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, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     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. 323,064,423 shares of Common Stock, $0.01 par value, were outstanding at May 22, 2009.

 

 

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, 2009 and 2008			3
Condensed Consolidated Balance Sheets at April 30, 2009 and July 31, 2008			4
Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended April 30, 2009 and 2008			5
Condensed Consolidated Statements of Cash Flows for the three and nine months ended April 30, 2009 and 2008			6
Notes to Condensed Consolidated Financial Statements			7
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
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-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								Nine Months Ended
		April 30,				April 30,				April 30,				April 30,
(In thousands, except per share amounts; unaudited)		2009				2008				2009				2008
Net revenue:
Product		$	535,732			$	517,670			$	1,191,214			$	1,277,080
Service and other			898,676				795,338				1,515,549				1,315,740
Total net revenue			1,434,408				1,313,008				2,706,763				2,592,820
Costs and expenses:
Cost of revenue:
Cost of product revenue			33,850				34,637				122,895				125,264
Cost of service and other revenue			123,842				105,311				343,042				305,603
Amortization of purchased intangible assets			15,380				14,075				45,616				40,188
Selling and marketing			278,609				246,095				741,169				679,459
Research and development			132,866				149,985				412,332				449,088
General and administrative			75,335				79,150				211,520				222,937
Acquisition-related charges			10,464				9,254				32,600				25,349
Total costs and expenses			670,346				638,507				1,909,174				1,847,888
Operating income from continuing operations			764,062				674,501				797,589				744,932
Interest expense			(12,642	)			(12,830	)			(36,059	)			(40,389	)
Interest and other income			5,977				10,361				10,299				32,477
Gains on marketable equity securities and other investments, net			507				477				1,084				1,190
Gain on sale of outsourced payroll assets			—				13,616				—				51,571
Income from continuing operations before income taxes			757,904				686,125				772,913				789,781
Income tax provision			272,868				241,612				254,401				275,839
Minority interest expense, net of tax			216				334				796				1,332
Net income from continuing operations			484,820				444,179				517,716				512,610
Net income from discontinued operations			—				—				—				26,012
Net income		$	484,820			$	444,179			$	517,716			$	538,622
Basic net income per share from continuing operations		$	1.51			$	1.37			$	1.61			$	1.55
Basic net income per share from discontinued operations			—				—				—				0.08
Basic net income per share		$	1.51			$	1.37			$	1.61			$	1.63
Shares used in basic per share calculations			321,890				323,408				321,897				330,862
Diluted net income per share from continuing operations		$	1.47			$	1.33			$	1.57			$	1.50
Diluted net income per share from discontinued operations			—				—				—				0.08
Diluted net income per share		$	1.47			$	1.33			$	1.57			$	1.58
Shares used in diluted per share calculations			329,104				333,436				329,412				341,869

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		April 30,				July 31,
(In thousands; unaudited)		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	1,222,028			$	413,340
Investments			250,072				414,493
Accounts receivable, net			272,676				127,230
Income taxes receivable			1,793				60,564
Deferred income taxes			75,607				101,730
Prepaid expenses and other current assets			53,368				45,457
Current assets before funds held for customers			1,875,544				1,162,814
Funds held for customers			343,589				610,748
Total current assets			2,219,133				1,773,562
Long-term investments			268,395				288,310
Property and equipment, net			535,603				507,499
Goodwill			1,694,307				1,698,087
Purchased intangible assets, net			202,016				273,087
Long-term deferred income taxes			36,573				52,491
Other assets			76,948				73,548
Total assets		$	5,032,975			$	4,666,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	147,662			$	115,198
Accrued compensation and related liabilities			153,284				229,819
Deferred revenue			298,939				359,936
Income taxes payable			149,355				16,211
Other current liabilities			216,309				135,326
Current liabilities before customer fund deposits			965,549				856,490
Customer fund deposits			343,589				610,748
Total current liabilities			1,309,138				1,467,238
Long-term debt			998,136				997,996
Other long-term obligations			125,814				121,489
Total liabilities			2,433,088				2,586,723
Commitments and contingencies
Minority interest			1,368				6,907
Stockholders’ equity:
Preferred stock			—				—
Common stock and additional paid-in capital			2,495,220				2,407,749
Treasury stock, at cost			(2,825,391	)			(2,786,499	)
Accumulated other comprehensive income			2,539				7,722
Retained earnings			2,926,151				2,443,982
Total stockholders’ equity			2,598,519				2,072,954
Total liabilities and stockholders’ equity		$	5,032,975			$	4,666,584

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, 2008			322,599,830			$	3,226			$	2,404,523			$	(2,786,499	)		$	7,722			$	2,443,982			$	2,072,954
Components of comprehensive net income:
Net income			—				—				—				—				—				517,716				517,716
Other comprehensive loss, net of tax			—				—				—				—				(5,183	)			—				(5,183	)
Comprehensive net income																											512,533
Issuance of common stock under employee stock plans			6,494,592				65				—				140,611				—				(14,864	)			125,812
Restricted stock units released, net of taxes			949,637				9				(14,742	)			20,674				—				(20,683	)			(14,742	)
Stock repurchases under stock repurchase programs			(7,383,167	)			(74	)			—				(200,177	)			—				—				(200,251	)
Tax benefit from employee stock option transactions			—				—				8,612				—				—				—				8,612
Share-based compensation			—				—				93,601				—				—				—				93,601
Balance at April 30, 2009			322,660,892			$	3,226			$	2,491,994			$	(2,825,391	)		$	2,539			$	2,926,151			$	2,598,519

																		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 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				(4,560	)			5,630				—				(5,633	)			(4,560	)
Assumed vested options from purchase acquisistions			—				—				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

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)		2009				2008				2009				2008
Cash flows from operating activities:
Net income (1)		$	484,820			$	444,179			$	517,716			$	538,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			36,130				31,420				105,289				85,542
Amortization of intangible assets			26,889				25,518				83,833				71,626
Share-based compensation			36,950				30,093				93,601				86,328
Pre-tax gain on sale of outsourced payroll assets			—				(13,616	)			—				(51,571	)
Pre-tax gain on sale of IDMS (1)			—				—				—				(45,667	)
Deferred income taxes			727				4,582				44,944				19,142
Tax benefit from share-based compensation plans			1,641				3,059				8,612				28,091
Excess tax benefit from share-based compensation plans			(865	)			(2,024	)			(7,362	)			(17,785	)
Other			3,419				5,428				10,075				8,364
Subtotal			589,711				528,639				856,708				722,692
Changes in operating assets and liabilities:
Accounts receivable			170,042				150,540				(146,475	)			(86,398	)
Prepaid expenses, income taxes receivable and other assets			154,111				19,470				40,222				40,563
Accounts payable			24,996				333				39,899				10,708
Accrued compensation and related liabilities			21,509				28,231				(75,501	)			(21,574	)
Deferred revenue			(173,752	)			(56,746	)			(51,744	)			(32,946	)
Income taxes payable			150,010				196,883				137,332				182,545
Other liabilities			(1,598	)			(35,401	)			77,450				53,903
Total changes in operating assets and liabilities			345,318				303,310				21,183				146,801
Net cash provided by operating activities (1)			935,029				831,949				877,891				869,493
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(71,207	)			(290,300	)			(138,163	)			(738,991	)
Sales of available-for-sale debt securities			27,738				151,142				292,133				868,759
Maturities of available-for-sale debt securities			3,265				26,760				27,120				201,095
Net change in funds held for customers’ money market funds and other cash equivalents			(49,906	)			181,124				267,159				(37,715	)
Purchases of property and equipment			(31,487	)			(95,335	)			(148,371	)			(217,254	)
Net change in customer fund deposits			49,906				(181,124	)			(267,159	)			37,715
Acquisitions of businesses and intangible assets, net of cash acquired			(9,490	)			(128,768	)			(12,831	)			(262,839	)
Cash received from acquirer of outsourced payroll assets			—				7,576				—				34,879
Proceeds from divestiture of businesses			—				—				—				97,147
Other			(1,088	)			4,384				5,477				(2,086	)
Net cash provided by (used in) investing activities			(82,269	)			(324,541	)			25,365				(19,290	)
Cash flows from financing activities:
Net proceeds from issuance of common stock under employee stock plans			30,743				32,113				125,812				153,790
Tax payments related to restricted stock issuance			(463	)			(511	)			(14,742	)			(4,560	)
Purchase of treasury stock			—				(300,000	)			(200,251	)			(799,998	)
Excess tax benefit from share-based compensation plans			865				2,024				7,362				17,785
Other			(785	)			523				(2,535	)			(3,072	)
Net cash provided by (used in) financing activities			30,360				(265,851	)			(84,354	)			(636,055	)
Effect of exchange rates on cash and cash equivalents			200				(201	)			(10,214	)			2,155
Net increase in cash and cash equivalents			883,320				241,356				808,688				216,303
Cash and cash equivalents at beginning of period			338,708				230,148				413,340				255,201
Cash and cash equivalents at end of period		$	1,222,028			$	471,504			$	1,222,028			$	471,504

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 and nine months ended April 30, 2009 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. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. Seasonal patterns mean that our total net revenue is usually highest during our second quarter ending January 31 and third quarter ending April 30. We typically report losses in our first quarter ending October 31 and fourth quarter ending July 31, when revenue from our tax businesses is minimal while operating expenses continue at relatively consistent levels. In addition, the timing and composition of new customer offerings that include both product and service elements can materially shift revenue between quarters.

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.

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 income 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)		2009				2008				2009				2008
Numerator:
Net income from continuing operations		$	484,820			$	444,179			$	517,716			$	512,610
Net income from discontinued operations			—				—				—				26,012
Net income		$	484,820			$	444,179			$	517,716			$	538,622
Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding			321,890				323,408				321,897				330,862
Shares used in diluted per share amounts:
Weighted average common shares outstanding			321,890				323,408				321,897				330,862
Dilutive common equivalent shares from stock options and restricted stock units			7,214				10,028				7,515				11,007
Dilutive weighted average common shares outstanding			329,104				333,436				329,412				341,869
Basic and diluted net income (loss) per share:
Basic net income per share from continuing operations		$	1.51			$	1.37			$	1.61			$	1.55
Basic net income per share from discontinued operations			—				—				—				0.08
Basic net income per share		$	1.51			$	1.37			$	1.61			$	1.63
Diluted net income per share from continuing operations		$	1.47			$	1.33			$	1.57			$	1.50
Diluted net income per share from discontinued operations			—				—				—				0.08
Diluted net income per share		$	1.47			$	1.33			$	1.57			$	1.58
Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect			24,368				18,593				24,516				18,624

Significant Customers

No customer accounted for 10% or more of total net revenue in the three or nine months ended April 30, 2009 or 2008. The account of one retail customer represented approximately 13% of total accounts receivable at April 30, 2009. No customer accounted for 10% or more of total accounts receivable at 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.

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. 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.

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.

FSP SFAS 142-3, “Determination of the Useful Life of Intangible Assets”

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 141R. 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.

FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”

In April 2009 the FASB issued FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP SFAS 141R-1 amends SFAS 141R to require assets acquired and liabilities assumed in a business combination that arise from contingencies to be recognized at fair value, as determined in accordance with SFAS 157, if the acquisition-date fair value can be reasonably determined. If the acquisition-date fair value cannot be reasonably determined, then the future settlement amount would be measured in accordance with existing accounting rules. FSP SFAS 141R-1 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 141R-1 will have on our financial position, results of operations or cash flows.

April 2009 FSPs on Fair Value of Financial Instruments

In April 2009 the FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP SFAS 157-4 amends SFAS 157 to provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability.

In April 2009 the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP SFAS 107-1). FSP SFAS 107-1 extends the disclosure requirements of SFAS 107, “Disclosures about Fair Value of Financial Instruments” to interim financial statements.

In April 2009 the FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP SFAS 115-2). FSP SFAS 115-2 provides new criteria for determining whether an impairment of a debt security is temporary and recorded in other comprehensive income in the equity section of the balance sheet or other-than-temporary and recorded as a loss on the statement of operations.

FSP SFAS 157-4, FSP SFAS 107-1 and FSP SFAS 115-2 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ended after March 15, 2009. Since we chose not to adopt these FSPs early, they will be effective for our fiscal quarter and year ending July 31, 2009. We are in the process of evaluating these staff positions and therefore have not yet determined the impact that their adoption 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. 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.

		April 30, 2009								July 31, 2008
(In thousands)		Cost				Fair Value				Cost				Fair Value
Classification on balance sheets:
Cash and cash equivalents		$	1,222,028			$	1,222,028			$	413,340			$	413,340
Investments			248,372				250,072				412,075				414,493
Funds held for customers			343,589				343,589				610,748				610,748
Long-term investments			268,395				268,395				288,310				288,310
Total cash and cash equivalents, investments and funds held for customers		$	2,082,384			$	2,084,084			$	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.

		April 30, 2009								July 31, 2008
(In thousands)		Cost				Fair Value				Cost				Fair Value
Type of issue:
Total cash and cash equivalents		$	1,565,617			$	1,565,617			$	1,024,088			$	1,024,088
Available-for-sale debt securities:
Municipal bonds			201,596				203,065				330,436				332,534
Municipal auction rate securities			264,950				264,950				285,325				285,325
U.S. agency securities			17,005				17,078				74,476				74,796
Corporate notes			29,771				29,929				7,163				7,163
Total available-for-sale debt securities			513,322				515,022				697,400				699,818
Other long-term investments			3,445				3,445				2,985				2,985
Total cash and cash equivalents, investments and funds held for customers		$	2,082,384			$	2,084,084			$	1,724,473			$	1,726,891

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, 2009 and 2008 were not significant.

We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income in the stockholders’ equity section of our balance sheets. Gross unrealized gains and losses on our available-for-sale debt securities were as follows at the dates indicated.

		April 30,				July 31,
(In thousands)		2009				2008
Gross unrealized gains		$	1,834			$	2,482
Gross unrealized losses			(134	)			(64	)
Net unrealized gain		$	1,700			$	2,418

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 April 30, 2009 were not other-than-temporarily impaired. While certain available-for-sale debt securities have fair values that are below cost, we believe that because we have the ability and intent to hold them until recovery at par it is probable that principal and interest will be collected in accordance with contractual terms. We believe that the

unrealized losses at April 30, 2009 are due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with the specific securities.

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

		April 30, 2009								July 31, 2008
(In thousands)		Cost				Fair Value				Cost				Fair Value
Due within one year		$	127,639			$	128,347			$	108,753			$	109,562
Due within two years			79,253				79,687				207,157				208,144
Due within three years			5,240				5,330				10,379				10,402
Due after three years			301,190				301,658				371,111				371,710
Total available-for-sale debt securities		$	513,322			$	515,022			$	697,400			$	699,818

3. Comprehensive Net Income (Loss)

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 to arrive at comprehensive net income. Other comprehensive income (loss) items have no impact on our net income as presented in our statements of operations.

The components of comprehensive net 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.

		Three Months Ended								Nine Months Ended
		April 30,				April 30,				April 30,				April 30,
(In thousands)		2009				2008				2009				2008
Net income		$	484,820			$	444,179			$	517,716			$	538,622
Components of other comprehensive income (loss):
Changes in net unrealized gains (losses) on investments, net of reclassification adjustment for realized (gains) losses, net of income taxes			9,481				(840	)			(425	)			1,226
Amortization of realized gain on derivative instruments, net of income taxes			(12	)			(10	)			(34	)			(31	)
Foreign currency translation adjustment, net of income taxes			1,356				(181	)			(4,724	)			847
Total other comprehensive income (loss), net of income taxes			10,825				(1,031	)			(5,183	)			2,042
Comprehensive net income, net of income taxes		$	495,645			$	443,148			$	512,533			$	540,664
Income tax provision (benefit) netted against other comprehensive income (loss)		$	7,129			$	(681	)		$	(3,432	)		$	1,346

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 for the nine months ended April 30, 2008 were not significant. 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.

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 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.

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 and nine months ended April 30, 2009 and 2008.

						Payroll
						and				Consumer				Accounting				Financial				Other
(In thousands)		QuickBooks				Payments				Tax				Professionals				Institutions				Businesses				Corporate				Consolidated
Three Months Ended April 30, 2009
Product revenue		$	98,869			$	62,448			$	157,833			$	154,946			$	37			$	61,599			$	—			$	535,732
Service and other revenue			50,337				94,830				619,299				23,879				78,227				32,104				—				898,676
Total net revenue			149,206				157,278				777,132				178,825				78,264				93,703				—				1,434,408
Segment operating income			24,234				68,131				637,286				140,183				17,976				38,265				—				926,075
Common expenses			—				—				—				—				—				—				(136,169	)			(136,169	)
Subtotal			24,234				68,131				637,286				140,183				17,976				38,265				(136,169	)			789,906
Amortization of purchased intangible assets			—				—				—				—				—				—				(15,380	)			(15,380	)
Acquisition-related charges			—				—				—				—				—				—				(10,464	)			(10,464	)
Interest expense			—				—				—				—				—				—				(12,642	)			(12,642	)
Interest and other income			—				—				—				—				—				—				5,977				5,977
Gain on marketable equity securities and other investments, net			—				—				—				—				—				—				507				507
Income (loss) from continuing operations before income taxes		$	24,234			$	68,131			$	637,286			$	140,183			$	17,976			$	38,265			$	(168,171	)		$	757,904
						Payroll
						and				Consumer				Accounting				Financial				Other
(In thousands)		QuickBooks				Payments				Tax				Professionals				Institutions				Businesses				Corporate				Consolidated
Three Months Ended April 30, 2008
Product revenue		$	121,307			$	55,075			$	123,545			$	153,140			$	260			$	64,343			$	—			$	517,670
Service and other revenue			41,020				87,068				533,306				19,524				76,071				38,349				—				795,338
Total net revenue			162,327				142,143				656,851				172,664				76,331				102,692				—				1,313,008
Segment operating income			43,459				50,216				545,148				136,736				16,270				44,283				—				836,112
Common expenses			—				—				—				—				—				—				(138,282	)			(138,282	)
Subtotal			43,459				50,216				545,148				136,736				16,270				44,283				(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		$	43,459			$	50,216			$	545,148			$	136,736			$	16,270			$	44,283			$	(149,987	)		$	686,125

						Payroll
						and				Consumer				Accounting				Financial				Other
(In thousands)		QuickBooks				Payments				Tax				Professionals				Institutions				Businesses				Corporate				Consolidated
Nine Months Ended    April 30, 2009
Product revenue		$	317,599			$	179,997			$	251,885			$	304,842			$	243			$	136,648			$	—			$	1,191,214
Service and other revenue			147,601				287,264				726,768				28,464				228,713				96,739				—				1,515,549
Total net revenue			465,200				467,261				978,653				333,306				228,956				233,387				—				2,706,763
Segment operating income			91,320				192,465				667,429				205,806				49,277				62,014				—				1,268,311
Common expenses			—				—				—				—				—				—				(392,506	)			(392,506	)
Subtotal			91,320				192,465				667,429				205,806				49,277				62,014				(392,506	)			875,805
Amortization of purchased intangible assets			—				—				—				—				—				—				(45,616	)			(45,616	)
Acquisition-related charges			—				—				—				—				—				—				(32,600	)			(32,600	)
Interest expense			—				—				—				—				—				—				(36,059	)			(36,059	)
Interest and other income			—				—				—				—				—				—				10,299				10,299
Gain on marketable equity securities and other investments, net			—				—				—				—				—				—				1,084				1,084
Income (loss) from continuing operations before income taxes		$	91,320			$	192,465			$	667,429			$	205,806			$	49,277			$	62,014			$	(495,398	)		$	772,913