e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2008
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 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,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. 327,730,691 shares of Common Stock, $0.01 par value, were
outstanding at February 22, 2008.
INTUIT INC.
FORM 10-Q
INDEX
Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries, Digital Insight and Quicken,
among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of
its subsidiaries, in the United States and other countries. Simple Start and Innovative Merchant
Solutions, among others, are trademarks and/or service marks of Intuit Inc., or one of its
subsidiaries, in the United States and other countries. Other parties marks are the property of
their respective owners.
2
PART I
ITEM 1
FINANCIAL STATEMENTS
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended |
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Six Months Ended |
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January 31, |
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January 31, |
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January 31, |
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January 31, |
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(In thousands, except per share amounts; unaudited) |
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2008 |
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2007 |
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2008 |
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2007 |
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Net revenue: |
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Product |
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$ |
540,790 |
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$ |
546,064 |
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$ |
759,410 |
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$ |
756,180 |
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Service and other |
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294,084 |
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204,573 |
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520,402 |
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344,950 |
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Total net revenue |
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834,874 |
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750,637 |
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1,279,812 |
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1,101,130 |
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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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56,880 |
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66,079 |
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90,627 |
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101,470 |
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Cost of service and other revenue |
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102,838 |
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65,375 |
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200,292 |
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128,191 |
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Amortization of purchased intangible assets |
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13,299 |
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2,304 |
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26,113 |
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4,333 |
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Selling and marketing |
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263,705 |
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219,530 |
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433,364 |
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373,048 |
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Research and development |
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149,767 |
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113,048 |
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299,103 |
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230,414 |
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General and administrative |
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66,672 |
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68,215 |
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143,787 |
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144,229 |
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Acquisition-related charges |
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8,083 |
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1,369 |
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16,095 |
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3,247 |
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Total costs and expenses |
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661,244 |
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535,920 |
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1,209,381 |
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984,932 |
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Operating income from continuing operations |
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173,630 |
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214,717 |
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70,431 |
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116,198 |
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Interest expense |
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(13,510 |
) |
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(27,559 |
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Interest and other income |
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4,925 |
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11,027 |
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22,116 |
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21,315 |
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Gains on marketable equity securities and other
investments, net |
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713 |
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1,221 |
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Gain on sale of outsourced payroll assets |
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14,004 |
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37,955 |
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Income from continuing operations before
income taxes |
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179,049 |
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225,744 |
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103,656 |
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138,734 |
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Income tax provision |
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62,555 |
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79,829 |
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34,227 |
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49,804 |
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Minority interest expense, net of tax |
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492 |
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335 |
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998 |
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550 |
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Net income from continuing operations |
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116,002 |
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145,580 |
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68,431 |
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88,380 |
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Net income (loss) from discontinued operations |
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(755 |
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(218 |
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26,012 |
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(1,948 |
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Net income |
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$ |
115,247 |
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$ |
145,362 |
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$ |
94,443 |
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$ |
86,432 |
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Basic net income per share from
continuing operations |
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$ |
0.35 |
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$ |
0.42 |
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$ |
0.20 |
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$ |
0.26 |
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Basic net income (loss) per share from
discontinued operations |
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0.08 |
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(0.01 |
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Basic net income per share |
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$ |
0.35 |
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$ |
0.42 |
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$ |
0.28 |
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$ |
0.25 |
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Shares used in basic per share calculations |
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331,139 |
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347,185 |
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334,362 |
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346,700 |
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Diluted net income per share from
continuing operations |
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$ |
0.34 |
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$ |
0.40 |
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$ |
0.20 |
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$ |
0.25 |
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Diluted net income (loss) per share from
discontinued operations |
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0.07 |
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(0.01 |
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Diluted net income per share |
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$ |
0.34 |
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$ |
0.40 |
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$ |
0.27 |
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$ |
0.24 |
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Shares used in diluted per share calculations |
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342,751 |
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360,573 |
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346,014 |
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360,654 |
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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, |
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(In thousands; unaudited) |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
230,148 |
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$ |
255,201 |
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Investments |
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607,029 |
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1,048,470 |
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Accounts receivable, net |
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372,385 |
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131,691 |
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Income taxes receivable |
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4,178 |
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54,178 |
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Deferred income taxes |
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86,653 |
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84,682 |
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Prepaid expenses and other current assets |
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75,721 |
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54,854 |
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Current assets of discontinued operations |
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8,515 |
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Current assets before funds held for payroll customers |
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1,376,114 |
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1,637,591 |
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Funds held for payroll customers |
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533,180 |
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314,341 |
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Total current assets |
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1,909,294 |
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1,951,932 |
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Property and equipment, net |
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384,700 |
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298,396 |
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Goodwill |
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1,628,512 |
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1,517,036 |
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Purchased intangible assets, net |
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272,955 |
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292,884 |
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Long-term deferred income taxes |
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97,996 |
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72,066 |
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Loans to officers |
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8,225 |
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8,865 |
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Other assets |
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70,174 |
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58,636 |
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Long-term assets of discontinued operations |
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52,211 |
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Total assets |
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$ |
4,371,856 |
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$ |
4,252,026 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
144,169 |
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$ |
119,799 |
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Accrued compensation and related liabilities |
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148,595 |
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192,286 |
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Deferred revenue |
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336,627 |
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313,753 |
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Income taxes payable |
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19,131 |
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33,278 |
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Other current liabilities |
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245,261 |
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171,650 |
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Current liabilities of discontinued operations |
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15,002 |
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Current liabilities before payroll customer fund deposits |
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893,783 |
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845,768 |
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Payroll customer fund deposits |
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533,180 |
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314,341 |
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Total current liabilities |
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1,426,963 |
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1,160,109 |
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Long-term debt |
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997,906 |
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997,819 |
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Other long-term obligations |
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100,527 |
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57,756 |
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Total liabilities |
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2,525,396 |
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2,215,684 |
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Commitments and contingencies |
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Minority interest |
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3,938 |
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1,329 |
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Stockholders equity: |
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Preferred stock |
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Common stock and additional paid-in capital |
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2,339,360 |
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2,251,146 |
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Treasury stock, at cost |
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(2,574,309 |
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(2,207,114 |
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Accumulated other comprehensive income |
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9,169 |
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6,096 |
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Retained earnings |
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2,068,302 |
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1,984,885 |
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Total stockholders equity |
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1,842,522 |
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2,035,013 |
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Total liabilities and stockholders equity |
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$ |
4,371,856 |
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$ |
4,252,026 |
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See accompanying notes.
4
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Treasury |
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Comprehensive |
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Retained |
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Stockholders |
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(Dollars in thousands; unaudited) |
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Shares |
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Amount |
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Capital |
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Stock |
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Income |
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Earnings |
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Equity |
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Balance at July 31, 2007 |
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339,157,302 |
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$ |
3,391 |
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$ |
2,247,755 |
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$ |
(2,207,114 |
) |
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$ |
6,096 |
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$ |
1,984,885 |
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$ |
2,035,013 |
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Components of comprehensive income: |
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Net income |
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|
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|
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|
94,443 |
|
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|
94,443 |
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Other comprehensive income, net of tax |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
3,073 |
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|
|
|
|
|
|
3,073 |
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Comprehensive net income |
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|
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|
|
|
|
|
|
|
|
97,516 |
|
Issuance
of common stock under
employee stock plans |
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|
6,023,193 |
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|
60 |
|
|
|
|
|
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|
127,705 |
|
|
|
|
|
|
|
(6,088 |
) |
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|
121,677 |
|
Restricted stock units released, net of taxes |
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|
255,853 |
|
|
|
3 |
|
|
|
(6,333 |
) |
|
|
4,935 |
|
|
|
|
|
|
|
(4,938 |
) |
|
|
(6,333 |
) |
Issuance
of restricted stock units pursuant
to Management Stock Purchase Plan |
|
|
|
|
|
|
|
|
|
|
2,284 |
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|
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|
|
|
|
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|
|
|
|
2,284 |
|
Assumed
vested stock options from
purchase acquisitions |
|
|
|
|
|
|
|
|
|
|
11,096 |
|
|
|
|
|
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|
|
|
|
|
|
|
|
11,096 |
|
Stock repurchases under stock
repurchase programs |
|
|
(16,345,474 |
) |
|
|
(163 |
) |
|
|
|
|
|
|
(499,835 |
) |
|
|
|
|
|
|
|
|
|
|
(499,998 |
) |
Tax benefit
from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
25,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,032 |
|
Share-based compensation (1) |
|
|
|
|
|
|
|
|
|
|
56,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,235 |
|
|
Balance at January 31, 2008 |
|
|
329,090,874 |
|
|
$ |
3,291 |
|
|
$ |
2,336,069 |
|
|
$ |
(2,574,309 |
) |
|
$ |
9,169 |
|
|
$ |
2,068,302 |
|
|
$ |
1,842,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Treasury |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders |
|
(Dollars in thousands; unaudited) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Income |
|
|
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 under
employee stock plans |
|
|
6,516,411 |
|
|
|
65 |
|
|
|
10,202 |
|
|
|
134,174 |
|
|
|
|
|
|
|
(20,244 |
) |
|
|
124,197 |
|
Restricted stock units released, net of taxes |
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Stock repurchases under stock
repurchase programs |
|
|
(6,660,000 |
) |
|
|
(67 |
) |
|
|
|
|
|
|
(205,306 |
) |
|
|
|
|
|
|
|
|
|
|
(205,373 |
) |
Tax benefit
from employee stock
option transactions |
|
|
|
|
|
|
|
|
|
|
29,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,430 |
|
Share-based compensation (2) |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
(1) |
|
Includes $56,189 for continuing operations and $46 for Intuit Distribution
Management Solutions discontinued operations. |
|
(2) |
|
Includes $37,653 for continuing operations and $518 for Intuit Distribution
Management Solutions discontinued operations. |
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; unaudited) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (1) |
|
$ |
115,247 |
|
|
$ |
145,362 |
|
|
$ |
94,443 |
|
|
$ |
86,432 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
27,900 |
|
|
|
21,061 |
|
|
|
54,122 |
|
|
|
43,336 |
|
Acquisition-related charges |
|
|
8,083 |
|
|
|
2,334 |
|
|
|
16,095 |
|
|
|
5,176 |
|
Amortization of purchased intangible assets |
|
|
13,299 |
|
|
|
2,583 |
|
|
|
26,113 |
|
|
|
4,891 |
|
Amortization of purchased intangible assets to
cost of service and other revenue |
|
|
2,078 |
|
|
|
2,734 |
|
|
|
3,900 |
|
|
|
5,305 |
|
Share-based compensation |
|
|
29,534 |
|
|
|
19,312 |
|
|
|
56,235 |
|
|
|
38,171 |
|
Amortization of premiums and discounts on available-for-sale
debt securities |
|
|
753 |
|
|
|
1,071 |
|
|
|
1,610 |
|
|
|
1,961 |
|
Net gains on marketable equity securities and other investments |
|
|
|
|
|
|
|
|
|
|
(713 |
) |
|
|
(1,221 |
) |
Pre-tax gain on sale of outsourced payroll assets |
|
|
(14,004 |
) |
|
|
|
|
|
|
(37,955 |
) |
|
|
|
|
Pre-tax gain on sale of IDMS (1) |
|
|
|
|
|
|
|
|
|
|
(45,667 |
) |
|
|
|
|
Deferred income taxes |
|
|
7,313 |
|
|
|
(6,552 |
) |
|
|
14,560 |
|
|
|
(9,399 |
) |
Tax benefit from share-based compensation plans |
|
|
13,232 |
|
|
|
12,634 |
|
|
|
25,032 |
|
|
|
29,430 |
|
Excess tax benefit from share-based compensation plans |
|
|
(7,506 |
) |
|
|
(7,967 |
) |
|
|
(15,761 |
) |
|
|
(16,720 |
) |
Other |
|
|
2,555 |
|
|
|
394 |
|
|
|
2,039 |
|
|
|
743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
198,484 |
|
|
|
192,966 |
|
|
|
194,053 |
|
|
|
188,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(226,467 |
) |
|
|
(215,488 |
) |
|
|
(236,938 |
) |
|
|
(212,884 |
) |
Prepaid expenses, taxes and other assets |
|
|
55,779 |
|
|
|
66,985 |
|
|
|
21,093 |
|
|
|
8,727 |
|
Accounts payable |
|
|
(25,623 |
) |
|
|
22,619 |
|
|
|
10,375 |
|
|
|
48,970 |
|
Accrued compensation and related liabilities |
|
|
42,871 |
|
|
|
47,436 |
|
|
|
(49,805 |
) |
|
|
(33,726 |
) |
Deferred revenue |
|
|
39,497 |
|
|
|
19,052 |
|
|
|
23,800 |
|
|
|
2,273 |
|
Income taxes payable |
|
|
11,855 |
|
|
|
18,415 |
|
|
|
(14,338 |
) |
|
|
2,702 |
|
Other liabilities |
|
|
102,511 |
|
|
|
91,152 |
|
|
|
89,304 |
|
|
|
102,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in operating assets and liabilities |
|
|
423 |
|
|
|
50,171 |
|
|
|
(156,509 |
) |
|
|
(81,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities (1) |
|
|
198,907 |
|
|
|
243,137 |
|
|
|
37,544 |
|
|
|
106,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale debt securities |
|
|
(159,201 |
) |
|
|
(479,703 |
) |
|
|
(448,691 |
) |
|
|
(880,578 |
) |
Liquidation of available-for-sale debt securities |
|
|
368,111 |
|
|
|
495,550 |
|
|
|
717,617 |
|
|
|
985,747 |
|
Maturity of available-for-sale debt securities |
|
|
43,335 |
|
|
|
26,784 |
|
|
|
174,335 |
|
|
|
61,614 |
|
Proceeds from the sale of marketable equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
858 |
|
Net change in funds held for payroll customers money
market funds and other cash equivalents |
|
|
(257,934 |
) |
|
|
24,438 |
|
|
|
(218,839 |
) |
|
|
(54,475 |
) |
Purchases of property and equipment |
|
|
(56,644 |
) |
|
|
(23,683 |
) |
|
|
(121,919 |
) |
|
|
(52,906 |
) |
Change in other assets |
|
|
370 |
|
|
|
(2,004 |
) |
|
|
(6,470 |
) |
|
|
(6,682 |
) |
Net change in payroll customer fund deposits |
|
|
257,934 |
|
|
|
(24,438 |
) |
|
|
218,839 |
|
|
|
54,475 |
|
Acquisitions of businesses and intangible assets, net of cash acquired |
|
|
(131,596 |
) |
|
|
(1,991 |
) |
|
|
(134,071 |
) |
|
|
(61,993 |
) |
Cash received from acquirer of outsourced payroll assets |
|
|
7,281 |
|
|
|
|
|
|
|
27,303 |
|
|
|
|
|
Cash received from acquirer of IDMS (1) |
|
|
|
|
|
|
|
|
|
|
97,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities of continuing
operations |
|
|
71,656 |
|
|
|
14,953 |
|
|
|
305,251 |
|
|
|
46,060 |
|
Net cash provided by investing activities of discontinued operations |
|
|
|
|
|
|
20,989 |
|
|
|
|
|
|
|
20,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
71,656 |
|
|
|
35,942 |
|
|
|
305,251 |
|
|
|
67,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock under stock plans |
|
|
64,145 |
|
|
|
41,299 |
|
|
|
115,344 |
|
|
|
124,197 |
|
Purchase of treasury stock |
|
|
(250,000 |
) |
|
|
(205,373 |
) |
|
|
(499,998 |
) |
|
|
(205,373 |
) |
Excess tax benefit from share-based compensation plans |
|
|
7,506 |
|
|
|
7,967 |
|
|
|
15,761 |
|
|
|
16,720 |
|
Issuance of restricted stock units pursuant to
Management Stock Purchase Plan |
|
|
|
|
|
|
|
|
|
|
2,284 |
|
|
|
|
|
Other |
|
|
(4,701 |
) |
|
|
(874 |
) |
|
|
(3,595 |
) |
|
|
(1,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(183,050 |
) |
|
|
(156,981 |
) |
|
|
(370,204 |
) |
|
|
(65,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
|
(3,433 |
) |
|
|
(1,844 |
) |
|
|
2,356 |
|
|
|
(982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
84,080 |
|
|
|
120,254 |
|
|
|
(25,053 |
) |
|
|
106,727 |
|
Cash and cash equivalents at beginning of period |
|
|
146,068 |
|
|
|
166,074 |
|
|
|
255,201 |
|
|
|
179,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
230,148 |
|
|
$ |
286,328 |
|
|
$ |
230,148 |
|
|
$ |
286,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because the operating cash flows of our Intuit Distribution Management
Solutions (IDMS) discontinued operations were not material for any
period presented, we have not segregated them from continuing operations on
these statements of cash flows. We have presented the effect of
the gain on disposal of IDMS on the statement of cash flows for the six
months ended January 31, 2008. See Note 5 to the financial statements. |
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 and financial management solutions for small and medium sized
businesses, financial institutions, consumers, and accounting professionals. Our flagship products
and services, including QuickBooks, Quicken and TurboTax software, simplify small business
management and payroll processing, personal finance, and tax preparation and filing. Lacerte and
ProSeries are Intuits tax preparation software suites for professional accountants. Our financial
institutions division, anchored by Digital Insight Corporation, provides on-demand banking services
to help banks and credit unions serve businesses and consumers. Founded in 1983 and headquartered
in Mountain View, California, we sell our products and services primarily in the United States.
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. In February 2007 we completed the acquisition of Digital Insight
Corporation for a total purchase price of approximately $1.34 billion. Accordingly, we have
included Digital Insights results of operations in our consolidated results of operations from the
date of acquisition. See Note 4. 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 on
our 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 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, 2007. Results for the three and six months ended January
31, 2008 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2008
or any other future period.
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. 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 (RSUs) 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, and RSUs with unrecognized
compensation expense that is 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, and RSUs with unrecognized compensation expense that is greater than the average market
price for our common stock, from the calculation of diluted net income per share because their
effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise
stock options, the amount of compensation expense for future service that we have not yet
recognized for stock options and RSUs, and the amount of tax benefits that will be recorded in
additional paid-in capital when the awards become deductible are assumed to be used to repurchase
shares.
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) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
116,002 |
|
|
$ |
145,580 |
|
|
$ |
68,431 |
|
|
$ |
88,380 |
|
Net income (loss) from discontinued operations |
|
|
(755 |
) |
|
|
(218 |
) |
|
|
26,012 |
|
|
|
(1,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
115,247 |
|
|
$ |
145,362 |
|
|
$ |
94,443 |
|
|
$ |
86,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
331,139 |
|
|
|
347,185 |
|
|
|
334,362 |
|
|
|
346,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
331,139 |
|
|
|
347,185 |
|
|
|
334,362 |
|
|
|
346,700 |
|
Dilutive common equivalent shares from
stock options and restricted stock awards |
|
|
11,612 |
|
|
|
13,388 |
|
|
|
11,652 |
|
|
|
13,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
outstanding |
|
|
342,751 |
|
|
|
360,573 |
|
|
|
346,014 |
|
|
|
360,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
from continuing operations |
|
$ |
0.35 |
|
|
$ |
0.42 |
|
|
$ |
0.20 |
|
|
$ |
0.26 |
|
Basic net income (loss) per share
from discontinued operations |
|
|
|
|
|
|
|
|
|
|
0.08 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.35 |
|
|
$ |
0.42 |
|
|
$ |
0.28 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share from
continuing operations |
|
$ |
0.34 |
|
|
$ |
0.40 |
|
|
$ |
0.20 |
|
|
$ |
0.25 |
|
Diluted net income (loss) per share from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
0.07 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.34 |
|
|
$ |
0.40 |
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average stock options and
restricted stock awards excluded from
calculation due to anti-dilutive effect: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options with combined exercise prices
and unrecognized compensation expense that
were greater than the average market price for
the common stock during the period |
|
|
17,556 |
|
|
|
9,805 |
|
|
|
17,852 |
|
|
|
9,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Significant Customers
No customer accounted for 10% or more of total net revenue in the three or six months ended January
31, 2008 or 2007. Due to the seasonality of our business, at January 31, 2008 the account of one
retail customer represented approximately 18% of total accounts receivable and the account of
another retail customer represented approximately 14% of total accounts receivable. No customer
accounted for 10% or more of total accounts receivable at July 31, 2007.
Recent Accounting Pronouncements
SFAS 157, Fair Value Measurements
In September 2006 the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 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 fiscal years beginning after November 15, 2007,
which means that it will be effective for our fiscal year beginning August 1, 2008. In February
2008 the FASB issued a Staff Position that partially defers the effective date of SFAS 157 for one
year for non-financial assets and liabilities, except for items that are recognized or disclosed at
fair value in an entitys financial statements on a recurring basis (at least annually). 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 for fiscal
years beginning after November 15, 2007, which means that it will be effective for our fiscal year
beginning August 1, 2008. 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.
SFAS 141 (revised 2007), Business Combinations
In December 2007 the FASB issued SFAS 141 (revised 2007), Business Combinations. SFAS 141R will
significantly change the accounting for business combinations in a number of areas, including the
measurement of assets and liabilities acquired and the treatment of contingent consideration,
contingencies, acquisition costs, in-process research and development and restructuring costs. In
addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income
tax uncertainties in a business combination after the measurement period will affect the income tax
provision. SFAS 141R is effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning after December 15, 2008, which
means that it will be effective for our fiscal year beginning August 1, 2009. Early adoption is
prohibited. We are in the process of evaluating this standard and therefore have not yet determined
the impact that the adoption of SFAS 141R will have on our financial position, results of
operations or cash flows.
SFAS 160, Noncontrolling Interests in Consolidated Financial Statements
In December 2007 the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements, which establishes accounting and reporting standards for the noncontrolling (minority)
interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for
business arrangements entered into in fiscal years beginning on or after December 15, 2008, which
means that it will be effective for our fiscal year beginning August 1, 2009. Early adoption is
prohibited. We are in the process of evaluating this standard and therefore have not yet
9
determined the impact that the adoption of SFAS 160 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 AAA-rated 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 and
AAA-rated money market funds. 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, 2008 |
|
|
July 31, 2007 |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Classification on balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
230,148 |
|
|
$ |
230,148 |
|
|
$ |
255,201 |
|
|
$ |
255,201 |
|
Investments |
|
|
603,774 |
|
|
|
607,029 |
|
|
|
1,048,643 |
|
|
|
1,048,470 |
|
Funds held for payroll customers |
|
|
533,180 |
|
|
|
533,180 |
|
|
|
314,341 |
|
|
|
314,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, investments
and funds held for payroll customers |
|
$ |
1,367,102 |
|
|
$ |
1,370,357 |
|
|
$ |
1,618,185 |
|
|
$ |
1,618,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008 |
|
|
July 31, 2007 |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Type of issue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
763,328 |
|
|
$ |
763,328 |
|
|
$ |
569,542 |
|
|
$ |
569,542 |
|
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
603,774 |
|
|
|
607,029 |
|
|
|
1,043,793 |
|
|
|
1,043,620 |
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
4,850 |
|
|
|
4,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
|
603,774 |
|
|
|
607,029 |
|
|
|
1,048,643 |
|
|
|
1,048,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, investments
and funds held for payroll customers |
|
$ |
1,367,102 |
|
|
$ |
1,370,357 |
|
|
$ |
1,618,185 |
|
|
$ |
1,618,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in
accumulated other comprehensive income in the stockholders equity section of our balance sheets.
Gross unrealized gains and losses on our available-for-sale debt securities at January 31, 2008 and
July 31, 2007 were not significant. We held no available-for-sale debt securities that were in an
unrealized loss position at January 31, 2008.
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 for the three and six months ended January 31, 2008 and 2007
were not significant.
At January 31, 2008, we held approximately $328 million in AAA rated municipal auction rate
securities that were valued at reported market prices and classified as current assets. Auction
rate securities are collateralized long-term debt instruments that provide liquidity through a
Dutch auction process that resets the applicable interest rate at pre-determined intervals,
typically every 35 days. Beginning in February 2008, auctions failed for approximately $140 million
in par value of municipal auction rate securities we held because sell orders exceeded buy orders.
When these auctions failed to clear, higher interest rates for those securities went into effect.
However, the funds associated with these failed auctions will not be accessible until the issuer
calls the security, a successful auction occurs, a buyer is found outside of the auction process,
or the security matures. The underlying assets of the municipal auction rate securities we hold,
including the securities for which auctions have failed, are generally
10
student loans which are guaranteed by the U.S. government. We do not believe the carrying values of
these municipal auction rate securities are impaired. In addition, we believe that we will be able
to liquidate these investments without significant loss within the next 12 months. We are
continuing to monitor the credit markets and may reclassify some or all of these securities from
current assets to long-term assets in the future.
The following table summarizes our available-for-sale debt securities classified by the stated
maturity date of the security.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008 |
|
|
July 31, 2007 |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
$ |
87,428 |
|
|
$ |
87,987 |
|
|
$ |
159,564 |
|
|
$ |
159,488 |
|
Due within two years |
|
|
109,836 |
|
|
|
111,582 |
|
|
|
25,856 |
|
|
|
25,808 |
|
Due within three years |
|
|
|
|
|
|
|
|
|
|
14,700 |
|
|
|
14,700 |
|
Due after three years |
|
|
406,510 |
|
|
|
407,460 |
|
|
|
848,523 |
|
|
|
848,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
$ |
603,774 |
|
|
$ |
607,029 |
|
|
$ |
1,048,643 |
|
|
$ |
1,048,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 79% of our available-for-sale debt securities at January 31, 2008 had an interest
reset date, put date or mandatory call date within one year.
3. Comprehensive Net Income
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 debt 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.
11
The components of accumulated other comprehensive income, net of income taxes, were as follows for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Realized |
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
Gain on |
|
|
Foreign |
|
|
|
|
|
|
on |
|
|
Derivative |
|
|
Currency |
|
|
|
|
(In thousands) |
|
Investments |
|
|
Instruments |
|
|
Translation |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007 |
|
$ |
(105 |
) |
|
$ |
433 |
|
|
$ |
5,768 |
|
|
$ |
6,096 |
|
Unrealized gain, net of income tax
provision of $1,363 |
|
|
2,067 |
|
|
|
|
|
|
|
|
|
|
|
2,067 |
|
Reclassification adjustment for realized
gain included in net income, net of
income tax benefit of $1 |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Amortization of realized gain on derivative
instruments, net of income tax provision
of $14 |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
(21 |
) |
Translation adjustment, net of income
taxes allocated of $679 |
|
|
|
|
|
|
|
|
|
|
1,028 |
|
|
|
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
2,066 |
|
|
|
(21 |
) |
|
|
1,028 |
|
|
|
3,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2008 |
|
$ |
1,961 |
|
|
$ |
412 |
|
|
$ |
6,796 |
|
|
$ |
9,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
Gain on |
|
|
Foreign |
|
|
|
|
|
|
on |
|
|
Derivative |
|
|
Currency |
|
|
|
|
(In thousands) |
|
Investments |
|
|
Instruments |
|
|
Translation |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2006 |
|
$ |
(462 |
) |
|
$ |
|
|
|
$ |
1,546 |
|
|
$ |
1,084 |
|
Unrealized gain, net of income tax
provision of $148 |
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
225 |
|
Reclassification adjustment for realized
gain included in net income, net of income
tax benefit |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Unrealized gain on derivative instruments,
net of income tax provision of $8,805 |
|
|
|
|
|
|
13,459 |
|
|
|
|
|
|
|
13,459 |
|
Translation adjustment, net of income
taxes allocated of $641 |
|
|
|
|
|
|
|
|
|
|
(977 |
) |
|
|
(977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
224 |
|
|
|
13,459 |
|
|
|
(977 |
) |
|
|
12,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2007 |
|
$ |
(238 |
) |
|
$ |
13,459 |
|
|
$ |
569 |
|
|
$ |
13,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income was as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
115,247 |
|
|
$ |
145,362 |
|
|
$ |
94,443 |
|
|
$ |
86,432 |
|
Other comprehensive income |
|
|
458 |
|
|
|
11,991 |
|
|
|
3,073 |
|
|
|
12,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income, net of income taxes |
|
$ |
115,705 |
|
|
$ |
157,353 |
|
|
$ |
97,516 |
|
|
$ |
99,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision netted against
other comprehensive income |
|
$ |
302 |
|
|
$ |
9,381 |
|
|
$ |
2,027 |
|
|
$ |
9,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
4. Acquisitions
Electronic Clearing House, Inc.
On December 19, 2007 we entered into a definitive agreement to acquire Electronic Clearing House,
Inc. (ECHO). Under the terms of the agreement, Intuit will pay $17.00 per share in cash for each
share of ECHO common stock, including shares issuable upon exercise of options, for total
consideration of approximately $131 million on a fully diluted basis. ECHO is a provider of
electronic payment processing 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 2008.
Homestead Technologies Inc.
On December 18, 2007 we acquired all of the outstanding shares of Homestead Technologies Inc.
(Homestead) for total consideration of approximately $170 million on a fully diluted basis. The
total consideration was comprised of the purchase price of $146 million, which included the fair
value of vested stock options assumed, and the $24 million fair value of unvested stock options and
restricted stock units assumed. Homestead is a provider of Web site services to small businesses.
We acquired Homestead as part of our strategy to help small businesses acquire and serve customers
through the Internet. Homestead became part of our QuickBooks segment.
Under the purchase method of accounting we allocated the total purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. We estimated the fair values with the assistance of a third
party appraisal firm. The fair values assigned to identifiable intangible assets acquired were
based on estimates and assumptions determined by management. We recorded the excess of purchase
price over the aggregate fair values as goodwill. We allocated the purchase price using the
information currently available. We may adjust the preliminary purchase price allocation after
obtaining more information about asset valuations and liabilities assumed. We allocated
approximately $14 million of the purchase price to tangible assets and liabilities and
approximately $22 million of the purchase price to identified intangible assets. We recorded the
excess purchase price of approximately $110 million as goodwill, none of which is deductible for
income tax purposes. The identified intangible assets are being amortized over a weighted average
life of five years.
We have included Homesteads results of operations in our consolidated results of operations from
the date of acquisition. Homesteads results of operations for periods prior to the date of
acquisition were not material when compared with our consolidated results of operations.
Digital Insight Corporation
We completed the acquisition of Digital Insight Corporation for a purchase price of approximately
$1.34 billion on February 6, 2007. We have included Digital Insights results of operations in our
consolidated results of operations from the date of acquisition. The unaudited financial
information in the table below summarizes the combined results of operations of Intuit and Digital
Insight on a pro forma basis, as though the companies had been combined as of the beginning of the
periods presented. The pro forma financial information is presented for informational purposes only
and is not indicative of the results of operations that would have been achieved if the acquisition
and the issuance of $1 billion of related senior notes had taken place at the beginning of the
periods presented. The pro forma financial information also includes adjustments to share-based
compensation expense for stock options assumed, adjustments to depreciation expense for acquired
property and equipment, amortization charges for acquired intangible assets, adjustments to
interest income, and related tax effects. The pro forma financial information for the three and six
months ended January 31, 2007 combines our historical results for those periods with the historical
results of Digital Insight for the three and six months ended December 31, 2006.
13
The following table summarizes the pro forma financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, 2007 |
|
|
January 31, 2007 |
|
(In thousands) |
|
As Reported |
|
|
Pro Forma |
|
|
As Reported |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
750,637 |
|
|
$ |
814,249 |
|
|
$ |
1,101,130 |
|
|
$ |
1,226,286 |
|
Net income from continuing operations |
|
|
145,580 |
|
|
|
130,160 |
|
|
|
88,380 |
|
|
|
59,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.42 |
|
|
$ |
0.37 |
|
|
$ |
0.26 |
|
|
$ |
0.17 |
|
Diluted |
|
$ |
0.40 |
|
|
$ |
0.36 |
|
|
$ |
0.25 |
|
|
$ |
0.16 |
|
5. Dispositions and Discontinued Operations
Intuit Distribution Management Solutions Discontinued Operations
In August 2007 we sold our Intuit Distribution Management Solutions (IDMS) business for
approximately $100 million in cash and recorded a net gain on disposal of $27.5 million. The
decision to sell IDMS was a result of managements desire to focus resources on Intuits core
products and services. IDMS was part of our Other Businesses segment.
In accordance with the provisions of SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, we determined that IDMS became a discontinued operation in the fourth quarter
of fiscal 2007. We have therefore segregated the net assets and operating results of IDMS from
continuing operations on our balance sheets and in our statements of operations for all periods
prior to the sale. Assets held for sale at July 31, 2007 consisted primarily of goodwill and
purchased intangible assets. Because IDMS operating cash flows were not material for any period
presented, we have not segregated them from continuing operations on our statements of cash flows.
We have presented the effect of the gain on disposal of IDMS on our statement of cash flows for the
six months ended January 31, 2008.
Revenue and net loss from IDMS discontinued operations were $1.9 million and $0.7 million for the
six months ended January 31, 2008. Revenue and net loss from IDMS discontinued operations were
$12.7 million and $0.2 million for the three months ended January 31, 2007 and $24.2 million and
$1.9 million for the six months then ended.
Sale of Outsourced Payroll Assets
In March 2007 we sold certain assets related to our Complete Payroll and Premier Payroll Service
businesses to Automatic Data Processing, Inc. (ADP) for a price of up to approximately $135 million
in cash. The final purchase price is contingent upon the number of customers that transition to
ADP. Due to customer attrition during the fourth quarter of fiscal 2007 and the first two quarters
of fiscal 2008, we currently estimate the maximum sales price to be approximately $111 million and
the maximum pre-tax net gain to be approximately $102 million. The assets were part of our Payroll
and Payments segment.
In accordance with the provisions of 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 our outsourced payroll business. We will
recognize the net gain on the sale of the assets as customers are transitioned pursuant to the
agreement over a period not to exceed one year from the date of the sale. In the three and six
months ended January 31, 2008 we recorded pre-tax net gains of $14.0 million and $38.0 million in
our statement of operations for customers who transitioned to ADP during those periods. The total
pre-tax net gain recognized from the inception of this transaction through January 31, 2008 was
$69.6 million. We held deposits received from ADP of $11.8 million and $30.3 million in other
current liabilities on our balance sheet at January 31, 2008 and July 31, 2007. Assets held for
sale at January 31, 2008 and July 31, 2007 consisted of $2.3 million and $5.1 million in customer
lists and were included in purchased intangible assets on our balance sheets.
14
6. 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 six 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.
Financial Institutions service and other revenue is derived primarily from online banking software
that is hosted in our data centers and delivered as on-demand service offerings to banks and credit
unions by our Digital Insight business.
Other Businesses consist primarily of Quicken, Intuit Real Estate Solutions (IRES), and our
business in 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. Service and other revenue in our IRES business consists primarily of revenue
from property management software solutions. In Canada, product revenue is derived primarily from
localized versions of QuickBooks and Quicken as well as consumer desktop tax return preparation
software and professional tax preparation products. Service and other revenue in Canada consists
primarily of revenue from payroll services and QuickBooks support plans.
Our QuickBooks, Payroll and Payments, Consumer Tax, Professional Tax and Financial Institutions
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 5% or less of consolidated total
net revenue for all periods presented.
We include costs such as corporate selling and marketing, product development, and 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 expense, 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, 2007. 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.
15
The following tables show our financial results by reportable segment for the three and six months
ended January 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Financial |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Institutions |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Three Months Ended
January 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
144,118 |
|
|
$ |
53,870 |
|
|
$ |
181,134 |
|
|
$ |
103,199 |
|
|
$ |
178 |
|
|
$ |
58,291 |
|
|
$ |
|
|
|
$ |
540,790 |
|
Service and other
revenue |
|
|
31,301 |
|
|
|
84,085 |
|
|
|
67,150 |
|
|
|
2,211 |
|
|
|
72,129 |
|
|
|
37,208 |
|
|
|
|
|
|
|
294,084 |
|
|
|
|
Total net revenue |
|
|
175,419 |
|
|
|
137,955 |
|
|
|
248,284 |
|
|
|
105,410 |
|
|
|
72,307 |
|
|
|
95,499 |
|
|
|
|
|
|
|
834,874 |
|
|
|
|
Segment
operating
income |
|
|
55,718 |
|
|
|
56,756 |
|
|
|
116,498 |
|
|
|
61,416 |
|
|
|
12,609 |
|
|
|
31,475 |
|
|
|
|
|
|
|
334,472 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,460 |
) |
|
|
(139,460 |
) |
|
|
|
Subtotal |
|
|
55,718 |
|
|
|
56,756 |
|
|
|
116,498 |
|
|
|
61,416 |
|
|
|
12,609 |
|
|
|
31,475 |
|
|
|
(139,460 |
) |
|
|
195,012 |
|
Amortization of
purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,299 |
) |
|
|
(13,299 |
) |
Acquisition-related
charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,083 |
) |
|
|
(8,083 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,510 |
) |
|
|
(13,510 |
) |
Interest and other
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,925 |
|
|
|
4,925 |
|
Gain on sale of
outsourced
payroll assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,004 |
|
|
|
14,004 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
55,718 |
|
|
$ |
56,756 |
|
|
$ |
116,498 |
|
|
$ |
61,416 |
|
|
$ |
12,609 |
|
|
$ |
31,475 |
|
|
$ |
(155,423 |
) |
|
$ |
179,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Financial |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Institutions |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Three Months Ended
January 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
144,993 |
|
|
$ |
51,274 |
|
|
$ |
167,601 |
|
|
$ |
125,585 |
|
|
$ |
22 |
|
|
$ |
56,589 |
|
|
$ |
|
|
|
$ |
546,064 |
|
Service and other
revenue |
|
|
21,472 |
|
|
|
86,896 |
|
|
|
55,804 |
|
|
|
5,130 |
|
|
|
6,338 |
|
|
|
28,933 |
|
|
|
|
|
|
|
204,573 |
|
|
|
|
Total net revenue |
|
|
166,465 |
|
|
|
138,170 |
|
|
|
223,405 |
|
|
|
130,715 |
|
|
|
6,360 |
|
|
|
85,522 |
|
|
|
|
|
|
|
750,637 |
|
|
|
|
Segment
operating income |
|
|
52,719 |
|
|
|
60,252 |
|
|
|
112,733 |
|
|
|
80,471 |
|
|
|
2,046 |
|
|
|
31,409 |
|
|
|
|
|
|
|
339,630 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121,240 |
) |
|
|
(121,240 |
) |
|
|
|
Subtotal |
|
|
52,719 |
|
|
|
60,252 |
|
|
|
112,733 |
|
|
|
80,471 |
|
|
|
2,046 |
|
|
|
31,409 |
|
|
|
(121,240 |
) |
|
|
218,390 |
|
Amortization of
purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,304 |
) |
|
|
(2,304 |
) |
Acquisition-related
charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,369 |
) |
|
|
(1,369 |
) |
Interest and other
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,027 |
|
|
|
11,027 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
52,719 |
|
|
$ |
60,252 |
|
|
$ |
112,733 |
|
|
$ |
80,471 |
|
|
$ |
2,046 |
|
|
$ |
31,409 |
|
|
$ |
(113,886 |
) |
|
$ |
225,744 |
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Financial |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Institutions |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Six Months Ended
January 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
264,812 |
|
|
$ |
107,404 |
|
|
$ |
183,972 |
|
|
$ |
112,534 |
|
|
$ |
264 |
|
|
$ |
90,424 |
|
|
$ |
|
|
|
$ |
759,410 |
|
Service and other
revenue |
|
|
57,534 |
|
|
|
161,887 |
|
|
|
77,629 |
|
|
|
3,858 |
|
|
|
144,209 |
|
|
|
75,285 |
|
|
|
|
|
|
|
520,402 |
|
|
|
|
Total net revenue |
|
|
322,346 |
|
|
|
269,291 |
|
|
|
261,601 |
|
|
|
116,392 |
|
|
|
144,473 |
|
|
|
165,709 |
|
|
|
|
|
|
|
1,279,812 |
|
|
|
|
Segment operating
income |
|
|
92,380 |
|
|
|
113,864 |
|
|
|
82,797 |
|
|
|
40,357 |
|
|
|
25,020 |
|
|
|
42,431 |
|
|
|
|
|
|
|
396,849 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,210 |
) |
|
|
(284,210 |
) |
|
|
|
Subtotal |
|
|
92,380 |
|
|
|
113,864 |
|
|
|
82,797 |
|
|
|
40,357 |
|
|
|
25,020 |
|
|
|
42,431 |
|
|
|
(284,210 |
) |
|
|
112,639 |
|
Amortization of
purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,113 |
) |
|
|
(26,113 |
) |
Acquisition-related
charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,095 |
) |
|
|
(16,095 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,559 |
) |
|
|
(27,559 |
) |
Interest and other
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,116 |
|
|
|
22,116 |
|
Gain on marketable
equity
securities and other
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
713 |
|
|
|
713 |
|
Gain on sale of
outsourced
payroll assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,955 |
|
|
|
37,955 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
92,380 |
|
|
$ |
113,864 |
|
|
$ |
82,797 |
|
|
$ |
40,357 |
|
|
$ |
25,020 |
|
|
$ |
42,431 |
|
|
$ |
(293,193 |
) |
|
$ |
103,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Consumer |
|
|
Professional |
|
|
Financial |
|
|
Other |
|
|
|
|
|
|
|
(In thousands) |
|
QuickBooks |
|
|
Payments |
|
|
Tax |
|
|
Tax |
|
|
Institutions |
|
|
Businesses |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
Six Months Ended
January 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
261,176 |
|
|
$ |
102,217 |
|
|
$ |
169,135 |
|
|
$ |
134,010 |
|
|
$ |
46 |
|
|
$ |
89,596 |
|
|
$ |
|
|
|
$ |
756,180 |
|
Service and other
revenue |
|
|
40,532 |
|
|
|
161,471 |
|
|
|
65,515 |
|
|
|
6,387 |
|
|
|
11,832 |
|
|
|
59,213 |
|
|
|
|
|
|
|
344,950 |
|
|
|
|
Total net revenue |
|
|
301,708 |
|
|
|
263,688 |
|
|
|
234,650 |
|
|
|
140,397 |
|
|
|
11,878 |
|
|
|
148,809 |
|
|
|
|
|
|
|
1,101,130 |
|
|
|
|
Segment operating
income |
|
|
81,064 |
|
|
|
107,949 |
|
|
|
78,847 |
|
|
|
58,522 |
|
|
|
3,351 |
|
|
|
43,378 |
|
|
|
|
|
|
|
373,111 |
|
Common expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249,333 |
) |
|
|
(249,333 |
) |
|
|
|
Subtotal |
|
|
81,064 |
|
|
|
107,949 |
|
|
|
78,847 |
|
|
|
58,522 |
|
|
|
3,351 |
|
|
|
43,378 |
|
|
|
(249,333 |
) |
|
|
123,778 |
|
Amortization of
purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,333 |
) |
|
|
(4,333 |
) |
Acquisition-related
charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,247 |
) |
|
|
(3,247 |
) |
Interest and other
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,315 |
|
|
|
21,315 |
|
Gain on marketable
equity
securities and other
investments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
|
|
1,221 |
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
$ |
81,064 |
|
|
$ |
107,949 |
|
|
$ |
78,847 |
|
|
$ |
58,522 |
|
|
$ |
3,351 |
|
|
$ |
43,378 |
|
|
$ |
(234,377 |
) |
|
$ |
138,734 |
|
|
|
|
7. Current Liabilities
Unsecured Revolving Credit Facility
On March 22, 2007 we entered into an agreement with certain institutional lenders for a $500
million unsecured revolving credit facility that will expire on March 22, 2012. Advances under the
credit facility will accrue interest at rates that are equal to, at our election, either Citibanks
base rate or the London InterBank Offered Rate (LIBOR) plus a margin that ranges from 0.18% to
0.575% based on our senior debt credit ratings. The applicable interest rate will be increased by
0.05% for any period in which the total principal amount of advances and letters of credit under
the credit facility exceeds $250 million. The agreement includes covenants that require us to
maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and
amortization (EBITDA) of not greater than 3.25 to 1.00 and a ratio of annual EBITDA to interest
payable of not less than 3.00 to 1.00. We were in compliance with these covenants at January 31,
2008. We may use amounts borrowed under this credit facility for general corporate purposes or for
future acquisitions or expansion of our business. To date we have not borrowed under this credit
facility.
17
Other Current Liabilities
Other current liabilities were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Reserve for product returns |
|
$ |
73,580 |
|
|
$ |
25,833 |
|
Reserve for rebates |
|
|
41,203 |
|
|
|
18,918 |
|
Interest payable |
|
|
20,597 |
|
|
|
21,061 |
|
Deposit received from acquirer of outsourced payroll assets |
|
|
11,836 |
|
|
|
30,257 |
|
Executive deferred compensation plan |
|
|
44,249 |
|
|
|
35,898 |
|
Other |
|
|
53,796 |
|
|
|
39,683 |
|
|
|
|
|
|
|
|
Total other current liabilities |
|
$ |
245,261 |
|
|
$ |
171,650 |
|
|
|
|
|
|
|
|
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.
8. Long-Term Obligations
Senior Unsecured Notes
In connection with our acquisition of Digital Insight Corporation, on March 12, 2007 we issued $500
million of 5.40% senior unsecured notes due on March 15, 2012 and $500 million of 5.75% senior
unsecured notes due on March 15, 2017 (together, the Notes), for a total principal amount of $1
billion. The Notes are redeemable by Intuit at any time, subject to a make-whole premium. We paid
$28.4 million in cash for interest on the Notes during the six months ended January 31, 2008. Based
on the trading prices of the Notes at January 31, 2008 and July 31, 2007 and the interest rates we
could obtain for other borrowings with similar terms at those dates, the estimated fair value of
the Notes at those dates was approximately $1.0 billion and $963.0 million.
The following table summarizes our senior unsecured notes at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Senior notes: |
|
|
|
|
|
|
|
|
5.40% fixed-rate notes, due 2012 |
|
$ |
500,000 |
|
|
$ |
500,000 |
|
5.75% fixed-rate notes, due 2017 |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
Total senior notes |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
Unamortized discount |
|
|
(2,094 |
) |
|
|
(2,181 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
997,906 |
|
|
$ |
997,819 |
|
|
|
|
|
|
|
|
18
Other Long-Term Obligations
Other long-term obligations were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
(Dollars in thousands) |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Capital lease obligations: Monthly installments through
2011; interest rates of 4.50% to 6.75% |
|
$ |
1,952 |
|
|
$ |
2,377 |
|
Deferred rent |
|
|
56,339 |
|
|
|
49,205 |
|
Long term deferred revenue |
|
|
12,211 |
|
|
|
8,715 |
|
Long term income tax liabilities |
|
|
33,316 |
|
|
|
|
|
Other |
|
|
5,637 |
|
|
|
4,843 |
|
|
|
|
|
|
|
|
Total long-term obligations |
|
|
109,455 |
|
|
|
65,140 |
|
Less current portion (included in other current liabilities) |
|
|
(8,928 |
) |
|
|
(7,384 |
) |
|
|
|
|
|
|
|
Long-term obligations due after one year |
|
$ |
100,527 |
|
|
$ |
57,756 |
|
|
|
|
|
|
|
|
We reclassified certain income tax liabilities to long-term obligations as a result of our adoption
of FIN 48 on August 1, 2007. See Note 9.
Innovative Merchant Solutions Loan and Buyout Commitments
In April 2005 our wholly owned subsidiary, Innovative Merchant Solutions (IMS), became a member of
Superior Bankcard Services, LLC (SBS), a newly formed entity that acquires merchant accounts for
IMS. Our consolidated financial statements include the financial position, results of operations
and cash flows of SBS, after elimination of all significant intercompany balances and transactions,
including amounts outstanding under the credit agreement described below. See Note 1. In connection
with the formation of this entity IMS agreed to provide to SBS revolving loans in an amount of up
to $40.0 million under the terms of a credit agreement. The credit agreement expires in July 2013,
although certain events, such as a sale of SBS, can trigger earlier termination. Amounts
outstanding under this agreement at January 31, 2008 totaled $10.0 million at interest rates of
8.5% to 9.25%. Amounts outstanding under this agreement at July 31, 2007 totaled $11.2 million at
an interest rate of 9.25%. There are no scheduled repayments on the outstanding loan balance. All
unpaid principal amounts and the related accrued interest are due and payable in full at the loan
expiration date.
The operating agreement of SBS requires that, no later than July 2009, either IMS agree to purchase
the minority members interests in SBS at a price to be set by negotiation or arbitration, or IMS
and the minority members pursue a sale of their interests in SBS to a third party.
9. Income Taxes
Effective Tax Rate
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, 2008 was approximately 35% and did not
differ significantly from the federal statutory rate. State income taxes were offset primarily by
the benefit we received from tax exempt interest income, the domestic production activities
deduction, and federal and state research and experimental credits. 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 primarily 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 the
fiscal 2007 period.
Our effective tax rate for the six months ended January 31, 2008 was approximately 33%. This
differed from the federal statutory rate of 35% primarily due to the benefit we received from tax
exempt interest income, the domestic production activities deduction, federal and state research
and experimental credits, and a one-time benefit related to executive stock compensation, partially
offset by state income taxes. Our effective tax rate for the six months ended
19
January 31, 2007 was approximately 36%. This differed from the federal statutory rate of 35%
primarily 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 the
fiscal 2007 period.
Adoption of FASB Interpretation No. 48
On August 1, 2007 we adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109. FIN 48 prescribes a
threshold for the financial statement recognition and measurement of a tax position taken or
expected to be taken in an income tax return. FIN 48 requires that we determine whether the
benefits of tax positions are more likely than not of being sustained upon audit based on the
technical merits of the tax position. For tax positions that are more likely than not of being
sustained upon audit, we recognize the largest amount of the benefit that is more likely than not
of being sustained in the financial statements. For tax positions that are not more likely than not
of being sustained upon audit, we do not recognize any portion of the benefit in the financial
statements.
As a result of the adoption of FIN 48, there was no cumulative effect of the change on our retained
earnings. We increased deferred tax assets and income taxes payable by $8.4 million and
reclassified $30.2 million of income taxes payable from current liabilities to long-term
liabilities as a result of the adoption of FIN 48.
The total amount of our unrecognized tax benefits at August 1, 2007 was $33.3 million. Net of
related deferred tax assets, unrecognized tax benefits were $25.1 million at that date. If we were
to recognize these net benefits, our income tax expense would reflect a favorable net impact of
$11.2 million. The recognition of the balance of these net benefits would result in an increase to
stockholders equity of $6.8 million and a decrease to goodwill of $7.1 million. There were no
material changes to these amounts during the three and six months ended January 31, 2008. We do not
believe that it is reasonably possible that there will be a significant increase or decrease in
unrecognized tax benefits over the next 12 months.
We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S.
federal and the state of California. For U.S. federal tax returns we are generally no longer
subject to tax examinations for years prior to fiscal 2005. For California tax returns we are
generally no longer subject to tax examinations for years prior to fiscal 2003.
We recognize interest and penalties related to unrecognized tax benefits within the provision for
income taxes. As of the date of our adoption of FIN 48, we had accrued $3.6 million for the payment
of interest and had no accruals for the payment of penalties. The amount of interest and penalties
recognized during the three and six months ended January 31, 2008 was not material.
10. Stockholders Equity
Stock Repurchase Programs
Intuits Board of Directors has authorized a series of common stock repurchase programs. Shares of
common stock repurchased under these programs become treasury shares. We repurchased 8.2 million
and 16.3 million shares for $250 million and $500 million under these programs during the three and
six months ended January 31, 2008. We repurchased 6.7 million shares for $205.4 million under these
programs during the three and six months ended January 31, 2007. At January 31, 2008, we had
authorization from our Board to expend $300 million for future stock repurchases.
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.
20
Share-Based Compensation Expense
The following table summarizes the total share-based compensation expense that we recorded for
continuing operations for the periods shown. The share-based compensation expense that we recorded
for discontinued operations for these periods was nominal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In thousands, except per share amounts) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
$ |
283 |
|
|
$ |
262 |
|
|
$ |
559 |
|
|
$ |
480 |
|
Cost of service and other revenue |
|
|
1,953 |
|
|
|
546 |
|
|
|
3,411 |
|
|
|
1,073 |
|
Selling and marketing |
|
|
9,728 |
|
|
|
5,690 |
|
|
|
17,426 |
|
|
|
11,384 |
|
Research and development |
|
|
8,118 |
|
|
|
5,465 |
|
|
|
15,999 |
|
|
|
10,675 |
|
General and administrative |
|
|
9,452 |
|
|
|
7,071 |
|
|
|
18,794 |
|
|
|
14,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in operating income from
continuing operations and income from
continuing operations before income taxes |
|
|
29,534 |
|
|
|
19,034 |
|
|
|
56,189 |
|
|
|
37,653 |
|
Income tax benefit |
|
|
(11,056 |
) |
|
|
(6,740 |
) |
|
|
(21,191 |
) |
|
|
(13,445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net income from continuing
operations |
|
$ |
18,478 |
|
|
$ |
12,294 |
|
|
$ |
34,998 |
|
|
$ |
24,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net income per share from
continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2008, there was $211.3 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.
21
Stock Option Activity
A summary of activity under all share-based compensation plans for the six months ended January 31,
2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Shares |
|
|
|
|
|
Exercise |
|
|
Available |
|
Number |
|
Price |
|
|
for Grant |
|
of Shares |
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007 |
|
|
6,410,464 |
|
|
|
54,489,650 |
|
|
$ |
24.05 |
|
Additional shares authorized |
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
Options assumed and converted
related to acquisitions |
|
|
|
|
|
|
647,992 |
|
|
|
2.00 |
|
Options granted |
|
|
(917,840 |
) |
|
|
917,840 |
|
|
|
29.44 |
|
Restricted stock units granted |
|
|
(2,531,413 |
) |
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
(5,483,557 |
) |
|
|
19.82 |
|
Options and shares canceled or expired
and returned to option pool, net of
options canceled from expired plans |
|
|
1,089,552 |
|
|
|
(1,189,820 |
) |
|
|
28.95 |
|
Restricted stock units canceled and
returned to option pool, net of
restricted stock units canceled
from expired plans |
|
|
253,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2008 |
|
|
14,304,734 |
|
|
|
49,382,105 |
|
|
$ |
24.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2008, 35,321,942 options were exercisable at a weighted average exercise price of
$22.42 per share.
Restricted Stock Unit Activity
A summary of restricted stock unit activity for the six months ended January 31, 2008 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Fair |
Restricted Stock Units |
|
Shares |
|
Value |
|
|
|
|
|
|
|
|
|
Nonvested at July 31, 2007 |
|
|
2,504,686 |
|
|
$ |
29.88 |
|
Granted |
|
|
2,531,413 |
|
|
|
28.17 |
|
Restricted stock units asssumed
and converted related to acquisitions |
|
|
561,887 |
|
|
|
29.78 |
|
Vested |
|
|
(238,588 |
) |
|
|
26.94 |
|
Forfeited |
|
|
(254,005 |
) |
|
|
29.96 |
|
|
|
|
|
|
|
|
|
|
Nonvested at January 31, 2008 |
|
|
5,105,393 |
|
|
$ |
29.15 |
|
|
|
|
|
|
|
|
|
|
22
11. Litigation
Intuit is subject to certain routine legal proceedings, as well as demands, claims and threatened
litigation, that arise in the normal course of our business, including assertions that we may be
infringing patents or other intellectual property rights of others. We currently believe that the
ultimate amount of liability, if any, for any pending claims of any type (either alone or combined)
will not materially affect our financial position, results of operations or cash flows. The
ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an
adverse impact on Intuit because of defense costs, negative publicity, diversion of management
resources and other factors. Our failure to obtain necessary license or other rights, or litigation
arising out of intellectual property claims, could adversely affect our business.
23
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 includes a more detailed discussion of our revenue and
expenses. |
|
|
|
|
Liquidity and Capital Resources which discusses key aspects of our statements of cash
flows, changes in our balance sheets and our financial commitments. |
You should note that this MD&A discussion contains forward-looking statements that involve risks
and uncertainties. Please see 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, 2007. In February 2007 we
completed the acquisition of Digital Insight Corporation for a total purchase price of
approximately $1.34 billion. Accordingly, we have included Digital Insights results of operations
in our consolidated results of operations from the date of acquisition. We also sold our Intuit
Distribution Management Solutions business in August 2007 for approximately $100 million in cash
and recorded a net gain on disposal of $27.5 million. We accounted for this business as
discontinued operations and have accordingly reclassified our statements of operations and balance
sheets for all periods prior to the sale. Unless noted otherwise, the following discussion pertains
only to our continuing operations.
Executive Overview
This overview provides a high level discussion of our operating results and some of the trends that
affect our business. We believe that an understanding of these trends is important in order to
understand our financial results for the second quarter and first six months of fiscal 2008 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 and financial management solutions for small and medium
sized businesses; financial institutions; consumers; and accounting professionals. We organize our
business into the following six segments:
|
|
|
QuickBooks includes QuickBooks accounting and business management software and technical
support, as well as financial supplies for small businesses. |
|
|
|
|
Payroll and Payments includes small business payroll products and services. It also
encompasses merchant services, such as credit and debit card processing, provided by our
Innovative Merchant Solutions business. |
|
|
|
|
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. |
|
|
|
|
Financial Institutions consists primarily of outsourced online banking applications and
services for banks and credit unions provided by our Digital Insight business. |
|
|
|
|
Other Businesses includes our Quicken personal finance products and services, Intuit
Real Estate Solutions, and our businesses in Canada and the United Kingdom. |
Seasonality and Trends
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
24
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. In our Consumer Tax business, a greater proportion of our revenue has been occurring later
in this seasonal period due in part to the growth in sales of TurboTax Online, for which revenue is
recognized upon filing. The seasonality of our Consumer Tax and Professional Tax revenue is also
affected by the timing of the availability of tax forms from taxing agencies and the ability of
those agencies to receive electronic tax return submissions. Delays in the availability of tax
forms or the ability of taxing agencies to receive submissions can cause revenue to shift from our
second fiscal quarter to our third fiscal quarter. These seasonal patterns mean that our total net
revenue is usually highest during our second quarter ending January 31 and third quarter ending
April 30. We typically report losses in our first quarter ending October 31 and fourth quarter
ending July 31, when revenue from our tax businesses is minimal while operating expenses continue
at relatively consistent levels. We believe the seasonality of our revenue is likely to continue in
the future. In MD&A we often 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 six months of fiscal 2008 was $1.28 billion, up 16% compared with
the first six months of fiscal 2007. The fiscal 2008 revenue increase was due to our acquisition of
Digital Insight and, to a lesser extent, to revenue growth in our Consumer Tax segment. We estimate
that, compared with the second quarter of fiscal 2007, changes in our Professional Tax offerings
and delay of delivery of certain product and service elements for the 2007 tax year caused an
additional $23 million in Professional Tax revenue to be deferred from the second quarter of fiscal
2008 to the third quarter of fiscal 2008. Excluding the impact of our acquisition of Digital
Insight, the transition of certain outsourced payroll customers in connection with a sale of assets
to Automatic Data Processing, Inc. (ADP), and the deferral of Professional Tax revenue described
above, we estimate that total net revenue for the first six months of fiscal 2008 would have
increased 10% compared with the same period of fiscal 2007.
Operating income from continuing operations of $70.4 million for the first six months of fiscal
2008 decreased 39% compared with $116.2 million for the first six months of fiscal 2007. Fiscal
2008 revenue growth was more than offset by higher costs of revenue and higher operating expenses.
Higher costs and expenses in the first six months of fiscal 2008 reflect our acquisition of Digital
Insight, which has a higher cost structure than our other businesses. Higher costs and expenses in
that period also reflect higher costs of revenue associated with revenue growth in our other
segments, increased investment in research and development for new and existing offerings, and
increases in advertising and other marketing expenses to support the launch of our Consumer Tax
offerings. The effects of these factors are described in more detail below.
Net income from continuing operations of $68.4 million for the first six months of fiscal 2008
decreased 23% compared with $88.4 million for the first six months of fiscal 2007. In the fiscal
2008 period we incurred interest expense of $27.6 million on the debt we issued in connection with
our February 2007 acquisition of Digital Insight. We also recorded a pre-tax gain of $38.0 million
on the sale of certain outsourced payroll assets in the first six months of fiscal 2008. Our
effective tax rates for the first six months of fiscal 2008 and 2007 were approximately 33% and
36%. Diluted net income per share from continuing operations of $0.20 for the first six months of
fiscal 2008 decreased 20% compared with $0.25 for the same period of fiscal 2007 due to these
factors.
On December 18, 2007 we acquired all of the outstanding shares of Homestead Technologies Inc. for
total consideration of approximately $170 million on a fully diluted basis. Homestead is a provider
of Web site services to small businesses and became part of our QuickBooks segment.
On December 19, 2007 we entered into a definitive agreement to acquire Electronic Clearing House,
Inc. (ECHO). Under the terms of the agreement, Intuit will pay $17.00 per share in cash for each
share of ECHO common stock, including shares issuable upon exercise of options, for total
consideration of approximately $131 million on a fully diluted basis. ECHO is a provider of
electronic payment processing 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 2008.
We ended the second quarter of fiscal 2008 with cash and investments totaling $837.2 million, a
decrease of $466.5 million from July 31, 2007. In the first six months of fiscal 2008 we generated
cash from continuing operations, the sale of investments, the sale of our Intuit Distribution
Management Solutions business and the issuance of common stock under employee stock plans. During
the same period we used cash for the repurchase of 16.3 million shares of
25
our common stock for $500 million under our stock repurchase programs, for the purchase of
Homestead Technologies, for purchases of property and equipment and for seasonal working capital
needs. At January 31, 2008, we had authorization from our Board to expend $300 million for future
stock repurchases. See Liquidity and Capital Resources later in this Item 2 for more information.
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 Item 7 of our Annual Report on
Form 10-K for the fiscal year ended July 31, 2007 have the greatest potential impact on our
financial statements, so we consider them to be our critical accounting policies and estimates.
Except for the change to our income tax policy that is discussed in Income Taxes Adoption of
FASB Interpretation No. 48 below, we believe that during the first six months of fiscal 2008 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.
Income Taxes Adoption of FASB Interpretation No. 48
We adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 on August 1, 2007. See
Note 9 to the financial statements in Item 1. As a result of our adoption of FIN 48 we recognize
and measure benefits for uncertain tax positions accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, using a two-step
approach. The first step is to evaluate the tax position taken or expected to be taken in a tax
return by determining if the weight of available evidence indicates that it is more likely than not
that the tax position will be sustained upon audit, including resolution of any related appeals or
litigation processes. For tax positions that are more likely than not of being sustained upon
audit, the second step is to measure the tax benefit as the largest amount that is more than 50%
likely of being realized upon settlement. Significant judgment is required to evaluate uncertain
tax positions. We evaluate our uncertain tax positions on a quarterly basis. Our evaluations are
based upon a number of factors, including changes in facts or circumstances, changes in tax law,
correspondence with tax authorities during the course of audits and effective settlement of audit
issues. Changes in the recognition or measurement of uncertain tax positions could result in
material increases or decreases in our income tax expense in the period in which we make the
change.
Results of Operations
Financial Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD |
|
YTD |
|
|
|
|
except per |
|
Q2 |
|
Q2 |
|
$ |
|
% |
|
Q2 |
|
Q2 |
|
$ |
|
% |
share amounts) |
|
FY08 |
|
FY07 |
|
Change |
|
Change |
|
FY08 |
|
FY07 |
|
Change |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
834.9 |
|
|
$ |
750.6 |
|
|
$ |
84.3 |
|
|
|
11 |
% |
|
$ |
1,279.8 |
|
|
$ |
1,101.1 |
|
|
$ |
178.7 |
|
|
|
16 |
% |
Operating income
from continuing
operations |
|
|
173.6 |
|
|
|
214.7 |
|
|
|
(41.1 |
) |
|
|
(19 |
%) |
|
|
70.4 |
|
|
|
116.2 |
|
|
|
(45.8 |
) |
|
|
(39 |
%) |
Net income from
continuing
operations |
|
|
116.0 |
|
|
|
145.6 |
|
|
|
(29.6 |
) |
|
|
(20 |
%) |
|
|
68.4 |
|
|
|
88.4 |
|
|
|
(20.0 |
) |
|
|
(23 |
%) |
Diluted net income
per share from
continuing
operations |
|
$ |
0.34 |
|
|
$ |
0.40 |
|
|
$ |
(0.06 |
) |
|
|
(15 |
%) |
|
$ |
0.20 |
|
|
$ |
0.25 |
|
|
$ |
(0.05 |
) |
|
|
(20 |
%) |
26
Total net revenue increased $84.3 million or 11% in the second quarter of fiscal 2008 compared with
the second quarter of fiscal 2007. Total net revenue was higher in the second quarter of fiscal
2008 due to our acquisition of Digital Insight, which accounted for about $65 million of the
increase, and, to a lesser extent, to revenue growth in our Consumer Tax segment. Excluding the
impact of our acquisition of Digital Insight, the transition of certain outsourced payroll
customers in connection with a sale of assets to ADP, and the deferral of Professional Tax revenue
described below, we estimate that total net revenue for the second quarter of fiscal 2008 would
have increased 9% compared with the same period of fiscal 2007. Consumer Tax segment revenue
increased $24.9 million or 11% in the second quarter of fiscal 2008 due to growth in TurboTax
Online units. Professional Tax segment revenue decreased $25.3 million or 19% in the second quarter
of fiscal 2008. We estimate that, compared with the second quarter of fiscal 2007, changes in our
Professional Tax offerings and delay of delivery of certain product and service elements for the
2007 tax year caused an additional $23 million in Professional Tax revenue to be deferred from the
second quarter of fiscal 2008 to the third quarter of fiscal 2008. Revenue in our QuickBooks
segment was up 5% and Payroll and Payments segment revenue was flat. Payroll and Payments segment
revenue for the second quarter of fiscal 2008 increased 16% when adjusted for the ongoing
transition of certain outsourced payroll customers in connection with a sale of assets to ADP. See
Total Net Revenue by Business Segment later in this Item 2 for more information.
Total net revenue increased $178.7 million or 16% in the first six months of fiscal 2008 compared
with the first six months of fiscal 2007. Total net revenue was higher in the fiscal 2008 period
due to our acquisition of Digital Insight, which accounted for about $131 million of the increase
and, to a lesser extent, to revenue growth in our Consumer Tax segment. Excluding the impact of our
acquisition of Digital Insight, the transition of certain outsourced payroll customers in
connection with a sale of assets to ADP, and the deferral of Professional Tax revenue described
above, we estimate that total net revenue for the first six months of fiscal 2008 would have
increased 10% compared with the same period of fiscal 2007. Consumer Tax segment revenue increased
$27.0 million or 11% in the first six months of fiscal 2008 due to growth in TurboTax Online units.
Professional Tax segment revenue decreased $24.0 million or 17% in the first six months of fiscal
2008 due to the deferral of revenue described above. Revenue in our QuickBooks segment was up 7%
and Payroll and Payments segment revenue increased 2%. Payroll and Payments segment revenue for the
first six months of fiscal 2008 increased 17% when adjusted for the ongoing transition of certain
outsourced payroll customers in connection with a sale of assets to ADP. See Total Net Revenue by
Business Segment later in this Item 2 for more information.
Higher revenue in the second quarter and first six months of fiscal 2008 was more than offset by
higher costs and expenses, including costs and expenses associated with Digital Insight. The costs
and expenses for our Financial Institutions segment, which includes Digital Insight, are relatively
higher as a percentage of revenue than the costs and expenses for our other businesses. Including
Digital Insight, increases for the first six months of fiscal 2008 were approximately $60 million
for cost of product, service and other revenue, almost $70 million for product development,
approximately $60 million for selling and marketing expenses and approximately $38 million for the
amortization of Digital Insight intangible assets. See Cost of Revenue and Operating Expenses
later in this Item 2 for more information.
Net income from continuing operations decreased $29.6 million or 20% in the second quarter of
fiscal 2008 and $20.0 million or 23% in the first six months of fiscal 2008 compared with the same
periods of fiscal 2007. In the first six months of fiscal 2008 we incurred interest expense of
$27.6 million on the debt we issued in connection with our February 2007 acquisition of Digital
Insight. We also recorded a pre-tax gain of $38.0 million on the sale of certain outsourced
payroll assets in the first six months of fiscal 2008. Our effective tax rates for the second
quarters of fiscal 2008 and 2007 were approximately 35%. Our effective tax rates for the first six
months of fiscal 2008 and 2007 were approximately 33% and 36%. See Income Taxes later in this
Item 2 for more information. Due to these factors, diluted net income per share from continuing
operations decreased 15% to $0.34 in the second quarter of fiscal 2008 and decreased 20% to $0.20
in the first six months of fiscal 2008 compared with the same periods of fiscal 2007.
27
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 six reportable business segments. See Note 6 to the financial statements in
Item 1 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) |
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
Change |
|
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QuickBooks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
144.1 |
|
|
|
|
|
|
$ |
145.0 |
|
|
|
|
|
|
|
|
|
|
$ |
264.8 |
|
|
|
|
|
|
$ |
261.2 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
31.3 |
|
|
|
|
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
57.5 |
|
|
|
|
|
|
|
40.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
175.4 |
|
|
|
21 |
% |
|
|
166.5 |
|
|
|
22 |
% |
|
|
5 |
% |
|
|
322.3 |
|
|
|
25 |
% |
|
|
301.7 |
|
|
|
27 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and
Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
53.9 |
|
|
|
|
|
|
|
51.3 |
|
|
|
|
|
|
|
|
|
|
|
107.4 |
|
|
|
|
|
|
|
102.2 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
84.1 |
|
|
|
|
|
|
|
86.9 |
|
|
|
|
|
|
|
|
|
|
|
161.9 |
|
|
|
|
|
|
|
161.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
138.0 |
|
|
|
16 |
% |
|
|
138.2 |
|
|
|
19 |
% |
|
|
|
|
|
|
269.3 |
|
|
|
21 |
% |
|
|
263.7 |
|
|
|
24 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
181.1 |
|
|
|
|
|
|
|
167.6 |
|
|
|
|
|
|
|
|
|
|
|
184.0 |
|
|
|
|
|
|
|
169.1 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
67.2 |
|
|
|
|
|
|
|
55.8 |
|
|
|
|
|
|
|
|
|
|
|
77.6 |
|
|
|
|
|
|
|
65.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
248.3 |
|
|
|
30 |
% |
|
|
223.4 |
|
|
|
30 |
% |
|
|
11 |
% |
|
|
261.6 |
|
|
|
21 |
% |
|
|
234.6 |
|
|
|
21 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
103.2 |
|
|
|
|
|
|
|
125.6 |
|
|
|
|
|
|
|
|
|
|
|
112.5 |
|
|
|
|
|
|
|
134.0 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
2.2 |
|
|
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
105.4 |
|
|
|
13 |
% |
|
|
130.7 |
|
|
|
17 |
% |
|
|
(19 |
%) |
|
|
116.4 |
|
|
|
9 |
% |
|
|
140.4 |
|
|
|
13 |
% |
|
|
(17 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Institutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
72.1 |
|
|
|
|
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
144.2 |
|
|
|
|
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
72.3 |
|
|
|
9 |
% |
|
|
6.3 |
|
|
|
1 |
% |
|
NM |
|
|
144.5 |
|
|
|
11 |
% |
|
|
11.9 |
|
|
|
1 |
% |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
58.3 |
|
|
|
|
|
|
|
56.6 |
|
|
|
|
|
|
|
|
|
|
|
90.4 |
|
|
|
|
|
|
|
89.6 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
37.2 |
|
|
|
|
|
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
|
75.3 |
|
|
|
|
|
|
|
59.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
95.5 |
|
|
|
11 |
% |
|
|
85.5 |
|
|
|
11 |
% |
|
|
12 |
% |
|
|
165.7 |
|
|
|
13 |
% |
|
|
148.8 |
|
|
|
14 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
540.8 |
|
|
|
|
|
|
|
546.1 |
|
|
|
|
|
|
|
|
|
|
|
759.4 |
|
|
|
|
|
|
|
756.2 |
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
294.1 |
|
|
|
|
|
|
|
204.5 |
|
|
|
|
|
|
|
|
|
|
|
520.4 |
|
|
|
|
|
|
|
344.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
834.9 |
|
|
|
100 |
% |
|
$ |
750.6 |
|
|
|
100 |
% |
|
|
11 |
% |
|
$ |
1,279.8 |
|
|
|
100 |
% |
|
$ |
1,101.1 |
|
|
|
100 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM = Not meaningful
QuickBooks
QuickBooks segment net revenue increased $8.9 million or 5% in the second quarter of fiscal 2008
and $20.6 million or 7% in the first six months of fiscal 2008 compared with the same periods of
fiscal 2007. Total QuickBooks software unit sales, including activations of our free Simple Start
offering, increased 4% in the first six months of fiscal 2008 compared with the same period of
fiscal 2007. Revenue growth in that period was also driven by a 33% increase in QuickBooks Online
Edition subscribers and growth in revenue from secondary products and services sold in conjunction
with QuickBooks software units.
28
Payroll and Payments
Payroll and Payments net revenue was flat in the second quarter of fiscal 2008 compared with the
second quarter of fiscal 2007. In our Payments business, merchant services revenue increased 27% in
the second quarter of fiscal 2008 due to 20% growth in the customer base, 4% higher transaction
volume per customer and price increases. Small business payroll revenue decreased 12% in the second
quarter of fiscal 2008 compared with the second quarter of fiscal 2007 as we continued to
transition portions of our Complete Payroll and Premier Payroll Services customer base in
connection with a sale of assets to ADP. We estimate that revenue growth in our Payroll and
Payments segment in the second quarter of fiscal 2008 would have been approximately 16% when
adjusted for the impact of the sale of those customers.
Payroll and Payments net revenue increased $5.6 million or 2% in the first six months of fiscal
2008 compared with the same period of fiscal 2007. In our Payments business, merchant services
revenue increased 31% in the first six months of fiscal 2008 due to 20% growth in the customer
base, 4% higher transaction volume per customer and price increases. Small business payroll revenue
decreased 10% in the first six months of fiscal 2008 compared with the same period of fiscal 2007
as we continued to transition portions of our Complete Payroll and Premier Payroll Services
customer base in connection with a sale of assets to ADP. We estimate that revenue growth in our
Payroll and Payments segment in the first six months of fiscal 2008 would have been approximately
17% when adjusted for the impact of the sale of those customers.
Consumer Tax
Consumer Tax total net revenue increased $24.9 million or 11% in the second quarter of fiscal 2008
and $27.0 million or 11% in the first six months of fiscal 2008 compared with the same periods of
fiscal 2007. The fiscal 2008 increases were due to 13% growth in total federal TurboTax units,
driven by growth in TurboTax Online units. Due to the seasonal nature of our Consumer Tax business,
we will not have substantially complete results for the 2007 tax season until the third quarter of
fiscal 2008.
Professional Tax
Professional Tax total net revenue decreased $25.3 million or 19% in the second quarter of fiscal
2008 and $24.0 million or 17% in the first six months of fiscal 2008 compared with the same periods
of fiscal 2007. We estimate that, compared with the second quarter of fiscal 2007, changes in our
Professional Tax offerings and delay of delivery of certain product and service elements for the
2007 tax year caused an additional $23 million in Professional Tax revenue to be deferred from the
second quarter of fiscal 2008 to the third quarter of fiscal 2008. If this deferral of revenue had
not occurred, we estimate that Professional Tax revenue would have been flat in the first six
months of fiscal 2008 compared with the same period of fiscal 2007. Due to the seasonal nature of
our Professional Tax business, we will not have substantially complete results for the 2007 tax
season until the third quarter of fiscal 2008.
Financial Institutions
Financial Institutions net revenue increased $66.0 million to $72.3 million in the second quarter
of fiscal 2008 and increased $132.6 million to $144.5 million compared with the same periods of
fiscal 2007. The fiscal 2008 increases were due almost entirely to our February 2007 acquisition of
Digital Insight.
Other Businesses
Other Businesses net revenue increased $10.0 million or 12% in the second quarter of fiscal 2008
and $16.9 million or 11% in the first six months of fiscal 2008 compared with the same periods of
fiscal 2007. In the first six months of fiscal 2008, revenue from our Intuit Real Estate Solutions
business grew 27%, revenue from our businesses in Canada and the United Kingdom increased 8% and
Quicken revenue grew 4%.
29
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
YTD |
|
|
% of |
|
|
YTD |
|
|
% of |
|
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
|
Q2 |
|
|
Related |
|
(Dollars in millions) |
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
$ |
56.9 |
|
|
|
11 |
% |
|
$ |
66.1 |
|
|
|
12 |
% |
|
$ |
90.6 |
|
|
|
12 |
% |
|
$ |
101.5 |
|
|
|
13 |
% |
Cost of service and
other revenue |
|
|
102.8 |
|
|
|
35 |
% |
|
|
65.4 |
|
|
|
32 |
% |
|
|
200.3 |
|
|
|
38 |
% |
|
|
128.2 |
|
|
|
37 |
% |
Amortization of
purchased intangible
assets |
|
|
13.3 |
|
|
|
n/a |
|
|
|
2.3 |
|
|
|
n/a |
|
|
|
26.1 |
|
|
|
n/a |
|
|
|
4.3 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
173.0 |
|
|
|
21 |
% |
|
$ |
133.8 |
|
|
|
18 |
% |
|
$ |
317.0 |
|
|
|
25 |
% |
|
$ |
234.0 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and other revenue as a percentage of service and other revenue increased to 35% in
the second quarter of fiscal 2008 from 32% in the second quarter of fiscal 2007 and increased to
38% in the first six months of fiscal 2008 from 37% in the first six months of fiscal 2007. The
fiscal 2008 increases were due to the impact of our acquisition of Digital Insight, which has
relatively higher costs of service and other revenue, partially offset by the impact of growth in
merchant services revenue and Consumer Tax services revenue, which have relatively lower costs of
revenue.
Amortization of purchased intangible assets increased in the second quarter and first six months of
fiscal 2008 compared with the same periods of fiscal 2007 due to the amortization of Digital
Insight purchased intangible assets, which we acquired in February 2007.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
YTD |
|
|
Total |
|
|
YTD |
|
|
Total |
|
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
|
Q2 |
|
|
Net |
|
(Dollars in millions) |
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
263.7 |
|
|
|
31 |
% |
|
$ |
219.5 |
|
|
|
29 |
% |
|
$ |
433.4 |
|
|
|
34 |
% |
|
$ |
373.0 |
|
|
|
34 |
% |
Research and development |
|
|
149.8 |
|
|
|
18 |
% |
|
|
113.0 |
|
|
|
15 |
% |
|
|
299.1 |
|
|
|
24 |
% |
|
|
230.4 |
|
|
|
21 |
% |
General and administrative |
|
|
66.7 |
|
|
|
8 |
% |
|
|
68.2 |
|
|
|
9 |
% |
|
|
143.8 |
|
|
|
11 |
% |
|
|
144.2 |
|
|
|
13 |
% |
Acquisition-related charges |
|
|
8.1 |
|
|
|
1 |
% |
|
|
1.4 |
|
|
|
0 |
% |
|
|
16.1 |
|
|
|
1 |
% |
|
|
3.2 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
488.3 |
|
|
|
58 |
% |
|
$ |
402.1 |
|
|
|
53 |
% |
|
$ |
892.4 |
|
|
|
70 |
% |
|
$ |
750.8 |
|
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses as a percentage of total net revenue increased to 58% in the second
quarter of fiscal 2008 compared with 53% in the second quarter of fiscal 2007 and increased to 70%
in the first six months of fiscal 2008 compared with 68% in the first six months of fiscal 2007.
Total operating expenses in dollars increased about $142 million in the first six months of fiscal
2008, approximately $73 million of which was due to our February 2007 acquisition of Digital
Insight. Fiscal 2008 operating expenses were affected by the higher cost structure of Digital
Insight and by the amortization of Digital Insight intangible assets.
Including Digital Insight, almost 50% of the increase in total operating expenses in dollars for
the first six months of fiscal 2008 was due to higher research and development expenses. During
this period, we continued to invest in research and development for existing offerings as well as
for new offerings. About 40% of the increase in total operating expenses for this period was due to
higher selling and marketing expenses. Slightly more than half of the fiscal 2008 increase in
selling and marketing expenses was due to our acquisition of Digital Insight, whose selling costs
are relatively higher compared with our other businesses because they sell their services to
financial institutions through a direct sales force. We also increased advertising and other
marketing expenses to support the launch of our Consumer Tax offerings.
30
Acquisition-related charges increased in the second quarter and first six months of fiscal 2008
compared with the same periods of fiscal 2007 due to the amortization of Digital Insight purchased
intangible assets, which we acquired in February 2007.
Segment Operating Income (Loss)
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 selling and marketing,
product development, and general and administrative expenses and share-based compensation expenses,
which are not allocated to specific segments. These unallocated costs totaled $139.5 million and
$121.2 million in the second quarters of fiscal 2008 and 2007 and $284.2 million and $249.3 million
in the first six months of fiscal 2008 and 2007. Unallocated costs increased in the fiscal 2008
periods due to higher share-based compensation expenses and to higher expenses for shared product
development and marketing functions. 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 expense, interest and other income,
and realized net gains or losses on marketable equity securities and other investments. See Note 6
to the financial statements in Item 1 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) |
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
FY08 |
|
|
Revenue |
|
|
FY07 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QuickBooks |
|
$ |
55.7 |
|
|
|
32 |
% |
|
$ |
52.7 |
|
|
|
32 |
% |
|
$ |
92.4 |
|
|
|
29 |
% |
|
$ |
81.1 |
|
|
|
27 |
% |
Payroll and Payments |
|
|
56.8 |
|
|
|
41 |
% |
|
|
60.3 |
|
|
|
44 |
% |
|
|
113.9 |
|
|
|
42 |
% |
|
|
107.9 |
|
|
|
41 |
% |
Consumer Tax |
|
|
116.5 |
|
|
|
47 |
% |
|
|
112.7 |
|
|
|
50 |
% |
|
|
82.8 |
|
|
|
32 |
% |
|
|
78.8 |
|
|
|
34 |
% |
Professional Tax |
|
|
61.4 |
|
|
|
58 |
% |
|
|
80.5 |
|
|
|
62 |
% |
|
|
40.3 |
|
|
|
35 |
% |
|
|
58.5 |
|
|
|
42 |
% |
Financial Institutions |
|
|
12.6 |
|
|
|
17 |
% |
|
|
2.0 |
|
|
|
32 |
% |
|
|
25.0 |
|
|
|
17 |
% |
|
|
3.4 |
|
|
|
29 |
% |
Other Businesses |
|
|
31.5 |
|
|
|
33 |
% |
|
|
31.4 |
|
|
|
37 |
% |
|
|
42.4 |
|
|
|
26 |
% |
|
|
43.4 |
|
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment
operating income |
|
$ |
334.5 |
|
|
|
40 |
% |
|
$ |
339.6 |
|
|
|
45 |
% |
|
$ |
396.8 |
|
|
|
31 |
% |
|
$ |
373.1 |
|
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QuickBooks
QuickBooks segment operating income as a percentage of related revenue was 32% in the second
quarters of fiscal 2008 and 2007. QuickBooks segment revenue increased $8.9 million in the second
quarter of fiscal 2008 compared with the second quarter of fiscal 2007. Cost of revenue remained
relatively flat as cost efficiencies achieved for our QuickBooks 2008 product line offset higher
costs associated with QuickBooks services. Expenses for product development increased approximately
$4 million in the second quarter of fiscal 2008.
QuickBooks segment operating income as a percentage of related revenue increased to 29% in the
first six months of fiscal 2008 from 27% in the first six months of fiscal 2007. QuickBooks segment
revenue grew $20.6 million in the first six months of fiscal 2008 compared with the same period of
fiscal 2007. Cost of revenue increased about $3 million as cost efficiencies achieved for our
QuickBooks 2008 product line partially offset higher costs associated with QuickBooks services.
Expenses for product development increased approximately $6 million and general and administrative
expenses increased approximately $2 million, including higher legal expenses, in the fiscal 2008
period.
Payroll and Payments
Payroll and Payments segment operating income as a percentage of related revenue decreased to 41%
in the second quarter of fiscal 2008 from 44% in the second quarter of fiscal 2007. Total Payroll
and Payments revenue was flat in the second quarter of fiscal 2008 compared with the second quarter
of fiscal 2007, with higher merchant services revenue offsetting lower total payroll revenue.
Although merchant services revenue has relatively higher costs of revenue than our combined payroll
business, lower overall cost of revenue in the segment was achieved through our ongoing transition
of certain full service payroll customers, which have relatively higher costs of revenue, to ADP.
Higher gross margins in the second quarter of fiscal 2008 were more than offset by higher product
development and infrastructure costs.
31
Payroll and Payments segment operating income as a percentage of related revenue increased slightly
to 42% in the first six months of fiscal 2008 compared with 41% in the same period of fiscal 2008.
Total Payroll and Payments revenue increased $5.6 million in the first six months of fiscal 2008
compared with the same period of fiscal 2007, with higher merchant services revenue more than
offsetting lower total payroll revenue. Although merchant services revenue has relatively higher
costs of revenue than our combined payroll business, lower overall cost of revenue in the segment
was achieved through our ongoing transition of certain full service payroll customers, which have
relatively higher costs of revenue, to ADP. Higher gross margins in the first half of fiscal 2008
were offset by higher product development and infrastructure costs.
Consumer Tax
Consumer Tax segment operating income as a percentage of related revenue decreased to 47% in the
second quarter of fiscal 2008 from 50% in the second quarter of fiscal 2007 and decreased to 32% in
the first six months of fiscal 2008 from 34% in the first six months of fiscal 2007. The $27.0
million growth in Consumer Tax revenue in the first six months of fiscal 2008 was nearly offset by
higher expenses, including increases of approximately $25 million for selling and marketing
expenses (including higher radio, television and online advertising expenses as well as higher
direct marketing expenses) and approximately $5 million for product development expenses. Lower
cost of revenue and general and administrative expenses partially offset the increases in selling
and marketing expenses and product development expenses.
Professional Tax
Professional Tax segment operating income as a percentage of related revenue decreased to 58% in
the second quarter of fiscal 2008 from 62% in the second quarter of fiscal 2007 and decreased to
35% in the first six months of fiscal 2008 from 42% in the first six months of fiscal 2007.
Professional Tax operating margins for the second quarter and first six months of fiscal 2008 were
affected by the deferral of approximately $23 million in revenue associated with changes in our
offerings and a delay in the delivery of certain product and service elements from the second
quarter of fiscal 2008 to the third quarter of fiscal 2008. If this deferral had not occurred,
Professional Tax segment operating income as a percentage of related revenue would have been 45%
for the first six months of fiscal 2008.
Financial Institutions
Financial Institutions segment operating income as a percentage of related revenue decreased to 17%
in the second quarter of fiscal 2008 from 32% in the second quarter of fiscal 2007 and decreased to
17% in the first six months of fiscal 2008 from 29% in the first six months of fiscal 2007. The
decreases in segment operating income were due to our February 2007 acquisition of Digital Insight,
which we combined with our existing financial institutions business to create a new Financial
Institutions segment. This new segment is significantly larger and has higher costs, including
relatively higher cost of service and other revenue and higher selling expenses, than the Intuit
financial institutions business that preceded it.
Other Businesses
Other Businesses segment operating income as a percentage of related revenue decreased to 33% in
the second quarter of fiscal 2008 from 37% in the second quarter of fiscal 2007 and decreased to
26% in the first six months of fiscal 2008 from 29% in the same period of fiscal 2007. Much of the
revenue growth in this segment came from our Intuit Real Estate Solutions business, which has a
higher cost structure than the other businesses in this segment. In addition, selling and marketing
expenses in our business in Canada increased in both fiscal 2008 periods in support of the launch
of our latest QuickBooks and consumer tax offerings.
Non-Operating Income and Expenses
Interest Expense
In order to finance a portion of our February 2007 acquisition of Digital Insight, we issued $1
billion in senior notes. Interest expense of $13.5 million for the second quarter of fiscal 2008
and $27.6 million for the first six months of fiscal 2008 consisted primarily of interest on $500
million in principal amount of the senior notes at 5.40% and
32
interest on $500 million in principal amount of the senior notes at 5.75%. The senior notes are due
in March 2012 and March 2017 and are redeemable by Intuit at any time, subject to a make-whole
premium.
Interest and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
(In millions) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9.2 |
|
|
$ |
11.1 |
|
|
$ |
20.9 |
|
|
$ |
21.1 |
|
Net gains (losses) on executive deferred
compensation plan assets |
|
|
(4.4 |
) |
|
|
(0.3 |
) |
|
|
(1.4 |
) |
|
|
(0.4 |
) |
Other |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
2.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income |
|
$ |
4.9 |
|
|
$ |
11.0 |
|
|
$ |
22.1 |
|
|
$ |
21.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income consists primarily of interest income. Lower interest rates and lower
average invested balances resulted in lower interest income in the second quarter of fiscal 2008
compared with the second quarter of fiscal 2007. Higher average invested balances and lower
interest rates resulted in interest income that was flat in the first six months of fiscal 2008
compared with the same period of fiscal 2007.
Income Taxes
Effective Tax Rate
Our effective tax rate for the second quarter of fiscal 2008 was approximately 35% and did not
differ significantly from the federal statutory rate. State income taxes were offset primarily by
the benefit we received from tax exempt interest income, the domestic production activities
deduction, and federal and state research and experimental credits. Our effective tax rate for the
second quarter of fiscal 2007 was approximately 35% and did not differ significantly from the
federal statutory rate. State income taxes were offset primarily 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 the
fiscal 2007 period.
Our effective tax rate for the first six months of fiscal 2008 was approximately 33%. This differed
from the federal statutory rate of 35% primarily due to the benefit we received from tax exempt
interest income, the domestic production activities deduction, federal and state research and
experimental credits, and a one-time benefit related to executive stock compensation, partially
offset by state income taxes. Our effective tax rate for the first six months of fiscal 2007 was
approximately 36%. This differed from the federal statutory rate of 35% primarily 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 the fiscal 2007
period.
Net Deferred Tax Assets
At January 31, 2008, we had total net deferred tax assets of $184.6 million, which included a
valuation allowance of $2.5 million for certain state net operating loss carryforwards. The
allowance reflects managements assessment that we may not receive the benefit of 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. See Note 9 to the financial statements in Item 1.
Adoption of FASB Interpretation No. 48
On August 1, 2007 we adopted the provisions of FIN 48, Accounting for Uncertainty in Income
TaxesAn Interpretation of FASB Statement No. 109. FIN 48 prescribes a threshold for the financial
statement recognition and measurement of a tax position taken or expected to be taken in an income
tax return. FIN 48 requires that we determine whether the benefits of tax positions are more likely
than not of being sustained upon audit based on the technical merits of the tax position. For tax
positions that are more likely than not of being sustained upon audit, we recognize the largest
amount of the benefit that is more likely than not of being sustained in the financial statements.
33
For tax positions that are not more likely than not of being sustained upon audit, we do not
recognize any portion of the benefit in the financial statements. See Note 9 to the financial
statements in Item 1 for more information about the impact of our adoption of FIN 48.
Dispositions and Discontinued Operations
During fiscal 2008 and 2007 we sold the assets and businesses described below. See Note 5 to the
financial statements in Item 1 for a more complete description of these dispositions and
discontinued operations.
Intuit Distribution Management Solutions Discontinued Operations
In August 2007 we sold our Intuit Distribution Management Solutions (IDMS) business for
approximately $100 million in cash and recorded a net gain on disposal of $27.5 million. IDMS was
part of our Other Businesses segment. In accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, we have accounted for IDMS as a discontinued operation and segregated its operating
results from continuing operations in our statements of operations for all periods prior to the
sale. Revenue and net loss from IDMS discontinued operations were $1.9 million and $0.7 million for
the first six months of fiscal 2008. Revenue and net loss from IDMS discontinued operations were
$12.7 million and $0.2 million for the second quarter of fiscal 2007 and $24.2 million and $1.9
million for the first six months of fiscal 2007.
Sale of Outsourced Payroll Assets
In March 2007 we sold certain assets related to our Complete Payroll and Premier Payroll Service
business to Automated Data Processing, Inc. (ADP) for a purchase price of up to approximately $135
million in cash. The final purchase price is contingent upon the number of customers that
transition to ADP. Due to customer attrition during the fourth quarter of fiscal 2007 and the first
two quarters of fiscal 2008, we currently estimate the maximum sales price to be approximately $111
million and the maximum pre-tax net gain to be approximately $102 million. The assets were part of
our Payroll and Payments segment. In accordance with the provisions of SFAS 144, we have not
accounted for this transaction as a discontinued operation. We will recognize the net gain on the
sale of the assets as customers are transitioned pursuant to the agreement over a period not to
exceed one year from the date of the sale. In the second quarter and first six months of fiscal
2008 we recorded pre-tax net gains of $14.0 million and $38.0 million in our statement of
operations for customers who transitioned to ADP during those periods. The total pre-tax net gain
recognized from the inception of this transaction through January 31, 2008 was $69.6 million.
Liquidity and Capital Resources
Overview
At January 31, 2008, our cash, cash equivalents and investments totaled $837.2 million, a decrease
of $466.5 million from July 31, 2007. Our primary source of liquidity has been cash from
operations, which entails the collection of accounts receivable for products and services. Our
primary uses of cash have been for research and development programs, selling and marketing
activities, capital projects, debt service costs, repurchases of common stock and acquisitions of
businesses.
At January 31, 2008, we held approximately $328 million in AAA rated municipal auction rate
securities that were valued at reported market prices and classified as current assets. Auction
rate securities are collateralized long-term debt instruments that provide liquidity through a
Dutch auction process that resets the applicable interest rate at pre-determined intervals,
typically every 35 days. Beginning in February 2008, auctions failed for approximately $140 million
in par value of municipal auction rate securities we held because sell orders exceeded buy orders.
When these auctions failed to clear, higher interest rates for those securities went into effect.
However, the funds associated with these failed auctions will not be accessible until the issuer
calls the security, a successful auction occurs, a buyer is found outside of the auction process,
or the security matures. The underlying assets of the municipal auction rate securities we hold,
including the securities for which auctions have failed, are generally student loans which are
guaranteed by the U.S. government. We do not believe the carrying values of these municipal auction
rate securities are impaired. In addition, we believe that we will be able to liquidate these
investments without significant loss within the next 12 months. We are continuing to monitor the
credit markets and may reclassify some or all of these securities from current assets to long-term
assets in the future. Based on our
34
expected operating cash flows and our other sources of cash, we do not believe that any reduction
in liquidity of our municipal auction rate securities will have a material impact on our overall
ability to meet our liquidity needs.
In connection with our acquisition of Digital Insight Corporation, in March 2007 we issued
five-year and ten-year senior unsecured notes totaling $1 billion and used approximately $300
million of our cash balances. We also have a $500 million unsecured revolving line of credit
facility that is described later in this Item 2. To date we have not borrowed under the facility.
The following table summarizes selected measures of our liquidity and capital resources at the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
July 31, |
|
$ |
|
% |
(Dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments |
|
$ |
837.2 |
|
|
$ |
1,303.7 |
|
|
$ |
(466.5 |
) |
|
|
(36 |
%) |
Long-term debt |
|
|
997.9 |
|
|
|
997.8 |
|
|
|
0.1 |
|
|
|
0 |
% |
Working capital |
|
|
482.3 |
|
|
|
791.8 |
|
|
|
(309.5 |
) |
|
|
(39 |
%) |
Ratio of current assets to current liabilities |
|
|
1.3 : 1 |
|
|
|
1.7 : 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
January 31, |
|
January 31, |
|
$ |
|
% |
(In millions) |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from continuing operations |
|
$ |
37.5 |
|
|
$ |
106.4 |
|
|
$ |
(68.9 |
) |
|
|
(65 |
%) |
Acquisitions of businesses |
|
|
(134.1 |
) |
|
|
(62.0 |
) |
|
|
(72.1 |
) |
|
|
116 |
% |
Proceeds from the sale of businesses |
|
|
124.4 |
|
|
|
|
|
|
|
124.4 |
|
|
|
|
|
Purchases of property and equipment |
|
|
(121.9 |
) |
|
|
(52.9 |
) |
|
|
(69.0 |
) |
|
|
130 |
% |
Purchase of treasury stock |
|
|
(500.0 |
) |
|
|
(205.4 |
) |
|
|
(294.6 |
) |
|
|
143 |
% |
Net proceeds from issuance of common
stock under stock plans |
|
|
115.3 |
|
|
|
124.2 |
|
|
|
(8.9 |
) |
|
|
(7 |
%) |
Operating Activities
During the first six months of fiscal 2008 we generated $37.5 million in cash from our continuing
operations. This included net income of $94.4 million, adjustments for depreciation and
amortization of $100.2 million, an adjustment for share-based compensation of $56.2 million, and
seasonal working capital needs.
Investing Activities
Investing activities provided $305.3 million during the first six months of fiscal 2008, including
the receipt of $443.3 million in cash from sales of investments and $124.4 million in cash from the
sale of our Intuit Distribution Management Solutions business and certain outsourced payroll
assets, partially offset by our use of $134.1 million in cash for acquisitions of businesses
(primarily Homestead Technologies Inc.) and $121.9 million in cash for purchases of property and
equipment.
Our expenditures for property and equipment and capitalized internal use software increased from a
total of $52.9 million in the first six months of fiscal 2007 to a total of $121.9 million in the
first six months of fiscal 2008. We expect our expenditures for property and equipment and
capitalized internal use software to increase from a total of about $153 million in fiscal 2007 to
approximately $300 million in fiscal 2008. This planned increase in capital expenditures is related
to investments in a new data center and expansion of office capacity to support the expected growth
in our business.
On December 18, 2007 we acquired all of the outstanding shares of Homestead Technologies Inc. for
total consideration of approximately $170 million on a fully diluted basis. Homestead is a provider
of Web site services to small businesses and became part of our QuickBooks segment.
On December 19, 2007 we entered into a definitive agreement to acquire Electronic Clearing House,
Inc. (ECHO). Under the terms of the agreement, Intuit will pay $17.00 per share in cash for each
share of ECHO common stock, including shares issuable upon exercise of options, for total
consideration of approximately $131 million on a fully diluted basis. ECHO is a provider of electronic payment processing services and will become part of
our Payroll and
35
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 2008.
Financing Activities
We used $370.2 million in cash for financing activities during the first six months of fiscal 2008,
including $500 million for the repurchase of common stock under our stock repurchase programs
partially offset by $115.3 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 2008 we repurchased 8.2 million and 16.3 million shares of our common
stock for $250 million and $500 million under our stock repurchase programs. We repurchased 6.7
million shares for $205.4 million under these programs during the same periods of fiscal 2007. At
January 31, 2008, we had authorization from our Board to expend $300 million for future stock
repurchases.
Unsecured Revolving Credit Facility
On March 22, 2007 we entered into an agreement with certain institutional lenders for a $500
million unsecured revolving credit facility that will expire on March 22, 2012. Advances under the
credit facility will accrue interest at rates that are equal to, at our election, either Citibanks
base rate or the London InterBank Offered Rate (LIBOR) plus a margin that ranges from 0.18% to
0.575% based on our senior debt credit ratings. The applicable interest rate will be increased by
0.05% for any period in which the total principal amount of advances and letters of credit under
the credit facility exceeds $250 million. The agreement includes covenants that require us to
maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and
amortization (EBITDA) of not greater than 3.25 to 1.00 and a ratio of annual EBITDA to interest
payable of not less than 3.00 to 1.00. We were in compliance with these covenants at January 31,
2008. We may use amounts borrowed under this credit facility for general corporate purposes or for
future acquisitions or expansion of our business. To date we have not borrowed under the credit
facility, but we may borrow under the credit facility from time to time as opportunities and needs
arise.
Liquidity and Capital Resource Requirements
We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing
strategic relationships with and investing in other companies. We may decide to use cash and cash
equivalents, investments, and our revolving line of credit facility to fund such activities in the
future.
Based on past performance and current expectations, we believe that our cash and cash equivalents,
investments, and cash generated from operations will be sufficient to meet anticipated seasonal
working capital needs, capital expenditure requirements, contractual obligations, commitments and
other liquidity requirements associated with our operations for at least the next 12 months.
Reserves for Returns and Rebates
Activity in our reserves for product returns and for rebates during the first six months of fiscal
2008 and comparative balances at January 31, 2007 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, 2008
to the reserve balances at January 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
Balance |
|
Charged |
|
|
|
|
|
Balance |
|
Balance |
|
|
July 31, |
|
Against |
|
Returns/ |
|
January 31, |
|
January 31, |
(In thousands) |
|
2007 |
|
Revenue |
|
Redemptions |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for product returns |
|
$ |
25,833 |
|
|
$ |
87,894 |
|
|
$ |
(40,147 |
) |
|
$ |
73,580 |
|
|
$ |
68,028 |
|
Reserve for rebates |
|
|
18,918 |
|
|
|
41,533 |
|
|
|
(19,248 |
) |
|
|
41,203 |
|
|
|
33,925 |
|
36
The fiscal 2008 increase in our reserve for product returns was primarily driven by an increase in
expected product returns associated with our French products in the Canadian retail channel. The
fiscal 2008 increase in our reserve for rebates was due to increases in consumer tax and other
retail promotions and to a new rebate offer in Canada.
Off-Balance Sheet Arrangements
At January 31, 2008, 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 presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year
ended July 31, 2007. Except as discussed below, there have been no significant changes in those
obligations during the six months ended January 31, 2008.
Commitment for Interest Payments on Senior Notes
In connection with our acquisition of Digital Insight, on March 12, 2007 we issued $500 million of
5.40% senior unsecured notes due on March 15, 2012 and $500 million of 5.75% senior unsecured notes
due on March 15, 2017 (together, the Notes). The Notes are redeemable by Intuit at any time,
subject to a make-whole premium. Interest is payable semiannually on March 15 and September 15
beginning on September 15, 2007. At January 31, 2008, our maximum commitment for interest payments
under the Notes was $394.2 million.
Commitments for Construction of Data Center
Due to our evolving business needs, we have begun executing a plan to build a new data center in
the state of Washington to support our longer term hosting requirements. In January 2007 we
purchased the land on which to build the data center and construction is underway. We expect to
begin to occupy this facility in October 2008. At January 31, 2008, we had non-cancellable
commitments totaling approximately $100 million for the construction of this data center.
Recent Accounting Pronouncements
SFAS 157, Fair Value Measurements
In September 2006 the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 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 fiscal years beginning after November 15, 2007,
which means that it will be effective for our fiscal year beginning August 1, 2008. In February
2008 the FASB issued a Staff Position that partially defers the effective date of SFAS 157 for one
year for non-financial assets and liabilities, except for items that are recognized or disclosed at
fair value in an entitys financial statements on a recurring basis (at least annually). 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
37
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 for fiscal years beginning after November 15, 2007, which means
that it will be effective for our fiscal year beginning August 1, 2008. 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.
SFAS 141 (revised 2007), Business Combinations
In December 2007 the FASB issued SFAS 141 (revised 2007), Business Combinations. SFAS 141R will
significantly change the accounting for business combinations in a number of areas, including the
measurement of assets and liabilities acquired and the treatment of contingent consideration,
contingencies, acquisition costs, in-process research and development and restructuring costs. In
addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income
tax uncertainties in a business combination after the measurement period will impact the income tax
provision. SFAS 141R is effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning after December 15, 2008, which
means that it will be effective for our fiscal year beginning August 1, 2009. Early adoption is
prohibited. We are in the process of evaluating this standard and therefore have not yet determined
the impact that the adoption of SFAS 141R will have on our financial position, results of
operations or cash flows.
SFAS 160, Noncontrolling Interests in Consolidated Financial Statements
In December 2007 the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements, which establishes accounting and reporting standards for the noncontrolling (minority)
interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for
business arrangements entered into in fiscal years beginning on or after December 15, 2008, which
means that it will be effective for our fiscal year beginning August 1, 2009. Early adoption is
prohibited. We are in the process of evaluating this standard and therefore have not yet determined
the impact that the adoption of SFAS 160 will have on our financial position, results of operations
or cash flows.
38
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investments
We do not hold derivative financial instruments in our portfolio of investments. Our investments
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.
See Note 2 to the financial statements in Part I, Item 1; Managements Discussion and Analysis of
Financial Condition and Results of Operations, Liquidity and Capital Resources, in Part I, Item
2; and Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q for a description of
recent market events that may affect the liquidity of certain municipal auction rate securities
that we held at January 31, 2008.
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 32
basis points from the levels of January 31, 2008, the value of our investments and funds held for
payroll customers would decline by approximately $0.8 million. Should interest rates increase by
100 basis points from the levels of January 31, 2008, the value of our investments and funds held
for payroll customers would decline by approximately $2.5 million.
We are also exposed to the impact of changes in interest rates as they affect our $500 million
revolving credit facility. Advances under the credit facility accrue interest at rates that are
equal to Citibanks base rate or the London InterBank Offered Rate (LIBOR) plus a margin that
ranges from 0.18% to 0.575% based on our senior debt credit ratings. Consequently, our interest
expense would fluctuate with changes in the general level of these interest rates if we were to
borrow any amounts under the credit facility. At January 31, 2008, no amounts were outstanding
under the credit facility.
In connection with our acquisition of Digital Insight, on March 12, 2007 we issued $500 million of
5.40% senior unsecured notes due on March 15, 2012 and $500 million of 5.75% senior unsecured notes
due on March 15, 2017. Since these senior notes bear interest at fixed rates, they are not subject
to market risk due to changes in interest rates.
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, British pounds and Indian
rupees) 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, 2008, we did not engage in foreign currency hedging activities.
39
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.
40
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.
41
ITEM 1A
RISK FACTORS
This Quarterly Report on Form 10-Q contains forward-looking statements. 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:
|
|
|
our expectations and beliefs regarding future conduct and growth of the business; |
|
|
|
|
the assumptions underlying our Critical Accounting Policies and Estimates, including our
estimates regarding product rebate and return reserves; stock volatility and other
assumptions used to estimate the fair value of share-based compensation; and expected
future amortization of purchased intangible assets; |
|
|
|
|
our belief that we will be able to liquidate our investments in municipal auction rate
securities without significant loss within the next 12 months; |
|
|
|
|
our belief that any reduction in liquidity of our municipal auction rate securities will
not have a material impact on our overall ability to meet our liquidity needs; |
|
|
|
|
our belief that our exposure to currency exchange fluctuation risk will not be
significant in the future; |
|
|
|
|
our assessments and estimates that determine our effective tax rate; |
|
|
|
|
our belief that our cash, cash equivalents and investments will be sufficient to meet
our working capital needs, capital expenditure requirements and similar commitments for at
least the next 12 months; |
|
|
|
|
the expected increase in expenditures for property and equipment and capitalized
internal use software related to investments in infrastructure, offices and data centers; |
|
|
|
|
our beliefs regarding seasonality and other trends for our businesses; |
|
|
|
|
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; |
|
|
|
|
our expectations regarding the costs and other effects of acquisition and disposition
transactions; |
|
|
|
|
our expectation regarding the closing of the ECHO acquisition; and |
|
|
|
|
the expected effects of the adoption of new accounting standards. |
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 Quarterly Report and in our other filings with the
SEC before deciding to invest in our stock or to maintain or change your investment. These
forward-looking statements are based on information as of the filing date of this Quarterly 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 those contained in the forward-looking
statements. These factors include the following:
|
|
|
We face intense competitive pressures in all of our businesses that may harm our
operating results. |
|
|
|
|
Future revenue growth for our core products depends upon our successful introduction of
new and enhanced products and services. |
|
|
|
|
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. |
|
|
|
|
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. |
|
|
|
|
Our businesses collect, use and retain personal customer information and enable customer
transactions, which presents security risks, requires us to incur expenses and could harm
our business. |
|
|
|
|
Our revenue and earnings are highly seasonal and our quarterly results fluctuate
significantly. |
|
|
|
|
The growth of our business depends on our ability to adapt to rapid technological
change. |
|
|
|
|
Interruption or failure of our information technology and communications systems could
compromise the availability and security of our online products and services, which could
damage our reputation and harm our operating results. |
|
|
|
|
Our reliance on a limited number of manufacturing and distribution suppliers could harm
our business. |
42
|
|
|
As our product and service offerings become more complex our revenue streams may become
less predictable. |
|
|
|
|
We face a number of risks in our merchant card processing business that could result in
a reduction in our revenue and earnings. |
|
|
|
|
Risks associated with our financial institutions business may harm our results of
operations and financial condition. |
|
|
|
|
Our dependence on a small number of larger retailers and distributors could harm our
results of operations. |
|
|
|
|
Increased government regulation of our businesses could harm our operating results. |
|
|
|
|
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. |
|
|
|
|
If we encounter problems with our third-party customer service and technical support
providers our business will be harmed. |
|
|
|
|
We are exposed to risks associated with credit card and payment fraud and with credit
card processing. |
|
|
|
|
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. |
|
|
|
|
Third parties claiming that we infringe their proprietary rights could cause us to incur
significant legal expenses and prevent us from selling our products. |
|
|
|
|
We expect copying and misuse of our intellectual property to be a persistent problem
causing lost revenue and increased expenses. |
|
|
|
|
We do not own all of the software, other technologies and content used in our products
and services. |
|
|
|
|
Our acquisition and divestiture activity could disrupt our ongoing business, may involve
increased expenses and may present risks not contemplated at the time of the transactions. |
|
|
|
|
We have issued $1 billion in a debt offering and may incur other debt in the future,
which could adversely affect our financial condition and results of operations. |
|
|
|
|
If actual product returns exceed returns reserves our financial results would be harmed. |
|
|
|
|
Acquisition-related costs and impairment charges can cause significant fluctuation in
our net income. |
|
|
|
|
If we fail to operate our payroll business effectively our revenue and earnings will be
harmed. |
|
|
|
|
Interest income attributable to payroll customer deposits may fluctuate or be
eliminated, causing our revenue and earnings to decline. |
|
|
|
|
We may be unable to attract and retain key personnel. |
|
|
|
|
We are frequently a party to litigation that is costly to defend and consumes the time
of our management. |
|
|
|
|
Unanticipated changes in our tax rates could affect our future financial results. |
|
|
|
|
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. |
|
|
|
|
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, 2007 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.
Our investments in auction rate securities are subject to risks that may cause losses and affect
the liquidity of these investments.
At January 31, 2008, we held approximately $328 million in AAA-rated municipal auction rate
securities that were valued at reported market prices and classified as current assets. Beginning
in February 2008, auctions failed for approximately $140 million in par value of municipal auction
rate securities we held because sell orders exceeded buy orders. We may not be able to liquidate
these investments and realize their full carrying value unless the issuer calls the security, a
successful auction occurs, a buyer is found outside of the auction process, or the security
matures. We do not believe the carrying values of these municipal auction rate securities are
impaired, and we
43
believe that we will be able to liquidate these investments without significant loss within the
next 12 months. However, if the issuers of these securities are unable to successfully close
future auctions and their credit ratings are lowered, we may be required to record future
impairment charges related to these investments, which would harm our results of operations. If we
are unable to find alternate means to liquidate these investments, we may have to reclassify all or
a portion of these investments from current assets to long-term assets in future periods, and we
may not realize the value of the investments until the final maturity of the underlying securities
(up to 36 years).
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, 2008 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, 2007
through |
|
|
2,428,300 |
|
|
$ |
30.24 |
|
|
|
2,428,300 |
|
|
$ |
476,559,949 |
|
November 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2007
through |
|
|
3,797,956 |
|
|
$ |
30.37 |
|
|
|
3,797,956 |
|
|
$ |
361,215,691 |
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2008 through |
|
|
2,000,279 |
|
|
$ |
30.60 |
|
|
|
2,000,279 |
|
|
$ |
300,002,048 |
|
January 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,226,535 |
|
|
$ |
30.39 |
|
|
|
8,226,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes: |
|
1. |
|
All shares purchased as part of publicly announced plans during the three months ended
January 31, 2008 were purchased under a plan we announced on May 17, 2007 under which we are
authorized to repurchase up to $800 million of our common stock from time to time over a
three-year period ending on May 14, 2010. |
45
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Intuits Annual Meeting of Stockholders held on December 14, 2007, our stockholders voted as
follows on the proposals below:
1. |
|
Proposal to elect directors: |
|
|
|
|
|
|
|
|
|
|
|
For |
|
Withheld |
Stephen M. Bennett |
|
|
293,469,080 |
|
|
|
6,747,536 |
|
|
|
|
|
|
|
|
|
|
Christopher W. Brody |
|
|
291,360,392 |
|
|
|
8,856,224 |
|
|
|
|
|
|
|
|
|
|
William V. Campbell |
|
|
293,237,294 |
|
|
|
6,979,322 |
|
|
|
|
|
|
|
|
|
|
Scott D. Cook |
|
|
293,454,435 |
|
|
|
6,762,181 |
|
|
|
|
|
|
|
|
|
|
Diane B. Greene |
|
|
296,651,339 |
|
|
|
3,565,277 |
|
|
|
|
|
|
|
|
|
|
Michael R. Hallman |
|
|
292,033,439 |
|
|
|
8,183,177 |
|
|
|
|
|
|
|
|
|
|
Edward A. Kangas |
|
|
295,411,665 |
|
|
|
4,804,951 |
|
|
|
|
|
|
|
|
|
|
Suzanne Nora Johnson |
|
|
296,633,271 |
|
|
|
3,583,345 |
|
|
|
|
|
|
|
|
|
|
Dennis D. Powell |
|
|
296,739,054 |
|
|
|
3,477,562 |
|
|
|
|
|
|
|
|
|
|
Stratton D. Sclavos |
|
|
280,919,618 |
|
|
|
19,296,998 |
|
|
|
All 10 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 2008: |
|
|
|
|
|
For |
|
|
297,808,897 |
|
Against |
|
|
332,977 |
|
Abstain |
|
|
2,074,741 |
|
Broker Non-Votes |
|
|
0 |
|
3. |
|
Proposal to approve amendment of Intuits 2005 Equity Incentive Plan: |
|
|
|
|
|
For |
|
|
204,782,607 |
|
Against |
|
|
66,532,369 |
|
Abstain |
|
|
2,296,427 |
|
Broker Non-Votes |
|
|
26,605,213 |
|
4. |
|
Proposal to approve adoption of Intuits Senior Executive Incentive Plan: |
|
|
|
|
|
For |
|
|
262,527,913 |
|
Against |
|
|
8,791,931 |
|
Abstain |
|
|
2,291,560 |
|
Broker Non-Votes |
|
|
26,605,212 |
|
46
ITEM 6
EXHIBITS
We have filed the following exhibits as part of this report:
|
|
|
|
|
|
|
Exhibit |
|
|
|
Filed |
|
Incorporated |
Number |
|
Exhibit Description |
|
Herewith |
|
by Reference |
10.01+
|
|
Intuit Inc. 2005 Equity Incentive Plan, as amended
through December 14, 2007 (incorporated by
reference to Exhibit 99.01 of the registration
statement on Form S-8 (Registration No. 333-148112)
filed by the Registrant on December 17, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.02+
|
|
Intuit Inc. Senior Executive Incentive Plan
(incorporated by reference to Exhibit 10.02 of the
report on Form 8-K filed by the Registrant on
December 17. 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.03+
|
|
Separation Terms and General Release Agreement by
and between Intuit Inc. and Mr. Jeffrey E.
Stiefler, dated February 4, 2008 (incorporated by
reference to Exhibit 10.01 of the report on Form
8-K filed by the Registrant on February 8, 2008)
|
|
|
|
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 |
|
|
|
|
|
+ |
|
Indicates a management contract or compensatory plan or arrangement. |
47
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: February 29, 2008 |
By: |
/s/ R. NEIL WILLIAMS
|
|
|
|
R. Neil Williams |
|
|
|
Senior Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer) |
|
48
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit |
|
|
|
Filed |
|
Incorporated |
Number |
|
Exhibit Description |
|
Herewith |
|
by Reference |
10.01+
|
|
Intuit Inc. 2005 Equity Incentive Plan, as amended
through December 14, 2007 (incorporated by
reference to Exhibit 99.01 of the registration
statement on Form S-8 (Registration No. 333-148112)
filed by the Registrant on December 17, 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.02+
|
|
Intuit Inc. Senior Executive Incentive Plan
(incorporated by reference to Exhibit 10.02 of the
report on Form 8-K filed by the Registrant on
December 17. 2007)
|
|
|
|
X |
|
|
|
|
|
|
|
10.03+
|
|
Separation Terms and General Release Agreement by
and between Intuit Inc. and Mr. Jeffrey E.
Stiefler, dated February 4, 2008 (incorporated by
reference to Exhibit 10.01 of the report on Form
8-K filed by the Registrant on February 8, 2008)
|
|
|
|
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 |
|
|
|
|
|
+ |
|
Indicates a management contract or compensatory plan or arrangement. |
49