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Description of Business and Summary of Significant Accounting Policies | 3 Months Ended
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Oct. 31, 2021
Accounting Policies [Abstract] |
Description of Business and Summary of Significant Accounting Policies |
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.
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. 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 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.

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- Definition The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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