UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

OR

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

For the transition period from                      to                     .

Commission File Number 0-21180

INTUIT INC.

(Exact name of registrant as specified in its charter)

Delaware (State of incorporation)		77-0034661 (IRS employer identification no.)

2700 Coast Avenue, Mountain View, CA 94043
(Address of principal executive offices)

(650) 944-6000
(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 302,580,717 shares of Common Stock, $0.01 par value, were outstanding at February 22, 2011.

 

 

INTUIT INC.
FORM 10-Q
INDEX

		Page
		Number
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Statements of Operations for the three and six months ended January 31, 2011 and 2010			3
Condensed Consolidated Balance Sheets at January 31, 2011 and July 31, 2010			4
Condensed Consolidated Statements of Stockholders’ Equity for the six months ended January 31, 2011 and 2010			5
Condensed Consolidated Statements of Cash Flows for the three and six months ended January 31, 2011 and 2010			6
Notes to Condensed Consolidated Financial Statements			7
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk			36
ITEM 4: Controls and Procedures			38
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings			39
ITEM 1A: Risk Factors			40
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds			49
ITEM 6: Exhibits			50
Signatures			51
EX-10.02
EX-10.03
EX-31.01
EX-31.02
EX-32.01
EX-32.02
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Intuit, the Intuit logo, QuickBooks, TurboTax, ProSeries, Lacerte, Quicken 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.

PART I

ITEM 1
FINANCIAL STATEMENTS

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended								Six Months Ended
		January 31,				January 31,				January 31,				January 31,
(In millions, except per share amounts)		2011				2010				2011				2010
Net revenue:
Product		$	430			$	422			$	646			$	627
Service and other			448				415				764				684
Total net revenue			878				837				1,410				1,311
Costs and expenses:
Cost of revenue:
Cost of product revenue			46				48				78				83
Cost of service and other revenue			129				114				252				223
Amortization of acquired technology			5				16				9				38
Selling and marketing			330				277				550				457
Research and development			158				144				314				285
General and administrative			88				88				178				165
Amortization of other acquired intangible assets			11				11				22				21
Total costs and expenses			767				698				1,403				1,272
Operating income from continuing operations			111				139				7				39
Interest expense			(15	)			(15	)			(30	)			(31	)
Interest and other income, net			6				2				14				7
Income (loss) from continuing operations before income taxes			102				126				(9	)			15
Income tax provision (benefit)			29				46				(12	)			4
Net income from continuing operations			73				80				3				11
Net income from discontinued operations			—				34				—				35
Net income		$	73			$	114			$	3			$	46
Basic net income per share from continuing operations		$	0.24			$	0.25			$	0.01			$	0.04
Basic net income per share from discontinued operations			—				0.11				—				0.11
Basic net income per share		$	0.24			$	0.36			$	0.01			$	0.15
Shares used in basic per share calculations			308				314				312				317
Diluted net income per share from continuing operations		$	0.23			$	0.25			$	0.01			$	0.03
Diluted net income per share from discontinued operations			—				0.10				—				0.11
Diluted net income per share		$	0.23			$	0.35			$	0.01			$	0.14
Shares used in diluted per share calculations			318				323				322				326

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

		January 31,				July 31,
(In millions)		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	433			$	214
Investments			459				1,408
Accounts receivable, net			481				135
Income taxes receivable			123				27
Deferred income taxes			115				117
Prepaid expenses and other current assets			76				57
Current assets before funds held for customers			1,687				1,958
Funds held for customers			337				337
Total current assets			2,024				2,295
Long-term investments			89				91
Property and equipment, net			576				510
Goodwill			1,911				1,914
Acquired intangible assets, net			222				256
Long-term deferred income taxes			48				41
Other assets			109				91
Total assets		$	4,979			$	5,198
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	199			$	143
Accrued compensation and related liabilities			147				206
Deferred revenue			564				387
Income taxes payable			1				14
Other current liabilities			256				134
Current liabilities before customer fund deposits			1,167				884
Customer fund deposits			337				337
Total current liabilities			1,504				1,221
Long-term debt			998				998
Other long-term obligations			205				158
Total liabilities			2,707				2,377
Commitments and contingencies
Stockholders’ equity:
Preferred stock			—				—
Common stock and additional paid-in capital			2,820				2,728
Treasury stock, at cost			(3,959	)			(3,315	)
Accumulated other comprehensive income			11				11
Retained earnings			3,400				3,397
Total stockholders’ equity			2,272				2,821
Total liabilities and stockholders’ equity		$	4,979			$	5,198

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

						Common
						Stock and								Accumulated
		Shares of				Additional								Other								Total
(In millions, except shares in		Common				Paid-In				Treasury				Comprehensive				Retained				Stockholders'
thousands)		Stock				Capital				Stock				Income				Earnings				Equity
Balance at July 31, 2010			313,861			$	2,728			$	(3,315	)		$	11			$	3,397			$	2,821
Components of comprehensive net income:
Net income			—				—				—				—				3				3
Other comprehensive income, net of tax			—				—				—				—				—				—
Comprehensive net income																							3
Issuance of common stock under employee stock plans			8,189				34				184				—				—				218
Restricted stock units released, net of taxes			1,394				(63	)			32				—				—				(31	)
Stock repurchases under stock repurchase programs			(18,459	)			—				(860	)			—				—				(860	)
Tax benefit from share-based compensation plans			—				48				—				—				—				48
Share-based compensation expense			—				73				—				—				—				73
Balance at January 31, 2011			304,985			$	2,820			$	(3,959	)		$	11			$	3,400			$	2,272

						Common
						Stock and								Accumulated
		Shares of				Additional								Other								Total
(In millions, except shares in		Common				Paid-In				Treasury				Comprehensive				Retained				Stockholders'
thousands)		Stock				Capital				Stock				Income				Earnings				Equity
Balance at July 31, 2009			322,766			$	2,547			$	(2,846	)		$	7			$	2,849			$	2,557
Components of comprehensive net income:
Net income			—				—				—				—				46				46
Other comprehensive income, net of tax			—				—				—				1				—				1
Comprehensive net income																							47
Issuance of common stock under employee stock plans			6,851				2				150				—				(2	)			150
Restricted stock units released, net of taxes			1,430				(22	)			26				—				(24	)			(20	)
Stock repurchases under stock repurchase programs			(18,814	)			—				(550	)			—				—				(550	)
Tax benefit from share-based compensation plans			—				10				—				—				—				10
Share-based compensation expense			—				65				—				—				—				65
Other			—				(3	)			—				—				—				(3	)
Balance at January 31, 2010			312,233			$	2,599			$	(3,220	)		$	8			$	2,869			$	2,256

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Three Months Ended								Six Months Ended
		January 31,				January 31,				January 31,				January 31,
(In millions)		2011				2010				2011				2010
Cash flows from operating activities:
Net income		$	73			$	114			$	3			$	46
Adjustments to reconcile net income to net cash
generated by operating activities:
Depreciation			41				36				78				75
Amortization of acquired intangible assets			20				32				39				68
Share-based compensation expense			38				38				73				65
Pre-tax gain on sale of discontinued operations			—				(58	)			—				(58	)
Deferred income taxes			(9	)			2				16				(22	)
Tax benefit from share-based compensation plans			16				4				48				10
Excess tax benefit from share-based compensation plans			(14	)			(2	)			(41	)			(5	)
Other			6				6				11				10
Total adjustments			98				58				224				143
Changes in operating assets and liabilities:
Accounts receivable			(333	)			(318	)			(345	)			(331	)
Prepaid expenses, income taxes receivable and other assets			19				51				(115	)			(5	)
Accounts payable			41				47				46				56
Accrued compensation and related liabilities			23				19				(59	)			(38	)
Deferred revenue			214				180				185				156
Income taxes payable			—				2				(13	)			2
Other liabilities			123				92				121				76
Total changes in operating assets and liabilities			87				73				(180	)			(84	)
Net cash generated by operating activities			258				245				47				105
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(295	)			(162	)			(723	)			(550	)
Sales of available-for-sale debt securities			777				96				1,415				418
Maturities of available-for-sale debt securities			87				7				221				43
Net change in money market funds and other cash equivalents
held to satisfy customer fund obligations			52				41				26				107
Net change in customer fund deposits			(26	)			20				—				41
Purchases of property and equipment			(84	)			(34	)			(135	)			(66	)
Acquisitions of intangible assets			—				—				(3	)			—
Acquisitions of businesses, net of cash acquired			—				(141	)			—				(141	)
Proceeds from divestiture of businesses			—				122				—				122
Other			8				(3	)			3				(6	)
Net cash provided by (used in) investing activities			519				(54	)			804				(32	)
Cash flows from financing activities:
Net proceeds from issuance of common stock under stock plans			64				85				218				150
Tax payments related to issuance of restricted stock units			(3	)			(5	)			(31	)			(20	)
Purchases of treasury stock			(530	)			(250	)			(860	)			(550	)
Excess tax benefit from share-based compensation plans			14				2				41				5
Other			—				—				—				(1	)
Net cash used in financing activities			(455	)			(168	)			(632	)			(416	)
Effect of exchange rates on cash and cash equivalents			(1	)			1				—				1
Net increase (decrease) in cash and cash equivalents			321				24				219				(342	)
Cash and cash equivalents at beginning of period			112				313				214				679
Cash and cash equivalents at end of period		$	433			$	337			$	433			$	337

See accompanying notes.

INTUIT INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Intuit Inc. provides business and financial management solutions for small and medium-sized businesses, consumers, accounting professionals and financial institutions. Our flagship products and services, including QuickBooks, Quicken and TurboTax, simplify small business management and payroll processing, personal finance, and tax preparation and filing. ProSeries and Lacerte are Intuit’s tax preparation offerings for professional accountants. Our Financial Services business provides online banking solutions and services to banks and credit unions. 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. In November 2009 we acquired Mint Software Inc. for total consideration of approximately $170 million and in May 2010 we acquired Medfusion, Inc. for total consideration of approximately $89 million. We have included the results of operations for Mint and Medfusion in our consolidated results of operations from their respective dates of acquisition. In January 2010 we sold our Intuit Real Estate Solutions (IRES) business. We have reclassified our financial statements for all periods prior to the sale to reflect IRES as discontinued operations. Unless noted otherwise, discussions in these notes pertain to our continuing operations.

We have included all adjustments, consisting only of normal recurring items and the reclassifications for discontinued operations discussed above, which we considered necessary for a fair presentation of our financial results for the interim periods presented. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2010. Results for the six months ended January 31, 2011 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2011 or any other future period.

We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to reportable segments and discontinued operations.

Seasonality

Our QuickBooks, Consumer Tax and Accounting Professionals businesses are highly seasonal. Revenue from our QuickBooks software products tends to be highest during our second and third fiscal quarters. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. Seasonal patterns mean that our total net revenue is usually highest during our second quarter ending January 31 and third quarter ending April 30. We typically report losses in our first quarter ending October 31 and fourth quarter ending July 31, when revenue from our tax businesses is minimal while operating expenses continue at relatively consistent levels.

Significant Accounting Policies

We describe our significant accounting policies in Note 1 to the financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2010. As discussed below, on August 1, 2010 we adopted authoritative guidance on multiple-deliverable revenue arrangements. There have been no other changes to our significant accounting policies during fiscal 2011.

Multiple-Deliverable Revenue Arrangements

In October 2009 the Financial Accounting Standards Board (FASB) amended the accounting standards applicable to revenue recognition for multiple-deliverable revenue arrangements that are outside the scope of industry-specific

software revenue recognition guidance. This new guidance amends the criteria for allocating consideration in multiple-deliverable revenue arrangements by establishing a selling price hierarchy. The selling price used for each deliverable will be based on vendor-specific objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The guidance also eliminates the use of the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.

We adopted this guidance on a prospective basis on August 1, 2010, and therefore applied it to relevant revenue arrangements originating or materially modified on or after that date.

VSOE generally exists when we sell the deliverable separately and we are normally able to establish VSOE for all deliverables in these multiple-element arrangements; however, in certain limited instances VSOE cannot be established. This may be because we infrequently sell each element separately, do not price products within a narrow range, or have a limited sales history, such as in the case of our emerging market offerings. When VSOE cannot be established, we attempt to establish selling price for each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately.

When we are unable to establish selling price using VSOE or TPE, we use ESP in our allocation of arrangement consideration. We determine ESP for a product or service by considering multiple factors, including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices.

Our adoption of this new accounting guidance did not have a significant impact on the timing and pattern of revenue recognition when applied to multiple-element arrangements because our multiple-element offerings are predominantly software or software-related and VSOE exists for most of these offerings.

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 include 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, unrecognized compensation expense and tax benefits that are less than the average market price for our common stock, and RSUs with unrecognized compensation expense and tax benefits that are 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, unrecognized compensation expense and tax benefits that are greater than the average market price for our common stock, and RSUs with unrecognized compensation expense and tax benefits that are 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, the amount of compensation expense for future service that we have not yet recognized for stock options and RSUs, and the amount of tax benefits that will be recorded in additional paid-in capital when the awards become deductible are assumed to be used to repurchase shares.

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								Six Months Ended
		January 31,				January 31,				January 31,				January 31,
(In millions, except per share amounts)		2011				2010				2011				2010
Numerator:
Net income from continuing operations		$	73			$	80			$	3			$	11
Net income from discontinued operations			—				34				—				35
Net income		$	73			$	114			$	3			$	46
Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding			308				314				312				317
Shares used in diluted per share amounts:
Weighted average common shares outstanding			308				314				312				317
Dilutive common equivalent shares from stock options and restricted stock awards			10				9				10				9
Dilutive weighted average common shares outstanding			318				323				322				326
Basic and diluted net income per share:
Basic net income per share from continuing operations		$	0.24			$	0.25			$	0.01			$	0.04
Basic net income per share from discontinued operations			—				0.11				—				0.11
Basic net income per share		$	0.24			$	0.36			$	0.01			$	0.15
Diluted net income per share from continuing operations		$	0.23			$	0.25			$	0.01			$	0.03
Diluted net income per share from discontinued operations			—				0.10				—				0.11
Diluted net income per share		$	0.23			$	0.35			$	0.01			$	0.14
Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect			—				13				1				25

No customer accounted for 10% or more of total net revenue in the three or six months ended January 31, 2011 or January 31, 2010. Due to the seasonality of our small business, consumer tax and personal finance offerings, at January 31, 2011 the account of one retail customer represented approximately 16% of total accounts receivable and the account of another retail customer represented approximately 13% of total accounts receivable. No customer accounted for 10% or more of total accounts receivable at July 31, 2010.

2. Fair Value Measurements

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

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

	•		Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.
	•		Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.
	•		Level 3 uses one or more significant inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

		January 31, 2011																July 31, 2010
														Total																Total
(In millions)		Level 1				Level 2				Level 3				Fair Value				Level 1				Level 2				Level 3				Fair Value
Assets:
Cash equivalents, primarily money market funds		$	491			$	—			$	—			$	491			$	330			$	—			$	—			$	330
Available-for-sale debt securities:
Municipal bonds			—				357				—				357				—				1,050				—				1,050
Municipal auction rate securities			—				—				85				85				—				—				87				87
Corporate notes			—				195				—				195				—				334				—				334
U.S. agency securities			—				82				—				82				—				174				—				174
Total available-for-sale debt securities			—				634				85				719				—				1,558				87				1,645
Total assets measured at fair value on a recurring basis		$	491			$	634			$	85			$	1,210			$	330			$	1,558			$	87			$	1,975
Liabilities:
Long-term debt (1)		$	—			$	1,076			$	—			$	1,076			$	—			$	1,086			$	—			$	1,086

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

		January 31, 2011																July 31, 2010
														Total																Total
(In millions)		Level 1				Level 2				Level 3				Fair Value				Level 1				Level 2				Level 3				Fair Value
Cash equivalents:
In cash and cash equivalents		$	329			$	—			$	—			$	329			$	143			$	—			$	—			$	143
In funds held for customers			162				—				—				162				187				—				—				187
Total cash equivalents		$	491			$	—			$	—			$	491			$	330			$	—			$	—			$	330
Available-for-sale debt securities:
In investments		$	—			$	459			$	—			$	459			$	—			$	1,408			$	—			$	1,408
In funds held for customers			—				175				—				175				—				150				—				150
In long-term investments			—				—				85				85				—				—				87				87
Total available-for-sale debt securities		$	—			$	634			$	85			$	719			$	—			$	1,558			$	87			$	1,645

We value our Level 1 assets, consisting primarily of money market funds, using quoted prices in active markets for identical instruments. Financial assets whose fair values we measure on a recurring basis using Level 2 inputs consist of municipal bonds, corporate notes and U.S. agency securities. We measure the fair values of these assets using quoted prices in active markets for similar instruments. Financial liabilities whose fair values we measure using Level 2 inputs consist of long-term debt. See Note 8. We measure the fair value of our long-term debt based on the trading prices of the senior notes and the interest rates we could obtain for other borrowings with similar terms. Financial assets whose fair values we measure using significant unobservable (Level 3) inputs consist of municipal auction rate securities that are no longer liquid. These securities are included in long-term investments on our balance sheets at January 31, 2011 and July 31, 2010 based on the maturities of the underlying securities. There were no significant transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the six months ended January 31, 2011.

The following table presents a reconciliation of activity for our Level 3 assets for the six months ended January 31, 2011.

		Six Months
		Ended
		January 31,
(In millions)		2011
Beginning balance		$	87
Settlements at par			(2	)
Ending balance		$	85

We estimated the fair values of these municipal auction rate securities at January 31, 2011 and July 31, 2010 using a discounted cash flow model that we prepared. Using our discounted cash flow model we determined that the fair values of the municipal auction rate securities we held at January 31, 2011 were approximately equal to their par values. As a result, we recorded no decrease in the fair values of those securities for the six months then ended. We do not intend to sell our municipal auction rate securities and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity. Based on our expected operating cash flows and our other sources of cash, we do not believe that the reduction in liquidity of our municipal auction rate securities will have a material impact on our overall ability to meet our liquidity needs.

3. Cash and Cash Equivalents, Investments and Funds Held for Customers

We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of AAA-rated money market funds in all periods presented. Investments consist of available-for-sale investment-grade debt securities that we carry at fair value. Funds held for customers consist of cash and cash equivalents and available-for-sale investment-grade debt securities. Long-term investments consist primarily of municipal auction rate securities that we carry at fair value. See Note 2. Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market funds, we diversify our investments by limiting our holdings with any individual issuer.

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

		January 31, 2011								July 31, 2010
		Amortized								Amortized
(In millions)		Cost				Fair Value				Cost				Fair Value
Classification on balance sheets:
Cash and cash equivalents		$	433			$	433			$	214			$	214
Investments			459				459				1,407				1,408
Funds held for customers			337				337				336				337
Long-term investments			89				89				91				91
Total cash and cash equivalents, investments and funds held for customers		$	1,318			$	1,318			$	2,048			$	2,050

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

		January 31, 2011								July 31, 2010
		Amortized								Amortized
(In millions)		Cost				Fair Value				Cost				Fair Value
Type of issue:
Total cash and cash equivalents		$	595			$	595			$	401			$	401
Available-for-sale debt securities:
Municipal bonds			357				357				1,049				1,050
Municipal auction rate securities			85				85				87				87
Corporate notes			194				195				333				334
U.S. agency securities			83				82				174				174
Total available-for-sale debt securities			719				719				1,643				1,645
Other long-term investments			4				4				4				4
Total cash and cash equivalents, investments and funds held for customers		$	1,318			$	1,318			$	2,048			$	2,050

We use the specific identification method to compute gains and losses on investments. We include realized gains and losses on our available-for-sale debt securities in interest and other income, net in our statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three and six months ended January 31, 2011 and January 31, 2010 were not significant. We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income in the stockholders’ equity section of our balance sheets. Gross unrealized gains and losses on our available-for-sale debt securities at January 31, 2011 and July 31, 2010 were not significant.

We periodically review our investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. We believe that the investments we held at January 31, 2011 were not other-than-temporarily impaired. While 84 available-for-sale debt securities had fair values that were a total of $0.9 million below amortized cost at that date, we do not intend to sell these securities and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity. None of these securities had been in an unrealized loss position for more than 12 months at January 31, 2011. The

unrealized losses at January 31, 2011 are due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with the specific securities.

The following table summarizes our available-for-sale debt securities classified by the stated maturity date of the security at the dates indicated.

		January 31, 2011								July 31, 2010
		Amortized								Amortized
(In millions)		Cost				Fair Value				Cost				Fair Value
Due within one year		$	232			$	232			$	432			$	433
Due within two years			221				222				365				366
Due within three years			128				128				164				164
Due after three years			138				137				682				682
Total available-for-sale debt securities		$	719			$	719			$	1,643			$	1,645

Available-for-sale debt securities due after three years in the table above included $85 million in municipal auction rate securities at January 31, 2011 and $87 million in municipal auction rate securities at July 31, 2010. See Note 2. Of the remaining available-for-sale debt securities, 80% and 89% had an interest reset date, put date or mandatory call date within two years of those dates.

4. Accumulated Other Comprehensive Income

We add components of other comprehensive income, such as changes in the fair value of available-for-sale debt securities and foreign currency translation adjustments, to our net income or loss to arrive at comprehensive net income or loss. For the three and six months ended January 31, 2011 and January 31, 2010, other comprehensive income was not significant.

The balances in accumulated other comprehensive income in the equity section of our balance sheets at January 31, 2011 and July 31, 2010 consisted primarily of cumulative foreign currency translation adjustments and were not significant.

5. Business Combinations

We completed the business combinations described below during fiscal 2010. We have included the results of operations for each of them in our consolidated results of operations from their respective dates of acquisition. Their results of operations for periods prior to the dates of acquisition were not material, individually or in the aggregate, when compared with our consolidated results of operations. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management.

Medfusion, Inc.

On May 21, 2010 we acquired privately held Medfusion, Inc. for total consideration of approximately $89 million. The total consideration included approximately $10 million for the fair value of cash retention bonuses that is being charged to expense over a three year service period. Medfusion is a provider of online patient-to-provider communication solutions and became part of our Other Businesses segment. We acquired Medfusion to expand our online healthcare offerings in support of our Connected Services strategy.

Under the acquisition method of accounting we allocated the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. We recorded the excess of consideration over the aggregate fair values as goodwill. Using information available at the time the acquisition closed, we allocated approximately $8 million of the consideration to net tangible liabilities and approximately $23 million of the consideration to identified intangible assets. We recorded the excess consideration of approximately $62 million as goodwill, none of which is deductible for income tax purposes. The identified intangible assets are being amortized over a weighted average life of six years.

Mint Software Inc.

On November 2, 2009 we acquired all of the outstanding equity interests of Mint Software Inc. for total consideration of approximately $170 million. The total consideration included approximately $24 million for cash retention bonuses and the fair value of assumed equity awards and Intuit common stock issued to the holder of Mint Series D Preferred Stock. The total of $24 million is being charged to expense over a three year service period. Mint is a provider of online personal finance services and became part of our Other Businesses segment. We acquired Mint to expand our online personal finance offerings in support of our Connected Services strategy.

Under the acquisition method of accounting we allocated the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values assigned to identifiable intangible assets acquired were based on estimates and assumptions determined by management. We recorded the excess of consideration over the aggregate fair values as goodwill. Using information available at the time the acquisition closed, we allocated approximately $1 million of the consideration to tangible assets and liabilities and approximately $43 million of the consideration to identified intangible assets. We recorded the excess consideration of approximately $102 million as goodwill, none of which is deductible for income tax purposes. The identified intangible assets are being amortized over a weighted average life of seven years.

6. Discontinued Operations

On January 15, 2010 we sold our Intuit Real Estate Solutions (IRES) business for approximately $128 million in cash and recorded a net gain on disposal of $35 million. The decision to sell IRES was a result of management’s desire to focus resources on Intuit’s core products and services. IRES was part of our Other Businesses segment.

We accounted for IRES as a discontinued operation and have therefore segregated the operating results of IRES from continuing operations in our statements of operations for all periods prior to the sale. For the three months ended January 31, 2010, net revenue from IRES was $14 million and net loss from IRES was $1 million, excluding the net gain on disposal. For the six months ended January 31, 2010, net revenue from IRES was $33 million and net income from IRES was less than $1 million, excluding the net gain on disposal. Because IRES operating cash flows were not material for any period presented, we have not segregated them from continuing operations on our statements of cash flows.

7. Current Liabilities

Unsecured Revolving Credit Facility

On March 22, 2007 we entered into an agreement with certain institutional lenders for a $500 million unsecured revolving credit facility that will expire on March 22, 2012. Advances under the credit facility will accrue interest at rates that are equal to, at our election, either Citibank’s base rate or the London InterBank Offered Rate (LIBOR) plus a margin that ranges from 0.18% to 0.575% based on our senior debt credit ratings. The applicable interest rate will be increased by 0.05% for any period in which the total principal amount of advances and letters of credit under the credit facility exceeds $250 million. The agreement includes covenants that require us to maintain a ratio of total debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) of not greater than 3.25 to 1.00 and a ratio of annual EBITDA to interest payable of not less than 3.00 to 1.00. We were in compliance with these covenants at January 31, 2011. We may use amounts borrowed under this credit facility for general corporate purposes or for future acquisitions or expansion of our business. To date we have not borrowed under this credit facility.

Other Current Liabilities

Other current liabilities were as follows at the dates indicated:

		January 31,				July 31,
(In millions)		2011				2010
Reserve for product returns		$	86			$	20
Reserve for rebates			50				11
Current portion of license fee payable			10				10
Current portion of deferred rent			7				7
Interest payable			21				21
Executive deferred compensation plan liabilities			51				43
Other			31				22
Total other current liabilities		$	256			$	134

The balances of several of our other current liabilities, particularly our reserves for product returns and rebates, are affected by the seasonality of our business. See Note 1, “Seasonality.”

8. Long-Term Obligations and Commitments

Long-Term Debt

On March 12, 2007 we issued $500 million of 5.40% senior unsecured notes due on March 15, 2012 and $500 million of 5.75% senior unsecured notes due on March 15, 2017 (together, the Notes), for a total principal amount of $1 billion. We carried the Notes at face value less the unamortized discount of $2 million on our balance sheets at January 31, 2011 and July 31, 2010. The Notes are redeemable by Intuit at any time, subject to a make-whole premium. The Notes include covenants that limit our ability to grant liens on our facilities and to enter into sale and leaseback transactions, subject to significant allowances. We paid $28 million in cash for interest on the Notes during the six months ended January 31, 2011 and January 31, 2010.

Other Long-Term Obligations

Other long-term obligations were as follows at the dates indicated:

		January 31,				July 31,
(In millions)		2011				2010
Total license fee payable		$	68			$	65
Total deferred rent			56				60
Long-term deferred revenue			37				29
Long-term income tax liabilities			41				20
Long-term payables			19				—
Other			2				3
Total long-term obligations			223				177
Less current portion (included in other current liabilities)			(18	)			(19	)
Long-term obligations due after one year		$	205			$	158

Operating Lease Commitments

We lease office facilities and equipment under various operating lease agreements. Our facilities leases generally provide for periodic rent increases and many contain escalation clauses and renewal options. Certain leases require us to pay property taxes, insurance and routine maintenance. Annual minimum commitments under all of these leases are shown in the table below.

		Operating
		Lease
(In millions)		Commitments
Annual periods ending January 31,
2012		$	54
2013			49
2014			45
2015			43
2016			42
Thereafter			232
Total operating lease commitments		$	465

Included in the table above are two agreements that we signed in January 2011 that extend the terms of Intuit’s leases for its corporate headquarters office space in Mountain View, California through 2024 and 2026. The total expected rent through the end of those terms is approximately $210 million, with options to further extend the leases for ten years at rates to be determined in accordance with the agreements.

Unconditional Purchase Obligations

In the ordinary course of business we enter into certain unconditional purchase obligations with our suppliers. These are agreements to purchase products and services that are enforceable, legally binding, and specify terms that include fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payments. At January 31, 2011, our unconditional purchase obligations totaled approximately $281 million. The largest of these commitments relates to future outsourced electronic payment fulfillment and bill management services for our Financial Services segment.

9. Income Taxes

Effective Tax Rate

We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and other taxable items. Our effective tax rate for the three months ended January 31, 2011 was approximately 28%. Excluding discrete tax benefits primarily related to the retroactive reinstatement of the federal research and experimentation credit as described below, our effective tax rate for that quarter was approximately 36% and did not differ significantly from the statutory rate of 35%. State income taxes were substantially offset by the benefit we received from the domestic production activities deduction and the federal research and experimentation credit. Our effective tax rate for the three months ended January 31, 2010 was approximately 37%. This differed from the federal statutory rate of 35% primarily due to state income taxes, which were partially offset by the benefit we received from the domestic production activities deduction and the federal research and experimentation credit.

We recorded a $12 million tax benefit on a loss of $9 million for the six months ended January 31, 2011. Excluding discrete tax benefits primarily related to the retroactive reinstatement of the federal research and experimentation credit as described below, our effective tax rate for that period was approximately 36% and did not differ significantly from the statutory rate of 35%. State income taxes were substantially offset by the benefit we received from the domestic production activities deduction and the federal research and experimentation credit. Our effective tax rate for the six months ended January 31, 2010 was approximately 27%. Excluding discrete tax benefits primarily related to routine stock option deduction benefits, our effective tax rate for that period was approximately 37%. This differed from the federal statutory rate of 35% primarily due to state income taxes, which were partially

offset by the benefit we received from the domestic production activities deduction and the federal research and experimentation credit.

In December 2010 the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2011 that was retroactive to January 1, 2010. We recorded a discrete tax benefit of approximately $9 million for the retroactive amount related to fiscal 2010 and the first quarter of fiscal 2011 during the three months ended January 31, 2011.

Unrecognized Tax Benefits and Other Considerations

The total amount of our unrecognized tax benefits at July 31, 2010 was $35 million. Net of related deferred tax assets, unrecognized tax benefits were $30 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $30 million. There were no material changes to these amounts during the six months ended January 31, 2011. We do not believe that it is reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months.

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. We repurchased 18.5 million shares for $860 million under these programs during the six months ended January 31, 2011 and 18.8 million shares for $550 million under these programs during the six months ended January 31, 2010. At January 31, 2011, we had authorization from our Board of Directors to expend up to an additional $1.14 billion for stock repurchases through August 16, 2013.

To facilitate the stock repurchase program described above, from time to time we repurchase shares in the open market. On January 3, 2011 we entered into an accelerated share repurchase (ASR) agreement with a large financial institution to repurchase $250 million of Intuit’s common stock on an accelerated basis. We entered into this ASR agreement in order to repurchase shares at a guaranteed discount from the average price of our stock over a specified period of time. We had the contractual right to cancel the ASR agreement without any financial or other obligation at any time prior to February 2, 2011. On February 2, 2011 we paid $250 million to the financial institution and received an initial delivery of 4.2 million shares of Intuit common stock. The total number of shares to be delivered generally will be determined by applying an agreed discount to the average of the daily volume weighted average price of Intuit common shares traded during the pricing period. The pricing period is scheduled to end in April 2011, but it may conclude sooner at the election of the financial institution. If the total number of shares to be delivered exceeds the number of shares delivered on February 2, 2011, we will receive the remaining balance of shares from the financial institution. Based on the current trading prices of our common stock, we expect to receive additional shares. If the total number of shares to be delivered is less than the number of shares delivered on February 2, 2011, we have the contractual right to deliver to the financial institution either shares of Intuit common stock or cash equal to the value of those shares. We will reflect the shares delivered to us by the financial institution as treasury shares as of the dates they are physically delivered in computing weighted average shares outstanding for both basic and diluted net income per share.

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.

Share-Based Compensation Expense

The following table summarizes the total share-based compensation expense that we recorded for the periods shown.

		Three Months Ended								Six Months Ended
		January 31,				January 31,				January 31,				January 31,
(In millions, except per share amounts)		2011				2010				2011				2010
Cost of revenue		$	2			$	3			$	3			$	5
Selling and marketing			12				12				21				19
Research and development			12				11				25				20
General and administrative			12				11				24				20
Discontinued operations			—				1				—				1
Total share-based compensation expense			38				38				73				65
Income tax benefit			(13	)			(13	)			(25	)			(23	)
Decrease in net income		$	25			$	25			$	48			$	42
Decrease in net income per share:
Basic		$	0.08			$	0.08			$	0.15			$	0.13
Diluted		$	0.08			$	0.08			$	0.15			$	0.13