November 18, 2021 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q


☑						Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 31, 2021


☐						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						77-0034661
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

2700 Coast Avenue, Mountain View, CA 94043

(Address of principal executive offices, including zip code)

(650) 944-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

INTU

Nasdaq Global Select Market

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting
company

☐

Emerging growth
company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 283,168,410 shares of Common Stock, $0.01 par value, were outstanding at November 12, 2021.


INTUIT INC. FORM 10-Q INDEX


			Page
PART I - FINANCIAL INFORMATION

ITEM 1: Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations for the three months ended October 31, 2021 and 2020			4

Condensed Consolidated Statements of Comprehensive Income for the three months ended October 31, 2021 and 2020			5

Condensed Consolidated Balance Sheets at October 31, 2021 and July 31, 2021			6

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended October 31, 2021 and 2020			7

Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2021 and 2020			8

Notes to Condensed Consolidated Financial Statements			10

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			27

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk			43

ITEM 4: Controls and Procedures			44

PART II - OTHER INFORMATION

ITEM 1: Legal Proceedings			45

ITEM 1A: Risk Factors			45

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds			59

ITEM 6: Exhibits			59

Signatures			60

Intuit, QuickBooks, TurboTax, Mint and Credit Karma, 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.



			Intuit Q1 Fiscal 2022 Form 10-Q			2

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These risks and uncertainties may be amplified by the coronavirus (“COVID-19”) pandemic, which has caused significant global economic instability and uncertainty. The extent to which the COVID-19 pandemic impacts Intuit’s business, operations, financial results, and financial condition, including the duration and magnitude of such effects, will depend on numerous evolving factors, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or respond to its impact, and how quickly and to what extent normal economic and operating conditions can resume. Please also see the section entitled "Risk Factors" in Item 1A of Part II of this Report for important information to consider when evaluating these statements. All statements in this report, other than statements that are purely historical, are forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “forecast,” “estimate,” “seek,” and similar expressions also identify forward-looking statements. In this report, forward-looking statements include, without limitation, the following:

•our expectations and beliefs regarding future conduct and growth of the business;

•statements regarding the impact of the COVID-19 pandemic on our business;

•our beliefs and expectations regarding seasonality, competition and other trends that affect our business;

•our expectation that we will continue to invest significant resources in our product development, marketing and sales capabilities;

•our expectation that we will continue to invest significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities;

•our expectation that we will work with the broader industry and government to protect our customers from fraud;

•our expectation that we will generate significant cash from operations;

•our expectation that total service and other revenue as a percentage of our total revenue will continue to grow;

•our expectations regarding the development of future products, services, business models and technology platforms and our research and development efforts;

•our assumptions underlying our critical accounting policies and estimates, including our judgments and estimates regarding revenue recognition; the fair value of goodwill; and expected future amortization of acquired intangible assets;

•our intention not to sell our investments and our belief that it is more likely than not that we will not be required to sell them before recovery at par;

•our belief that the investments we hold are not other-than-temporarily impaired;

•our belief that we take prudent measures to mitigate investment related risks;

•our belief that our exposure to currency exchange fluctuation risk will not be significant in the future;

•our assessments and estimates that determine our effective tax rate;

•our belief that our income tax valuation allowance is sufficient;

•our belief that it is not reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months;

•our belief that our cash and cash equivalents, investments and cash generated from operations will be sufficient to meet our seasonal working capital needs, capital expenditure requirements, contractual obligations, debt service requirements and other liquidity requirements associated with our operations for at least the next 12 months;

•our expectation that we will return excess cash generated by operations to our stockholders through repurchases of our common stock and the payment of cash dividends, after taking into account our operating and strategic cash needs;

•our judgments and assumptions relating to our loan portfolio;

•our belief that the credit facilities will be available to us should we choose to borrow under them

•our expectations regarding acquisitions and their impact on business and strategic priorities; and

•our assessments and beliefs regarding the future developments and outcomes of pending legal proceedings and inquiries by regulatory authorities, the liability, if any, that Intuit may incur as a result of those proceedings and inquiries, and the impact of any potential losses or expenses associated with such proceedings or inquiries on our financial statements.

We caution investors that forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future performance. We encourage you to read carefully all information provided in this report and in our other filings with the Securities and Exchange Commission before deciding to invest in our stock or to maintain or change your investment. These forward-looking statements are based on information as of the filing date of this Quarterly Report, and we undertake no obligation to revise or update any forward-looking statement for any reason.



			Intuit Q1 Fiscal 2022 Form 10-Q			3

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PART I - FINANCIAL INFORMATION


ITEM 1 - FINANCIAL STATEMENTS


INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended
(In millions, except per share amounts)	October 31, 2021		October 31, 2020
Net revenue:
Product	$	397	$	367
Service and other	1,610		956
Total net revenue	2,007		1,323
Costs and expenses:
Cost of revenue:
Cost of product revenue	15		15
Cost of service and other revenue	387		234
Amortization of acquired technology	15		7
Selling and marketing	550		362
Research and development	530		325
General and administrative	262		169
Amortization of other acquired intangible assets	53		2

Total costs and expenses	1,812		1,114
Operating income	195		209
Interest expense	(7)		(8)
Interest and other income, net	50		9
Income before income taxes	238		210
Income tax provision	10		12


Net income	$	228	$	198



Basic net income per share	$	0.84	$	0.75
Shares used in basic per share calculations	273		263



Diluted net income per share	$	0.82	$	0.75
Shares used in diluted per share calculations	277		265

Cash dividends declared per common share	$	0.68	$	0.59

See accompanying notes.



			Intuit Q1 Fiscal 2022 Form 10-Q			4

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

	Three Months Ended
(In millions)	October 31, 2021		October 31, 2020

Net income	$	228	$	198
Other comprehensive income (loss), net of income taxes:
Unrealized loss on available-for-sale debt securities	(4)		(1)

Foreign currency translation loss	(1)		(2)
Total other comprehensive loss, net	(5)		(3)
Comprehensive income	$	223	$	195

See accompanying notes.



			Intuit Q1 Fiscal 2022 Form 10-Q			5

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INTUIT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In millions)	October 31, 2021		July 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,864	$	2,562
Investments	386		1,308
Accounts receivable, net	411		391
Income taxes receivable	111		123
Prepaid expenses and other current assets	409		316
Current assets before funds held for customers	4,181		4,700
Funds held for customers	306		457
Total current assets	4,487		5,157
Long-term investments	84		43
Property and equipment, net	789		780
Operating lease right-of-use assets	405		380
Goodwill	5,613		5,613
Acquired intangible assets, net	3,195		3,252
Long-term deferred income taxes	8		8
Other assets	289		283
Total assets	$	14,870	$	15,516

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable	$	531	$	623
Accrued compensation and related liabilities	316		530
Deferred revenue	600		684

Other current liabilities	385		361
Current liabilities before customer fund deposits	1,832		2,198
Customer fund deposits	306		457
Total current liabilities	2,138		2,655
Long-term debt	2,037		2,034

Long-term deferred income tax liabilities	508		525
Operating lease liabilities	403		380
Other long-term obligations	51		53
Total liabilities	5,137		5,647
Commitments and contingencies
Stockholders’ equity:
Preferred stock	—		—
Common stock and additional paid-in capital	10,718		10,548
Treasury stock, at cost	(13,289)		(12,951)
Accumulated other comprehensive loss	(29)		(24)
Retained earnings	12,333		12,296
Total stockholders’ equity	9,733		9,869
Total liabilities and stockholders’ equity	$	14,870	$	15,516

See accompanying notes



			Intuit Q1 Fiscal 2022 Form 10-Q			6

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INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)


	Three Months Ended October 31, 2021
(In millions, except shares in thousands)	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity
Balance at July 31, 2021	273,235	$	10,548	$	(12,951)	$	(24)	$	12,296	$	9,869
Comprehensive income	—	—		—		(5)		228		223
Issuance of stock under employee stock plans, net of shares withheld for employee taxes	593	(111)		—		—		—		(111)
Stock repurchases under stock repurchase programs	(606)	—		(338)		—		—		(338)
Dividends and dividend rights declared ($0.68 per share)	—	—		—		—		(191)		(191)
Share-based compensation expense	—	281		—		—		—		281

Balance at October 31, 2021	273,222	$	10,718	$	(13,289)	$	(29)	$	12,333	$	9,733


	Three Months Ended October 31, 2020
(In millions, except shares in thousands)	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity
Balance at July 31, 2020	261,740	$	6,182	$	(11,929)	$	(32)	$	10,885	$	5,106
Comprehensive income	—	—		—		(3)		198		195
Issuance of stock under employee stock plans, net of shares withheld for employee taxes	967	(11)				—		—		(11)

Dividends and dividend rights declared ($0.59 per share)	—	—		—		—		(157)		(157)
Share-based compensation expense	—	112		—		—		—		112
Balance at October 31, 2020	262,707	$	6,283	$	(11,929)	$	(35)	$	10,926	$	5,245

See accompanying notes.



			Intuit Q1 Fiscal 2022 Form 10-Q			7

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INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three Months Ended
(In millions)	October 31, 2021		October 31, 2020
Cash flows from operating activities:
Net income	$	228	$	198
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	45		37
Amortization of acquired intangible assets	69		9
Non-cash operating lease cost	18		13

Share-based compensation expense	280		111

Deferred income taxes	(16)		17


Other	(35)		(16)
Total adjustments	361		171
Originations of loans held for sale	—		(43)
Sale and principal payments of loans held for sale	—		147
Changes in operating assets and liabilities:
Accounts receivable	(21)		47
Income taxes receivable	11		(17)
Prepaid expenses and other assets	(31)		(38)
Accounts payable	(107)		(58)
Accrued compensation and related liabilities	(212)		(248)
Deferred revenue	(86)		(85)

Operating lease liabilities	(18)		(12)
Other liabilities	20		(17)
Total changes in operating assets and liabilities	(444)		(428)
Net cash provided by operating activities	145		45
Cash flows from investing activities:
Purchases of corporate and customer fund investments	(257)		(198)
Sales of corporate and customer fund investments	1,053		30
Maturities of corporate and customer fund investments	123		156
Purchases of property and equipment	(42)		(38)
Acquisitions of businesses, net of cash acquired	—		(85)

Originations of term loans to small businesses	(125)		(11)
Principal repayments of term loans from small businesses	72		29
Other	(28)		(13)
Net cash provided by (used in) investing activities	796		(130)
Cash flows from financing activities:

Repayments on borrowings under unsecured revolving credit facility	—		(1,000)
Proceeds from borrowings under secured revolving credit facility	2		—
Repayment of debt	—		(13)
Proceeds from issuance of stock under employee stock plans	55		88
Payments for employee taxes withheld upon vesting of restricted stock units	(167)		(99)
Cash paid for purchases of treasury stock	(335)		—
Dividends and dividend rights paid	(190)		(158)
Net change in customer fund deposits	(151)		29

Net cash used in financing activities	(786)		(1,153)



			Intuit Q1 Fiscal 2022 Form 10-Q			8

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Effect of exchange rates on cash, cash equivalents, restricted cash, and restricted cash equivalents	(2)		(1)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents	153		(1,239)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period	2,819		6,697
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	2,972	$	5,458

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within the condensed consolidated balance sheets to the total amounts reported on the condensed consolidated statements of cash flows
Cash and cash equivalents	$	2,864	$	5,174
Restricted cash and restricted cash equivalents included in funds held for customers	108		284
Total cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	2,972	$	5,458

See accompanying notes.



			Intuit Q1 Fiscal 2022 Form 10-Q			9

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INTUIT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


1. Description of Business and Summary of Significant Accounting Policies


Description of Business

Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. We also provide specialized tax products to accounting professionals, who are key partners that help us serve small business customers.

Our flagship brands, TurboTax, QuickBooks and Mint help customers run their small businesses, pay employees and send invoices, separate business and personal expenses, track their money, and file income taxes. Credit Karma is a consumer technology platform that enables us to provide personalized financial offers to members including credit cards, loans, insurance, and savings and checking accounts through an FDIC member bank partner. ProSeries and Lacerte are our leading tax preparation offerings for professional accountants. Incorporated in 1984 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.


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 reportable segments.

We acquired Credit Karma, Inc. (Credit Karma) in the second quarter of fiscal 2021. We have included the results of operations for Credit Karma in our condensed consolidated statements of operations from the date of acquisition. There have been no material adjustments to the purchase price allocation from those disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021. Credit Karma operates as a separate reportable segment. See Note 11, "Segment Information," for more information.

These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2021. Results for the three months ended October 31, 2021 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2022 or any other future period.


Seasonality

Our Consumer and ProConnect offerings have a significant and distinct seasonal pattern as sales and revenue from our income tax preparation products and services are heavily concentrated in the period from November through April. Typically, returns are accepted by the IRS starting in January and the tax filing deadline ends in April. This seasonal pattern results in higher net revenues during our second and third quarters ending January 31 and April 30, respectively. However, in fiscal 2021 the IRS began accepting returns on February 12, 2021 and the tax filing deadline was extended to May 17, 2021. These changes to the fiscal 2021 tax filing season impacted our second and third quarter financial results.


Significant Accounting Policies

We describe our significant accounting policies in Note 1 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2021. There have been no changes to our significant accounting policies during the first three months of fiscal 2022.



			Intuit Q1 Fiscal 2022 Form 10-Q			10

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Use of Estimates

In preparing our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), we make certain judgments, estimates, and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes. For example, we use judgments and estimates in determining how revenue should be recognized. These judgments and estimates include identifying performance obligations, determining if the performance obligations are distinct, determining the standalone sales price (SSP) and timing of revenue recognition for each distinct performance obligation, and estimating variable consideration to be included in the transaction price. We use estimates in determining the collectibility of accounts receivable and notes receivable, the appropriate levels of various accruals including accruals for litigation contingencies, the discount rate used to calculate lease liabilities, the amount of our worldwide tax provision, the realizability of deferred tax assets, the credit losses of available-for-sale debt securities, and the fair value of assets acquired and liabilities assumed for business combinations. We also use estimates in determining the remaining economic lives and fair values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates. Additionally, in the context of the ongoing global COVID-19 pandemic, while there has been no material impact on our estimates to date, in future periods, facts and circumstances could change and impact our estimates.


Computation of Net Income (Loss) Per Share

We compute basic net income or loss per share using the weighted average number of common shares outstanding during the period. We compute diluted net income per share using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the shares issuable upon the exercise of stock options and upon the vesting of restricted stock units (RSUs) under the treasury stock method.

We include stock options with combined exercise prices and unrecognized compensation expense that are less than the average market price for our common stock, and RSUs with unrecognized compensation expense that is less than the average market price for our common stock, in the calculation of diluted net income per share. We exclude stock options with combined exercise prices and unrecognized compensation expense that are greater than the average market price for our common stock, and RSUs with unrecognized compensation expense that is greater than the average market price for our common stock, from the calculation of diluted net income per share because their effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise stock options and the amount of compensation expense for future service that we have not yet recognized for stock options and RSUs are assumed to be used to repurchase shares.

All of the RSUs we grant have dividend rights. Dividend rights are accumulated and paid when the underlying RSUs vest. Since the dividend rights are subject to the same vesting requirements as the underlying equity awards they are considered a contingent transfer of value. Consequently, the RSUs are not considered participating securities and we do not present them separately in earnings per share.

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.



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The following table presents the composition of shares used in the computation of basic and diluted net income per share for the periods indicated.


	Three Months Ended
(In millions, except per share amounts)	October 31, 2021		October 31, 2020
Numerator:


Net income	$	228	$	198

Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding	273		263

Shares used in diluted per share amounts:
Weighted average common shares outstanding	273		263
Dilutive common equivalent shares from stock options
and restricted stock awards	4		2
Dilutive weighted average common shares outstanding	277		265

Basic and diluted net income per share:


Basic net income per share	$	0.84	$	0.75



Diluted net income per share	$	0.82	$	0.75

Shares excluded from diluted net income per share:


Weighted average stock options and restricted stock units that have been excluded from dilutive common equivalent shares outstanding due to their anti-dilutive effect	—		1


Deferred Revenue

We record deferred revenue when we have entered into a contract with a customer and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation. During the three months ended October 31, 2021, we recognized revenue of $421 million that was included in deferred revenue at July 31, 2021. During the three months ended October 31, 2020, we recognized revenue of $399 million that was included in deferred revenue at July 31, 2020.

Our performance obligations are generally satisfied within 12 months of the initial contract date. As of October 31, 2021 and July 31, 2021, the deferred revenue balance related to performance obligations that will be satisfied after 12 months was $6 million and $8 million, respectively, and is included in other long-term obligations on our condensed consolidated balance sheets.


Notes Receivable and Allowances for Loan Losses

Notes receivable held for investment consist of term loans to small businesses and are included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheets. As of October 31, 2021 and July 31, 2021, the notes receivable balances were $190 million and $139 million, respectively, and the allowances for loan losses were not material. The term loans are not secured and are recorded at amortized cost, net of allowances for loan losses. We maintain an allowance for loan losses to reserve for potentially uncollectible notes receivable. We evaluate the creditworthiness of our term loan portfolio on an individual loan basis, based on a data analytics risk model that evaluates trends related to revenue, debt payments and negative events in the previous 12 months and applies a loss rate at the time of loan origination. The average is then applied against the outstanding portfolio. The loss rate and underlying model are updated periodically to reflect actual loan performance and changes in assumptions. We make judgments about the known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. When we determine that amounts are uncollectible, we write them off against the allowance.


Concentration of Credit Risk and Significant Customers

No customer accounted for 10% or more of total net revenue in the three or three months ended October 31, 2021 or October 31, 2020. No customer accounted for 10% or more of gross accounts receivable at October 31, 2021 or July 31, 2021.


Accounting Standards Not Yet Adopted

Business Combinations - In October 2021 the FASB issued ASU 2021-08, “Business Combinations—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805).” This standard requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue



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recognition guidance under Accounting Standards Codification Topic 606 in order to align the recognition of a contract liability with the definition of a performance obligation. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We elected to early adopt this standard in the second quarter of our fiscal year that began August 1, 2021. We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements.

We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.


2. Fair Value Measurements


Fair Value Hierarchy

The authoritative guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, we consider the principal or most advantageous market for an asset or liability and assumptions that market participants would use when pricing the asset or liability. In addition, we consider and use all valuation methods that are appropriate in estimating the fair value of an asset or liability.

The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:

•Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

•Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.

•Level 3 uses one or more unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair values are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.


Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets and financial liabilities that we measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above.


	October 31, 2021				July 31, 2021
(In millions)	Level 1		Level 2		Total Fair Value		Level 1		Level 2		Total Fair Value
Assets:
Cash equivalents, primarily money market funds and time deposits	$	696	$	—	$	696	$	1,660	$	—	$	1,660
Available-for-sale debt securities:
Municipal bonds	—		—		—		—		38		38
Corporate notes	—		544		544		—		1,400		1,400
U.S. agency securities	—		40		40		—		70		70
Total available-for-sale debt securities	—		584		584		—		1,508		1,508
Total assets measured at fair value on a recurring basis	$	696	$	584	$	1,280	$	1,660	$	1,508	$	3,168
Liabilities:
Senior unsecured notes(1)	$	—	$	1,972	$	1,972	$	—	$	1,986	$	1,986

(1) Carrying value on our balance sheets at each October 31, 2021 and July 31, 2021 was $1.99 billion. See Note 6, “Long-Term Obligations and Commitments,” for more information.



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The following table summarizes our cash equivalents and available-for-sale debt securities by balance sheet classification and level in the fair value hierarchy at the dates indicated.


	October 31, 2021				July 31, 2021
(In millions)	Level 1		Level 2		Total Fair Value		Level 1		Level 2		Total Fair Value
Cash equivalents:
In cash and cash equivalents	$	696	$	—	$	696	$	1,660	$	—	$	1,660




Available-for-sale debt securities:
In investments	$	—	$	386	$	386	$	—	$	1,308	$	1,308
In funds held for customers	—		198		198		—		200		200

Total available-for-sale debt securities	$	—	$	584	$	584	$	—	$	1,508	$	1,508

We value our Level 1 assets, consisting primarily of money market funds and time deposits, 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 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 senior unsecured notes. See Note 6, “Long-Term Obligations and Commitments,” for more information. We measure the fair value of our senior unsecured notes based on their trading prices and the interest rates we could obtain for other borrowings with similar terms.

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended October 31, 2021.


Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Long-term investments represent non-marketable equity securities in privately held companies that do not have a readily determinable fair value. They are accounted for at cost and adjusted based on observable price changes from orderly transactions for identical or similar investments of the same issuer or impairment. These investments are classified as Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the investments we hold. We recognized $46 million and $8 million of upward adjustments during the three months ended October 31, 2021 and October 31, 2020, respectively. Impairments recognized during the three months ended October 31, 2021 and October 31, 2020 were immaterial. Cumulative upward adjustments were $63 million and cumulative impairments were immaterial through October 31, 2021 for measurement alternative investments held as of October 31, 2021. As of October 31, 2021 and July 31, 2021, the carrying value of long-term investments was $84 million and $43 million, respectively.


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. In all periods presented, cash equivalents consist primarily of money market funds and time deposits. Investments consist primarily of investment-grade available-for-sale debt securities. Funds held for customers represent cash held on behalf of our customers that is invested in cash and cash equivalents and investment-grade available-for-sale securities, restricted for use solely for the purpose of satisfying amounts we owe on behalf of our customers. 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.



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The following table summarizes our cash and cash equivalents, investments, and funds held for customers by balance sheet classification at the dates indicated.


	October 31, 2021				July 31, 2021
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Classification on condensed consolidated balance sheets:
Cash and cash equivalents	$	2,864	$	2,864	$	2,562	$	2,562
Investments	387		386		1,305		1,308
Funds held for customers	307		306		456		457

Total cash and cash equivalents, investments, and funds held for customers	$	3,558	$	3,556	$	4,323	$	4,327

The following table summarizes our cash and cash equivalents, investments, and funds held for customers by investment category at the dates indicated.


	October 31, 2021				July 31, 2021
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Type of issue:
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	2,972	$	2,972	$	2,819	$	2,819

Available-for-sale debt securities:
Municipal bonds	—		—		37		38
Corporate notes	546		544		1,397		1,400
U.S. agency securities	40		40		70		70

Total available-for-sale debt securities	586		584		1,504		1,508

Total cash, cash equivalents, restricted cash, restricted cash equivalents, and investments	$	3,558	$	3,556	$	4,323	$	4,327

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 on our condensed consolidated statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three months ended October 31, 2021 and October 31, 2020 were not significant.

We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income or loss in the stockholders’ equity section of our condensed consolidated balance sheets, except for certain unrealized losses described below. Gross unrealized gains and losses on our available-for-sale debt securities at October 31, 2021 and July 31, 2021 were not significant.

For available-for sale debt securities in an unrealized loss position, we determine whether a credit loss exists. The estimate of the credit loss is determined by considering available information relevant to the collectibility of the security and information about past events, current conditions, and reasonable and supportable forecasts. The allowance for credit loss is recorded to interest and other income on our condensed consolidated statement of operations, not to exceed the amount of the unrealized loss. Any excess unrealized loss greater than the credit loss at a security level is recognized in accumulated other comprehensive income or loss in the stockholders' equity section of our condensed consolidated balance sheets. We determined there were no credit losses related to available-for-sale securities as of October 31, 2021. Unrealized losses on available-for-sale debt securities at October 31, 2021 were not significant. We do not intend to sell these investments. In addition, it is more likely than not that we will not be required to sell them before recovery of the amortized cost basis, which may be at maturity.



			Intuit Q1 Fiscal 2022 Form 10-Q			15

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The following table summarizes our available-for-sale debt securities, included in investments and funds held for customers, classified by the stated maturity date of the security at the dates indicated.


	October 31, 2021				July 31, 2021
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	154	$	154	$	551	$	553
Due within two years	300		299		550		551
Due within three years	132		131		398		398
Due after three years	—		—		5		6
Total available-for-sale debt securities	$	586	$	584	$	1,504	$	1,508

The following table summarizes our funds held for customers by investment category at the dates indicated.


(In millions)	October 31, 2021		July 31, 2021
Restricted cash and restricted cash equivalents	$	108	$	257
Restricted available-for-sale debt securities	198		200
Total funds held for customers	$	306	$	457


(In millions)	October 31, 2020		July 31, 2020
Restricted cash and restricted cash equivalents	$	284	$	255
Restricted available-for-sale debt securities	200		200
Total funds held for customers	$	484	$	455


4. Acquired Intangible Assets

The following table shows the cost, accumulated amortization and weighted average life in years for our acquired intangible assets at the dates indicated. The weighted average lives are calculated for assets that are not fully amortized.


(Dollars in millions)	Customer Lists / User Relationships		Purchased Technology		Trade Names and Logos		Covenants Not to Compete or Sue		Total

At October 31, 2021:
Cost	$	3,038	$	698	$	400	$	42	$	4,178
Accumulated amortization	(424)		(470)		(48)		(41)		(983)
Acquired intangible assets, net	$	2,614	$	228	$	352	$	1	$	3,195
Weighted average life in years	15		5		15		3		14

At July 31, 2021:
Cost	$	3,038	$	686	$	400	$	42	$	4,166
Accumulated amortization	(377)		(455)		(41)		(41)		(914)
Acquired intangible assets, net	$	2,661	$	231	$	359	$	1	$	3,252
Weighted average life in years	15		5		15		3		14



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The following table shows the expected future amortization expense for our acquired intangible assets at October 31, 2021. Amortization of purchased technology is charged to amortization of acquired technology in our consolidated statements of operations. Amortization of other acquired intangible assets such as customer lists is charged to amortization of other acquired intangible assets in our consolidated statements of operations. If impairment events occur, they could accelerate the timing of acquired intangible asset charges.


(In millions)	Expected Future Amortization Expense
Twelve months ending July 31,
2022 (excluding the three months ended October 31, 2021)	$	208
2023	268
2024	252
2025	248
2026	247
Thereafter	1,972
Total expected future amortization expense	$	3,195


5. Current Liabilities


Short-Term Debt

On May 2, 2019 we entered into an amended and restated credit agreement with certain institutional lenders with an aggregate principal amount of $1.4 billion, including a $1 billion unsecured revolving credit facility that matures on May 2, 2024 and a $400 million unsecured term loan that was due on February 1, 2021. On November 1, 2021 this agreement was terminated. See Note 12, "Subsequent Events" for more information.


Unsecured Revolving Credit Facility

The amended and restated credit agreement we entered into on May 2, 2019 includes a $1 billion unsecured revolving credit facility that will expire on May 2, 2024. Under this agreement we may, subject to certain customary conditions including lender approval, on one or more occasions increase commitments under the unsecured revolving credit facility in an amount not to exceed $250 million in the aggregate and may extend the maturity date up to two times. Advances under the unsecured revolving credit facility accrue interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.1% or the London Interbank Offered Rate (LIBOR) plus a margin that ranges from 0.69% to 1.1%. Actual margins under either election will be based on our senior debt credit ratings. The amended and restated credit agreement includes customary affirmative and negative covenants, including financial covenants that require us to maintain a ratio of total gross debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) of not greater than 3.25 to 1.00 as of any date and a ratio of annual EBITDA to annual interest expense of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. As of October 31, 2021 we were compliant with all required covenants. We repaid the $1 billion that was outstanding as of July 31, 2020 under this unsecured revolving credit facility during the first quarter of fiscal 2021, and at October 31, 2021 no amounts were outstanding. We paid no interest on the unsecured revolving credit facility during the three months ended October 31, 2021 and $1 million during the three months ended October 31, 2020.


Term Loan

On February 1, 2021, we paid the $325 million remaining balance of the term loan upon maturity and at October 31, 2021, no amount was outstanding. The term loan accrued interest at rates that were equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.125% or LIBOR plus a margin that ranges from 0.625% to 1.125%. Interest on the term loan was payable monthly. We paid no interest on the term loan during the three months ended October 31, 2021 and $1 million during the three months ended October 31, 2020. Under the amended and restated agreement we may, subject to certain customary conditions including lender approval, on one or more occasions increase commitments under the term loan in an amount not to exceed $400 million in the aggregate.



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Other Current Liabilities

Other current liabilities were as follows at the dates indicated:


(In millions)	October 31, 2021		July 31, 2021
Executive deferred compensation plan liabilities	$	171	$	153
Current portion of operating lease liabilities	67		66
Reserve for returns and credits	21		21
Amounts due for share repurchases	20		17
Accrued sales and property taxes	17		5
Merchant and consumer payments processing reserves	12		10
Reserve for promotional discounts and rebates	9		10
Current portion of dividend payable	9		9
Interest payable	7		1
Income taxes payable	3		3
Other	49		66
Total other current liabilities	$	385	$	361

The balances of several of our other current liabilities, particularly our reserves for product returns and promotional discounts 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 and Commitments


Senior Unsecured Notes

In June 2020 we issued four series of senior unsecured notes (together, the Notes) pursuant to a public debt offering. The proceeds from the issuance were $1.98 billion, net of debt discount of $2 million and debt issuance costs of $15 million.

The carrying value of the Notes was as follows at the dates indicated:


(In millions)	October 31, 2021		July 31, 2021		Effective Interest Rate
Senior unsecured notes issued June 2020:
0.650% notes due July 2023	$	500	$	500	0.837%
0.950% notes due July 2025	500		500		1.127%
1.350% notes due July 2027	500		500		1.486%
1.650% notes due July 2030	500		500		1.767%
Total senior unsecured notes	2,000		2,000
Unamortized discount and debt issuance costs	(13)		(14)
Net carrying value senior unsecured notes	$	1,987	$	1,986

Interest is payable semiannually on January 15 and July 15 of each year. The discount and debt issuance costs are amortized to interest expense over the term of the Notes under the effective interest method. We paid no interest on the Notes during each of the three months ended October 31, 2021 and 2020.

The Notes are senior unsecured obligations of Intuit and rank equally with all existing and future unsecured and unsubordinated indebtedness of Intuit and are redeemable by us at any time, subject to a make-whole premium. Upon the occurrence of change of control transactions that are accompanied by certain downgrades in the credit ratings of the Notes, we will be required to repurchase the Notes at a repurchase price equal to 101% of the aggregate outstanding principal plus any accrued and unpaid interest to but not including the date of repurchase. The indenture governing the Notes requires us to comply with certain covenants. For example, the Notes limit our ability to create certain liens and enter into sale and leaseback transactions. As of October 31, 2021 we were compliant with all covenants governing the Notes.



			Intuit Q1 Fiscal 2022 Form 10-Q			18

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Secured Revolving Credit Facility

On February 19, 2019 a subsidiary of Intuit entered into a $300 million secured revolving credit facility with a lender to fund a portion of our loans to qualified small businesses. The revolving credit facility is secured by cash and receivables of the subsidiary and is non-recourse to Intuit Inc. We have entered into several amendments to the secured revolving credit facility, most recently on July 16, 2021, primarily to extend the commitment term and maturity date. Under the amended agreement, $150 million of the facility is committed and $150 million is uncommitted. Advances accrue interest at LIBOR plus 1.5%. Unused portions of the committed credit facility accrue interest at a rate ranging from 0.25% to 0.75%, depending on the total unused committed balance. The commitment term is through July 17, 2023 and the final maturity date is January 17, 2024. The amended agreement allows for the transition of the benchmark interest rate used to calculate finance charges from LIBOR to the Secured Overnight Finance Rate (SOFR) plus related benchmark adjustments that represent the prevailing market convention for dollar-denominated syndicated credit facilities. The agreement includes certain affirmative and negative covenants, including financial covenants that require the subsidiary to maintain specified financial ratios. As of October 31, 2021 we were compliant with all required covenants. At October 31, 2021, $50 million was outstanding under this facility and the weighted-average interest rate was 2.63%, which includes the interest on the unused committed portion. The outstanding balance is secured by cash and receivables of the subsidiary totaling $232 million. Interest on the facility is payable monthly. We paid an immaterial amount of interest on the secured revolving credit facility during the three months ended October 31, 2021 and $

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