Quarterly Report
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
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R
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended October 31, 2011
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OR
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ____________ to ____________ .
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Commission File Number 0-21180
INTUIT INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State of incorporation)
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77-0034661
(IRS employer identification no.)
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2700 Coast Avenue, Mountain View, CA 94043
(Address of principal executive offices)
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(650) 944-6000
(Registrant’s telephone number, including area code)
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
R
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
R
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
297,248,622
shares of Common Stock, $0.01 par value, were outstanding at
November 23, 2011
.
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INTUIT INC.
FORM 10-Q
INDEX
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Page
Number
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EX-10.01
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EX-10.02
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EX-10.03
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EX-31.01
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EX-31.02
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EX-32.01
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EX-32.02
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EX-101.INS XBRL Instance Document
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EX-101.SCH XBRL Taxonomy Extension Schema
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EX-101.CAL XBRL Taxonomy Extension Calculation Linkbase
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EX-101.LAB XBRL Taxonomy Extension Label Linkbase
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EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase
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EX-101.DEF XBRL Taxonomy Extension Definition Linkbase
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Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries, Quicken and Mint, among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Other parties’ marks are the property of their respective owners.
2
PART I
ITEM 1
FINANCIAL STATEMENTS
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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(In millions, except per share amounts)
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October 31,
2011 |
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October 31,
2010 |
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Net revenue:
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Product
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$
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222
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$
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216
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Service and other
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372
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316
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Total net revenue
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594
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532
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Costs and expenses:
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Cost of revenue:
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Cost of product revenue
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32
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32
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Cost of service and other revenue
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136
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123
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Amortization of acquired technology
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4
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4
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Selling and marketing
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236
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220
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Research and development
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167
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156
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General and administrative
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92
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90
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Amortization of other acquired intangible assets
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21
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11
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Total costs and expenses
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688
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636
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Operating loss
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(94
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)
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(104
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)
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Interest expense
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(15
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)
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(15
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)
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Interest and other income, net
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11
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8
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Loss before income taxes
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(98
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)
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(111
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)
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Income tax benefit
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(34
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)
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(41
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)
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Net loss
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$
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(64
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)
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$
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(70
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)
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Basic net loss per share
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$
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(0.21
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)
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$
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(0.22
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)
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Shares used in basic per share calculations
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300
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316
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Diluted net loss per share
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$
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(0.21
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)
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$
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(0.22
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)
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Shares used in diluted per share calculations
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300
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316
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Dividends declared per common share
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$
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0.15
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$
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—
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See accompanying notes.
3
INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In millions)
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October 31,
2011 |
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July 31,
2011 |
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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333
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$
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722
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Investments
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718
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699
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Accounts receivable, net
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166
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171
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Income taxes receivable
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139
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72
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Deferred income taxes
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110
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94
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Prepaid expenses and other current assets
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93
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82
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Current assets before funds held for customers
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1,559
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1,840
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Funds held for customers
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321
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414
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Total current assets
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1,880
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2,254
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Long-term investments
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59
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63
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Property and equipment, net
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560
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561
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Goodwill
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1,886
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1,886
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Acquired intangible assets, net
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151
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180
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Long-term deferred income taxes
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41
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55
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Other assets
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106
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111
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Total assets
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$
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4,683
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$
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5,110
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Current portion of long-term debt
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$
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500
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$
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500
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Accounts payable
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168
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129
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Accrued compensation and related liabilities
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140
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215
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Deferred revenue
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379
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406
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Other current liabilities
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128
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141
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Current liabilities before customer fund deposits
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1,315
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1,391
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Customer fund deposits
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321
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414
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Total current liabilities
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1,636
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1,805
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Long-term debt
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499
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499
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Other long-term obligations
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187
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190
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Total liabilities
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2,322
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2,494
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Commitments and contingencies
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Stockholders’ equity:
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Preferred stock
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—
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—
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Common stock and additional paid-in capital
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2,919
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2,886
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Treasury stock, at cost
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(4,484
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)
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(4,316
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)
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Accumulated other comprehensive income
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9
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15
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Retained earnings
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3,917
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4,031
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Total stockholders’ equity
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2,361
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2,616
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Total liabilities and stockholders’ equity
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$
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4,683
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$
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5,110
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See accompanying notes.
4
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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(In millions, except shares in thousands)
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Shares of
Common
Stock
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Common
Stock and
Additional
Paid-In
Capital
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Treasury
Stock
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Accumulated
Other
Comprehensive
Income
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Retained
Earnings
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Total
Stockholders'
Equity
|
|||||||||||
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Balance at July 31, 2011
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300,597
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$
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2,886
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$
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(4,316
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)
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$
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15
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$
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4,031
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$
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2,616
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Components of comprehensive net loss:
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Net loss
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—
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—
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—
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—
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(64
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)
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(64
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)
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|||||
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Other comprehensive loss, net of tax
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—
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—
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—
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(6
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)
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—
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(6
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)
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|||||
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Comprehensive net loss
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(70
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)
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Issuance of treasury stock under employee stock plans
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3,219
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(37
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)
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87
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—
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(5
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)
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45
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|||||
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Stock repurchases under stock repurchase programs
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(5,211
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)
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—
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(255
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)
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—
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—
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(255
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)
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|||||
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Cash dividends declared ($0.15 per share)
|
—
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—
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—
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—
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(45
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)
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(45
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)
|
|||||
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Tax benefit from share-based compensation plans
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—
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30
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—
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|
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—
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—
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30
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|
|||||
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Share-based compensation expense
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—
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40
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—
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—
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—
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40
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|
|||||
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Balance at October 31, 2011
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298,605
|
|
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$
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2,919
|
|
|
$
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(4,484
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)
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$
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9
|
|
|
$
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3,917
|
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$
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2,361
|
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(In millions, except shares in thousands)
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Shares of
Common
Stock
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Common
Stock and
Additional
Paid-In
Capital
|
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Treasury
Stock
|
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Accumulated
Other
Comprehensive
Income
|
|
Retained
Earnings
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Total
Stockholders'
Equity
|
|||||||||||
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Balance at July 31, 2010
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313,861
|
|
|
$
|
2,728
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|
$
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(3,315
|
)
|
|
$
|
11
|
|
|
$
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3,397
|
|
|
$
|
2,821
|
|
|
Components of comprehensive net loss:
|
|
|
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|
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|
|||||||||||
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Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(70
|
)
|
|
(70
|
)
|
|||||
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Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|||||
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Comprehensive net loss
|
|
|
|
|
|
|
|
|
|
|
(69
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)
|
||||||||||
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Issuance of treasury stock under employee stock plans
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7,049
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|
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(33
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)
|
|
159
|
|
|
—
|
|
|
—
|
|
|
126
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|
|||||
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Stock repurchases under stock repurchase programs
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(7,308
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)
|
|
—
|
|
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(330
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)
|
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—
|
|
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—
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|
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(330
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)
|
|||||
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Tax benefit from share-based compensation plans
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—
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|
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32
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|
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—
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|
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—
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|
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—
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|
|
32
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|
|||||
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Share-based compensation expense
|
—
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35
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|
|
—
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|
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—
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|
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—
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35
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|
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Balance at October 31, 2010
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313,602
|
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|
$
|
2,762
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|
$
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(3,486
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)
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$
|
12
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$
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3,327
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$
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2,615
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|
See accompanying notes.
5
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
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Three Months Ended
|
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(In millions)
|
October 31,
2011 |
|
October 31,
2010 |
||||
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Cash flows from operating activities:
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|
|
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Net loss
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$
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(64
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)
|
|
$
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(70
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)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
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|
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Depreciation
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44
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37
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|
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Amortization of acquired intangible assets
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28
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|
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19
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|
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Share-based compensation expense
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40
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|
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35
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|
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Deferred income taxes
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(5
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)
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25
|
|
||
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Tax benefit from share-based compensation plans
|
30
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|
|
32
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|
||
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Excess tax benefit from share-based compensation plans
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(29
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)
|
|
(27
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)
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Other
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(6
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)
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5
|
|
||
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Total adjustments
|
102
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|
|
126
|
|
||
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Changes in operating assets and liabilities:
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|
|
||||
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Accounts receivable
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5
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|
|
(12
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)
|
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Prepaid expenses, income taxes receivable and other assets
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(78
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)
|
|
(134
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)
|
||
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Accounts payable
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39
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|
|
5
|
|
||
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Accrued compensation and related liabilities
|
(74
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)
|
|
(82
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)
|
||
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Deferred revenue
|
(25
|
)
|
|
(29
|
)
|
||
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Income taxes payable
|
1
|
|
|
(13
|
)
|
||
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Other liabilities
|
(16
|
)
|
|
(2
|
)
|
||
|
Total changes in operating assets and liabilities
|
(148
|
)
|
|
(267
|
)
|
||
|
Net cash used in operating activities
|
(110
|
)
|
|
(211
|
)
|
||
|
Cash flows from investing activities:
|
|
|
|
||||
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Purchases of available-for-sale debt securities
|
(197
|
)
|
|
(428
|
)
|
||
|
Sales of available-for-sale debt securities
|
136
|
|
|
638
|
|
||
|
Maturities of available-for-sale debt securities
|
41
|
|
|
134
|
|
||
|
Net change in money market funds and other cash equivalents held
to satisfy customer fund obligations
|
93
|
|
|
(26
|
)
|
||
|
Net change in customer fund deposits
|
(93
|
)
|
|
26
|
|
||
|
Purchases of property and equipment
|
(44
|
)
|
|
(51
|
)
|
||
|
Acquisitions of intangible assets
|
—
|
|
|
(3
|
)
|
||
|
Other
|
14
|
|
|
(5
|
)
|
||
|
Net cash (used in) provided by investing activities
|
(50
|
)
|
|
285
|
|
||
|
Cash flows from financing activities:
|
|
|
|
||||
|
Net proceeds from issuance of treasury stock under
employee stock plans
|
45
|
|
|
126
|
|
||
|
Purchases of treasury stock
|
(255
|
)
|
|
(330
|
)
|
||
|
Cash dividends paid to stockholders
|
(45
|
)
|
|
—
|
|
||
|
Excess tax benefit from share-based compensation plans
|
29
|
|
|
27
|
|
||
|
Net cash used in financing activities
|
(226
|
)
|
|
(177
|
)
|
||
|
Effect of exchange rates on cash and cash equivalents
|
(3
|
)
|
|
1
|
|
||
|
Net decrease in cash and cash equivalents
|
(389
|
)
|
|
(102
|
)
|
||
|
Cash and cash equivalents at beginning of period
|
722
|
|
|
214
|
|
||
|
Cash and cash equivalents at end of period
|
$
|
333
|
|
|
$
|
112
|
|
See accompanying notes.
6
INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
Description of Business and Summary of Significant Accounting Policies
|
Description of Business
Intuit Inc. provides business and financial management solutions for small and medium-sized businesses, consumers, accounting professionals and financial institutions. Our flagship products and services, including QuickBooks, TurboTax and Quicken, simplify small business management including payment and payroll processing, tax preparation and filing, and personal finance. Lacerte and ProSeries are Intuit’s tax preparation offerings for professional accountants. Our Financial Services business provides online banking solutions and services to banks and credit unions. Incorporated in 1984 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.
Basis of Presentation
These condensed consolidated financial statements include the financial statements of Intuit and its wholly owned subsidiaries. We have eliminated all significant intercompany balances and transactions in consolidation. We have included all adjustments, consisting only of normal recurring items, which we considered necessary for a fair presentation of our financial results for the interim periods presented. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended
July 31, 2011
. Results for the
three
months ended
October 31, 2011
do not necessarily indicate the results we expect for the fiscal year ending
July 31, 2012
or any other future period.
Seasonality
Our QuickBooks, Consumer Tax and Accounting Professionals businesses are highly seasonal. Revenue from our QuickBooks software products tends to be highest during our second and third fiscal quarters. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. Seasonal patterns mean that our total net revenue is usually highest during our second quarter ending January 31 and third quarter ending April 30. We typically report losses in our first quarter ending October 31 and fourth quarter ending July 31, when revenue from our tax businesses is minimal while operating expenses continue at relatively consistent levels.
Significant Accounting Policies
We describe our significant accounting policies in Note 1 to the financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended
July 31, 2011
. There have been no changes to our significant accounting policies during the first
three months
of fiscal
2012
.
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 include shares issuable upon the exercise of stock options and upon the vesting of restricted stock units (RSUs) under the treasury stock method.
We include stock options with combined exercise prices, unrecognized compensation expense and tax benefits that are less than the average market price for our common stock, and RSUs with unrecognized compensation expense and tax benefits that are less than the average market price for our common stock, in the calculation of diluted net income per share. We exclude stock options with combined exercise prices, unrecognized compensation expense and tax benefits that are greater than the average market price for our common stock, and RSUs with unrecognized compensation expense and tax benefits that are greater than the average market price for our common stock, from the calculation of diluted net income per share because their effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise stock options, the amount of compensation expense for future service that we have not yet recognized for stock options and RSUs, and the amount of tax benefits that will be recorded in additional paid-in capital when the awards become deductible are assumed to be used to repurchase shares.
In loss periods, basic net loss per share and diluted net loss per share are the same since the effect of potential common shares is anti-dilutive and therefore excluded.
7
The following table presents the composition of shares used in the computation of basic and diluted net income per share for the periods indicated.
|
|
Three Months Ended
|
||||||
|
(In millions, except per share amounts)
|
October 31,
2011 |
|
October 31,
2010 |
||||
|
Numerator:
|
|
|
|
||||
|
Net loss
|
$
|
(64
|
)
|
|
$
|
(70
|
)
|
|
|
|
|
|
||||
|
Denominator:
|
|
|
|
||||
|
Shares used in basic and diluted per share amounts:
|
|
|
|
||||
|
Weighted average common shares outstanding
|
300
|
|
|
316
|
|
||
|
|
|
|
|
||||
|
Basic and diluted net loss per share:
|
|
|
|
||||
|
Basic net loss per share
|
$
|
(0.21
|
)
|
|
$
|
(0.22
|
)
|
|
Diluted net loss per share
|
$
|
(0.21
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
||||
|
Shares excluded from computation of diluted net loss per share:
|
|
|
|
||||
|
Weighted average stock options and restricted stock units that would have been included in the computation of dilutive common equivalent shares outstanding if net income had been reported in the period
|
28
|
|
|
33
|
|
||
|
Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect
|
3
|
|
|
5
|
|
||
Concentration of Credit Risk and Significant Customers
No customer accounted for 10% or more of total net revenue in the three months ended
October 31, 2011
or
October 31, 2010
. No customer accounted for 10% or more of total accounts receivable at
October 31, 2011
or
July 31, 2011
.
Recent Accounting Pronouncements
ASU 2011-04,
“Fair Value Measurement (Topic 820)”
On May 12, 2011 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04,
“Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs"
(ASU 2011-04). This update amends Accounting Standards Codification (ASC) Topic 820,
“Fair Value Measurement and Disclosure.”
ASU 2011-04 clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is effective for annual and interim reporting periods beginning on or after December 15, 2011, which means that it will be effective for our fiscal quarter beginning February 1, 2012. The new guidance is to be adopted prospectively and early adoption is not permitted. We do not believe that adoption of ASU 2011-04 will have a significant impact on our consolidated financial statements.
ASU 2011-05,
“Presentation of Comprehensive Income”
On June 16, 2011 the FASB issued ASU No. 2011-05,
“Comprehensive Income (Topic 220): Presentation of Comprehensive Income”
(ASU 2011-05). This update amends ASC Topic 220,
“Comprehensive Income”
to provide that total comprehensive income will be reported in one continuous statement or two separate but consecutive statements of financial performance. Presentation of total comprehensive income in the statement of stockholders' equity or the footnotes will no longer be allowed. The calculation of net income and basic and diluted net income per share will not be affected. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011, which means that it will be effective for our fiscal year beginning August 1, 2012. Retrospective adoption is required and early adoption is permitted. We do not believe that adoption of ASU 2011-05 will have a significant impact on our consolidated financial statements.
8
ASU 2011-08,
“Testing Goodwill for Impairment”
On September 15, 2011, the FASB issued ASU No. 2011-08,
“Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment”
(ASU 2011-08).
"
This update amends ASC Topic 350,
“Intangibles - Goodwill and Other”
to give companies the option to perform a qualitative assessment that may allow them to skip the annual two-step test and reduce costs. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011, which means that it will be effective for our fiscal year beginning August 1, 2012. Early adoption is permitted. We are in the process of evaluating this update and therefore have not yet determined the impact that adoption of ASU 2011-08 will have on our consolidated 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 significant 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 value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
|
9
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.
|
|
October 31, 2011
|
|
July 31, 2011
|
||||||||||||||||||||||||||||
|
(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
|
$
|
333
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
333
|
|
|
$
|
854
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
854
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Municipal bonds
|
—
|
|
|
397
|
|
|
—
|
|
|
397
|
|
|
—
|
|
|
434
|
|
|
—
|
|
|
434
|
|
||||||||
|
Municipal auction rate securities
|
—
|
|
|
—
|
|
|
54
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
59
|
|
||||||||
|
Corporate notes
|
—
|
|
|
333
|
|
|
—
|
|
|
333
|
|
|
—
|
|
|
288
|
|
|
—
|
|
|
288
|
|
||||||||
|
U.S. agency securities
|
—
|
|
|
163
|
|
|
—
|
|
|
163
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
152
|
|
||||||||
|
Total available-for-sale debt securities
|
—
|
|
|
893
|
|
|
54
|
|
|
947
|
|
|
—
|
|
|
874
|
|
|
59
|
|
|
933
|
|
||||||||
|
Total assets measured at fair value on a recurring basis
|
$
|
333
|
|
|
$
|
893
|
|
|
$
|
54
|
|
|
$
|
1,280
|
|
|
$
|
854
|
|
|
$
|
874
|
|
|
$
|
59
|
|
|
$
|
1,787
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Senior notes (1)
|
$
|
—
|
|
|
$
|
1,077
|
|
|
$
|
—
|
|
|
$
|
1,077
|
|
|
$
|
—
|
|
|
$
|
1,084
|
|
|
$
|
—
|
|
|
$
|
1,084
|
|
______________________________
|
(1)
|
Carrying value on our balance sheets at
October 31, 2011
and
July 31, 2011
was
$999
million. See Note 5.
|
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 indicated.
|
|
October 31, 2011
|
|
July 31, 2011
|
||||||||||||||||||||||||||||
|
(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
|
$
|
187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
187
|
|
|
$
|
615
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
615
|
|
|
In funds held for customers
|
146
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
239
|
|
|
—
|
|
|
—
|
|
|
239
|
|
||||||||
|
Total cash equivalents
|
$
|
333
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
333
|
|
|
$
|
854
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
854
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
In investments
|
$
|
—
|
|
|
$
|
718
|
|
|
$
|
—
|
|
|
$
|
718
|
|
|
$
|
—
|
|
|
$
|
699
|
|
|
$
|
—
|
|
|
$
|
699
|
|
|
In funds held for customers
|
—
|
|
|
175
|
|
|
—
|
|
|
175
|
|
|
—
|
|
|
175
|
|
|
—
|
|
|
175
|
|
||||||||
|
In long-term investments
|
—
|
|
|
—
|
|
|
54
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
59
|
|
||||||||
|
Total available-for-sale debt securities
|
$
|
—
|
|
|
$
|
893
|
|
|
$
|
54
|
|
|
$
|
947
|
|
|
$
|
—
|
|
|
$
|
874
|
|
|
$
|
59
|
|
|
$
|
933
|
|
We value our Level 1 assets, consisting primarily of money market funds, using quoted prices in active markets for identical instruments. Financial assets whose fair values we measure 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 using quoted prices in active markets for similar instruments. Financial liabilities whose fair values we measure using Level 2 inputs consist of debt. See Note 5. We measure the fair value of our senior notes based on their trading prices and the interest rates we could obtain for
10
other borrowings with similar terms. Financial assets whose fair values we measure using significant unobservable (Level 3) inputs consist of municipal auction rate securities that are no longer liquid. These securities are included in long-term investments on our balance sheets at
October 31, 2011
and
July 31, 2011
based on the maturities of the underlying securities. There were no significant transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the
three
months ended
October 31, 2011
.
The following table presents a reconciliation of activity for our Level 3 assets for the
three
months ended
October 31, 2011
.
|
|
Three Months Ended
|
||
|
(In millions)
|
October 31,
2011 |
||
|
Beginning balance
|
$
|
59
|
|
|
Settlements at par
|
(5
|
)
|
|
|
Ending balance
|
$
|
54
|
|
We estimated the fair values of these municipal auction rate securities at
October 31, 2011
and
July 31, 2011
using a discounted cash flow model that we prepared. Using our discounted cash flow model we determined that the fair values of the municipal auction rate securities we held at
October 31, 2011
were approximately equal to their par values. As a result, we recorded no decrease in the fair values of those securities for the
three
months then ended. We do not intend to sell our municipal auction rate securities and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity. Based on our expected operating cash flows and our other sources of cash, we do not believe that the reduction in liquidity of our municipal auction rate securities will have a material impact on our overall ability to meet our liquidity needs.
|
3.
|
Cash and Cash Equivalents, Investments and Funds Held for Customers
|
We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of AAA-rated money market funds in all periods presented. Investments consist of available-for-sale investment-grade debt securities that we carry at fair value. Funds held for customers consist of cash and cash equivalents and available-for-sale investment-grade debt securities. Long-term investments consist primarily of municipal auction rate securities that we carry at fair value. See Note 2. 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.
The following table summarizes our cash and cash equivalents, investments and funds held for customers by balance sheet classification at the dates indicated.
|
|
October 31, 2011
|
|
July 31, 2011
|
||||||||||||
|
(In millions)
|
Amortized
Cost
|
|
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
||||||||
|
Classification on balance sheets:
|
|
|
|
|
|
|
|
||||||||
|
Cash and cash equivalents
|
$
|
333
|
|
|
$
|
333
|
|
|
$
|
722
|
|
|
$
|
722
|
|
|
Investments
|
718
|
|
|
718
|
|
|
698
|
|
|
699
|
|
||||
|
Funds held for customers
|
321
|
|
|
321
|
|
|
413
|
|
|
414
|
|
||||
|
Long-term investments
|
59
|
|
|
59
|
|
|
63
|
|
|
63
|
|
||||
|
Total cash and cash equivalents, investments and funds held for customers
|
$
|
1,431
|
|
|
$
|
1,431
|
|
|
$
|
1,896
|
|
|
$
|
1,898
|
|
11
The following table summarizes our cash and cash equivalents, investments and funds held for customers by investment category at the dates indicated.
|
|
October 31, 2011
|
|
July 31, 2011
|
||||||||||||
|
(In millions)
|
Amortized
Cost
|
|
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
||||||||
|
Type of issue:
|
|
|
|
|
|
|
|
||||||||
|
Total cash and cash equivalents
|
$
|
479
|
|
|
$
|
479
|
|
|
$
|
961
|
|
|
$
|
961
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
||||||||
|
Municipal bonds
|
397
|
|
|
397
|
|
|
434
|
|
|
434
|
|
||||
|
Municipal auction rate securities
|
54
|
|
|
54
|
|
|
59
|
|
|
59
|
|
||||
|
Corporate notes
|
333
|
|
|
333
|
|
|
287
|
|
|
288
|
|
||||
|
U.S. agency securities
|
163
|
|
|
163
|
|
|
151
|
|
|
152
|
|
||||
|
Total available-for-sale debt securities
|
947
|
|
|
947
|
|
|
931
|
|
|
933
|
|
||||
|
Other long-term investments
|
5
|
|
|
5
|
|
|
4
|
|
|
4
|
|
||||
|
Total cash and cash equivalents, investments and funds held for customers
|
$
|
1,431
|
|
|
$
|
1,431
|
|
|
$
|
1,896
|
|
|
$
|
1,898
|
|
We use the specific identification method to compute gains and losses on investments. We include realized gains and losses on our available-for-sale debt securities in interest and other income, net in our statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three months ended
October 31, 2011
and
October 31, 2010
were not significant. We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income in the stockholders’ equity section of our balance sheets. Gross unrealized gains and losses on our available-for-sale debt securities at
October 31, 2011
and
July 31, 2011
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 we held at
October 31, 2011
were not other-than-temporarily impaired. Unrealized losses at
October 31, 2011
were not significant and were 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 and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity.
The following table summarizes our available-for-sale debt securities classified by the stated maturity date of the security at the dates indicated.
|
|
October 31, 2011
|
|
July 31, 2011
|
||||||||||||
|
(In millions)
|
Amortized
Cost
|
|
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
||||||||
|
Due within one year
|
$
|
252
|
|
|
$
|
252
|
|
|
$
|
267
|
|
|
$
|
267
|
|
|
Due within two years
|
388
|
|
|
388
|
|
|
323
|
|
|
324
|
|
||||
|
Due within three years
|
182
|
|
|
182
|
|
|
190
|
|
|
191
|
|
||||
|
Due after three years
|
125
|
|
|
125
|
|
|
151
|
|
|
151
|
|
||||
|
Total available-for-sale debt securities
|
$
|
947
|
|
|
$
|
947
|
|
|
$
|
931
|
|
|
$
|
933
|
|
Available-for-sale debt securities due after three years in the table above include our municipal auction rate securities. See Note 2 for more information. All of the remaining securities in that category had effective maturities of three years or less due to interest reset dates or mandatory call dates.
12
|
4.
|
Current Liabilities
|
Current Portion of Long-Term Debt
The current portion of long-term debt consists of
$500
million of
5.40%
senior unsecured notes due on March 15, 2012, less the unamortized discount. See Note 5,
"Long-Term Obligations - Long-Term Debt,"
for more information.
Unsecured Revolving Credit Facility
On March 22, 2007 we entered into an agreement with certain institutional lenders for a
$500
million unsecured revolving credit facility that will expire on March 22, 2012. Advances under the credit facility will accrue interest at rates that are equal to, at our election, either Citibank’s base rate or the London InterBank Offered Rate (LIBOR) plus a margin that ranges from
0.18%
to
0.575%
based on our senior debt credit ratings. The applicable interest rate will be increased by
0.05%
for any period in which the total principal amount of advances and letters of credit under the credit facility exceeds
$250
million. The agreement includes covenants that require us to maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) of not greater than
3.25
to
1.00
and a ratio of annual EBITDA to interest payable of not less than
3.00
to
1.00
. We were in compliance with these covenants at
October 31, 2011
. We may use amounts borrowed under this credit facility for general corporate purposes or for future acquisitions or expansion of our business. To date we have not borrowed under this credit facility.
Other Current Liabilities
Other current liabilities were as follows at the dates indicated:
|
(In millions)
|
October 31,
2011 |
|
July 31,
2011 |
||||
|
Reserve for product returns
|
$
|
20
|
|
|
$
|
20
|
|
|
Reserve for rebates
|
12
|
|
|
11
|
|
||
|
Current portion of license fee payable
|
10
|
|
|
10
|
|
||
|
Current portion of deferred rent
|
6
|
|
|
7
|
|
||
|
Interest payable
|
7
|
|
|
21
|
|
||
|
Executive deferred compensation plan liabilities
|
54
|
|
|
50
|
|
||
|
Other
|
19
|
|
|
22
|
|
||
|
Total other current liabilities
|
$
|
128
|
|
|
$
|
141
|
|
The balances of several of our other current liabilities, particularly our reserves for product returns and rebates, are affected by the seasonality of our business. See Note 1,
“Seasonality.”
|
5.
|
Long-Term Obligations
|
Long-Term Debt
On March 12, 2007 we issued
$500
million of
5.40%
senior unsecured notes due on March 15, 2012 and
$500
million of
5.75%
senior unsecured notes due on March 15, 2017 (together, the Notes), for a total principal amount of
$1 billion
. We carried the Notes at face value less the unamortized discount in current portion of long-term debt and long-term debt on our balance sheets at
October 31, 2011
and
July 31, 2011
. The Notes are redeemable by Intuit at any time, subject to a make-whole premium. The Notes include covenants that limit our ability to grant liens on our facilities and to enter into sale and leaseback transactions, subject to significant allowances. We paid
$28
million in cash for interest on the Notes during the
three
months ended
October 31, 2011
and
October 31, 2010
.
13
Other Long-Term Obligations
Other long-term obligations were as follows at the dates indicated:
|
(In millions)
|
October 31,
2011 |
|
July 31,
2011 |
||||
|
Total license fee payable
|
$
|
61
|
|
|
$
|
60
|
|
|
Total deferred rent
|
52
|
|
|
52
|
|
||
|
Long-term deferred revenue
|
40
|
|
|
40
|
|
||
|
Long-term income tax liabilities
|
40
|
|
|
42
|
|
||
|
Long-term payables
|
10
|
|
|
12
|
|
||
|
Other
|
1
|
|
|
1
|
|
||
|
Total long-term obligations
|
204
|
|
|
207
|
|
||
|
Less current portion (included in other current liabilities)
|
(17
|
)
|
|
(17
|
)
|
||
|
Long-term obligations due after one year
|
$
|
187
|
|
|
$
|
190
|
|
|
6.
|
Income Taxes
|
Effective Tax Rate
We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period. Our effective tax benefit rate for the three months ended
October 31, 2011
was approximately
35%
and did not differ significantly from the federal statutory rate of
35%
. State income taxes were substantially offset by the benefit we received from the domestic production activities deduction and the federal research and experimentation credit. Our effective tax benefit rate for the three months ended
October 31, 2010
was approximately
37%
. This differed from the federal statutory rate of
35%
primarily due to state income taxes, which were partially offset by the benefit we received from the domestic production activities deduction.
The decrease in the effective tax benefit rate for the three months ended October 31, 2011 compared with the three months ended October 31, 2010 was primarily related to the decrease in the California tax rate after the adoption of single sales factor apportionment effective August 1, 2011.
Unrecognized Tax Benefits and Other Considerations
The total amount of our unrecognized tax benefits at
July 31, 2011
was
$41
million. Net of related deferred tax assets, unrecognized tax benefits were
$35
million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of
$35
million. There were no material changes to these amounts during the
three
months ended
October 31, 2011
. We do not believe that it is reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months.
|
7.
|
Stockholders’ Equity
|
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. We repurchased
5.2
million shares for
$255
million under these programs during the
three
months ended
October 31, 2011
and
7.3
million shares for
$330
million under these programs during the
three
months ended
October 31, 2010
. At
October 31, 2011
, we had authorization from our Board of Directors to expend up to an additional
$385
million for stock repurchases through
August 16, 2013
and
$2
billion for stock repurchases through
August 15, 2014
.
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.
Dividends on Common Stock
During the three months ended October 31, 2011 we declared and paid a quarterly cash dividend of
$0.15
per share that totaled approximately
$45
million. In November 2011 our Board of Directors declared a quarterly cash dividend of
$0.15
per share of
14
outstanding common stock payable on January 18, 2012 to stockholders of record at the close of business on January 10, 2012. 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.
Share-Based Compensation Expense
The following table summarizes the total share-based compensation expense that we recorded for the periods shown.
|
|
Three Months Ended
|
||||||
|
(In millions, except per share amounts)
|
October 31,
2011 |
|
October 31,
2010 |
||||
|
Cost of revenue
|
$
|
1
|
|
|
$
|
1
|
|
|
Selling and marketing
|
14
|
|
|
9
|
|
||
|
Research and development
|
12
|
|
|
13
|
|
||
|
General and administrative
|
13
|
|
|
12
|
|
||
|
Total share-based compensation expense
|
40
|
|
|
35
|
|
||
|
Income tax benefit
|
(13
|
)
|
|
(12
|
)
|
||
|
Increase in net loss
|
$
|
27
|
|
|
$
|
23
|
|
|
Increase in net loss per share:
|
|
|
|
||||
|
Basic
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
Diluted
|
$
|
0.09
|
|
|
$
|
0.07
|
|
Stock Option Activity and Related Share-Based Compensation Expense
A summary of activity under all share-based compensation plans for the
three
months ended
October 31, 2011
was as follows:
|
|
|
|
Options Outstanding
|
||||||
|
(Shares in thousands)
|
Shares
Available
for Grant
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
Per Share
|
||||
|
Balance at July 31, 2011
|
30,716
|
|
|
22,679
|
|
|
$
|
32.38
|
|
|
Options granted
|
(157
|
)
|
|
157
|
|
|
45.32
|
|
|
|
Restricted stock units granted (2)
|
(648
|
)
|
|
—
|
|
|
—
|
|
|
|
Options exercised
|
—
|
|
|
(1,882
|
)
|
|
27.49
|
|
|
|
Options canceled or expired (1)
|
197
|
|
|
(199
|
)
|
|
35.98
|
|
|
|
Restricted stock units forfeited (1)(2)
|
590
|
|
|
—
|
|
|
—
|
|
|
|
Balance at October 31, 2011
|
30,698
|
|
|
20,755
|
|
|
$
|
32.89
|
|
|
Exercisable at October 31, 2011
|
|
|
13,190
|
|
|
$
|
29.17
|
|
|
________________________________
|
(1)
|
Stock options and restricted stock units canceled, expired or forfeited under our 2005 Equity Incentive Plan are returned to the pool of shares available for grant. Stock options and restricted stock units canceled, expired or forfeited under older expired plans are not returned to the pool of shares available for grant.
|
|
(2)
|
Under the terms of our 2005 Equity Incentive Plan as amended on January 19, 2011, RSUs granted from the pool of shares available for grant on or after November 1, 2010 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.
|
At
October 31, 2011
, there was approximately
$60
million of unrecognized compensation cost related to non-vested stock options that we expect to recognize as expense in the future. We will adjust unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average vesting period of
2.0
years.
15
Restricted Stock Unit Activity and Related Share-Based Compensation Expense
A summary of restricted stock unit activity for the
three
months ended
October 31, 2011
was as follows:
|
|
Restricted Stock Units
|
|||||
|
(Shares in thousands)
|
Number
of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|||
|
Nonvested at July 31, 2011
|
11,055
|
|
|
$
|
37.92
|
|
|
Granted
|
220
|
|
|
43.34
|
|
|
|
Vested
|
(1,415
|
)
|
|
32.77
|
|
|
|
Forfeited
|
(241
|
)
|
|
36.35
|
|
|
|
Nonvested at October 31, 2011
|
9,619
|
|
|
$
|
38.84
|
|
At
October 31, 2011
, there was approximately
$208
million of unrecognized compensation cost related to non-vested RSUs and restricted stock that we expect to recognize as expense in the future. We will adjust unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average vesting period of
2.3
years.
|
8.
|
Litigation
|
Intuit is subject to certain routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business, including assertions that we may be infringing patents or other intellectual property rights of others. We currently believe that, 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.
|
9.
|
Segment Information
|
We have defined seven reportable segments 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.
All of our business segments except Other Businesses operate primarily in the United States and sell primarily to customers in the United States. International total net revenue was less than 5% of consolidated total net revenue for all periods presented.
We include expenses such as corporate selling and marketing, product development, and general and administrative expenses and share-based compensation expenses that are not allocated to specific segments in 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 to the financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended
July 31, 2011
. 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.
16
The following table shows our financial results by reportable segment for the periods indicated.
|
|
Three Months Ended
|
||||||
|
(In millions)
|
October 31,
2011 |
|
October 31,
2010 |
||||
|
Net revenue:
|
|
|
|
||||
|
Financial Management Solutions
|
$
|
168
|
|
|
$
|
154
|
|
|
Employee Management Solutions
|
121
|
|
|
107
|
|
||
|
Payment Solutions
|
94
|
|
|
80
|
|
||
|
Consumer Tax
|
41
|
|
|
29
|
|
||
|
Accounting Professionals
|
27
|
|
|
25
|
|
||
|
Financial Services
|
89
|
|
|
81
|
|
||
|
Other Businesses
|
54
|
|
|
56
|
|
||
|
Total net revenue
|
$
|
594
|
|
|
$
|
532
|
|
|
|
|
|
|
||||
|
Operating income (loss):
|
|
|
|
||||
|
Financial Management Solutions
|
$
|
42
|
|
|
$
|
33
|
|
|
Employee Management Solutions
|
75
|
|
|
64
|
|
||
|
Payment Solutions
|
24
|
|
|
12
|
|
||
|
Consumer Tax
|
(28
|
)
|
|
(29
|
)
|
||
|
Accounting Professionals
|
(14
|
)
|
|
(16
|
)
|
||
|
Financial Services
|
18
|
|
|
15
|
|
||
|
Other Businesses
|
(3
|
)
|
|
1
|
|
||
|
Total segment operating income
|
114
|
|
|
80
|
|
||
|
Unallocated corporate items:
|
|
|
|
||||
|
Share-based compensation expense
|
(40
|
)
|
|
(35
|
)
|
||
|
Other common expenses
|
(143
|
)
|
|
(134
|
)
|
||
|
Amortization of acquired technology
|
(4
|
)
|
|
(4
|
)
|
||
|
Amortization of other acquired intangible assets
|
(21
|
)
|
|
(11
|
)
|
||
|
Total unallocated corporate items
|
(208
|
)
|
|
(184
|
)
|
||
|
Total operating loss
|
$
|
(94
|
)
|
|
$
|
(104
|
)
|
17
ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes the following sections:
|
•
|
Executive Overview that discusses at a high level our operating results and some of the trends that affect our business.
|
|
•
|
Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.
|
|
•
|
Results of Operations that includes a more detailed discussion of our revenue and expenses.
|
|
•
|
Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our balance sheets, and our financial commitments.
|
You should note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Please see Item 1A in Part II of this Quarterly Report on Form 10-Q for important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the financial statements and related notes in Part I, Item 1 of this report and our Annual Report on Form 10-K for the fiscal year ended
July 31, 2011
.
Executive Overview
This overview provides a high level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important in order to understand our financial results for the first
three months
of fiscal
2012
as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report on Form 10-Q.
About Intuit
Intuit is a leading provider of business and financial management solutions for small and medium-sized businesses, consumers, accounting professionals and financial institutions. We organize our portfolio of businesses into four principal categories — Small Business Group, Tax, Financial Services and Other Businesses. These categories include seven financial reporting segments.
Small Business Group:
This category includes three segments — Financial Management Solutions, Employee Management Solutions, and Payment Solutions.
|
•
|
Our Financial Management Solutions segment includes QuickBooks financial and business management software and services; technical support; financial supplies; and Intuit Websites, which provides website design and hosting services for small and medium-sized businesses.
|
|
•
|
Our Employee Management Solutions segment provides payroll products and services for small businesses.
|
|
•
|
Our Payment Solutions segment provides merchant services for small businesses, including credit and debit card processing, electronic check conversion and automated clearing house services.
|
Tax:
This category includes two segments — Consumer Tax and Accounting Professionals.
|
•
|
Our Consumer Tax segment includes TurboTax income tax preparation products and services for consumers and small businesses.
|
|
•
|
Our Accounting Professionals segment includes Lacerte, ProSeries and ProLine Tax Online professional tax products and services. This segment also includes QuickBooks Premier Accountant Edition and the QuickBooks ProAdvisor Program for accounting professionals.
|
Financial Services:
This segment consists primarily of outsourced online financial management solutions for banks and credit unions provided by our Intuit Financial Services business.
Other Businesses:
This segment includes Quicken personal finance products and services; Mint.com online personal finance services; Intuit Health online patient-to-provider communication solutions; and our businesses in Canada, the United Kingdom, India and Singapore.
Seasonality and Trends
18
Our QuickBooks, Consumer Tax and Accounting Professionals businesses are highly seasonal. Revenue from our QuickBooks software products tends to be highest during our second and third fiscal quarters. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. In our Consumer Tax business, a greater proportion of our revenue has been occurring later in this seasonal period due in part to the growth in sales of TurboTax Online, for which revenue is recognized upon printing or electronic filing of a tax return. The seasonality of our Consumer Tax and Accounting Professionals revenue is also affected by the timing of the availability of tax forms from taxing agencies and the ability of those agencies to receive electronic tax return submissions. The availability of tax forms or the ability of taxing agencies to receive submissions can cause revenue to shift between our second fiscal quarter and subsequent fiscal quarters. These seasonal patterns mean that our total net revenue is usually highest during our second quarter ending January 31 and third quarter ending April 30. We typically report losses in our first quarter ending October 31 and fourth quarter ending July 31, when revenue from our tax businesses is minimal while operating expenses continue at relatively consistent levels. We believe the seasonality of our revenue is likely to continue in the future. In our MD&A we often focus on year-to-date results for our seasonal businesses as they are generally more meaningful than quarterly results.
Overview of Financial Results
Total net revenue for the first
three months
of fiscal
2012
was
$594 million
, an increase of
12%
compared with the same period of fiscal
2011
. Our Small Business Group was the key driver of revenue growth, increasing revenue by
13%
compared with the same period a year ago due to growth in connected services offerings and improved offering mix. Operating loss decreased
10%
in the first
three months
of fiscal
2012
compared with the same period of fiscal
2011
due to higher revenue partially offset by higher costs and expenses, including higher spending for staffing expenses. Net loss decreased
9%
in the first
three months
of fiscal
2012
compared with the same period of fiscal
2011
, in line with the decrease in operating loss. Basic and diluted net loss per share for the first
three months
of fiscal
2012
decreased
5%
to
$0.21
as a result of the lower net loss, partially offset by the effect of the decline in weighted average basic and diluted common shares compared with the same period of fiscal
2011
.
We ended the first
three months
of fiscal
2012
with cash, cash equivalents and investments totaling
$1.1 billion
. In the first
three months
of fiscal
2012
we generated cash from the issuance of common stock under employee stock plans. During the same period we used cash for operations, for net purchases of investments, for capital expenditures, for the repurchase of shares of our common stock under our stock repurchase programs, and for the payment of the first quarterly cash dividend in our history. At
October 31, 2011
, we had authorization from our Board of Directors to expend up to an additional
$385
million for stock repurchases through
August 16, 2013
and
$2
billion for stock repurchases through
August 15, 2014
.
Critical Accounting Policies and Estimates
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended
July 31, 2011
have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. We believe that there were no significant changes in those critical accounting policies and estimates during the first
three months
of fiscal
2012
. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit and Risk Committee of our Board of Directors.
19
Results of Operations
Financial Overview
|
(Dollars in millions, except per share amounts)
|
Q1
FY12
|
|
Q1
FY11
|
|
$
Change
|
|
%
Change
|
|||||||
|
Total net revenue
|
$
|
594
|
|
|
$
|
532
|
|
|
$
|
62
|
|
|
12
|
%
|
|
Operating loss
|
(94
|
)
|
|
(104
|
)
|
|
10
|
|
|
(10
|
)%
|
|||
|
Net loss
|
(64
|
)
|
|
(70
|
)
|
|
6
|
|
|
(9
|
)%
|
|||
|
Basic and diluted net loss
per share
|
$
|
(0.21
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.01
|
|
|
(5
|
)%
|
Current Fiscal Quarter
Total net revenue increased
$62
million or
12%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
. In our Small Business Group, revenue was up
13%
. Financial Management Solutions segment revenue increased
9%
due to growth in QuickBooks Online and QuickBooks Enterprise revenue. Employee Management Solutions segment revenue increased
13%
due to favorable offering mix, improved customer adoption of payroll direct deposit services, and price increases for desktop payroll customers. Payment Solutions segment revenue increased
19%
due to fee structure changes, growth in the merchant customer base and slightly higher transaction volume per merchant. Financial Services segment revenue increased
9%
due to growth in bill-pay revenue and mobile banking revenue. Other Businesses segment revenue decreased
3%
due to lower Quicken revenue. Due to the seasonal nature of our Tax businesses, we typically generate nominal revenue in our Consumer Tax and Accounting Professionals segments in our first fiscal quarter compared with our second and third fiscal quarters.
Operating loss decreased
10%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
due to the increase in revenue described above partially offset by higher operating expenses. Total operating expenses were
$39
million higher in the fiscal
2012
quarter, including about $21 million for higher staffing expenses. See
“Operating Expenses”
later in this Item 2 for more information.
Net loss decreased
9%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
, in line with the decrease in operating loss. Basic and diluted net loss per share for the
first
quarter of fiscal
2012
decreased
5%
to
$0.21
as a result of the lower net loss, partially offset by the effect of the decline in weighted average basic and diluted common shares compared with the same quarter of fiscal
2011
.
Business Segment Results
The information below is organized in accordance with our seven reportable business segments. Segment operating income or loss is segment net revenue less segment cost of revenue and operating expenses. See
“Executive Overview — Seasonality and Trends”
earlier in this Item 2 for a description of the seasonality of our business. Segment expenses do not include certain costs, such as corporate selling and marketing, product development, and general and administrative expenses and share-based compensation expenses, which are not allocated to specific segments. These unallocated costs totaled
$183
million in the first
three months
of fiscal
2012
and
$169
million in the first
three months
of fiscal
2011
. Unallocated costs increased in the fiscal
2012
period due to increases in corporate product development and selling and marketing expenses in support of the growth of our businesses, and increases in share-based compensation expense.
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 9 to the financial statements in Part I, Item 1 of this report for reconciliations of total segment operating income or loss to consolidated operating income or loss for each fiscal period presented.
We calculate revenue growth rates and segment operating margin figures using dollars in thousands. Those results may vary from figures calculated using the dollars in millions presented below.
20
Financial Management Solutions
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
89
|
|
|
$
|
84
|
|
|
|
|
|
Service and other revenue
|
79
|
|
|
70
|
|
|
|
|||
|
Total segment revenue
|
$
|
168
|
|
|
$
|
154
|
|
|
9
|
%
|
|
% of total revenue
|
28
|
%
|
|
29
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating income
|
$
|
42
|
|
|
$
|
33
|
|
|
28
|
%
|
|
% of related revenue
|
25
|
%
|
|
21
|
%
|
|
|
|||
Financial Management Solutions (FMS) product revenue is derived primarily from QuickBooks desktop software products and financial supplies such as paper checks, envelopes, invoices, business cards and business stationery. FMS service and other revenue is derived primarily from QuickBooks Online; QuickBooks technical support plans; Intuit Websites, which provides website design and hosting services for small and medium-sized businesses; QuickBase; and royalties from small business online services.
FMS total net revenue increased
$14
million or
9%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
. Strong growth in QuickBooks Online and QuickBooks Enterprise revenue drove higher average selling prices for QuickBooks offerings overall and total QuickBooks software units increased 2% in the
first
quarter of fiscal
2012
.
FMS segment operating income as a percentage of related revenue increased to
25%
in the
first
quarter of fiscal
2012
from
21%
in the same quarter of fiscal
2011
. Operating income increased in the first
three months
of fiscal
2012
due to the increase in revenue described above partially offset by higher staffing expenses.
Employee Management Solutions
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
68
|
|
|
$
|
63
|
|
|
|
|
|
Service and other revenue
|
53
|
|
|
44
|
|
|
|
|||
|
Total segment revenue
|
$
|
121
|
|
|
$
|
107
|
|
|
13
|
%
|
|
% of total revenue
|
20
|
%
|
|
20
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating income
|
$
|
75
|
|
|
$
|
64
|
|
|
17
|
%
|
|
% of related revenue
|
62
|
%
|
|
59
|
%
|
|
|
|||
Employee Management Solutions (EMS) product revenue is derived primarily from QuickBooks Basic Payroll and QuickBooks Enhanced Payroll, which are products sold on a subscription basis that offer payroll tax tables, payroll reports, federal and state payroll tax forms, and electronic tax payment and filing to small businesses that prepare their own payrolls. EMS service and other revenue is derived primarily from QuickBooks Online Payroll, QuickBooks Assisted Payroll, Intuit Online Payroll, Intuit Full Service Payroll, fees for payroll direct deposit services, and fees for other small business payroll and employee management services. Service and other revenue for this segment also includes interest earned on funds held for customers.
EMS total net revenue increased
$14
million or
13%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
. Revenue was higher in the fiscal
2012
period due to more customers choosing our Enhanced desktop payroll and online payroll solutions, improved customer adoption of payroll direct deposit services, and price increases for desktop payroll customers. At
October 31, 2011
, total payroll customers were up 3% while online payroll customers were up 20% compared with
October 31, 2010
.
EMS segment operating income as a percentage of related revenue increased to
62%
in the
first
quarter of fiscal
2012
from
59%
in the same quarter of fiscal
2011
due to the increase in revenue described above partially offset by higher staffing expenses associated with higher headcount.
21
Payment Solutions
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
6
|
|
|
$
|
8
|
|
|
|
|
|
Service and other revenue
|
88
|
|
|
72
|
|
|
|
|||
|
Total segment revenue
|
$
|
94
|
|
|
$
|
80
|
|
|
19
|
%
|
|
% of total revenue
|
16
|
%
|
|
15
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating income
|
$
|
24
|
|
|
$
|
12
|
|
|
91
|
%
|
|
% of related revenue
|
25
|
%
|
|
16
|
%
|
|
|
|||
Payment Solutions product revenue is derived primarily from Point of Sale solutions. Payment Solutions service and other revenue is derived primarily from merchant services for small businesses that include credit card, debit card, electronic benefits, and gift card processing services; check verification, check guarantee and electronic check conversion, including automated clearing house (ACH) and Check21 capabilities; from Web-based transaction processing services for online merchants; and from GoPayment mobile payment processing services.
Payment Solutions total net revenue increased
$14
million or
19%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
, driven by fee structure changes, 11% growth in the merchant customer base and slightly higher transaction volume per merchant. Transaction volume per merchant increased 1% in the first
three months
of fiscal
2012
compared with the same period of fiscal
2011
.
Payment Solutions segment operating income as a percentage of related revenue increased to
25%
in the
first
quarter of fiscal
2012
from
16%
in the same quarter of fiscal
2011
due to the increase in revenue described above, lower agent fees in cost of revenue, and relatively stable operating expenses.
Consumer Tax
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
11
|
|
|
$
|
9
|
|
|
|
|
|
Service and other revenue
|
30
|
|
|
20
|
|
|
|
|||
|
Total segment revenue
|
$
|
41
|
|
|
$
|
29
|
|
|
39
|
%
|
|
% of total revenue
|
7
|
%
|
|
6
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating loss
|
$
|
(28
|
)
|
|
$
|
(29
|
)
|
|
(4
|
)%
|
|
% of related revenue
|
n/a
|
|
|
n/a
|
|
|
|
|||
Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer and small business desktop tax return preparation software. Consumer Tax service and other revenue is derived primarily from TurboTax Online tax return preparation services and electronic tax filing services.
Due to the seasonal nature of our Consumer Tax business, we typically generate nominal revenue from consumer and small business tax products and services in our first fiscal quarter compared with our second and third fiscal quarters. The majority of Consumer Tax revenue for the first quarter of each fiscal year is for the filing of extended returns for the previous tax year. Consumer Tax segment revenue increased
$12
million or
39%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
primarily because customers filed more extended returns in the fiscal 2012 quarter. First fiscal quarter revenue in this segment is not indicative of revenue trends for the current tax year. We will not have substantially complete results for the 2011 tax season until the third quarter of fiscal 2012.
In our first fiscal quarter our Consumer Tax segment typically generates operating losses because revenue is nominal while operating expenses continue at relatively consistent levels. We do not believe that Consumer Tax operating results for the first quarter of fiscal 2012 compared with the same quarter of fiscal 2011 are indicative of trends for the full fiscal year.
22
Accounting Professionals
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
23
|
|
|
$
|
20
|
|
|
|
|
|
Service and other revenue
|
4
|
|
|
5
|
|
|
|
|||
|
Total segment revenue
|
$
|
27
|
|
|
$
|
25
|
|
|
6
|
%
|
|
% of total revenue
|
5
|
%
|
|
5
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating loss
|
$
|
(14
|
)
|
|
$
|
(16
|
)
|
|
(13
|
)%
|
|
% of related revenue
|
n/a
|
|
|
n/a
|
|
|
|
|||
Accounting Professionals product revenue is derived primarily from Lacerte and ProSeries professional tax preparation software products and from QuickBooks Premier Accountant Edition and ProAdvisor Program for professional accountants. Accounting Professionals service and other revenue is derived primarily from ProLine Tax Online tax return preparation services, electronic tax filing services, bank product transmission services and training services.
Due to the seasonal nature of our Accounting Professionals business, we typically generate nominal revenue from professional tax products and services in our first fiscal quarter compared with our second and third fiscal quarters. The majority of Accounting Professionals revenue for the first quarter of each fiscal year is for the filing of extended returns for the previous tax year. Accounting Professionals total net revenue increased
$2
million or
6%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
due to higher QuickBooks Premier Accountant Edition and ProAdvisor Program revenue. First fiscal quarter revenue in this segment is not indicative of revenue trends for the current tax year. We will not have substantially complete results for the 2011 tax season until the third quarter of fiscal 2012.
In our first fiscal quarter our Accounting Professionals segment typically generates operating losses because revenue is nominal while operating expenses continue at relatively consistent levels. We do not believe that Accounting Professionals operating results for the first quarter of fiscal 2012 compared with the same quarter of fiscal 2011 are indicative of trends for the full fiscal year.
Financial Services
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Service and other revenue
|
89
|
|
|
81
|
|
|
|
|||
|
Total segment revenue
|
$
|
89
|
|
|
$
|
81
|
|
|
9
|
%
|
|
% of total revenue
|
15
|
%
|
|
15
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating income
|
$
|
18
|
|
|
$
|
15
|
|
|
20
|
%
|
|
% of related revenue
|
21
|
%
|
|
19
|
%
|
|
|
|||
Financial Services service and other revenue is derived primarily from outsourced online banking solutions that are hosted in our data centers and delivered as on-demand service offerings to medium-sized banks and credit unions. Financial Services service and other revenue also includes fees for implementation services.
Financial Services total net revenue increased
$8
million or
9%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
, driven by higher bill-pay revenue and mobile banking revenue. Bill-pay revenue grew due to a 15% increase in bill-pay end users and higher transaction volumes for the
first
quarter of fiscal
2012
. Continuing downward price pressure that resulted in lower revenue per user partially offset growth in the bill-pay end user customer base.
Financial Services segment operating income as a percentage of related revenue increased to
21%
in the
first
quarter of fiscal
2012
from
19%
in the
first
quarter of fiscal
2011
due to the increase in revenue described above and slightly lower staffing expenses associated with lower headcount, partially offset by higher data center hosting and marketing expenses.
23
Other Businesses
|
(Dollars in millions)
|
Q1
FY12
|
|
Q1
FY11
|
|
%
Change
|
|||||
|
Product revenue
|
$
|
25
|
|
|
$
|
32
|
|
|
|
|
|
Service and other revenue
|
29
|
|
|
24
|
|
|
|
|||
|
Total segment revenue
|
$
|
54
|
|
|
$
|
56
|
|
|
(3
|
)%
|
|
% of total revenue
|
9
|
%
|
|
10
|
%
|
|
|
|||
|
|
|
|
|
|
|
|||||
|
Segment operating income
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
n/a
|
|
|
% of related revenue
|
n/a
|
|
|
2
|
%
|
|
|
|||
Other Businesses consist primarily of Quicken, Mint.com, Intuit Health, and our businesses in Canada, the United Kingdom, Singapore and India. Quicken product revenue is derived primarily from Quicken desktop software products. Quicken service and other revenue is derived primarily from fees from consumer online transactions and Quicken Loans trademark royalties. Mint.com service revenue is derived primarily from lead generation fees. Intuit Health service revenue is derived from online patient-to-provider communication services and fees for implementation services. In Canada, product revenue is derived primarily from localized versions of QuickBooks and Quicken as well as consumer desktop tax return preparation software and professional tax preparation products. Service and other revenue in Canada consists primarily of revenue from QuickBooks support plans, payroll services and merchant payment processing services. In the United Kingdom, product revenue is derived primarily from localized versions of QuickBooks and QuickBooks Payroll. Our international offerings also include QuickBooks Online in Singapore.
Other Businesses total net revenue decreased
$2
million or
3%
in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
. Quicken revenue was lower due to a decline in Quicken units.
Other Businesses segment operating loss of
$3
million in the
first
quarter of fiscal
2012
was a result of lower fiscal
2012
revenue as described above and higher costs and expenses associated with our continued investment in our healthcare business and in emerging market opportunities.
Cost of Revenue
|
(Dollars in millions)
|
Q1
FY12
|
|
% of
Related
Revenue
|
|
Q1
FY11
|
|
% of
Related
Revenue
|
||||||
|
Cost of product revenue
|
$
|
32
|
|
|
14
|
%
|
|
$
|
32
|
|
|
15
|
%
|
|
Cost of service and other revenue
|
136
|
|
|
37
|
%
|
|
123
|
|
|
39
|
%
|
||
|
Amortization of acquired technology
|
4
|
|
|
n/a
|
|
|
4
|
|
|
n/a
|
|
||
|
Total cost of revenue
|
$
|
172
|
|
|
29
|
%
|
|
$
|
159
|
|
|
30
|
%
|
Cost of service and other revenue as a percentage of service and other revenue decreased in the
first
quarter of fiscal
2012
compared with the same quarter of fiscal
2011
due to lower agent fees in our Payment Solutions business and to higher online tax return preparation and electronic filing revenue, which has relatively lower costs of revenue compared with our other service offerings, in our Consumer Tax segment.
24
Operating Expenses
|
(Dollars in millions)
|
Q1
FY12
|
|
% of
Total
Net
Revenue
|
|
Q1
FY11
|
|
% of
Total
Net
Revenue
|
||||||
|
Selling and marketing
|
$
|
236
|
|
|
40
|
%
|
|
$
|
220
|
|
|
42
|
%
|
|
Research and development
|
167
|
|
|
28
|
%
|
|
156
|
|
|
29
|
%
|
||
|
General and administrative
|
92
|
|
|
15
|
%
|
|
90
|
|
|
17
|
%
|
||
|
Amortization of other acquired intangible assets
|
21
|
|
|
4
|
%
|
|
11
|
|
|
2
|
%
|
||
|
Total operating expenses
|
$
|
516
|
|
|
87
|
%
|
|
$
|
477
|
|
|
90
|
%
|
Current Fiscal Quarter
Total operating expenses as a percentage of total net revenue decreased to
87%
in the
first
quarter of fiscal
2012
from
90%
in the same quarter of fiscal
2011
. Revenue grew
$62
million while total operating expenses increased
$39
million in the fiscal
2012
quarter. Total operating expenses increased about $21 million for higher staffing expenses.
Non-Operating Income and Expenses
Interest Expense
Interest expense of
$15
million for the first
three months
of fiscal
2012
and fiscal
2011
consisted primarily of interest on $1 billion in senior notes that we issued in March 2007. The senior notes are due in March 2012 and March 2017 and are redeemable by Intuit at any time, subject to a make-whole premium.
Interest and Other Income, Net
|
|
Three Months Ended
|
||||||
|
(In millions)
|
October 31,
2011 |
|
October 31,
2010 |
||||
|
Interest income
|
$
|
2
|
|
|
$
|
3
|
|
|
Net (losses) gains on executive deferred compensation plan assets
|
(2
|
)
|
|
3
|
|
||
|
Gain on disposition of stock warrants
|
10
|
|
|
—
|
|
||
|
Other
|
1
|
|
|
2
|
|
||
|
Total interest and other income, net
|
$
|
11
|
|
|
$
|
8
|
|
Interest and other income, net consists primarily of interest income and net gains on executive deferred compensation plan assets. Higher average invested balances and lower interest rates resulted in slightly lower interest income in the first
three months
of fiscal
2012
compared with the same period of fiscal
2011
. 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 amounts recorded in operating expenses generally offset the amounts recorded in interest and other income. In connection with our acquisition of Digital Insight Corporation in fiscal 2007, we acquired stock warrants for a privately held company. During the first quarter of fiscal 2012 that company was acquired and we recorded a gain of approximately $10 million on the disposition of the warrants.
Income Taxes
We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period.
Our effective tax benefit rate for the
first
quarter of fiscal
2012
was approximately
35%
and did not differ significantly from the federal statutory rate of 35%. State income taxes were substantially offset by the benefit we received from the domestic production activities deduction and the federal research and experimentation credit. Our effective tax benefit rate for the
first
quarter of fiscal
2011
25
was approximately
37%
. This differed from the federal statutory rate of 35% primarily due to state income taxes, which were partially offset by the benefit we received from the domestic production activities deduction.
The decrease in the effective tax benefit rate for the first quarter of fiscal 2012 compared with the first quarter of fiscal 2011 was primarily related to the decrease in the California tax rate after the adoption of single sales factor apportionment effective August 1, 2011.
Liquidity and Capital Resources
Overview
At
October 31, 2011
, our cash, cash equivalents and investments totaled
$1.1 billion
, a decrease of
$370
million from
July 31, 2011
due to the factors noted under
“Statements of Cash Flows”
below. Our primary source of liquidity has been cash from operations, which entails the collection of accounts receivable for products and services. Our primary uses of cash have been for research and development programs, selling and marketing activities, capital projects, acquisitions of businesses, debt service costs, repurchases of our common stock and the payment of cash dividends.
In March 2007 we issued five-year and ten-year senior unsecured notes totaling $1 billion. See
“Contractual Obligations — Commitments for Senior Unsecured Notes”
later in this Item 2 for more information. We also have a $500 million unsecured revolving line of credit facility that is described later in this Item 2. To date we have not borrowed under the facility.
The following table summarizes selected measures of our liquidity and capital resources at the dates indicated:
|
(Dollars in millions)
|
October 31,
2011 |
|
July 31,
2011 |
|
$
Change
|
|
%
Change
|
|||||||
|
Cash, cash equivalents and investments
|
$
|
1,051
|
|
|
$
|
1,421
|
|
|
$
|
(370
|
)
|
|
(26
|
)%
|
|
Long-term investments
|
59
|
|
|
63
|
|
|
(4
|
)
|
|
(6
|
)%
|
|||
|
Current portion of long-term debt
|
500
|
|
|
500
|
|
|
—
|
|
|
—
|
%
|
|||
|
Long-term debt
|
499
|
|
|
499
|
|
|
—
|
|
|
—
|
%
|
|||
|
Working capital
|
244
|
|
|
449
|
|
|
(205
|
)
|
|
(46
|
)%
|
|||
|
Ratio of current assets to current liabilities
|
1.1 : 1
|
|
|
1.2 : 1
| ||||||||||