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

For the quarterly period ended April 30, 2008

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

For the transition period from                      to                     .

INTUIT INC.

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 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. 321,007,630 shares of Common Stock, $0.01 par value, were outstanding at May 23, 2008.

 

 

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 nine months ended April 30, 2008 and 2007			3
		Condensed Consolidated Balance Sheets at April 30, 2008 and July 31, 2007			4
		Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended April 30, 2008 and 2007			5
		Condensed Consolidated Statements of Cash Flows for the three and nine months ended April 30, 2008 and 2007			6
		Notes to Condensed Consolidated Financial Statements			7
ITEM 2:		Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
ITEM 3:		Quantitative and Qualitative Disclosures about Market Risk			40
ITEM 4:		Controls and Procedures			41
PART II		OTHER INFORMATION
ITEM 1:		Legal Proceedings			42
ITEM 1A:		Risk Factors			43
ITEM 2:		Unregistered Sales of Equity Securities and Use of Proceeds			46
ITEM 6:		Exhibits			47
		Signatures			48
EXHIBIT 10.02
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries, Digital Insight and Quicken, 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

INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended								Nine Months Ended
		April 30,				April 30,				April 30,				April 30,
(In thousands, except per share amounts; unaudited)		2008				2007				2008				2007
Net revenue:
Product		$	517,670			$	484,052			$	1,277,080			$	1,240,232
Service and other			795,338				655,093				1,315,740				1,000,043
Total net revenue			1,313,008				1,139,145				2,592,820				2,240,275
Costs and expenses:
Cost of revenue:
Cost of product revenue			34,637				40,605				125,264				142,075
Cost of service and other revenue			105,311				90,377				305,603				218,568
Amortization of purchased intangible assets			14,075				13,538				40,188				17,871
Selling and marketing			246,095				214,655				679,459				587,703
Research and development			149,985				116,200				449,088				346,614
General and administrative			79,150				76,995				222,937				221,224
Acquisition-related charges			9,254				8,695				25,349				11,942
Total costs and expenses			638,507				561,065				1,847,888				1,545,997
Operating income from continuing operations			674,501				578,080				744,932				694,278
Interest expense			(12,830	)			(12,823	)			(40,389	)			(12,823	)
Interest and other income			10,361				10,552				32,477				31,867
Gains on marketable equity securities and other investments, net			477				347				1,190				1,568
Gain on sale of outsourced payroll assets			13,616				406				51,571				406
Income from continuing operations before income taxes			686,125				576,562				789,781				715,296
Income tax provision			241,612				208,344				275,839				258,148
Minority interest expense, net of tax			334				271				1,332				821
Net income from continuing operations			444,179				367,947				512,610				456,327
Net income (loss) from discontinued operations			—				(736	)			26,012				(2,684	)
Net income		$	444,179			$	367,211			$	538,622			$	453,643
Basic net income per share from continuing operations		$	1.37			$	1.08			$	1.55			$	1.33
Basic net income (loss) per share from discontinued operations			—				—				0.08				(0.01	)
Basic net income per share		$	1.37			$	1.08			$	1.63			$	1.32
Shares used in basic per share calculations			323,408				339,495				330,862				344,351
Diluted net income per share from continuing operations		$	1.33			$	1.04			$	1.50			$	1.28
Diluted net income (loss) per share from discontinued operations			—				—				0.08				(0.01	)
Diluted net income per share		$	1.33			$	1.04			$	1.58			$	1.27
Shares used in diluted per share calculations			333,436				351,686				341,869				357,767

See accompanying notes.

INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

		April 30,				July 31,
(In thousands; unaudited)		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	471,504			$	255,201
Investments			425,396				1,048,470
Accounts receivable, net			225,047				131,691
Income taxes receivable			457				54,178
Deferred income taxes			86,786				84,682
Prepaid expenses and other current assets			61,301				54,854
Current assets of discontinued operations			—				8,515
Current assets before funds held for customers			1,270,491				1,637,591
Funds held for customers			358,001				314,341
Total current assets			1,628,492				1,951,932
Long-term investments			295,459				—
Property and equipment, net			469,675				298,396
Goodwill			1,698,436				1,517,036
Purchased intangible assets, net			290,125				292,884
Long-term deferred income taxes			95,319				72,066
Loans to officers			8,225				8,865
Other assets			62,702				58,636
Long-term assets of discontinued operations			—				52,211
Total assets		$	4,548,433			$	4,252,026
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	156,531			$	119,799
Accrued compensation and related liabilities			179,423				192,286
Deferred revenue			280,244				313,753
Income taxes payable			214,523				33,278
Other current liabilities			200,873				171,650
Current liabilities of discontinued operations			—				15,002
Current liabilities before customer fund deposits			1,031,594				845,768
Customer fund deposits			358,001				314,341
Total current liabilities			1,389,595				1,160,109
Long-term debt			997,951				997,819
Other long-term obligations			104,283				57,756
Total liabilities			2,491,829				2,215,684
Commitments and contingencies
Minority interest			6,180				1,329
Stockholders’ equity:
Preferred stock			—				—
Common stock and additional paid-in capital			2,371,910				2,251,146
Treasury stock, at cost			(2,838,985	)			(2,207,114	)
Accumulated other comprehensive income			8,138				6,096
Retained earnings			2,509,361				1,984,885
Total stockholders’ equity			2,050,424				2,035,013
Total liabilities and stockholders’ equity		$	4,548,433			$	4,252,026

See accompanying notes.

INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																		Accumulated
										Additional								Other								Total
		Common Stock								Paid-In				Treasury				Comprehensive				Retained				Stockholders’
(Dollars in thousands; unaudited)		Shares				Amount				Capital				Stock				Income				Earnings				Equity
Balance at July 31, 2007			339,157,302			$	3,391			$	2,247,755			$	(2,207,114	)		$	6,096			$	1,984,885			$	2,035,013
Components of comprehensive income:
Net income			—				—				—				—				—				538,622				538,622
Other comprehensive income, net of tax			—				—				—				—				2,042				—				2,042
Comprehensive net income																											540,664
Issuance of common stock under employee stock plans			7,741,562				77				—				162,226				—				(8,513	)			153,790
Restricted stock units released, net of taxes			290,417				3				(6,844	)			5,630				—				(5,633	)			(6,844	)
Issuance of restricted stock units pursuant to Management Stock Purchase Plan			—				—				2,284				—				—				—				2,284
Assumed vested stock options from purchase acquisitions			—				—				11,096				—				—				—				11,096
Stock repurchases under stock repurchase programs			(27,171,082	)			(271	)			—				(799,727	)			—				—				(799,998	)
Tax benefit from employee stock option transactions			—				—				28,091				—				—				—				28,091
Share-based compensation (1)			—				—				86,328				—				—				—				86,328
Balance at April 30, 2008			320,018,199			$	3,200			$	2,368,710			$	(2,838,985	)		$	8,138			$	2,509,361			$	2,050,424

																		Accumulated
										Additional								Other								Total
		Common Stock								Paid-In				Treasury				Comprehensive				Retained				Stockholders’
(Dollars in thousands; unaudited)		Shares				Amount				Capital				Stock				Income				Earnings				Equity
Balance at July 31, 2006			344,170,779			$	3,442			$	2,089,472			$	(1,944,036	)		$	1,084			$	1,588,124			$	1,738,086
Components of comprehensive income:
Net income			—				—				—				—				—				453,643				453,643
Other comprehensive income, net of tax			—				—				—				—				2,774				—				2,774
Comprehensive net income																											456,417
Issuance of common stock under employee stock plans			7,839,107				78				10,202				162,759				—				(22,111	)			150,928
Restricted stock units released, net of taxes			1,927				—				—				42				—				(42	)			—
Assumed vested stock options from purchase acquisitions			—				—				13,898				—				—				—				13,898
Stock repurchases under stock repurchase programs			(17,083,600	)			(171	)			—				(506,422	)			—				—				(506,593	)
Repurchase of vested restricted stock			(5,362	)			—				—				(158	)			—				—				(158	)
Tax benefit from employee stock option transactions			—				—				32,109				—				—				—				32,109
Share-based compensation (2)			—				—				58,756				—				—				—				58,756
Other			—				—				(121	)			—				—				—				(121	)
Balance at April 30, 2007			334,922,851			$	3,349			$	2,204,316			$	(2,287,815	)		$	3,858			$	2,019,614			$	1,943,322

See accompanying notes.

INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended								Nine Months Ended
		April 30,				April 30,				April 30,				April 30,
(In thousands; unaudited)		2008				2007				2008				2007
Cash flows from operating activities:
Net income (1)		$	444,179			$	367,211			$	538,622			$	453,643
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			31,420				25,230				85,542				68,566
Acquisition-related charges			9,254				9,660				25,349				14,836
Amortization of purchased intangible assets			14,075				13,817				40,188				18,708
Amortization of purchased intangible assets to cost of service and other revenue			2,189				1,449				6,089				6,754
Share-based compensation			30,093				20,585				86,328				58,756
Amortization of premiums and discounts on available-for-sale debt securities			946				939				2,556				2,900
Net gains on marketable equity securities and other investments			(477	)			(347	)			(1,190	)			(1,568	)
Gain on sale of outsourced payroll assets			(13,616	)			(406	)			(51,571	)			(406	)
Gain on sale of IDMS (1)			—				—				(45,667	)			—
Deferred income taxes			4,582				(2,376	)			19,142				(11,775	)
Tax benefit from share-based compensation plans			3,059				2,679				28,091				32,109
Excess tax benefit from share-based compensation plans			(2,024	)			(1,511	)			(17,785	)			(18,231	)
Other			4,959				1,565				6,998				2,308
Subtotal			528,639				438,495				722,692				626,600
Changes in operating assets and liabilities:
Accounts receivable			150,540				155,895				(86,398	)			(56,989	)
Prepaid expenses, taxes and other assets			19,470				35,956				40,563				44,683
Accounts payable			333				(23,509	)			10,708				25,461
Accrued compensation and related liabilities			28,231				(6,310	)			(21,574	)			(40,036	)
Deferred revenue			(56,746	)			(56,159	)			(32,946	)			(53,886	)
Income taxes payable			196,883				155,045				182,545				157,747
Other liabilities			(35,401	)			8,821				53,903				111,085
Total changes in operating assets and liabilities			303,310				269,739				146,801				188,065
Net cash provided by operating activities (1)			831,949				708,234				869,493				814,665
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(290,300	)			(1,097,727	)			(738,991	)			(1,978,305	)
Liquidation of available-for-sale debt securities			151,142				454,408				868,759				1,440,155
Maturity of available-for-sale debt securities			26,760				391,148				201,095				452,762
Proceeds from the sale of marketable equity securities			—				—				—				858
Net change in funds held for customers’ money market funds and other cash equivalents			181,124				152,688				(37,715	)			98,213
Purchases of property and equipment			(95,335	)			(36,402	)			(217,254	)			(89,308	)
Change in other assets			4,384				(1,556	)			(2,086	)			(8,238	)
Net change in customer fund deposits			(181,124	)			(152,688	)			37,715				(98,213	)
Acquisitions of businesses and intangible assets, net of cash acquired			(128,768	)			(1,207,283	)			(262,839	)			(1,269,276	)
Cash received from acquirer of outsourced payroll assets			7,576				44,312				34,879				44,312
Cash received from acquirer of IDMS (1)			—				—				97,147				—
Net cash used in investing activities of continuing operations			(324,541	)			(1,453,100	)			(19,290	)			(1,407,040	)
Net cash provided by investing activities of discontinued operations			—				—				—				20,989
Net cash used in investing activities			(324,541	)			(1,453,100	)			(19,290	)			(1,386,051	)
Cash flows from financing activities:
Proceeds from bridge credit facility			—				1,000,000				—				1,000,000
Retirement of bridge credit facility			—				(1,000,000	)			—				(1,000,000	)
Issuance of long-term debt, net of discounts			—				997,755				—				997,755
Net proceeds from issuance of common stock under stock plans			31,602				26,731				146,946				150,928
Purchase of treasury stock			(300,000	)			(301,378	)			(799,998	)			(506,751	)
Excess tax benefit from share-based compensation plans			2,024				1,511				17,785				18,231
Issuance of restricted stock units pursuant to Management Stock Purchase Plan			—				—				2,284				—
Debt issuance costs and other			523				(6,307	)			(3,072	)			(7,622	)
Net cash provided by (used in) financing activities			(265,851	)			718,312				(636,055	)			652,541
Effect of exchange rates on cash and cash equivalents			(201	)			4,799				2,155				3,817
Net increase (decrease) in cash and cash equivalents			241,356				(21,755	)			216,303				84,972
Cash and cash equivalents at beginning of period			230,148				286,328				255,201				179,601
Cash and cash equivalents at end of period		$	471,504			$	264,573			$	471,504			$	264,573

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, financial institutions, consumers, and accounting professionals. Our flagship products and services, including QuickBooks, Quicken and TurboTax software, simplify small business management and payroll processing, personal finance, and tax preparation and filing. Lacerte and ProSeries are Intuit’s tax preparation software suites for professional accountants. Our financial institutions division, anchored by Digital Insight Corporation, provides on-demand banking services to help banks and credit unions serve businesses and consumers. Founded in 1983 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.

Basis of Presentation

The 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 February 2007 we acquired Digital Insight Corporation for a total purchase price of approximately $1.34 billion. In December 2007 we acquired Homestead Technologies Inc. for total consideration of approximately $170 million and in February 2008 we acquired Electronic Clearing House, Inc. for a total purchase price of approximately $131 million. Accordingly, we have included the results of operations for these three companies in our consolidated results of operations from the respective dates of acquisition. See Note 4. The condensed consolidated financial statements also include the financial position, results of operations and cash flows of Superior Bankcard Services, LLC (SBS), an entity that acquires merchant accounts for our Innovative Merchant Solutions business. We are allocated 51% of the earnings and losses of this entity and 100% of the losses in excess of the minority interest capital balances. We therefore eliminate the portion of the SBS financial results that pertain to the minority interests on a separate line in our statements of operations and on our balance sheets.

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

We have included all normal recurring adjustments and the adjustments for discontinued operations that we considered necessary to give a fair presentation of our operating results for the periods presented. These condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2007. Results for the three and nine months ended April 30, 2008 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2008 or any other future period.

Seasonality

Our QuickBooks, Consumer Tax and Professional Tax businesses are highly seasonal. Some of our other offerings are also seasonal, but to a lesser extent. Revenue from many of our small business software products, including QuickBooks, tends to be at its peak around calendar year end, although the timing of new product releases or changes in our offerings can materially shift revenue between quarters. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. These 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.

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. In loss periods, basic net loss per share and diluted net loss per share are identical since the effect of potential common shares is anti-dilutive and therefore excluded.

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, 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.

The following table presents the composition of shares used in the computation of basic and diluted net loss per share for the periods indicated.

		Three Months Ended								Nine Months Ended
		April 30,				April 30,				April 30,				April 30,
(In thousands, except per share amounts)		2008				2007				2008				2007
Numerator:
Net income from continuing operations		$	444,179			$	367,947			$	512,610			$	456,327
Net income (loss) from discontinued operations			—				(736	)			26,012				(2,684	)
Net income		$	444,179			$	367,211			$	538,622			$	453,643
Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding			323,408				339,495				330,862				344,351
Shares used in diluted per share amounts:
Weighted average common shares outstanding			323,408				339,495				330,862				344,351
Dilutive common equivalent shares from stock options and restricted stock awards			10,028				12,191				11,007				13,416
Dilutive weighted average common shares outstanding			333,436				351,686				341,869				357,767
Basic and diluted net income per share:
Basic net income per share from continuing operations		$	1.37			$	1.08			$	1.55			$	1.33
Basic net income (loss) per share from discontinued operations			—				—				0.08				(0.01	)
Basic net income per share		$	1.37			$	1.08			$	1.63			$	1.32
Diluted net income per share from continuing operations		$	1.33			$	1.04			$	1.50			$	1.28
Diluted net income (loss) per share from discontinued operations			—				—				0.08				(0.01	)
Diluted net income per share		$	1.33			$	1.04			$	1.58			$	1.27
Weighted average stock options and restricted stock awards excluded from calculation due to anti-dilutive effect:
Stock options with combined exercise prices and unrecognized compensation expense that were greater than the average market price for the common stock during the period			18,593				12,087				18,624				10,023

Significant Customers

No customer accounted for 10% or more of total net revenue in the three or nine months ended April 30, 2008 or 2007. No customer accounted for 10% or more of total accounts receivable at April 30, 2008 or July 31, 2007.

Recent Accounting Pronouncements

SFAS 157, “Fair Value Measurements”

In September 2006 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require or permit assets or liabilities to be measured at fair value. This standard does not expand the use of fair value in any new circumstances. SFAS 157 is effective for fiscal years beginning after November 15, 2007, which means that it will be effective for our fiscal year beginning August 1, 2008. In February 2008 the FASB issued a Staff Position that partially defers the effective date of SFAS 157 for one year for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 157 will have on our financial position, results of operations or cash flows.

SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”

In February 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The new standard does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157, “Fair Value Measurements,” and SFAS 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective for fiscal years beginning after November 15, 2007, which means that it will be effective for our fiscal year beginning August 1, 2008. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 159 will have on our financial position, results of operations or cash flows.

SFAS 141 (revised 2007), “Business Combinations”

In December 2007 the FASB issued SFAS 141 (revised 2007), “Business Combinations.” SFAS 141R will significantly change the accounting for business combinations in a number of areas, including the measurement of assets and liabilities acquired and the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will affect the income tax provision. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008, which means that it will be effective for our fiscal year beginning August 1, 2009. Early adoption is prohibited. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 141R will have on our financial position, results of operations or cash flows.

SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements”

In December 2007 the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements,” which establishes accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for business arrangements entered into in fiscal years beginning on or after December 15, 2008, which means that it will be effective for our fiscal year beginning August 1, 2009. Early adoption is prohibited. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 160 will have on our financial position, results of operations or cash flows.

2. 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 AAA-rated money market funds. 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.

		April 30, 2008								July 31, 2007
(In thousands)		Cost				Fair Value				Cost				Fair Value
Classification on balance sheets:
Cash and cash equivalents		$	471,504			$	471,504			$	255,201			$	255,201
Investments			423,535				425,396				1,048,643				1,048,470
Funds held for customers			358,001				358,001				314,341				314,341
Long-term investments			295,459				295,459				—				—
Total cash and cash equivalents, investments and funds held for customers		$	1,548,499			$	1,550,360			$	1,618,185			$	1,618,012

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

		April 30, 2008								July 31, 2007
(In thousands)		Cost				Fair Value				Cost				Fair Value
Type of issue:
Total cash and cash equivalents		$	829,505			$	829,505			$	569,542			$	569,542
Available-for-sale debt securities:
Municipal bonds			413,536				415,392				442,269				442,095
Municipal auction rate securities			292,050				292,050				601,524				601,525
U.S. agency securities			9,999				10,004				—				—
Asset-backed securities			—				—				4,850				4,850
Other long-term investments			3,409				3,409				—				—
Total available-for-sale debt securities			718,994				720,855				1,048,643				1,048,470
Total cash and cash equivalents, investments and funds held for customers		$	1,548,499			$	1,550,360			$	1,618,185			$	1,618,012

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 April 30, 2008 and July 31, 2007 were not significant.

We include realized gains and losses on our available-for-sale debt securities in interest and other income in our statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three and nine months ended April 30, 2008 and 2007 were not significant.

At February 1, 2008, we had approximately $328 million invested in AAA-rated municipal auction rate securities that we classified as short-term investments. Auction rate securities are collateralized long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined intervals, typically every 35 days. The underlying assets of the municipal auction rate securities we hold are generally student loans which are guaranteed by the U.S. Department of Education. We sold approximately $36 million of these securities through the normal auction process in early February 2008. Beginning in February 2008, a decrease in liquidity in the global credit markets caused auctions to fail for substantially all of the remaining municipal auction rate securities we held. When these auctions failed to clear, higher interest rates for many of those securities went into effect. However, the principal amounts of those securities will not be accessible until a

successful auction occurs, a buyer is found outside of the auction process, the issuer calls the security, the issuer repays principal over time from cash flows prior to final maturity, or the security matures according to contractual terms ranging from one to 39 years. At April 30, 2008, substantially all our auction rate securities were rated AAA/Aaa by the major credit rating agencies. We continue to believe that the credit quality of our auction rate securities is high and we expect that we will receive the principal amounts of these securities through one of the means described above.

We estimated the fair values of the municipal auction rate securities we held at April 30, 2008 based on valuation reports from third parties and a discounted cash flow model that we prepared. Key inputs to our discounted cash flow model included the current contractual interest rates; forward projections of the current contractual interest rates; the likely timing of principal repayments; the probability of full repayment considering guarantees by the U.S. Department of Education of the underlying student loans or insurance by other third parties; publicly available pricing data for recently issued student loan backed securities that are not subject to auctions; and the impact of the current reduced liquidity for auction rate securities. Using the valuation reports from third parties and our discounted cash flow model we determined that the fair values of the municipal auction rate securities we held at April 30, 2008 were not significantly impaired, and as a result we recorded no decrease in the fair values of those securities for the three or nine months then ended.

While the recent auction failures will limit our ability to liquidate these securities for some period of time, 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. We have the ability and intent to hold these securities until liquidity returns to the market, other secondary markets develop, or the securities mature. However, as it is not certain when liquidity will return to the market or when other secondary markets will develop, we reclassified our investments in auction rate securities totaling $292 million from short-term investments to long-term investments on our balance sheet at April 30, 2008.

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

		April 30, 2008								July 31, 2007
(In thousands)		Cost				Fair Value				Cost				Fair Value
Due within one year		$	92,123			$	92,444			$	159,564			$	159,488
Due within two years			139,649				140,713				25,856				25,808
Due within three years			—				—				14,700				14,700
Due after three years			487,222				487,698				848,523				848,474
Total available-for-sale debt securities		$	718,994			$	720,855			$	1,048,643			$	1,048,470

3. Comprehensive Net Income

SFAS 130, “Reporting Comprehensive Income,” establishes standards for reporting and displaying comprehensive net income and its components in stockholders’ equity. SFAS 130 requires that the components of other comprehensive income, such as changes in the fair value of available-for-sale debt securities and foreign currency translation adjustments, be added to our net income to arrive at comprehensive net income. Other comprehensive income items have no impact on our net income as presented in our statements of operations.

The components of accumulated other comprehensive income, net of income taxes, were as follows for the periods indicated:

		Unrealized				Realized
		Gain (Loss)				Gain on				Foreign
		on				Derivative				Currency
(In thousands)		Investments				Instruments				Translation				Total
Balance at July 31, 2007		$	(105	)		$	433			$	5,768			$	6,096
Unrealized gain, net of income tax provision of $951			1,444				—				—				1,444
Reclassification adjustment for realized gain included in net income, net of income tax benefit of $143			(218	)			—				—				(218	)
Amortization of realized gain on derivative instruments, net of income tax provision of $21			—				(31	)			—				(31	)
Translation adjustment, net of income taxes of $559			—				—				847				847
Other comprehensive income			1,226				(31	)			847				2,042
Balance at April 30, 2008		$	1,121			$	402			$	6,615			$	8,138
Balance at July 31, 2006		$	(462	)		$	—			$	1,546			$	1,084
Unrealized gain, net of income tax provision of $175			267				—				—				267
Reclassification adjustment for realized loss included in net income, net of income tax provision of $7			11				—				—				11
Realized gain on derivative instruments, net of income tax provision of $294			—				450				—				450
Amortization of realized gain on derivative instruments, net of income tax provision of $3			—				(5	)			—				(5	)
Translation adjustment, net of income taxes of $1,341			—				—				2,051				2,051
Other comprehensive income			278				445				2,051				2,774
Balance at April 30, 2007		$	(184	)		$	445			$	3,597			$	3,858

Comprehensive net income was as follows for the periods indicated:

		Three Months Ended								Nine Months Ended
		April 30,				April 30,				April 30,				April 30,
(In thousands)		2008				2007				2008				2007
Net income		$	444,179			$	367,211			$	538,622			$	453,643
Other comprehensive income (loss)			(1,031	)			(9,932	)			2,042				2,774
Comprehensive net income, net of income taxes		$	443,148			$	357,279			$	540,664			$	456,417
Income tax provision (benefit) netted against other comprehensive income (loss)		$	(681	)		$	(10,462	)		$	1,346			$	(868	)

4. Acquisitions

Electronic Clearing House, Inc.

On February 29, 2008 we acquired all of the outstanding equity interests of Electronic Clearing House, Inc. (ECHO) for a total purchase price of approximately $131 million in cash. ECHO is a provider of electronic payment processing services to small businesses and became part of our Payroll and Payments segment. We acquired ECHO in order to expand our merchant services capabilities.

Under the purchase method of accounting we allocated the total purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. We estimated the fair values with the assistance of a third party appraisal firm. The fair values assigned to identifiable intangible assets acquired were based on estimates and assumptions determined by management. We recorded the excess of purchase price over the aggregate fair values as goodwill. Using information available at the time the acquisition closed, we allocated approximately $6 million of the purchase price to tangible assets and liabilities and approximately $44 million of the purchase price to identified intangible assets. We recorded the excess purchase price of approximately $81 million as goodwill, none of which is deductible for income tax purposes. We may adjust the preliminary purchase price allocation after obtaining more information about asset valuations and liabilities assumed. The identified intangible assets are being amortized over a weighted average life of eight years.

We have included ECHO’s results of operations in our consolidated results of operations from the date of acquisition. ECHO’s results of operations for periods prior to the date of acquisition were not material when compared with our consolidated results of operations.

Homestead Technologies Inc.

On December 18, 2007 we acquired Homestead Technologies Inc. (Homestead), including all of its outstanding equity interests, for total consideration of approximately $170 million on a fully diluted basis. The total consideration was comprised of the purchase price of $146 million, which included the fair value of vested stock options assumed, and the $24 million fair value of unvested stock options and restricted stock units assumed. Homestead is a provider of Web site services to small businesses and became part of our QuickBooks segment. We acquired Homestead as part of our strategy to help small businesses acquire and serve customers through the Internet.

Under the purchase method of accounting we allocated the total purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. We estimated the fair values with the assistance of a third party appraisal firm. The fair values assigned to identifiable intangible assets acquired were based on estimates and assumptions determined by management. We recorded the excess of purchase price over the aggregate fair values as goodwill. Using information available at the time the acquisition closed, we allocated approximately $14 million of the purchase price to tangible assets and liabilities and approximately $22 million of the purchase price to identified intangible assets. We recorded the excess purchase price of approximately $110 million as goodwill, none of which is deductible for income tax purposes. In the third quarter of fiscal 2008 we recorded a $11.5 million increase to tangible assets and a corresponding decrease to goodwill. The increase in the tangible assets was the result of a determination made after we obtained additional information regarding the realizability of certain deferred tax assets not previously recorded. We may continue to adjust the preliminary purchase price allocation after obtaining more information about asset valuations and liabilities assumed. The identified intangible assets are being amortized over a weighted average life of five years.

We have included Homestead’s results of operations in our consolidated results of operations from the date of acquisition. Homestead’s results of operations for periods prior to the date of acquisition were not material when compared with our consolidated results of operations.

Digital Insight Corporation

We completed the acquisition of Digital Insight Corporation for a purchase price of approximately $1.34 billion on February 6, 2007. We have included Digital Insight’s results of operations in our consolidated results of operations from the date of acquisition. The unaudited financial information in the table below summarizes the combined results of operations of Intuit and Digital Insight on a pro forma basis, as though the companies had been combined as of the beginning of fiscal 2007. The pro forma financial information is presented for informational purposes only

and is not indicative of the results of operations that would have been achieved if the acquisition and the issuance of $1 billion of related senior notes had taken place at the beginning of fiscal 2007. The pro forma financial information also includes adjustments to share-based compensation expense for stock options assumed, adjustments to depreciation expense for acquired property and equipment, amortization charges for acquired intangible assets, adjustments to interest income, and related tax effects. The pro forma financial information for the nine months ended April 30, 2007 combines our historical results for that period with the historical results of Digital Insight for the nine months ended March 31, 2007. We have reclassified the figures in the table below to exclude the results of Intuit Distribution Management Solutions, which became a discontinued operation in the fourth quarter of fiscal 2007. See Note 5.

The following table summarizes the pro forma financial information:

		Nine Months Ended
		April 30, 2007
(In thousands)		As Reported				Pro Forma
Total net revenue		$	2,240,275			$	2,365,271
Net income from continuing operations			456,327				427,237
Net income per share from continuing operations:
Basic		$	1.33			$	1.24
Diluted		$	1.28			$	1.19

5. Dispositions and Discontinued Operations

Intuit Distribution Management Solutions Discontinued Operations

In August 2007 we sold our Intuit Distribution Management Solutions (IDMS) business for approximately $100 million in cash and recorded a net gain on disposal of $27.5 million. The decision to sell IDMS was a result of management’s desire to focus resources on Intuit’s core products and services. IDMS was part of our Other Businesses segment.

In accordance with the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we determined that IDMS became a discontinued operation in the fourth quarter of fiscal 2007. We have therefore segregated the net assets and operating results of IDMS from continuing operations on our balance sheets and in our statements of operations for all periods prior to the sale. Assets held for sale at July 31, 2007 consisted primarily of goodwill and purchased intangible assets. Because IDMS operating cash flows were not material for any period presented, we have not segregated them from continuing operations on our statements of cash flows. We have presented the effect of the gain on disposal of IDMS on our statement of cash flows for the nine months ended April 30, 2008.

Revenue and net loss from IDMS discontinued operations were $1.9 million and $0.7 million for the nine months ended April 30, 2008. Revenue and net income from IDMS discontinued operations were $15.3 million and $0.4 million for the three months ended April 30, 2007. Revenue and net loss from IDMS discontinued operations were $39.5 million and $1.5 million for the nine months ended April 30, 2007.

Sale of Outsourced Payroll Assets

In March 2007 we sold certain assets related to our Complete Payroll and Premier Payroll Service businesses to Automatic Data Processing, Inc. (ADP) for a price of up to approximately $135 million in cash. The final purchase price was contingent upon the number of customers that transitioned to ADP pursuant to the purchase agreement over a period of approximately one year from the date of sale. In the three and nine months ended April 30, 2008 we recorded pre-tax net gains of $13.6 million and $51.6 million on our statement of operations for customers who transitioned to ADP during those periods. We received a total purchase price of $93.6 million and recorded a total pre-tax gain of $83.2 million from the inception of this transaction through its completion in the third quarter of fiscal 2008.

In accordance with the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we did not account for this transaction as a discontinued operation because the operations and cash flows of the

assets could not be clearly distinguished, operationally or for financial reporting purposes, from the rest of our outsourced payroll business. The assets were part of our Payroll and Payments segment.

6. Industry Segment and Geographic Information

SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the way in which public companies disclose certain information about operating segments in their financial reports. Consistent with SFAS 131, we have defined six reportable segments, described below, based on factors such as how we manage our operations and how our chief operating decision maker views results. We define the chief operating decision maker as our chief executive officer and our chief financial officer. We have aggregated two operating segments to form our Payroll and Payments reportable segment.

QuickBooks product revenue is derived primarily from QuickBooks desktop software products and financial supplies such as paper checks, envelopes and invoices. QuickBooks service and other revenue is derived primarily from QuickBooks Online Edition, QuickBooks support plans and royalties from small business online services.

Payroll and Payments product revenue is derived primarily from QuickBooks Payroll, a family of products sold on a subscription basis offering payroll tax tables, forms and electronic tax payment and filing to small businesses that prepare their own payrolls. Payroll and Payments service and other revenue is derived from small business payroll services as well as from merchant services such as credit and debit card processing. Service and other revenue for this segment also includes interest earned on funds held for payroll customers.

Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer and small business desktop tax return preparation software. Consumer Tax service and other revenue is derived primarily from TurboTax Online tax return preparation services and electronic filing services.

Professional Tax product revenue is derived primarily from Lacerte and ProSeries professional tax preparation software products. Professional Tax service and other revenue is derived primarily from electronic filing services, bank product transmission services and training services.

Financial Institutions service and other revenue is derived primarily from online banking software that is hosted in our data centers and delivered as on-demand service offerings to banks and credit unions by our Digital Insight business.

Other Businesses consist primarily of Quicken, Intuit Real Estate Solutions (IRES), and our business in Canada. Quicken product revenue is derived primarily from Quicken desktop software products. Quicken service and other revenue consists primarily of fees from consumer online transactions and from Quicken-branded credit card and bill payment offerings that we provide through our partners. Service and other revenue in our IRES business consists primarily of revenue from property management software solutions. In Canada, product revenue is derived primarily from localized versions of QuickBooks and Quicken as well as consumer desktop tax return preparation software and professional tax preparation products. Service and other revenue in Canada consists primarily of revenue from payroll services and QuickBooks support plans.

Our QuickBooks, Payroll and Payments, Consumer Tax, Professional Tax and Financial Institutions segments operate primarily in the United States. All of our segments sell primarily to customers located in the United States. International total net revenue was 5% or less of consolidated total net revenue for all periods presented.

We include costs such as corporate selling and marketing, product development, and general and administrative expenses and share-based compensation expenses that are not allocated to specific segments in a category we call Corporate. The Corporate category also includes amortization of purchased intangible assets, acquisition-related charges, impairment of goodwill and purchased intangible assets, interest expense, interest and other income, and realized net gains or losses on marketable equity securities and other investments.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended July 31, 2007. Except for goodwill and purchased intangible assets, we do not generally track assets by reportable segment and, consequently, we do not disclose total assets by reportable segment.

The following tables show our financial results by reportable segment for the three and nine months ended April 30, 2008 and 2007.

						Payroll
						and				Consumer				Professional				Financial				Other
(In thousands)		QuickBooks				Payments				Tax				Tax				Institutions				Businesses				Corporate				Consolidated
Three Months Ended April 30, 2008
Product revenue		$	128,107			$	55,075			$	123,545			$	146,340			$	260			$	64,343			$	—			$	517,670
Service and other revenue			36,977				87,068				533,306				19,524				76,071				42,392				—				795,338
Total net revenue			165,084				142,143				656,851				165,864				76,331				106,735				—				1,313,008
Segment operating income			44,127				50,216				545,148				135,236				16,270				45,115				—				836,112
Common expenses			—				—				—				—				—				—				(138,282	)			(138,282	)
Subtotal			44,127				50,216				545,148				135,236				16,270				45,115				(138,282	)			697,830
Amortization of purchased intangible assets			—				—				—				—				—				—				(14,075	)			(14,075	)
Acquisition-related charges			—				—				—				—				—				—				(9,254	)			(9,254	)
Interest expense			—				—				—				—				—				—				(12,830	)			(12,830	)
Interest and other income			—				—				—				—				—				—				10,361				10,361
Gain on marketable equity securities and other investments, net			—				—				—				—				—				—				477				477
Gain on sale of outsourced payroll assets			—				—				—				—				—				—				13,616				13,616
Income (loss) from continuing operations before income taxes		$	44,127			$	50,216			$	545,148			$	135,236			$	16,270			$	45,115			$	(149,987	)		$	686,125