Tax offerings and delay of delivery of certain product elements
for the 2006 tax year caused approximately $29 million in revenue to be deferred until the third
quarter of fiscal 2007. Consumer Tax revenue increased $35.1 million or 18% in the second quarter
of fiscal 2007 and $40.1 million or 20% in the first half of fiscal 2007 due to the timing of sales
in the retail channel, growth in direct desktop units, and price increases. Payroll and Payments
revenue increased $18.3 million or 15% in the second quarter of fiscal 2007 and $40.2 million or
18% in the first half of fiscal 2007 due to growth in the customer base, favorable Payroll product
mix and higher transaction volume per customer in our Payments business. QuickBooks segment revenue
decreased $14.5 million or 8% in the second quarter of fiscal 2007 and increased $14.5 million or
5% in the first half of fiscal 2007. We estimate that approximately $20 million of QuickBooks
revenue shifted from the second quarter to the first quarter of fiscal 2007 due to the September
launch of QuickBooks 2007, which was about 30 days earlier than last years launch of QuickBooks
2006. QuickBooks segment revenue growth for the first half of fiscal 2007 was due to favorable
product mix. See Total Net Revenue below for more information.
Higher revenue in the second quarter and first six months of fiscal 2007 was more than offset by
higher expenses, including first half expense increases of approximately $38 million for product
development, approximately $32 million for advertising and other selling and marketing expenses,
approximately $17 million for increases in cost of revenue associated with our revenue growth and
approximately $17 million for increases in general and administrative expenses. See Operating
Expenses below for more information. Our effective tax rates for the second quarters of fiscal
2007 and 2006 were approximately 35% and 37% and our effective tax rates for the first six months
of fiscal 2007 and 2006 were approximately 36% and 37%.
At January 31, 2007, our cash, cash equivalents and investments totaled $1.1 billion, a decrease of
$61.6 million from July 31, 2006. In the first six months of fiscal 2007, we generated $106.4
million in cash from our operations and received $166.8 million in cash from net sales of
investments and $124.2 million in cash from the issuance of common stock under employee stock
plans. During the same period we used approximately $60 million in cash for the purchase of StepUp
Commerce, Inc. and $52.9 million in cash for purchases of property and equipment. We also
repurchased 6.7 million shares of our common stock for $205.4 million under our stock repurchase
programs during the first half of fiscal 2007. Authorized funds of $301.2 million remained
available for stock repurchases at January 31, 2007.
26
Total Net Revenue by Business Segment
The table below and the discussion of net revenue by business segment that follows it are organized
in accordance with our five reportable business segments. We have combined other revenue with
service revenue. Other revenue was less than 5% of total net revenue for the second quarter and
first six months of fiscal 2007 and 2006. See Note 7 to the financial statements for descriptions
of product revenue and service and other revenue for each segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
YTD |
|
|
Total |
|
|
YTD |
|
|
Total |
|
|
|
|
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
|
% |
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
|
% |
|
(Dollars in millions) |
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
Change |
|
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
Change |
|
|
QuickBooks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
144.3 |
|
|
|
|
|
|
$ |
160.9 |
|
|
|
|
|
|
|
|
|
|
$ |
258.7 |
|
|
|
|
|
|
$ |
248.6 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
20.1 |
|
|
|
|
|
|
|
18.0 |
|
|
|
|
|
|
|
|
|
|
|
39.4 |
|
|
|
|
|
|
|
35.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
164.4 |
|
|
|
21 |
% |
|
|
178.9 |
|
|
|
24 |
% |
|
|
-8 |
% |
|
|
298.1 |
|
|
|
27 |
% |
|
|
283.6 |
|
|
|
27 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and
Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
51.3 |
|
|
|
|
|
|
|
48.8 |
|
|
|
|
|
|
|
|
|
|
|
102.2 |
|
|
|
|
|
|
|
94.6 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
86.9 |
|
|
|
|
|
|
|
71.1 |
|
|
|
|
|
|
|
|
|
|
|
161.5 |
|
|
|
|
|
|
|
128.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
138.2 |
|
|
|
18 |
% |
|
|
119.9 |
|
|
|
16 |
% |
|
|
15 |
% |
|
|
263.7 |
|
|
|
23 |
% |
|
|
223.5 |
|
|
|
21 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
168.2 |
|
|
|
|
|
|
|
139.0 |
|
|
|
|
|
|
|
|
|
|
|
171.6 |
|
|
|
|
|
|
|
141.8 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
57.2 |
|
|
|
|
|
|
|
51.3 |
|
|
|
|
|
|
|
|
|
|
|
66.7 |
|
|
|
|
|
|
|
56.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
225.4 |
|
|
|
30 |
% |
|
|
190.3 |
|
|
|
26 |
% |
|
|
18 |
% |
|
|
238.3 |
|
|
|
21 |
% |
|
|
198.2 |
|
|
|
19 |
% |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
125.6 |
|
|
|
|
|
|
|
147.0 |
|
|
|
|
|
|
|
|
|
|
|
134.0 |
|
|
|
|
|
|
|
155.1 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
5.1 |
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
6.4 |
|
|
|
|
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
130.7 |
|
|
|
17 |
% |
|
|
150.5 |
|
|
|
20 |
% |
|
|
-13 |
% |
|
|
140.4 |
|
|
|
12 |
% |
|
|
159.4 |
|
|
|
15 |
% |
|
|
-12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
60.1 |
|
|
|
|
|
|
|
61.4 |
|
|
|
|
|
|
|
|
|
|
|
95.5 |
|
|
|
|
|
|
|
99.4 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
44.5 |
|
|
|
|
|
|
|
41.7 |
|
|
|
|
|
|
|
|
|
|
|
89.4 |
|
|
|
|
|
|
|
82.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
104.6 |
|
|
|
14 |
% |
|
|
103.1 |
|
|
|
14 |
% |
|
|
1 |
% |
|
|
184.9 |
|
|
|
17 |
% |
|
|
182.1 |
|
|
|
18 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
549.5 |
|
|
|
|
|
|
|
557.1 |
|
|
|
|
|
|
|
|
|
|
|
762.0 |
|
|
|
|
|
|
|
739.5 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
213.8 |
|
|
|
|
|
|
|
185.6 |
|
|
|
|
|
|
|
|
|
|
|
363.4 |
|
|
|
|
|
|
|
307.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
763.3 |
|
|
|
100 |
% |
|
$ |
742.7 |
|
|
|
100 |
% |
|
|
3 |
% |
|
$ |
1,125.4 |
|
|
|
100 |
% |
|
$ |
1,046.8 |
|
|
|
100 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a discussion of the impact of changes in net revenue on operating income for each segment, see Segment Operating Income below.
QuickBooks
QuickBooks total net revenue decreased $14.5 million or 8% in the second quarter of fiscal 2007 and
increased $14.5 million or 5% in the first six months of fiscal 2007 compared with the same periods
of fiscal 2006. We estimate that approximately $20 million of QuickBooks segment revenue shifted
from the second quarter to the first quarter of fiscal 2007 due to the September launch of
QuickBooks 2007, which was about 30 days earlier than last years launch of QuickBooks 2006. Total
QuickBooks software unit sales were flat in the first six months of fiscal 2007 compared with the
same period of fiscal 2006. Revenue growth in the first half of fiscal 2007 was driven by favorable
product mix, with QuickBooks Premier units increasing 26%.
27
Payroll and Payments
Payroll and Payments total net revenue increased $18.3 million or 15% in the second quarter of
fiscal 2007 and $40.2 million or 18% in the first six months of fiscal 2007 compared with the same
periods of fiscal 2006. Merchant services revenue accounted for approximately 60% of the revenue
growth in dollars in this segment in the first six months of fiscal 2007. Merchant services revenue
increased 43% in the first half of fiscal 2007 due to 26% growth in the customer base and 11%
higher transaction volume per customer. Small business payroll revenue grew 10% in that period due
to 6% growth in the customer base and, to a lesser extent, to favorable product mix that resulted
in higher revenue per customer.
Consumer Tax
Consumer Tax total net revenue increased $35.1 million or 18% in the second quarter of fiscal 2007
and $40.1 million or 20% in the first six months of fiscal 2007 compared with the same periods of
fiscal 2006 due to the timing of sales in the retail channel to support merchandising and
promotional activities, growth in desktop units sold directly to customers, and price increases.
Due to the seasonal nature of our Consumer Tax business, we will not have substantially complete
results for the 2006 tax season until late in fiscal 2007.
Professional Tax
Professional Tax total net revenue decreased $19.8 million or 13% in the second quarter of fiscal
2007 and $19.0 million or 12% in the first six months of fiscal 2007 compared with the same periods
of fiscal 2006. We estimate that changes in our Professional Tax offerings and delay of delivery of
certain product elements for the 2006 tax year caused approximately $29 million in revenue to be
deferred until the third quarter of fiscal 2007. This was $27 million more than we deferred in the
second quarter of fiscal 2006. If this deferral had not occurred, Professional Tax revenue would
have been up approximately 5% for the first six months of fiscal 2007. Due to the seasonal nature
of our Professional Tax business, we will not have substantially complete results for the 2006 tax
season until late in fiscal 2007.
Other Businesses
Other Businesses total net revenue increased $1.5 million or 1% in the second quarter of fiscal
2007 and $2.8 million or 2% in the first six months of fiscal 2007 compared with the same periods
of fiscal 2006. Quicken revenue decreased modestly while revenue from our business in Canada was up
modestly in the first half of fiscal 2007. Revenue for this segment grew 7% in the first half of
fiscal 2007 when revenue from our MasterBuilder business, which we sold in May 2006, is excluded
from fiscal 2006 revenue.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
YTD |
|
|
% of |
|
|
YTD |
|
|
% of |
|
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
(Dollars in millions) |
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
Cost of product revenue |
|
$ |
68.3 |
|
|
|
12 |
% |
|
$ |
71.7 |
|
|
|
13 |
% |
|
$ |
105.6 |
|
|
|
14 |
% |
|
$ |
104.2 |
|
|
|
14 |
% |
Cost of service and
other revenue |
|
|
70.3 |
|
|
|
33 |
% |
|
|
63.4 |
|
|
|
34 |
% |
|
|
138.7 |
|
|
|
38 |
% |
|
|
122.7 |
|
|
|
40 |
% |
Amortization of
purchased intangible
assets |
|
|
2.6 |
|
|
|
n/a |
|
|
|
2.8 |
|
|
|
n/a |
|
|
|
4.9 |
|
|
|
n/a |
|
|
|
5.7 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
141.2 |
|
|
|
19 |
% |
|
$ |
137.9 |
|
|
|
19 |
% |
|
$ |
249.2 |
|
|
|
22 |
% |
|
$ |
232.6 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and other revenue as a percentage of service and other revenue decreased to
38% in the first six months of fiscal 2007 from 40% in the first six months of fiscal 2006. The
majority of the increase in service and other revenue during the first half of fiscal 2007 came
from Assisted Payroll and merchant services revenue, which had lower relative cost increases
associated with their related revenue increases.
28
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
YTD |
|
|
Total |
|
|
YTD |
|
|
Total |
|
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
(Dollars in millions) |
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
Selling and marketing |
|
$ |
221.4 |
|
|
|
29 |
% |
|
$ |
196.9 |
|
|
|
27 |
% |
|
$ |
376.5 |
|
|
|
33 |
% |
|
$ |
344.3 |
|
|
|
33 |
% |
Research and development |
|
|
115.5 |
|
|
|
15 |
% |
|
|
100.1 |
|
|
|
13 |
% |
|
|
235.7 |
|
|
|
21 |
% |
|
|
197.4 |
|
|
|
19 |
% |
General and administrative |
|
|
68.6 |
|
|
|
9 |
% |
|
|
65.3 |
|
|
|
9 |
% |
|
|
146.0 |
|
|
|
13 |
% |
|
|
128.9 |
|
|
|
12 |
% |
Acquisition-related charges |
|
|
2.3 |
|
|
|
0 |
% |
|
|
3.6 |
|
|
|
0 |
% |
|
|
5.2 |
|
|
|
1 |
% |
|
|
7.3 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
407.8 |
|
|
|
53 |
% |
|
$ |
365.9 |
|
|
|
49 |
% |
|
$ |
763.4 |
|
|
|
68 |
% |
|
$ |
677.9 |
|
|
|
65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses as a percentage of total net revenue increased four percentage points
in the second quarter of fiscal 2007 and three percentage points in the first six months of fiscal
2007 compared with the same periods of fiscal 2006. The deferral of approximately $29 million in
Professional Tax revenue from the second quarter to the third quarter of fiscal 2007 added two
percentage points to operating expenses as a percentage of total net revenue in both fiscal 2007
periods. Total operating expenses in dollars increased $85.5 million in the first half of fiscal
2007. Almost half of this increase was due to higher research and development expenses. We continue
to invest in research and development for existing QuickBooks, Payroll and Payments, and Consumer
Tax offerings as well as for new offerings. To a lesser extent, our acquisitions of MyCorporation
and StepUp Commerce have resulted in additional expenses for research and development. We expect
that our fiscal 2007 research and development expenses as a percentage of total net revenue will
continue to be higher than they were in fiscal 2006. About a third of the fiscal 2007 increase in
total operating expenses was due to higher selling and marketing expenses that included increases
in radio, television and online advertising expenses for our Consumer Tax and QuickBooks offerings
as well as additional investments in direct marketing and product management. About a fifth of the
fiscal 2007 increase was due to $17 million higher general and administrative expenses that
included approximately $9 million for fees associated with the resolution of certain legal matters
and discretionary items in the first quarter of fiscal 2007.
Segment Operating Income
Segment operating income or loss is segment net revenue less segment cost of revenue and operating
expenses. Segment expenses do not include certain costs, such as corporate general and
administrative expenses and share-based compensation expenses, which are not allocated to specific
segments. These unallocated costs totaled $121.5 million and $115.2 million in the second quarters
of fiscal 2007 and 2006 and $249.9 million and $232.0 million in the first six months of fiscal
2007 and 2006. Segment expenses also do not include amortization of purchased intangible assets,
acquisition-related charges and impairment of goodwill and purchased intangible assets. In
addition, segment expenses do not include interest and other income and realized net gains or
losses on marketable equity securities and other investments. See Note 7 to the financial
statements for reconciliations of total segment operating income or loss to income or loss from
continuing operations before income taxes for each fiscal period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
YTD |
|
|
% of |
|
|
YTD |
|
|
% of |
|
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
(Dollars in millions) |
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
FY06 |
|
|
Revenue |
|
|
QuickBooks |
|
$ |
53.7 |
|
|
|
33 |
% |
|
$ |
69.0 |
|
|
|
39 |
% |
|
$ |
83.1 |
|
|
|
28 |
% |
|
$ |
86.5 |
|
|
|
31 |
% |
Payroll and Payments |
|
|
60.2 |
|
|
|
44 |
% |
|
|
50.1 |
|
|
|
42 |
% |
|
|
107.9 |
|
|
|
41 |
% |
|
|
86.5 |
|
|
|
39 |
% |
Consumer Tax |
|
|
111.8 |
|
|
|
50 |
% |
|
|
107.1 |
|
|
|
56 |
% |
|
|
76.8 |
|
|
|
32 |
% |
|
|
82.8 |
|
|
|
42 |
% |
Professional Tax |
|
|
80.5 |
|
|
|
62 |
% |
|
|
105.1 |
|
|
|
70 |
% |
|
|
58.5 |
|
|
|
42 |
% |
|
|
83.1 |
|
|
|
52 |
% |
Other Businesses |
|
|
34.6 |
|
|
|
33 |
% |
|
|
29.2 |
|
|
|
28 |
% |
|
|
46.4 |
|
|
|
25 |
% |
|
|
42.5 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment
operating income |
|
$ |
340.8 |
|
|
|
45 |
% |
|
$ |
360.5 |
|
|
|
49 |
% |
|
$ |
372.7 |
|
|
|
33 |
% |
|
$ |
381.4 |
|
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
QuickBooks
QuickBooks segment operating income as a percentage of related revenue decreased to 33% in the
second quarter of fiscal 2007 from 39% in the second quarter of fiscal 2006 and decreased to 28% in
the first six months of fiscal 2007 from 31% in the first six months of fiscal 2006. QuickBooks
segment operating income as a percentage of related revenue for the second quarter of fiscal 2007
was 40% when the impact of shifting $20 million in revenue to the first quarter due to the early
launch of QuickBooks 2007 is excluded. The $14.5 million growth in QuickBooks segment revenue in
the first half of fiscal 2007 was more than offset by higher expenses, including increases of
approximately $4 million for cost of revenue, approximately $4 million for selling and marketing
expenses (including higher radio and television advertising expenses) and approximately $10 million
for product development expenses in the fiscal 2007 period.
Payroll and Payments
Payroll and Payments segment operating income as a percentage of related revenue increased to 44%
in the second quarter of fiscal 2007 from 42% in the second quarter of fiscal 2006 and increased to
41% in the first six months of fiscal 2007 from 39% in the first six months of fiscal 2006. Most of
the fiscal 2007 revenue growth in this segment came from products and services with relatively
lower costs of revenue, such as QuickBooks Payroll, Assisted Payroll and merchant services. The
$40.2 million higher Payroll and Payments revenue in the first half of fiscal 2007 was partially
offset by increases of approximately $7 million for cost of revenue, approximately $7 million for
product development expenses and approximately $3 million for selling and marketing expenses in the
fiscal 2007 period.
Consumer Tax
Consumer Tax segment operating income as a percentage of related revenue decreased to 50% in the
second quarter of fiscal 2007 from 56% in the second quarter of fiscal 2006 and decreased to 32% in
the first six months of fiscal 2007 from 42% in the first six months of fiscal 2006. The $40.1
million growth in Consumer Tax revenue in the first half of fiscal 2007 was more than offset by
higher expenses, including increases of approximately $29 million for selling and marketing
expenses (including higher radio, television and online advertising expenses as well as higher
direct marketing expenses) and approximately $12 million for product development expenses in the
fiscal 2007 period.
Professional Tax
Professional Tax segment operating income as a percentage of related revenue decreased to 62% in
the second quarter of fiscal 2007 from 70% in the second quarter of fiscal 2006 and decreased to
42% in the first six months of fiscal 2007 from 52% in the first six months of fiscal 2006. Fiscal
2007 second quarter and first half Professional Tax operating margins were affected by the deferral
of approximately $29 million in revenue associated with changes in our offerings and delay of
delivery of certain product elements from the second quarter to the third quarter of fiscal 2007.
If this deferral had not occurred, Professional Tax segment operating income as a percentage of
related revenue would have been 52% for the first six months of fiscal 2007.
Non-Operating Income and Expenses
Interest and Other Income
Higher interest rates and higher average invested balances resulted in increases in interest income
in the second quarter and first six months of fiscal 2007 compared with the same periods of fiscal
2006. Interest income accounted for at least 90% of interest and other income in those periods.
Income Taxes
Our effective tax rate for the second quarter of fiscal 2007 was approximately 35% and did not
differ from the federal statutory rate. State income taxes were offset by the benefit we received
from federal and state research and experimental credits and tax exempt interest income. Our
effective tax rate for the first six months of fiscal 2007 was approximately 36% and differed from
the federal statutory rate of 35% due to state income taxes, which were partially offset by federal
and state research and experimental credits and the benefit we received from tax exempt
30
interest
income. In addition, we benefited from the retroactive extension of the federal research and
experimental credit in both fiscal 2007 periods. Our effective tax rate for the second quarter and
first six months of fiscal 2006 was approximately 37% and differed from the federal statutory rate
of 35% due to state income taxes, which were partially offset by the benefit we received from
federal and state research and experimental credits and tax exempt interest income. See Note 9 to
the financial statements.
In December 2006 the Tax Relief and Health Care Act of 2006 was signed into law. The Act includes a
reinstatement of the federal research and experimental credit retroactive to January 1, 2006. We
recorded a discrete tax benefit of $3.7 million for the retroactive amount related to fiscal 2006
during the quarter ended January 31, 2007. The credit as reinstated has an expiration date of
December 31, 2007.
At January 31, 2007, we had net deferred tax assets of $191.4 million, which included a valuation
allowance of $4.4 million for certain state capital loss and net operating loss carryforwards. The
allowance reflects managements assessment that we may not receive the benefit of certain loss
carryforwards in certain state jurisdictions. While we believe our current valuation allowance is
sufficient, it may be necessary to increase this amount if it becomes more likely that we will not
realize a greater portion of the net deferred tax assets. We assess the need for an adjustment to
the valuation allowance on a quarterly basis.
Intuit Information Technology Solutions Discontinued Operations
In December 2005 we sold our Intuit Information Technology Solutions (ITS) business for
approximately $200 million in cash. In accordance with the provisions of SFAS 144, we accounted for
the sale of ITS as discontinued operations. Consequently, we have segregated the operating results
of ITS from continuing operations in our statements of operations for all periods prior to the
sale. For the second quarter and first six months of fiscal 2006, we recorded net revenue from ITS
of $5.8 million and $20.2 million and net income from ITS operations of $1.9 million and $5.2
million. We recorded a net gain on disposal of ITS of $34.3 million in the first six months fiscal
2006. See Note 6 to the financial statements.
Liquidity and Capital Resources
Statement of Cash Flows
At January 31, 2007, our cash, cash equivalents and investments totaled $1.1 billion, a decrease of
$61.6 million from July 31, 2006. During the first half of fiscal 2007 we generated $106.4 million
in cash from our continuing operations. We generated $67.0 million in cash from investing
activities during that period, including $166.8 million from the net sale of investments partially
offset by the use of approximately $60 million for our purchase of StepUp Commerce, Inc. and $52.9
million for purchases of property and equipment. We used $65.8 million in cash for financing
activities during the first six months of fiscal 2007, including $205.4 million for the repurchase
of common stock under our stock repurchase programs partially offset by proceeds of $124.2 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 the second quarter and
first six months of fiscal 2007 we repurchased 6.7 million shares of our common stock for $205.4
million under our stock repurchase programs. Authorized funds of $301.2 million remained available
for stock purchases at January 31, 2007.
Digital Insight Acquisition
In November 2006 we entered into a definitive agreement to acquire all of the outstanding shares of
common stock of Digital Insight Corporation (Digital Insight) for a total purchase price of
approximately $1.35 billion including the value of assumed vested options. The transaction was
completed on February 6, 2007. Digital Insight is a provider of outsourced online banking
applications and services to banks, credit unions and savings and loan associations and together
with our existing financial institutions business, which was part of our Other Businesses segment,
will become a separate reportable segment beginning in the third quarter of fiscal 2007.
31
In connection with our February 2007 acquisition of Digital Insight, on January 31, 2007 Intuit
entered into a $1.0 billion unsecured bridge credit facility with two institutional lenders that
expires on February 5, 2008. At our election, advances under this bridge facility accrue interest
at rates that are equal to Citibanks base rate plus 0.05% or the London InterBank Offered Rate
(LIBOR) plus 0.45%. The instruments governing the bridge credit facility include 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 three-to-one and a ratio of annual
EBITDA to interest payable of not less than three-to-one. We were in compliance with these
covenants at January 31, 2007. On February 6, 2007 we borrowed the entire $1.0 billion available
under the bridge credit facility at an initial interest rate of 5.77% to pay a portion of the
Digital Insight purchase price and funded the remainder of the purchase price with our existing
cash balances. Subject to market conditions, we intend to refinance the bridge credit facility with
longer-term non-convertible debt during the third quarter of fiscal 2007. Our future operating
results will reflect interest expense related to these borrowings.
In December 2006 we entered into a $500 million notional amount five-year forward starting swap and
a $500 million notional amount 10-year forward starting swap designated as cash flow hedges of the
interest payments on fixed-rate non-convertible debt we intend to issue in the third quarter of
fiscal 2007 to refinance the bridge credit facility described above. Under these interest rate swap
contracts, we make fixed-rate interest payments and receive variable-rate interest payments based
on the London Interbank Offered Rate (LIBOR). The effect of these swaps is to offset changes in the
fixed rate between the date we entered into the interest rate swaps and the expected issuance date
of the debt. The unrealized gains of $22.3 million ($13.5 million net of tax) related to changes in
the value of the interest rate swaps during the three months ended January 31, 2007 were included
net of tax in other comprehensive income on our balance sheet. Once we issue the fixed-rate debt,
the interest rate swaps will be settled and the cumulative gains or losses related to changes in
their value at that time will be amortized using the effective yield method as an adjustment of
interest expense over the term of the related debt in our statements of operations. At January 31,
2007, the fair values of the interest rate swaps designated as hedges of our future debt totaled
$22.3 million and were included in other current assets on our balance sheet.
Pending Acquisition of Electronic Clearing House Inc.
In December 2006 we entered into a definitive agreement to acquire all of the outstanding shares of
common stock of Electronic Clearing House Inc. (ECHO) for a total purchase price of approximately
$142 million in cash. ECHO is a provider of electronic payment services and will become part of our
Payroll and Payments segment. The transaction is subject to ECHO shareholder approval and other
customary closing conditions and is expected to close during the third quarter of fiscal 2007.
Revolving Line of Credit
In February 2007 we received commitment letters from certain institutional lenders for a five-year
revolving line of credit facility in a maximum principal amount of $500 million. We expect the
instruments governing the facility to include certain financial covenants. We intend to enter into
the revolving line of credit facility during the third quarter of fiscal 2007. 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.
Other
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 the revolving line of credit facility described above 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.
32
Reserves for Returns and Rebates
Activity in our reserves for product returns and for rebates during the first six months of fiscal
2007 and comparative balances at January 31, 2006 were as shown in the following table. Due to the
seasonality of our business, we compare our returns and rebate reserve balances at January 31, 2007
to the reserve balances at January 31, 2006.
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Additions |
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Balance |
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Charged |
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Balance |
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Balance |
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July 31, |
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Against |
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Returns/ |
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January 31, |
|
January 31, |
(In thousands) |
|
2006 |
|
Revenue |
|
Redemptions |
|
2007 |
|
2006 |
|
Reserve for product returns |
|
$ |
29,385 |
|
|
$ |
72,755 |
|
|
$ |
(34,112 |
) |
|
$ |
68,028 |
|
|
$ |
62,831 |
|
Reserve for rebates |
|
|
8,996 |
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|
|
38,357 |
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|
|
(13,428 |
) |
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33,925 |
|
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25,860 |
|
The fiscal 2007 increase in our reserve for product returns was due to higher revenue and the
establishment of reserves for QuickBooks Payroll in connection with its entrance into the retail
channel. The fiscal 2007 increase in our reserve for rebates was due to an increase in rebate
promotions compared with fiscal 2006, including the use of instant rebates rather than mail-in
rebates for a TurboTax and Quicken shared promotion.
Off-Balance Sheet Arrangements
At January 31, 2007, we did not have any significant off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
We lease office facilities and equipment under various operating lease agreements. In November 2006
we entered into an agreement under which we will lease approximately 167,000 square feet of office
space in a new building to be constructed by the landlord in Woodland Hills, California for our
Innovative Merchant Solutions business. The lease term is 10 years beginning on October 1, 2008. We
estimate that our total minimum commitment for this lease is approximately $70 million.
As described above in Liquidity and Capital Resources Digital Insight Acquisition, in
connection with our acquisition of Digital Insight we entered into a $1.0 billion unsecured bridge
credit facility that expires on February 5, 2008. At our election, advances under this bridge
facility accrue interest at rates that are equal to Citibanks base rate plus 0.05% or the London
InterBank Offered Rate (LIBOR) plus 0.45%. On February 6, 2007 we borrowed the entire $1.0 billion
available under the bridge credit facility at an initial interest rate of 5.77% to pay a portion of
the Digital Insight purchase price. Based on this initial interest rate, our maximum commitment for
interest under the bridge credit facility is approximately $57.7 million. Subject to market
conditions, we intend to refinance the bridge credit facility with longer-term non-convertible debt
during the third quarter of fiscal 2007.
Recent Accounting Pronouncements
FIN 48, Accounting for Uncertainty in Income Taxes
In June 2006 the FASB issued Financial Interpretation No. (FIN) 48, Accounting for Uncertainty in
Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS 109, Accounting for Income Taxes. FIN
48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. It
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The requirements of FIN 48 are effective for our
fiscal year beginning August 1, 2007. We are in the process of evaluating this guidance and
therefore have not yet determined the impact that the adoption of FIN 48 will have on our financial
position, results of operations or cash flows.
33
SFAS 157, Fair Value Measurements
In September 2006 the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 provides enhanced
guidance for using fair value to measure assets and liabilities. The standard also responds to
investors requests for expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the effect of fair value
measurements on earnings. SFAS 157 applies whenever other standards require or permit assets or
liabilities to be measured at fair value. This standard does not expand the use of fair value in
any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years. We are in the
process of evaluating this standard and therefore have not yet determined the impact that the
adoption of SFAS 157 will have on our financial position, results of operations or cash flows.
SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities
In February 2007 the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS 159 provides companies with an option to report selected financial
assets and liabilities at fair value. The standards objective is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. The standard requires companies to provide additional
information that will help investors and other users of financial statements to more easily
understand the effect of the companys choice to use fair value on its earnings. It also requires
companies to display the fair value of those assets and liabilities for which the company has
chosen to use fair value on the face of the balance sheet. The new standard does not eliminate
disclosure requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in SFAS 157, Fair Value Measurements, and SFAS
107, Disclosures about Fair Value of Financial Instruments. SFAS 159 is effective as of the start
of fiscal years beginning after November 15, 2007. Early adoption is permitted. We are in the
process of evaluating this standard and therefore have not yet determined the impact that the
adoption of SFAS 159 will have on our financial position, results of operations or cash flows.
34
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investments
We do not hold derivative financial instruments in our portfolio of investments and funds held for
payroll customers. Our investments and funds held for payroll customers consist of instruments that
meet quality standards 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 or cash management funds, we diversify our holdings by limiting
our investments and funds held for payroll customers with any individual issuer.
Interest Rate Risk
Our cash equivalents and our portfolio of investments and funds held for payroll customers are
subject to market risk due to changes in interest rates. Interest rate movements affect the
interest income we earn on cash equivalents, investments and funds held for payroll customers and
the value of those investments. Should the Federal Reserve Target Rate increase by 10% or about 53
basis points from the levels of January 31, 2007, the value of our investments and funds held for
payroll customers would decline by approximately $1.2 million. Should interest rates increase by
100 basis points from the levels of January 31, 2007, the value of our investments and funds held
for payroll customers would decline by approximately $2.2 million.
Derivative Instruments
In December 2006 we entered into a $500 million notional amount five-year forward starting swap and
a $500 million notional amount 10-year forward starting swap designated as cash flow hedges of the
interest payments on fixed-rate non-convertible debt we intend to issue in the third quarter of
fiscal 2007 to refinance the bridge credit facility we arranged in connection with our February
2007 acquisition of Digital Insight Corporation. See Note 5 to the financial statements. Under
these interest rate swap contracts, we make fixed-rate interest payments and receive variable-rate
interest payments based on the London Interbank Offered Rate (LIBOR). The effect of these swaps is
to offset changes in the fixed rate between the date we entered into the interest rate swaps and
the expected issuance date of the debt. The unrealized gains of $22.3 million ($13.5 million net of
tax) related to changes in the value of the interest rate swaps during the three months ended
January 31, 2007 were included net of tax in other comprehensive income on our balance sheet. Once
we issue the fixed-rate debt, the interest rate swaps will be settled and the cumulative gains or
losses related to changes in their value at that time will be amortized using the effective yield
method as an adjustment of interest expense over the term of the related debt in our statements of
operations. At January 31, 2007, the fair values of the interest rate swaps designated as hedges of
our future debt totaled $22.3 million and were included in other current assets on our balance
sheet.
Impact of Foreign Currency Rate Changes
The functional currency of our international operating subsidiaries is the local currency. Assets
and liabilities of our foreign subsidiaries are translated at the exchange rate in effect on the
balance sheet date. Revenue, costs and expenses are translated at average rates of exchange in
effect during the period. We report translation gains and losses as a separate component of
stockholders equity. We include net gains and losses resulting from foreign exchange transactions
in our statements of operations.
Since we translate foreign currencies (primarily Canadian dollars and British pounds) into U.S.
dollars for financial reporting purposes, currency fluctuations can have an impact on our financial
results. The historical impact of currency fluctuations on our financial results has generally been
immaterial. We believe that our exposure to currency exchange fluctuation risk is not significant
because our international 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 January 31,
2007, we did not engage in foreign currency hedging activities.
35
ITEM 4
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 Quarterly Report on Form 10-Q our disclosure controls and procedures as
defined under Exchange Act Rule 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.
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.
36
PART II
ITEM 1
LEGAL PROCEEDINGS
See Note 11 to the financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for
a description of legal proceedings.
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ITEM 1A
RISK FACTORS
This report contains forward-looking statements regarding our business and expected future
performance, and we are subject to many risks and uncertainties that may materially affect our
business and future performance. All statements in this report, other than statements that are
purely historical, are forward-looking statements. Words such as expects, anticipates,
intends, plans, believes, forecasts, estimates, seeks, 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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the assumptions underlying our Critical Accounting Policies and Estimates, including our
estimates regarding product rebate and return reserves; assumptions used to estimate the
fair value of share-based compensation; and expected future amortization of purchased
intangible assets; |
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our beliefs regarding collection of principal and interest on certain debt securities we hold; |
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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 belief that our income tax valuation allowance is sufficient; |
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our belief that our cash, cash equivalents and investments will be sufficient to meet
our working capital and capital expenditure requirements for the next 12 months; |
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our expectations regarding research and development efforts and expenses and the
introduction of new or complementary products and related services and features; |
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our beliefs regarding trends for our Consumer Tax and Professional Tax segments; |
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our expectations regarding deferral and recognition of revenue in future quarters; |
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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; |
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our expectations regarding the costs and other effects of acquisition and disposition
transactions, and the closing of those transactions; |
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our expectations regarding the refinancing of a bridge loan with longer-term non-convertible debt; and |
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the expected effects of the adoption of new accounting standards. |
An investment in Intuits stock involves risk, and 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. Forward-looking statements are based on information as of the
filing date of this report, and we undertake no obligation to publicly 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 our stated expectations. These factors
include the following:
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Intense competitive pressures in all of our businesses may negatively impact
our revenue, profitability and market position. |
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Future revenue growth for our core products depends upon our successful
introduction of new and enhanced products and service. |
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If we fail to maintain reliable and responsive service levels for our
electronic tax offerings, or if the IRS or other governmental agencies experience
difficulties in receiving customer submissions, we could lose customers and our revenue and
earnings could decrease. |
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The nature of our products necessitates timely product launches and if we
experience significant product quality problems or delays, it will harm our revenue,
earnings and reputation. |
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Possession and use of personal customer information by our businesses presents
risks and expenses that could harm our business. |
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Our revenue and earnings are highly seasonal and our quarterly results fluctuate significantly.
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The growth of our business depends on our ability to adapt to rapid technological change. |
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Failure to maintain the availability and security of the systems, networks,
databases and software required to operate and deliver our Internet-based products and
services could adversely affect our operating results. |
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Our reliance on a limited number of manufacturing and distribution suppliers
could harm our business. |
38
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As our product and service offerings become more complex our revenue streams
may become less predictable. |
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Our dependence on a small number of larger retailers and distributors could
harm our results of operations. |
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Failure of our information technology systems or those of our service
providers could adversely affect our future operating results. |
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Increased government regulation of tax preparation services could harm our
business. |
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If we do not respond promptly and effectively to customer service and
technical support inquiries we will lose customers and our revenue and earnings will
decline. |
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If we encounter problems with our third-party customer service and technical
support providers our business will be harmed and our margins will decline. |
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Risks associated with credit card and payment fraud and with credit card
processing can harm our business. |
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If we fail to adequately protect our intellectual property rights, competitors
may exploit our innovations, which could weaken our competitive position and reduce our
revenue and earnings. |
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Third parties claiming that we infringe their proprietary rights could cause
us to incur significant legal expenses and prevent us from selling our products. |
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We expect copying and misuse of our intellectual property to be a persistent
problem causing lost revenue and increased expenses. |
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We may not be able to obtain necessary licenses for third-party technologies
and content used in our products and services. |
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Our acquisition activity could disrupt our ongoing business and may present
risks not contemplated at the time of the transactions. |
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If actual product returns exceed returns reserves our financial results would be harmed. |
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Acquisition-related costs and impairment charges can cause significant fluctuation in our net income. |
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Our payroll business involves significant cash and transaction volumes, and if
we do not operate this business effectively our revenue and earnings will be harmed. |
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Interest income attributable to payroll customer deposits may fluctuate or be
eliminated, causing our revenue and earnings to decline. |
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We may be unable to attract and retain key personnel. |
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We are frequently a party to litigation that is costly to defend and consumes
the time of our management. |
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Unanticipated changes in our tax rates could affect our future financial
results. |
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If we fail to maintain an effective system of internal controls, we may not be
able to detect fraud or report our financial results accurately, which could harm our
business and the trading price of our common stock. |
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Business interruptions could adversely affect our future operating results. |
This list does not include all risks that could affect our business, and if these or any other
risks or uncertainties materialize, or if our underlying assumptions prove to be inaccurate, actual
results could differ materially from past results and from our expected future results.
Our Annual Report on Form 10-K for the fiscal year ended July 31, 2006 lists in more detail various
important risk factors facing our business in Part I, Item 1A under the heading Risk Factors.
Except as set forth below, there have been no material changes from the risk factors disclosed in
that section of our Form 10-K. We incorporate that section of the Form 10-K into this filing and
encourage you to review that information. We also encourage you to review our other reports filed
periodically with the Securities and Exchange Commission for any further information regarding
risks facing our business.
We face intense competitive pressures in all of our businesses that may negatively impact our
revenue, profitability and market position.
We have formidable competitors, and we expect competition to remain intense during fiscal 2007 and
beyond. The number, resources and sophistication of the companies with whom we compete have
increased as we continue to expand our product and service offerings. Our competitors may
introduce new and improved products and services, bundle new offerings with market-leading
products, reduce prices, gain better access to distribution channels, advertise aggressively or
beat us to market with new products and services. We also face growing competition from providers
of free online accounting, bookkeeping, tax, banking and other business-related services. Any of
these
39
competitive actions taken over any prolonged period could diminish our revenue and
profitability and could affect our ability to keep existing customers and acquire new customers.
Some additional competitive factors that may impact our businesses are discussed below.
QuickBooks and Payroll and Payments. Losing existing or potential QuickBooks customers to
competitors causes us to lose potential software revenue and also limits our opportunities to sell
related products and services such as our financial supplies, small business payroll and merchant
services offerings. Many competitors provide accounting and business management products and
services to small businesses. For example, Microsoft Corporation currently offers Microsoft Office
Small Business Accounting and offers, in partnership with third parties, several other competitive
products and services, including a payroll solution for small businesses, credit and debit card
processing services, and business checks, forms envelopes and related printed products. We expect
that competition from Microsoft as well as new or currently unidentified competitors will intensify
over time with these and future offerings that directly compete with QuickBooks and our other
offerings. Although we have successfully competed with Microsoft in the past, Microsofts small
business product and service offerings may still have a significant negative impact on our future
revenue and profitability.
Our principal competitors in the small business payroll services business benefit from greater
economies of scale due to their substantial size, which may result in pricing pressure for our
offerings. The growth of electronic banking and other electronic payment systems is decreasing the
demand for checks and consequently causing pricing pressure for our financial supplies business as
competitors aggressively compete for share of this shrinking market.
Several of our products also compete with web-based electronic banking, finance tracking and
management tools that are becoming increasingly available at no cost to consumers. If we are
unable to provide products with features and services that compete effectively with these free
offerings, our revenue and profitability may suffer.
Consumer Tax. Our consumer tax business faces significant competition from both the public and
private sector. In the public sector we face the risk of federal and state taxing authorities
developing or contracting to provide software or other systems to facilitate tax return preparation
and electronic filing at no charge to taxpayers.
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Federal Government. Agencies of the U.S. government have made several attempts during
the two most recent presidential administrations to initiate a program to offer taxpayers
free online tax preparation and filing services. However, in October 2002 the Internal
Revenue Service agreed not to provide its own competing tax software product or service so
long as participants in a consortium of tax preparation software companies, including
Intuit, agreed to provide web-based federal tax preparation and filing services at no cost
to qualified taxpayers under an arrangement called the Free File Alliance. In October 2005
the IRS and the Free File Alliance signed a new four-year agreement that continues to
restrict the IRS from entering the tax preparation business. This agreement specifies the
category of taxpayers eligible to receive free services and places limits on the ability of
participating companies to target their free offering to more than 50% of all U.S.
taxpayers. The Free File Alliance has kept the federal government from being a direct
competitor to our tax offerings in the past. However, it has also fostered additional
web-based competition and could cause us to lose significant revenue opportunities from our
Consumer Tax customer base. Companies have used the Free File Alliance and its position on
the IRS web site as a marketing tool by giving away free services at the federal level and
attempting to make money by selling state filing and other services, which has intensified
competition. In addition, persons who formerly have paid for our products may elect to use
our or our competitors unpaid federal offering instead. The IRS has the right to terminate
the agreement with the Free File Alliance upon 24 months written notice. If the IRS were to
terminate the agreement and elect to provide government software and electronic filing
services to taxpayers at no charge, or if other governmental bodies were to significantly
alter the Free File Alliance or require the provision of government tax filing services
directly to taxpayers, our revenue and profits could suffer. See the discussion on the Free
File Alliance in Item 1, Business Competition. |
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State Governments. State taxing authorities have also actively pursued various
strategies to provide free online tax return preparation and electronic filing services for
state taxpayers. As of July 31, 2006, 21 states had entered into agreements with the
private sector based on the federal Free File Alliance agreement and had agreed to
discontinue or otherwise not provide direct government tax preparation services. However,
20 other states, including California, have directly offered their own online tax
preparation and filing services to taxpayers. For example, for the 2004 and 2005 tax years
California tested a limited pilot program under which a state-operated electronic system
automatically prepared and filed approximately 10,000 state income tax returns with no
individual transaction charge to those taxpayers. In August 2005 the California legislature
enacted a law restricting the extension of this program beyond the 2005 tax year.
Notwithstanding this law, the California Franchise Tax Board voted in December 2006 to
renew and
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expand the program for tax year 2007. Similar programs in other states could
also be introduced or expanded in the future. These publicly sponsored programs could
cause us to lose customers to free offerings and enable competitors to gain market share at
our expense by using participation in the free alliances as an effective tool to attract
customers to ancillary paid offerings. Given the efficiencies that electronic tax filing
provides to taxing authorities, we anticipate that governmental competition will present a
continued competitive threat to our business for the foreseeable future. |
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Private Sector. In the private sector we face intense competition primarily from H&R
Block, the makers of TaxCut software, and increasingly from web-based offerings such as 2nd
Story Softwares TaxACT, where we are subject to significant and increasing price pressure.
We also compete for customers with low-cost assisted tax preparation businesses, such as
H&R Block. In addition, companies that provide free online tax preparation services,
whether through the Free File Alliance or otherwise, may reduce demand for our paid
offerings which would harm our business and results of operations. |
Professional Tax. Our ProSeries professional tax offerings face pricing pressure from competitors
seeking to obtain our customers through deep product discounts and loss of customers to competitors
offering no-frills offerings at low prices, such as CCHs ATX product line. Our Lacerte
professional tax offerings face competition from competitively-priced tax and accounting solutions
that include integration with non-tax functionality.
Financial Institutions. In February 2007 we completed the acquisition of Digital Insight
Corporation (Digital Insight), which provides outsourced online banking applications and services
to banks, credit unions and savings and loan associations. We now compete with several companies
that provide these services to financial institutions. The market for online banking services is
highly competitive and fragmented with many providers. We face competition from two main sources:
other companies similar to Digital Insight that offer outsourced Internet banking offerings, and
vendors of data processing services to financial institutions. Also, vendors that primarily target
the largest financial institutions occasionally compete in our target market. In some instances,
we also compete with companies with whom we have referral or reseller relationships. Some of our
current and potential competitors have longer operating histories and may be in a better position
to produce and market their services due to their greater technical, marketing and other resources,
as well as their greater name recognition and larger installed bases of customers. In addition,
many of our competitors have well-established relationships with our current and potential
financial institution customers and data processing vendors and have extensive knowledge of our
industry.
As we negotiate the renewal of long-term service contracts with current customers, we may be
subject to competitive pressures and other factors that may require concessions on pricing and
other material contract terms to induce the customer to remain with us. We depend on our financial
institution clients to market and promote our products to their end user customers, but these
efforts may not be successful, and we may not be able to persuade potential customers to adopt our
solutions in place of financial institutions own proprietary solutions or offerings by third
parties. If we are unable to compete effectively with other online banking service providers, our
business results may suffer.
Other Businesses. Our Quicken products compete both with Microsoft Money, which is aggressively
promoted and priced, and with web-based electronic banking and personal finance tracking and
management tools that are becoming increasingly available at no cost to consumers. These
competitive pressures may result in reduced revenue and lower profitability for our Quicken product
line and related bill payment service offering.
Risks associated with our financial institutions business may harm our results of operations and
financial condition.
In February 2007 we completed the acquisition of Digital Insight, a provider of online banking
services and applications to financial institutions. This new financial institutions business is
subject to several risks, including the following:
|
|
|
consolidation among core data processing vendors may affect our reseller and
revenue-sharing agreements with certain core processor organizations or reduce the
likelihood of extending our agreements at expiration; |
|
|
|
|
the systems that support our online banking offerings will require additional
modifications and improvements to respond to current and future changes in our business,
and if we fail to implement appropriate systems, procedures, controls and necessary
modifications and improvements to these systems, our business will suffer; |
41
|
|
|
unless our online banking offerings are successfully deployed and marketed by a
significant number of financial institutions and achieve widespread market acceptance by
their end user customers for a significant period of time, our business may suffer; |
|
|
|
|
if we are unable to integrate third-party software in a fully functional manner for our
clients, we may experience difficulties that could delay or prevent the successful
development, introduction or marketing of our services; |
|
|
|
|
if any of our products fail to be supported by financial institutions data processing
vendors, we would have to redesign our products to suit these financial institutions, and
we cannot assure that any redesign could be accomplished in a cost-effective or timely
manner, and we could experience higher implementation costs or the loss of current and
potential customers; |
|
|
|
|
the financial institutions business experiences lengthy sales cycles for a variety of
reasons, which could cause us to expend substantial employee and management resources
without making a sale or could cause our operating results to fall short of anticipated
levels for a particular quarter; |
|
|
|
|
the financial services industry is subject to extensive and complex federal and state
regulation, and our financial institution customers must ensure that our services and
related products work within the regulatory requirements applicable to them; |
|
|
|
|
government authorities could adopt laws, rules or regulations that affect our financial
institutions business, such as requirements related to data, record keeping and processing,
which could make our business more costly, burdensome, less efficient or impossible, and
require us to modify our current or future products or services; and |
|
|
|
|
consolidation of the banking and financial services industry could result in a smaller
market for our products and services, may cause us to lose relationships with key
customers, or may result in a change in the technological infrastructure of the combined
entity, which may make it difficult to integrate our offerings. |
Our acquisition and divestiture activities could 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. In February, we completed the acquisition of Digital Insight for total
consideration of approximately $1.35 billion including the value of assumed vested options, and we
recently announced that we have agreed to acquire Electronic Clearing House, Inc. for total
consideration of approximately $142 million. Acquisitions involve significant risks and
uncertainties, including:
|
|
|
inability to successfully integrate the acquired technology and operations
into our business and maintain uniform standards, controls, policies, and procedures; |
|
|
|
|
inability to realize synergies expected to result from an acquisition;
|
|
|
|
|
distraction of managements attention away from normal business operations; |
|
|
|
|
challenges retaining the key employees, customers, resellers and other
business partners of the acquired operation; |
|
|
|
|
lack of experience in new markets, products or technologies or the initial
dependence on unfamiliar supply or distribution partners; |
|
|
|
|
insufficient revenue generation to offset liabilities assumed; |
|
|
|
|
expenses associated with the acquisition; and |
|
|
|
|
unidentified issues not discovered in our due diligence process, including
product or service quality issues, intellectual property issues and legal
contingencies. |
Acquisitions and divestitures are inherently risky. We can not be certain that our previous,
pending or future transactions will be successful and will not materially adversely affect the
conduct, operating results or financial condition of our business. Many transactions are subject to
closing conditions, which may not be satisfied, and transactions may not be successfully completed
even after their public announcement. We have generally paid cash for our recent acquisitions.
These transactions may involve further use of our cash resources, the issuance of equity or debt
securities, the incurrence of other forms of debt, the amortization of expenses related to
intangible assets, or potential future impairment charges related to goodwill that we record on our
balance sheet, which will be subject to annual testing in the future, any of which could harm our
financial condition and results of operations. In particular, we will allocate a portion of the
purchase price for Digital Insight to goodwill, which could be subject to potential future
impairment charges, and we will also allocate a portion of the purchase price to identified
intangible assets, which we expect to amortize over a period of three to five years. Further, we
funded $1.0 billion of the purchase
42
price of Digital Insight with the proceeds of a bridge credit
facility with institutional lenders. The use of debt to fund acquisitions or for other purposes
significantly increases our interest expense and leverage. If we issue equity securities as
consideration in an acquisition, current stockholders percentage ownership and earnings per share
may be diluted.
In February 2007 we announced that we had entered into a definitive agreement to sell certain
assets related to our Complete Payroll and Premier Payroll Service businesses to ADP for a maximum
price of approximately $135 million. Because the final purchase price is contingent upon, among
other things, the number of customers that transition to ADP, the price could be materially less
than the maximum if we do not successfully implement the transition process. We also expect to
recognize any gain on the sale of these assets over a period of several quarters. We may continue
to incur significant expenses of servicing customers prior to any transition.
We have borrowed $1.0 billion to fund the acquisition of Digital Insight and may incur other debt
in the future, which could adversely affect our financial condition and results of operations.
In connection with the acquisition of Digital Insight, we have borrowed $1.0 billion under the
terms of a bridge credit facility. Subject to market conditions, we intend to replace this credit
facility in the third quarter of fiscal 2007 with longer term non-convertible debt. We have also
received commitment letters from certain institutional lenders for a five-year revolving credit
facility, which we expect to enter into in the third quarter of fiscal 2007, in a maximum principal
amount of $500 million. 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.
We have not previously incurred substantial amounts of debt for borrowed money, and our incurrence
of this debt may adversely affect our operating results and financial condition by, among other
things:
|
|
|
increasing our vulnerability to downturns in our business, to competitive
pressures and to adverse economic and industry conditions; |
|
|
|
|
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 |
|
|
|
|
limiting our flexibility in planning for, or reacting to, changes in our
business and our industry. |
Our current short-term credit facility imposes, and the terms of any future credit facilities may
impose, 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, we expect that our anticipated long-term non-convertible debt
will include 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 credit facilities and do not obtain a waiver from the lenders, then, subject
to applicable cure periods, our outstanding indebtedness could be declared immediately due and
payable.
In addition, changes by any rating agency to our credit rating can 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 credit facility would increase.
In addition, any downgrades in our credit ratings could affect our ability to obtain additional
financing in the future and may affect the terms of any such financing.
Third parties claiming that we infringe their proprietary rights could cause us to incur
significant legal expenses and prevent us from selling our products.
From time to time, we have received claims that we have infringed the intellectual property rights
of others. 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
believe that we may become increasingly subject to infringement claims, including patent,
copyright, and trademark infringement claims. We expect that software products in general will
increasingly be subject to these claims as the number of products and competitors increase, the
functionality of products overlap and as the patenting of software functionality continues to grow.
We have, from time to time, received allegations of patent infringement claims in the past and may
receive more claims in the future based on allegations that our products infringe upon patents held
by third parties. Some of these claims are
43
currently the subject of pending litigation against us
and against some of our OEM 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. Future claims could present an exposure of uncertain
magnitude. The ultimate outcome of any allegation is uncertain and, regardless of outcome, any
such claim, with or without merit, could be time consuming to defend, result in costly litigation,
divert managements time and attention from our business, require us to stop selling, to delay
shipping or to redesign our products, or require us to pay monetary damages for royalty or
licensing arrangements, 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 could adversely affect our business.
In addition, we license and use software from third parties in our business. These third party
software licenses may not continue to be available to us on acceptable terms. Also, these third
parties may from time to time receive claims that they have infringed the intellectual property
rights of others, including patent and copyright infringement claims, which may affect our ability
to continue licensing their software. Our inability to use any of this third party software could
result in shipment delays or other disruptions in our business, which could materially and
adversely affect our operating results.
44
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Stock repurchase activity during the three months ended January 31, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Approximate |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Dollar Value of |
|
|
Total Number |
|
Average |
|
Purchased as |
|
Shares That May |
|
|
of Shares |
|
Price Paid |
|
Part of Publicly |
|
Yet Be Purchased |
Period |
|
Purchased |
|
per Share |
|
Announced Plans |
|
Under the Plans |
|
November 1, 2006 through |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
506,594,054 |
|
November 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2006 through |
|
|
4,280,000 |
|
|
$ |
31.03 |
|
|
|
4,280,000 |
|
|
$ |
373,765,951 |
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2007 through |
|
|
2,380,000 |
|
|
$ |
30.48 |
|
|
|
2,380,000 |
|
|
$ |
301,221,272 |
|
January 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,660,000 |
|
|
$ |
30.84 |
|
|
|
6,660,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes: |
|
1. |
|
Share figures above reflect Intuits July 2006 two-for-one stock split. See Note 1 and Note
10 to the financial statements. |
|
2. |
|
All shares purchased as part of publicly announced plans during the three months ended
January 31, 2007 were purchased under our sixth and seventh repurchase programs. Our sixth
repurchase program was announced on November 16, 2005 and was completed during the three
months ended January 31, 2007 when all authorized funds were expended. On May 17, 2006 we
announced a seventh stock repurchase program under which we are authorized to repurchase up to
$500.0 million of our common stock from time to time over a three-year period ending on May
14, 2009. No authorized funds remain under our first six stock repurchase programs. For
additional information about Intuits historical stock repurchase activities, see Note 10 to
the financial statements. |
45
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Intuits Annual Meeting of Stockholders held on December 15, 2006, our stockholders voted as
follows on the proposals below:
1. |
|
Proposal to elect directors: |
|
|
|
|
|
|
|
|
|
|
|
For |
|
Withheld |
Stephen M. Bennett |
|
|
311,260,248 |
|
|
|
8,466,864 |
|
|
|
|
|
|
|
|
|
|
Christopher W. Brody |
|
|
309,847,296 |
|
|
|
9,879,816 |
|
|
|
|
|
|
|
|
|
|
William V. Campbell |
|
|
309,535,777 |
|
|
|
10,191,335 |
|
|
|
|
|
|
|
|
|
|
Scott D. Cook |
|
|
309,657,613 |
|
|
|
10,069,499 |
|
|
|
|
|
|
|
|
|
|
L. John Doerr |
|
|
309,429,567 |
|
|
|
10,297,545 |
|
|
|
|
|
|
|
|
|
|
Diane B. Greene |
|
|
317,059,867 |
|
|
|
2,667,245 |
|
|
|
|
|
|
|
|
|
|
Michael R. Hallman |
|
|
309,539,069 |
|
|
|
10,188,043 |
|
|
|
|
|
|
|
|
|
|
Dennis D. Powell |
|
|
317,115,811 |
|
|
|
2,611,301 |
|
|
|
|
|
|
|
|
|
|
Stratton D. Sclavos |
|
|
223,675,161 |
|
|
|
95,051,951 |
|
All nine nominees were elected to the board of directors.
2. |
|
Proposal to ratify the selection of Ernst & Young LLP as Intuits independent registered
public accounting firm for fiscal 2007: |
|
|
|
|
|
For |
|
|
317,729,441 |
|
Against |
|
|
191,657 |
|
Abstain |
|
|
1,806,013 |
|
Broker Non-Votes |
|
|
0 |
|
3. |
|
Proposal to approve amendment of Intuits 2005 Equity Incentive Plan: |
|
|
|
|
|
For |
|
|
225,021,963 |
|
Against |
|
|
65,858,556 |
|
Abstain |
|
|
2,181,817 |
|
Broker Non-Votes |
|
|
26,664,776 |
|
4. |
|
Proposal to approve amendment of Intuits Employee Stock Purchase Plan: |
|
|
|
|
|
For |
|
|
257,217,724 |
|
Against |
|
|
33,857,586 |
|
Abstain |
|
|
1,951,686 |
|
Broker Non-Votes |
|
|
26,700,116 |
|
46
ITEM 5
OTHER INFORMATION
On February 2, 2007, we entered into a definitive agreement to sell certain assets related to our
Complete Payroll and Premier Payroll Service businesses to Automatic Data Processing, Inc. (ADP)
for a price of up to approximately $135 million in cash. The final purchase price is contingent
upon, among other things, the number of customers that transition to ADP. The assets were part of
our Payroll and Payments segment. In accordance with the provisions of Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, we
have not accounted 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 the entity. The transaction is expected to close during the third
quarter of fiscal 2007 and the gain on the sale of the assets will be recognized as customers are
transitioned pursuant to the agreement.
47
ITEM 6
EXHIBITS
We have filed the following exhibits as part of this report:
|
|
|
|
|
|
|
Exhibit |
|
|
|
Filed |
|
Incorporated by |
Number |
|
Exhibit Description |
|
Herewith |
|
Reference |
10.01
|
|
Agreement and Plan of Merger by and among Intuit
Inc., Durango Acquisition Corporation and Digital
Insight Corporation (incorporated by reference to
Exhibit 2.1 of Form 8-K (File No. 000-27459) filed
by Digital Insight Corporation on November 30,
2006)
|
|
|
|
X |
|
|
|
|
|
|
|
10.02+
|
|
Intuit Inc. 2005 Equity Incentive Plan as amended
on October 24, 2006 (incorporated by reference to
Exhibit 99.01 of the registration statement on Form
S-8 (Registration No. 333-139452) filed by the
Registrant on December 18, 2006)
|
|
|
|
X |
|
|
|
|
|
|
|
10.03+
|
|
Intuit Inc. Employee Stock Purchase Plan as amended
on October 24, 2006 (incorporated by reference to
Exhibit 99.02 of the registration statement on Form
S-8 (Registration No. 333-139452) filed by the
Registrant on December 18, 2006)
|
|
|
|
X |
|
|
|
|
|
|
|
10.04
|
|
Bridge Credit Agreement dated as of January 31,
2007, by and among Intuit Inc., the Lenders parties
thereto, Chase Lincoln First Commercial
Corporation, as syndication agent, and Citicorp
North America, Inc., as administrative agent
(incorporated by reference to Exhibit 10.01 of Form
8-K filed by the Registrant on February 1, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.05+
|
|
Employment Offer Letter dated November 29, 2006
between Intuit Inc. and Jeffrey Stiefler
(incorporated by reference to Exhibit 10.01 of Form
8-K filed by the Registrant on February 7, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.06+
|
|
Form of Performance-based Restricted Stock Unit
Agreement for key employees of Digital Insight
(incorporated by reference to Exhibit 10.02 of Form
8-K filed by the Registrant on February 7, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.07+
|
|
Share Repurchase Agreement dated February 27, 2007
between Stephen M. Bennett and Intuit (incorporated
by reference to Exhibit 10.01 of Form 8-K filed by
the Registrant on February 28, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
31.01
|
|
Certification of Chief Executive Officer
|
|
X |
|
|
|
31.02
|
|
Certification of Chief Financial Officer
|
|
X |
|
|
|
32.01
|
|
Section 1350 Certification (Chief Executive Officer)
|
|
X |
|
|
|
32.02
|
|
Section 1350 Certification (Chief Financial Officer)
|
|
X |
|
|
|
|
|
|
|
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Intuit Inc. hereby undertakes to furnish
supplementally copies of any of the omitted schedules and exhibits
upon request by the Securities and Exchange Commission. |
|
+ |
|
Indicates a management contract or compensatory plan or arrangement. |
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
INTUIT INC.
(Registrant)
|
|
Date: March 2, 2007 |
By: |
/s/ KIRAN M. PATEL
|
|
|
|
Kiran M. Patel |
|
|
|
Senior Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer) |
|
|
49
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit |
|
|
|
Filed |
|
Incorporated by |
Number |
|
Exhibit Description |
|
Herewith |
|
Reference |
10.01
|
|
Agreement and Plan of Merger by and among Intuit
Inc., Durango Acquisition Corporation and Digital
Insight Corporation (incorporated by reference to
Exhibit 2.1 of Form 8-K (File No. 000-27459) filed
by Digital Insight Corporation on November 30,
2006)
|
|
|
|
X |
|
|
|
|
|
|
|
10.02+
|
|
Intuit Inc. 2005 Equity Incentive Plan as amended
on October 24, 2006 (incorporated by reference to
Exhibit 99.01 of the registration statement on Form
S-8 (Registration No. 333-139452) filed by the
Registrant on December 18, 2006)
|
|
|
|
X |
|
|
|
|
|
|
|
10.03+
|
|
Intuit Inc. Employee Stock Purchase Plan as amended
on October 24, 2006 (incorporated by reference to
Exhibit 99.02 of the registration statement on Form
S-8 (Registration No. 333-139452) filed by the
Registrant on December 18, 2006)
|
|
|
|
X |
|
|
|
|
|
|
|
10.04
|
|
Bridge Credit Agreement dated as of January 31,
2007, by and among Intuit Inc., the Lenders parties
thereto, Chase Lincoln First Commercial
Corporation, as syndication agent, and Citicorp
North America, Inc., as administrative agent
(incorporated by reference to Exhibit 10.01 of Form
8-K filed by the Registrant on February 1, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.05+
|
|
Employment Offer Letter dated November 29, 2006
between Intuit Inc. and Jeffrey Stiefler
(incorporated by reference to Exhibit 10.01 of Form
8-K filed by the Registrant on February 7, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.06+
|
|
Form of Performance-based Restricted Stock Unit
Agreement for key employees of Digital Insight
(incorporated by reference to Exhibit 10.02 of Form
8-K filed by the Registrant on February 7, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.07+
|
|
Share Repurchase Agreement dated February 27, 2007
between Stephen M. Bennett and Intuit (incorporated
by reference to Exhibit 10.01 of Form 8-K filed by
the Registrant on February 28, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
31.01
|
|
Certification of Chief Executive Officer
|
|
X |
|
|
|
31.02
|
|
Certification of Chief Financial Officer
|
|
X |
|
|
|
32.01
|
|
Section 1350 Certification (Chief Executive Officer)
|
|
X |
|
|
|
32.02
|
|
Section 1350 Certification (Chief Financial Officer)
|
|
X |
|
|
|
|
|
|
|
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Intuit Inc. hereby undertakes to furnish
supplementally copies of any of the omitted schedules and exhibits
upon request by the Securities and Exchange Commission. |
|
+ |
|
Indicates a management contract or compensatory plan or arrangement. |