F i n a n c i a l A c c o u n t i n g G r o u p P r o j e c t 1 | P a g e

FINANCIAL ACCOUNTING GROUP PROJECT

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

INTUIT INC.

Presented By:

Anurup Upadhyay

Marcus Yearwood

Nishchal Banskota

Sujan Shrestha

Sukriti Raut

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TABLE OF CONTENTS

Introduction………………………………………………………………………………………3

Net Income………………………………………………………………………………………..4

Comprehensive Income………………………………………………………………………….7

Cash Dividends…………………………………………………………………………………...9

Stock Repurchases under Stock Repurchase Programs………………………………..........10

Issuance of Treasury Stock under Employee Stock Plans…………………………………...12

Conclusion…………………………………………………………………………………........13

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Introduction:

The Business Dictionary defines the Statement of Stockholders’ Equity as the “financial

statement showing the beginning balance, additions to and deductions from, and the ending

balance of the shareholders' equity account, for a specified period” (2012). Both internal and

external stakeholders of business organizations benefit from this financial statement as it shows

how the business transaction for a particular period of time affected the equity of the company

for that period. Shareholders are particularly interested in this financial statement because it

outlines how the net profit of the company is utilized by the business. More specifically, it

highlights whether a portion of the net profit is being distributed as dividends or whether the

entire amount is being reinvested into the business.

As far as the consolidated statement of stockholders’ equity of Intuit is concerned, it

provides equity-related information for three consecutive years—2010, 2011, and 2012. The

accounting period of the company ends on July 31st each year. The most striking aspect of this

financial statement is despite the fact that the net income and the overall retained earnings of

Intuit Inc. is increasing every passing year, the ending balances of the total stockholders’ equity

is fluctuating, never exceeding the 2010 balance. This, we believe, has to do with the stock

repurchases performed by the company under its stock repurchase programs. In the financial

statement, it can be seen that the company repurchased stocks worth 900 million, 1360 million,

and 900 million in 2010, 2011 and 2012 respectively. “[One of the major] objectives of

[repurchasing stocks] is to increase the market value of the shares by reducing their number

available for purchase” (Business Dictionary, 2012). Neil Williams, the Chief Financial Officer

of Intuit Inc., said that the objective behind repurchasing stocks is “to deploy the cash [the

company] generates to the highest-yield opportunities” (Intuit Inc., 2010).

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Now, the paper attempts to highlight some of the interesting aspects of Intuit’s statement

of stockholder’s equity.

Net Income:

Based on the information provided in the Statement of Stockholders’ Equity, what can be

noticed is that Intuit Inc.’s net income has been increasing through years 2010, 2011, and 2012.

During these years, Intuit reported net incomes of 574 million, 634 million and 792 million

respectively. The company, as a provider of business and financial management solutions,

generates revenue from the sale of packaged software products, software subscriptions, and

financial supplies, among others. Since Intuit uses accrual accounting for revenue recognition

and Ernest and Young LLP expressed an unqualified audit opinion on Intuit’s financial

statements, we can safely claim that the net incomes reported in the financial statements are

accurate. The graph below shows the company’s net incomes from 2008 to 2012, each reported

on the 31st day of July:

Exhibit A: Intuit’s Net Income (in million $) from accounting years 2008 to 2012

477 447

574 634

792

0

100

200

300

400

500

600

700

800

900

2008 2009 2010 2011 2012

Intuit's Net Income (in million $)

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The seasonality of revenue generation in Intuit Inc. directly affects the net income of the

company in every quarter. The 10-K annual report of the company mentions that “revenue from

our QuickBooks software products tends to be highest during our second (November to January)

and third (February-April) fiscal quarters.” Similarly, the report notes that the “sales of income

tax preparation products and services are heavily concentrated in the period from November

through April,” which refer to the company’s second and third quarter. Since highest sales from

both of these product lines coincide in these two quarters, the revenue, and consequently, the net

income, reported by the company are usually the highest in these quarters too. The bar graph

below highlights the same. In the accounting year 2012, Intuit reported its two highest net

incomes in the second quarter ending January 31st: $118 million and third quarter ending April

30th

: $734 million.

Exhibit B: Quarterly Net Incomes Reported by Intuit in 2012

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Yahoo Finance identifies Intuit as a company in the technological sector operating under

the application software industry (2012). Within the industry, Intuit has multiple competitors

such as Microsoft, IBM Software, Oracle, SAP AG, and CA Technologies (Yahoo Finance,

2012). Other competitors include BMC Software, Infosys, Autodesk, and Nuance

Communications (Wikinvest, 2012). Based on the bar graph provided by Wikinvest, it was

interesting to notice that the net profits of all other companies were belittled by the net profit of

Microsoft Corporation (2012). Although it would not be fair to compare Intuit, which has a total

stockholders’ equity worth $2.74 billion, with Microsoft with a total stockholders’ equity of

$66.36 billion, the graph below still puts the net income numbers for these companies into

perspective: $ 792 million for Intuit for the period ended on July 31st, 2012 and $16.98 billion for

Microsoft for the period ended on June 30th

, 2012.

Exhibit C: Intuit in Comparison with its Competitors based on Net Income

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Comprehensive Income:

Analyzing the statement of stockholders’ equity of Intuit Inc., ‘comprehensive income’

seemed to be an interesting concept. Financial Accounting Standards Board (FASB) defines

comprehensive income as the change in equity of a business enterprise during a period from

transactions and other events and circumstances from non-owner sources. It includes all changes

in equity during a period except those resulting from investments by owners distributions to

owners (1985). The statement of stockholders’ equity of Intuit shows a balance of 4 million in

the ‘other comprehensive income, net of tax section’ for the accounting year 2010-2011 and 10

million for the year 2011-2012. Since the accompanying notes in the 10K form of Intuit did not

specify all the detailed transactions through which this income was received, it would not be

wrong to assume that it includes items like an unrealized holding gain or loss from available for

sale securities and foreign currency translation gains or losses.

The following graph depicts the trend of the other comprehensive income (net of tax):

Exhibit D: Other Comprehensive Income (Net of Tax) in millions

0

2

4

6

8

10

12

2010 2011 2012

Other Comprehensive Income (Net of

Tax)

In millions

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The trend shows that comprehensive income remained constant for the accounting

periods of 2009-2010 and 2010-2011 with 4 million and the company realized a sharp increase in

2011-2012: 10 million.

The following graph portrays the comparison of the comprehensive income of Intuit Inc.

with its competitors such as Oracle and Autodesk.

Exhibit E: Comparative Comprehensive Income (in millions)

The graph shows the comparison of the comprehensive incomes of companies in the

same industry: Intuit, Oracle Corporation, and Autodesk Inc. As a larger company with high

revenues and capital, Oracle has higher comprehensive incomes for all three periods. However,

looking at Intuit’s trend and comparing it to those of its two competitors, it can be seen that Intuit

is the only company which has a continuous upward trend, and both of the other companies have

fluctuating trend. Hence, Intuit is performing relatively well in terms of comprehensive income.

0

100

200

300

400

500

600

2010 2011 2012

Comparative Comprehensive Income

Intuit Inc.

Oracle Corporation

Autodesk Inc.

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Cash Dividends:

Looking closely at the information given in the statement of stockholders’ equity of Intuit

Inc., we can infer that Intuit Inc. declared its first cash dividends to its shareholders starting in

the 2011-2012 period out of the past three accounting periods. However, it was interesting to

discover through one of the articles published in Bloomberg that the first quarter of the 2011-

2012 period was the first time Intuit had ever distributed cash dividends to the shareholders in

the history of its existence (2011). It was also reported that with the announcement of cash

dividends for the first time, the company’s image in the market went up, which is a strong asset

to have for any business (Ring, 2011). According to Yahoo news, we found out that the company

declared its cash dividends in all four quarters of the 2011-2012 period (Yahoo Finance, 2012).

Exhibit F: Quarterly Cash Dividends Distributed by Intuit in the 2011-2012 Accounting Period

(in thousands)

$44,000

$45,000

$44,000

$45,000

$43,000

$43,500

$44,000

$44,500

$45,000

$45,500

$46,000

1Q 2Q 3Q 4Q

Quarterly Cash Dividends Distributed in 2011-

2012 Accounting Period (in thousands)

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As a result of the increase in revenue by 14 percent, to $651 million, in its fourth quarter,

Intuit announced a 13 percent increase in the quarterly cash dividends from $0.15 per share in

the third quarter to $0.17 per share in the fourth quarter, to be paid Oct. 18 (Intuit Inc., 2012).

Additionally, there was a ten percent increase in the total annual revenue from the past

accounting period to the 2011-2012 period and the annual cash dividend distributed per share

was $0.60 (Intuit Inc., 2012). Since we were familiar with the annual distribution of cash

dividends by businesses and did not really think about quarters, the quarterly distribution done

by Intuit Inc. grabbed our attention.

Stock Repurchases under Stock Repurchase Programs:

A stock repurchase program is a plan by which a company buys back its own shares from

the marketplace, reducing the number of outstanding shares. An issuing company repurchases it

stock when it thinks that its stocks are undervalued and that stocks are not doing as well as

planned. By buying or repurchasing its own stocks from the stockholders, a company is able to

raise the price on the remaining stocks in the market and raise the earnings per share as well as

the dividends per share, if distributed.

According to the consolidated statement of stockholders’ equity, Intuit Inc. repurchased

16.9 million shares of its common stock for $900 million during the accounting year ending July

31st, 2012; 28.2 million shares for $1.4 billion during the accounting year ending July 31

st, 2011;

and 28.7 million shares for $900 million during the accounting year ending July 31st, 2010. On

July 31st, 2012, Intuit had authorization from Board of Directors to expend up to an additional

$1.7 billion for stock repurchases through August 15, 2014. In our opinion, Intuit bought back

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the stock either to retire the bought back stocks or to keep them as treasury stocks, available for

reissue in the future.

Exhibit G: Number of Stocks Repurchased by Accounting Year

If a company expends too much cash on repurchasing the stocks, a company’s liquidity

could be hampered. With the decrease in current assets, it is possible that when the economy

goes off the cliff, the company may not have enough liquidity to protect itself from a crisis.

Therefore, it is extremely important for a company to think thoroughly before repurchasing its

stocks to raise the price of the stocks. However, a company sometimes must repurchase its stocks

to deal with the problem of excess cash lying around when it does not see lucrative investment

opportunities in the market.

It was interesting for us to see that when Intuit reissues treasury stocks, if the proceeds

from the sale are more than the average price of acquisition, it record an increase in the

0

5000

10000

15000

20000

25000

30000

35000

2009 2010 2011

Number of Stocks Repurchased by Intuit in

the Last Three Accounting Years

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additional paid-in capital. Similarly, they record a decrease in additional paid-in capital when the

proceeds are less than price of acquisition.

Issuance of Treasury Stock under Employee Stock Plans:

One of the interesting aspects of Inuit’s Statement of Stockholder’s Equity is the line item

titled “Issuance of Treasury Stock under Employee Stock Plans.” This line item shows a

significant outflow of treasury stock from the company’s equity. Researching this line item

helped us learn more about how Intuit compensates employees. Intuit uses Employee Stock

Purchase Plan as one of the ways it compensates employees. This program allows company

employees to use a portion of their company salaries to purchase stock in the company. They are

also able to purchase the stock at 15% discount to the market rate. This program incentivizes the

employees to save and invest and improves the employee’s morale as well. In the 12 months

ending July 31st, 2012, the employees have purchased over 1 million shares from the company.

Exhibit H: Total Number of Shares purchased using Inuit’s Employee Stock Purchase Plan

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Conclusion:

At conclusion, what can be underlined is that the difference in the type of items that we

found in Intuit’s Statement of Stockholders’ Equity and the type of simple items we discussed is

class that goes into a simple statement caught our attention. The difference stresses the fact that

the scopes of financial statements are different in different types of businesses, a sole

proprietorship and a corporation. Finally, it made us aware that much more remains to be

explored in the field of accounting and finance for us.

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Works Cited

Autodesk Inc. (2012). 2012 annual report.

FASB. (1985). Statement of financial accounting concepts no. 6. Retrieved on November 26th

,

2012 from:

http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175822102897&blobheader

=application/pdf&blobcol=urldata&blobtable=MungoBlobs

Intuit Inc (2012). 10-K annual report. Retrieved from Edgar Online. www.edgar-online.com

Intuit Inc. (2010, August 19). Intuit extends stock repurchase program. Retrieved on November

27th

, 2012 from:

http://about.intuit.com/about_intuit/press_room/press_release/articles/2010/IntuitExtends

StockRepurchaseProgram.html

Intuit Inc. Official website. Retrieved on November 27, 2012 from:

http://investors.intuit.com/releasedetail.cfm?releaseid=701658

Oracle Corporation. (2012). 2012 annual report. Retrieved on November 26th

, 2012 from:

http://www.oracle.com/us/corporate/investor-relations/financials/fy2012-form10k-

1674194.pdf

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Ring, N. (2011, August 19). Intuit inc. soars most in a year after announcing its first dividend

ever. Bloomberg. Retrieved on November 27, 2012 from:

http://www.bloomberg.com/news/2011-08-19/intuit-inc-soars-most-in-a-year-after-

announcing-its-first-dividend-ever.html

Wikinvest. (2012). Intuit (intu). Retrieved on November 26, 2012 from:

http://www.wikinvest.com/stock/Intuit_(INTU)/Data/Net_Income

Yahoo Finance. (2012). Intuit inc. (intu). Retrieved on November 26, 2012 from:

http://finance.yahoo.com/q?s=INTU&ql=0