What is the working capital, current ratio, and quick ratio of Intuit? Please use the attached annual report.

Frequently, management will comment on liquidity in the MD&A (management's discussion and analysis)section of the annual SEC filing. Is the MD&A discussion consistent with your observations?

Thanks!

10K 1 fy16q410kdocument.htm 10K Tables of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________ FORM 10K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 31, 2016 OR 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 021180 INTUIT INC. (Exact name of registrant as specified in its charter) Delaware (State of incorporation) 770034661 (IRS Employer Identification No.) 2700 Coast Avenue, Mountain View, CA 94043 (Address of principal executive offices, including zip code) (650) 9446000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Common Stock, $0.01 par value NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No 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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer or a smaller reporting company. See definition of \"large accelerated filer,\" \"accelerated filer,\" and \"smaller reporting company\" in Rule 12b2 of the Exchange Act. (Check one) Large accelerated filer Accelerated filer Nonaccelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act). Yes No The aggregate market value of Intuit Inc. outstanding common stock held by nonaffiliates of Intuit as of January 29, 2016, the last business day of our most recently completed second fiscal quarter, based on the closing price of $95.51 reported by the NASDAQ Global Select Market on that date, was $23.6 billion. There were 257,938,052 shares of Intuit voting common stock outstanding as of August 25, 2016. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its Annual Meeting of Stockholders to be held on January 19, 2017 are incorporated by reference in Part III of this Annual Report on Form 10K. Tables of Contents INTUIT INC. FISCAL 2016 FORM 10K INDEX Item PART I ITEM 1: Business Page 3 ITEM 1A: Risk Factors 13 ITEM 1B: Unresolved Staff Comments 24 ITEM 2: Properties 24 ITEM 3: Legal Proceedings 25 ITEM 4: Mine Safety Disclosures 25 PART II ITEM 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 ITEM 6: Selected Financial Data 28 ITEM 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 29 ITEM 7A: Quantitative and Qualitative Disclosures About Market Risk 44 ITEM 8: Financial Statements and Supplementary Data 46 ITEM 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 89 ITEM 9A: Controls and Procedures 89 ITEM 9B: Other Information 89 PART III ITEM 10: Directors, Executive Officers and Corporate Governance 90 ITEM 11: Executive Compensation 91 ITEM 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 92 ITEM 13: Certain Relationships and Related Transactions, and Director Independence 92 ITEM 14: Principal Accountant Fees and Services 92 PART IV ITEM 15: Exhibits and Financial Statement Schedules Signatures EX10.21 EX10.52 EX10.61 EX21.01 EX23.01 EX31.01 EX31.02 EX32.01 92 93 EX32.02 EX101.INS XBRL Instance Document EX101.SCH XBRL Taxonomy Extension Schema EX101.CAL XBRL Taxonomy Extension Calculation Linkbase EX101.LAB XBRL Taxonomy Extensions Label Linkbase EX101.PRE XBRL Taxonomy Extension Presentation Linkbase EX101.DEF XBRL Taxonomy Extension Definition Linkbase Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries, and Mint, among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Other parties' marks are the property of their respective owners. 2 Tables of Contents This Annual Report on Form 10K contains forwardlooking statements that involve risks and uncertainties. Please see the section entitled \"ForwardLooking Statements and Risk Factors\" in Item 1A of this Report for important information to consider when evaluating these statements. PART I ITEM 1 BUSINESS CORPORATE BACKGROUND General Intuit Inc. creates business and financial management solutions that help simplify the business of life for small businesses, consumers, and accounting professionals. With flagship products and services that include QuickBooks and TurboTax, we help customers solve important business and financial management problems such as running a small business, paying bills, and filing income taxes. ProSeries and Lacerte are Intuit's leading tax preparation offerings for professional accountants. We had revenue of $4.7 billion in our fiscal year ended July 31, 2016, with approximately 7,900 employees in major offices in the United States, Canada, India, the United Kingdom, Singapore, Australia, and other locations. Intuit was incorporated in California in March 1984. We reincorporated in Delaware and completed our initial public offering in March 1993. Our principal executive offices are located at 2700 Coast Avenue, Mountain View, California, 94043, and our main telephone number is 6509446000. Our corporate website, www.intuit.com, provides materials for investors and information relating to Intuit's corporate governance. The content on any website referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise. When we refer to \"we,\" \"our\" or \"Intuit\" in this Annual Report on Form 10K, we mean the current Delaware corporation (Intuit Inc.) and its California predecessor, as well as all of our consolidated subsidiaries. Available Information We file reports required of public companies with the Securities and Exchange Commission (SEC). These include annual reports on Form 10K, quarterly reports on Form 10Q, current reports on Form 8K, proxy statements and other reports, and amendments to these reports. The public may read and copy the materials we file with or furnish to the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1800SEC0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We make available free of charge on the Investor Relations section of our corporate website all of the reports we file with or furnish to the SEC as soon as reasonably practicable after the reports are filed or furnished. Copies of this Annual Report on Form 10K may also be obtained without charge by contacting Investor Relations, Intuit Inc., P.O. Box 7850, Mountain View, California 940397850 or by calling 6509446000. BUSINESS OVERVIEW Intuit's Mission We are a global product and platform company that seeks to improve our customers' financial lives so profoundly they can't imagine going back to the old way. Our customers include consumers and small businesses, and the accounting professionals who serve and advise them. We help simplify the business of life in four ways: Improving financial strength - Helping consumers make and save money and small businesses to grow and profit. Increasing productivity - Turning drudgery into time for what matters most. Maintaining compliance - Helping customers comply with regulations. Building confidence - Sharing the wisdom and experience of others. As emerging technology and market trends change the way people live and work, we change too. We've adapted our product line, moving from the desktop to the cloud and mobile devices. By offering many services online, we're connecting customers to our solutions and with each other in ways that add more value to our products and services. 3 Tables of Contents Our growth strategy, described below, focuses on two key outcomes: To be the operating system behind small business success. To do the nations' taxes in the United States and Canada. We apply this vision globally, helping our customers expand their business to domestic and worldwide markets, creating and selling our own products internationally, and extending our recruiting efforts to new countries to find bestinclass talent. Our Business Portfolio We organize our businesses into three reportable segments - Small Business, Consumer Tax, and ProConnect (formerly known as Professional Tax). Small Business: This segment targets small businesses and the accounting professionals who serve and advise them and includes QuickBooks financial and business management online services and desktop software, payroll solutions, and payment processing solutions. It also includes thirdparty applications that integrate with our offerings. Consumer Tax: This segment targets consumers and includes TurboTax income tax preparation products and services. ProConnect: This segment targets professional accountants in the U.S. and Canada, who are essential to both small business success and doing the nations' taxes. Our ProConnect professional tax offerings include Lacerte, ProSeries, ProFile, and ProConnect Tax Online. Our Growth Strategy Our assessment of key technology and demographic trends - an increasingly borderless world, the prevalence of mobile devices, and the scalability of the cloud - reveals significant opportunities to drive future growth by continuing to solve the unmet needs of consumers, small businesses, and accounting professionals. Our evolving growth strategy includes three key elements: Focus on the product - we call it \"Delivering awesome product experiences.\" As computers have moved to the palm of our hands in the form of tablets and smart phones, so have our products and services. Our TurboTax solutions, for example, let customers prepare and file their entire tax returns online via tablet, mobile phone, or computer. A key factor in growing our customer base is to deliver an amazing firstuse 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 our customers' problems faster and more efficiently by moving to more open platforms with application programming interfaces that integrate the contributions of end users and thirdparty developers. One example of this is our QuickBooks Online Ecosystem, where small businesses and accountants around the world can install apps created by thirdparty developers to create an experience that is personalized and configured for their specific needs. Leveraging our data for our customers' benefit - we call it \"Using data to create delight.\" Our customers generate valuable data that we seek to use appropriately to deliver better products and breakthrough benefits by eliminating the need to enter data, helping them make better decisions, and improving transactions and interactions. This strategy recognizes the emergence and influence of the digital generation, the increasing relevance of social networks, and customers' growing reliance on the Internet, mobile devices, and informationbased technology to manage important financial tasks. It also acknowledges the potential of new market opportunities around the world. The result is a global market that is shifting from traditional services that are paperbased, humanproduced, and brickandmortar bound, to one where people understand, demand, and embrace the benefits of connected services. We continue to make significant progress in this environment. Connected services (total service and other revenue) generated $3.4 billion, or 73 percent, of our total revenue in fiscal 2016, compared with about 50 percent of our total revenue eight years ago. Summary As the way we live and work evolves, we adapt our strategy to meet and lead these changes. Yet our commitment remains consistent: developing an ecosystem of innovative products and services that are so convenient and easy to use that customers actively recommend them to others. It's been our success formula for more than 30 years as we've worked to solve people's important business and financial management problems. And we'll maintain that commitment as we continue to evolve, 4 Tables of Contents working to help people solve each other's problems, connecting people to people and to solutions, wherever they are, whenever they want them, and on any device they choose. PRODUCTS AND SERVICES During fiscal 2016 we offered our products and services in the three segments described in \"Business Overview\" above. The following table shows the classes of similar products or services that accounted for 10% or more of total net revenue within the last three fiscal years. Fiscal 2016 Small Business Consumer Tax ProConnect Fiscal 2015 Fiscal 2014 49% 50% 51% 42% 43% 39% 9% 7% 10% Our products and services are described below. International total net revenue was less than 5% of consolidated total net revenue for fiscal 2016, fiscal 2015, and fiscal 2014. See Item 1A, \"Risk Factors and ForwardLooking Statements - Our international operations are subject to increased risks which may harm our business, operating results, and financial condition,\" for a discussion of risks relating to our international operations. For financial information about our segments, see \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in Item 7 and Note 14 to the financial statements in Item 8 of this Annual Report. Small Business Our Small Business segment includes online ecosystem and desktop ecosystem solutions that allow small businesses and the accounting professionals who serve and advise them to save time and grow their businesses. Small Business Online Ecosystem Solutions QuickBooks Online. Our QuickBooks Online offerings bring small business users and accounting professionals financial management tools that are designed to be easy to use and are accessible from personal computers and mobile devices. QuickBooks Online users can track income and expenses, create invoices and estimates, manage and pay bills, and review a variety of financial reports. Our online offerings for small businesses include QuickBooks Online Simple Start, for smaller, less complex businesses and QuickBooks Online Essentials and QuickBooks Online Plus, for progressively larger and more complex businesses. Our online offering for accounting professionals is QuickBooks Online Accountant, which provides the tools and filesharing capabilities they need to efficiently complete bookkeeping and financial reporting tasks. QuickBooks SelfEmployed is available online and via a mobile application and was developed for selfemployed individuals whose needs are different than small businesses that use Quickbooks Online. QuickBooks SelfEmployed includes easy categorization of business and personal transactions via account connection, identification and classification of tax deductible expenses, mileage tracking, calculation of estimated quarterly taxes, home office deduction tracking, healthcare deduction tracking, and when combined with TurboTax, export and payment of yearend taxes. Accounting professionals who use QuickBooks offerings and recommend them to their small business clients are essential to the Small Business Online Ecosystem. To support these accounting professionals, we offer the QuickBooks ProAdvisor Program, a membership that provides QuickBooks Online Accountant and QuickBooks Online Payroll services, technical support, training, product certification, access to marketing tools, and discounts on Intuit products and services purchased on behalf of clients. Online Payroll Solutions. We offer two online payroll solutions that are sold on a subscription basis and seamlessly integrate with our QuickBooks Online and QuickBooks Desktop offerings. QuickBooks Online Payroll includes online payroll processing, direct deposit of employee paychecks, payroll reports, electronic payment of federal and state payroll taxes, and electronic filing of federal and state payroll tax forms. QuickBooks Full Service Payroll provides comprehensive payroll services to QuickBooks customers who prefer not to perform payroll tasks themselves. Intuit Online Payroll provides small business payroll services that do not require the use of QuickBooks. This offering includes online payroll tax calculation, direct deposit of employee paychecks, payroll reports, electronic payment of federal and state payroll taxes, and federal and state payroll tax forms. We also offer an Intuit Online Payroll mobile app for smartphones. 5 Tables of Contents Intuit Full Service Payroll provides comprehensive payroll services to customers who prefer not to perform payroll tasks themselves and does not require the use of QuickBooks. This offering includes processing of payrolls based on information submitted online by the payroll customer, direct deposit of employee paychecks, electronic payment of federal and state payroll taxes, electronic filing of federal and state payroll tax forms, and preparation and issuance of year end W2 forms. Online Payments Solutions. We offer a full range of merchant services to small businesses that include credit card, debit card, electronic benefits, and gift card processing services check verification, check guarantee, and electronic check conversion, including automated clearing house (ACH) capabilities and Webbased transaction processing services for online merchants. In addition to transaction processing services, we provide a full range of support for our clients that includes customer service, merchant and consumer collections, chargeback and retrieval support, and fraud and loss prevention screening. We also offer einvoicing, which allows small businesses to email invoices directly from QuickBooks with a Pay Now link and enables customers to instantly pay online or from their mobile device. GoPayment allows users to accept credit card payments using a smartphone or tablet device. They can enter the credit card information manually or use a card reader that attaches to the phone to capture the information. They can also send electronic receipts to their customers via email or text message. Intuit Developer Group. The Intuit Developer Group provides the tools thirdparty developers need to create online and mobile applications that personalize and add value to QuickBooks. The platform allows developers to build applications that integrate with QuickBooks data and solve the unique needs of our customers. Developers can create applications using any development platform they choose, and must pass a standards and security check before offering their programs to customers. All applications are available at apps.com. Here QuickBooks users can find, buy, and use applications connected to the platform. A growing number of companies offer applications built for the platform, including PayPal, Shopify, Square, and Bill.com. Small Business Desktop Ecosystem Solutions QuickBooks Desktop. Our desktop software offerings include QuickBooks Desktop Pro and QuickBooks Desktop for Mac, which provide accounting functionality for small businesses QuickBooks Desktop Premier, which provides small businesses with advanced accounting functionality and business planning tools and QuickBooks Enterprise, which is designed for larger businesses. QuickBooks Desktop Pro Plus, QuickBooks Desktop Premier Plus, and QuickBooks Enterprise with Hosting are subscription versions of these offerings. QuickBooks Desktop Premier and Premier Plus and QuickBooks Enterprise provide industryspecific reports and features for a range of industries, including Contractor, Manufacturing and Wholesale, Nonprofit, and Retail. Our offerings for accounting professionals include QuickBooks Accountant Desktop software and QuickBooks Accountant Desktop Plus subscriptions. They provide the tools and filesharing capabilities needed to efficiently complete bookkeeping and financial reporting tasks. Our QuickBooks ProAdvisor Program Desktop AddOn is a membership for professional accountants that provides QuickBooks Accountant Desktop Plus, QuickBooks Enterprise Accountant, QuickBooks Desktop for Mac, QuickBooks Point of Sale Multi Store, technical support, training, product certification, access to marketing tools, and discounts on Intuit products and services purchased on behalf of clients. Desktop Payroll Solutions. QuickBooks Payroll is a family of products sold on a subscription basis to small businesses that use QuickBooks desktop software and prepare their own payroll or want some assistance with preparing their payroll. It is also sold to accountants who use QuickBooks desktop software and help their clients manage their payrolls. The product family includes: QuickBooks Basic Payroll, which provides payroll tax tables, direct deposit of employee paychecks, and payroll reports QuickBooks Enhanced Payroll, which provides payroll tax tables, direct deposit of employee paychecks, payroll reports, federal and state payroll tax forms, and eFile & Pay for federal and state payroll taxes and QuickBooks Enhanced Payroll for Accountants, which has several accountantspecific features in addition to the features in QuickBooks Enhanced Payroll. We also offer QuickBooks Assisted Payroll, through which we provide the backend aspects of payroll processing, including tax payments and filings, for customers who process their payrolls using QuickBooks desktop software. Desktop Payments Solutions. We offer a full range of merchant services to small businesses that include credit card, debit card, electronic benefits, and gift card processing services check verification, check guarantee, and electronic check conversion, including automated clearing house (ACH) capabilities. In addition to transaction processing services, we provide a full range of support for our clients that includes customer service, merchant and consumer collections, chargeback and retrieval support, and fraud and loss prevention screening. 6 Tables of Contents We also offer einvoicing, which allows small businesses to email invoices directly from QuickBooks with a Pay Now link and enables customers to instantly pay online or from their mobile device. We offer Basic, Pro, and Multi Store versions of QuickBooks Point of Sale, which helps retailers process sales using barcodes, track inventory and customer purchases, and integrates with QuickBooks Pro, Premier, and Enterprise Solutions. The Point of Sale Pro version has advanced inventory and employee commission tracking capabilities. The Point of Sale Multi Store version provides all of the features of the Point of Sale Pro version and the ability to manage multiple stores from a single office. We sell these software products with or without the accompanying hardware and technical support. QuickBooks Technical Support. We offer several technical support options to all of our QuickBooks customers. These include support plans that are sold separately and priced based on the length of the plan. We also offer a limited amount of free technical support assistance to customers, a free selfhelp information section on our QuickBooks.com website and free access to the QuickBooks Community, an online forum where QuickBooks users can share information with each other. Financial Supplies. We offer a range of financial supplies designed for individuals and small businesses that use QuickBooks. These include standard paper checks and Secure Plus checks with CheckLock fraud protection features envelopes, invoices and deposit slips and business identity products such as business cards and stationery. We also offer tax forms, tax return presentation folders and other supplies for professional tax preparers. Consumer Tax Our TurboTax products and services are designed to enable individuals to prepare and file their own federal and state personal income tax returns quickly and accurately. They are designed to be easy to use, yet sophisticated enough for complex tax returns. Most of these offerings are available on mobile devices such as smartphones and tablets. Tax Return Preparation Offerings. For the 2015 tax season we offered a range of software products and services that included TurboTax Basic, for simple returns TurboTax Deluxe, for taxpayers who itemize deductions TurboTax Premier, for taxpayers who own investments or rental property and TurboTax Home and Business, for small business owners. We also offered TurboTax Free Edition for the simplest returns. We offered live tax advice from U.S.based tax professionals to TurboTax customers during the 2015 tax season. TurboTax Answer Exchange is an online forum where participants can learn from and share information with other users while preparing their income tax returns. For the 2015 tax season our online tax preparation and filing services were offered through the websites of thousands of financial institutions, electronic retailers, and other online merchants. Financial institutions can offer our online tax preparation and filing services to their customers through a link to TurboTax Online. Our TurboTax U.S. and Canada offerings consist of desktop, online, and mobile offerings. Electronic Filing and Other Services. Our desktop, online, and mobile tax preparation customers can electronically file their federal and state income tax returns through our electronic filing center. For the 2015 tax season TurboTax customers had the option to receive their income tax refunds on a prepaid debit card that we provided through a partner. We also offered audit defense, audit support, and identity restoration services. Intuit Tax Freedom Project. Under the Intuit Tax Freedom Project, we provide online federal and state income tax return preparation and electronic filing services at no charge to eligible taxpayers. For the 2015 tax season we provided approximately one million free federal returns under this initiative. We are a member of the Free File Alliance, a consortium of private sector companies that has entered into an agreement with the federal government to provide free online federal tax preparation and filing services to eligible taxpayers. See also \"Competition - Consumer Tax Segment\" later in this Item 1 for more information on the Free File Alliance. ProConnect Our ProConnect segment targets professional accountants in the U.S. and Canada, who are essential to both small business success and doing the nations' taxes. Our ProConnect professional tax offerings enable accountants to accurately and efficiently complete and electronically file a full range of consumer, small business, and commercial federal and state tax returns with both desktop and online offerings. Lacerte is designed for fullservice accounting firms who handle more complex returns. We offer two versions of our ProSeries software: ProSeries Professional Edition, designed for yearround tax practices handling moderately complex tax returns, and ProSeries Basic Edition, designed for the needs of smaller and seasonal tax practices. ProConnect Tax Online is our cloudbased solution which is designed for yearround practices who prepare moderately complex consumer and small business returns and integrates with our QuickBooks Online offerings. ProFile is our Canadian tax offering which serves yearround fullservice accounting firms for both consumer and business tax returns. We offer a variety of taxrelated services that complement the tax return preparation process including yearround document storage and access, collaboration services, esignature, and bank products. 7 Tables of Contents PRODUCT DEVELOPMENT Since the markets for software and related services are characterized by rapid technological change, shifting customer needs and frequent new product introductions and enhancements, a continuous high level of investment is required to innovate and quickly develop new products and services as well as enhance existing offerings. Our product development efforts are becoming more important than ever as we pursue our connected services strategy, which reflects a world where people and businesses are increasingly connected by technology and expect access to services at any time and in any place. We develop many of our products and services internally. We have a number of United States and foreign patents and pending applications that relate to various aspects of our products and technology. We supplement our internal development efforts by acquiring or licensing products and technology from third parties, and establishing other relationships that enable us to enhance or expand our offerings more rapidly. We expect to expand our thirdparty technology relationships as we continue to pursue our connected services strategy. Our traditional desktop software products - QuickBooks, TurboTax, Lacerte, and ProSeries - tend to have predictable annual development and product release cycles. We also develop innovative new offerings, including mobile applications, for which development cycles are often more rapid. Developing consumer and professional tax software and services presents unique challenges because of the demanding development cycle required to accurately incorporate federal and state tax law and tax form changes within a rigid timetable. The development timing for our small business payroll and merchant payment processing services offerings varies with business needs and regulatory requirements and the length of the development cycle depends on the scope and complexity of each project. We continue to make substantial investments in research and development, and we expect to focus our future research and development efforts on enhancing existing products and services and on developing new products and services, including new mobile and global offerings. We also expect to continue to focus significant research and development efforts on ongoing projects to update the technology platforms for several of our offerings. Our research and development expenses were $881 million or 19% of total net revenue in fiscal 2016 $798 million or 19% of total net revenue in fiscal 2015 and $714 million or 17% of total net revenue in fiscal 2014. SEASONALITY Our Consumer Tax offerings have significant seasonal patterns. As a result, during each of the last three fiscal years the total revenue for our third quarter ended April 30 has represented nearly half of our total revenue for those years. We expect the seasonality of our Consumer Tax business to continue to have a significant impact on our quarterly financial results in the future. MARKETING, SALES AND DISTRIBUTION CHANNELS Markets Our primary target customers are small businesses, consumers, and accounting professionals. The markets in which we compete have always been characterized by rapid technological change, shifting customer needs, and frequent new product introductions and enhancements by competitors. Over the past several years, the widespread availability of the Internet, mobile devices, and the explosion of social media have accelerated the pace of change and revolutionized the way that customers learn about, evaluate, and purchase products and services. Realtime, personalized online and mobile shopping experiences have become the standard. In addition, many customers now begin shopping in one channel and ultimately purchase in another. This has created a need for integrated, multichannel, shopandbuy experiences. Market and industry changes quickly make existing products and services obsolete. Our success depends on our ability to respond rapidly to these changes with new business models, updated competitive strategies, new or enhanced products and services, alternative distribution methods, and other changes in the way we do business. Marketing Programs We use a variety of traditional and innovative marketing programs to generate orders, stimulate demand, and generally maintain and increase customer awareness of our product portfolio. These programs include: Internet marketing and targeted advertising, such as search engine optimization and purchasing keywords from major search engine companies placing and promoting our mobile applications in proprietary online stores directresponse mail and email campaigns telephone solicitations newspaper, magazine, billboard, radio, and television advertising social media campaigns and coordinated promotional offers with major retailers. We also use workflowintegrated, inproduct discovery in some of our offerings to 8 Tables of Contents market other related products and services, including thirdparty products and services. In addition, we create marketing campaigns that are designed to attract new users through trial promotional offerings. Sales and Distribution Channels MultiChannel ShopandBuy Experiences. Our customers increasingly use the Internet and mobile devices, such as smartphones and tablets, to research products and services. Some customers buy and use our products and services entirely online or through their mobile devices. Others purchase desktop products and services using the Internet. Still others make their final decision at a retail location. Although retail sales of our products and services are gradually declining as online distribution channels grow in importance, we continue to coordinate our websites, promotions, and retail displays to support an integrated, multichannel, shopandbuy model. Direct Sales Channel. We sell many of our products and services directly through our websites and call centers. Telesales continues to be an effective channel for serving customers that want live help to select the products and services that are right for their needs. We also have a direct sales force that calls on U.S. and international accountant firms and seeks to increase their awareness, usage, and recommendation of our Small Business solutions. Retail Channel. We sell our QuickBooks and TurboTax desktop software as well as payroll services and merchant credit card payment processing services at retail locations across the United States. We sell these products and services directly and through distributors to office supply superstores, warehouse clubs, consumer electronics retailers, general mass merchandisers, online retailers, and catalogs. In Canada and the United Kingdom we also rely on distributors and other third parties who sell products into the retail channel. The retail channel provides broad customer reach through retailersponsored advertising and exposure to retail foot traffic. This channel also gives us the opportunity to communicate our products, services, and messages through multiple touch points and allows us to serve our customers at relatively modest cost. Online Mobile Application Stores. We distribute many of our offerings for mobile devices through proprietary online stores that provide applications for specific devices. These include the Apple App Store, which provides apps for the Apple iPhone and iPad, and Google's Play Store, which provides apps for Androidcompatible smartphones and tablets. Other Channels. We have strategies to address the alliance partner and solution provider channels. We sell our consumer and small business products and services through selected alliance partners that help us reach new customers at the point of need and drive growth and market share by extending our online reach. Solution providers combine our products and services with valueadded marketing, sales, and technical expertise to deliver a complete solution at the local level. As we expand our mobile and global offerings, we expect that strategic partnerships will become increasingly important to our business. COMPETITION Overview We face intense competition in all of our businesses, both domestically and internationally. 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. Some of our existing competitors have significantly greater financial, technical, and marketing resources than we do. In addition, the competitive landscape can shift rapidly as new companies enter markets in which we compete. This is particularly true for online and mobile products and services, where the barriers to entry are lower than they are for desktop software products and services. To attract customers, many online and mobile competitors are offering free or lowpriced entrylevel products which we must take into account in our pricing strategies. Our most obvious competition comes from other companies that offer technology solutions similar to ours. However, for many of our products and services, other important competitive alternatives for customers are thirdparty service providers such as professional accountants and seasonal assisted tax preparation businesses. Manual tools and processes, or generalpurpose software, are also important competitive alternatives. Competition Specific to Segments Small Business Segment. QuickBooks is the leading small business financial management software in the U.S. Our small business desktop products and services face competitive challenges from companies such as The Sage Group plc, which offers software and associated services that directly target small business customers. Our small business online products and services face competition from online accounting offerings from companies such as Xero, free or lowcost online accounting offerings, and free online banking and bill payment services offered by financial institutions and others. In our payroll business we compete directly with Automatic Data Processing, Inc. (ADP), Paychex, and many other companies with payroll offerings, including online payroll offerings. In our merchant services business we compete directly with large financial institutions such 9 Tables of Contents as Wells Fargo, JP Morgan Chase, and Bank of America and with many payment processors, including First Data Corporation, Elavon, Global Payments, FIS, PayPal, and Square. Consumer Tax Segment. In our Consumer Tax segment, our future growth depends on our ability to attract new customers to the self preparation tax category from tax stores and other tax preparers. In the U.S. private sector we face intense competition from H&R Block, which provides tax preparation services in its stores and a competing software offering. We also face competition from several other large tax preparation service providers, from a myriad of small tax preparers, and from numerous online selfpreparation offerings, including Blucora's TaxAct. In Canada, our TurboTax Canada offerings face competition from H&R Block, SimpleTax, StudioTax, and UFile. These competing offerings subject us to significant price pressure in both the U.S. and Canada. We also face competitive challenges from publicly funded government entities that offer electronic tax preparation and filing services at no cost to individual taxpayers. We are a member of the Free File Alliance, a consortium of private sector companies that has entered into an agreement with the federal government. Under this agreement, the member companies provide online federal tax preparation and filing services at no cost to eligible federal taxpayers, and the federal government has agreed not to provide a competing service. Approximately 22 states have also adopted Free File Alliance publicprivate agreements while approximately 20 other states offer some form of direct government tax preparation and filing services free to qualified taxpayers. We continue to actively work with others in the private and public sectors to advance the goals of the Free File Alliance policy initiative and to support successful publicprivate partnerships. However, future administrative, regulatory, or legislative activity in this area could harm our Consumer Tax business. ProConnect Segment. In the U.S., Lacerte professional tax offerings face competition from competitivelypriced tax and accounting solutions that include integration with nontax functionality. These include CCH's ProSystems fx Office Suite and Thomson Reuters' CS Professional Suite and GoSystems Tax. Our ProSeries professional tax offerings face competition from CCH's ATX and TaxWise offerings, Drake, and other smaller providers. In Canada, our ProFile professional tax offerings face competition from CCH's Cantax and Taxprep offerings and from Thomson Reuters' DTMax and UFile Pro offerings. We also face growing competition from online tax and accounting offerings in the U.S. and Canada, which may be marketed more effectively or have lower pricing than our offerings for accounting professionals. Competitive Factors We believe the most important competitive factors for our core offerings - QuickBooks, TurboTax, Lacerte, and ProSeries - are ease of use, product features, size of the installed customer base, brand name recognition, value proposition, cost, reliability, and product and support quality. Access to distribution channels is also important for our QuickBooks and TurboTax software products. In addition, support from accounting professionals and the ability for customers to upgrade within product families as their businesses grow are significant competitive factors for our QuickBooks products. Productivity is an important competitive factor for the fullservice accounting firms to which we market our Lacerte software products. We believe we compete effectively on these factors as our QuickBooks and TurboTax products are the leading products in the U.S. for their respective categories. For our service offerings such as small business payroll and merchant payment processing, we believe the most important competitive factors are functionality, ease of use, high availability, the integration of these products with related software, brand name recognition, effective distribution, quality of support, and cost. CUSTOMER SERVICE AND TECHNICAL SUPPORT We provide customer service and technical support by telephone, email, online chat, text messaging, online communities, and our customer service and technical support websites. We have fulltime and outsourced customer service and technical support staffs. We supplement these staffs with seasonal employees and additional outsourcing during periods of peak call volumes, such as during the tax return filing season or following a major product launch. We outsource to several firms domestically and internationally. Most of our internationally outsourced small business customer service and technical support personnel are currently located in India and the Philippines. We offer free selfhelp information through our technical support websites for our QuickBooks, TurboTax and ProConnect offerings. Customers can also use our websites to find answers to commonly asked questions and check on the status of orders. Under certain paid support plans, customers can also use our websites to receive product updates electronically. Support alternatives and fees vary by product. We sponsor online user communities such as Intuit Community for small businesses and accounting professionals, and TurboTax Answer Exchange, where consumers can share knowledge and product advice with each other. We also offer live tax advice from U.S.based tax professionals to U.S. TurboTax users. 10 Tables of Contents MANUFACTURING AND DISTRIBUTION Online Products and Services Intuit's data centers house most of the systems, networks and databases required to operate and deliver our online products and services. These include QuickBooks Online, online payroll services, merchant payment processing services, TurboTax Online, ProConnect Tax Online, and consumer and professional electronic tax filing services. Through our data centers, we connect customers to our products and services and store customer and business information. As our businesses continue to move toward delivering more online and mobile products and services in conjunction with our connected services strategy, we expect that our infrastructure will become even more critical to our business in the future. Our primary data centers are a facility we own in Washington state and a colocated data center in Nevada. We also have a number of other data centers that are primarily located in the western United States and Canada. We continue to execute on a multiyear plan to transition to fewer data centers in more geographically diverse locations. In addition, we have an enterprise agreement with Amazon Web Services and over time will be hosting an increasing number of our applications and services in their secure online environment. Desktop Software and Supplies Although an increasing proportion of our desktop software customers choose to electronically download software, many customers continue to choose to purchase these products in the form of physical media. The key processes in manufacturing desktop software are manufacturing compact discs (CDs) and digital video discs (DVDs), printing boxes and related materials, and assembling and shipping the final products. For retail manufacturing, we have an agreement with Arvato Digital Services, Inc., a division of Bertelsmann AG, under which Arvato provides a majority of the manufacturing volume for our launches of QuickBooks and TurboTax, as well as for daytoday replenishment after product launches. Arvato has operations in multiple locations that can provide redundancy if necessary. For retail distribution, we have an agreement with Arvato under which Arvato handles all logistics services. Our retail product launches are operationally complex. Our model for product delivery for retail launches and replenishment is a hybrid of direct to store deliveries and shipments to central warehouse locations. This allows improved inventory management by our retailers. We also ship products for many of our smaller retail customers through distributors. Arvato also provides most of the manufacturing volume and distribution services for our direct desktop software orders. We have an exclusive agreement with Harland Clarke, a division of M&F Worldwide Corporation, to fulfill orders for all of our printed checks and most other products for our financial supplies business. We have multiple sources for all of our raw materials and availability has historically not been a significant problem for us. We continue to see consolidation among CD/DVD suppliers and reduced demand overall for this media type. As a result, we believe CD/DVD media may become more difficult and more costly to obtain in the near future. We typically ship products within a few days of receiving an order and backlog is minimal. PRIVACY AND SECURITY OF CUSTOMER AND EMPLOYEE INFORMATION AND TRANSACTIONS We are subject to various federal, state and international laws and regulations and to financial institution and healthcare provider requirements relating to the privacy and security of customer and employee personal information. We are also subject to laws and regulations that apply to the Internet, behavioral tracking and advertising, mobile applications and messaging, telemarketing, email activities, data transfer, data hosting and retention, financial and health information, financial transactions, and credit reporting. Additional laws in all of these areas are likely to be passed in the future, which could result in significant limitations on or changes to the ways in which we can collect, use, host, store or transmit the personal information and data of our customers or employees, communicate with our customers, and deliver products and services to customers or employees, or may significantly increase our compliance costs. As our business expands to new industry segments and new uses of data that are regulated for privacy and security, or to countries outside the United States that have strict data protections laws, our compliance requirements and costs will increase. We are the stewards of our customers' data. Through a Master Privacy Policy Framework designed to be consistent with globally recognized privacy principles, we comply with United States federal and other country guidelines and practices to help ensure that customers and employees are aware of, and can control, how we use information about them. Our primary websites and online products, such as Intuit.com, QuickBooks and TurboTax, have been certified by TRUSTe, an independent organization that operates a website and online product privacy certification program representing industry standard practices to address users' and regulators' concerns about online privacy. We also use privacy statements to provide notice to customers 11 Tables of Contents of our privacy practices, as well as provide them the opportunity to furnish instructions with respect to use of their personal information. We participate in industry groups whose purpose is to develop or shape industry best practices, and to influence public policy for privacy and security. To address security concerns, we use security safeguards to help protect the systems and the information customers and employees give to us from loss, misuse and unauthorized alteration. Whenever customers transmit sensitive information, such as credit card information or tax return data, through one of our websites or products, we use industry standards to encrypt the data as it is transmitted to us. We work to protect our systems from unauthorized internal or external access using numerous commercially available computer security products as well as internally developed security procedures and practices. GOVERNMENT REGULATION Our Consumer Tax and ProConnect segments are subject to federal and state government requirements, including regulations related to the electronic filing of tax returns, the provision of tax preparer assistance, and the use and disclosure of customer information. In addition, we offer certain other products and services to small businesses and consumers, such as payroll, payments, and financing, which are also subject to regulatory requirements. As we expand our products and services, both domestically and internationally, we may become subject to additional government regulation. Further, regulators may adopt new laws or regulations or their interpretation of existing laws or regulations may differ from ours or expand to cover additional products and services. These increased regulatory requirements could impose significant limitations on our business and increase our cost of compliance. We are subject to federal and state laws and government regulations concerning employee safety and health and environmental matters. The Occupational Safety and Health Administration, the Environmental Protection Agency, and other federal and state agencies have the authority to put regulations in place that may have an impact on our operations. INTELLECTUAL PROPERTY Our success depends on the proprietary technology embodied in our offerings. We protect this proprietary technology by relying on a variety of intellectual property mechanisms, including copyright, patent, trade secret and trademark laws, restrictions on disclosure and other methods. For example, we regularly file applications for patents, copyrights and trademarks and service marks in order to protect intellectual property that we believe is important to our business. We hold a growing patent portfolio that we believe is important to Intuit's overall competitive advantage, although we are not materially dependent on any one patent or particular group of patents in our portfolio at this time. We also have a number of registered trademarks that include Intuit, QuickBooks, TurboTax, Lacerte, ProSeries, and Mint. We have registered these and other trademarks and service marks in the United States and, depending on the relevance of each brand to other markets, in many foreign countries. Most registrations can be renewed perpetually at 10year intervals. We also license intellectual property from third parties for use in our products. Although our portfolio of patents is growing, the patents that have been issued to us could be determined to be invalid and may not be enforceable against competitive products in every jurisdiction. In addition, third parties have asserted and may, in the future, assert infringement claims against us and our customers. These claims and any litigation may result in invalidation of our proprietary rights or a finding of infringement along with an assessment of damages. Litigation, even if without merit, could result in substantial costs and diversion of resources and management attention. In addition, thirdparty licenses may not continue to be available to us on commercially acceptable terms, or at all. EMPLOYEES As of July 31, 2016, we had approximately 7,900 fulltime employees in major offices in the United States, Canada, India, the United Kingdom and other locations. We also employ a significant number of seasonal and contract employees during the second and third quarters of our fiscal years to support our consumer tax customers. For example, at the peak of the 2015 tax season we employed approximately 1,100 seasonal employees. We believe our future success and growth will depend on our ability to attract and retain qualified employees in all areas of our business. We do not currently have any collective bargaining agreements with our employees, and we believe employee relations are generally good. Although we have employmentrelated agreements with a number of key employees, these agreements do not guarantee continued service. We believe we offer competitive compensation and a good working environment. We were named one of Fortune magazine's \"100 Best Companies to Work For\" in each of the last fifteen years. However, we face intense competition for qualified employees, and we expect to face continuing challenges in recruiting and retention. 12 Tables of Contents ITEM 1A RISK FACTORS ForwardLooking Statements and Risk Factors This Annual Report on Form 10K contains forwardlooking statements. All statements in this report, other than statements that are purely historical, are forwardlooking statements. Words such as \"expect,\" \"anticipate,\" \"intend,\" \"plan,\" \"believe,\" \"forecast,\" \"estimate,\" \"seek,\" and similar expressions also identify forwardlooking statements. In this report, forwardlooking statements include, without limitation, the following: our expectations and beliefs regarding future conduct and growth of the business our beliefs and expectations regarding seasonality, competition and other trends that affect our business our expectation that we will 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 thirdparty developers 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 be able to protect our customers' data and prevent third parties from using stolen customer information to perpetrate fraud in our tax and other offerings our expectation that we will generate significant cash from operations our expectation that connected services 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 critical accounting policies and estimates, including our estimates regarding product rebate and return reserves the collectability of accounts receivable stock volatility and other assumptions used to estimate the fair value of sharebased compensation 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 otherthantemporarily 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 intent to permanently reinvest a significant portion of our earnings from foreign operations, and our belief that we will not need funds generated from foreign operations to fund our domestic operations 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 our assessments and beliefs regarding the future outcome 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 associated with such proceedings or inquiries on our financial statements. 13 Tables of Contents We caution investors that forwardlooking 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 SEC before deciding to invest in our stock or to maintain or change your investment. These forwardlooking statements are based on information as of the filing date of this Annual Report, and we undertake no obligation to revise or update any forward looking statement for any reason. Because forwardlooking statements involve risks and uncertainties, there are important factors that may cause actual results to differ materially from those contained in the forwardlooking statements. These factors include the following: We face intense competitive pressures that may harm our operating results. We face intense competition in all of our businesses, and we expect competition to remain intense in the future. Our competitors and potential competitors range from large and established entities to emerging startups. Our competitors may introduce superior products and services, reduce prices, have greater technical, marketing and other resources, have greater name recognition, have larger installed bases of customers, have wellestablished relationships with our current and potential customers, advertise aggressively or beat us to market with new products and services. In addition, we may face competition from existing companies, with large established consumer userbases and broadbased platforms, who may change or expand the focus of their business strategies and marketing to target our customers, including small businesses and tax customers. We also face intensified competition from providers of free accounting, tax, payments, and other financial services. In order to compete, we have also introduced free offerings in several categories, but we may not be able to attract customers or effectively monetize all of these offerings, and customers who have formerly paid for Intuit's products and services may elect to use free offerings instead. These competitive factors may diminish our revenue and profitability, and harm our ability to acquire and retain customers. Our consumer tax business also faces significant competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers. These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue. Although the Free File Alliance has kept the federal government from being a direct competitor to Intuit's tax offerings, it has fostered additional online competition and may cause us to lose significant revenue opportunities. The current agreement with the Free File Alliance is scheduled to expire in October 2020. We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future. Future revenue growth depends upon our ability to adapt to technological change as well as global trends in the way customers access consumer software offerings and successfully introduce new and enhanced products, services and business models. Online offerings, desktop software and mobile technology industries are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. As we continue to grow our online, mobile, and other offerings, we must continue to innovate and develop new products and features to meet changing customer needs and attract and retain talented software developers. We need to continue to develop our skills, tools and capabilities to capitalize on existing and emerging technologies, which require us to devote significant resources. Our consumer and professional tax businesses depend significantly on revenue from customers who return each year to use our updated tax preparation and filing software and services. As our existing products mature, encouraging customers to purchase product upgrades becomes more challenging unless new product releases provide features and functionality that have meaningful incremental value. If we are not able to develop and clearly demonstrate the value of new or upgraded products or services to our customers, our revenues may be harmed. In addition, as we continue to introduce and expand our new business models, including offerings that are free to end users, we may be unsuccessful in monetizing or increasing customer adoption of these offerings. The number of people who access products and services through devices other than personal computers, including mobile phones, smartphones, and handheld computers such as tablets, continues to increase. We have devoted significant resources to develop products and services for users of these alternative devices, but the versions of our products and services developed for these devices may not be compelling to users. Even if we are able to attract new users through these mobile offerings, the amount of revenue that we derive per user from mobile offerings may be less than the revenue that we have historically derived from users of personal computers. As new