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ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide readers of our consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. Our MD&A includes the following sections:
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•
Executive Overview:
High level discussion of our operating results and some of the trends that affect our business.
•
Critical Accounting Policies and Estimates:
Policies and estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.
•
Results of Operations:
A more detailed discussion of our revenue and expenses.
•
Liquidity and Capital Resources:
Discussion of key aspects of our statements of cash flows, changes in our balance sheets, and our financial commitments.
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You should note that this MD&A contains forward-looking statements that involve risks and uncertainties. Please see the section entitled
“Forward-Looking Statements”
immediately preceding Part 1 for important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the financial statements and related notes in Item 8 of this Annual Report. In fiscal 2018 we acquired TSheets.com LLC, Exactor, Inc., and Applatix, Inc. We have included their results of operations in our consolidated results of operations from the dates of acquisitions.
In August 2017, we aligned our segment reporting for fiscal 2018 with our core customers and business partners. The Consumer Ecosystem offering moved from the Small Business segment into the Consumer Tax segment. The company also renamed the Small Business, Consumer Tax, and ProConnect segments as the Small Business & Self-Employed, Consumer, and Strategic Partner segments, respectively. The Strategic Partner segment will continue to manage our professional tax offerings. We have reclassified certain amounts related to our reportable segments previously reported in our financial statements to conform to the current presentation. See Note 14 to the financial statements in Item 8 of this Annual Report for more information.
In fiscal 2016 we completed the sales of our Demandforce, QuickBase, and Quicken businesses. We have reclassified our statements of operations for fiscal 2016 to reflect all of these businesses as discontinued operations. Because the cash flows of these discontinued operations were not material , we have not segregated them on our statements of cash flows. See “Results of Operations – Non-Operating Income and Expense – Discontinued
Operations”
later in this Item 7 for more information. Unless otherwise noted, the following discussion pertains to our continuing operations.
This overview provides a high level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important in order to understand our financial results for fiscal
2018
as well as our future prospects. This summary is not intended to be exhaustive, nor is it a substitute for the detailed discussion and analysis provided elsewhere in this Annual Report on Form 10-K.
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Industry Trends and Seasonality
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Industry Trends
The rapid expansion of cloud-based services is creating a more dynamic and highly competitive software industry. High availability and speed of service are reshaping customer expectations around the world. These shifts are accelerating product introductions and enhancements. Among cloud-based service companies, free business models and micro-job solutions are also becoming more prevalent within the industry. Personalization and data-driven insights, augmented by artificial intelligence and machine learning, are transforming the way that people manage their financial lives.
Seasonality
Our Consumer offerings have significant seasonal patterns. As a result, during each of the last three fiscal years the total consolidated revenue for our third quarter ended April 30 has represented nearly half of our annual total consolidated revenue for those years. We expect the seasonality of our Consumer business to continue to have a significant impact on our quarterly financial results in the future.
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Intuit
Fiscal 2018 Form 10-K
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31
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Our growth strategy depends upon our ability to initiate and embrace disruptive technology trends, to enter new markets, and to drive broad adoption of the products and services we develop and market. Our future growth also increasingly depends on the strength of our third-party business relationships and our ability to continue to develop, maintain, and strengthen new and existing relationships. To remain competitive and continue to grow, we are investing significant resources in our product development, marketing, and sales capabilities, and we expect to continue to do so in the future.
As we offer more online services, the ongoing operation and availability of our platforms and systems and those of our external service providers is becoming increasingly important. Because we help customers manage their financial lives, we face risks associated with the hosting, collection, use, and retention of personal customer information and data. We are investing significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities, and we expect to continue to do so in the future.
For our consumer and professional tax offerings, we have implemented additional security measures and are continuing to work with state and federal governments to share information regarding suspicious filings. We continue to invest in security measures and to work with the broader industry and government to protect our customers against this type of fraud.
For a complete discussion of the most significant risks and uncertainties affecting our business, please see
“Forward-Looking Statements”
immediately preceding Part 1 and
“Risk Factors”
in Item 1A of Part I of this Report.
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Overview of Financial Results
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The most important financial indicators that we use to assess our business are revenue growth for the company as a whole, for each reportable segment, and for product lines within each reportable segment; operating income growth and operating income margins for the company as a whole and for each reportable segment; earnings per share; and cash flow from operations. We also track certain non-financial drivers of revenue growth and, when material, identify them in the applicable discussions of segment results below. These non-financial drivers include, for example, customer growth and retention for all of our businesses. Online service offerings are a significant part of our business. Our total service and other revenue was
$4.5
billion or
75%
of our total revenue in fiscal
2018
and we expect our total service and other revenue to continue to grow in the future.
Key highlights for fiscal 2018 include the following:
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Revenue of
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Small Business & Self-Employed revenue of
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Consumer revenue of
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$6.0 B
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$3.0 B
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$2.5 B
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up 15% from fiscal 2017
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up 18% from fiscal 2017
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up 14% from fiscal 2017
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Operating income of
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Net income of
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Diluted net income per share of
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$1.5 B
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$1.2 B
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$4.64
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up 7% from fiscal 2017
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up 25% from fiscal 2017
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up 25% from fiscal 2017
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Intuit
Fiscal 2018 Form 10-K
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32
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), we are required to 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 following accounting policies have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies:
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•
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Goodwill, Acquired Intangible Assets, and Other Long-Lived Assets – Impairment Assessments
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•
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Accounting for Share-Based Compensation Plans
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•
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Accounting for Income Taxes
– Estimates of Deferred Taxes, Valuation Allowances, and Uncertain Tax Positions
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Our senior management has reviewed the development and selection of these critical accounting policies and their disclosure in this Annual Report on Form 10-K with the Audit and Risk Committee of our Board of Directors.
Revenue Recognition
We derive revenue from the sale of software subscriptions, hosted services, packaged software products, financial supplies, technical support plans, transaction fees, merchant services hardware, and multiple element arrangements that may include a combination of these items. We follow the appropriate revenue recognition rules for each type of revenue. For additional information, see
“Revenue Recognition”
in Note 1 to the financial statements in Item 8 of this Annual Report. We generally recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectibility is probable. However, determining whether and when some of these criteria have been satisfied often involves exercising judgment and using estimates that can have a significant impact on the timing and amount of revenue we report. For example, for multiple element arrangements containing only software and software-related elements, we must exercise judgment and use estimates in order to (1) allocate the total price among the various elements we must deliver; (2) determine whether undelivered services are essential to the functionality of the delivered products and services; (3) determine whether vendor-specific evidence of fair value exists for each undelivered element; and (4) determine whether and when each element has been delivered. For multiple element arrangements containing non-software elements, we must exercise judgment and use estimates in order to (1) determine whether and when each element has been delivered; (2) determine the fair value of each element using the selling price hierarchy of vendor-specific evidence of fair value (VSOE) if available, third-party evidence (TPE) if VSOE is not available, and estimated selling price (ESP) if neither VSOE nor TPE is available; and (3) allocate the total price among the various elements based on the relative selling price method. If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. Amounts for fees collected or invoiced and due relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized when the applicable revenue recognition criteria are satisfied.
Business Combinations
As described in
“Description of Business and Summary of Significant Accounting Policies – Business Combinations,”
in Note 1 to the financial statements in Item 8 of this Annual Report, under the acquisition method of accounting we generally recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to exercise judgment and make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities related to uncertain tax positions, and contingencies. This method also requires us to refine these estimates over a one-year measurement period to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could materially decrease our operating income and net income and result in lower asset values on our balance sheet.
Significant estimates and assumptions that we must make in estimating the fair value of acquired technology, customer lists, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.
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Intuit
Fiscal 2018 Form 10-K
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33
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Goodwill, Acquired Intangible Assets and Other Long-Lived Assets – Impairment Assessments
We estimate the fair value of acquired intangible assets and other long-lived assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. We test for potential impairment of goodwill and other intangible assets that have indefinite useful lives annually in our fourth fiscal quarter or whenever indicators of impairment arise. The timing of the annual test may result in charges to our statement of operations in our fourth fiscal quarter that could not have been reasonably foreseen in prior periods.
As described in
“Description of Business and Summary of Significant Accounting Policies – Goodwill, Acquired Intangible Assets and Other Long-Lived Assets,”
in Note 1 to the financial statements in Item 8 of this Annual Report, in order to estimate the fair value of goodwill we use a weighted combination of a discounted cash flow model (known as the income approach) and comparisons to publicly traded companies engaged in similar businesses (known as the market approach). The income approach requires us to use a number of assumptions, including market factors specific to the business, the amount and timing of estimated future cash flows to be generated by the business over an extended period of time, long-term growth rates for the business, and a rate of return that considers the relative risk of achieving the cash flows and the time value of money. We evaluate cash flows at the reporting unit level. Although the assumptions we use in our discounted cash flow model are consistent with the assumptions we use to generate our internal strategic plans and forecasts, significant judgment is required to estimate the amount and timing of future cash flows from each reporting unit and the relative risk of achieving those cash flows. When using the market approach, we make judgments about the comparability of publicly traded companies engaged in similar businesses. We base our judgments on factors such as size, growth rates, profitability, risk, and return on investment. We also make judgments when adjusting market multiples of revenue, operating income, and earnings for these companies to reflect their relative similarity to our own businesses. We had a total of
$1.6 billion
in goodwill on our balance sheet at
July 31, 2018
. See Note 5 to the financial statements in Item 8 of this Annual Report for a summary of goodwill by reportable segment.
We estimate the recoverability of acquired intangible assets and other long-lived assets that have finite useful lives by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. In order to estimate the fair value of those assets, we estimate the present value of future cash flows from those assets. The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows and the time value of money. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. We also make judgments about the remaining useful lives of acquired intangible assets and other long-lived assets that have finite lives. We had a total of
$61 million
in net acquired intangible assets on our balance sheet at
July 31, 2018
.
Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of one or more of our reporting units, we may be required to record future impairment charges for goodwill and acquired intangible assets. Impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet.
During the fourth quarters of fiscal
2018
, fiscal
2017
, and fiscal
2016
we performed our annual goodwill impairment tests. Using the methodology described in
“Description of Business and Summary of Significant Accounting Policies – Goodwill, Acquired Intangible Assets and Other Long-Lived Assets,”
in Note 1 to the financial statements in Item 8 of this Annual Report, we determined that the estimated fair values of all of our reporting units exceeded their carrying values and that they were not impaired. In addition, during this analysis we concluded that the estimated fair values of all of our reporting units substantially exceeded their carrying values.
Accounting for Share-Based Compensation Plans
At
July 31, 2018
, there was
$882
million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans which we will amortize to expense in the future. We expect to recognize that cost over a weighted average vesting period of
2.7
years.
We use a lattice binomial model and the assumptions described in Note 11 to the financial statements in Item 8 of this Annual Report to estimate the fair value of stock options granted. We estimate the expected term of options granted based on implied exercise patterns using a binomial model. We estimate the volatility of our common stock at the date of grant based on the implied volatility of publicly traded one-year and two-year options on our common stock. Our decision to use implied volatility is based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate that we use in our option valuation model on the implied yield in effect at the time of option grant on constant maturity U.S. Treasury issues with equivalent remaining terms. We use an annualized expected dividend yield in our option valuation model. We adjust share-based compensation expense for actual forfeitures as they occur. Prior to our adoption of ASU 2016-09 in the first quarter of fiscal 2017, we estimated forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures differed from those estimates. We amortize the fair value of options on a straight-line basis over the requisite
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Intuit
Fiscal 2018 Form 10-K
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34
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service periods of the awards, which are generally the vesting periods. We may elect to use different assumptions under our option valuation model in the future, which could materially affect our net income or loss and net income or loss per share.
Restricted stock units (RSUs) granted typically vest based on continued service. We value these time-based RSUs at the date of grant using the intrinsic value method. We amortize the fair value of time-based RSUs on a straight-line basis over the service period. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals. We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based RSUs if necessary. We amortize the fair values of performance-based RSUs over the requisite service period for each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria. All of the RSUs we grant have dividend rights that are subject to the same vesting requirements as the underlying equity awards, so we do not adjust the intrinsic (market) value of our RSUs for dividends. See Note 11 to the financial statements in Item 8 of this Annual Report for more information.
Legal Contingencies
We are subject to certain legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. We review the status of each significant matter quarterly and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss. If we determine that a loss is possible and the range of the loss can be reasonably determined, then we disclose the range of the possible loss. Significant judgment is required in the determination of whether a potential loss is probable, reasonably possible, or remote as well as in the determination of whether a potential exposure is reasonably estimable. Our accruals are based on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Potential legal liabilities and the revision of estimates of potential legal liabilities could have a material impact on our financial position and results of operations.
Accounting for Income Taxes – Estimates of Deferred Taxes, Valuation Allowances, and Uncertain Tax Positions
We estimate our income taxes based on the various jurisdictions where we conduct business. Significant judgment is required in determining our worldwide income tax provision. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the United States Internal Revenue Service or other taxing jurisdictions. We estimate our current tax liability and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which we show on our balance sheet. We must then assess the likelihood that our deferred tax assets will be realized. To the extent we believe that realization is not likely, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding tax expense in our statement of operations.
At
July 31, 2018
, we had net deferred tax assets of
$80 million
which included a valuation allowance of
$93 million
for loss and tax credit carryforwards related to state research and experimentation tax credits, foreign losses, and state operating and capital losses. We recorded the valuation allowance to reflect uncertainties about whether we will be able to utilize some of our deferred tax assets before they expire. While we believe our current valuation allowance is sufficient, we could in the future be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize. We assess the need for an adjustment to the valuation allowance on a quarterly basis. The assessment is based on our estimates of future sources of taxable income for the jurisdictions in which we operate and the periods over which our deferred tax assets will be realizable. See Note 10 to the financial statements in Item 8 of this Annual Report for more information.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate our uncertain tax positions on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
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Intuit
Fiscal 2018 Form 10-K
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35
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The Tax Cuts and Jobs Act significantly changes existing U.S. tax law and includes numerous provisions that affect our business. See Note 10 to the financial statements in Item 8 of this Annual Report for more information.
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Financial Overview
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(Dollars in millions, except per share amounts)
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Fiscal
2018
|
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Fiscal
2017
|
|
Fiscal
2016
|
|
2018-2017
% Change
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|
2017-2016
% Change
|
Total net revenue
|
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$5,964
|
|
|
|
$5,177
|
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|
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$4,694
|
|
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15
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%
|
|
10
|
%
|
Operating income from continuing operations
|
1,497
|
|
|
1,395
|
|
|
1,242
|
|
|
7
|
%
|
|
12
|
%
|
Net income from continuing operations
|
1,211
|
|
|
971
|
|
|
806
|
|
|
25
|
%
|
|
20
|
%
|
Diluted net income per share from continuing operations
|
|
$4.64
|
|
|
|
$3.72
|
|
|
|
$3.04
|
|
|
25
|
%
|
|
22
|
%
|
Fiscal
2018
Compared with Fiscal
2017
Total net revenue increased
$787
million or
15%
in fiscal
2018
compared with fiscal
2017
. Our Small Business & Self-Employed segment revenue increased
18%
due to growth in the Online Ecosystem driven by customer acquisition. Our Consumer segment revenue increased
14%
due to a higher average revenue per customer, growth in TurboTax federal units, and a shift in mix to our higher end product offerings. See
“Segment Results”
later in this Item 7 for more information.
Operating income from continuing operations increased
7%
in fiscal
2018
compared with fiscal
2017
. The increase was due to the higher revenue described above partially offset by higher costs for staffing, advertising and other marketing programs, outside services, and share-based compensation. We also recorded a $79 million loss related to the sale of our data center in Quincy, Washington in the 2018 period.
Net income from continuing operations increased
25%
in fiscal
2018
compared with fiscal
2017
due to the increase in operating income described above and a lower effective tax rate in fiscal 2018 as a result of the Tax Cuts and Jobs Act (2017 Tax Act). The net income for fiscal 2018 includes tax benefits related to share-based compensation and the reorganization of a subsidiary during the year which were partially offset by a charge related to the re-measurement of our deferred tax asset balances as a result of the enactment of the 2017 Tax Act. See Note 10 to the financial statements in Item 8 of this Annual Report for more information. Diluted net income per share increased
25%
to
$4.64
, in line with the increase in net income.
Fiscal
2017
Compared with Fiscal
2016
Total net revenue increased $483 million or 10% in fiscal
2017
compared with fiscal
2016
. Revenue in our Small Business & Self-Employed segment increased 13% due to growth in Online Ecosystem revenue and the impact of the changes to our QuickBooks Desktop software products. Starting with the release of QuickBooks 2015 in the first quarter of fiscal 2015, and for all subsequent versions, we began delivering ongoing enhancements and certain connected services for our QuickBooks Desktop software products. We plan to continue to provide ongoing enhancements and certain connected services for all future versions of these offerings. As a result of these changes, we recognize revenue for these QuickBooks Desktop software products as services are provided over approximately three years. Revenue in our Consumer segment increased 9% due to growth in TurboTax federal units and a shift in mix to the higher end of our product lineup. Revenue in our Strategic Partner segment increased 2% to $437 million in fiscal
2017
. See
“Segment Results”
later in this Item 7 for more information.
Operating income from continuing operations increased 12% in fiscal
2017
compared with fiscal
2016
due to the increase in revenue described above. Higher revenue was partially offset by higher costs and expenses for staffing, advertising and other marketing programs, and share-based compensation. See
“Operating Expenses”
later in this Item 7 for more information.
Net income from continuing operations increased 20% in fiscal
2017
compared with fiscal
2016
due to the increase in operating income and a lower effective tax rate in the fiscal
2017
period. See
“Non-Operating Income and Expenses - Income Taxes”
later in this Item 7 for more information. Diluted net income per share from continuing operations for fiscal
2017
increased 22% to $3.72 as a result of the increase in net income and the decline in weighted average diluted common shares compared with fiscal
2016
.
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Intuit
Fiscal 2018 Form 10-K
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36
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The information below is organized in accordance with our three reportable segments. All of our segments operate and sell to customers primarily in the United States. International total net revenue was less than 5% of consolidated total net revenue for all periods presented.
Segment operating income is segment net revenue less segment cost of revenue and operating expenses. Segment expenses do not include certain costs, such as corporate selling and marketing, product development, general and administrative expenses and share-based compensation expenses, which are not allocated to specific segments. These unallocated costs totaled
$1.62 billion
in fiscal
2018
,
$1.32 billion
in fiscal
2017
, and
$1.18 billion
in fiscal
2016
. Unallocated costs increased in fiscal
2018
compared with fiscal
2017
and in fiscal
2017
compared with fiscal
2016
due to increased corporate product development and selling and marketing expenses in support of the growth of our businesses and higher share-based compensation expenses. Segment expenses also do not include amortization of acquired technology, amortization of other acquired intangible assets, and goodwill and intangible asset impairment charges. See Note 14 to the financial statements in Item 8 of this Annual Report for reconciliations of total segment operating income to consolidated operating income from continuing operations for each fiscal year presented.
We calculate revenue growth rates and segment operating margin figures using dollars in thousands. Those results may vary slightly from figures calculated using the dollars in millions presented.
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Intuit
Fiscal 2018 Form 10-K
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37
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Small Business & Self-Employed
|
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Small Business & Self-Employed segment product revenue is derived primarily from QuickBooks Desktop software products, including Desktop Pro, Desktop for Mac, Desktop Premier, and Enterprise; QuickBooks Basic Payroll and QuickBooks Enhanced Payroll; QuickBooks Point of Sale solutions; ProAdvisor Program memberships for the accounting professionals who serve small businesses; and financial supplies.
Small Business & Self-Employed segment service and other revenue is derived primarily from our QuickBooks Online and QuickBooks Self-Employed financial and business management offerings; QuickBooks Desktop Pro Plus, QuickBooks Desktop Premier Plus, and QuickBooks Enterprise with Hosting, our subscription offerings; QuickBooks Enterprise term licenses and QuickBooks technical support plans; small business payroll services, including QuickBooks Online Payroll, Intuit Online Payroll, QuickBooks Assisted Payroll, and Intuit Full Service Payroll; and payment processing services for small businesses.
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(Dollars in millions)
|
Fiscal
2018
|
|
Fiscal
2017
|
|
Fiscal
2016
|
|
2018-2017
% Change
|
|
2017-2016
% Change
|
Product revenue
|
$
|
854
|
|
|
$
|
789
|
|
|
$
|
709
|
|
|
|
|
|
Service and other revenue
|
2,140
|
|
|
1,750
|
|
|
1,512
|
|
|
|
|
|
Total segment revenue
|
$
|
2,994
|
|
|
$
|
2,539
|
|
|
$
|
2,221
|
|
|
18
|
%
|
|
14
|
%
|
% of total revenue
|
50
|
%
|
|
49
|
%
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
1,257
|
|
|
$
|
1,072
|
|
|
$
|
879
|
|
|
17
|
%
|
|
22
|
%
|
% of related revenue
|
42
|
%
|
|
42
|
%
|
|
40
|
%
|
|
|
|
|
Fiscal
2018
Compared with Fiscal
2017
Revenue for our Small Business & Self-Employed segment increased
$455 million
or
18%
in fiscal 2018 compared with fiscal 2017. The increase was primarily due to growth in Online Ecosystem revenue.
Online Ecosystem
Online Ecosystem revenue increased $340 million or 40% in fiscal 2018 compared with fiscal
2017
. The revenue growth was driven by customer acquisition. At
July 31, 2018
QuickBooks Online subscribers were 3.4 million, up 43% compared to
July 31, 2017
. Online Services revenue increased 24% due to customer growth in online payroll and payments.
Desktop Ecosystem
Desktop Ecosystem revenue increased $115 million or 7% in fiscal 2018 compared with fiscal
2017
, driven by growth in QuickBooks Enterprise subscribers and average revenue per customer. QuickBooks Desktop units declined 15%.
Small Business & Self-Employed segment operating income increased
17%
in fiscal 2018 compared with fiscal
2017
due to the higher revenue described above which was partially offset by higher expenses for staffing, advertising, and other marketing programs.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
38
|
|
|
|
|
|
|
|
|
|
Fiscal
2017
Compared with Fiscal
2016
Revenue for our Small Business & Self-Employed segment increased $318 million or 14% in fiscal
2017
compared with fiscal
2016
. The increase was primarily due to growth in Online Ecosystem revenue.
Online Ecosystem
Online Ecosystem revenue increased $196 million or 30% in fiscal
2017
compared with fiscal
2016
. The revenue growth was driven by customer acquisition. At July 31,
2017
QuickBooks Online subscribers were 2.4 million, up 58% compared to
July 31, 2016
. Online Services revenue increased 17% due to customer growth in online payroll and payments.
Desktop Ecosystem
Desktop Ecosystem revenue increased $122 million or 8% in fiscal
2017
compared with fiscal
2016
. In fiscal
2017
, revenue from our QuickBooks Desktop software products and QuickBooks Desktop subscriptions increased 32% due to the impact of changes to our QuickBooks Desktop software products described in “Financial Overview” above, and to growth in QuickBooks Enterprise subscribers and average revenue per customer. QuickBooks Desktop units declined
8%
.
Small Business & Self-Employed segment operating income increased 22% in fiscal
2017
compared with fiscal
2016
due to the higher revenue described above which was partially offset by higher expenses for staffing, advertising and other marketing programs, and outside services.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
39
|
|
|
|
|
|
|
|
|
|
Consumer segment product revenue is derived primarily from TurboTax desktop tax return preparation software.
Consumer segment service and other revenue is derived primarily from TurboTax Online tax return preparation services and electronic tax filing services, and also from our Mint and Turbo offerings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Fiscal
2018
|
|
Fiscal
2017
|
|
Fiscal
2016
|
|
2018-2017
% Change
|
|
2017-2016
% Change
|
Product revenue
|
$
|
237
|
|
|
$
|
225
|
|
|
$
|
226
|
|
|
|
|
|
Service and other revenue
|
2,280
|
|
|
1,976
|
|
|
1,819
|
|
|
|
|
|
Total segment revenue
|
$
|
2,517
|
|
|
$
|
2,201
|
|
|
$
|
2,045
|
|
|
14
|
%
|
|
8
|
%
|
% of total revenue
|
42
|
%
|
|
43
|
%
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
1,596
|
|
|
$
|
1,395
|
|
|
$
|
1,304
|
|
|
14
|
%
|
|
7
|
%
|
% of related revenue
|
63
|
%
|
|
63
|
%
|
|
64
|
%
|
|
|
|
|
Fiscal
2018
Compared with Fiscal
2017
Revenue for our Consumer segment increased
$316
million or
14%
in fiscal
2018
compared with fiscal
2017
due to a higher average revenue per customer, a 4% growth in TurboTax federal units, and a shift in mix to our higher end product offerings.
Consumer segment operating income increased
14%
in fiscal 2018 compared with fiscal
2017
due to the higher revenue described above which was partially offset by higher expenses including staffing, advertising, and other marketing programs.
Fiscal
2017
Compared with Fiscal
2016
Revenue for our Consumer segment increased $156 million or 8% in fiscal
2017
compared with fiscal
2016
due to 2% growth in TurboTax federal units and a shift in mix to the higher end of our product lineup.
Consumer segment operating income increased
7%
in fiscal
2017
compared with fiscal
2016
due to the higher revenue described above which was partially offset by higher expenses for advertising and other marketing programs and staffing.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
40
|
|
|
|
|
|
|
|
|
|
Strategic Partner segment product revenue is derived primarily from Lacerte, ProSeries, and ProFile desktop tax preparation software products.
Strategic Partner segment service and other revenue is derived primarily from ProConnect Tax Online tax return preparation, bank products, and related services that complement the tax return preparation process.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Fiscal
2018
|
|
Fiscal
2017
|
|
Fiscal
2016
|
|
2018-2017
% Change
|
|
2017-2016
% Change
|
Product revenue
|
$
|
371
|
|
|
$
|
362
|
|
|
$
|
354
|
|
|
|
|
|
Service and other revenue
|
82
|
|
|
75
|
|
|
74
|
|
|
|
|
|
Total segment revenue
|
$
|
453
|
|
|
$
|
437
|
|
|
$
|
428
|
|
|
4
|
%
|
|
2
|
%
|
% of total revenue
|
8
|
%
|
|
8
|
%
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
281
|
|
|
$
|
263
|
|
|
$
|
268
|
|
|
6
|
%
|
|
(2
|
%)
|
% of related revenue
|
62
|
%
|
|
60
|
%
|
|
63
|
%
|
|
|
|
|
Fiscal
2018
Compared with Fiscal
2017
Revenue for our Strategic Partner segment increased
$16 million
or
4%
in fiscal 2018 compared with fiscal 2017 primarily due to a higher average revenue per customer.
Strategic Partner segment operating income increased
6%
in fiscal 2018 primarily due to the higher revenue described above and relatively stable spending.
Fiscal
2017
Compared with Fiscal
2016
Revenue for our Strategic Partner segment increased $9 million or 2% in fiscal
2017
compared with fiscal
2016
. During fiscal
2017
we made a strategic decision to focus less on price increases and more on customer retention by delivering awesome products and a valuable end to end experience. This resulted in slower revenue growth in fiscal
2017
than we have experienced historically.
Strategic Partner segment operating income decreased 2% in fiscal
2017
compared with fiscal
2016
due to higher staffing expenses which more than offset the higher revenue described above.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Fiscal
2018
|
|
% of
Related
Revenue
|
|
Fiscal
2017
|
|
% of
Related
Revenue
|
|
Fiscal
2016
|
|
% of
Related
Revenue
|
Cost of product revenue
|
$
|
112
|
|
|
8
|
%
|
|
$
|
120
|
|
|
9
|
%
|
|
$
|
131
|
|
|
10
|
%
|
Cost of service and other revenue
|
850
|
|
|
19
|
%
|
|
677
|
|
|
18
|
%
|
|
599
|
|
|
18
|
%
|
Amortization of acquired technology
|
15
|
|
|
n/a
|
|
|
12
|
|
|
n/a
|
|
|
22
|
|
|
n/a
|
|
Total cost of revenue
|
$
|
977
|
|
|
16
|
%
|
|
$
|
809
|
|
|
16
|
%
|
|
$
|
752
|
|
|
16
|
%
|
Our cost of revenue has three components: (1) cost of product revenue, which includes the direct costs of manufacturing and shipping or electronically downloading our desktop software products; (2) cost of service and other revenue, which reflects direct costs associated with providing services, including data center and support costs related to delivering online services; and (3) amortization of acquired technology, which represents the cost of amortizing developed technologies that we have obtained through acquisitions over their useful lives.
Cost of product revenue as a percentage of product revenue was consistent across all periods presented. We expense costs of product revenue as they are incurred for delivered software and we do not defer any of these costs when product revenue is deferred.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Fiscal
2018
|
|
% of
Total
Net
Revenue
|
|
Fiscal
2017
|
|
% of
Total
Net
Revenue
|
|
Fiscal
2016
|
|
% of
Total
Net
Revenue
|
Selling and marketing
|
$
|
1,634
|
|
|
27
|
%
|
|
$
|
1,420
|
|
|
27
|
%
|
|
$
|
1,289
|
|
|
28
|
%
|
Research and development
|
1,186
|
|
|
20
|
%
|
|
998
|
|
|
19
|
%
|
|
881
|
|
|
19
|
%
|
General and administrative
|
664
|
|
|
11
|
%
|
|
553
|
|
|
11
|
%
|
|
518
|
|
|
11
|
%
|
Amortization of other acquired intangible assets
|
6
|
|
|
—
|
%
|
|
2
|
|
|
—
|
%
|
|
12
|
|
|
—
|
%
|
Total operating expenses
|
$
|
3,490
|
|
|
58
|
%
|
|
$
|
2,973
|
|
|
57
|
%
|
|
$
|
2,700
|
|
|
58
|
%
|
Fiscal
2018
Compared with Fiscal
2017
Total operating expenses as a percentage of total net revenue increased slightly in fiscal
2018
compared to fiscal
2017
. Total net revenue increased
$787
million or
15%
and total operating expenses increased
$517 million
or
17%
. The increase in operating expenses was primarily driven by $193 million for higher staffing expenses due to higher headcount, $127 million for advertising and other marketing programs, and $49 million for outside services. General and administrative expenses in the fiscal 2018 period include a
$79 million
loss related to the sale of our data center in Quincy, Washington.
Fiscal
2017
Compared with Fiscal
2016
Total operating expenses as a percentage of total net revenue decreased slightly in fiscal
2017
compared to fiscal
2016
. Total net revenue increased $483 million or 10% and total operating expenses increased $273 million or
10%
. The increase in operating expenses was primarily driven by $152 million for higher staffing expenses due to higher headcount, $85 million for advertising and other marketing programs, and $48 million for share-based compensation expenses. Share-based compensation expenses have been increasing over time because the total fair value of our share-based awards has generally been increasing.
|
|
Non-Operating Income and Expenses
|
Interest Expense
Interest expense of
$20
million in fiscal
2018
consisted primarily of interest on our unsecured term loan and unsecured revolving credit facility. Interest expense of
$31
million in fiscal
2017
consisted primarily of interest on our senior notes, unsecured term loan, and unsecured revolving credit facility. Interest expense of
$35
million in fiscal
2016
consisted primarily of interest on our senior notes, unsecured term loan, and unsecured revolving credit facilities. See Note 8 and Note 9 to the financial statements in Item 8 of this Annual Report for more information.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
42
|
|
|
|
|
|
|
|
|
|
Interest and Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Fiscal 2018
|
|
Fiscal 2017
|
|
Fiscal 2016
|
Interest income
|
$
|
18
|
|
|
$
|
8
|
|
|
$
|
3
|
|
Net gain on executive deferred compensation plan assets
(1)
|
7
|
|
|
7
|
|
|
—
|
|
Other
|
1
|
|
|
(12
|
)
|
|
(7
|
)
|
Total interest and other income (expense), net
|
$
|
26
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
(
1) In accordance with authoritative guidance, we record gains and losses associated with executive deferred compensation plan assets in interest and other income and gains and losses associated with the related liabilities in operating expenses. The total amounts recorded in operating expenses for each period are approximately equal to the total amounts recorded in interest and other income in those periods.
Income Taxes
Effective Tax Rate
The Tax Cuts and Jobs Act (2017 Tax Act) was enacted on December 22, 2017 and reduces the U.S. statutory federal corporate tax rate from 35% to 21%. The effective date of the tax rate change was January 1, 2018. The change resulted in a blended lower U.S. statutory federal rate of 26.9% for fiscal year 2018. As a result, we adjusted our annual effective tax rate for the year ended July 31, 2018, as well as adjusted our U.S. net deferred tax asset balance at the lower rates.
Our effective tax rates for fiscal
2018
, fiscal
2017
, and fiscal
2016
were approximately
19%
,
29%
, and
33%
. Excluding the tax benefits related to share-based compensation, the reorganization of a subsidiary, and the charge related to the re-measurement of our deferred tax asset balances, our effective tax rate for fiscal 2018 was approximately 26% and did not differ significantly from the federal statutory rate of 26.9%. Excluding the share-based compensation tax benefits, our effective tax rate for fiscal 2017 was approximately 34% and did not differ significantly from the federal statutory rate of 35%. See Note 10 to the financial statements in Item 8 of this Annual Report for more information about our effective tax rates.
Net Deferred Tax Assets
At
July 31, 2018
, we had net deferred tax assets of
$80
million which included a valuation allowance of $93 million for loss and tax credit carryforwards related to state research and experimentation tax credits, foreign losses, and state operating and capital losses. We recorded the valuation allowance to reflect uncertainties about whether we will be able to utilize some of our deferred tax assets before they expire. While we believe our current valuation allowance is sufficient, we could in the future be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize. We assess the need for an adjustment to the valuation allowance on a quarterly basis. The assessment is based on our estimates of future sources of taxable income for the jurisdictions in which we operate and the periods over which our deferred tax assets will be realizable. See “
Critical Accounting Policies and Estimates
” earlier in this Item 7 and Note 10 to the financial statements in Item 8 of this Annual Report for more information.
Discontinued Operations
In the third quarter of fiscal 2016 we sold our Demandforce, QuickBase, and Quicken businesses for $463 million in cash. We recorded a pre-tax gain of $354 million and a net gain of $173 million on the disposal of these three businesses in fiscal 2016. We have reclassified our statements of operations for all periods presented to reflect these businesses as discontinued operations. See Note 7 to the financial statements in Item 8 of this Annual Report for a more complete description of these discontinued operations and the impact that they have had on our statements of operations for the fiscal periods presented.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
43
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
|
At
July 31, 2018
, our cash, cash equivalents and investments totaled
$1.7 billion
, an increase of
$939
million from
July 31, 2017
due to the factors described in
“Statements of Cash Flows”
below. Our primary sources of liquidity have been cash from operations, which entails the collection of accounts receivable for products and services, and borrowings under our credit facilities. In fiscal 2018 our U.S. statutory tax rate decreased from 35% to 26.9% as a result of the Tax Cuts and Jobs Act, which increased our cash from operations. Our primary uses of cash have been for research and development programs, selling and marketing activities, capital projects, acquisitions of businesses, debt service costs and debt repayment, repurchases of our common stock under our stock repurchase programs, and the payment of cash dividends. As discussed in
“Executive Overview – Industry Trends and Seasonality”
earlier in this Item 7, our business is subject to significant seasonality. The balance of our cash, cash equivalents and investments generally fluctuates with that seasonal pattern. We believe the seasonality of our business is likely to continue in the future.
The following table summarizes selected measures of our liquidity and capital resources at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
July 31,
2018
|
|
July 31,
2017
|
|
$
Change
|
|
%
Change
|
Cash, cash equivalents and investments
|
$
|
1,716
|
|
|
$
|
777
|
|
|
$
|
939
|
|
|
121
|
%
|
Long-term investments
|
13
|
|
|
31
|
|
|
(18
|
)
|
|
(58
|
)%
|
Short-term debt
|
50
|
|
|
50
|
|
|
—
|
|
|
—
|
%
|
Long-term debt
|
388
|
|
|
438
|
|
|
(50
|
)
|
|
(11
|
)%
|
Working capital (deficit)
|
288
|
|
|
(529
|
)
|
|
817
|
|
|
(154
|
)%
|
Ratio of current assets to current liabilities
|
1.1 : 1
|
|
|
0.7 : 1
|
|
|
|
|
|
We have historically generated significant cash from operations and we expect to continue to do so during fiscal
2019
. Our cash, cash equivalents, and investments totaled
$1.7 billion
at
July 31, 2018
, none of those funds were restricted, and approximately
87%
of those funds were located in the U.S. Our unsecured revolving credit facility is available to us for general corporate purposes, including future acquisitions and share repurchases. At
July 31, 2018
, no amounts were outstanding under the revolving credit facility. See Note 8 to the financial statements in Item 8 of this Annual Report for more information.
We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing strategic relationships with and investing in other companies. Our strong liquidity profile enables us to respond nimbly to these kinds of opportunities.
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, debt service requirements, and other liquidity requirements associated with our operations for at least the next 12 months. We expect to return excess cash generated by operations to our stockholders through repurchases of our common stock and payment of cash dividends, after taking into account our operating and strategic cash needs.
The following table summarizes selected items from our statements of cash flows for fiscal
2018
, fiscal
2017
, and fiscal
2016
. See the financial statements in Item 8 of this Annual Report for complete statements of cash flows for those periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
(Dollars in millions)
|
2018
|
|
2017
|
|
2016
|
Net cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
$
|
2,112
|
|
|
$
|
1,599
|
|
|
$
|
1,460
|
|
Investing activities
|
(532
|
)
|
|
(85
|
)
|
|
371
|
|
Financing activities
|
(634
|
)
|
|
(1,632
|
)
|
|
(1,999
|
)
|
Effect of exchange rates on cash and cash equivalents
|
(11
|
)
|
|
9
|
|
|
(2
|
)
|
Net increase (decrease) in cash and cash equivalents
|
$
|
935
|
|
|
$
|
(109
|
)
|
|
$
|
(170
|
)
|
During fiscal
2018
we generated
$2.1
billion in cash from operations. We also received
$800 million
from borrowings under our revolving credit facility, and
$96 million
from the issuance of common stock under employee stock plans. During the same period we used
$850 million
for the repayment of debt and amounts outstanding under our revolving credit facility,
$407 million
for the payment of cash dividends,
$272 million
for the repurchase of shares of our common stock under our stock
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
44
|
|
|
|
|
|
|
|
|
|
repurchase programs,
$363 million
for the acquisitions of businesses net of cash acquired, and
$124 million
for capital expenditures.
During fiscal 2017 we generated $1.6 billion in cash from operations. We also received $190 million in cash from net sales of investments, $150 million from borrowings under our revolving credit facility, and $73 million from the net issuance of common stock under employee stock plans. During the same period we used $662 million in cash for the repayment of debt and amounts outstanding under our revolving credit facility, $839 million for the repurchase of shares of our common stock under our stock repurchase programs, $353 million for the payment of cash dividends, and $230 million for capital expenditures.
During fiscal 2016 we generated $1.5 billion in cash from operations. We also received $500 million in proceeds from our term loan, $463 million from the sales of our Demandforce, QuickBase, and Quicken businesses, $418 million from net sales of investments, and $89 million in cash from the issuance of common stock under employee stock plans. During the same period we used $2.3 billion in cash for the repurchase of shares of our common stock under our stock repurchase programs, $318 million for the payment of cash dividends, and $522 million for capital expenditures, including the purchase of certain previously leased facilities.
|
|
Stock Repurchase Programs and Dividends on Common Stock
|
As described in Note 11 to the financial statements in Item 8 of this Annual Report, during fiscal
2018
, fiscal
2017
, and fiscal
2016
we continued to repurchase shares of our common stock under a series of repurchase programs that our Board of Directors has authorized. At
July 31, 2018
, we had authorization from our Board of Directors to expend up to an additional
$1.2 billion
for stock repurchases. On
August 21, 2018
our Board approved a new stock repurchase program under which we are authorized to repurchase up to an additional
$2 billion
of our common stock, bringing the total authorization to
$3.2 billion
.
During fiscal
2018
, fiscal
2017
, and fiscal
2016
we also continued to pay quarterly cash dividends on shares of our outstanding common stock. In August
2018
our Board of Directors declared a quarterly cash dividend of
$0.47
per share of outstanding common stock payable on
October 18, 2018
to stockholders of records at the close of business on
October 10, 2018
. We currently expect to continue paying comparable cash dividends on a quarterly basis; however, future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.
During fiscal 2018 we acquired all of the outstanding equity interests of TSheets.com LLC, Exactor, Inc., and Applatix, Inc. for total combined cash and other consideration of approximately
$412 million
. The
$412 million
included approximately
$27 million
for the fair value of equity awards and other cash consideration that is being charged to expense over the future service period of up to three years. These three businesses became part of our Small Business & Self-Employed segment and will provide additional features to our QuickBooks offerings such as automated time tracking and scheduling and the calculation and filing of sales and use taxes. We have included their results of operations in our consolidated results of operations from the dates of acquisition. Their results of operations for all periods presented and periods prior to the dates of acquisition were not material when compared with our consolidated results of operations. See Note 6 to the financial statements in Item 8 of this Annual Report for more information.
On February 1, 2016 we entered into a master credit agreement with certain institutional lenders for a five-year credit facility in an aggregate principal amount of $1.5 billion. The master credit agreement includes a $500 million unsecured term loan and a $1 billion unsecured revolving credit facility that will expire on February 1, 2021. Under the master credit agreement we may, subject to certain customary conditions, on one or more occasions increase commitments under the revolving credit facility in an amount not to exceed $250 million in the aggregate and may extend the maturity date up to two times. Advances under the revolving credit facility accrue interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.5% or the London Interbank Offered Rate (LIBOR) plus a margin that ranges from 0.9% to 1.5%. Actual margins under either election will be based on our senior debt credit ratings. At
July 31, 2018
, no amounts were outstanding under the revolving credit facility. We monitor counterparty risk associated with the institutional lenders that are providing the credit facility. We currently believe that the credit facility will be available to us should we choose to borrow under it.
Under the master credit agreement, we borrowed $500 million in the form of an unsecured term loan on February 1, 2016. We may, subject to certain customary conditions, on one or more occasions increase commitments under the term loan in an amount not to exceed $500 million in the aggregate. The term loan accrues interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.125% to 0.875% or LIBOR plus a margin that ranges from 1.125% to 1.875%. Actual margins under either election will be based on our senior debt credit ratings. The term loan is subject to quarterly principal payments of 2.5% of the loan amount which began in July 2017, with the balance payable on February 1, 2021. At
July 31, 2018
,
$438 million
was outstanding under the term loan.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
45
|
|
|
|
|
|
|
|
|
|
The master credit agreement includes customary affirmative and negative covenants, including financial 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 as of any date and a ratio of annual EBITDA to annual interest expense of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. We remained in compliance with these covenants at all times during the quarter ended
July 31, 2018
.
|
|
Cash Held by Foreign Subsidiaries
|
Our cash, cash equivalents and investments totaled
$1.7 billion
at
July 31, 2018
. Approximately
13%
of those funds were held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were located primarily in Canada and India. As a result of the Tax Cuts and Jobs Act we do not expect to pay incremental U.S. taxes on repatriation. We have recorded income tax expense for Canada and India withholding and distribution taxes on earnings that are not permanently reinvested. In the event that funds from foreign operations are repatriated to the United States, we would pay withholding or distribution taxes at that time.
|
|
OFF-BALANCE SHEET ARRANGEMENTS
|
At
July 31, 2018
, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
The following table summarizes our known contractual obligations to make future payments at
July 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Less than
|
|
1-3
|
|
3-5
|
|
More than
|
|
|
(In millions)
|
1 year
|
|
years
|
|
years
|
|
5 years
|
|
Total
|
Amounts due under executive deferred compensation plan
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
97
|
|
Unsecured term loan
|
50
|
|
|
388
|
|
|
—
|
|
|
—
|
|
|
438
|
|
Interest and fees due on debt
|
17
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
41
|
|
License fee payable (1)
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Operating leases (2)
|
66
|
|
|
120
|
|
|
100
|
|
|
113
|
|
|
399
|
|
Purchase obligations (3)
|
175
|
|
|
246
|
|
|
73
|
|
|
—
|
|
|
494
|
|
Total contractual obligations (4)
|
$
|
415
|
|
|
$
|
778
|
|
|
$
|
173
|
|
|
$
|
113
|
|
|
$
|
1,479
|
|
|
|
(1)
|
In May 2009 we entered into an agreement to license certain technology for $20 million in cash and $100 million payable over ten fiscal years. See Note 9 to the financial statements in Item 8 of this Annual Report for more information.
|
|
|
(2)
|
Includes operating leases for facilities and equipment. Amounts do not include
$73 million
of future sublease income. We had no significant capital leases at
July 31, 2018
. See Note 9 to the financial statements in Item 8 of this Annual Report for more information.
|
|
|
(3)
|
Represents agreements to purchase products and services that are enforceable, legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payments.
|
|
|
(4)
|
Other long-term obligations on our balance sheet at
July 31, 2018
included long-term income tax liabilities of
$61 million
which related primarily to unrecognized tax benefits. We have not included this amount in the table above because we cannot make a reasonably reliable estimate regarding the timing of settlements with taxing authorities, if any.
|
|
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
For a description of recent accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 1 to the financial statements in Item 8 of this Annual Report.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
46
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
1.
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following financial statements are filed as part of this Report:
|
|
2.
|
INDEX TO FINANCIAL STATEMENT SCHEDULES
|
The following financial statement schedule is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements:
|
|
|
|
|
|
All other schedules not listed above have been omitted because they are inapplicable or are not required.
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
48
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Intuit Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Intuit Inc. (the Company) as of July 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended July 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 31, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1990.
San Jose, California
August 31, 2018
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
49
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Intuit Inc.
Opinion on Internal Control over Financial Reporting
We have audited Intuit Inc.’s internal control over financial reporting as of July 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Intuit Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of July 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the fiscal 2018 consolidated financial statements of the Company and our report dated August 31, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Jose, California
August 31, 2018
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions, except per share amounts)
|
2018
|
|
2017
|
|
2016
|
Net revenue:
|
|
|
|
|
|
Product
|
$
|
1,462
|
|
|
$
|
1,376
|
|
|
$
|
1,289
|
|
Service and other
|
4,502
|
|
|
3,801
|
|
|
3,405
|
|
Total net revenue
|
5,964
|
|
|
5,177
|
|
|
4,694
|
|
Costs and expenses:
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
Cost of product revenue
|
112
|
|
|
120
|
|
|
131
|
|
Cost of service and other revenue
|
850
|
|
|
677
|
|
|
599
|
|
Amortization of acquired technology
|
15
|
|
|
12
|
|
|
22
|
|
Selling and marketing
|
1,634
|
|
|
1,420
|
|
|
1,289
|
|
Research and development
|
1,186
|
|
|
998
|
|
|
881
|
|
General and administrative
|
664
|
|
|
553
|
|
|
518
|
|
Amortization of other acquired intangible assets
|
6
|
|
|
2
|
|
|
12
|
|
Total costs and expenses
|
4,467
|
|
|
3,782
|
|
|
3,452
|
|
Operating income from continuing operations
|
1,497
|
|
|
1,395
|
|
|
1,242
|
|
Interest expense
|
(20
|
)
|
|
(31
|
)
|
|
(35
|
)
|
Interest and other income (expense), net
|
26
|
|
|
3
|
|
|
(4
|
)
|
Income from continuing operations before income taxes
|
1,503
|
|
|
1,367
|
|
|
1,203
|
|
Income tax provision
|
292
|
|
|
396
|
|
|
397
|
|
Net income from continuing operations
|
1,211
|
|
|
971
|
|
|
806
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
173
|
|
Net income
|
$
|
1,211
|
|
|
$
|
971
|
|
|
$
|
979
|
|
|
|
|
|
|
|
Basic net income per share from continuing operations
|
$
|
4.72
|
|
|
$
|
3.78
|
|
|
$
|
3.08
|
|
Basic net income per share from discontinued operations
|
—
|
|
|
—
|
|
|
0.65
|
|
Basic net income per share
|
$
|
4.72
|
|
|
$
|
3.78
|
|
|
$
|
3.73
|
|
Shares used in basic per share calculations
|
256
|
|
|
257
|
|
|
262
|
|
|
|
|
|
|
|
Diluted net income per share from continuing operations
|
$
|
4.64
|
|
|
$
|
3.72
|
|
|
$
|
3.04
|
|
Diluted net income per share from discontinued operations
|
—
|
|
|
—
|
|
|
0.65
|
|
Diluted net income per share
|
$
|
4.64
|
|
|
$
|
3.72
|
|
|
$
|
3.69
|
|
Shares used in diluted per share calculations
|
261
|
|
|
261
|
|
|
265
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
$
|
1.56
|
|
|
$
|
1.36
|
|
|
$
|
1.20
|
|
See accompanying notes.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
Net income
|
$
|
1,211
|
|
|
$
|
971
|
|
|
$
|
979
|
|
Other comprehensive income (loss), net of income taxes:
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale debt securities
|
(2
|
)
|
|
(1
|
)
|
|
1
|
|
Foreign currency translation gain (loss)
|
(11
|
)
|
|
11
|
|
|
(3
|
)
|
Total other comprehensive income (loss), net
|
(13
|
)
|
|
10
|
|
|
(2
|
)
|
Comprehensive income
|
$
|
1,198
|
|
|
$
|
981
|
|
|
$
|
977
|
|
See accompanying notes.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
July 31,
|
(Dollars in millions, except par value; shares in thousands)
|
2018
|
|
2017
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
1,464
|
|
|
$
|
529
|
|
Investments
|
252
|
|
|
248
|
|
Accounts receivable, net of allowance for doubtful accounts of $5 and $46
|
98
|
|
|
103
|
|
Income taxes receivable
|
39
|
|
|
63
|
|
Prepaid expenses and other current assets
|
184
|
|
|
100
|
|
Current assets before funds held for customers
|
2,037
|
|
|
1,043
|
|
Funds held for customers
|
367
|
|
|
372
|
|
Total current assets
|
2,404
|
|
|
1,415
|
|
Long-term investments
|
13
|
|
|
31
|
|
Property and equipment, net
|
812
|
|
|
1,030
|
|
Goodwill
|
1,611
|
|
|
1,295
|
|
Acquired intangible assets, net
|
61
|
|
|
22
|
|
Long-term deferred income taxes
|
87
|
|
|
132
|
|
Other assets
|
190
|
|
|
143
|
|
Total assets
|
$
|
5,178
|
|
|
$
|
4,068
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Short-term debt
|
$
|
50
|
|
|
$
|
50
|
|
Accounts payable
|
178
|
|
|
157
|
|
Accrued compensation and related liabilities
|
369
|
|
|
300
|
|
Deferred revenue
|
961
|
|
|
887
|
|
Other current liabilities
|
191
|
|
|
178
|
|
Current liabilities before customer fund deposits
|
1,749
|
|
|
1,572
|
|
Customer fund deposits
|
367
|
|
|
372
|
|
Total current liabilities
|
2,116
|
|
|
1,944
|
|
Long-term debt
|
388
|
|
|
438
|
|
Long-term deferred revenue
|
197
|
|
|
202
|
|
Other long-term obligations
|
123
|
|
|
130
|
|
Total liabilities
|
2,824
|
|
|
2,714
|
|
Commitments and contingencies
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value
Authorized - 1,345 shares total; 145 shares designated Series A;
250 shares designated Series B Junior Participating
Issued and outstanding - None
|
—
|
|
|
—
|
|
Common stock, $0.01 par value
Authorized - 750,000 shares
Outstanding - 258,616 shares at July 31, 2018 and 255,668 shares at July 31, 2017
|
3
|
|
|
3
|
|
Additional paid-in capital
|
5,335
|
|
|
4,854
|
|
Treasury stock, at cost
|
(11,050
|
)
|
|
(10,778
|
)
|
Accumulated other comprehensive loss
|
(35
|
)
|
|
(22
|
)
|
Retained earnings
|
8,101
|
|
|
7,297
|
|
Total stockholders’ equity
|
2,354
|
|
|
1,354
|
|
Total liabilities and stockholders’ equity
|
$
|
5,178
|
|
|
$
|
4,068
|
|
See accompanying notes.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common Stock
|
Additional
Paid-In Capital
|
Treasury Stock
|
Accumulated
Other
Comprehensive Loss
|
Retained Earnings
|
Total
Stockholders’ Equity
|
(Dollars in millions, shares in thousands)
|
Shares
|
Amount
|
Balance at July 31, 2015
|
277,706
|
|
$
|
3
|
|
$
|
4,007
|
|
$
|
(7,675
|
)
|
$
|
(30
|
)
|
$
|
6,027
|
|
$
|
2,332
|
|
Comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
(2
|
)
|
979
|
|
977
|
|
Issuance of stock under employee stock plans, net of shares withheld for employee taxes
|
4,963
|
|
—
|
|
89
|
|
—
|
|
—
|
|
—
|
|
89
|
|
Stock repurchases under stock repurchase programs
|
(24,816
|
)
|
—
|
|
—
|
|
(2,264
|
)
|
—
|
|
—
|
|
(2,264
|
)
|
Dividends and dividend rights declared ($1.20 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(319
|
)
|
(319
|
)
|
Tax benefit from share-based compensation plans
|
—
|
|
—
|
|
59
|
|
—
|
|
—
|
|
—
|
|
59
|
|
Share-based compensation expense
|
—
|
|
—
|
|
287
|
|
—
|
|
—
|
|
—
|
|
287
|
|
Balance at July 31, 2016
|
257,853
|
|
3
|
|
4,442
|
|
(9,939
|
)
|
(32
|
)
|
6,687
|
|
1,161
|
|
Comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
10
|
|
971
|
|
981
|
|
Issuance of stock under employee stock plans, net of shares withheld for employee taxes
|
4,715
|
|
—
|
|
73
|
|
—
|
|
—
|
|
—
|
|
73
|
|
Stock repurchases under stock repurchase programs
|
(6,900
|
)
|
—
|
|
—
|
|
(839
|
)
|
—
|
|
—
|
|
(839
|
)
|
Dividends and dividend rights declared ($1.36 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(357
|
)
|
(357
|
)
|
Cumulative effect of change in accounting principle
|
—
|
|
—
|
|
6
|
|
—
|
|
—
|
|
(4
|
)
|
2
|
|
Share-based compensation expense
|
—
|
|
—
|
|
333
|
|
—
|
|
—
|
|
—
|
|
333
|
|
Balance at July 31, 2017
|
255,668
|
|
3
|
|
4,854
|
|
(10,778
|
)
|
(22
|
)
|
7,297
|
|
1,354
|
|
Comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
(13
|
)
|
1,211
|
|
1,198
|
|
Issuance of stock under employee stock plans, net of shares withheld for employee taxes
|
4,818
|
|
—
|
|
96
|
|
—
|
|
—
|
|
—
|
|
96
|
|
Stock repurchases under stock repurchase programs
|
(1,870
|
)
|
—
|
|
—
|
|
(272
|
)
|
—
|
|
—
|
|
(272
|
)
|
Dividends and dividend rights declared ($1.56 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(407
|
)
|
(407
|
)
|
Share-based compensation expense
|
—
|
|
—
|
|
385
|
|
—
|
|
—
|
|
—
|
|
385
|
|
Balance at July 31, 2018
|
258,616
|
|
$
|
3
|
|
$
|
5,335
|
|
$
|
(11,050
|
)
|
$
|
(35
|
)
|
$
|
8,101
|
|
$
|
2,354
|
|
See accompanying notes.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
1,211
|
|
|
$
|
971
|
|
|
$
|
979
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
228
|
|
|
214
|
|
|
195
|
|
Amortization of acquired intangible assets
|
25
|
|
|
22
|
|
|
43
|
|
Share-based compensation expense
|
382
|
|
|
326
|
|
|
281
|
|
Pre-tax gain on sale of discontinued operations (1)
|
—
|
|
|
—
|
|
|
(354
|
)
|
Loss on sale of long-lived assets
|
79
|
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
51
|
|
|
8
|
|
|
70
|
|
Tax benefit from share-based compensation plans
|
—
|
|
|
—
|
|
|
59
|
|
Other
|
6
|
|
|
13
|
|
|
17
|
|
Total adjustments
|
771
|
|
|
583
|
|
|
311
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
5
|
|
|
5
|
|
|
(20
|
)
|
Income taxes receivable
|
(1
|
)
|
|
(44
|
)
|
|
64
|
|
Prepaid expenses and other assets
|
(31
|
)
|
|
(9
|
)
|
|
(10
|
)
|
Accounts payable
|
12
|
|
|
—
|
|
|
(23
|
)
|
Accrued compensation and related liabilities
|
75
|
|
|
10
|
|
|
(11
|
)
|
Deferred revenue
|
66
|
|
|
83
|
|
|
192
|
|
Other liabilities
|
4
|
|
|
—
|
|
|
(22
|
)
|
Total changes in operating assets and liabilities
|
130
|
|
|
45
|
|
|
170
|
|
Net cash provided by operating activities
|
2,112
|
|
|
1,599
|
|
|
1,460
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of corporate and customer fund investments
|
(407
|
)
|
|
(352
|
)
|
|
(934
|
)
|
Sales of corporate and customer fund investments
|
128
|
|
|
359
|
|
|
1,165
|
|
Maturities of corporate and customer fund investments
|
286
|
|
|
183
|
|
|
187
|
|
Net change in cash and cash equivalents held to satisfy customer fund obligations
|
5
|
|
|
(68
|
)
|
|
58
|
|
Net change in customer fund deposits
|
(5
|
)
|
|
68
|
|
|
(33
|
)
|
Purchases of property and equipment
|
(38
|
)
|
|
(102
|
)
|
|
(416
|
)
|
Capitalization of internal use software
|
(86
|
)
|
|
(128
|
)
|
|
(106
|
)
|
Acquisitions of businesses, net of cash acquired
|
(363
|
)
|
|
—
|
|
|
—
|
|
Proceeds from divestiture of businesses
|
—
|
|
|
—
|
|
|
463
|
|
Originations of term loans to small businesses
|
(137
|
)
|
|
—
|
|
|
—
|
|
Principal repayments of term loans from small businesses
|
82
|
|
|
—
|
|
|
—
|
|
Other
|
3
|
|
|
(45
|
)
|
|
(13
|
)
|
Net cash provided by (used in) investing activities
|
(532
|
)
|
|
(85
|
)
|
|
371
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from borrowings under revolving credit facilities
|
800
|
|
|
150
|
|
|
995
|
|
Repayments on borrowings under revolving credit facilities
|
(800
|
)
|
|
(150
|
)
|
|
(995
|
)
|
Proceeds from long-term debt
|
—
|
|
|
—
|
|
|
500
|
|
Repayment of debt
|
(50
|
)
|
|
(512
|
)
|
|
—
|
|
Proceeds from issuance of stock under employee stock plans
|
295
|
|
|
226
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Payments for employee taxes withheld upon vesting of restricted stock units
|
(199
|
)
|
|
(153
|
)
|
|
(108
|
)
|
Cash paid for purchases of treasury stock
|
(272
|
)
|
|
(839
|
)
|
|
(2,264
|
)
|
Dividends and dividend rights paid
|
(407
|
)
|
|
(353
|
)
|
|
(318
|
)
|
Other
|
(1
|
)
|
|
(1
|
)
|
|
(6
|
)
|
Net cash used in financing activities
|
(634
|
)
|
|
(1,632
|
)
|
|
(1,999
|
)
|
Effect of exchange rates on cash and cash equivalents
|
(11
|
)
|
|
9
|
|
|
(2
|
)
|
Net increase (decrease) in cash and cash equivalents
|
935
|
|
|
(109
|
)
|
|
(170
|
)
|
Cash and cash equivalents at beginning of period
|
529
|
|
|
638
|
|
|
808
|
|
Cash and cash equivalents at end of period
|
$
|
1,464
|
|
|
$
|
529
|
|
|
$
|
638
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Interest paid
|
$
|
19
|
|
|
$
|
42
|
|
|
$
|
37
|
|
Income taxes paid
|
$
|
245
|
|
|
$
|
430
|
|
|
$
|
389
|
|
_________________________
|
|
(1)
|
Because the cash flows of our discontinued operations were not material for any period presented, we have not segregated the cash flows of those businesses on these statements of cash flows. We have presented the effect of the pre-tax gains on the disposals on these statements of cash flows. See Note 7,
“Discontinued Operations,”
for more information.
|
See accompanying notes.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
56
|
|
|
|
|
|
|
|
|
|
|
|
INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
1. Description of Business and Summary of Significant Accounting Policies
|
Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. We also provide specialized tax products to accounting professionals, who are key partners that help us reach small business customers.
Our flagship brands, QuickBooks and TurboTax, help customers run their small businesses, pay employees and send invoices, separate business and personal expenses, track their money, and file income taxes. ProSeries and Lacerte are our leading tax preparation offerings for professional accountants. Incorporated in 1984 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.
These consolidated financial statements include the financial statements of Intuit and its wholly owned subsidiaries. We have eliminated all significant intercompany balances and transactions in consolidation. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to our reportable segments. See Note 14,
“Segment Information,”
for more information.
We acquired TSheets.com LLC, Exactor, Inc., and Applatix, Inc. in fiscal 2018. We have included the results of operations for these companies in our consolidated results of operations from the dates of acquisition. See Note 6, “
Business Combinations
,” for more information.
As discussed in Note 7, in fiscal 2016 we sold our Demandforce, QuickBase, and Quicken businesses. We have reclassified our statements of operations for fiscal 2016 to reflect all of these businesses as discontinued operations. Because the cash flows of all of these businesses were not material, we have not segregated them on our statements of cash flows. Unless noted otherwise, discussions in these notes pertain to our continuing operations.
Our Consumer offerings have significant seasonal patterns and revenue from those income tax preparation products and services is heavily concentrated in our third fiscal quarter ending April 30.
In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), we make certain estimates and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes. For example, we use estimates in determining the appropriate levels of reserves for product returns, promotional discounts and rebates, the collectibility of accounts receivable and notes receivable, the appropriate levels of various accruals including accruals for litigation contingencies, the amount of our worldwide tax provision, and the realizability of deferred tax assets. We also use estimates in determining the remaining economic lives and fair values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.
We derive revenue from the sale of software subscriptions, hosted services, packaged software products, financial supplies, technical support plans, transaction fees, merchant services hardware, and multiple element arrangements that may include a combination of these items. We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable, and collectibility is probable. Determining whether and when these criteria have been satisfied involves exercising judgment and using estimates and assumptions that can have a significant impact on the timing and amount of revenue that we recognize.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
57
|
|
|
|
|
|
|
|
|
|
In some situations, we receive advance payments from our customers. We defer revenue associated with these advance payments and the relative fair value of undelivered elements under multiple element arrangements until we ship the products or perform the services.
We account for cash consideration (such as sales incentives) that we give to our customers or resellers as a reduction of revenue rather than as an operating expense unless we receive a benefit that we can identify and for which we can reasonably estimate the fair value.
Product Revenue
For our QuickBooks and professional tax desktop solutions we deliver ongoing enhancements and certain connected services. As a result, we recognize revenue for the QuickBooks desktop solutions over the period that the enhancements and connected services are provided, which is approximately
three
years. We recognize revenue for the professional tax desktop solutions as services are provided over the calendar year, once tax forms are available from taxing agencies and the agencies are able to receive electronic tax return submissions.
We recognize revenue from the sale of our financial supplies such as printed check stock and merchant services hardware such as retail point-of-sale equipment and credit card readers for mobile phones when legal title transfers. This is generally when we ship the products. We record product revenue net of our sales tax obligations.
We sell some of our QuickBooks and TurboTax desktop software products on consignment to certain retailers. We begin recognizing revenue for these consignment transactions only when the end-user sale has occurred. For software products that are sold on a subscription basis and include periodic updates, we recognize revenue ratably over the period that we provide services to the customer.
We reduce product revenue from distributors and retailers for estimated returns that are based on historical returns experience and other factors, such as the volume and price mix of products in the retail channel, return rates for prior releases of the product, trends in retailer inventory, and economic trends that might impact customer demand for our products (including the competitive environment and the timing of new releases of our product). We also reduce product revenue for the estimated redemption of promotional discounts and rebates on certain current product sales. Our estimated reserves for distributor and retailer sales incentive rebates are based on distributors’ and retailers’ actual performance against the terms and conditions of rebate programs.
Service and Other Revenue
Our service revenue consists primarily of hosted services such as QuickBooks Online, QuickBooks desktop software term licenses, TurboTax Online, payroll services, electronic merchant payment processing services, electronic tax filing, technical support plans, and tax advice services.
We recognize revenue from hosted services as the services are performed, provided we have no other remaining obligations to these customers. We generally require customers to remit payroll tax funds to us in advance of the payroll date via electronic funds transfer. We include in total net revenue the interest that we earn on these funds between the time that we collect them from customers and the time that we remit them to outside parties. Service revenue for electronic payment processing services that we provide to merchants is recorded net of interchange fees charged by credit card associations.
Other revenue consists primarily of revenue from revenue-sharing and royalty arrangements with third-party partners. We typically recognize this revenue as earned based upon reporting provided to us by our partners.
Multiple Element Arrangements
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades, hosted services, technical support, and hardware.
Multiple Element Arrangements That Contain Software and Software-Related Elements
For multiple element arrangements that contain only software and software-related elements, such as QuickBooks desktop software and paid technical support plans, we allocate and defer revenue for the undelivered elements based on their vendor-specific objective evidence of fair value (VSOE). VSOE is the price charged when that element is sold separately. In situations where VSOE exists for all elements (delivered and undelivered), we allocate the total revenue to be earned under the arrangement among the various elements, based on their relative fair value. For arrangements where VSOE exists only for the undelivered elements, we defer the full fair value of the undelivered elements and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. If VSOE does not exist for an undelivered service element, we recognize the revenue from the entire arrangement as the services are delivered. If VSOE does not exist for undelivered elements that are specified products or features, we defer revenue until the earlier of the delivery of all elements or the point at which we determine VSOE for these undelivered elements.
We recognize revenue related to the delivered products or services only if: (1) the above revenue recognition criteria are met; (2) any undelivered products or services are not essential to the functionality of the delivered products and services; (3) payment for the delivered products or services is not contingent upon delivery of the remaining products or services; and (4)
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
58
|
|
|
|
|
|
|
|
|
|
we have an enforceable claim to receive the amount due in the event that we do not deliver the undelivered products or services.
Multiple Element Arrangements That Contain Non-Software Elements
For multiple element arrangements that contain non-software elements such as hosted services or credit card readers for mobile phones, we: (1) determine whether and when each element has been delivered; (2) determine the fair value of each element using the selling price hierarchy of VSOE if available, third-party evidence (TPE) if VSOE is not available, and estimated selling price (ESP) if neither VSOE nor TPE is available; and (3) allocate the total price among the various elements using the relative selling price method. Once we have allocated the total price among the various elements, we recognize revenue when the revenue recognition criteria described above are met for each element.
VSOE generally exists when we sell the deliverable separately and we are normally able to establish VSOE for all deliverables in these multiple element arrangements; however, in certain limited instances VSOE cannot be established. This may be because we do not sell the element separately, do not price products or services within a narrow range, or have a limited sales history. When VSOE cannot be established, we attempt to establish selling price for each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. When we are unable to establish selling price using VSOE or TPE, we use ESP in our allocation of arrangement consideration. ESP is the estimated price at which we would sell a product or service if it were sold on a stand-alone basis. We determine ESP for a product or service by considering multiple factors including, but not limited to, pricing practices, market conditions, competitive landscape, type of customer, geographies, stage of product lifecycle, internal costs, and gross margin objectives. Significant pricing practices that we take into consideration include historic contractually stated prices, volume discounts where applicable, and our price lists. The determination of ESP is made through consultation with and formal approval by management, taking into consideration our overall go-to-market strategy.
We record the amounts we charge our customers for the shipping and handling of our software products as product revenue and we record the related costs as cost of product revenue in our statements of operations.
|
|
Customer Service and Technical Support
|
We include the costs of providing customer service under paid technical support contracts and as included in certain software subscriptions on the cost of service and other revenue line in our statements of operations. We also include the costs of customer service and technical support associated with our online or hosted offerings in cost of service and other revenue. We include the costs of customer service and free technical support related to desktop offerings in selling and marketing expense in our statements of operations. Customer service and technical support costs include costs associated with performing order processing, answering customer inquiries by telephone and through websites, e-mail and other electronic means, and providing free technical support assistance to customers. We expense the cost of providing this free support as incurred.
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Software Development Costs
|
We expense software development costs as we incur them until technological feasibility has been established, at which time those costs are capitalized until the product is available for general release to customers. To date, our software has been available for general release concurrent with the establishment of technological feasibility and, accordingly, we have not capitalized any development costs. Costs we incur to enhance our existing products or after the general release of the service using the product are expensed in the period they are incurred and included in research and development expense in our statements of operations.
We capitalize costs related to development of hosted services that we provide to our customers and internal use of enterprise-level business and finance software in support of our operational needs. Costs incurred in the application development phase are capitalized and amortized on a straight-line basis over their useful lives, which are generally
three
to
five
years. Costs related to planning and other preliminary project activities and to post-implementation activities are expensed as incurred. We test these assets for impairment whenever events or changes in circumstances occur that could impact their recoverability.
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Intuit
Fiscal 2018 Form 10-K
|
59
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We expense all advertising costs as we incur them to selling and marketing expense in our statements of operations. We recorded advertising expense of approximately
$615
million for the twelve months ended
July 31, 2018
,
$480
million for the twelve months ended
July 31, 2017
, and
$394
million for the twelve months ended
July 31, 2016
.
We review all leases for capital or operating classification at their inception. We use our incremental borrowing rate in the assessment of lease classification and define the initial lease term to include the construction build-out period but to exclude lease extension periods. We conduct our operations primarily under operating leases. For leases that contain rent escalations, we record the total rent payable during the lease term, as defined above, on a straight-line basis over the term of the lease. We record the difference between the rent paid and the straight-line rent in a deferred rent account in other current liabilities or other long-term obligations, as appropriate, on our balance sheets.
We record landlord allowances as deferred rent liabilities in other current liabilities or other long-term obligations, as appropriate, on our balance sheets. We record landlord cash incentives as operating activity on our statements of cash flows. We record other landlord allowances as non-cash investing and financing activities on our statements of cash flows. We classify the amortization of landlord allowances as a reduction of occupancy expense in our statements of operations.
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Capitalization of Interest Expense
|
We capitalize interest on capital projects, including facilities build-out projects and internal use computer software projects. Capitalization commences with the first expenditure for the project and continues until the project is substantially complete and ready for its intended use. We amortize capitalized interest to depreciation expense using the straight-line method over the same lives as the related assets. Capitalized interest was not significant for any period presented.
The functional currencies of our international operating subsidiaries are generally the local currencies. We translate the assets and liabilities of our foreign subsidiaries at the exchange rates in effect on the balance sheet date. We translate their revenue, costs and expenses at the average rates of exchange in effect during the period. We include translation gains and losses in the stockholders’ equity section of our balance sheets. We include net gains and losses resulting from foreign exchange transactions in interest and other income in our statements of operations. Translation gains and losses and transaction gains and losses were not significant for any period presented.
We estimate our income taxes based on the various jurisdictions where we conduct business. Significant judgment is required in determining our worldwide income tax provision. We estimate our current tax liability and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which we show on our balance sheet. We must then assess the likelihood that our deferred tax assets will be realized. To the extent we believe that realization is not likely, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding income tax expense in our statement of operations.
We review the need for a valuation allowance to reflect uncertainties about whether we will be able to utilize some of our deferred tax assets before they expire. The valuation allowance analysis is based on our estimates of taxable income for the jurisdictions in which we operate and the periods over which our deferred tax assets will be realizable. While we have considered future taxable income in assessing the need for a valuation allowance for the periods presented, we could be required to record a valuation allowance to take into account additional deferred tax assets that we may be unable to realize. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than
50%
likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate our uncertain tax positions on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain
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Intuit
Fiscal 2018 Form 10-K
|
60
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tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business combination is provided under
“Business Combinations”
below.
The Tax Cuts and Jobs Act significantly changes existing U.S. tax law and includes numerous provisions that affect our business. See Note 10,
“Income Taxes,”
for more information.
|
|
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.
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 and the amount of compensation expense for future service that we have not yet recognized for stock options and RSUs are assumed to be used to repurchase shares. Prior to our adoption of ASU 2016-09 in the first quarter of fiscal 2017, we included tax benefits in assessing whether equity awards were dilutive and in our calculations of weighted average dilutive shares under the treasury stock method.
All of the RSUs we grant have dividend rights. Dividend rights are accumulated and paid when the underlying RSUs vest. Since the dividend rights are subject to the same vesting requirements as the underlying equity awards they are considered a contingent transfer of value. Consequently, the RSUs are not considered participating securities and we do not present them separately in earnings per share.
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Intuit
Fiscal 2018 Form 10-K
|
61
|
|
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|
The following table presents the composition of shares used in the computation of basic and diluted net income per share for the periods indicated.
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|
Twelve Months Ended July 31,
|
(In millions, except per share amounts)
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
Net income from continuing operations
|
$
|
1,211
|
|
|
$
|
971
|
|
|
$
|
806
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
173
|
|
Net income
|
$
|
1,211
|
|
|
$
|
971
|
|
|
$
|
979
|
|
Denominator:
|
|
|
|
|
|
Shares used in basic per share amounts:
|
|
|
|
|
|
Weighted average common shares outstanding
|
256
|
|
|
257
|
|
|
262
|
|
Shares used in diluted per share amounts:
|
|
|
|
|
|
Weighted average common shares outstanding
|
256
|
|
|
257
|
|
|
262
|
|
Dilutive common equivalent shares from stock options and restricted stock awards
|
5
|
|
|
4
|
|
|
3
|
|
Dilutive weighted average common shares outstanding
|
261
|
|
|
261
|
|
|
265
|
|
|
|
|
|
|
|
Basic and diluted net income per share:
|
|
|
|
|
|
Basic net income per share from continuing operations
|
$
|
4.72
|
|
|
$
|
3.78
|
|
|
$
|
3.08
|
|
Basic net income per share from discontinued operations
|
—
|
|
|
—
|
|
|
0.65
|
|
Basic net income per share
|
$
|
4.72
|
|
|
$
|
3.78
|
|
|
$
|
3.73
|
|
Diluted net income per share from continuing operations
|
$
|
4.64
|
|
|
$
|
3.72
|
|
|
$
|
3.04
|
|
Diluted net income per share from discontinued operations
|
—
|
|
|
—
|
|
|
0.65
|
|
Diluted net income per share
|
$
|
4.64
|
|
|
$
|
3.72
|
|
|
$
|
3.69
|
|
|
|
|
|
|
|
Shares excluded from diluted net income per share:
|
|
|
|
|
|
Weighted average stock options and restricted stock units that have been excluded from dilutive common equivalent shares outstanding due to their anti-dilutive effect
|
—
|
|
|
3
|
|
|
2
|
|
|
|
Cash Equivalents and Investments
|
We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. In all periods presented, cash equivalents consist primarily of money market funds and saving deposit accounts, and investments consist primarily of available-for-sale investment-grade debt securities. Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market funds, we diversify our investments by limiting our holdings with any individual issuer.
We use the specific identification method to compute gains and losses on investments. We record unrealized gains and losses on investments, net of tax, in accumulated other comprehensive income in the stockholders’ equity section of our balance sheets and reflect unrealized gain and loss activity in other comprehensive income on our statement of comprehensive income. We generally classify available-for-sale debt securities as current assets based upon our ability and intent to use any and all of these securities as necessary to satisfy the significant short-term liquidity requirements that may arise from the highly seasonal nature of our businesses. Because of our significant business seasonality, stock repurchase programs, and acquisition opportunities, cash flow requirements may fluctuate dramatically from quarter to quarter and require us to use a significant amount of the investments we hold as available-for-sale securities.
|
|
Accounts and Notes Receivable, Allowances for Doubtful Accounts, and Allowances for Loan Losses
|
Accounts receivable are recorded at the invoiced amount and are not interest bearing. We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. We review our accounts receivable by aging category to identify significant customers or invoices with known disputes or collectibility issues. For those invoices not specifically identified as uncollectible, we provide an allowance based on the age of the receivable. In determining the amount of the allowance, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. We also consider our historical level of credit losses and current economic trends that might impact the level of future credit losses. When we determine that amounts are uncollectible we write them off against the allowance.
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|
Intuit
Fiscal 2018 Form 10-K
|
62
|
|
|
|
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|
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|
Notes receivable consist of term loans to small businesses, and are included in prepaid expenses and other current assets on our consolidated balance sheets. The term loans are not secured and are recorded at amortized cost, reduced by an allowance for loan losses. We maintain an allowance for loan losses to reserve for potentially uncollectible notes receivable. We evaluate the creditworthiness of our loan portfolio on a pooled basis due to its composition of small, homogeneous loans with similar general credit risk and characteristics and apply a loss rate at the time of loan origination. The loss rate and underlying model are updated periodically to reflect actual loan performance and changes in assumptions. We make judgments about the known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. When we determine that amounts are uncollectible we write them off against the allowance. As of
July 31, 2018
, the notes receivable balance was
$55 million
, net of
allowances for loan losses which were not significant.
|
|
Funds Held for Customers and Customer Fund Deposits
|
Funds held for customers represent cash held on behalf of our customers that is invested in cash and cash equivalents and investment grade available-for-sale debt securities. Customer fund deposits consist of amounts we owe on behalf of our customers, such as direct deposit payroll funds and payroll taxes.
Property and equipment is stated at the lower of cost or realizable value, net of accumulated depreciation. We calculate depreciation using the straight-line method over the estimated useful lives of the assets, which range from
two
to
30
years. We amortize leasehold improvements using the straight-line method over the lesser of their estimated useful lives or remaining lease terms. We include the amortization of assets that are recorded under capital leases in depreciation expense. We review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We did not record any significant property impairment charges during the twelve months ended July 31,
2018
,
2017
, or
2016
.
The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed
one
year, in which we may adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition date fair value. We measure goodwill as of the acquisition date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and we charge them to general and administrative expense as they are incurred. Under the acquisition method we also account for acquired company restructuring activities that we initiate separately from the business combination.
Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those adjustments to our financial statements. We apply those measurement period adjustments that we determine to be significant retrospectively to comparative information in our financial statements, including adjustments to depreciation and amortization expense.
Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense. This accounting applies to all of our acquisitions regardless of acquisition date.
|
|
Goodwill, Acquired Intangible Assets and Other Long-Lived Assets
|
Goodwill
We record goodwill when the fair value of consideration transferred in a business combination exceeds the fair value of the identifiable assets acquired and liabilities assumed. Goodwill and other intangible assets that have indefinite useful lives are
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Intuit
Fiscal 2018 Form 10-K
|
63
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|
not amortized, but we test them for impairment annually during our fourth fiscal quarter and whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable.
For goodwill, we perform a two-step impairment test. In the first step, we compare the fair value of each reporting unit to its carrying value. In accordance with authoritative guidance, we define fair value as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We consider and use all valuation methods that are appropriate in estimating the fair value of our reporting units and generally use a weighted combination of income and market approaches. Under the income approach, we estimate the fair value of each reporting unit based on the present value of future cash flows. We use a number of assumptions in our discounted cash flow model, including market factors specific to the business, the amount and timing of estimated future cash flows to be generated by the business over an extended period of time, long-term growth rates for the business, and a rate of return that considers the relative risk of achieving the cash flows and the time value of money. Under the market approach, we estimate the fair value of each reporting unit based on market multiples of revenue, operating income, and earnings for comparable publicly traded companies engaged in similar businesses. If the estimated fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further analysis is required.
If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of the unit, we perform the second step of the impairment test. In this step we allocate the fair value of the reporting unit calculated in step one to all of the assets and liabilities of that unit, as if we had just acquired the reporting unit in a business combination. The excess of the fair value of the reporting unit over the total amount allocated to the assets and liabilities represents the implied fair value of goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, we would record an impairment loss equal to the difference. We recorded
no
goodwill impairment charges for the twelve months ended July 31,
2018
,
2017
or
2016
.
Acquired Intangible Assets and Other Long-Lived Assets
We generally record acquired intangible assets that have finite useful lives, such as acquired technology, in connection with business combinations. We amortize the cost of acquired intangible assets on a straight-line basis over their estimated useful lives, which range from one to seven years. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. We estimate the fair value of assets that have finite useful lives based on the present value of future cash flows for those assets. If the carrying value of an asset with a finite life exceeds its estimated fair value, we would record an impairment loss equal to the difference. Impairment charges for acquired intangible assets were not significant for the twelve months ended July 31,
2018
,
2017
or
2016
.
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|
Share-Based Compensation Plans
|
We estimate the fair value of stock options granted using a lattice binomial model and a multiple option award approach. We amortize the fair value of stock options on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
Restricted stock units (RSUs) granted typically vest based on continued service. We value these time-based RSUs at the date of grant using the intrinsic value method. We amortize the fair value of time-based RSUs on a straight-line basis over the service period. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals. We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria would be met. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based RSUs if necessary. We amortize the fair values of performance-based RSUs over the requisite service period for each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria. All of the RSUs we grant have dividend rights that are subject to the same vesting requirements as the underlying equity awards, so we do not adjust the intrinsic (market) value of our RSUs for dividends.
See Note 11,
“Stockholders’ Equity,”
for a description of our share-based compensation plans and more information on the assumptions we use to calculate the fair value of share-based compensation.
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Intuit
Fiscal 2018 Form 10-K
|
64
|
|
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|
Concentration of Credit Risk and Significant Customers and Suppliers
|
We operate in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities and other factors could negatively impact our operating results.
We are also subject to risks related to changes in the value of our significant balance of investments. Our portfolio of investments consists of investment-grade securities. Except for direct obligations of the United States government, securities issued by agencies of the United States government and money market funds, we diversify our investments by limiting our holdings with any individual issuer.
We sell a portion of our products through third-party retailers and distributors. As a result, we face risks related to the collectibility of our accounts receivable. To appropriately manage this risk, we perform ongoing evaluations of customer credit and limit the amount of credit extended as we deem appropriate, but generally do not require collateral. We maintain reserves for estimated credit losses and these losses have historically been within our expectations. However, since we cannot predict future changes in the financial stability of our customers, we cannot guarantee that our reserves will continue to be adequate.
No
customer accounted for
10%
or more of total net revenue for the twelve months ended July 31,
2018
,
2017
or
2016
, nor did any customer account for
10%
or more of total accounts receivable at July 31,
2018
or July 31,
2017
.
We rely primarily on one third-party vendor to perform the manufacturing and distribution functions for our retail desktop software products. We also have a key single-source vendor that prints and fulfills orders for most of our financial supplies business. While we believe that relying on key vendors improves the efficiency and reliability of our business operations, relying on any one vendor for a significant aspect of our business can have a significant negative impact on our revenue and profitability if that vendor fails to perform at acceptable service levels for any reason, including financial difficulties of the vendor.
|
|
Accounting Standards Not Yet Adopted
|
Goodwill Impairment
-
In January 2017 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, “
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
This new standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2020. Early adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2017-04 on our consolidated financial statements.
Business Combinations
-
In January 2017 the FASB issued ASU 2017-01, “
Business Combinations (Topic 805): Clarifying the Definition of a Business
.
”
This new standard clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2018. Early adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2017-01 on our consolidated financial statements.
Statement of Cash Flows
-
In August 2016 the FASB issued ASU 2016-15, “
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”
This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2018. The standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the impact of our pending adoption of ASU 2016-15 on our consolidated financial statements.
Statement of Cash Flows
-
In November 2016 the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230):
Restricted Cash
.” This new standard provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2018. We are currently evaluating the impact of our pending adoption of ASU 2016-18 on our consolidated financial statements.
Financial Instruments
-
In June 2016 the FASB issued ASU 2016-13, “
Financial Instruments—Credit Losses (Topic 326).
” This new standard requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2020. Earlier adoption is permitted in the first quarter of our fiscal year beginning August 1, 2019. We are currently evaluating the impact of our pending adoption of ASU 2016-13 on our consolidated financial statements.
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Intuit
Fiscal 2018 Form 10-K
|
65
|
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Leases
-
In February 2016 the FASB issued ASU 2016-02, “
Leases (Topic 842).
” This new standard amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2019. Early adoption is permitted. This standard is required to be adopted using a modified retrospective approach. We expect to elect certain available transitional practical expedients. In July 2018 the FASB issued ASU 2018-11, “
Leases (Topic 842) Targeted Improvements,"
which allows for the adoption of this standard to be applied at the beginning of the most recent fiscal year as opposed to at the beginning of the earliest year presented. We plan to adopt under the provisions allowed under ASU 2018-11. While we continue to evaluate the impact of our pending adoption of ASU 2016-02 on our consolidated financial statements, we expect that the real estate and equipment leases designated as operating leases in Note 9 “
Long-Term Obligations and Commitments
,” will be recognized as right-of-use assets and corresponding lease liabilities on our consolidated balance sheets upon adoption. We do not expect the adoption of ASU 2016-02 to have a material impact on our consolidated statements of operations.
Revenue from Contracts with Customers
-
In May 2014 the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This new standard supersedes nearly all existing revenue recognition guidance under U.S. GAAP. Under the new standard, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The new standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The new standard is effective for reporting periods beginning after December 15, 2017, which means that it is effective for us beginning August 1, 2018.
The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of applying the guidance recognized in retained earnings as of the date of adoption (modified retrospective method). We plan to adopt Topic 606 utilizing the full retrospective method.
In preparation for adoption of the standard, we have implemented internal controls and processes including key system functionality to enable the preparation of financial information and have reached conclusions on key accounting assessments related to the standard.
The most significant impact of the standard relates to the timing and amount of revenue recognized for our QuickBooks Desktop solutions and our consumer and professional tax desktop solutions. Our QuickBooks Desktop solutions include both packaged software products and software subscriptions.
Our QuickBooks Desktop packaged software products include a software license as well as enhancements and connected services. Under the current standard, we recognize revenue for the QuickBooks Desktop packaged software products ratably over the period that enhancements and connected services are provided, which is approximately three years. Under the new standard, we will recognize revenue for our QuickBooks Desktop packaged software products at the time the software license is delivered. We have determined that the enhancements and connected services included in our QuickBooks Desktop packaged software products are immaterial within the context of the contract.
Our QuickBooks Desktop software subscriptions include a software license, version protection, enhancements, support and various connected services. Under the current standard, we recognize revenue for our QuickBooks Desktop software subscriptions ratably over the subscription term, which is generally one year. Under the new standard, we will recognize revenue for the software license and version protection at the time they are delivered and will recognize revenue for support and connected services over the subscription term as the services are provided. We have determined that the enhancements included in our QuickBooks Desktop software subscriptions are immaterial within the context of the contract. We expect the timing of the revenue for our QuickBooks Desktop software subscriptions, which are included in our Small Business & Self-Employed reporting segment, to shift to an earlier quarter within each fiscal year as a result of these changes.
With respect to our consumer and professional tax desktop solutions, under the current standard, we recognize all revenue related to the desktop solutions as services are provided. Under the new standard, we will recognize revenue for the desktop tax preparation software license and related tax form updates as the forms and updates are delivered. We will recognize revenue for our electronic filing and connected services as those services are provided. As sales and delivery of desktop tax preparation software solutions and related services are concentrated from November through April, we expect the timing of the related desktop revenue for our Consumer and Strategic Partner reporting segments to shift to earlier quarters within each fiscal year as a result of these changes.
Under the new standard, we are required to recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that internal sales commissions related to our subscription offerings meet the requirements to be capitalized. The total capitalized costs to obtain a contact are included in prepaid expenses and other current assets and other assets on our consolidated balance sheets.
The adoption of the standard will result in a decrease in deferred revenue of
$574 million
and
$514 million
as of July 31, 2018 and 2017, respectively, and an increase in liabilities included in our net deferred tax asset and liability positions of
$146 million
and
$201 million
as of July 31, 2018 and 2017, respectively, primarily related to the change in revenue recognition for our QuickBooks Desktop and professional tax desktop solutions.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
66
|
|
|
|
|
|
|
|
|
|
The adoption of the standard will also result in an increase in revenue for fiscal 2018 and 2017, primarily due to the change in revenue recognition for our QuickBooks Desktop solutions. In addition, the fiscal 2018 provision for income taxes decreased
$55 million
. As a result of the acceleration of profits under the new revenue standard, there was an increase in deferred tax liabilities which resulted in a net deferred tax liability position. The re-measurement of the net deferred tax liability during fiscal 2018 resulted in a provisional tax benefit when re-measured at the enacted lower tax rate under the Tax Cuts and Jobs Act (2017 Tax Act). The incremental tax benefit of
$73 million
related to the re-measurement was partially offset by an
$18 million
tax charge for additional income before taxes as a result of the increase in revenue. The fiscal 2017 provision for income taxes increased primarily due to additional income before taxes as a result of the increase in revenue.
See “Expected Impacts to Reported Results” below for the impact of adoption of the standard on our consolidated financial statements.
Expected Impacts to Reported Results
Adoption of Topic 606 is expected to impact our reported results as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2018
|
(In millions)
|
As Reported
|
|
Topic 606 Adjustment
|
|
As Adjusted
|
Prepaid expenses and other current assets
|
$
|
184
|
|
|
$
|
18
|
|
|
$
|
202
|
|
Long-term deferred income taxes
|
87
|
|
|
(85
|
)
|
|
2
|
|
Other assets
|
190
|
|
|
23
|
|
|
213
|
|
Deferred revenue
|
961
|
|
|
(380
|
)
|
|
581
|
|
Other current liabilities
|
191
|
|
|
7
|
|
|
198
|
|
Long-term deferred revenue
|
197
|
|
|
(194
|
)
|
|
3
|
|
Other long-term obligations
|
123
|
|
|
61
|
|
|
184
|
|
Stockholders’ equity
|
2,354
|
|
|
462
|
|
|
2,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017
|
(In millions)
|
As Reported
|
|
Topic 606 Adjustment
|
|
As Adjusted
|
Prepaid expenses and other current assets
|
$
|
100
|
|
|
$
|
18
|
|
|
$
|
118
|
|
Long-term deferred income taxes
|
132
|
|
|
(130
|
)
|
|
2
|
|
Other assets
|
143
|
|
|
21
|
|
|
164
|
|
Deferred revenue
|
887
|
|
|
(313
|
)
|
|
574
|
|
Other current liabilities
|
178
|
|
|
7
|
|
|
185
|
|
Long-term deferred revenue
|
202
|
|
|
(201
|
)
|
|
1
|
|
Other long-term obligations
|
130
|
|
|
71
|
|
|
201
|
|
Stockholders’ equity
|
1,354
|
|
|
345
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, 2018
|
(In millions, except per share amounts)
|
As Reported
|
|
Topic 606 Adjustment
|
|
As Adjusted
|
Net revenue
|
$
|
5,964
|
|
|
$
|
61
|
|
|
$
|
6,025
|
|
Cost of revenue
|
977
|
|
|
1
|
|
|
978
|
|
Selling and marketing expenses
|
1,634
|
|
|
(3
|
)
|
|
1,631
|
|
Operating income
|
1,497
|
|
|
63
|
|
|
1,560
|
|
Income tax provision
|
292
|
|
|
(55
|
)
|
|
237
|
|
Net income
|
1,211
|
|
|
118
|
|
|
1,329
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
4.64
|
|
|
$
|
0.45
|
|
|
$
|
5.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31, 2017
|
(In millions, except per share amounts)
|
As Reported
|
|
Topic 606 Adjustment
|
|
As Adjusted
|
Net revenue
|
$
|
5,177
|
|
|
$
|
19
|
|
|
$
|
5,196
|
|
Cost of revenue
|
809
|
|
|
1
|
|
|
810
|
|
Selling and marketing expenses
|
1,420
|
|
|
(5
|
)
|
|
1,415
|
|
Operating income
|
1,395
|
|
|
23
|
|
|
1,418
|
|
Income tax provision
|
396
|
|
|
9
|
|
|
405
|
|
Net income
|
971
|
|
|
14
|
|
|
985
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
3.72
|
|
|
$
|
0.06
|
|
|
$
|
3.78
|
|
Adoption of Topic 606 had no impact to cash from or used in operating, financing, or investing activities on our consolidated statements of cash flow.
We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.
|
|
2. Fair Value Measurements
|
The authoritative guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, we consider the principal or most advantageous market for an asset or liability and assumptions that market participants would use when pricing the asset or liability. In addition, we consider and use all valuation methods that are appropriate in estimating the fair value of an asset or liability.
The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:
|
|
•
|
Level 1
uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2
uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities: quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
Level 3
uses one or more unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair values are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
68
|
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
|
The following table summarizes financial assets and financial liabilities that we measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2018
|
|
At July 31, 2017
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents, primarily money market funds and savings deposit accounts
|
$
|
1,143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,143
|
|
|
$
|
181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
181
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
63
|
|
Municipal auction rate securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
Corporate notes
|
—
|
|
|
412
|
|
|
—
|
|
|
412
|
|
|
—
|
|
|
382
|
|
|
—
|
|
|
382
|
|
U.S. agency securities
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Total available-for-sale securities
|
—
|
|
|
452
|
|
|
—
|
|
|
452
|
|
|
—
|
|
|
448
|
|
|
15
|
|
|
463
|
|
Total assets measured at fair value on a recurring basis
|
$
|
1,143
|
|
|
$
|
452
|
|
|
$
|
—
|
|
|
$
|
1,595
|
|
|
$
|
181
|
|
|
$
|
448
|
|
|
$
|
15
|
|
|
$
|
644
|
|
The following table summarizes our cash equivalents and available-for-sale debt securities by balance sheet classification and level in the fair value hierarchy at the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2018
|
|
At July 31, 2017
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In cash and cash equivalents
|
$
|
1,143
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,143
|
|
|
$
|
181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
181
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In investments
|
$
|
—
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
248
|
|
|
$
|
—
|
|
|
$
|
248
|
|
In funds held for customers
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
In long-term investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
Total available-for-sale debt securities
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
—
|
|
|
$
|
448
|
|
|
$
|
15
|
|
|
$
|
463
|
|
We value our Level 1 assets, consisting primarily of money market funds and savings deposit accounts, using quoted prices in active markets for identical instruments. Financial assets whose fair values we measure on a recurring basis using Level 2 inputs consist of municipal bonds, corporate notes and U.S. agency securities. We measure the fair values of these assets with the help of a pricing service that either provides quoted market prices in active markets for identical or similar securities or uses observable inputs for their pricing without applying significant adjustments. Our fair value processes include controls that are designed to ensure that we record appropriate fair values for our Level 2 investments. These controls include comparison to pricing provided by a secondary pricing service or investment manager, validation of pricing sources and models, review of key model inputs, analysis of period-over-period price fluctuations, and independent recalculation of prices where appropriate.
Financial assets whose fair values we measure using significant unobservable (Level 3) inputs consist of municipal auction rate securities that are no longer liquid. During the fourth quarter of fiscal 2018, all of our municipal auction rate securities were redeemed by the issuer at par. For the fiscal years ended July 31, 2017 and 2016, we estimated the fair values of the auction rate securities using a discounted cash flow model. Using our discounted cash flow model, we determined that the fair values of the municipal auction rate securities we held at July 31,
2017
and
2016
were approximately equal to their par values and as a result we recorded no decrease in their fair values during the twelve months then ended.
There were
no
transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the twelve months ended July 31,
2018
,
2017
or
2016
.
|
|
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
|
Assets measured at fair value on a non-recurring basis include reporting units measured at fair value in a goodwill impairment test. Estimates of fair value for reporting units fall under Level 3 of the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
69
|
|
|
|
|
|
|
|
|
|
During the fourth quarters of fiscal
2018
, fiscal
2017
, and fiscal
2016
we performed our annual goodwill impairment tests. Using the methodology described in Note 1, we determined that the estimated fair values of all of our reporting units exceeded their carrying values and that they were not impaired.
|
|
3. Cash and Cash Equivalents, Investments, and Funds Held for Customers
|
The following table summarizes our cash and cash equivalents, investments and funds held for customers by balance sheet classification at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2018
|
|
July 31, 2017
|
(In millions)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Classification on balance sheets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,464
|
|
|
$
|
1,464
|
|
|
$
|
529
|
|
|
$
|
529
|
|
Investments
|
253
|
|
|
252
|
|
|
247
|
|
|
248
|
|
Funds held for customers
|
368
|
|
|
367
|
|
|
372
|
|
|
372
|
|
Long-term investments
|
13
|
|
|
13
|
|
|
31
|
|
|
31
|
|
Total cash and cash equivalents, investments, and funds
held for customers
|
$
|
2,098
|
|
|
$
|
2,096
|
|
|
$
|
1,179
|
|
|
$
|
1,180
|
|
The following table summarizes our cash and cash equivalents, investments and funds held for customers by investment category at the dates indicated. See Note 2 for more information on our municipal auction rate securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2018
|
|
July 31, 2017
|
(In millions)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Type of issue:
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
$
|
1,631
|
|
|
$
|
1,631
|
|
|
$
|
701
|
|
|
$
|
701
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
Municipal bonds
|
31
|
|
|
31
|
|
|
63
|
|
|
63
|
|
Municipal auction rate securities
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
Corporate notes
|
414
|
|
|
412
|
|
|
381
|
|
|
382
|
|
U.S. agency securities
|
9
|
|
|
9
|
|
|
3
|
|
|
3
|
|
Total available-for-sale debt securities
|
454
|
|
|
452
|
|
|
462
|
|
|
463
|
|
Other long-term investments
|
13
|
|
|
13
|
|
|
16
|
|
|
16
|
|
Total cash and cash equivalents, investments, and funds
held for customers
|
$
|
2,098
|
|
|
$
|
2,096
|
|
|
$
|
1,179
|
|
|
$
|
1,180
|
|
We include realized gains and losses on our available-for-sale debt securities in interest and other income or expense on our statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the twelve months ended July 31,
2018
,
2017
and
2016
were
not
significant.
We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income or loss in the stockholders’ equity section of our balance sheets. Gross unrealized gains and losses on our available-for-sale debt securities at
July 31, 2018
and
July 31, 2017
were
not
significant.
We periodically review our investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. We believe that the investments that we held at
July 31, 2018
were not other-than-temporarily impaired. Unrealized losses on available-for-sale debt securities at
July 31, 2018
were not significant and are due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. We do not intend to sell these investments. In addition, it is more likely than not that we will not be required to sell them before recovery at par, which may be at maturity.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
70
|
|
|
|
|
|
|
|
|
|
The following table summarizes our available-for-sale debt securities classified by the stated maturity date of the security at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2018
|
|
July 31, 2017
|
(In millions)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Due within one year
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
209
|
|
|
$
|
209
|
|
Due within two years
|
117
|
|
|
116
|
|
|
164
|
|
|
164
|
|
Due within three years
|
66
|
|
|
65
|
|
|
59
|
|
|
60
|
|
Due after three years
|
21
|
|
|
21
|
|
|
30
|
|
|
30
|
|
Total available-for-sale debt securities
|
$
|
454
|
|
|
$
|
452
|
|
|
$
|
462
|
|
|
$
|
463
|
|
|
|
4. Property and Equipment
|
Property and equipment consisted of the following at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Life in
|
|
July 31,
|
(Dollars in millions)
|
Years
|
|
2018
|
|
2017
|
Equipment
|
3-5
|
|
$
|
479
|
|
|
$
|
579
|
|
Computer software
|
2-6
|
|
812
|
|
|
749
|
|
Furniture and fixtures
|
5
|
|
88
|
|
|
82
|
|
Leasehold improvements
|
3-16
|
|
325
|
|
|
310
|
|
Land
|
NA
|
|
79
|
|
|
81
|
|
Buildings
|
5-30
|
|
363
|
|
|
547
|
|
Capital in progress
|
NA
|
|
48
|
|
|
71
|
|
|
|
|
2,194
|
|
|
2,419
|
|
Less accumulated depreciation and amortization
|
|
|
(1,382
|
)
|
|
(1,389
|
)
|
Total property and equipment, net
|
|
|
$
|
812
|
|
|
$
|
1,030
|
|
__________________________
NA = Not Applicable
The decrease in the total net property and equipment balance as of July 31, 2018 is primarily due to the sale of our data center in Quincy, Washington during fiscal 2018.
Capital in progress at
July 31, 2018
and 2017 consisted primarily of costs related to internal use software projects and land and buildings that we are in the process of constructing on our headquarters campus in Mountain View, California. The balance of land and buildings in the capital in progress account was
$29 million
at
July 31, 2018
and
$30 million
at
July 31, 2017
.
As discussed in Note 1,
“Description of Business and Summary of Significant Accounting Policies – Internal Use Software
,
”
we capitalize costs related to the development of computer software for internal use. We capitalized internal use software costs totaling
$86
million for the twelve months ended
July 31, 2018
;
$128
million for the twelve months ended
July 31, 2017
; and
$103
million for the twelve months ended
July 31, 2016
. These amounts included capitalized labor costs of
$45
million,
$99
million and
$80
million, respectively. Costs related to internal use software projects are included in the capital in progress category of property and equipment until project completion, at which time they are transferred to the computer software category.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
71
|
|
|
|
|
|
|
|
|
|
|
|
5. Goodwill and Acquired Intangible Assets
|
Changes in the carrying value of goodwill by reportable segment during the twelve months ended
July 31, 2018
and
July 31, 2017
were as shown in the following table. Our reportable segments are described in Note 14,
“Segment Information.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Balance
July 31,
2016
|
|
Goodwill
Acquired/
Adjusted
|
|
Balance
July 31,
2017
|
|
Goodwill
Acquired/
Adjusted
|
|
Balance
July 31,
2018
|
Small Business & Self-Employed
|
$
|
1,168
|
|
|
$
|
12
|
|
|
$
|
1,180
|
|
|
$
|
316
|
|
|
$
|
1,496
|
|
Consumer
|
23
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
Strategic Partner
|
91
|
|
|
1
|
|
|
92
|
|
|
—
|
|
|
92
|
|
Totals
|
$
|
1,282
|
|
|
$
|
13
|
|
|
$
|
1,295
|
|
|
$
|
316
|
|
|
$
|
1,611
|
|
Goodwill is net of accumulated impairment losses of
$114 million
, which were recorded prior to July 31, 2016 and are included in our Consumer segment. The increase in goodwill in our Small Business & Self-Employed segment during the twelve months ended
July 31, 2018
was primarily due to the acquisitions of TSheets.com LLC, Exactor, Inc., and Applatix. See Note 6,
“Business Combinations,”
for more information.
|
|
Acquired Intangible Assets
|
The following table shows the cost, accumulated amortization and weighted average life in years for our acquired intangible assets at the dates indicated. The weighted average lives are calculated for assets that are not fully amortized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Customer
Lists
|
|
Purchased
Technology
|
|
Trade
Names
and Logos
|
|
Covenants
Not to
Compete
or Sue
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2018:
|
|
|
|
|
|
|
|
|
|
Cost
|
$
|
257
|
|
|
$
|
403
|
|
|
$
|
25
|
|
|
$
|
39
|
|
|
$
|
724
|
|
Accumulated amortization
|
(242
|
)
|
|
(364
|
)
|
|
(24
|
)
|
|
(33
|
)
|
|
(663
|
)
|
Acquired intangible assets, net
|
$
|
15
|
|
|
$
|
39
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
61
|
|
Weighted average life in years
|
5
|
|
|
4
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2017:
|
|
|
|
|
|
|
|
|
|
Cost
|
$
|
240
|
|
|
$
|
367
|
|
|
$
|
23
|
|
|
$
|
32
|
|
|
$
|
662
|
|
Accumulated amortization
|
(240
|
)
|
|
(346
|
)
|
|
(23
|
)
|
|
(31
|
)
|
|
(640
|
)
|
Acquired intangible assets, net
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
22
|
|
Weighted average life in years
|
NA
|
|
|
6
|
|
|
NA
|
|
|
9
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
72
|
|
|
|
|
|
|
|
|
|
The following table shows the expected future amortization expense for our acquired intangible assets at
July 31, 2018
. Amortization of purchased technology is charged to cost of service and other revenue and to amortization of acquired technology in our statements of operations. Amortization of other acquired intangible assets such as customer lists is charged to amortization of other acquired intangible assets in our statements of operations. If impairment events occur, they could accelerate the timing of acquired intangible asset charges.
|
|
|
|
|
(In millions)
|
Expected
Future
Amortization
Expense
|
|
|
Twelve months ending July 31,
|
|
2019
|
$
|
25
|
|
2020
|
22
|
|
2021
|
10
|
|
2022
|
3
|
|
2023
|
1
|
|
Thereafter
|
—
|
|
Total expected future amortization expense
|
$
|
61
|
|
During fiscal 2018 we acquired all of the outstanding equity interests of TSheets.com LLC, Exactor, Inc., and Applatix, Inc. for total combined cash and other consideration of approximately
$412 million
. The
$412 million
included approximately
$27 million
for the fair value of equity awards and other cash consideration that is being charged to expense over the future service period of up to
three
years. These
three
businesses became part of our Small Business & Self-Employed segment and will provide additional features to our QuickBooks offerings such as automated time tracking and scheduling and the calculation and filing of sales and use taxes. We have included their results of operations in our consolidated results of operations from the dates of acquisition. Their results of operations for all periods presented and periods prior to the dates of acquisition were not material when compared with our consolidated results of operations.
Under the acquisition method of accounting we allocated the fair value of the total combined purchase consideration of
$385 million
to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the dates of acquisition. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management. We recorded the excess of consideration over the aggregate fair values as goodwill which is primarily attributable to expected synergies from future growth. Using information available at the time the acquisitions closed, we allocated approximately
$5 million
of the total combined purchase consideration to net tangible assets and approximately
$62 million
to identified intangible assets which are being amortized over a weighted average life of
four
years. The identified intangible assets include
$38 million
for purchased technology,
$17 million
for customer lists, and
$7 million
for covenants not to compete. We recorded the excess combined purchase consideration of approximately
$318 million
as goodwill, of which approximately
$219 million
is deductible for income tax purposes.
|
|
7. Discontinued Operations
|
On February 1, 2016 we completed the sale of our Demandforce business. On April 1, 2016 we completed the sales of our QuickBase and Quicken businesses. We received
$463 million
in cash and recorded a pre-tax gain of
$354 million
and a net gain of
$173 million
on the disposal of these
three
businesses in fiscal 2016.
We classified our Demandforce, QuickBase, and Quicken businesses as discontinued operations and have therefore segregated their operating results from continuing operations in our statements of operations for all periods presented. Because the cash flows of these businesses were not material for any period presented, we have not segregated them on our statements of cash flows. Demandforce and QuickBase were part of our Small Business & Self-Employed segment and Quicken was part of our former Consumer segment.
Net revenue from discontinued operations was
$137 million
for the twelve months ended
July 31, 2016
. We recorded net income from discontinued operations of
$173 million
for the twelve months ended
July 31, 2016
.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
73
|
|
|
|
|
|
|
|
|
|
On February 1, 2016 we entered into a master credit agreement with certain institutional lenders for a five-year credit facility in an aggregate principal amount of
$1.5 billion
. The master credit agreement includes a
$500 million
unsecured term loan and a
$1 billion
unsecured revolving credit facility. At
July 31, 2018
,
$438 million
was outstanding under the term loan, of which
$50 million
was classified as short-term debt. See Note 9, “
Long-Term Obligations and Commitments – Long-Term Debt,”
for more information regarding the term loan.
|
|
Unsecured Revolving Credit Facility
|
The master credit agreement we entered into on February 1, 2016 includes a
$1 billion
unsecured revolving credit facility that will expire on February 1, 2021. Under the master credit agreement we may, subject to certain customary conditions, on one or more occasions increase commitments under the revolving credit facility in an amount not to exceed
$250 million
in the aggregate and may extend the maturity date up to
two
times. Advances under the revolving credit facility accrue interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from
0.0%
to
0.5%
or the London Interbank Offered Rate (LIBOR) plus a margin that ranges from
0.9%
to
1.5%
. Actual margins under either election will be based on our senior debt credit ratings. The master credit agreement includes customary affirmative and negative covenants, including financial 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 as of any date and a ratio of annual EBITDA to annual interest expense of not less than
3.00
to 1.00 as of the last day of each fiscal quarter. We remained in compliance with these covenants at all times during the fiscal year ended
July 31, 2018
. During the
twelve
months ended
July 31, 2018
we borrowed and repaid
$800 million
under this revolving credit facility and at
July 31, 2018
no
amounts were outstanding. We paid
$5 million
for interest on the revolving credit facility during the twelve months ended
July 31, 2018
,
$1 million
during the twelve months ended
July 31, 2017
, and
$2 million
during the twelve months ended
July 31, 2016
.
|
|
Other Current Liabilities
|
Other current liabilities were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
July 31,
|
(In millions)
|
2018
|
|
2017
|
Executive deferred compensation plan liabilities
|
$
|
97
|
|
|
$
|
83
|
|
Reserve for promotional discounts and rebates
|
10
|
|
|
19
|
|
Reserve for product returns
|
10
|
|
|
7
|
|
Current portion of license fee payable
|
9
|
|
|
10
|
|
Current portion of deferred rent
|
6
|
|
|
6
|
|
Current portion of dividend payable
|
10
|
|
|
9
|
|
Other
|
49
|
|
|
44
|
|
Total other current liabilities
|
$
|
191
|
|
|
$
|
178
|
|
|
|
9. Long-Term Obligations and Commitments
|
On February 1, 2016 we entered into a master credit agreement with certain institutional lenders for a five-year credit facility in an aggregate principal amount of
$1.5 billion
, which includes a
$500 million
unsecured term loan. Under the master credit agreement we may, subject to certain customary conditions, on one or more occasions increase commitments under the term loan in an amount not to exceed
$500 million
in the aggregate. The term loan accrues interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from
0.125%
to
0.875%
or LIBOR plus a margin that ranges from
1.125%
to
1.875%
. Actual margins under either election will be based on our senior debt credit ratings. The master credit agreement includes customary affirmative and negative covenants. See Note 8, “
Current Liabilities – Unsecured Revolving Credit Facility,”
for more information. The term loan is subject to quarterly principal payments of
2.5%
of the loan amount which began in July 2017, with the balance payable on February 1, 2021. At
July 31, 2018
,
$438 million
was outstanding under the term loan, of which
$50 million
was classified as short-term debt. The carrying value of the term loan
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
74
|
|
|
|
|
|
|
|
|
|
approximates its fair value. Interest on the term loan is payable monthly. We paid
$13 million
for interest on the term loan during the twelve months ended
July 31, 2018
,
$11 million
during the twelve months ended
July 31, 2017
, and
$4 million
during the twelve months ended
July 31, 2016
.
|
|
Other Long-Term Obligations
|
Other long-term obligations were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
July 31,
|
(In millions)
|
2018
|
|
2017
|
Long-term income tax liabilities
|
$
|
61
|
|
|
$
|
53
|
|
Total deferred rent
|
47
|
|
|
49
|
|
Total license fee payable
|
9
|
|
|
18
|
|
Total dividend payable
|
14
|
|
|
13
|
|
Long-term deferred income tax liabilities
|
7
|
|
|
7
|
|
Other
|
12
|
|
|
16
|
|
Total long-term obligations
|
150
|
|
|
156
|
|
Less current portion (included in other current liabilities)
|
(27
|
)
|
|
(26
|
)
|
Long-term obligations due after one year
|
$
|
123
|
|
|
$
|
130
|
|
In May 2009 we entered into an agreement to license certain technology for
$20
million in cash and
$100
million payable over ten fiscal years. The total present value of the arrangement at inception was approximately
$89
million. The total license fee payable in the table above includes imputed interest through the dates indicated.
|
|
Operating Lease Commitments and Unconditional Purchase Obligations
|
We lease office facilities and equipment under non-cancellable operating lease arrangements. Our facilities leases generally provide for periodic rent increases and many contain escalation clauses and renewal options. The leases for our corporate headquarters campus in Mountain View, California expire in 2024 and 2026, with options to extend the lease terms for an additional ten years at rates to be determined in accordance with the agreements.
In the ordinary course of business we enter into certain unconditional purchase obligations with our suppliers. These are agreements to purchase products and services that are enforceable, legally binding, and specify terms that include fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payments.
Annual minimum commitments under purchase obligations and operating leases at
July 31, 2018
were as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Purchase
Obligations
|
|
Operating
Lease
Commitments
|
|
Sublease Income
|
|
Net Operating Lease Commitments
|
Fiscal year ending July 31,
|
|
|
|
|
|
|
|
2019
|
$
|
175
|
|
|
$
|
66
|
|
|
$
|
24
|
|
|
$
|
42
|
|
2020
|
121
|
|
|
61
|
|
|
22
|
|
|
39
|
|
2021
|
125
|
|
|
59
|
|
|
19
|
|
|
40
|
|
2022
|
73
|
|
|
51
|
|
|
8
|
|
|
43
|
|
2023
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
Thereafter
|
—
|
|
|
113
|
|
|
—
|
|
|
113
|
|
Total commitments
|
$
|
494
|
|
|
$
|
399
|
|
|
$
|
73
|
|
|
$
|
326
|
|
Rent expense net of sublease income for continuing operations totaled
$38
million for the twelve months ended
July 31, 2018
,
$34
million for the twelve months ended
July 31, 2017
, and
$36
million for the twelve months ended
July 31, 2016
. Rent expense includes base contractual rent and contractual variable expenses such as building maintenance, utilities, property taxes and insurance. Sublease income for continuing operations totaled
$23 million
for the twelve months ended
July 31, 2018
,
$22 million
for the twelve months ended
July 31, 2017
, and
$10 million
for the twelve months ended
July 31, 2016
.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
75
|
|
|
|
|
|
|
|
|
|
The provision for income taxes from continuing operations consisted of the following for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
Federal
|
$
|
197
|
|
|
$
|
345
|
|
|
$
|
401
|
|
State
|
38
|
|
|
36
|
|
|
33
|
|
Foreign
|
14
|
|
|
8
|
|
|
13
|
|
Total current
|
249
|
|
|
389
|
|
|
447
|
|
Deferred:
|
|
|
|
|
|
Federal
|
44
|
|
|
4
|
|
|
(42
|
)
|
State
|
(1
|
)
|
|
1
|
|
|
(7
|
)
|
Foreign
|
—
|
|
|
2
|
|
|
(1
|
)
|
Total deferred
|
43
|
|
|
7
|
|
|
(50
|
)
|
Total provision for income taxes from continuing operations
|
$
|
292
|
|
|
$
|
396
|
|
|
$
|
397
|
|
We recognized excess tax benefits associated with share-based compensation of
$100
million in the provision for income taxes for the twelve months ended July 31, 2018, and
$72
million in the provision for income taxes for the twelve months ended July 31, 2017. Prior to our adoption of ASU 2016-09 in the first quarter of fiscal 2017, excess tax benefits associated with share-based compensation deductions were credited to stockholders’ equity rather than current tax expense. The reduction of income taxes payable resulting from share-based compensation deductions that were credited to stockholders’ equity was approximately
$59
million for the twelve months ended
July 31, 2016
.
The sources of income from continuing operations before the provision for income taxes consisted of the following for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
1,464
|
|
|
$
|
1,362
|
|
|
$
|
1,205
|
|
Foreign
|
39
|
|
|
5
|
|
|
(2
|
)
|
Total
|
$
|
1,503
|
|
|
$
|
1,367
|
|
|
$
|
1,203
|
|
Differences between income taxes calculated using the federal statutory income tax rate and the provision for income taxes from continuing operations were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
Income from continuing operations before income taxes
|
$
|
1,503
|
|
|
$
|
1,367
|
|
|
$
|
1,203
|
|
|
|
|
|
|
|
Statutory federal income tax
|
$
|
404
|
|
|
$
|
479
|
|
|
$
|
421
|
|
State income tax, net of federal benefit
|
27
|
|
|
24
|
|
|
17
|
|
Federal research and experimentation credits
|
(38
|
)
|
|
(24
|
)
|
|
(33
|
)
|
Domestic production activities deduction
|
(28
|
)
|
|
(34
|
)
|
|
(34
|
)
|
Share-based compensation
|
11
|
|
|
14
|
|
|
16
|
|
Federal excess tax benefits related to share-based compensation
|
(94
|
)
|
|
(69
|
)
|
|
—
|
|
2017 Tax Act - Deferred tax re-measurement
|
43
|
|
|
—
|
|
|
—
|
|
Capital loss on subsidiary reorganization
|
(35
|
)
|
|
—
|
|
|
—
|
|
Effects of non-U.S. operations
|
1
|
|
|
5
|
|
|
11
|
|
Other, net
|
1
|
|
|
1
|
|
|
(1
|
)
|
Total provision for income taxes from continuing operations
|
$
|
292
|
|
|
$
|
396
|
|
|
$
|
397
|
|
The Tax Cuts and Jobs Act (2017 Tax Act) was enacted on December 22, 2017 and reduces the U.S. statutory federal corporate tax rate from 35% to 21%. The effective date of the tax rate change was January 1, 2018. The change resulted in a blended lower U.S. statutory federal rate of
26.9%
for fiscal year 2018. As a result, we adjusted our annual effective tax rate for the year ended July 31, 2018, as well as adjusted our U.S. net deferred tax asset balance at the lower rates.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
76
|
|
|
|
|
|
|
|
|
|
As of July 31, 2018, we have not completed our accounting for the tax effects of enactment of the 2017 Tax Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances. We recorded a provisional charge of $
43 million
for fiscal year 2018, including a provisional charge reduction of
$1 million
during the fourth quarter related to the re-measurement of certain deferred tax balances.
Additionally, we have made provisional estimates of the impact of the 2017 Tax Act’s changes to our fiscal 2018 annual effective tax rate for items such as meals and entertainment and executive deferred compensation deductions. We do not expect to have any material tax impact from the foreign tax provisions of the 2017 Tax Act.
On December 22, 2017 the SEC issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Act in the period of enactment. The guidance allows us to record provisional amounts to the extent a reasonable estimate can be made and provides us with up to one year from enactment date to finalize accounting for the impacts of the 2017 Tax Act. Since the 2017 Tax Act was passed in Intuit’s second quarter, the deferred tax re-measurements and other items are considered provisional due to the forthcoming guidance and ongoing analysis of the final year-end data and tax positions. The analysis is expected to be completed within the 12-month measurement period in accordance with SAB 118.
During fiscal year 2018, we completed a reorganization which resulted in a taxable liquidation of a subsidiary. The transaction gave rise to a capital loss which is available for carryback to prior years to offset capital gain income previously recognized. As a result, we recognized a tax benefit of
$35 million
during the fourth quarter of fiscal 2018.
The state income tax line in the table above includes excess tax benefits related to share-based compensation of
$6 million
and
$3 million
for the twelve months ended July 31, 2018 and 2017, respectively.
In December 2015 the Consolidated Appropriations Act, 2016 was signed into law, and includes a permanent reinstatement of the federal research and experimentation credit that was retroactive to January 1, 2015. We recorded a discrete tax benefit of approximately
$12 million
for the retroactive effect during the twelve months ended July 31 2016.
The U.S. deferred income taxes as of July 31, 2018 reflect the reduction in the U.S. statutory tax rate from 35% to 21% resulting from the 2017 Tax Act. Significant deferred tax assets and liabilities were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
July 31,
|
(In millions)
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
Accruals and reserves not currently deductible
|
$
|
12
|
|
|
$
|
35
|
|
Deferred revenue
|
46
|
|
|
74
|
|
Deferred rent
|
8
|
|
|
13
|
|
Accrued and deferred compensation
|
41
|
|
|
62
|
|
Loss and tax credit carryforwards
|
97
|
|
|
71
|
|
Share-based compensation
|
49
|
|
|
70
|
|
Other, net
|
4
|
|
|
14
|
|
Total gross deferred tax assets
|
257
|
|
|
339
|
|
Valuation allowance
|
(93
|
)
|
|
(64
|
)
|
Total deferred tax assets
|
164
|
|
|
275
|
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
65
|
|
|
93
|
|
Property and equipment
|
19
|
|
|
57
|
|
Total deferred tax liabilities
|
84
|
|
|
150
|
|
Net deferred tax assets
|
$
|
80
|
|
|
$
|
125
|
|
The components of total net deferred tax assets, net of valuation allowances, as shown on our balance sheets were as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
July 31,
|
(In millions)
|
2018
|
|
2017
|
Long-term deferred income taxes
|
$
|
87
|
|
|
$
|
132
|
|
Long-term deferred income taxes included in other long-term obligations
|
(7
|
)
|
|
(7
|
)
|
Net deferred tax assets
|
$
|
80
|
|
|
$
|
125
|
|
We have provided a valuation allowance related to state research and experimentation tax credit carryforwards, foreign loss carryforwards, and state operating and capital loss carryforwards that we believe are unlikely to be realized. Changes in the
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
77
|
|
|
|
|
|
|
|
|
|
valuation allowance during the twelve months ended July 31, 2018 and July 31, 2017 were primarily related to an increase in the valuation allowance for state research and experimentation tax credit and foreign loss carryforwards.
At July 31, 2016, the income tax expense associated with the net gain from discontinued operations consisted of
$179 million
related to the sale of Demandforce, QuickBase, and Quicken, and
$2 million
related to the increase of valuation allowance on state capital loss carryforwards. See Note 7, “
Discontinued Operations,
” for more information.
At
July 31, 2018
, we had total federal net operating loss carryforwards of approximately
$16
million that will start to expire in fiscal
2028
. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.
At
July 31, 2018
, we had total state net operating loss carryforwards of approximately
$93
million for which we have recorded a deferred tax asset of
$6
million and a valuation allowance of
$5 million
. The state net operating losses will start to expire in fiscal
2027
. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.
At
July 31, 2018
, we had Singapore operating loss carryforwards of approximately
$84 million
and Brazil operating loss carryforwards of approximately
$23 million
which have an indefinite carryforward period. We maintain a full valuation allowance with respect to operating losses in these jurisdictions, as there is not sufficient evidence of future sources of taxable income required to utilize such carryforwards.
At
July 31, 2018
, we had California research and experimentation credit carryforwards of approximately
$100 million
. We recorded a full valuation on the related deferred tax asset, as we believe it is more likely than not that these credits will not be utilized.
|
|
Unrecognized Tax Benefits
|
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
Gross unrecognized tax benefits, beginning balance
|
$
|
61
|
|
|
$
|
60
|
|
|
$
|
56
|
|
Increases related to tax positions from prior fiscal years, including acquisitions
|
10
|
|
|
8
|
|
|
7
|
|
Decreases related to tax positions from prior fiscal years
|
(3
|
)
|
|
(8
|
)
|
|
(7
|
)
|
Increases related to tax positions taken during current fiscal year
|
23
|
|
|
9
|
|
|
15
|
|
Settlements with tax authorities
|
(1
|
)
|
|
(8
|
)
|
|
(11
|
)
|
Gross unrecognized tax benefits, ending balance
|
$
|
90
|
|
|
$
|
61
|
|
|
$
|
60
|
|
The total amount of our unrecognized tax benefits at
July 31, 2018
was
$90
million. Net of related deferred tax assets, unrecognized tax benefits were
$57
million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of
$57
million. We do not believe that it is reasonably possible that there will be a significant increase or decrease in unrecognized tax benefits over the next 12 months.
We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S. federal and the State of California. For U.S. federal tax returns we are no longer subject to tax examinations for years prior to fiscal 2013. For California tax returns we are currently under tax examinations for fiscal 2013 to fiscal 2015.
We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. Amounts accrued at
July 31, 2018
and
July 31, 2017
for the payment of interest and penalties were
not
significant. The amounts of interest and penalties that we recognized during the twelve months ended July 31,
2018
,
2017
and
2016
were also
not
significant.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
78
|
|
|
|
|
|
|
|
|
|
|
|
Stock Repurchase Programs
|
Intuit’s Board of Directors has authorized a series of common stock repurchase programs. Shares of common stock repurchased under these programs become treasury shares. Under these programs, we repurchased
1.9 million
shares of our common stock for
$272 million
during the twelve months ended
July 31, 2018
. At
July 31, 2018
, we had authorization from our Board of Directors to expend up to an additional
$1.2 billion
for stock repurchases. On
August 21, 2018
, our Board approved a new stock repurchase program under which we are authorized to repurchase up to an additional
$2 billion
of our common stock, bringing the total authorization to
$3.2 billion
. Future stock repurchases under the current program are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.
Our treasury shares are repurchased at the market price on the trade date; accordingly, all amounts paid to reacquire these shares have been recorded as treasury stock on our balance sheets. 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.
In the past we have satisfied option exercises and restricted stock unit vesting under our employee equity incentive plans by reissuing treasury shares, and we may do so again in the future. During the second quarter of fiscal 2014 we began issuing new shares of common stock to satisfy option exercises and RSU vesting under our 2005 Equity Incentive Plan. We have not yet determined the ultimate disposition of the shares that we have repurchased in the past, and consequently we continue to hold them as treasury shares.
|
|
Dividends on Common Stock
|
During fiscal
2018
we declared and paid cash dividends that totaled
$1.56
per share of outstanding common stock or approximately
$407 million
. In August
2018
our Board of Directors declared a quarterly cash dividend of
$0.47
per share of outstanding common stock payable on
October 18, 2018
to stockholders of record at the close of business on
October 10, 2018
. Future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.
|
|
Description of 2005 Equity Incentive Plan
|
Our stockholders initially approved our 2005 Equity Incentive Plan (2005 Plan) on December 9, 2004. On January 19, 2017 our stockholders approved an Amended and Restated 2005 Equity Incentive Plan (Restated 2005 Plan) that expires on January 19, 2027 and approved an additional
23.1 million
shares for issuance under that plan. Under the Restated 2005 Plan, we are permitted to grant incentive and non-qualified stock options, restricted stock awards, restricted stock units (RSUs), stock appreciation rights and stock bonus awards to our employees, non-employee directors, and consultants. The Compensation and Organizational Development Committee of our Board of Directors or its delegates determine who will receive grants, when those grants will be exercisable, their exercise price and other terms. We are permitted to issue up to
138.1 million
shares under the Restated 2005 Plan. The plan provides a fungible share reserve. Each stock option granted on or after November 1, 2010 reduces the share reserve by
one
share and each restricted stock award or restricted stock unit granted reduces the share reserve by
2.3
shares. Stock options forfeited and returned to the pool of shares available for grant increase the pool by
one
share for each share forfeited. Restricted stock awards and RSUs forfeited and returned to the pool of shares available for grant increase the pool by
2.3
shares for each share forfeited. Shares withheld for income taxes upon vesting of RSUs that were granted on or after July 21, 2016 are also returned to the pool of shares available for grant. At
July 31, 2018
, there were approximately
22.8 million
shares available for grant under this plan. Stock options granted under the 2005 Plan and the Restated 2005 Plan typically vest over three to four years based on continued service and have a seven year term. RSUs granted under those plans typically vest over three to four years based on continued service. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals.
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
79
|
|
|
|
|
|
|
|
|
|
|
|
Description of Employee Stock Purchase Plan
|
On November 26, 1996 our stockholders initially adopted our Employee Stock Purchase Plan (ESPP) under Section 423 of the Internal Revenue Code. The ESPP permits our eligible employees to make payroll deductions to purchase our stock on regularly scheduled purchase dates at a discount. Our stockholders have approved amendments to the ESPP to permit the issuance of up to
23.8 million
shares under the ESPP, which expires upon the earliest to occur of (a) termination of the ESPP by the Board, or (b) issuance of all the shares of Intuit’s common stock reserved for issuance under the ESPP. Offering periods under the ESPP are
six months
in duration and composed of
two
consecutive three-month accrual periods. Shares are purchased at
85%
of the lower of the closing price for Intuit common stock on the first day of the offering period or the last day of the accrual period.
Under the ESPP, employees purchased
612,768
shares of Intuit common stock during the twelve months ended
July 31, 2018
;
752,605
shares during the twelve months ended
July 31, 2017
; and
882,206
shares during the twelve months ended
July 31, 2016
. At
July 31, 2018
, there were
2,391,194
shares available for issuance under this plan.
In fiscal 2017 we adopted ASU 2016-09, “
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
” which requires tax benefits recognized on share-based compensation expense to be reflected in our condensed consolidated statements of operations as a component of the provision for income taxes on a prospective basis. Excess tax benefits are classified as an operating activity in our condensed consolidated statements of cash flows and we applied this provision on a retrospective basis. For the twelve months ended July 31, 2018 and 2017, we recognized excess tax benefits of
$100 million
and
$72 million
in our provision for income taxes. For the twelve months ended July 31, 2016, net cash provided by operating activities increased by
$59 million
with a corresponding offset to net cash used in financing activities. As a result of the adoption of ASU 2016-09, as of August 1, 2016, we recognized the net cumulative effect of this change as a
$6 million
increase to additional paid-in capital, a
$2 million
increase to deferred tax assets and a
$4 million
reduction to retained earnings.
|
|
Share-Based Compensation Expense
|
The following table summarizes the total share-based compensation expense that we recorded in operating income from continuing operations for the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions except per share amounts)
|
2018
|
|
2017
|
|
2016
|
Cost of product revenue
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of service and other revenue
|
40
|
|
|
8
|
|
|
8
|
|
Selling and marketing
|
101
|
|
|
88
|
|
|
77
|
|
Research and development
|
133
|
|
|
122
|
|
|
90
|
|
General and administrative
|
105
|
|
|
108
|
|
|
103
|
|
Total share-based compensation expense from continuing operations
|
382
|
|
|
326
|
|
|
278
|
|
Income tax benefit
|
(199
|
)
|
|
(179
|
)
|
|
(86
|
)
|
Decrease in net income from continuing operations
|
$
|
183
|
|
|
$
|
147
|
|
|
$
|
192
|
|
|
|
|
|
|
|
Decrease in net income per share from continuing operations:
|
|
|
|
|
|
Basic
|
$
|
0.71
|
|
|
$
|
0.57
|
|
|
$
|
0.73
|
|
Diluted
|
$
|
0.70
|
|
|
$
|
0.56
|
|
|
$
|
0.72
|
|
We capitalized
$3 million
in share-based compensation related to internal use software projects during the twelve months ended
July 31, 2018
,
$7 million
during the twelve months ended
July 31, 2017
, and
$6 million
during the twelve months ended
July 31, 2016
. The table above also excludes share-based compensation expense for our discontinued operations, which totaled
$3 million
during the twelve months ended
July 31, 2016
. Because we have not reclassified our statements of cash flows to segregate discontinued operations, these amounts are included in share-based compensation expense on our statements of cash flows for that period.
Valuation and Amortization Method
.
We estimate the fair value of stock options granted using a lattice binomial model and a multiple option award approach. Our stock options have various restrictions, including vesting provisions and restrictions on
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
80
|
|
|
|
|
|
|
|
|
|
transfer, and are often exercised prior to their contractual maturity. We believe that lattice binomial models are more capable of incorporating the features of our stock options than closed-form models such as the Black Scholes model. The use of a lattice binomial model requires the use of extensive actual employee exercise behavior and a number of complex assumptions including the expected volatility of our stock price over the term of the options, risk-free interest rates and expected dividends. We amortize the fair value of options on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
Restricted stock units (RSUs) granted typically vest based on continued service. We value these time-based RSUs at the date of grant using the intrinsic value method. We amortize the fair value of time-based RSUs on a straight-line basis over the service period. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals. We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based RSUs if necessary. We amortize the fair values of performance-based RSUs over the requisite service period for each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
All of the RSUs we grant have dividend rights that are subject to the same vesting requirements as the underlying equity awards, so we do not adjust the market price of our stock on the date of grant for dividends.
Expected Term
. The expected term of options granted represents the period of time that they are expected to be outstanding and is a derived output of the lattice binomial model. The expected term of stock options is impacted by all of the underlying assumptions and calibration of our model. The lattice binomial model assumes that option exercise behavior is a function of the option’s remaining vested life and the extent to which the market price of our common stock exceeds the option exercise price. The lattice binomial model estimates the probability of exercise as a function of these two variables based on the history of exercises and cancellations on all past option grants made by us.
Expected Volatility
. We estimate the volatility of our common stock at the date of grant based on the implied volatility of one-year and two-year publicly traded options on our common stock. Our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility.
Risk-Free Interest Rate
.
We base the risk-free interest rate that we use in our option valuation model on the implied yield in effect at the time of option grant on constant maturity U.S. Treasury issues with equivalent remaining terms.
Dividends
.
We use an annualized expected dividend yield in our option valuation model. We paid quarterly cash dividends during all years presented and currently expect to continue to pay cash dividends in the future.
Forfeitures
.
We adjust share-based compensation expense for actual forfeitures as they occur. Prior to our adoption of ASU 2016-09 in the first quarter of fiscal 2017, we estimated forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures differed from those estimates. We used historical data to estimate pre-vesting option forfeitures and recorded share-based compensation expense only for those awards that were expected to vest.
We used the following assumptions to estimate the fair value of stock options granted and shares purchased under our Employee Stock Purchase Plan for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
|
2018
|
|
2017
|
|
2016
|
Assumptions for stock options:
|
|
|
|
|
|
Expected volatility (range)
|
25
|
%
|
|
22% - 23%
|
|
|
22% - 26%
|
|
Weighted average expected volatility
|
25
|
%
|
|
23
|
%
|
|
22
|
%
|
Risk-free interest rate (range)
|
2.84
|
%
|
|
1.65% - 1.70%
|
|
|
0.98% - 1.49%
|
|
Expected dividend yield
|
0.72
|
%
|
|
0.97% - 1.17%
|
|
|
1.06% - 1.36%
|
|
|
|
|
|
|
|
Assumptions for ESPP:
|
|
|
|
|
|
Expected volatility (range)
|
20% - 25%
|
|
|
18% - 21%
|
|
|
23% - 26%
|
|
Weighted average expected volatility
|
23
|
%
|
|
20
|
%
|
|
25
|
%
|
Risk-free interest rate (range)
|
1.05% - 1.96%
|
|
|
0.30% - 0.89%
|
|
|
0.06% - 0.47%
|
|
Expected dividend yield
|
0.87% - 1.10%
|
|
|
1.09% - 1.10%
|
|
|
1.13% - 1.34%
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
81
|
|
|
|
|
|
|
|
|
|
|
|
Share-Based Awards Available for Grant
|
A summary of share-based awards available for grant under our 2005 Equity Incentive Plan for the fiscal periods indicated was as follows:
|
|
|
|
(Shares in thousands)
|
Shares
Available
for Grant
|
Balance at July 31, 2015
|
17,183
|
|
Options granted
|
(2,553
|
)
|
Restricted stock units granted
(1)
|
(9,364
|
)
|
Share-based awards canceled/forfeited/expired
(1)(2)
|
3,724
|
|
Balance at July 31, 2016
|
8,990
|
|
Additional shares authorized
|
23,110
|
|
Options granted
|
(1,786
|
)
|
Restricted stock units granted
(1)
|
(9,160
|
)
|
Share-based awards canceled/forfeited/expired
(1)(2)
|
4,010
|
|
Balance at July 31, 2017
|
25,164
|
|
Options granted
|
(455
|
)
|
Restricted stock units granted
(1)
|
(6,504
|
)
|
Share-based awards canceled/forfeited/expired
(1)(2)
|
4,586
|
|
Balance at July 31, 2018
|
22,791
|
|
________________________________
|
|
(1)
|
RSUs granted from the pool of shares available for grant under our 2005 Equity Incentive Plan reduce the pool by
2.3
shares for each share granted. RSUs forfeited and returned to the pool of shares available for grant increase the pool by
2.3
shares for each share forfeited.
|
|
|
(2)
|
Stock options and RSUs canceled, expired or forfeited under our 2005 Equity Incentive Plan are returned to the pool of shares available for grant. Shares withheld for income taxes upon vesting of RSUs that were granted on or after July 21, 2016 are also returned to the pool of shares available for grant. Stock options and RSUs canceled, expired or forfeited under older expired plans are not returned to the pool of shares available for grant.
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
82
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Activity and Related Share-Based Compensation Expense
|
A summary of stock option activity for the periods indicated was as follows:
|
|
|
|
|
|
|
|
|
Options Outstanding
|
(Shares in thousands)
|
Number of
Shares
|
|
Weighted Average
Exercise Price
Per Share
|
Balance at July 31, 2015
|
8,713
|
|
|
|
$69.13
|
|
Granted
|
2,553
|
|
|
113.08
|
|
Exercised
|
(2,566
|
)
|
|
48.93
|
|
Canceled or expired
|
(354
|
)
|
|
74.56
|
|
Balance at July 31, 2016
|
8,346
|
|
|
88.55
|
|
Granted
|
1,786
|
|
|
135.24
|
|
Exercised
|
(2,213
|
)
|
|
69.12
|
|
Canceled or expired
|
(431
|
)
|
|
104.78
|
|
Balance at July 31, 2017
|
7,488
|
|
|
104.50
|
|
Granted
|
455
|
|
|
216.64
|
|
Exercised
|
(2,416
|
)
|
|
89.41
|
|
Canceled or expired
|
(373
|
)
|
|
121.31
|
|
Balance at July 31, 2018
|
5,154
|
|
|
|
$120.26
|
|
Information regarding stock options outstanding as of
July 31, 2018
is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
(in thousands)
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Weighted
Average
Exercise
Price per
Share
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Options outstanding
|
5,154
|
|
|
4.82
|
|
|
$120.26
|
|
|
|
$493
|
|
Options exercisable
|
2,933
|
|
|
4.01
|
|
|
$101.40
|
|
|
|
$336
|
|
The aggregate intrinsic values at
July 31, 2018
are calculated as the difference between the exercise price of the underlying options and the market price of our common stock for shares that were in-the-money at that date. In-the-money options at
July 31, 2018
were options that had exercise prices that were lower than the
$204.24
market price of our common stock at that date.
Additional information regarding our stock options and ESPP shares is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions except per share amounts)
|
2018
|
|
2017
|
|
2016
|
Weighted average fair value of options granted (per share)
|
$
|
50.77
|
|
|
$
|
25.54
|
|
|
$
|
20.35
|
|
|
|
|
|
|
|
Total grant date fair value of options vested
|
$
|
38
|
|
|
$
|
37
|
|
|
$
|
32
|
|
|
|
|
|
|
|
Aggregate intrinsic value of options exercised
|
$
|
188
|
|
|
$
|
126
|
|
|
$
|
134
|
|
|
|
|
|
|
|
Share-based compensation expense for stock options and ESPP
|
$
|
56
|
|
|
$
|
52
|
|
|
$
|
48
|
|
|
|
|
|
|
|
Total tax benefit for stock option and ESPP share-based compensation
|
$
|
56
|
|
|
$
|
49
|
|
|
$
|
13
|
|
|
|
|
|
|
|
Cash received from option exercises
|
$
|
216
|
|
|
$
|
153
|
|
|
$
|
126
|
|
|
|
|
|
|
|
Cash tax benefits realized related to tax deductions for non-qualified option exercises and disqualifying dispositions under all share-based payment arrangements
|
$
|
53
|
|
|
$
|
46
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
83
|
|
|
|
|
|
|
|
|
|
At
July 31, 2018
, there was approximately
$62 million
of unrecognized compensation cost related to non-vested stock options with a weighted average vesting period of
2.5
years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.
|
|
Restricted Stock Unit Activity and Related Share-Based Compensation Expense
|
A summary of restricted stock unit (RSU) activity for the periods indicated was as follows:
|
|
|
|
|
|
|
|
(Shares in thousands)
|
Number
of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested at July 31, 2015
|
8,916
|
|
|
|
$72.48
|
|
Granted
|
4,072
|
|
|
99.30
|
|
Vested
|
(2,392
|
)
|
|
78.07
|
|
Forfeited
|
(1,557
|
)
|
|
77.03
|
|
Nonvested at July 31, 2016
|
9,039
|
|
|
82.30
|
|
Granted
|
3,983
|
|
|
119.84
|
|
Vested
|
(3,121
|
)
|
|
86.93
|
|
Forfeited
|
(1,265
|
)
|
|
76.75
|
|
Nonvested at July 31, 2017
|
8,636
|
|
|
98.76
|
|
Granted
|
2,828
|
|
|
185.53
|
|
Unregistered restricted stock granted in connection with acquisitions
|
75
|
|
|
163.00
|
|
Vested
|
(2,960
|
)
|
|
105.71
|
|
Forfeited
|
(1,196
|
)
|
|
88.59
|
|
Nonvested at July 31, 2018
|
7,383
|
|
|
|
$131.50
|
|
Additional information regarding our RSUs is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
Total fair market value of shares vested
|
$
|
527
|
|
|
$
|
388
|
|
|
$
|
288
|
|
|
|
|
|
|
|
Share-based compensation for RSUs
|
$
|
326
|
|
|
$
|
274
|
|
|
$
|
230
|
|
|
|
|
|
|
|
Total tax benefit related to RSU share-based compensation expense
|
$
|
143
|
|
|
$
|
130
|
|
|
$
|
73
|
|
|
|
|
|
|
|
Cash tax benefits realized for tax deductions for RSUs
|
$
|
142
|
|
|
$
|
130
|
|
|
$
|
92
|
|
At
July 31, 2018
, there was
$820 million
of unrecognized compensation cost related to non-vested RSUs with a weighted average vesting period of
2.8
years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.
|
|
Accumulated Other Comprehensive Loss
|
Comprehensive income consists of two elements, net income and other comprehensive income (loss). Other comprehensive income (loss) items are recorded in the stockholders’ equity section of our balance sheets and excluded from net income. Our other comprehensive income (loss) consists of unrealized gains and losses on marketable debt securities classified as available-for-sale and foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S. dollar.
The following table shows the components of accumulated other comprehensive loss, net of income taxes, in the stockholders’ equity section of our balance sheets at the dates indicated.
|
|
|
|
|
|
|
|
|
|
July 31,
|
(In millions)
|
2018
|
|
2017
|
Unrealized losses on available-for-sale debt securities
|
$
|
(2
|
)
|
|
$
|
—
|
|
Foreign currency translation adjustments
|
(33
|
)
|
|
(22
|
)
|
Total accumulated other comprehensive loss
|
$
|
(35
|
)
|
|
$
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
84
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified Deferred Compensation Plan
|
Intuit’s Non-Qualified Deferred Compensation Plan provides that executives who meet minimum compensation requirements are eligible to defer up to
75%
of their salaries and up to
75%
of their bonuses. We have agreed to credit the participants’ contributions with earnings that reflect the performance of certain independent investment funds. We do not guarantee above-market interest on account balances. We may also make discretionary employer contributions to participant accounts in certain circumstances. The timing, amounts, and vesting schedules of employer contributions are at the sole discretion of the Compensation and Organizational Development Committee of our Board of Directors or its delegate. The benefits under this plan are unsecured and are general assets of Intuit. Participants are generally eligible to receive payment of their vested benefit at the end of their elected deferral period or after termination of their employment with Intuit for any reason or at a later date to comply with the restrictions of Section 409A of the Internal Revenue Code. Participants may elect to receive their payments in a lump sum or installments. Discretionary company contributions and the related earnings vest completely upon the participant’s disability, death, or a change in control of Intuit. We made no employer contributions to the plan for any period presented.
We had liabilities related to this plan of
$97
million at
July 31, 2018
and
$83
million at
July 31, 2017
. We have matched the plan liabilities with similar-performing assets, which are primarily investments in life insurance contracts. These assets are recorded in other long-term assets while liabilities related to obligations are recorded in other current liabilities on our balance sheets.
In the United States, employees who participate in the Intuit Inc. 401(k) Plan may currently contribute up to
50%
of pre-tax compensation, subject to Internal Revenue Service limitations and the terms and conditions of the plan. We match a portion of employee contributions, currently
125%
up to
six percent
of salary, subject to Internal Revenue Service limitations. Matching contributions were
$50
million for the twelve months ended
July 31, 2018
;
$49
million for the twelve months ended
July 31, 2017
; and
$46
million for the twelve months ended
July 31, 2016
.
In fiscal 2015 Intuit was contacted by certain state and federal regulatory authorities in connection with inquiries regarding an increase during the 2015 tax season in attempts by criminals using stolen identity information to file fraudulent tax returns and claim refunds. Intuit provided information in response to those inquiries and now believes those inquiries are resolved.
A consolidated putative class action lawsuit was filed by individuals who claim to have suffered damages in connection with the 2015 events. On May 23, 2018, the parties reached a settlement in principle of this matter, which is subject to preliminary and final approval by the court. On August 23, 2018, the parties filed a motion for preliminary approval of the settlement. A preliminary approval hearing is scheduled to be heard on October 4, 2018. The terms of the proposed settlement are not material to our consolidated financial statements. In the event the settlement does not receive final approval by the court, the litigation may resume and we may not be able to predict the outcome of such lawsuit. We continue to believe that the allegations in this lawsuit are without merit.
Intuit is subject to certain routine legal proceedings, including class action lawsuits like the suit described above, as well as demands, claims, government inquiries 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, in addition to any amounts accrued, the amount of potential losses, if any, for any pending claims of any type (either alone or combined) will not have a material impact on our consolidated financial statements. 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.
In August 2017, we aligned our segment reporting for fiscal 2018 with our core customers and business partners. The Consumer Ecosystem offering moved from the Small Business segment into the Consumer Tax segment. The company also renamed the Small Business, Consumer Tax, and ProConnect segments as the Small Business & Self-Employed, Consumer, and Strategic Partner segments, respectively. The Strategic Partner segment will continue to manage our professional tax
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
85
|
|
|
|
|
|
|
|
|
|
offerings. We have reclassified certain amounts related to our reportable segments previously reported in our financial statements to conform to the current presentation.
We have defined
three
reportable segments, described below, based on factors such as how we manage our operations and how our chief operating decision maker views results. We define the chief operating decision maker as our Chief Executive Officer and our Chief Financial Officer. Our chief operating decision maker organizes and manages our business primarily on the basis of product and service offerings.
|
|
Small Business & Self-Employed
:
This segment targets small businesses and the self-employed around the globe, and the accounting professionals who serve and advise them. Our offerings include QuickBooks financial and business management online services and desktop software, payroll solutions, payment processing solutions, and financing for small businesses.
Consumer
:
This segment targets consumers and includes do-it-yourself and assisted TurboTax income tax preparation products and services sold in the U.S. and Canada. Our Mint and Turbo offerings target consumers and help them understand and improve their financial lives by offering a view of their financial health.
Strategic Partner
:
This segment targets professional accountants in the U.S. and Canada, who are essential to both small business success and tax preparation and filing. Our professional tax offerings include Lacerte, ProSeries, ProFile, and ProConnect Tax Online.
|
All of our segments operate primarily in the United States and sell primarily to customers in the United States. International total net revenue was less than
5%
of consolidated total net revenue for the twelve months ended July 31,
2018
,
2017
and
2016
.
We include expenses such as corporate selling and marketing, product development, general and administrative expenses and share-based compensation expenses, which are not allocated to specific segments, in unallocated corporate items. Unallocated corporate items also include amortization of acquired technology, amortization of other acquired intangible assets, and goodwill and intangible asset impairment charges.
The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies in Note 1. Except for goodwill and purchased intangible assets, we do not generally track assets by reportable segment and, consequently, we do not disclose total assets by reportable segment. See Note 5,
“Goodwill and Acquired Intangible Assets,”
for goodwill by reportable segment.
The following table shows our financial results by reportable segment for the periods indicated. Segment results for fiscal 2017 and 2016 have been reclassified to conform to the fiscal 2018 segment presentation, as described earlier in this footnote. Results for all periods presented have been adjusted to exclude results for our Demandforce, QuickBase, and Quicken businesses, which we classified as discontinued operations in the fourth quarter of fiscal 2015 and sold during fiscal 2016. See Note 7, “
Discontinued Operations,”
for more information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended July 31,
|
(In millions)
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
Small Business & Self-Employed
|
$
|
2,994
|
|
|
$
|
2,539
|
|
|
$
|
2,221
|
|
Consumer
|
2,517
|
|
|
2,201
|
|
|
2,045
|
|
Strategic Partner
|
453
|
|
|
437
|
|
|
428
|
|
Total net revenue
|
$
|
5,964
|
|
|
$
|
5,177
|
|
|
$
|
4,694
|
|
|
|
|
|
|
|
Operating income from continuing operations:
|
|
|
|
|
|
Small Business & Self-Employed
|
$
|
1,257
|
|
|
$
|
1,072
|
|
|
$
|
879
|
|
Consumer
|
1,596
|
|
|
1,395
|
|
|
1,304
|
|
Strategic Partner
|
281
|
|
|
263
|
|
|
268
|
|
Total segment operating income
|
3,134
|
|
|
2,730
|
|
|
2,451
|
|
Unallocated corporate items:
|
|
|
|
|
|
Share-based compensation expense
|
(382
|
)
|
|
(326
|
)
|
|
(278
|
)
|
Other common expenses
|
(1,234
|
)
|
|
(995
|
)
|
|
(897
|
)
|
Amortization of acquired technology
|
(15
|
)
|
|
(12
|
)
|
|
(22
|
)
|
Amortization of other acquired intangible assets
|
(6
|
)
|
|
(2
|
)
|
|
(12
|
)
|
Total unallocated corporate items
|
(1,637
|
)
|
|
(1,335
|
)
|
|
(1,209
|
)
|
Total operating income from continuing operations
|
$
|
1,497
|
|
|
$
|
1,395
|
|
|
$
|
1,242
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
86
|
|
|
|
|
|
|
|
|
|
|
|
15. Selected Quarterly Financial Data
(Unaudited)
|
The following tables contain selected quarterly financial data for the twelve months ended
July 31, 2018
and
July 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018 Quarter Ended
|
(In millions, except per share amounts)
|
October 31
|
|
January 31
|
|
April 30
|
|
July 31
|
Total net revenue
|
$
|
886
|
|
|
$
|
1,165
|
|
|
$
|
2,925
|
|
|
$
|
988
|
|
Cost of revenue
|
196
|
|
|
246
|
|
|
304
|
|
|
231
|
|
All other costs and expenses
|
747
|
|
|
899
|
|
|
1,006
|
|
|
838
|
|
Operating income (loss)
|
(57
|
)
|
|
20
|
|
|
1,615
|
|
|
(81
|
)
|
Net income (loss)
|
(17
|
)
|
|
(21
|
)
|
|
1,200
|
|
|
49
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
4.68
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
4.59
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 Quarter Ended
|
(In millions, except per share amounts)
|
October 31
|
|
January 31
|
|
April 30
|
|
July 31
|
Total net revenue
|
$
|
778
|
|
|
$
|
1,016
|
|
|
$
|
2,541
|
|
|
$
|
842
|
|
Cost of revenue
|
183
|
|
|
206
|
|
|
237
|
|
|
183
|
|
All other costs and expenses
|
656
|
|
|
788
|
|
|
860
|
|
|
669
|
|
Operating income (loss) from continuing operations
|
(61
|
)
|
|
22
|
|
|
1,444
|
|
|
(10
|
)
|
Net income (loss)
|
(30
|
)
|
|
13
|
|
|
964
|
|
|
24
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
$
|
(0.12
|
)
|
|
$
|
0.05
|
|
|
$
|
3.76
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
$
|
(0.12
|
)
|
|
$
|
0.05
|
|
|
$
|
3.70
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
Intuit
Fiscal 2018 Form 10-K
|
87
|
|
|
|
|
|
|
|
|
|