Add
INTU to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| INTU > SEC Filings for INTU > Form 10-K on 15-Sep-2009 | All Recent SEC Filings |
15-Sep-2009
Annual Report
• Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.
• Results of Operations that includes a more detailed discussion of our revenue and expenses.
• Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our balance sheets and our financial commitments.
You should note that this MD&A discussion contains forward-looking statements
that involve risks and uncertainties. Please see the section entitled
"Forward-Looking Statements and Risk Factors" at the beginning of Item 1A for
important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the financial statements and
related notes in Item 8. In February 2007 we completed the acquisition of
Digital Insight Corporation for a total purchase price of approximately
$1.34 billion. In December 2007 we acquired Homestead Technologies Inc. for
total consideration of approximately $170 million and in February 2008 we
acquired Electronic Clearing House, Inc. (ECHO) for a total purchase price of
approximately $131 million. In July 2009 we acquired PayCycle, Inc. for a total
purchase price of approximately $169 million. Accordingly, we have included the
results of operations for these companies in our consolidated results of
operations from their respective dates of acquisition. During fiscal 2007 and
fiscal 2008 we transitioned certain outsourced payroll customers in connection
with a sale of assets to Automatic Data Processing, Inc. (ADP). We have also
reclassified our financial statements for all periods presented to reflect our
Intuit Distribution Management Solutions business as discontinued operations.
See "Results of Operations - Dispositions and Discontinued Operations" later in
this Item 7 for more information. Unless otherwise noted, the following
discussion pertains only to our continuing operations.
In fiscal 2009 we reclassified segment results for all periods presented to
reflect the continued evolution of our business. We no longer combine results
for our Payroll business with results for our Payments business because
management currently views these businesses separately. We also changed the name
of our QuickBooks segment to Financial Management Solutions, our new Payroll
segment to Employee Management Solutions, and our new Payments segment to
Payments Solutions. We transferred revenue for our Point of Sale offerings from
our Financial Management Solutions segment to our Payments Solutions segment to
align this product group more closely with the customers they serve. Total Point
of Sale revenue was less than $40 million for all periods presented. We also
reclassified certain retail sales expenses from common expenses to segment
income or loss, consistent with how management now views these expenses. These
expenses were less than $25 million for all periods presented.
Executive Overview
This overview provides a high level discussion of our operating results and some
of the trends that affect our business. We believe that an understanding of
these trends is important in order to understand our financial results for
fiscal 2009 as well as our future prospects. This summary is not intended to be
exhaustive, nor is it intended to be a substitute for the detailed discussion
and analysis provided elsewhere in this Annual Report on Form 10-K.
Overview of Financial Results
Total net revenue for fiscal 2009 was $3.2 billion, an increase of 4% compared
with fiscal 2008. The fiscal 2009 revenue increase was due to revenue growth in
our Consumer Tax, Payments Solutions, Employee Management Solutions, Accounting
Professionals and Financial Institutions segments, partially offset by revenue
decreases in our Other Businesses and Financial Management Solutions segments.
Consumer Tax revenue increased $67.0 million or 7% due to growth in TurboTax
Online units, which more than offset a decrease in TurboTax desktop units.
Operating income from continuing operations of $682.1 million for fiscal 2009
increased $31.3 million or 5% compared with fiscal 2008. Fiscal 2009 revenue
grew $111.5 million and total costs and expenses increased $80.2 million. Total
costs and expenses for fiscal 2009 increased due to our fiscal 2008 acquisitions
of Homestead and ECHO; higher advertising and other marketing expenses to
support the launch and subsequent promotion of TurboTax and QuickBooks 2009;
higher depreciation expense for investments in our infrastructure; higher
share-based compensation expense; and a charge for the historical use of certain
technology licensing rights. Decreases in total costs and expenses due to lower
performance incentive payouts as well as other compensation and benefit savings
due to lower staffing and lower severance charges partially offset these
increases.
Net income from continuing operations of $447.0 million for fiscal 2009
decreased $3.8 million or 1% compared with fiscal 2008. In fiscal 2008 we
recorded a pre-tax gain of $51.6 million on the sale of certain outsourced
payroll assets; there was no comparable transaction in fiscal 2009. In addition,
interest income decreased in fiscal 2009 compared with fiscal 2008 due to the
impact of lower interest rates that more than offset the impact of higher
invested balances.
Due to the foregoing factors, diluted net income per share from continuing
operations of $1.35 in fiscal 2009 increased 2% compared with $1.33 in fiscal
2008.
In July 2009 we acquired PayCycle, Inc. for a total purchase price of
approximately $169 million. PayCycle is a provider of online payroll services to
small businesses and became part of our Employee Management Solutions segment.
We ended fiscal 2009 with cash, cash equivalents and investments totaling
$1.3 billion, an increase of $519.2 million from July 31, 2008. Cash, cash
equivalents and investments at July 31, 2009 included $150.9 in municipal
auction rate securities. We did not classify any of the municipal auction rate
securities we held at July 31, 2008 as cash, cash equivalents and investments.
At July 31, 2009 and 2008, we also held $93.6 million and $285.3 million in
municipal auction rate securities that we classified as long-term investments on
our balance sheet. See "Liquidity and Capital Resources - Auction Rate
Securities," later in this Item 7 for more information. In fiscal 2009 we
generated $812.4 million in cash from continuing operations and $183.6 million
from the issuance of common stock under employee stock plans. During the same
period we used $300.2 million in cash for the repurchase of shares of our common
stock under our stock repurchase programs, $182.5 million for capital
expenditures, and $187.4 million for acquisitions of businesses (primarily
PayCycle) and intangible assets. At July 31, 2009, we had authorization from our
Board of Directors to expend up to an additional $299.8 million for stock
repurchases through May 15, 2011.
On September 11, 2009 we entered into a definitive agreement to acquire Mint
Software Inc., a provider of online personal finance management services. The
cash transaction is valued at approximately $170 million, including the
assumption of Mint outstanding stock options. Mint will become part of our Other
Businesses segment. The transaction is subject to regulatory approval and
customary closing conditions. We expect the transaction to close before the end
of calendar 2009.
Seasonality
Our QuickBooks, Consumer Tax and Accounting Professionals offerings are highly
seasonal. Some of our other offerings are also seasonal, but to a lesser extent.
Revenue from our QuickBooks software products tends to be highest during our
second and third fiscal quarters. Sales of income tax preparation products and
services are heavily concentrated in the period from November through April. In
our Consumer Tax business, a greater proportion of our revenue has been
occurring later in this seasonal period due in part to the growth in sales of
TurboTax Online, for which revenue is recognized upon printing or electronic
filing of a tax return. The seasonality of our Consumer Tax and Accounting
Professionals revenue is also affected by the timing of the availability of tax
forms from taxing agencies and the ability of those agencies to receive
electronic tax return submissions. Delays in the availability of tax forms or
the ability of taxing agencies to receive submissions can cause revenue to shift
from our second fiscal quarter to our third fiscal quarter. These seasonal
patterns mean that our total net revenue is usually highest during our second
quarter ending January 31 and third quarter ending April 30. We typically report
losses in our first quarter ending October 31 and fourth quarter ending July 31,
when revenue from our tax businesses is minimal while operating expenses
continue at relatively consistent levels. In addition, the timing and
composition of new
customer offerings that include both product and service elements can materially
shift revenue between quarters. We believe the seasonality of our revenue is
likely to continue in the future.
Critical Accounting Policies and Estimates
In preparing our financial statements, we make estimates, assumptions and
judgments that can have a significant impact on our net revenue, operating
income or loss and net income or loss, as well as on the value of certain assets
and liabilities on our balance sheet. We believe that the estimates, assumptions
and judgments involved in the accounting policies described below have the
greatest potential impact on our financial statements, so we consider these to
be our critical accounting policies. Senior management has reviewed the
development and selection of these critical accounting policies and their
disclosure in this Annual Report on Form 10-K with the Audit Committee of our
Board of Directors.
Revenue Recognition
We derive revenue from the sale of packaged software products, license fees,
software subscriptions, product support, hosting services, payroll services,
merchant services, professional services, transaction fees and multiple element
arrangements that may include any combination of these items. We follow the
appropriate revenue recognition rules for each type of revenue. For additional
information, see "Revenue Recognition" in Note 1 to the financial statements in
Item 8. We generally recognize revenue when persuasive evidence of an
arrangement exists, we have delivered the product or performed the service, the
fee is fixed or determinable and collectibility is probable. However,
determining whether and when some of these criteria have been satisfied often
involves assumptions and judgments that can have a significant impact on the
timing and amount of revenue we report. For example, for multiple element
arrangements we must make assumptions and judgments in order to allocate the
total price among the various elements we must deliver, to determine whether
undelivered services are essential to the functionality of the delivered
products and services, to determine whether vendor-specific evidence of fair
value exists for each undelivered element and to determine whether and when each
element has been delivered. If we were to change any of these assumptions or
judgments, it could cause a material increase or decrease in the amount of
revenue that we report in a particular period. Amounts for fees collected or
invoiced and due relating to arrangements where revenue cannot be recognized are
reflected on our balance sheet as deferred revenue and recognized when the
applicable revenue recognition criteria are satisfied.
In connection with the sale of certain products, we provide a limited amount of
free technical support assistance to customers. We do not defer the recognition
of any revenue associated with sales of these products since the cost of
providing this free technical support is insignificant. The technical support is
generally provided within one year after the associated revenue is recognized
and free product enhancements are minimal and infrequent. We accrue the
estimated cost of providing this free support upon product shipment.
Return and Rebate Reserves
As part of our revenue recognition policy, we estimate future product returns
and rebate payments and establish reserves against revenue at the time of sale
based on these estimates. Our return policy allows distributors and retailers,
subject to contractual limitations, to return purchased products. Product
returns by distributors and retailers relate primarily to the return of excess
and obsolete products. In determining our product returns reserves, we consider
the volume and price mix of products in the retail channel, historical return
rates for prior releases of the product, trends in retailer inventory and
economic trends that might impact customer demand for our products (including
the competitive environment and the timing of new releases of our products). We
fully reserve for excess and obsolete products in the distribution channels.
Our rebate reserves include distributor and retailer sales incentive rebates and
end-user rebates. Our estimated reserves for distributor and retailer incentive
rebates are based on distributors' and retailers' actual performance against the
terms and conditions of rebate programs, which we typically establish annually.
Our reserves for end-user rebates are estimated based on the terms and
conditions of the specific promotional rebate program, actual sales during the
promotion and historical redemption trends by product and by type of promotional
program.
In the past, actual returns and rebates have not differed significantly from the
reserves that we have established. However, actual returns and rebates in any
future period are inherently uncertain. If we were to change our
assumptions and estimates, our revenue reserves would change, which would impact
the net revenue we report. If actual returns and rebates are significantly
greater than the reserves we have established, the actual results would decrease
our future reported revenue. Conversely, if actual returns and rebates are
significantly less than our reserves, this would increase our future reported
revenue. For example, if we had increased our fiscal 2009 returns reserves by 1%
of non-consignment sales to retailers for QuickBooks, TurboTax and Quicken, our
total net revenue for fiscal 2009 would have been about $3.0 million lower.
Allowance for Doubtful Accounts
We make ongoing assumptions relating to the collectibility of our accounts
receivable. The accounts receivable amount on our balance sheet includes a
reserve for accounts that might not be paid. In determining the amount of the
reserve, we consider our historical level of credit losses. We also make
judgments about the creditworthiness of significant customers based on ongoing
credit evaluations, and we assess current economic trends that might impact the
level of credit losses in the future. Our reserves have generally been adequate
to cover our actual credit losses. However, since we cannot reliably predict
future changes in the financial stability of our customers, we cannot guarantee
that our reserves will continue to be adequate. If actual credit losses are
significantly greater than the reserve we have established, that would increase
our general and administrative expenses and reduce our reported net income.
Conversely, if actual credit losses are significantly less than our reserve,
this would eventually decrease our general and administrative expenses and
increase our reported net income.
Fair Value of Investments
We estimate the fair value of our available-for-sale securities each quarter.
These investments consist of cash equivalents, municipal bonds, U.S. agency
securities, corporate notes and municipal auction rate securities. Fair value is
defined as the price that would be received from the sale of an asset or paid to
transfer a liability in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the
measurement date. When identical or similar assets are traded in active markets,
the level of judgment required to estimate their fair value is relatively low.
This is generally true for our cash equivalents, municipal bonds, U.S. agency
securities and corporate notes. However, significant judgment is required to
estimate the fair value of assets and liabilities when observable inputs are not
available. For example, we use a discounted cash flow model to estimate the fair
value of our municipal auction rate securities because we have determined that
the market for those securities is inactive. We based this determination on the
fact that due to a decrease in liquidity in the global credit markets, regularly
scheduled auctions for the municipal auction rate securities we hold have
generally failed since February 2008. Some of the key inputs to our discounted
cash flow model are inherently uncertain. The key inputs include projected
future interest rates; the likely timing of principal repayments; the
probability of full repayment; publicly available pricing data for recently
issued similar securities that are not subject to auctions; and the impact of
the reduced liquidity for auction rate securities. At July 31, 2009, we held a
total of $244.5 million in municipal auction rate securities.
We record unrealized gains and losses on our available-for-sale securities in
other comprehensive income in the equity section of our balance sheet until the
security is sold or we determine that the decrease in fair value is
other-than-temporary. We consider a number of factors in determining whether to
recognize an impairment charge, including the reason for the decrease in fair
value, the severity of the decrease in fair value, the length of time that the
fair value has been less than the cost basis of the security, the financial
condition and near-term prospects of the issuer, and whether we intend to sell
or may be required to sell the security before anticipated recovery of our cost
basis. Changes in our estimates of the fair values of our available-for-sale
securities may result in material increases or decreases in our net income in
the period in which the change occurs.
Business Combinations - Purchase Accounting
Under the purchase method of accounting, we allocate the purchase price of
acquired companies to the tangible and identifiable intangible assets acquired
and liabilities assumed based on their estimated fair values. We record the
excess of purchase price over the aggregate fair values as goodwill. We engage
third-party appraisal firms to assist us in determining the fair values of
assets acquired and liabilities assumed. These valuations require us to make
significant estimates and assumptions, especially with respect to intangible
assets. Critical estimates in valuing purchased technology, customer lists and
other identifiable intangible assets include future cash flows that we expect to
generate from the acquired assets. If the subsequent actual results and updated
projections of the underlying
business activity change compared with the assumptions and projections used to
develop these values, we could experience impairment charges. In addition, we
have estimated the economic lives of certain acquired assets and these lives are
used to calculate depreciation and amortization expense. If our estimates of the
economic lives change, depreciation or amortization expenses could be
accelerated or slowed.
Goodwill, Purchased Intangible Assets and Other Long-Lived Assets - Impairment
Assessments
We estimate the fair value of purchased intangible assets and other long-lived
assets that have finite useful lives whenever an event or change in
circumstances indicates that the carrying value of the asset may not be
recoverable. We test for potential impairment of goodwill and other intangible
assets that have indefinite useful lives annually in our fourth fiscal quarter
or whenever indicators of impairment arise. The timing of the annual test may
result in charges to our statement of operations in our fourth fiscal quarter
that could not have been reasonably foreseen in prior periods.
In order to estimate the fair value of goodwill, we use a weighted combination
of a discounted cash flow model (known as the income approach) and comparisons
to publicly traded companies engaged in similar businesses (known as the market
approach). The income approach requires us to use a number of assumptions,
including market factors specific to the business, the amount and timing of
estimated future cash flows to be generated by the business over an extended
period of time, long-term growth rates for the business, and a rate of return
that considers the relative risk of achieving the cash flows and the time value
of money. We evaluate cash flows at the reporting unit level and the number of
reporting units that we have identified may make impairment more probable than
it would be at a company with fewer reporting units and more integrated
operations following acquisitions. Although the assumptions we use in our
discounted cash flow model are consistent with the assumptions we use to
generate our internal strategic plans and forecasts, significant judgment is
required to estimate the amount and timing of future cash flows from each
reporting unit and the relative risk of achieving those cash flows. When using
the market approach, we make judgments about the comparability of publicly
traded companies engaged in similar businesses. We base our judgments on factors
such as size, growth rates, profitability, risk, and return on investment. We
also make judgments when adjusting market multiples of revenue, operating
income, and earnings for these companies to reflect their relative similarity to
our own businesses. We had a total of $1.8 billion in goodwill on our balance
sheet at July 31, 2009. See Note 4 to the financial statements in Item 8 for a
summary of goodwill by reportable segment.
In order to estimate the fair value of purchased intangible assets and other
long-lived assets that have finite useful lives, we estimate the present value
of future cash flows from those assets. The key assumptions that we use in our
discounted cash flow model are the amount and timing of estimated future cash
flows to be generated by the asset over an extended period of time and a rate of
return that considers the relative risk of achieving the cash flows and the time
value of money. Significant judgment is required to estimate the amount and
timing of future cash flows and the relative risk of achieving those cash flows.
We also make judgments about the remaining useful lives of purchased intangible
assets and other long-lived assets that have finite lives. We had a total of
$293.0 million in net purchased intangible assets on our balance sheet at
July 31, 2009.
Assumptions and estimates about future values and remaining useful lives are
complex and often subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends, and internal
factors such as changes in our business strategy and our internal forecasts. For
example, if our future operating results do not meet current forecasts or if we
experience a sustained decline in our market capitalization that is determined
to be indicative of a reduction in fair value of one or more of our reporting
units, we may be required to record future impairment charges for goodwill and
purchased intangible assets. Impairment charges could materially decrease our
future net income and result in lower asset values on our balance sheet.
Accounting for Share-Based Compensation Plans
At July 31, 2009, there was $240.0 million of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
all equity compensation plans which we will amortize to expense in the future.
Total unrecognized compensation cost will be adjusted for future changes in
estimated forfeitures. We expect to recognize that cost over a weighted average
vesting period of 2.1 years.
We use a lattice binomial model and the assumptions shown in Note 12 to the
financial statements in Item 8 to estimate the fair value of stock options
granted. We estimate the expected term of options granted based on implied
exercise patterns using a binomial model. We estimate the volatility of our
common stock at the date of grant based on the implied volatility of publicly
traded one-year and two-year options on our common stock. Our decision to use
implied volatility was based upon the availability of actively traded options on
our common stock and our assessment that implied volatility is more
representative of future stock price trends than historical volatility. We base
the risk-free interest rate that we use in our option valuation model on the
implied yield in effect at the time of option grant on constant maturity U.S.
Treasury issues with equivalent remaining terms. We have never paid any cash
dividends on our common stock and we do not anticipate paying any cash dividends
in the foreseeable future. Consequently, we use an expected dividend yield of
zero in our option valuation model. We estimate forfeitures at the time of grant
and revise those estimates in subsequent periods if actual forfeitures differ
from those estimates. We use historical data to estimate pre-vesting option
forfeitures and record share-based compensation expense only for those awards
that are expected to vest. We amortize the fair value of options on a
straight-line basis over the requisite service periods of the awards, which are
generally the vesting periods. We may elect to use different assumptions under
our option valuation model in the future, which could materially affect our net
income or loss and net income or loss per share. We value restricted stock units
using the intrinsic value method. We amortize the value of restricted stock
units on a straight-line basis over the restriction period.
Legal Contingencies
We are subject to certain legal proceedings, as well as demands, claims and
threatened litigation that arise in the normal course of our business. We review
the status of each significant matter quarterly and assess our potential
financial exposure. If the potential loss from any claim or legal proceeding is
considered probable and the amount can be reasonably estimated, we record a
liability and an expense for the estimated loss. Significant judgment is
required in both the determination of probability and the determination of
whether an exposure is reasonably estimable. Our accruals are based on the best
information available at the time. As additional information becomes available,
we reassess the potential liability related to our pending claims and litigation
and may revise our estimates. Potential legal liabilities and the revision of
estimates of potential legal liabilities could have a material impact on our
financial position and results of operations.
Income Taxes - Estimates of Effective Tax Rates, Deferred Taxes and Valuation
Allowance
When we prepare our financial statements, we estimate our income taxes based on
the various jurisdictions where we conduct business. Significant judgment is
required in determining our worldwide income tax provision. The calculation of
our tax liabilities involves dealing with uncertainties in the application of
complex tax rules and the potential for future adjustment of our uncertain tax
positions by the Internal Revenue Service or other taxing jurisdiction. We
estimate our current tax liability and assess temporary differences that result
. . .
|
|