10-Q 1 fy14q310qdocument.htm 10-Q FY14 Q3 10Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
þ
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
For the quarterly period ended April 30, 2014
OR
o
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
For the transition period from ____________ to ____________ .

Commission File Number 0-21180
INTUIT INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
 
77-0034661
(IRS employer identification no.)
 
2700 Coast Avenue, Mountain View, CA 94043
(Address of principal executive offices)
 
 
 
 
 
(650) 944-6000
(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 283,886,921 shares of Common Stock, $0.01 par value, were outstanding at May 14, 2014.
 
INTUIT INC.
FORM 10-Q
INDEX

 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-31.01
 EX-31.02
 EX-32.01
 EX-32.02
 EX-101.INS XBRL Instance Document
 EX-101.SCH XBRL Taxonomy Extension Schema
 EX-101.CAL XBRL Taxonomy Extension Calculation Linkbase
 EX-101.LAB XBRL Taxonomy Extension Label Linkbase
 EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase
 EX-101.DEF XBRL Taxonomy Extension Definition Linkbase

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.
PART I
ITEM 1
FINANCIAL STATEMENTS

INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended
 
 Nine Months Ended
(In millions, except per share amounts)
April 30,
2014
 
April 30,
2013
 
April 30,
2014
 
April 30,
2013
Net revenue:
 
 
 
 
 
 
 
Product
$
735

 
$
638

 
$
1,251

 
$
1,267

Service and other
1,653

 
1,453

 
2,541

 
2,270

Total net revenue
2,388

 
2,091

 
3,792

 
3,537

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
Cost of product revenue
34

 
30

 
108

 
102

Cost of service and other revenue
130

 
110

 
363

 
334

Amortization of acquired technology
6

 
5

 
18

 
14

Selling and marketing
412

 
385

 
1,022

 
963

Research and development
186

 
166

 
548

 
503

General and administrative
121

 
106

 
348

 
307

Amortization of other acquired intangible assets
5

 
7

 
14

 
21

Total costs and expenses
894

 
809

 
2,421

 
2,244

Operating income from continuing operations
1,494

 
1,282

 
1,371

 
1,293

Interest expense
(8
)
 
(8
)
 
(24
)
 
(23
)
Interest and other income, net
3

 
4

 
8

 
7

Income before income taxes
1,489

 
1,278

 
1,355

 
1,277

Income tax provision
505

 
420

 
465

 
408

Net income from continuing operations
984

 
858

 
890

 
869

Net income (loss) from discontinued operations

 
(36
)
 
46

 
5

Net income
$
984

 
$
822

 
$
936

 
$
874

 
 
 
 
 
 
 
 
Basic net income per share from continuing operations
$
3.47

 
$
2.89

 
$
3.12

 
$
2.93

Basic net income (loss) per share from discontinued operations

 
(0.12
)
 
0.16

 
0.02

Basic net income per share
$
3.47

 
$
2.77

 
$
3.28

 
$
2.95

Shares used in basic per share calculations
284

 
297

 
285

 
296

 
 
 
 
 
 
 
 
Diluted net income per share from continuing operations
$
3.39

 
$
2.83

 
$
3.06

 
$
2.87

Diluted net income (loss) per share from discontinued operations

 
(0.12
)
 
0.16

 
0.02

Diluted net income per share
$
3.39

 
$
2.71

 
$
3.22

 
$
2.89

Shares used in diluted per share calculations
290

 
304

 
291

 
303

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.19

 
$
0.17

 
$
0.57

 
$
0.51

See accompanying notes.



INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
 
 Nine Months Ended
(In millions)
April 30,
2014
 
April 30,
2013
 
April 30,
2014
 
April 30,
2013
 
 
 
 
 
 
 
 
Net income
$
984

 
$
822

 
$
936

 
$
874

Other comprehensive income (loss), net of income taxes:
 
 
 
 
 
 
 
Unrealized gains on available-for-sale debt securities

 

 
2

 

Unrealized gains (losses) on available-for-sale equity securities
(1
)
 

 
(5
)
 
3

Foreign currency translation gains (losses)
3

 

 
(5
)
 
1

Total other comprehensive income (loss), net
2

 

 
(8
)
 
4

Comprehensive income
$
986

 
$
822

 
$
928

 
$
878



See accompanying notes.

INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
April 30,
2014
 
July 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,574

 
$
1,009

Investments
1,059

 
652

Accounts receivable, net
277

 
130

Income taxes receivable
2

 
62

Deferred income taxes
137

 
166

Prepaid expenses and other current assets
116

 
98

Current assets of discontinued operations

 
44

Current assets before funds held for customers
3,165

 
2,161

Funds held for customers
273

 
235

Total current assets
3,438

 
2,396

Long-term investments
31

 
83

Property and equipment, net
566

 
555

Goodwill
1,313

 
1,246

Acquired intangible assets, net
155

 
149

Other assets
107

 
102

Long-term assets of discontinued operations

 
955

Total assets
$
5,610

 
$
5,486

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
193

 
$
137

Accrued compensation and related liabilities
215

 
218

Deferred revenue
499

 
495

Income taxes payable
277

 
2

Other current liabilities
226

 
154

Current liabilities of discontinued operations

 
39

Current liabilities before customer fund deposits
1,410

 
1,045

Customer fund deposits
273

 
235

Total current liabilities
1,683

 
1,280

Long-term debt
499

 
499

Other long-term obligations
190

 
167

Long-term obligations of discontinued operations

 
9

Total liabilities
2,372

 
1,955

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock

 

Common stock and additional paid-in capital
3,471

 
3,201

Treasury stock, at cost
(6,278
)
 
(4,952
)
Accumulated other comprehensive income
12

 
20

Retained earnings
6,033

 
5,262

Total stockholders’ equity
3,238

 
3,531

Total liabilities and stockholders’ equity
$
5,610

 
$
5,486


See accompanying notes.
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

(In millions, except shares in thousands)
Shares of
Common
Stock
 
Common
Stock and
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
Stockholders'
Equity
Balance at July 31, 2013
299,503

 
$
3,201

 
$
(4,952
)
 
$
20

 
$
5,262

 
$
3,531

Comprehensive income

 

 

 
(8
)
 
936

 
928

Issuance of stock under employee stock plans
5,267

 
70

 
99

 

 

 
169

Stock repurchases under stock repurchase programs
(20,507
)
 

 
(1,425
)
 

 

 
(1,425
)
Cash dividends declared ($0.57 per share)

 

 

 

 
(165
)
 
(165
)
Tax benefit from share-based compensation plans

 
52

 

 

 

 
52

Share-based compensation expense

 
148

 

 

 

 
148

Balance at April 30, 2014
284,263

 
$
3,471

 
$
(6,278
)
 
$
12

 
$
6,033

 
$
3,238


(In millions, except shares in thousands)
Shares of
Common
Stock
 
Common
Stock and
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
Stockholders'
Equity
Balance at July 31, 2012
295,289

 
$
3,018

 
$
(4,911
)
 
$
25

 
$
4,612

 
$
2,744

Comprehensive income

 

 

 
4

 
874

 
878

Issuance of treasury stock under employee stock plans
6,274

 
20

 
165

 

 

 
185

Stock repurchases under stock repurchase programs
(4,820
)
 

 
(292
)
 

 

 
(292
)
Cash dividends declared ($0.51 per share)

 

 

 

 
(152
)
 
(152
)
Tax benefit from share-based compensation plans

 
65

 

 

 

 
65

Share-based compensation expense

 
142

 

 

 

 
142

Balance at April 30, 2013
296,743

 
$
3,245

 
$
(5,038
)
 
$
29

 
$
5,334

 
$
3,570



See accompanying notes.
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 Nine Months Ended
(In millions)
April 30,
2014
 
April 30,
2013
Cash flows from operating activities:
 
 
 
Net income
$
936

 
$
874

 Adjustments to reconcile net income to net cash provided by
 operating activities:
 
 
 
Depreciation
110

 
124

Amortization of acquired intangible assets
37

 
45

Goodwill and intangible asset impairment charge

 
46

Share-based compensation expense
148

 
142

Pre-tax gain on sale of discontinued operations
(40
)
 
(53
)
Deferred income taxes
62

 
52

Tax benefit from share-based compensation plans
52

 
65

Excess tax benefit from share-based compensation plans
(52
)
 
(65
)
Other
16

 
12

Total adjustments
333

 
368

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(148
)
 
(129
)
Income taxes receivable
60

 
52

Prepaid expenses and other assets
(18
)
 
(3
)
Accounts payable
56

 
76

Accrued compensation and related liabilities
(18
)
 
(20
)
Deferred revenue
(9
)
 
(11
)
Income taxes payable
275

 
274

Other liabilities
63

 
79

Total changes in operating assets and liabilities
261

 
318

Net cash provided by operating activities
1,530

 
1,560

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale debt securities
(917
)
 
(675
)
Sales of available-for-sale debt securities
218

 
279

Maturities of available-for-sale debt securities
318

 
165

Net change in money market funds and other cash equivalents held
 to satisfy customer fund obligations
(38
)
 
106

Net change in customer fund deposits
38

 
(106
)
Purchases of property and equipment
(121
)
 
(147
)
Acquisitions of businesses, net of cash acquired
(90
)
 
(9
)
Acquisitions of intangible assets, net of cash acquired
(10
)
 
(2
)
Proceeds from divestiture of businesses
1,025

 
60

Other
(4
)
 
(18
)
Net cash provided by (used in) investing activities
419

 
(347
)
Cash flows from financing activities:
 
 
 
Net proceeds from issuance of stock under employee stock plans
161

 
185

Purchases of treasury stock
(1,425
)
 
(292
)
Cash dividends paid to stockholders
(165
)
 
(152
)
Excess tax benefit from share-based compensation plans
52

 
65

Net cash used in financing activities
(1,377
)
 
(194
)
Effect of exchange rates on cash and cash equivalents
(7
)
 

Net increase in cash and cash equivalents
565

 
1,019

Cash and cash equivalents at beginning of period
1,009

 
393

Cash and cash equivalents at end of period
$
1,574

 
$
1,412


See accompanying notes.
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 businesses, consumers, and accounting professionals. With flagship products and services that include QuickBooks, TurboTax and Quicken, we help customers solve important business and financial management problems such as running a small business, paying bills, filing income tax returns, and managing personal finances. ProSeries and Lacerte are Intuit’s tax preparation offerings for professional accountants. Intuit was incorporated in 1984 and is headquartered in Mountain View, California.
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. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to discontinued operations and reportable segments. See Note 4, “Discontinued Operations,” and Note 10, “Segment Information,” for more information.
As discussed in Note 4, we sold our Intuit Websites business in September 2012. In August 2013 we sold our Intuit Financial Services (IFS) business and our Intuit Health business. We have reclassified our statements of operations for all periods presented to reflect these three businesses as discontinued operations. We have also segregated the net assets of IFS from continuing operations on our balance sheet at July 31, 2013. The net assets of Intuit Websites and Intuit Health were not significant, so we have not segregated them from continuing operations on our balance sheet at July 31, 2013. Because the cash flows of our Intuit Websites, IFS, and Intuit Health discontinued operations were not material for any period presented, we have not segregated the cash flows of those businesses from continuing operations on our statements of cash flows. Unless noted otherwise, discussions in these notes pertain to our continuing operations.
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, 2013. Results for the nine months ended April 30, 2014 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2014 or any other future period.
Seasonality
Our QuickBooks, Consumer Tax, and Professional Tax offerings 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. 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. During these quarters, revenue from our tax businesses is minimal while core operating expenses such as research and development 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, 2013. There have been no changes to our significant accounting policies during the first nine months of fiscal 2014.
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

2


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.
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
 
 Nine Months Ended
(In millions, except per share amounts)
April 30,
2014
 
April 30,
2013
 
April 30,
2014
 
April 30,
2013
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
984

 
$
858

 
$
890

 
$
869

Net income (loss) from discontinued operations

 
(36
)
 
46

 
5

Net income
$
984

 
$
822

 
$
936

 
$
874

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Shares used in basic per share amounts:
 
 
 
 
 
 
 
Weighted average common shares outstanding
284

 
297

 
285

 
296

 
 
 
 
 
 
 
 
Shares used in diluted per share amounts:
 
 
 
 
 
 
 
Weighted average common shares outstanding
284

 
297

 
285

 
296

Dilutive common equivalent shares from stock options
 
 
 
 
 
 
 
and restricted stock awards
6

 
7

 
6

 
7

Dilutive weighted average common shares outstanding
290

 
304

 
291

 
303

 
 
 
 
 
 
 
 
Basic and diluted net income per share:
 
 
 
 
 
 
 
Basic net income per share from continuing operations
$
3.47

 
$
2.89

 
$
3.12

 
$
2.93

Basic net income (loss) per share from discontinued operations

 
(0.12
)
 
0.16

 
0.02

Basic net income per share
$
3.47

 
$
2.77

 
$
3.28

 
$
2.95

 
 
 
 
 
 
 
 
Diluted net income per share from continuing operations
$
3.39

 
$
2.83

 
$
3.06

 
$
2.87

Diluted net income (loss) per share from discontinued operations

 
(0.12
)
 
0.16

 
0.02

Diluted net income per share
$
3.39

 
$
2.71

 
$
3.22

 
$
2.89

 
 
 
 
 
 
 
 
Shares excluded from computation of diluted net income
per share:
 
 
 
 
 
 
 
Weighted average stock options and restricted stock units excluded from computation due to anti-dilutive effect

 
3

 
3

 
3

Concentration of Credit Risk and Significant Customers
No customer accounted for 10% or more of total net revenue in the three or nine months ended April 30, 2014 or April 30, 2013. No customer accounted for 10% or more of gross accounts receivable at April 30, 2014 or July 31, 2013.






3


Recent Accounting Pronouncements
In April 2014 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08,
“Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This update raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures for discontinued operations and disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, which means that it will be effective for our fiscal year beginning August 1, 2015. We are in the process of evaluating this update and therefore have not yet determined the impact that adoption of ASU 2014-08 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.
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.
 
April 30, 2014
 
July 31, 2013
(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
$
1,135

 
$

 
$

 
$
1,135

 
$
917

 
$

 
$

 
$
917

Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal bonds

 
664

 

 
664

 

 
489

 

 
489

Corporate notes

 
445

 

 
445

 

 
269

 

 
269

U.S. agency securities

 
98

 

 
98

 

 
69

 

 
69

Municipal auction rate securities

 

 
21

 
21

 

 

 
33

 
33

Available-for-sale corporate equity securities
27

 

 

 
27

 
33

 

 

 
33

Total available-for-sale securities
27

 
1,207

 
21

 
1,255

 
33

 
827

 
33

 
893

Total assets measured at fair value on a recurring basis
$
1,162

 
$
1,207

 
$
21

 
$
2,390

 
$
950

 
$
827

 
$
33

 
$
1,810

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes (1)
$

 
$
561

 
$

 
$
561

 
$

 
$
560

 
$

 
$
560

______________________________
(1)
Carrying value on our balance sheet at April 30, 2014 was $499 million and at July 31, 2013 was $499 million. See Note 6.

The following table summarizes our cash equivalents and available-for-sale debt and equity securities by balance sheet classification and level in the fair value hierarchy at the dates indicated.
 
April 30, 2014
 
July 31, 2013
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In cash and cash equivalents
$
1,037

 
$

 
$

 
$
1,037

 
$
857

 
$

 
$

 
$
857

In funds held for customers
98

 

 

 
98

 
60

 

 

 
60

Total cash equivalents
$
1,135

 
$

 
$

 
$
1,135

 
$
917

 
$

 
$

 
$
917

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In investments
$
27

 
$
1,032

 
$

 
$
1,059

 
$

 
$
652

 
$

 
$
652

In funds held for customers

 
175

 

 
175

 

 
175

 

 
175

In long-term investments

 

 
21

 
21

 
33

 

 
33

 
66

Total available-for-sale securities
$
27

 
$
1,207

 
$
21

 
$
1,255

 
$
33

 
$
827

 
$
33

 
$
893

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 with the help of a pricing service that either provides quoted market prices in active markets for identical or similar securities or uses observable inputs for their pricing without applying significant adjustments. Our fair value processes include controls that are designed to ensure that we record appropriate fair values for our Level 2 investments. These controls include comparison to pricing provided by a secondary pricing service or investment manager, validation of pricing sources and models, review of key model inputs, analysis of period-over-period price fluctuations, and independent recalculation of prices where appropriate.
Financial liabilities whose fair values we measure using Level 2 inputs consist of debt. See Note 6, “Long-Term Obligations,” for more information. We measure the fair value of our senior notes based on their trading prices and the interest rates we could obtain for 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. We estimate the fair values of these auction rate securities using a discounted cash flow model. During the first nine months of fiscal 2014 we redeemed $12 million of these securities at par, leaving a remaining balance of $21 million at April 30, 2014. We continued to classify them as long-term investments based on the maturities of the underlying securities at that date. 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.
There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the nine months ended April 30, 2014.


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 at April 30, 2014 consist of available-for-sale investment-grade debt securities that we carry at fair value and an available-for-sale corporate equity investment that we carry at fair value. Funds held for customers consist of cash and cash equivalents and investment grade available-for-sale debt securities in all periods presented. Long-term investments at April 30, 2014 consist primarily of municipal auction rate securities. See Note 2, “Fair Value Measurements,” for more information. 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 in debt securities 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.
 
April 30, 2014
 
July 31, 2013
(In millions)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
Classification on balance sheets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,574

 
$
1,574

 
$
1,009

 
$
1,009

Investments
1,036

 
1,059

 
653

 
652

Funds held for customers
273

 
273

 
235

 
235

Long-term investments
31

 
31

 
54

 
83

Total cash and cash equivalents, investments, and funds
held for customers
$
2,914

 
$
2,937

 
$
1,951

 
$
1,979


4


The following table summarizes our cash and cash equivalents, investments, and funds held for customers by investment category at the dates indicated. See Note 2, “Fair Value Measurements,” for more information on our municipal auction rate securities.
 
April 30, 2014
 
July 31, 2013
(In millions)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
Type of issue:
 
 
 
 
 
 
 
Total cash and cash equivalents
$
1,672

 
$
1,672

 
$
1,069

 
$
1,069

Available-for-sale debt securities:
 
 
 
 
 
 
 
Municipal bonds
663

 
664

 
489

 
489

Corporate notes
445

 
445

 
269

 
269

U.S. agency securities
98

 
98

 
69

 
69

Municipal auction rate securities
21

 
21

 
33

 
33

Total available-for-sale debt securities
1,227

 
1,228

 
860

 
860

Available-for-sale corporate equity securities
5

 
27

 
5

 
33

Other long-term investments
10

 
10

 
17

 
17

Total cash and cash equivalents, investments, and funds
held for customers
$
2,914

 
$
2,937

 
$
1,951

 
$
1,979

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 nine months ended April 30, 2014 and April 30, 2013 were not significant.
We accumulate unrealized gains and losses on our available-for-sale debt and equity securities, net of income taxes, 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 April 30, 2014 and July 31, 2013 were not significant. The cumulative gross unrealized gain on our available-for-sale corporate equity security was approximately $22 million at April 30, 2014.
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 April 30, 2014 were not other-than-temporarily impaired. Unrealized losses on available-for-sale debt securities at April 30, 2014 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.
 
April 30, 2014
 
July 31, 2013
(In millions)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
Due within one year
$
345

 
$
346

 
$
234

 
$
235

Due within two years
397

 
397

 
245

 
245

Due within three years
360

 
360

 
211

 
210

Due after three years
125

 
125

 
170

 
170

Total available-for-sale debt securities
$
1,227

 
$
1,228

 
$
860

 
$
860

Available-for-sale debt securities due after three years in the table above include our municipal auction rate securities. See Note 2, “Fair Value Measurements,” 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.




5


4.
Discontinued Operations
Intuit Financial Services
On August 1, 2013 we completed the sale of our Intuit Financial Services (IFS) business for approximately $1.025 billion in cash. We recorded a gain on the disposal of IFS of approximately $36 million, net of income taxes, in the first quarter of fiscal 2014. The decision to sell the IFS business was a result of management's desire to focus resources on our offerings for small businesses, consumers, and accounting professionals. The IFS business comprised substantially all of our former Financial Services reporting segment.
We classified our IFS business as discontinued operations and have therefore segregated its operating results from continuing operations in our statements of operations for all periods presented. Revenue for IFS during the three and nine months ended April 30, 2013 was $83 million and $243 million. Income before income taxes for IFS during the three and nine months ended April 30, 2013 was $16 million and $42 million. We have also segregated the net assets of IFS from continuing operations on our balance sheet at July 31, 2013. Because operating cash flows from the IFS business were not material for any period presented, we have not segregated them from continuing operations on our statements of cash flows.
Intuit Health
In July 2013 management having the authority to do so formally approved a plan to sell our Intuit Health business and on August 19, 2013 we completed the sale for cash consideration that was not significant. We recorded a $4 million pre-tax loss on the disposal of Intuit Health that was more than offset by a related income tax benefit of approximately $14 million, resulting in a net gain on disposal of approximately $10 million in the first quarter of fiscal 2014. The decision to sell the Intuit Health business was a result of management's desire to focus resources on its offerings for small businesses, consumers, and accounting professionals. Intuit Health was part of our former Other Businesses reporting segment.
We classified our Intuit Health business as discontinued operations and have therefore segregated its operating results in our statements of operations for all periods presented. We have not segregated the net assets of Intuit Health from continuing operations on our balance sheets at July 31, 2013 because net assets held for sale consisted primarily of operating assets and liabilities that were not material. Because operating cash flows from the Intuit Health business were also not material for any period presented, we have not segregated them from continuing operations on our statements of cash flows.
Intuit Websites
On September 17, 2012 we sold our Intuit Websites business, which was a component of our former Financial Management Solutions reporting segment, for approximately $60 million in cash and recorded a gain on disposal of approximately $32 million, net of income taxes.

5.
Current Liabilities
Unsecured Revolving Credit Facility
On February 17, 2012 we entered into an agreement with certain institutional lenders for a $500 million unsecured revolving credit facility that will expire on February 17, 2017. Advances under the credit facility will accrue interest at rates that are equal to, at our election, either JP Morgan's alternate base rate plus a margin that ranges from 0.0% to 0.5% or London Interbank Offered Rate (LIBOR) plus a margin that ranges from 0.9% to 1.5%. Actual margins under either election will be based on our senior debt credit ratings. The agreement includes customary affirmative and negative covenants, including financial covenants that require us to maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) of not greater than 3.25 to 1.00 as of any date and a ratio of annual EBITDA to interest payable of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. We remained in compliance with these covenants at all times during the quarter ended April 30, 2014. We may use amounts borrowed under this credit facility for general corporate purposes, including future acquisitions. 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)
April 30,
2014
 
July 31,
2013
Reserve for product returns
$
55

 
$
20

Reserve for rebates
53

 
15

Current portion of license fee payable

 
10

Current portion of deferred rent
7

 
8

Interest payable
3

 
10

Executive deferred compensation plan liabilities
72

 
64

Other
36

 
27

Total other current liabilities
$
226

 
$
154

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, “Description of Business and Summary of Significant Accounting Policies – Seasonality,” for more information.


6.
Long-Term Obligations
Long-Term Debt
On March 12, 2007 we issued $500 million of 5.75% senior unsecured notes due on March 15, 2017 (the Notes). We carried the Notes at face value less the unamortized discount in long-term debt on our balance sheets at April 30, 2014 and July 31, 2013. The Notes are redeemable by Intuit at any time, subject to a make-whole premium, and 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 $29 million in cash for interest on the Notes during the nine months ended April 30, 2014 and $29 million in cash for interest on the Notes during the nine months ended April 30, 2013.
Other Long-Term Obligations
Other long-term obligations were as follows at the dates indicated:
(In millions)
April 30,
2014
 
July 31,
2013
Total deferred rent
$
55

 
$
55

Total license fee payable
40

 
48

Long-term income tax liabilities
41

 
38

Long-term deferred revenue
13

 
32

Long-term deferred income tax liabilities
39

 
6

Other
9

 
7

Total long-term obligations
197

 
186

Less current portion (included in other current liabilities)
(7
)
 
(19
)
Long-term obligations due after one year
$
190

 
$
167



Operating Lease Commitments

We describe our operating lease commitments in Note 8 to the financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2013. During the first nine months of fiscal 2014 we signed agreements that extended the terms of Intuit's leases for certain facilities in the San Francisco Bay Area through 2025. The total additional obligation under those agreements is approximately $190 million.


6


7.
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 rates for the three and nine months ended April 30, 2014 were approximately 34% and those tax rates did not differ significantly from the federal statutory rate of 35%. The benefits we received from the domestic production activities deduction and the federal research and experimentation credit were substantially offset by state income taxes in both periods.
In January 2013 the American Taxpayer Relief Act of 2012 was signed into law. The Act included a reinstatement of the federal research and experimentation credit through December 31, 2013 that was retroactive to January 1, 2012. We recorded a discrete tax benefit for the retroactive effect during the nine months ended April 30, 2013. As of April 30, 2014, the federal research and experimentation credit had not been reinstated.
Our effective tax rate for the three months ended April 30, 2013 was approximately 33% and did not differ significantly from the federal statutory rate of 35%. Our effective tax rate for the nine months ended April 30, 2013 was approximately 32%. Excluding discrete tax items that included the retroactive effect of the reinstatement of the research and experimentation credit as described above, our effective tax rate for that period was approximately 34% and did not differ significantly from the federal statutory rate of 35%. The benefits we received from the domestic production activities deduction and the federal research and experimentation credit were substantially offset by state income taxes in both periods.
Unrecognized Tax Benefits and Other Considerations
The total amount of our unrecognized tax benefits at July 31, 2013 was $39 million. Net of related deferred tax assets, unrecognized tax benefits were $27 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $27 million. There were no material changes to these amounts during the nine months ended April 30, 2014. 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.


8.
Stockholders’ Equity
Stock Repurchase Programs and Treasury Shares
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 20.5 million shares for $1.4 billion under these programs during the nine months ended April 30, 2014 and 4.8 million shares for $292 million under these programs during the nine months ended April 30, 2013. At April 30, 2014, we had authorization from our Board of Directors to expend up to an additional $2.0 billion for stock repurchases through August 19, 2017. Future stock repurchases under the current program are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.
Our treasury shares are repurchased at the market price on the trade date; accordingly, all amounts paid to reacquire these shares have been recorded as treasury stock on our balance sheets. Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.
In the past we have satisfied option exercises and restricted stock unit vesting under our employee equity incentive plans by reissuing treasury shares, and we may do so again in the future. During the second quarter of fiscal 2014 we began issuing new shares of common stock to satisfy option exercises and RSU vesting under our 2005 Equity Incentive Plan. We have not yet determined the ultimate disposition of the shares that we have repurchased in the past, and consequently we continue to hold them as treasury shares.
Dividends on Common Stock
During the nine months ended April 30, 2014 we declared and paid quarterly cash dividends that totaled $0.57 per share of outstanding common stock or $165 million. In May 2014 our Board of Directors declared a quarterly cash dividend of $0.19 per share of outstanding common stock payable on July 18, 2014 to stockholders of record at the close of business on July 10, 2014. 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.

7


Share-Based Compensation Expense
The following table summarizes the total share-based compensation expense that we recorded in operating income from continuing operations for the periods shown.
 
Three Months Ended
 
 Nine Months Ended
(In millions, except per share amounts)
April 30,
2014
 
April 30,
2013
 
April 30,
2014
 
April 30,
2013
Cost of revenue
$
2

 
$
1

 
$
6

 
$
4

Selling and marketing
13

 
15

 
44

 
47

Research and development
16

 
13

 
46

 
39

General and administrative
18

 
14

 
52

 
43

Total share-based compensation expense
49

 
43

 
148

 
133

Income tax benefit
(16
)
 
(14
)
 
(48
)
 
(44
)
Decrease in net income from continuing operations
$
33

 
$
29

 
$
100

 
$
89

Decrease in net income per share:
 
 
 
 

 

Basic
$
0.12

 
$
0.10

 
$
0.35

 
$
0.30

Diluted
$
0.11

 
$
0.10

 
$
0.34

 
$
0.29

The table above excludes share-based compensation expense for our discontinued operations, which totaled approximately $3 million and $9 million for the three and nine months ended April 30, 2013. Because we have not reclassified our statements of cash flows to segregate discontinued operations, the $9 million in share-based compensation for discontinued operations is included in share-based compensation expense on our statement of cash flows for the nine months ended April 30, 2013.
Share-Based Awards Available for Grant
A summary of share-based awards available for grant under our 2005 Equity Incentive Plan for the nine months ended April 30, 2014 was as follows:
(Shares in thousands)
Shares
Available
for Grant
Balance at July 31, 2013
12,120

Additional shares authorized
19,000

Options granted
(74
)
Restricted stock units granted (1)
(2,077
)
Share-based awards canceled/forfeited/expired (1)(2)
3,818

Balance at April 30, 2014
32,787

________________________________
(1)
Under the terms of our Amended and Restated 2005 Equity Incentive Plan, as amended through July 24, 2012 (2005 Equity Incentive Plan), 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.
(2)
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.

8


Stock Option Activity and Related Share-Based Compensation Expense
A summary of stock option activity for the nine months ended April 30, 2014 was as follows:
 
Options Outstanding
(Shares in thousands)
Number
of Shares
 
Weighted
Average
Exercise
Price
Per Share
Balance at July 31, 2013
14,206

 
$
43.77

Options assumed and converted in connection with acquisitions
17

 
13.61

Options granted
74

 
70.14

Options exercised
(3,818
)
 
37.77

Options canceled or expired
(625
)
 
54.52

Balance at April 30, 2014
9,854

 
$
45.46

 
 
 
 
Exercisable at April 30, 2014
6,014

 
$
37.34


At April 30, 2014, there was approximately $35 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 1.8 years.
Restricted Stock Unit Activity and Related Share-Based Compensation Expense
A summary of restricted stock unit activity for the nine months ended April 30, 2014 was as follows:
 
Restricted Stock Units
(Shares in thousands)
Number
of Shares
 
Weighted
Average
Grant Date
Fair Value
Nonvested at July 31, 2013
9,184

 
$
55.23

Granted
903

 
71.49

Restricted stock units assumed or granted in connection with acquisitions
656

 
69.48

Vested
(913
)
 
49.65

Forfeited
(1,460
)
 
61.80

Nonvested at April 30, 2014
8,370

 
$
57.56


At April 30, 2014, there was approximately $264 million of unrecognized compensation cost related to non-vested RSUs 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 2.1 years.


9.
Litigation
On January 13, 2012, two putative class actions were filed against Intuit Inc. in connection with our TurboTax income tax preparation software: Smith v. Intuit Inc. (U.S. District Court, Northern District of California) and Quildon v. Intuit Inc. (California Superior Court, Santa Clara County). The plaintiffs in both cases had asserted that the fees charged for the refund processing service offered within TurboTax are “refund anticipation loans” and the disclosures about those fees do not comply with California and federal laws. The Smith case was brought in federal court on behalf of a proposed nationwide class and subclasses; the Quildon case was brought in state court on behalf of a proposed California class and subclasses. In January 2013, for the purposes of settlement and without any admission of wrongdoing or liability, Intuit reached an agreement in principle to resolve all claims raised in the Smith and Quildon matters for an amount that is not material to our consolidated financial statements. We accrued that amount in the second quarter of fiscal 2013. As of March 21, 2014, pursuant to the settlement agreement, both the Smith and Quildon matters had been resolved.
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.


10.
Segment Information
See Note 4, “Discontinued Operations,” for information about our Intuit Financial Services and Intuit Health businesses, which we classified as discontinued operations during fiscal 2013. Effective August 1, 2013, we reorganized our continuing businesses to align with our strategic focus on small businesses, consumers, and professional accountants. We also aligned our international businesses, all of which were in our former Other Businesses segment, into their respective lines of business and we are now managing those international businesses within their respective reportable segments. As a result of this reorganization, we have defined three 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 (CODM) as our Chief Executive Officer and our Chief Financial Officer. Our CODM organizes and manages our business primarily on the basis of product and service offerings. The CODM reviews revenue by reportable segment and by product line within each reportable segment, but reviews operating income or loss only at the reportable segment level.
Small Business. Our Small Business segment includes three main product lines – Small Business Financial Solutions, Small Business Management Solutions, and Accountant and Advisor – targeting the small business market.
Our Small Business Financial Solutions product line includes QuickBooks financial and business management software and services; QuickBooks technical support; and financial supplies. This product line also includes several payment processing services for small businesses, including merchant services such as credit and debit card processing; Web-based transaction processing services for online merchants; GoPayment mobile payment processing services; QuickBooks Point of Sale solutions; and secure online payments for small businesses and their customers through the Intuit Payment Network.
Our Small Business Management Solutions product line includes small business payroll products and services, including desktop payroll offerings such as QuickBooks Basic Payroll and QuickBooks Enhanced Payroll; online payroll offerings such as Quickbooks Online Payroll and Intuit Online Payroll; and full service payroll offerings such as QuickBooks Assisted Payroll and Intuit Full Service Payroll. This product line also includes Demandforce, which provides online marketing and customer communication solutions, and QuickBase.
Our Accountant and Advisor product line includes QuickBooks Accountant, QuickBooks Accountant Plus, and QuickBooks Online Accountant as well as the QuickBooks ProAdvisor Program and Cloud ProAdvisor Program, all of which are intended for the accounting professionals who serve small businesses.
Consumer. Our Consumer segment includes two product lines – Consumer Tax and Consumer Ecosystem – targeting consumers.
Consumer Tax includes TurboTax income tax preparation products and services and electronic tax filing services.
Consumer Ecosystem includes our personal finance offerings, Quicken and Mint.
Professional Tax. Our Professional Tax segment targets professional accountants and includes Lacerte, ProSeries, and Intuit Tax Online professional tax preparation products and services, electronic tax filing services, bank product transmission services, and training services.
All of our business segments operate primarily in the United States and sell primarily to customers in the United States. International total net revenue was approximately 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, 2013. 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.
The following table shows our financial results by reportable segment for the periods indicated. Results for all periods presented have been adjusted to exclude results for our Intuit Websites, Intuit Financial Services, and Intuit Health businesses, which we have classified as discontinued operations for all periods presented. See Note 4, “Discontinued Operations,” for more information. Segment results for fiscal 2013 have also been reclassified to conform to the fiscal 2014 segment presentation, as described earlier in this footnote.
 
Three Months Ended
 
 Nine Months Ended
(In millions)
April 30,
2014
 
April 30,
2013
 
April 30,
2014
 
April 30,
2013
Net revenue:
 
 
 
 
 
 
 
Small Business segment:
 
 
 
 
 
 
 
Small Business Financial Solutions
$
347

 
$
336

 
$
1,003

 
$
950

Small Business Management Solutions
204

 
177

 
595

 
516

Accountant and Advisor
18

 
17

 
51

 
51

  Total Small Business segment revenue
569

 
530

 
1,649

 
1,517

 
 
 
 
 
 
 
 
Consumer segment:
 
 
 
 
 
 
 
Consumer Tax
1,437

 
1,261

 
1,617

 
1,515

Consumer Ecosystem
48

 
47

 
132

 
124

  Total Consumer segment revenue
1,485

 
1,308

 
1,749

 
1,639

 
 
 
 
 
 
 
 
Professional Tax segment revenue
334

 
253

 
394

 
381

Total net revenue
$
2,388

 
$
2,091

 
$
3,792

 
$
3,537

 
 
 
 
 
 
 
 
Operating income from continuing operations:
 
 
 
 
 
 
 
Small Business segment
$
224

 
$
223

 
$
611

 
$
578

Consumer segment
1,199

 
1,033

 
1,172

 
1,054

Professional Tax segment
294

 
215

 
276

 
270

Total segment operating income
1,717

 
1,471

 
2,059

 
1,902

Unallocated corporate items:
 
 
 
 
 
 
 
Share-based compensation expense
(49
)
 
(43
)
 
(148
)
 
(133
)
Other common expenses
(163
)
 
(134
)
 
(508
)
 
(441
)
Amortization of acquired technology
(6
)
 
(5
)
 
(18
)
 
(14
)
Amortization of other acquired intangible assets
(5
)
 
(7
)
 
(14
)
 
(21
)
Total unallocated corporate items
(223
)
 
(189
)
 
(688
)
 
(609
)
Total operating income from continuing operations
$
1,494

 
$
1,282

 
$
1,371

 
$
1,293



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 Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended July 31, 2013. We sold our Intuit Websites business in September 2012. In August 2013 we completed the sales of our Intuit Financial Services (IFS) business and our Intuit Health business. We have reclassified our statements of operations for all periods presented to reflect these three businesses as discontinued operations. We have also segregated the net assets of IFS from continuing operations on our balance sheet at July 31, 2013. The net assets of Intuit Websites and Intuit Health were not significant, so we have not segregated them from continuing operations on our balance sheet at July 31, 2013. Because the operating cash flows of our Intuit Websites, IFS, and Intuit Health discontinued operations were not material for any period presented, we have not segregated them from continuing operations on our statements of cash flows. See “Results of Operations – Discontinued Operations” later in this Item 2 for more information. Unless otherwise noted, the following discussion pertains only to our continuing operations.

Executive Overview
This overview provides a high-level discussion of our business and growth strategy as well as the trends, opportunities, challenges, and risks that affect our performance and operating results. Understanding our growth strategy and the trends that affect our business provides context for the discussion of financial results and future opportunities which follows this overview. This summary is not intended to be exhaustive, nor is it 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 businesses, consumers, and accounting professionals. As discussed in Item 1, “Business Overview – Our Business Portfolio,” in our Form 10-K for the fiscal year ended July 31, 2013, effective August 1, 2013 we reorganized our businesses to align with our strategic focus on small businesses, consumers, and professional accountants. We also aligned our international businesses, all of which were in our former Other Businesses segment, into their respective lines of business and we are now managing those international businesses within their respective reportable segments. As a result of this reorganization, we now organize our businesses into three reportable segments – Small Business, Consumer, and Professional Tax.
Small Business: This segment includes three main product lines – Small Business Financial Solutions, Small Business Management Solutions, and Accountant and Advisor – targeting the small business market.
Our Small Business Financial Solutions product line includes QuickBooks financial and business management online services and desktop software; QuickBooks technical support; and financial supplies. This product line also includes several payment processing services for small businesses, including merchant services such as credit and debit card processing; Web-based transaction processing services for online merchants; GoPayment mobile payment processing services; QuickBooks Point of Sale solutions; and secure online payments for small businesses and their customers through the Intuit Payment Network.
Our Small Business Management Solutions product line includes small business payroll products and services and Demandforce, which provides online marketing and customer communication solutions.

9


Our Accountant and Advisor product line includes QuickBooks Accountant, QuickBooks Accountant Plus, and QuickBooks Online Accountant as well as the QuickBooks ProAdvisor Program and Cloud ProAdvisor Program, all of which are intended for the accounting professionals who serve small businesses.
Consumer: This segment includes two product lines – Consumer Tax and Consumer Ecosystem – targeting consumers.
Consumer Tax includes TurboTax income tax preparation products and services.
Consumer Ecosystem includes our personal finance offerings, Quicken and Mint.
Professional Tax: This segment targets professional accountants and includes Lacerte, ProSeries, and Intuit Tax Online professional tax products and services.
Our Growth Strategy
Based on our assessment of key technology and demographic trends – an increasingly borderless world, the prevalence of mobile devices, and the scalability of the cloud – we see significant opportunities to drive future growth by continuing to solve the unmet needs of small businesses, consumers, and accounting professionals. Our evolving growth strategy includes three key elements:

Focus on the product – we call it “Delivering awesome product experiences.” Computing devices are moving to the palm of our hands in the form of tablets and smart phones. Therefore, we are increasingly focused on reimagining our products with a mobile-first, and in some cases mobile-only, design. Our TurboTax solutions, for example, let customers prepare and file their entire tax returns online, via tablet, mobile phone or desktop computer. We also believe that a key factor in growing our customer base is delivering an amazing first-use experience so our customers can get the value they expect from our offerings as quickly and easily as possible.

Creating network effect platforms – we call it “Enabling the contributions of others.” We expect to solve problems faster and more efficiently for our growing base of customers by moving to more open platforms with application programming interfaces that enable the contributions of end users and third-party developers. One example of this is QuickBooks Online, which allows small business customers all over the world to localize, configure, and add value to the offering.

Leveraging our data for our customers' benefit – we call it “Using data to create delight.” Our 45 million customers are generating valuable data that we seek to appropriately use to deliver better products and breakthrough benefits by eliminating the need to enter data, helping them make better decisions and improving transactions and interactions.
Industry Trends and Seasonality
The industry in which we operate is dynamic and highly competitive, and we expect it to remain so in the future. The markets for software and related services, especially highly-available connected services, are characterized by rapid technological change, shifting customer needs, and frequent new product introductions and enhancements. Competitive interest and expertise in many of the markets we serve have grown markedly over the past few years and we expect this trend to continue. There are also large, cloud-based service companies who innovate quickly and serve small businesses and consumers. While today our competition with such companies may be limited, as we and those companies grow, our competition with them may increase. In recent years the widespread availability of the Internet, the emergence of mobile devices, and the explosion of social media have accelerated the pace of change and revolutionized the way that people throughout the world manage important financial tasks. The result is a global market that is shifting from traditional services that are paper-based, human-produced, and brick-and-mortar bound, to one where people understand, demand, and embrace the benefits of connected services. This trend toward connected services is the primary driver of the strategies in all of our businesses.
Our QuickBooks, Consumer Tax, and Professional Tax offerings 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 from November through April. In our Consumer Tax business, a greater proportion of our revenue has shifted to later in this seasonal period due in part to the growth in sales of TurboTax Online, for which we recognize revenue when tax returns are printed or electronically filed. The seasonality of our Consumer Tax and Professional Tax revenue is also affected by the timing of the availability of tax forms from taxing agencies and the ability of those agencies to receive electronic tax return submissions. Delays in the availability of tax forms or the ability of taxing agencies to receive submissions can cause revenue to shift between our 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. During these quarters, revenue from our tax businesses is minimal while

10


core operating expenses such as research and development continue at relatively consistent levels. We believe the seasonality of our revenue and profitability 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.
Key Challenges and Risks
Our growth strategy depends upon our ability to initiate and embrace disruptive technology trends, to enter new markets, and to drive broad adoption of the products and services we develop and market. Our future growth also increasingly depends on the strength of our third-party business relationships and our ability to continue to develop, maintain and strengthen new and existing relationships. To remain competitive and continue to grow, we are investing significant resources in our product development, marketing, and sales capabilities, and we expect to continue to do so in the future.
As we continue transitioning to offer more connected services, the ongoing operation and availability of our information technology and communication systems and those of our external service providers is becoming increasingly important. Because we help customers manage their financial lives, we face risks associated with the hosting, collection, use and retention of personal customer information and data. We are investing significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities, and we expect to continue to do so in the future.
For a complete discussion of the most significant risks and uncertainties affecting our business, please see “Forward-Looking Statements and Risk Factors” in Item 1A of this Quarterly Report.
Overview of Financial Results
The most important financial indicators that we use to assess our business are revenue growth for the company as a whole, for each reporting segment, and for product lines within each reporting segment; operating income growth and operating income margins for the company as a whole and for each reporting segment; earnings per share; and cash flow from operations. We also track certain non-financial drivers of revenue growth and, when material, identify them in the applicable discussions of business segment results below. These non-financial drivers include, for example, customer growth and retention, and, in certain businesses, transaction volume. Customers for our connected services offerings have generally grown faster than those for our traditional software offerings, reflecting our strategic focus on connected services over the past few years. Connected services generated $2.7 billion or 64% of our total revenue in fiscal 2013, compared with 50% of our total revenue five years ago. We expect connected services revenue as a percentage of our total revenue to continue to grow in the future. We track transaction volume in businesses such as our payment processing business, where total credit and debit card transaction volume, which correlates strongly with the macroeconomic environment, contributes to revenue growth.
Total net revenue for the first nine months of fiscal 2014 was $3.8 billion, an increase of 7% compared with the same period of fiscal 2013. Our Small Business and Consumer segments were the key drivers of revenue growth in the first nine months of fiscal 2014. Revenue in our Small Business segment grew 9% compared with the same period a year ago due to growth in connected services offerings such as QuickBooks Online and QuickBooks Enterprise Solutions, payment processing services for QuickBooks merchants, online payroll services, and Demandforce. Revenue in our Consumer segment increased 7% in the first nine months of fiscal 2014 due to 10% growth in paid federal TurboTax units, partially offset by changes in product mix.
Operating income from continuing operations for the first nine months of fiscal 2014 increased 6% compared with the same period of fiscal 2013. Expenses for staffing, advertising and other marketing programs, and share-based compensation were higher in the first nine months of fiscal 2014. Net income from continuing operations increased 2% in the first nine months of fiscal 2014 compared with the same period of fiscal 2013 due to the increase in operating income partially offset by a higher effective tax rate in the fiscal 2014 period. Diluted net income per share from continuing operations for the first nine months of fiscal 2014 increased 7% to $3.06 as a result of the increase in net income and the decline in weighted average diluted common shares compared with the same period of fiscal 2013.
We ended the first nine months of fiscal 2014 with cash, cash equivalents and investments totaling $2.6 billion. During the first nine months of fiscal 2014 we generated $1.0 billion in cash from the sale of our Intuit Financial Services business. We also generated cash from operations and the issuance of common stock under employee stock plans. During the same period we used $1.4 billion in cash for the repurchase of shares of our common stock under our stock repurchase programs. We also used cash for net purchases of investments, the payment of cash dividends, and capital expenditures. At April 30, 2014, we had authorization from our Board of Directors to expend up to an additional $2.0 billion for stock repurchases through August 19, 2017.

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, 2013 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 nine months of fiscal 2014. 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.


Results of Operations
Financial Overview
(Dollars in millions, except per share amounts)
Q3
FY14
 
Q3
FY13
 
$
Change
 
%
Change
 
YTD
Q3
FY14
 
YTD
Q3
FY13
 
$
Change
 
%
Change
Total net revenue
$
2,388

 
$
2,091

 
$
297

 
14
%
 
$
3,792

 
$
3,537

 
$
255

 
7
%
Operating income from continuing operations
1,494

 
1,282

 
212

 
17
%
 
1,371

 
1,293

 
78

 
6
%
Net income from continuing operations
984

 
858

 
126

 
15
%
 
890

 
869

 
21

 
2
%
Diluted net income per share from continuing operations
$
3.39

 
$
2.83

 
$
0.56

 
20
%
 
$
3.06

 
$
2.87

 
$
0.19

 
7
%
NM = Not meaningful.
Current Fiscal Quarter
Total net revenue increased $297 million or 14% in the third quarter of fiscal 2014 compared with the same quarter of fiscal 2013. Revenue in our Small Business segment grew 8%. Within the Small Business segment, revenue from our Small Business Financial Solutions product line increased 4% due to continuing growth in QuickBooks hosted and desktop subscription offerings that was partially offset by lower QuickBooks desktop license revenue and flat revenue in our payments offerings. Revenue from our Small Business Management Solutions product line increased 16% due to online payroll customer growth, price increases for desktop payroll customers, and growth in Demandforce revenue. Revenue in our Consumer segment increased 13% in the third quarter of fiscal 2014. We deferred recognizing approximately $84 million in Consumer Tax revenue from the second quarter of fiscal 2014 to the third quarter of fiscal 2014 as a result of processing delays and changes in our TurboTax product offerings for the 2013 tax year that affected the timing of revenue recognition. Revenue in our Professional Tax segment increased 32% in the third quarter of fiscal 2014 because during the second quarter of fiscal 2014 we deferred revenue that was related to certain undelivered software functionality in our Professional Tax offerings. We delivered this software functionality and recognized the related revenue in the third quarter of fiscal 2014. See “Business Segment Results” later in this Item 2 for more information about the results for all of our business segments.
Operating income from continuing operations increased 17% in the third quarter of fiscal 2014 compared with the same quarter of fiscal 2013 due to the increase in revenue described above partially offset by higher costs and operating expenses. Expenses for staffing were higher in the third quarter of fiscal 2014. See “Operating Expenses” later in this Item 2 for more information.
Net income from continuing operations increased 15% in the third quarter of fiscal 2014 compared with the same quarter of fiscal 2013 due to the increase in operating income partially offset by a higher effective tax rate in the fiscal 2014 quarter. Diluted net income per share from continuing operations for the third quarter of fiscal 2014 increased 20% to $3.39 as a result of the increase in net income and the decline in weighted average diluted common shares compared with the same quarter of fiscal 2013.



11


Fiscal Year to Date
Total net revenue for the first nine months of fiscal 2014 increased $255 million or 7% compared with the same period of fiscal 2013. Revenue in our Small Business segment grew 9%. Within the Small Business segment, revenue from our Small Business Financial Solutions product line increased 6% due to continuing growth in QuickBooks hosted and desktop subscription offerings that was partially offset by lower QuickBooks desktop license revenue and 3% revenue growth in our payments offerings. Revenue from our Small Business Management Solutions product line increased 16% due to online payroll customer growth, price increases for desktop payroll customers, and growth in Demandforce revenue. Revenue in our Consumer segment increased 7% in the first nine months of fiscal 2014 due to 10% growth in paid federal TurboTax units, partially offset by changes in product mix. Revenue in our Professional Tax segment increased 3% in the first nine months of fiscal 2014 due to new customer growth for our higher-priced offerings. See “Business Segment Results” later in this Item 2 for more information about the results for all of our business segments.
Operating income from continuing operations increased 6% in the first nine months of fiscal 2014 compared with the same period of fiscal 2013 due to the increase in revenue described above partially offset by higher costs and operating expenses. Expenses for staffing, advertising and other marketing programs, and share-based compensation were higher in the first nine months of fiscal 2014. See “Operating Expenses” later in this Item 2 for more information.
Net income from continuing operations increased 2% in the first nine months of fiscal 2014 compared with the same period of fiscal 2013 due to the increase in operating income partially offset by a higher effective tax rate in the fiscal 2014 period. See “Income Taxes” later in this Item 2 for more information. Diluted net income per share from continuing operations for the first nine months of fiscal 2014 increased 7% to $3.06 as a result of the increase in net income and the decline in weighted average diluted common shares compared with the same period of fiscal 2013.
Business Segment Results
The information below is organized in accordance with our three reportable business segments. See “Executive Overview – About Intuit” earlier in this Item 2 and Note 10 to the financial statements in Part I, Item 1 of this Quarterly Report for more information. All of our business segments operate primarily in the United States and sell primarily to customers in the United States. International total net revenue was approximately 5% of consolidated total net revenue for all periods presented.
Segment operating income or loss is segment net revenue less segment cost of revenue and operating expenses. See “Executive Overview – Industry Trends and Seasonality” 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 $656 million in the first nine months of fiscal 2014 and $574 million in the first nine months of fiscal 2013. Unallocated costs increased in the fiscal 2014 period due to increases in corporate product development and selling and marketing expenses in support of the growth of our businesses and to a lesser extent due to higher share-based compensation expenses. Segment expenses also do not include amortization of acquired technology, amortization of other acquired intangible assets, and goodwill and intangible asset impairment charges. See Note 10 to the financial statements in Part I, Item 1 of this Quarterly Report for reconciliations of total segment operating income or loss to consolidated operating income or loss for each fiscal period presented.

12


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.
Small Business
(Dollars in millions)
Q3
FY14
 
Q3
FY13
 
%
Change
 
YTD
Q3
FY14
 
YTD
Q3
FY13
 
%
Change
Product revenue
$
218

 
$
223

 
(2
)%
 
$
631

 
$
630

 
%
Service and other revenue
351

 
307

 
14
 %
 
1,018

 
887

 
15
%
Total segment revenue
$
569

 
$
530

 
8
 %
 
$
1,649

 
$
1,517

 
9
%
% of total revenue
24
%
 
25
%
 
 
 
44
%
 
43
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating income
$
224

 
$
223

 
 %
 
$
611

 
$
578

 
6
%
% of related revenue
39
%
 
42
%
 
 
 
37
%
 
38
%
 
 
Our Small Business segment includes our Small Business Financial Solutions (SBFS), Small Business Management Solutions (SBMS), and Accountant and Advisor product lines. Service and other revenue in our Small Business segment is derived primarily from QuickBooks Online, our hosted financial and business management offering; QuickBooks Pro Plus and QuickBooks Premier Plus, our subscription offerings; QuickBooks technical support plans; payment processing services for small businesses; small business payroll services, including Quickbooks Online Payroll, QuickBooks Assisted Payroll, Intuit Online Payroll, and Intuit Full Service Payroll; Demandforce; and QuickBase. Product revenue in our Small Business segment is derived primarily from QuickBooks desktop software products, including QuickBooks Pro, QuickBooks Premier, QuickBooks Accountant, and QuickBooks Enterprise Solutions; financial supplies; QuickBooks Basic Payroll and QuickBooks Enhanced Payroll; QuickBooks Point of Sale solutions; and ProAdvisor Program subscriptions for the accounting professionals who serve small businesses.
As part of our connected services strategy, over the past several quarters we have been focusing Small Business resources on the enhancement and marketing of our QuickBooks Online and QuickBooks desktop subscription offerings. As a result, QuickBooks desktop license units and revenue have been declining as more customers choose our hosted and subscription offerings and we expect this trend to continue. In our payments business we have recently begun focusing resources on core offerings for QuickBooks merchants in support of our small business ecosystem approach. Over the next few quarters we anticipate declining revenue for certain non-QuickBooks payments offerings that may slow overall revenue growth in our payments business.
Small Business segment total net revenue increased $39 million or 8% in the third quarter of fiscal 2014 and increased $132 million or 9% in the first nine months of fiscal 2014 compared with the same periods of fiscal 2013. Within the Small Business segment, revenue from our SBFS product line increased 4% for the third quarter and 6% for the first nine months of fiscal 2014. Total QuickBooks software revenue grew 7% in the third quarter of fiscal 2014 and 10% in the first nine months of fiscal 2014. Customer acquisition in our online QuickBooks ecosystem continued to drive total QuickBooks software revenue growth in both periods. QuickBooks Online customers grew 36%, QuickBooks desktop subscribers grew 22%, and QuickBooks Enterprise Solutions customers grew 18%. Revenue from QuickBooks desktop software licenses declined 14% on 12% lower unit sales in the third quarter and declined 10% on 9% lower unit sales in the first nine months of fiscal 2014. Total revenue in our payments offerings was flat for the third quarter of fiscal 2014 and was 3% higher for the first nine months of fiscal 2014. Growth in QuickBooks merchant revenue was offset by declines in certain non-core payments offerings in the third quarter and first nine months of fiscal 2014. Total card transaction volume was 4% higher in the first nine months of fiscal 2014 compared with the same period of fiscal 2013.
Revenue from our SBMS product line increased 16% for the third quarter and first nine months of fiscal 2014 compared with the same periods of fiscal 2013 due to 23% online payroll customer growth and price increases for desktop payroll customers. SBMS revenue also increased due to higher Demandforce revenue in both fiscal 2014 periods, with 31% revenue growth for the first nine months of fiscal 2014 that was driven by growth in the subscriber base.
Small Business segment operating income as a percentage of related revenue decreased in the third quarter of fiscal 2014 and first nine months of fiscal 2014 compared with the same periods of fiscal 2013. The increase in segment revenue for the first nine months of fiscal 2014 was partially offset by $58 million in higher staffing expenses due to an increase in headcount and $34 million in higher advertising and other marketing program expenses.

13


Consumer
(Dollars in millions)
Q3
FY14
 
Q3
FY13
 
%
Change
 
YTD
Q3
FY14
 
YTD
Q3
FY13
 
%
Change
Product revenue
$
230

 
$
215

 
7
%
 
$
282

 
$
316

 
(11
)%
Service and other revenue
1,255

 
1,093

 
15
%
 
1,467

 
1,323