Intuit Inc. — Fiscal 2011 Form 10-K
Reporting period: Fiscal year ended July 31, 2011. The filing is an annual report, not a standalone fourth-quarter report. Intuit provides financial and business management products and services, including QuickBooks, TurboTax, Quicken, payroll and payment processing, and online banking solutions. Connected services generated $2.4 billion, or more than 60% of fiscal 2011 revenue; software-as-a-service offerings contributed about $1.5 billion.
Financial performance and liquidity
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Total net revenue | $3.851 billion | $3.455 billion | +11% |
| Operating income from continuing operations | $1.007 billion | $863 million | +17% |
| Net income from continuing operations | $634 million | $539 million | +18% |
| Diluted EPS from continuing operations | $2.00 | $1.66 | +20% |
| Cash provided by operations | $1.013 billion | $998 million | +2% |
| Cash, cash equivalents and investments | $1.421 billion | $1.622 billion | -$201 million |
| Total debt, carrying value | $999 million | $998 million | Approximately unchanged |
Operating margin was approximately 26.1% versus 25.0% in FY2010; net margin from continuing operations was approximately 16.5% versus 15.6%. Cost of revenue was $671 million, about 17% of revenue, compared with $653 million, about 19%, in FY2010. Cash flow from operations less reported capital expenditures of $213 million was approximately $800 million; this is a simple calculation, not a company-reported free-cash-flow measure.
Working capital was $449 million, down from $1.074 billion, and the current ratio was 1.2:1 versus 1.9:1. These figures include funds held for customers and matching customer fund deposits. Of $999 million in debt, $500 million of 5.40% notes was classified as current and due March 2012; $500 million of 5.75% notes is due March 2017. The $500 million revolving credit facility was undrawn, and Intuit reported compliance with its covenants.
Changes versus the prior comparable period
- Small Business Group revenue increased 12%; Financial Management Solutions rose 15%, Employee Management Solutions 10%, and Payment Solutions 11%.
- Consumer Tax revenue rose 13%, with TurboTax federal units up 12% and online federal units up 20%. Online units represented about 75% of federal units, compared with about 70% the prior tax season.
- Accounting Professionals revenue increased 7%; Financial Services rose 4%; Other Businesses increased 15%, partly reflecting acquisitions and favorable currency effects.
- Operating expenses increased $234 million. Drivers included higher staffing and marketing, acquired-business expenses, increased share-based compensation, and a $30 million Intuit Health impairment charge.
- Intuit repurchased 28.2 million shares for $1.4 billion, versus 28.7 million shares for $900 million in FY2010. Weighted-average diluted shares declined to 317 million from 325 million.
FY2011 fourth-quarter revenue was $593 million versus $537 million a year earlier; the company reported a continuing-operations net loss of $57 million versus $48 million. Intuit states that results are highly seasonal, with tax-driven revenue concentrated in the second and third fiscal quarters and typical losses in the first and fourth quarters.
Outlook, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided in the supplied filing text. Management expects cash, investments and operating cash generation to cover anticipated needs for at least 12 months, and expects comparable quarterly dividends, subject to Board approval.
- Capital returns: In August 2011, the Board declared Intuit’s first dividend, $0.15 per share, and authorized an additional $2 billion stock-repurchase program. Both occurred after fiscal year-end.
- Impairment: Intuit recorded a $30 million fourth-quarter charge for Intuit Health, comprising approximately $24 million of goodwill and $6 million of acquired intangible assets. The filing cites delays in developing and marketing offerings; further impairment is possible.
- Debt and liquidity: The $500 million notes due in March 2012 require repayment or refinancing. Management stated it intended to use operating cash or refinance if credit markets were favorable.
- Other exposures: Key risks include intense competition, free or low-priced alternatives, seasonal and tax-form timing, service availability and data-center migration, security and privacy incidents, transaction fraud, regulatory changes, third-party dependencies, and intellectual-property litigation. Auction-rate securities of $59 million remained illiquid, though management did not expect this to materially impair overall liquidity.
- Legal and reporting matters: Intuit said pending routine legal matters were not expected to have a material financial-statement impact, while noting outcomes remain uncertain. The auditor issued an unqualified opinion; management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Confirm the treatment and funding plan for the $500 million notes due March 2012, and the terms and availability of the revolving facility.
- Track cash conversion, working capital and liquidity, distinguishing company funds from customer funds held with matching deposits.
- Assess whether online payroll, QuickBooks and TurboTax growth can continue to offset declines in desktop units and competitive pricing pressure.
- Monitor Intuit Health performance and the risk of additional impairment against $1.9 billion of goodwill and $180 million of net acquired intangible assets.
- Review subsequent dividend and repurchase decisions, including their effect on cash, leverage and share count.