Stockholders' Equity

12 Months Ended

Jul. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stockholders' Equity

10. Stockholders’ Equity

Stock Repurchase Programs

Intuit’s Board of Directors has authorized a series of common stock repurchase programs. Shares of common stock repurchased under these programs become treasury shares. Under these programs, we repurchased 6.9 million shares of our common stock for $839 million during the twelve months ended July 31, 2017; 24.8 million shares for $2.3 billion during the twelve months ended July 31, 2016; and 13.8 million shares for $1.2 billion during the twelve months ended July 31, 2015. At July 31, 2017, we had authorization from our Board of Directors to expend up to an additional $1.5 billion for stock repurchases. Future stock repurchases under the current program are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.

Our treasury shares are repurchased at the market price on the trade date; accordingly, all amounts paid to reacquire these shares have been recorded as treasury stock on our balance sheets. Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.

In the past we have satisfied option exercises and restricted stock unit vesting under our employee equity incentive plans by reissuing treasury shares, and we may do so again in the future. During the second quarter of fiscal 2014 we began issuing new shares of common stock to satisfy option exercises and RSU vesting under our 2005 Equity Incentive Plan. We have not yet determined the ultimate disposition of the shares that we have repurchased in the past, and consequently we continue to hold them as treasury shares.

Dividends on Common Stock

During fiscal 2017 we declared and paid cash dividends that totaled $1.36 per share of outstanding common stock or approximately $353 million. In August 2017 our Board of Directors declared a quarterly cash dividend of $0.39 per share of outstanding common stock payable on October 18, 2017 to stockholders of record at the close of business on October 10, 2017. Future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.

Description of 2005 Equity Incentive Plan

Our stockholders initially approved our 2005 Equity Incentive Plan (2005 Plan) on December 9, 2004. On January 19, 2017 our stockholders approved an Amended and Restated 2005 Equity Incentive Plan (Restated 2005 Plan) that expires on January 19, 2027 and approved an additional 23.1 million shares for issuance under that plan. Under the Restated 2005 Plan, we are permitted to grant incentive and non-qualified stock options, restricted stock awards, restricted stock units (RSUs), stock appreciation rights and stock bonus awards to our employees, non-employee directors, and consultants. The Compensation and Organizational Development Committee of our Board of Directors or its delegates determine who will receive grants, when those grants will be exercisable, their exercise price and other terms. We are permitted to issue up to 138.1 million shares under the Restated 2005 Plan. The plan provides a fungible share reserve. Each stock option granted on or after November 1, 2010 reduces the share reserve by one share and each restricted stock award or restricted stock unit granted reduces the share reserve by 2.3 shares. Stock options forfeited and returned to the pool of shares available for grant increase the pool by one share for each share forfeited. Restricted stock awards and RSUs forfeited and returned to the pool of shares available for grant increase the pool by 2.3 shares for each share forfeited. Shares withheld for income taxes upon vesting of RSUs that were granted on or after July 21, 2016 are also returned to the pool of shares available for grant. At July 31, 2017, there were approximately 25.2 million shares available for grant under this plan. Stock options granted under the 2005 Plan and the Restated 2005 Plan typically vest over three years based on continued service and have a seven year term. RSUs granted under those plans typically vest over three years based on continued service. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals.

Description of Employee Stock Purchase Plan

On November 26, 1996 our stockholders initially adopted our Employee Stock Purchase Plan (ESPP) under Section 423 of the Internal Revenue Code. The ESPP permits our eligible employees to make payroll deductions to purchase our stock on regularly scheduled purchase dates at a discount. Our stockholders have approved amendments to the ESPP to permit the issuance of up to 23.8 million shares under the ESPP, which expires upon the earliest to occur of (a) termination of the ESPP by the Board, or (b) issuance of all the shares of Intuit’s common stock reserved for issuance under the ESPP. Offering periods under the ESPP are six months in duration and composed of two consecutive three-month accrual periods. Shares are purchased at 85% of the lower of the closing price for Intuit common stock on the first day of the offering period or the last day of the accrual period.

Under the ESPP, employees purchased 752,605 shares of Intuit common stock during the twelve months ended July 31, 2017; 882,206 shares during the twelve months ended July 31, 2016; and 892,632 shares during the twelve months ended July 31, 2015. At July 31, 2017, there were 3,003,962 shares available for issuance under this plan.

Share-Based Compensation Expense

The following table summarizes the total share-based compensation expense that we recorded in operating income from continuing operations for the periods shown.

	Twelve Months Ended July 31,
(In millions except per share amounts)	2017			2016			2015
Cost of service and other revenue	$	8		$	8		$	6
Selling and marketing	88			77			69
Research and development	122			90			80
General and administrative	108			103			87
Total share-based compensation expense from continuing operations	326			278			242
Income tax benefit	(179		)	(86		)	(75		)
Decrease in net income from continuing operations	$	147		$	192		$	167
Decrease in net income per share from continuing operations:
Basic	$	0.57		$	0.73		$	0.59
Diluted	$	0.56		$	0.72		$	0.58

In the first quarter of fiscal 2017, we elected to early adopt ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This new standard requires excess tax benefits recognized on stock-based compensation expense to be reflected in the statements of operations as a component of the provision for income taxes on a prospective basis. See Note 1, “Description of Business and Summary of Significant Accounting Policies,” for more information.

We capitalized $7 million in share-based compensation related to internal use software projects during the twelve months ended July 31, 2017 and $6 million during the twelve months ended July 31, 2016. The table above also excludes share-based compensation expense for our discontinued operations, which totaled $3 million during the twelve months ended July 31, 2016 and $15 million during the twelve months ended July 31, 2015. Because we have not reclassified our statements of cash flows to segregate discontinued operations, these amounts are included in share-based compensation expense on our statements of cash flows for that period.

Determining Fair Value

Valuation and Amortization Method. We estimate the fair value of stock options granted using a lattice binomial model and a multiple option award approach. Our stock options have various restrictions, including vesting provisions and restrictions on transfer, and are often exercised prior to their contractual maturity. We believe that lattice binomial models are more capable of incorporating the features of our stock options than closed-form models such as the Black Scholes model. The use of a lattice binomial model requires the use of extensive actual employee exercise behavior and a number of complex assumptions including the expected volatility of our stock price over the term of the options, risk-free interest rates and expected dividends. We amortize the fair value of options on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

Restricted stock units (RSUs) granted typically vest based on continued service. We value these time-based RSUs at the date of grant using the intrinsic value method. We amortize the fair value of time-based RSUs on a straight-line basis over the service period. Certain RSUs granted to senior management vest based on the achievement of pre-established performance or

market goals. We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based RSUs if necessary. We amortize the fair values of performance-based RSUs over the requisite service period for each separately vesting tranche of the award. We estimate the fair value of market-based RSUs at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

All of the RSUs we grant have dividend rights that are subject to the same vesting requirements as the underlying equity awards, so we do not adjust the market price of our stock on the date of grant for dividends.

Expected Term. The expected term of options granted represents the period of time that they are expected to be outstanding and is a derived output of the lattice binomial model. The expected term of stock options is impacted by all of the underlying assumptions and calibration of our model. The lattice binomial model assumes that option exercise behavior is a function of the option’s remaining vested life and the extent to which the market price of our common stock exceeds the option exercise price. The lattice binomial model estimates the probability of exercise as a function of these two variables based on the history of exercises and cancellations on all past option grants made by us.

Expected Volatility. We estimate the volatility of our common stock at the date of grant based on the implied volatility of one-year and two-year publicly traded options on our common stock. Our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility.

Risk-Free Interest Rate. We base the risk-free interest rate that we use in our option valuation model on the implied yield in effect at the time of option grant on constant maturity U.S. Treasury issues with equivalent remaining terms.

Dividends. We use an annualized expected dividend yield in our option valuation model. We paid quarterly cash dividends during fiscal 2017, fiscal 2016, and fiscal 2015 and currently expect to continue to pay cash dividends in the future.

Forfeitures. We adjust share-based compensation expense for actual forfeitures as they occur. Prior to our adoption of ASU 2016-09 in the first quarter of fiscal 2017, we estimated forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures differed from those estimates. We used historical data to estimate pre-vesting option forfeitures and recorded share-based compensation expense only for those awards that were expected to vest.

We used the following assumptions to estimate the fair value of stock options granted and shares purchased under our Employee Stock Purchase Plan for the periods indicated:

	Twelve Months Ended July 31,
	2017		2016		2015
Assumptions for stock options:
Expected volatility (range)	22% - 23%		22% - 26%		22% - 24%
Weighted average expected volatility	23	%	22	%	23	%
Risk-free interest rate (range)	1.65% - 1.70%		0.98% - 1.49%		1.13% - 1.47%
Expected dividend yield	0.97% - 1.17%		1.06% - 1.36%		0.93% - 1.05%
Assumptions for ESPP:
Expected volatility (range)	18% - 21%		23% - 26%		20% - 23%
Weighted average expected volatility	20	%	25	%	21	%
Risk-free interest rate (range)	0.30% - 0.89%		0.06% - 0.47%		0.01% - 0.15%
Expected dividend yield	1.09% - 1.10%		1.13% - 1.34%		0.96% - 1.19%

Share-Based Awards Available for Grant

A summary of share-based awards available for grant under our 2005 Equity Incentive Plan for the fiscal periods indicated was as follows:

(Shares in thousands)	Shares Available for Grant
Balance at July 31, 2014	24,203
Options granted	(1,981	)
Restricted stock units granted (1)	(8,053	)
Share-based awards canceled/forfeited/expired (1)(2)	3,014
Balance at July 31, 2015	17,183
Options granted	(2,553	)
Restricted stock units granted (1)	(9,364	)
Share-based awards canceled/forfeited/expired (1)(2)	3,724
Balance at July 31, 2016	8,990
Additional shares authorized	23,110
Options granted	(1,786	)
Restricted stock units granted (1)	(9,160	)
Share-based awards canceled/forfeited/expired (1)(2)	4,010
Balance at July 31, 2017	25,164

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(1) RSUs granted from the pool of shares available for grant under our 2005 Equity Incentive Plan reduce the pool by 2.3 shares for each share granted. RSUs forfeited and returned to the pool of shares available for grant increase the pool by 2.3 shares for each share forfeited.

(2) Stock options and RSUs canceled, expired or forfeited under our 2005 Equity Incentive Plan are returned to the pool of shares available for grant. Shares withheld for income taxes upon vesting of RSUs that were granted on or after July 21, 2016 are also returned to the pool of shares available for grant. Stock options and RSUs canceled, expired or forfeited under older expired plans are not returned to the pool of shares available for grant.

Stock Option Activity and Related Share-Based Compensation Expense

A summary of stock option activity for the periods indicated was as follows:

	Options Outstanding
(Shares in thousands)	Number of Shares		Weighted Average Exercise Price Per Share
Balance at July 31, 2014	10,938			$52.67
Granted	1,981		106.86
Exercised	(3,704	)	41.65
Canceled or expired	(502	)	62.32
Balance at July 31, 2015	8,713		69.13
Granted	2,553		113.08
Exercised	(2,566	)	48.93
Canceled or expired	(354	)	74.56
Balance at July 31, 2016	8,346		88.55
Granted	1,786		135.24
Exercised	(2,213	)	69.12
Canceled or expired	(431	)	104.78
Balance at July 31, 2017	7,488			$104.50

Information regarding stock options outstanding as of July 31, 2017 is summarized below:

	Number of Shares (in thousands)	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price per Share		Aggregate Intrinsic Value (in millions)
Options outstanding	7,488	6.85		$104.50		$238
Options exercisable	3,555	4.71		$85.91		$179

The aggregate intrinsic values at July 31, 2017 are calculated as the difference between the exercise price of the underlying options and the market price of our common stock for shares that were in-the-money at that date. In-the-money options at July 31, 2017 were options that had exercise prices that were lower than the $137.21 market price of our common stock at that date.

Additional information regarding our stock options and ESPP shares is shown in the table below.

	Twelve Months Ended July 31,
(In millions except per share amounts)	2017		2016		2015
Weighted average fair value of options granted (per share)	$	25.54	$	20.35	$	19.39
Total grant date fair value of options vested	$	37	$	32	$	36
Aggregate intrinsic value of options exercised	$	126	$	134	$	191
Share-based compensation expense for stock options and ESPP	$	52	$	48	$	48
Total tax benefit for stock option and ESPP share-based compensation	$	49	$	13	$	11
Cash received from option exercises	$	153	$	126	$	154
Cash tax benefits realized related to tax deductions for non-qualified option exercises and disqualifying dispositions under all share-based payment arrangements	$	46	$	47	$	68

In the first quarter of fiscal 2017, we elected to early adopt ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This new standard requires excess tax benefits recognized on

stock-based compensation expense to be reflected in the statements of operations as a component of the provision for income taxes on a prospective basis. See Note 1, “Description of Business and Summary of Significant Accounting Policies,” for more information.

At July 31, 2017, there was approximately $85 million of unrecognized compensation cost related to non-vested stock options with a weighted average vesting period of 2.4 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.

Restricted Stock Unit Activity and Related Share-Based Compensation Expense

A summary of restricted stock unit (RSU) activity for the periods indicated was as follows:

(Shares in thousands)	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at July 31, 2014	9,455			$62.46
Granted	3,501		89.58
Assumed or granted in connection with acquisitions	292		91.87
Vested	(3,155	)	67.00
Forfeited	(1,177	)	62.32
Nonvested at July 31, 2015	8,916		72.48
Granted	4,072		99.30
Vested	(2,392	)	78.07
Forfeited	(1,557	)	77.03
Nonvested at July 31, 2016	9,039		82.30
Granted	3,983		119.84
Vested	(3,121	)	86.93
Forfeited	(1,265	)	76.75
Nonvested at July 31, 2017	8,636			$98.76

Additional information regarding our RSUs is shown in the table below.

	Twelve Months Ended July 31,
(In millions)	2017		2016		2015
Total fair market value of shares vested	$	388	$	288	$	282
Share-based compensation for RSUs	$	274	$	230	$	194
Total tax benefit related to RSU share-based compensation expense	$	130	$	73	$	64
Cash tax benefits realized for tax deductions for RSUs	$	130	$	92	$	96

In the first quarter of fiscal 2017, we elected to early adopt ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This new standard requires excess tax benefits recognized on stock-based compensation expense to be reflected in the statements of operations as a component of the provision for income taxes on a prospective basis. See Note 1, “Description of Business and Summary of Significant Accounting Policies,” for more information.

At July 31, 2017, there was $717 million of unrecognized compensation cost related to non-vested RSUs with a weighted average vesting period of 2.4 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.

Accumulated Other Comprehensive Loss

Comprehensive income consists of two elements, net income and other comprehensive income (loss). Other comprehensive income (loss) items are recorded in the stockholders’ equity section of our balance sheets and excluded from net income. Our other comprehensive income (loss) consists of unrealized gains and losses on marketable debt securities classified as available-for-sale and foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S. dollar.

The following table shows the components of accumulated other comprehensive loss, net of income taxes, in the stockholders’ equity section of our balance sheets at the dates indicated.

	July 31,
(In millions)	2017			2016
Unrealized gains on available-for-sale debt securities	$	—		$	1
Foreign currency translation adjustments	(22		)	(33		)
Total accumulated other comprehensive loss	$	(22	)	$	(32	)