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 October 31, 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		77-0034661
(State of incorporation)		(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 definition 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 (Do not check if a smaller reporting company)		Smaller reporting company o

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. 320,060,903 shares of Common Stock, $0.01 par value, were outstanding at November 25, 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 months ended October 31, 2008 and 2007			3
		Condensed Consolidated Balance Sheets at October 31, 2008 and July 31, 2008			4
		Condensed Consolidated Statements of Stockholders’ Equity for the three months ended October 31, 2008 and 2007			5
		Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 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			24
ITEM 3:		Quantitative and Qualitative Disclosures about Market Risk			39
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			45
ITEM 6:		Exhibits			46
		Signatures			47
EX-10.01
EX-10.02
EX-10.03
EX-10.04
EX-10.05
EX-31.01
EX-31.02
EX-32.01
EX-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

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended
		October 31,				October 31,
(In thousands, except per share amounts; unaudited)		2008				2007
Net revenue:
Product		$	220,553			$	218,620
Service and other			260,826				226,318
Total net revenue			481,379				444,938
Costs and expenses:
Cost of revenue:
Cost of product revenue			33,400				33,747
Cost of service and other revenue			111,708				97,454
Amortization of purchased intangible assets			15,213				12,814
Selling and marketing			186,186				169,659
Research and development			136,217				149,336
General and administrative			65,097				77,115
Acquisition-related charges			9,588				8,012
Total costs and expenses			557,409				548,137
Operating loss from continuing operations			(76,030	)			(103,199	)
Interest expense			(11,731	)			(14,049	)
Interest and other income (expense)			(1,868	)			17,191
Gains on marketable equity securities and other investments, net			577				713
Gain on sale of outsourced payroll assets			—				23,951
Loss from continuing operations before income taxes			(89,052	)			(75,393	)
Income tax benefit			(37,117	)			(28,328	)
Minority interest expense, net of tax			209				506
Net loss from continuing operations			(52,144	)			(47,571	)
Net income from discontinued operations			—				26,767
Net loss		$	(52,144	)		$	(20,804	)
Basic and diluted net loss per share from continuing operations		$	(0.16	)		$	(0.14	)
Basic and diluted net income per share from discontinued operations			—				0.08
Basic and diluted net loss per share		$	(0.16	)		$	(0.06	)
Shares used in basic and diluted per share calculations			323,269				337,584

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		October 31,				July 31,
(In thousands; unaudited)		2008				2008
ASSETS
Current assets:
Cash and cash equivalents		$	169,557			$	413,340
Investments			289,031				414,493
Accounts receivable, net			142,980				127,230
Income taxes receivable			157,966				60,564
Deferred income taxes			90,534				101,730
Prepaid expenses and other current assets			58,242				45,457
Current assets before funds held for customers			908,310				1,162,814
Funds held for customers			327,526				610,748
Total current assets			1,235,836				1,773,562
Long-term investments			288,354				288,310
Property and equipment, net			533,427				507,499
Goodwill			1,693,666				1,698,087
Purchased intangible assets, net			248,354				273,087
Long-term deferred income taxes			27,648				52,491
Other assets			78,465				73,548
Total assets		$	4,105,750			$	4,666,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	131,238			$	115,198
Accrued compensation and related liabilities			116,481				229,819
Deferred revenue			339,857				359,936
Income taxes payable			174				16,211
Other current liabilities			112,462				135,326
Current liabilities before customer fund deposits			700,212				856,490
Customer fund deposits			327,526				610,748
Total current liabilities			1,027,738				1,467,238
Long-term debt			998,042				997,996
Other long-term obligations			125,763				121,489
Total liabilities			2,151,543				2,586,723
Commitments and contingencies
Minority interest			7,182				6,907
Stockholders’ equity:
Preferred stock			—				—
Common stock and additional paid-in capital			2,428,548				2,407,749
Treasury stock, at cost			(2,852,851	)			(2,786,499	)
Accumulated other comprehensive income			1,155				7,722
Retained earnings			2,370,173				2,443,982
Total stockholders’ equity			1,947,025				2,072,954
Total liabilities and stockholders’ equity		$	4,105,750			$	4,666,584

See accompanying notes.

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, 2008			322,599,830			$	3,226			$	2,404,523			$	(2,786,499	)		$	7,722			$	2,443,982			$	2,072,954
Components of comprehensive net loss:
Net loss			—				—				—				—				—				(52,144	)			(52,144	)
Other comprehensive loss, net of tax			—				—				—				—				(6,567	)			—				(6,567	)
Comprehensive net loss																											(58,711	)
Issuance of common stock under employee stock plans			3,863,894				39				—				83,066				—				(5,932	)			77,173
Restricted stock units released, net of taxes			723,363				7				(13,857	)			15,726				—				(15,733	)			(13,857	)
Issuance of restricted stock units pursuant to Management Stock Purchase Plan			—				—				2,295				—				—				—				2,295
Stock repurchases under stock repurchase programs			(6,021,307	)			(60	)			—				(165,144	)			—				—				(165,204	)
Tax benefit from employee stock option transactions			—				—				10,622				—				—				—				10,622
Share-based compensation			—				—				21,753				—				—				—				21,753
Balance at October 31, 2008			321,165,780			$	3,212			$	2,425,336			$	(2,852,851	)		$	1,155			$	2,370,173			$	1,947,025
																		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 net loss:
Net loss			—				—				—				—				—				(20,804	)			(20,804	)
Other comprehensive income, net of tax			—				—				—				—				2,615				—				2,615
Comprehensive net loss																											(18,189	)
Issuance of common stock under employee stock plans			2,597,186				26				—				56,124				—				(4,815	)			51,335
Restricted stock units released, net of taxes			8,157				—				(136	)			177				—				(177	)			(136	)
Issuance of restricted stock units pursuant to Management Stock Purchase Plan			—				—				2,284				—				—				—				2,284
Stock repurchases under stock repurchase programs			(8,118,939	)			(81	)			—				(249,917	)			—				—				(249,998	)
Tax benefit from employee stock option transactions			—				—				11,800				—				—				—				11,800
Share-based compensation (1)			—				—				26,701				—				—				—				26,701
Balance at October 31, 2007			333,643,706			$	3,336			$	2,288,404			$	(2,400,730	)		$	8,711			$	1,959,089			$	1,858,810

 

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended
		October 31,				October 31,
(In thousands; unaudited)		2008				2007
Cash flows from operating activities:
Net loss (1)		$	(52,144	)		$	(20,804	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			33,585				26,222
Amortization of intangible assets			27,157				22,648
Share-based compensation			21,753				26,701
Pre-tax gain on sale of outsourced payroll assets			—				(23,951	)
Pre-tax gain on sale of IDMS (1)			—				(45,667	)
Deferred income taxes			45,007				7,247
Tax benefit from share-based compensation plans			10,622				11,800
Excess tax benefit from share-based compensation plans			(6,127	)			(8,255	)
Other			5,133				(372	)
Subtotal			84,986				(4,431	)
Changes in operating assets and liabilities:
Accounts receivable			(16,724	)			(10,471	)
Prepaid expenses, income taxes receivable and other assets			(120,910	)			(34,686	)
Accounts payable			21,575				35,998
Accrued compensation and related liabilities			(112,619	)			(92,676	)
Deferred revenue			(17,781	)			(15,697	)
Income taxes payable			(14,162	)			(26,193	)
Other liabilities			(24,046	)			(13,207	)
Total changes in operating assets and liabilities			(284,667	)			(156,932	)
Net cash used in operating activities (1)			(199,681	)			(161,363	)
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(36,072	)			(289,490	)
Sales of available-for-sale debt securities			147,906				349,506
Maturities of available-for-sale debt securities			10,795				131,000
Net change in funds held for payroll customers’ money market funds and other cash equivalents			283,222				39,095
Purchases of property and equipment			(67,210	)			(65,275	)
Net change in payroll customer fund deposits			(283,222	)			(39,095	)
Cash received from acquirer of outsourced payroll assets			—				20,022
Proceeds from divestiture of businesses			—				97,147
Other			2,278				(9,315	)
Net cash provided by investing activities			57,697				233,595
Cash flows from financing activities:
Net proceeds from issuance of common stock and release of restricted stock units under employee stock plans			63,316				51,199
Purchase of treasury stock			(165,204	)			(249,998	)
Excess tax benefit from share-based compensation plans			6,127				8,255
Issuance of restricted stock units pursuant to Management Stock Purchase Plan			2,295				2,284
Other			(763	)			1,106
Net cash used in financing activities			(94,229	)			(187,154	)
Effect of exchange rates on cash and cash equivalents			(7,570	)			5,789
Net decrease in cash and cash equivalents			(243,783	)			(109,133	)
Cash and cash equivalents at beginning of period			413,340				255,201
Cash and cash equivalents at end of period		$	169,557			$	146,068

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, simplify small business management and payroll processing, personal finance, and tax preparation and filing. Lacerte and ProSeries are Intuit’s tax preparation offerings for professional accountants. Our financial institutions division, anchored by Digital Insight, provides outsourced online banking services to banks and credit unions. Founded in 1983 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 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 two companies in our consolidated results of operations from the respective dates of acquisition. 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.

As discussed in Note 4, in August 2007 we sold our Intuit Distribution Management Solutions (IDMS) business. In accordance with accounting rules, we have reclassified our financial statements for all periods prior to the sale to reflect IDMS as a discontinued operation. Unless otherwise noted, discussions in these notes pertain to our continuing operations.

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, 2008. Results for the three months ended October 31, 2008 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2009 or any other future period.

Seasonality

Our QuickBooks, Consumer Tax and Accounting Professionals businesses are highly seasonal. Some of our other offerings are also seasonal, but to a lesser extent. Revenue from our QuickBooks software products tends to be highest during our second and third fiscal quarters, 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.

We compute basic net income or loss per share using the weighted average number of common shares outstanding during the period. We compute diluted net income per share using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the shares issuable upon the exercise of stock options and upon the vesting of restricted stock units (RSUs) under the treasury stock method.

We include stock options with combined exercise prices and unrecognized compensation expense that are less than the average market price for our common stock, and RSUs with unrecognized compensation expense that is less than the average market price for our common stock, in the calculation of diluted net income per share. We exclude stock options with combined exercise prices and unrecognized compensation expense that are greater than the average market price for our common stock, and RSUs with unrecognized compensation expense that is greater than the average market price for our common stock, from the calculation of diluted net income per share because their effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise stock options, 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 identical 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 loss per share for the periods indicated.

		Three Months Ended
		October 31,				October 31,
(In thousands, except per share amounts)		2008				2007
Numerator:
Net loss from continuing operations		$	(52,144	)		$	(47,571	)
Net income from discontinued operations			—				26,767
Net loss		$	(52,144	)		$	(20,804	)
Denominator:
Shares used in basic and diluted per share amounts:
Weighted average common shares outstanding			323,269				337,584
Basic and diluted net loss per share:
Basic and diluted net loss per share from continuing operations		$	(0.16	)		$	(0.14	)
Basic and diluted net income per share from discontinued operations			—				0.08
Basic and diluted net loss per share		$	(0.16	)		$	(0.06	)
Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect:
Stock options that would have been included in the computation of dilutive common equivalent shares outstanding if net income had been reported in the period			24,935				35,544
Restricted stock units that would have been included in the computation of dilutive common equivalent shares outstanding if net income had been reported in the period			6,856				4,778
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			22,966				17,957
			54,757				58,279

Significant Customers

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

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. In February 2008 the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date of FASB Statement No. 157,” which 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). In October 2008 the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. On August 1, 2008 we adopted the provisions of SFAS 157 related to financial assets and financial liabilities and to non-financial assets and non-financial liabilities that we recognize or disclose at fair value on a recurring basis. We also adopted FSP 157-3 on that date. See Note 8. In accordance with FSP 157-2, we have delayed the implementation of the provisions of SFAS 157 related to the fair value of goodwill, other intangible assets and non-financial long-lived assets until our fiscal year beginning August 1, 2009. We are in the process of evaluating these portions of the standard and therefore have not yet determined the impact that their adoption will have on our financial position, results of operations or cash flows.

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. On August 1, 2008 we adopted SFAS 159 but did not elect the fair value option for any additional financial assets or liabilities that we held at that date.

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.

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.

In April 2008 the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of Intangible Assets.” FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” This new staff position is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), “Business Combinations.” FSP SFAS 142-3 is effective for fiscal years

beginning after December 15, 2008, which means that it will be effective for our fiscal year beginning August 1, 2009. We are in the process of evaluating this staff position and therefore have not yet determined the impact that adoption of FSP SFAS 142-3 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. Long-term investments consist primarily of municipal auction rate securities that we carry at fair value. Due to a decrease in liquidity in the global credit markets, we estimate the fair values of these municipal auction rate securities based on a discounted cash flow model that we prepare and inputs from third parties. See Note 8 for more information. 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.

		October 31, 2008								July 31, 2008
(In thousands)		Cost				Fair Value				Cost				Fair Value
Classification on balance sheets:
Cash and cash equivalents		$	169,557			$	169,557			$	413,340			$	413,340
Investments			288,304				289,031				412,075				414,493
Funds held for customers			327,526				327,526				610,748				610,748
Long-term investments			288,354				288,354				288,310				288,310
Total cash and cash equivalents, investments and funds held for customers		$	1,073,741			$	1,074,468			$	1,724,473			$	1,726,891

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

		October 31, 2008								July 31, 2008
(In thousands)		Cost				Fair Value				Cost				Fair Value
Type of issue:
Total cash and cash equivalents		$	497,083			$	497,083			$	1,024,088			$	1,024,088
Available-for-sale debt securities:
Municipal bonds			248,974				249,915				330,436				332,534
Municipal auction rate securities			285,050				285,050				285,325				285,325
U.S. agency securities			25,999				26,030				74,476				74,796
Corporate notes			13,331				13,086				7,163				7,163
Total available-for-sale debt securities			573,354				574,081				697,400				699,818
Other long-term investments			3,304				3,304				2,985				2,985
Total cash and cash equivalents, investments and funds held for customers		$	1,073,741			$	1,074,468			$	1,724,473			$	1,726,891

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 were as follows at the dates indicated.

 

(In thousands)										October 31, 2008				July 31, 2008
Gross unrealized gains										$	1,117			$	2,482
Gross unrealized losses											(390	)			(64	)
Net unrealized gain										$	727			$	2,418
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 months ended October 31, 2008 and 2007 were not significant.
See Note 8 for a discussion of the fair value of our municipal auction rate securities, which we classify as long-term investments on our balance sheets. The gross unrealized losses related to $97.1 million in short-term available-for-sale debt securities that were in a continuous unrealized loss position for less than 12 months at October 31, 2008 were not significant. At that date we held no securities that were in a continuous unrealized loss position for longer than 12 months. 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 October 31, 2008 were not other-than-temporarily impaired. While certain available-for-sale debt securities have fair values that are below cost, we believe that if the securities were held to maturity it is probable that principal and interest would be collected in accordance with contractual terms. We believe that the unrealized losses at October 31, 2008 are due to changes in interest rates and not due to increased credit risk.
The following table summarizes our available-for-sale debt securities classified by the stated maturity date of the security at the dates indicated.
		October 31, 2008								July 31, 2008
(In thousands)		Cost				Fair Value				Cost				Fair Value
Due within one year		$	142,485			$	143,417			$	108,753			$	109,562
Due within two years			113,387				113,125				207,157				208,144
Due within three years			5,333				5,325				10,379				10,402
Due after three years			312,149				312,214				371,111				371,710
Total available-for-sale debt securities		$	573,354			$	574,081			$	697,400			$	699,818

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

The components of accumulated other comprehensive income, net of income taxes, were as shown in the following table for the periods indicated. The realized gain on derivative instruments relates to two interest rate swaps that we entered into in December 2006 and settled in March 2007 in connection with the senior notes described in Note 7. We are amortizing the realized gain to interest expense over the term of the related notes.

		Unrealized				Realized
		Gain (Loss)				Gain on				Foreign
		on				Derivative				Currency
(In thousands)		Investments				Instruments				Translation				Total
Balance at July 31, 2008		$	1,457			$	392			$	5,873			$	7,722
Unrealized loss, net of income tax benefit of $693			(1,050	)			—				—				(1,050	)
Reclassification adjustment for realized loss included in net loss, net of income tax provision of $21			31				—				—				31
Amortization of realized gain on derivative instruments, net of income tax benefit of $7			—				(11	)			—				(11	)
Translation adjustment, net of income tax benefit of $3,654			—				—				(5,537	)			(5,537	)
Other comprehensive loss			(1,019	)			(11	)			(5,537	)			(6,567	)
Balance at October 31, 2008		$	438			$	381			$	336			$	1,155
Balance at July 31, 2007		$	(105	)		$	433			$	5,768			$	6,096
Unrealized gain, net of income tax provision of $312			474				—				—				474
Reclassification adjustment for realized gain included in net loss, net of income tax benefit of $1			(1	)			—				—				(1	)
Amortization of realized gain on derivative instruments, net of income tax benefit of $7			—				(10	)			—				(10	)
Translation adjustment, net of income tax provision of $1,421			—				—				2,152				2,152
Other comprehensive income			473				(10	)			2,152				2,615
Balance at October 31, 2007		$	368			$	423			$	7,920			$	8,711

Comprehensive net loss was as follows for the periods indicated:

		Three Months Ended
		October 31,				October 31,
(In thousands)		2008				2007
Net loss		$	(52,144	)		$	(20,804	)
Other comprehensive (loss) income			(6,567	)			2,615
Comprehensive net loss, net of income taxes		$	(58,711	)		$	(18,189	)
Income tax (benefit) provision netted against other comprehensive (loss) income		$	(4,333	)		$	1,725

4. 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. 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. Revenue and net loss from IDMS discontinued operations were $1.9 million and $0.7 million for the three months ended October 31, 2007. 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 three months ended October 31, 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 months ended October 31, 2007 we recorded a pre-tax gain of $24.0 million on our statement of operations for customers who transitioned to ADP during that period. 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.

5. 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. Our chief operating decision maker organizes and manages our business primarily on the basis of product and service offerings. 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, invoices, business cards and business stationery. QuickBooks service and other revenue is derived primarily from QuickBooks Online, QuickBooks support plans, Web site design and hosting services for small businesses, 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, federal and state payroll tax 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 provided by our Innovative Merchant Solutions business that include credit and debit card processing, electronic check conversion and automated clearing house services. 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.

Accounting Professionals product revenue is derived primarily from Lacerte and ProSeries professional tax preparation software products and from QuickBooks Premier Accountant Edition and ProAdvisor Program for professional accountants. Accounting Professionals 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 outsourced online banking software products that are hosted in our data centers and delivered as on-demand service offerings to banks and credit unions by our Digital Insight business.

Our Other Businesses segment consists 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 is derived primarily from Quicken Online and fees from consumer online transactions. IRES product revenue is derived primarily from property management software licenses. Service and other revenue in our IRES business consists primarily of revenue from support plans, hosting services and professional services. 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, Accounting Professionals 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 less than 5% 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, interest expense, interest and other income, and realized net gains or losses on marketable equity securities and other investments.

The accounting policies of our 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, 2008. 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 months ended October 31, 2008 and 2007.

						Payroll
						and				Consumer				Accounting				Financial				Other
(In thousands)		QuickBooks				Payments				Tax				Professionals				Institutions				Businesses				Corporate				Consolidated
Three Months Ended October 31, 2008
Product revenue		$	105,419			$	58,321			$	4,170			$	19,113			$	136			$	33,394			$	—			$	220,553
Service and other revenue			46,503				93,737				10,084				2,252				74,535				33,715				—				260,826
Total net revenue			151,922				152,058				14,254				21,365				74,671				67,109				—				481,379
Segment operating income (loss)			29,310				61,529				(31,649	)			(17,107	)			14,925				9,233								66,241
Common expenses																											(117,470	)			(117,470	)
Subtotal			29,310				61,529				(31,649	)			(17,107	)			14,925				9,233				(117,470	)			(51,229	)
Amortization of purchased intangible assets			—				—				—				—				—				—				(15,213	)			(15,213	)
Acquisition-related charges			—				—				—				—				—				—				(9,588	)			(9,588	)
Interest expense			—				—				—				—				—				—				(11,731	)			(11,731	)
Interest and other income			—				—				—				—				—				—				(1,868	)			(1,868	)
Gain on marketable equity securities and other investments, net			—				—				—				—				—				—				577				577
Income (loss) from continuing operations before income taxes		$	29,310			$	61,529			$	(31,649	)		$	(17,107	)		$	14,925			$	9,233			$	(155,293	)		$	(89,052	)
						Payroll
						and				Consumer				Professional				Financial				Other
(In thousands)		QuickBooks				Payments				Tax				Tax				Institutions				Businesses				Corporate				Consolidated
Three Months Ended October 31, 2007
Product revenue		$	113,294			$	53,534			$	2,838			$	16,735			$	86			$	32,133			$	—			$	218,620
Service and other revenue			29,623				77,802				10,479				1,647				72,080				34,687				—				226,318
Total net revenue			142,917				131,336				13,317				18,382				72,166				66,820				—				444,938
Segment operating income (loss)			36,574				57,108				(33,701	)			(20,559	)			12,411				10,544				—				62,377
Common expenses			—				—				—				—				—				—				(144,750	)			(144,750	)
Subtotal			36,574				57,108				(33,701	)			(20,559	)			12,411				10,544				(144,750	)			(82,373	)
Amortization of purchased intangible assets			—				—				—				—				—				—				(12,814	)			(12,814	)
Acquisition-related charges			—				—				—				—				—				—				(8,012	)			(8,012	)
Interest expense			—				—				—				—				—				—				(14,049	)			(14,049	)
Interest and other income			—				—				—				—				—				—				17,191				17,191
Gain on marketable equity securities and other investments, net			—				—				—				—				—				—				713				713
Gain on sale of outsourced payroll assets			—				—				—				—				—				—				23,951				23,951
Income (loss) from continuing operations before income taxes		$	36,574			$	57,108			$	(33,701	)		$	(20,559	)		$	12,411			$	10,544			$	(137,770	)		$	(75,393	)

6. 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 October 31, 2008. 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:

		October 31,				July 31,
(In thousands)		2008				2008
Reserve for product returns		$	28,394			$	27,910
Reserve for rebates			11,632				13,408
Interest payable			6,659				20,597
Executive deferred compensation plan			36,679				38,234
Other			29,098				35,177
Total other current liabilities		$	112,462			$	135,326

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.

Restructuring Liability

In the fourth quarter of fiscal 2008 we announced a reorganization plan that has resulted in a reduction of our workforce. We recorded a $23.3 million restructuring liability related to the workforce reduction in the fourth quarter of fiscal 2008 that consisted of approximately $16.0 million for employee severance costs and approximately $7.3 million for facilities closure costs. We paid $3.9 million of the facilities costs in cash during the three months ended July 31, 2008. We will pay the remaining facilities costs in cash over the period ending August 2010. We paid substantially all of the employee severance costs in cash during the three months ended October 31, 2008.

7. Long-Term Obligations

Senior Unsecured Notes

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. The Notes are redeemable by Intuit at any time, subject to a make-whole premium. We paid $27.9 million and $28.4 million in cash for interest on the Notes during the three months ended October 31, 2008 and 2007. Based on the trading prices of the Notes at October 31, 2008 and July 31, 2008 and the interest rates we could obtain for other borrowings with similar terms at those dates, the estimated fair value of the Notes at those dates was approximately $842.6 million and $964.7 million.

The following table summarizes our senior unsecured notes at the dates indicated:

		October 31,				July 31,
(In thousands)		2008				2008
Senior notes:
5.40% fixed-rate notes, due 2012		$	500,000			$	500,000
5.75% fixed-rate notes, due 2017			500,000				500,000
Total senior notes			1,000,000				1,000,000
Unamortized discount			(1,958	)			(2,004	)
Total		$	998,042			$	997,996

Other Long-Term Obligations

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

		October 31,				July 31,
(In thousands)		2008				2008
Capital lease obligations: Monthly installments through 2011; interest rates of 4.50% to 6.75%		$	1,357			$	1,562
Total deferred rent			64,320				61,747
Long-term deferred revenue			13,094				12,939
Long-term income tax liabilities			51,597				47,857
Other			5,319				6,446
Total long-term obligations			135,687				130,551
Less current portion (included in other current liabilities)			(9,924	)			(9,062	)
Long-term obligations due after one year		$	125,763			$	121,489

Innovative Merchant Solutions Loan and Buyout Commitments

In April 2005 our wholly owned subsidiary, Innovative Merchant Solutions (IMS), became a member of Superior Bankcard Services, LLC (SBS), a newly formed entity that acquires merchant accounts for IMS. Our consolidated financial statements include the financial position, results of operations and cash flows of SBS, after elimination of all significant intercompany balances and transactions, including amounts outstanding under the credit agreement described below. See Note 1. In connection with the formation of this entity IMS agreed to provide to SBS revolving loans in an amount of up to $40.0 million under the terms of a credit agreement. The credit agreement expires in July 2013, although certain events, such as a sale of SBS, can trigger earlier termination. Amounts outstanding under this agreement at October 31, 2008 totaled $9.5 million at interest rates of 6.0% to 7.0%. Amounts outstanding under this agreement at July 31, 2008 totaled $8.5 million at interest rates of 6.0% to 8.5%. There are no scheduled repayments on the outstanding loan balance. All unpaid principal amounts and the related accrued interest are due and payable in full at the loan expiration date.

The operating agreement of SBS requires that, no later than July 2009, either IMS agree to purchase the minority members’ interests in SBS at a price to be set by negotiation or arbitration, or IMS and the minority members pursue a sale of their interests in SBS to a third party.

8. Fair Value Measurements

As discussed in Note 1, “Recent Accounting Pronouncements,” on August 1, 2008 we adopted SFAS 157, “Fair Value Measurements,” for financial assets and financial liabilities and for non-financial assets and non-financial liabilities that we recognize or disclose at fair value on a recurring basis (at least annually). As of the date of adoption, these consisted of cash equivalents, available-for-sale debt securities and long-term debt. On August 1, 2008 we also adopted FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This FSP clarifies the application of SFAS 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. In accordance with FSP 157-2, “Effective Date of FASB Statement No. 157,” we have not yet adopted the provisions of SFAS 157 that relate to non-financial assets and non-financial liabilities that we do not recognize or disclose at fair value on a recurring basis. These include reporting units measured at fair value in a goodwill impairment test and non-financial assets acquired and liabilities assumed in a business combination.

SFAS 157 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

	•		Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Our Level 1 assets consist of cash equivalents that are invested primarily in AAA-rated money market funds.
	•		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 for similar assets or liabilities in active markets; 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. Our Level 2 assets consist of corporate notes, U.S. agency securities and municipal bonds that we classify as available-for-sale securities. Our Level 2 liabilities consist of long-term debt that is model priced by third parties using observable inputs.
	•		Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. 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. Our Level 3 assets consist of municipal auction rate securities.

The following table presents financial assets and financial liabilities that we measured at fair value on a recurring basis at October 31, 2008. We have classified these assets and liabilities in accordance with the fair value hierarchy set forth in SFAS 157. In instances where the inputs used to measure the fair value of an asset or liability fall into more than one level of the fair value hierarchy, we have classified them based on the lowest level input that is significant to the determination of the fair value.

		Quoted Prices
		in Active				Significant								Total
		Markets				Other				Significant				Fair Value
		for Identical				Observable				Unobservable				as of
		Instruments				Inputs				Inputs				October 31,
(In thousands)		(Level 1)				(Level 2)				(Level 3)				2008
Assets:
Cash equivalents (1)		$	46,166			$	—			$	—			$	46,166
Corporate notes (2)			—				13,086				—				13,086
U.S. agency securities (2)			—				26,030				—				26,030
Municipal bonds (2)			—				249,915				—				249,915
Municipal auction rate securities (3)			—				—				285,050				285,050
Total assets		$	46,166			$	289,031			$	285,050			$	620,247
Liabilities:
Long-term debt (4)		$	—			$	842,620			$	—			$	842,620

The following table presents a reconciliation of financial assets that we measure at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended October 31, 2008.

		Significant
		Unobservable
		Inputs
(In thousands)		(Level 3)
Balance at July 31, 2008		$	285,325
Transfers in to Level 3			—
Total gains or losses (realized or unrealized)			—
Settlements			(275	)
Balance at October 31, 2008		$	285,050

Financial assets whose fair values we measure using Level 3 inputs consisted of municipal auction rate securities that we classified as long-term investments on our balance sheet at October 31, 2008. These securities are collateralized long-term debt instruments that are intended to provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined intervals, typically every 35 days. Due to a decrease in liquidity in the global credit markets, in February 2008 auctions began failing for the municipal auction rate securities we held. Regularly scheduled auctions for these securities have generally continued to fail since that time. When these auctions initially failed, higher interest rates for many of the securities went into effect. Of the total auction rate securities we held at October 31, 2008, the underlying assets of $220.7 million or 77% were student loans which are guaranteed by the U.S. Department of Education and $240.9 million or 85% were rated AAA/Aaa by the major credit rating agencies.

We estimated the fair values of the municipal auction rate securities we held at October 31, 2008 based on a discounted cash flow model that we prepared and inputs from third parties. 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 reduced liquidity for auction rate securities. Using our discounted cash flow model and inputs from third parties we determined that the fair values of the municipal auction rate securities we held at October 31, 2008 were substantially equal to their par values. As a result, we recorded no decrease in the fair values of those securities for the three months then ended. Based on our ability and intent to hold these auction rate securities until liquidity returns to the market or they mature, we classified them as long-term investments on our balance sheet at October 31, 2008.

In August 2008 the broker-dealers for our municipal auction rate securities announced settlements under which they may provide liquidity solutions, or purchase, the auction rate securities held by their institutional clients. On November 4, 2008 we accepted an offer from UBS AG (UBS), one of the broker-dealers for our municipal auction rate securities, that gives us the option to sell UBS a total of $165.7 million in municipal auction rate securities at par value at any time during a two-year period beginning June 30, 2010. The offer also gives UBS the discretion to buy any or all of these securities from us at par value at any time. As discussed above, at October 31, 2008 we carried these securities at par value on our balance sheet.

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.

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 benefit rate for the three months ended October 31, 2008 was approximately 42%. Excluding net one-time benefits primarily related to the reinstatement of the federal research and experimentation credit as described below, our effective tax benefit rate for that period was approximately 35% and did not differ significantly from the federal statutory rate. State income taxes were offset primarily by the benefit we received from federal and state research and experimentation credits, the domestic production activities deduction, and tax exempt interest income. Our effective tax benefit rate for the three months ended October 31, 2007 was approximately 38%. Excluding net one-time benefits primarily related to executive stock compensation, our effective tax benefit rate for that period was approximately 36%. 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 tax exempt interest income, federal and state research and experimentation credits, and the domestic production activities deduction.

In October 2008 the Emergency Economic Stabilization Act of 2008 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2009 that was retroactive to January 1, 2008. We recorded a discrete tax benefit of approximately $6.9 million for the retroactive amount related to fiscal 2008 during the three months ended October 31, 2008.

Unrecognized Tax Benefits and Other FASB Interpretation No. 48 Considerations

The total amount of our unrecognized tax benefits at July 31, 2008 was $44.8 million. Net of related deferred tax assets, unrecognized tax benefits were $34.0 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $18.8 million. The recognition of the balance of these net benefits would result in an increase to stockholders’ equity of $5.5 million and a decrease to goodwill of $9.7 million. There were no material changes to these amounts during the three months ended October 31, 2008. We believe it is reasonably possible that we will recognize up to $25 million in unrecognized tax benefits within the next twelve months as a result of potential tax agreements.

The accounting treatment related to the realization of pre-acquisition unrecognized tax benefits will change when SFAS 141R becomes effective in the first quarter of fiscal 2010. While any realization of these unrecognized tax benefits prior to the effective date of SFAS 141R will result in a decrease to goodwill, any realization after the effective date will result in a reduction to income tax expense. See Note 1.

We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. At July 31, 2008, we had accrued $4.9 million for the payment of interest and had no accruals for the payment of penalties. The amount of interest and penalties recognized during the three months ended October 31, 2008 was not significant.

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 6.0 million and 8.1 million shares for $165.2 million and $250.0 million under these programs during the three months ended October 31, 2008 and 2007. At October 31, 2008, we had authorization from our Board of Directors to expend up to an additional $434.8 million for stock repurchases through May 15, 2011.

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.

A summary of activity under all share-based compensation plans for the three months ended October 31, 2008 was as follows:

						Options Outstanding
										Weighted
										Average
		Shares								Exercise
		Available				Number				Price
		for Grant				of Shares				Per Share
Balance at July 31, 2008			7,975,824				50,205,973			$	24.70
Options granted			(293,735	)			293,735				28.22
Restricted stock units granted			(3,172,459	)			—				—
Restricted stock units purchased by participants in the Management Stock Purchase Plan			(74,928	)			—				—
Options exercised			—				(3,578,890	)			19.56
Options and shares canceled or expired and returned to option pool, net of options canceled from expired plans			724,895				(775,560	)			29.46
Restricted stock units canceled and returned to option pool, net of restricted stock units canceled from expired plans			279,595				—				—
Balance at October 31, 2008			5,439,192				46,145,258			$	25.05

At October 31, 2008, options to purchase 32,647,162 common shares were exercisable at a weighted average exercise price of $23.62 per share.

A summary of restricted stock unit activity for the three months ended October 31, 2008 was as follows:

		Restricted Stock Units
						Weighted
						Average
		Number				Grant Date
		of Shares				Fair Value
Nonvested at July 31, 2008			4,997,333			$	29.29
Granted			3,172,459				30.20
Vested			(692,196	)			30.87
Forfeited			(280,351	)			29.28
Nonvested at October 31, 2008			7,197,245			$	29.54