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, 2006

OR

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

For the transition period from                      to                     .

Commission File Number 0-21180

INTUIT INC.

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ       No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes o       No þ

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer 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. 348,655,929 shares of Common Stock, $0.01 par value, as of November 22, 2006

 

 

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, 2006 and 2005			3
Condensed Consolidated Balance Sheets at October 31, 2006 and July 31, 2006			4
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended October 31, 2006 and 2005			5
Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2006 and 2005			6
Notes to Condensed Consolidated Financial Statements			7
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk			29
ITEM 4: Controls and Procedures			30
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings			31
ITEM 1A: Risk Factors			32
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds			35
ITEM 5: Other Information			36
ITEM 6: Exhibits			37
Signatures			38
EXHIBIT 10.01
EXHIBIT 10.02
EXHIBIT 10.03
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries 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. QuickBooks: Simple Start Edition, Innovative Merchant Solutions, QuickTax, TaxWiz and ProFile, among others, are trademarks and/or 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)		2006				2005
Net revenue:
Product		$	212,420			$	182,454
Service and other			149,651				121,617
Total net revenue			362,071				304,071
Costs and expenses:
Cost of revenue:
Cost of product revenue			37,343				32,431
Cost of service and other revenue			68,372				59,248
Amortization of purchased intangible assets			2,308				2,949
Selling and marketing			155,098				147,430
Research and development			120,214				97,280
General and administrative			77,388				63,595
Acquisition-related charges			2,842				3,759
Total costs and expenses			463,565				406,692
Operating loss from continuing operations			(101,494	)			(102,621	)
Interest and other income			10,290				6,304
Gains on marketable equity securities and other investments, net			1,221				4,267
Loss from continuing operations before income taxes			(89,983	)			(92,050	)
Income tax benefit			(31,268	)			(34,439	)
Minority interest, net of tax			215				—
Net loss from continuing operations			(58,930	)			(57,611	)
Net income from discontinued operations			—				11,807
Net loss		$	(58,930	)		$	(45,804	)
Basic and diluted net loss per share from continuing operations		$	(0.17	)		$	(0.16	)
Basic and diluted net income per share from discontinued operations			—				0.03
Basic and diluted net loss per share		$	(0.17	)		$	(0.13	)
Shares used in basic and diluted per share amounts			346,214				354,812

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands; unaudited)		October 31,				July 31,
		2006				2006
ASSETS
Current assets:
Cash and cash equivalents		$	166,074			$	179,601
Investments			893,087				1,017,599
Accounts receivable, net			95,499				97,797
Income taxes receivable			103,880				64,178
Deferred income taxes			51,114				47,199
Prepaid expenses and other current assets			72,012				53,357
Current assets before funds held for payroll customers			1,381,666				1,459,731
Funds held for payroll customers			436,212				357,299
Total current assets			1,817,878				1,817,030
Property and equipment, net			201,700				194,434
Goodwill, net			555,506				504,991
Purchased intangible assets, net			63,010				59,521
Long-term deferred income taxes			142,194				144,697
Loans to executive officers and other employees			8,865				8,865
Other assets			46,006				40,489
Total assets		$	2,835,159			$	2,770,027
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	97,854			$	70,808
Accrued compensation and related liabilities			90,792				171,903
Deferred revenue			276,647				293,113
Income taxes payable			17,992				33,560
Other current liabilities			101,476				89,291
Current liabilities before payroll customer fund deposits			584,761				658,675
Payroll customer fund deposits			436,212				357,299
Total current liabilities			1,020,973				1,015,974
Long-term obligations			14,948				15,399
Commitments and contingencies
Minority interest			814				568
Stockholders’ equity:
Preferred stock			—				—
Common stock and additional paid-in capital			2,139,998				2,092,914
Treasury stock, at cost			(1,866,422	)			(1,944,036	)
Accumulated other comprehensive income			1,799				1,084
Retained earnings			1,523,049				1,588,124
Total stockholders’ equity			1,798,424				1,738,086
Total liabilities and stockholders’ equity		$	2,835,159			$	2,770,027

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																						Accumulated
										Additional												Other								Total
		Common Stock								Paid In				Treasury				Deferred				Comprehensive				Retained				Stockholders’
(Dollars in thousands; unaudited)		Shares				Amount				Capital				Stock				Compensation				Income (Loss)				Earnings				Equity
Balance at July 31, 2006			344,170,779			$	3,442			$	2,089,472			$	(1,944,036	)		$	—			$	1,084			$	1,588,124			$	1,738,086
Components of comprehensive loss:
Net loss			—				—				—				—				—				—				(58,930	)			(58,930	)
Other comprehensive income, net of tax			—				—				—				—				—				715				—				715
Comprehensive net loss																															(58,215	)
Issuance of common stock upon exercise of options and other - post-split			3,907,469				39				11,387				70,947				—				—				(5,506	)			76,867
Issuance of common stock pursuant to Employee Stock Purchase Plan - post-split			260,132				3				—				6,663				—				—				(635	)			6,031
Issuance of common stock pursuant to vesting of Restricted Stock Units - post-split			172				—				—				4				—				—				(4	)			—
Tax benefit from employee stock option transactions			—				—				16,796				—				—				—				—				16,796
Share-based compensation - restricted stock			—				—				5,031				—				—				—				—				5,031
Share-based compensation - all other			—				—				13,828				—				—				—				—				13,828
Balance at October 31, 2006			348,338,552			$	3,484			$	2,136,514			$	(1,866,422	)		$	—			$	1,799			$	1,523,049			$	1,798,424
																						Accumulated
										Additional												Other								Total
		Common Stock								Paid In				Treasury				Deferred				Comprehensive				Retained				Stockholders’
(Dollars in thousands; unaudited)		Shares				Amount				Capital				Stock				Compensation				Income (Loss)				Earnings				Equity
Balance at July 31, 2005			179,270,062			$	1,793			$	1,976,161			$	(1,557,833	)		$	(16,283	)		$	174			$	1,291,487			$	1,695,499
Reclassification of deferred compensation balance upon adoption of SFAS 123(R)			—				—				(16,283	)			—				16,283				—				—				—
Components of comprehensive loss:
Net loss			—				—				—				—				—				—				(45,804	)			(45,804	)
Other comprehensive income, net of tax			—				—				—				—				—				1,117				—				1,117
Comprehensive net loss																															(44,687	)
Issuance of common stock upon exercise of options and other - pre-split			514,209				5				—				22,355				—				—				(6,069	)			16,291
Issuance of common stock pursuant to Employee Stock Purchase Plan - pre-split			136,588				1				—				6,263				—				—				(1,087	)			5,177
Stock repurchases under stock repurchase programs - pre-split			(4,315,000	)			(43	)			—				(194,757	)			—				—				—				(194,800	)
Tax benefit from employee stock option transactions			—				—				2,522				—				—				—				—				2,522
Share-based compensation - restricted stock			—				—				1,325				—				—				—				—				1,325
Share-based compensation - all other (1)			—				—				19,296				—				—				—				—				19,296
Balance at October 31, 2005			175,605,859			$	1,756			$	1,983,021			$	(1,723,972	)		$	—			$	1,291			$	1,238,527			$	1,500,623

Note: We effected a two-for-one stock split in the form of a 100% stock dividend on July 6, 2006.

(1) Includes $19,099 for continuing operations and $197 for Intuit Information Technology Solutions discontinued operations.

See accompanying notes.

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended
		October 31,				October 31,
(In thousands)		2006				2005
Cash flows from operating activities:
Net loss		$	(58,930	)		$	(45,804	)
Net income from discontinued operations			—				(11,807	)
Net loss from continuing operations			(58,930	)			(57,611	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation			22,275				23,145
Acquisition-related charges			2,842				3,759
Amortization of purchased intangible assets			2,308				2,949
Amortization of other purchased intangible assets			2,571				2,031
Share-based compensation — restricted stock			5,031				1,325
Share-based compensation — all other			13,828				19,099
Loss on disposal of property and equipment			214				34
Amortization of premiums and discounts on available-for-sale debt securities			890				1,094
Net realized loss on sales of available-for-sale debt securities			8				380
Net gains on marketable equity securities and other investments			(1,221	)			(4,267	)
Minority interest, net of tax			215				—
Deferred income taxes			(2,847	)			2,520
Tax benefit from share-based compensation plans			16,796				2,522
Excess tax benefit from share-based compensation plans			(8,753	)			(939	)
Gain on foreign exchange transactions			(88	)			(15	)
Subtotal			(4,861	)			(3,974	)
Changes in operating assets and liabilities:
Accounts receivable			2,604				12,921
Prepaid expenses, taxes and other current assets			(58,258	)			(38,494	)
Accounts payable			26,351				30,665
Accrued compensation and related liabilities			(81,162	)			(64,399	)
Deferred revenue			(16,779	)			(5,237	)
Income taxes payable			(15,713	)			(16,771	)
Other liabilities			11,112				(9,471	)
Total changes in operating assets and liabilities			(131,845	)			(90,786	)
Net cash used in operating activities of continuing operations			(136,706	)			(94,760	)
Net cash provided by operating activities of discontinued operations			—				10,981
Net cash used in operating activities			(136,706	)			(83,779	)
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(400,875	)			(289,119	)
Liquidation of available-for-sale debt securities			490,197				555,069
Maturity of available-for-sale debt securities			34,830				20,775
Proceeds from the sale of marketable equity securities			858				—
Net change in funds held for payroll customers’ money market funds and other cash equivalents			(78,913	)			12,406
Purchases of property and equipment			(29,223	)			(25,057	)
Change in other assets			(4,678	)			(4,454	)
Net change in payroll customer fund deposits			78,913				(12,406	)
Acquisitions of businesses and intangible assets, net of cash acquired			(60,002	)			(10,148	)
Net cash provided by investing activities			31,107				247,066
Cash flows from financing activities:
Change in long-term obligations			(441	)			(634	)
Net proceeds from issuance of common stock under stock plans			82,898				21,468
Purchase of treasury stock			—				(194,800	)
Excess tax benefit from share-based compensation plans			8,753				939
Net cash provided by (used in) financing activities			91,210				(173,027	)
Effect of exchange rates on cash and cash equivalents			862				872
Net decrease in cash and cash equivalents			(13,527	)			(8,868	)
Cash and cash equivalents at beginning of period			179,601				83,842
Cash and cash equivalents at end of period		$	166,074			$	74,974

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, financial management and tax solutions for small businesses, consumers and accountants. Our flagship software products include QuickBooks, TurboTax, Lacerte, ProSeries and Quicken. Founded in 1983 and headquartered in Mountain View, California, we sell our products and services primarily in the United States. We have approximately 7,500 employees in the United States and internationally in Canada and several other locations.

Basis of Presentation

The condensed consolidated financial statements include the financial statements of Intuit and its wholly owned subsidiaries. We have eliminated all significant intercompany balances and transactions in consolidation. 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 balance sheets.

We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to discontinued operations and reportable segments. We have also combined other revenue and cost of other revenue with service revenue and cost of service revenue. Other revenue was approximately 5% of total net revenue for the three months ended October 31, 2006 and 2005.

Our Board of Directors authorized a two-for-one stock split which was effected in the form of a 100% stock dividend on July 6, 2006 to stockholders of record on June 21, 2006. All share and per share figures in the statements of operations and the notes to the financial statements retroactively reflect this stock split.

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, 2006. Results for the three months ended October 31, 2006 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2007 or any other future period.

Our QuickBooks, Consumer Tax and Professional Tax businesses are highly seasonal. Some of our other offerings are also seasonal, but to a lesser extent. Revenue from many of our small business software products, including QuickBooks, tends to be at its peak around calendar year end, although the timing of new product releases or changes in our offerings can materially shift revenue between quarters. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. These seasonal patterns mean that our total net revenue is usually highest during our second quarter ending January 31 and third quarter ending April 30. We typically report losses in our first quarter ending October 31 and fourth quarter ending July 31, when revenue from our tax businesses is minimal while operating expenses continue at relatively consistent levels.

Computation of Net Income (Loss) Per Share

We compute basic net income or loss per share using the weighted average number of common shares outstanding during the period. We compute diluted net income per share using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the shares issuable upon the exercise of stock options and upon the vesting of restricted stock units under the treasury stock method. In loss periods, basic net loss per share and diluted net loss per share are identical since the effect of potential common shares is anti-dilutive and therefore excluded.

We include stock options with combined exercise prices and unamortized fair values that are less than the average market price for our common stock in the calculation of diluted net income per share. We exclude stock options with combined exercise prices and unamortized fair values that are greater than the average market price for our common stock from the calculation of diluted net income per share because their effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise stock options, the amount of compensation expense for future service that we have not yet recognized, and the amount of tax benefits that will be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

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

		Three Months Ended
		October 31,				October 31,
(In thousands, except per share amounts)		2006				2005
Numerator:
Net loss from continuing operations		$	(58,930	)		$	(57,611	)
Net income from discontinued operations			—				11,807
Net loss		$	(58,930	)		$	(45,804	)
Denominator:
Shares used in basic and diluted per share amounts:
Weighted average common shares outstanding			346,214				354,812
Basic and diluted net loss per share:
Basic and diluted net loss per share from continuing operations		$	(0.17	)		$	(0.16	)
Basic and diluted net income per share from discontinued operations			—				0.03
Basic and diluted net loss per share		$	(0.17	)		$	(0.13	)
Weighted average stock options and restricted stock awards 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			45,791				42,468
Restricted stock awards that would have been included in the computation of dilutive common equivalent shares outstanding if net income had been reported in the period			2,526				1,016
Stock options with combined exercise prices and unamortized fair values that were greater than the average market price for the common stock during the period			9,353				22,008
			57,670				65,492

Share-Based Compensation Plans

Effective August 1, 2006, we began using a lattice binomial model to estimate the fair value of stock options granted. Prior to that date we used the Black Scholes valuation model. This change did not have a material impact on our financial position, results of operations or cash flows. Our stock options have various restrictions, including vesting provisions and restrictions on transfer, and are often exercised prior to their contractual maturity. We therefore believe that lattice binomial models are more capable of incorporating the features of our stock options than closed-form models such as the Black Scholes model. The use of a lattice binomial model requires the use of extensive actual employee exercise behavior data and a number of complex assumptions including the expected volatility of our stock price over the term of the options, risk-free interest rates and expected dividends. See Note 9 for more information on our adoption of the lattice binomial model and the assumptions that we use to estimate the fair value of stock options.

Significant Customers

No distributor or individual retailer accounted for 10% or more of total net revenue in the three months ended October 31, 2006 or 2005. No customer accounted for 10% or more of total accounts receivable at October 31, 2006 or July 31, 2006. Amounts due from Rock Acquisition Corporation, the purchaser of our Quicken Loans mortgage business, under certain licensing and distribution agreements comprised approximately 10% of accounts receivable at July 31, 2006. Amounts due from Rock at October 31, 2006 were not significant.

Recent Accounting Pronouncements

FIN 48, “Accounting for Uncertainty in Income Taxes”

In June 2006 the FASB issued Financial Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The requirements of FIN 48 are effective for our fiscal year beginning August 1, 2007. We are in the process of evaluating this guidance and therefore have not yet determined the impact that the adoption of FIN 48 will have on our financial position, results of operations or cash flows.

SFAS 157, “Fair Value Measurements”

In September 2006 the FASB issued SFAS 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 financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of SFAS 157 will have on our financial position, results of operations or cash flows.

SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”

In September 2006 the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158 requires an employer to recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status. The standard also generally requires an employer to measure a plan’s assets and obligations that determine its funded status as of the end of the employer’s fiscal year and recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. For entities with publicly traded equity securities, the requirement to recognize the funded status of a benefit plan and the related disclosure requirements are effective as of the end of fiscal years ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year end statement of financial position is effective for fiscal years ending after December 15, 2008. We do not expect our adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

2. Cash and Cash Equivalents, Investments and Funds Held for Payroll 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 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 payroll customers consist of cash, cash equivalents and available-for-sale investment-grade debt securities. Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market or cash management 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 payroll customers by balance sheet classification at the dates indicated.

		October 31, 2006								July 31, 2006
(In thousands)		Cost				Fair Value				Cost				Fair Value
Classification on balance sheets:
Cash and cash equivalents		$	166,074			$	166,074			$	179,601			$	179,601
Investments			893,302				893,087				1,018,364				1,017,599
Funds held for payroll customers			436,224				436,212				357,299				357,299
Total cash and cash equivalents, investments and funds held for payroll customers		$	1,495,600			$	1,495,373			$	1,555,264			$	1,554,499

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

		October 31, 2006								July 31, 2006
(In thousands)		Cost				Fair Value				Cost				Fair Value
Type of issue:
Total cash and cash equivalents		$	508,123			$	508,123			$	442,880			$	442,880
Available-for-sale debt securities:
Municipal bonds			972,177				972,013				1,102,384				1,101,719
U.S. government securities			15,300				15,237				10,000				9,900
Total available-for-sale debt securities			987,477				987,250				1,112,384				1,111,619
Total cash and cash equivalents, investments and funds held for payroll customers		$	1,495,600			$	1,495,373			$	1,555,264			$	1,554,499

We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income (loss) in the 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:

		October 31,				July 31,
(In thousands)		2006				2006
Gross unrealized gains		$	167			$	20
Gross unrealized losses			(394	)			(785	)
Net unrealized losses		$	(227	)		$	(765	)

The following table summarizes the fair value and gross unrealized losses related to 59 available-for-sale debt securities, aggregated by type of investment and length of time that individual securities have been in a continuous unrealized loss position, at October 31, 2006:

		In a Loss Position for								In a Loss Position for
		Less Than 12 Months								12 Months or More								Total in a Loss Position
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(In thousands)		Value				Losses				Value				Losses				Value				Losses
Municipal bonds		$	125,395			$	(190	)		$	27,425			$	(141	)		$	152,820			$	(331	)
U.S. government securities			5,296				(4	)			9,941				(59	)			15,237				(63	)
Total		$	130,691			$	(194	)		$	37,366			$	(200	)		$	168,057			$	(394	)

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 that we held at October 31, 2006 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, and that the decline in market value is due to changes in interest rates and not due to increased credit risk.

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 were as follows for the periods indicated:

		Three Months Ended
		October 31,				October 31,
(In thousands)		2006				2005
Gross realized gains		$	—			$	11
Gross realized losses			(8	)			(391	)
Net realized losses		$	(8	)		$	(380	)
The following table summarizes our available-for-sale debt securities held in investments and funds held for payroll customers, classified by the stated maturity date of the security.
		October 31, 2006
(In thousands)		Cost				Fair Value
Due within one year		$	205,813			$	205,609
Due within two years			62,347				62,366
Due within three years			3,114				3,113
Due after three years			716,203				716,162
Total available-for-sale debt securities		$	987,477			$	987,250

Approximately 90% of our available-for-sale debt securities at October 31, 2006 had an interest reset date, put date or mandatory call date within one year.

3. Goodwill and Purchased Intangible Assets

In August 2006 we acquired all of the outstanding shares of StepUp Commerce, Inc. for an aggregate purchase price of approximately $60 million in cash. We deposited $7.5 million of the total purchase price in a third-party escrow account to be held through January 2008 to cover breaches of representations and warranties set forth in the purchase agreement, should they arise. StepUp provides services that allow small businesses to present their product information and images to online shoppers. We acquired StepUp as part of our Right for Me initiative to offer a wider range of business solutions for small businesses. StepUp became part of our QuickBooks segment. Tangible assets and liabilities acquired were not significant. We allocated $8.9 million of the purchase price to identified intangible assets and recorded the excess purchase price of $50.4 million as goodwill, none of which is deductible for income tax purposes. The identified intangible assets are being amortized over terms ranging from three to five years. In accordance with purchase accounting rules, we have included StepUp’s results of operations in our consolidated results of operations from the date of acquisition. StepUp’s results of operations for periods prior to the date of acquisition were not material when compared with our consolidated results.

4. 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 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 (loss), net of income taxes, were as follows for the periods indicated:

		Unrealized Gain (Loss) on								Foreign
						Marketable				Currency
(In thousands)		Investments				Securities				Translation				Total
Balance at July 31, 2006		$	(462	)		$	—			$	1,546			$	1,084
Unrealized gain, net of income tax provision of $210			320				—				—				320
Reclassification adjustment for realized loss included in net income, net of income tax provision of $3			5				—				—				5
Translation adjustment, net of income taxes allocated of $255			—				—				390				390
Other comprehensive income			325				—				390				715
Balance at October 31, 2006		$	(137	)		$	—			$	1,936			$	1,799
Balance July 31, 2005		$	(582	)		$	1,451			$	(695	)		$	174
Unrealized loss, net of income tax benefits of $102 and $40			(165	)			(65	)			—				(230	)
Reclassification adjustment for realized loss included in net income, net of income tax provision of $144			236				—				—				236
Translation adjustment			—				—				1,111				1,111
Other comprehensive income (loss)			71				(65	)			1,111				1,117
Balance October 31, 2005		$	(511	)		$	1,386			$	416			$	1,291

Comprehensive net income (loss) was as follows for the periods indicated:

		Three Months Ended
		October 31,				October 31,
(In thousands)		2006				2005
Net loss		$	(58,930	)		$	(45,804	)
Other comprehensive income			715				1,117
Comprehensive net loss, net of income taxes		$	(58,215	)		$	(44,687	)
Income tax provision netted against other comprehensive income		$	213			$	2

5. Discontinued Operations

In December 2005 we sold our Intuit Information Technology Solutions (ITS) business for approximately $200 million in cash. The buyer deposited approximately $20 million of the total purchase price in a third-party escrow account to be held through December 2006 to cover breaches of representations and warranties set forth in the purchase agreement, should they arise. The full escrow amount is included in other current assets on our balance sheet at October 31, 2006.

In accordance with the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” we accounted for the sale of ITS as discontinued operations. We have therefore segregated the operating results and cash flows of ITS from continuing operations in our financial statements for all periods prior to the sale. For the

three months ended October 31, 2005, we recorded net revenue and net income from ITS operations of $14.4 million and $3.3 million. In that period we also recognized $8.5 million in tax benefits from the anticipated disposal of ITS.

6. Industry Segment and Geographic Information

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

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

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

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

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

Other Businesses consist primarily of Quicken and Canada. Quicken product revenue is derived primarily from Quicken desktop software products. Quicken service and other revenue consists primarily of fees from consumer online transactions and from Quicken-branded credit card and bill payment offerings that we provide through our partners. In Canada, product revenue is derived primarily from localized versions of QuickBooks and Quicken as well as QuickTax and TaxWiz consumer desktop tax return preparation software and ProFile 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 and Professional Tax 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 general and administrative expenses and share-based compensation expenses that are not allocated to specific segments in a category we call Corporate. The Corporate category also includes amortization of purchased intangible assets, acquisition-related charges, impairment of goodwill and purchased intangible assets, interest and other income, and realized net gains or losses on marketable equity securities and other investments.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended July 31, 2006. 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, 2006 and 2005. We have combined other revenue with service revenue. Other revenue was approximately 5% of total net revenue for each of those periods.

						Payroll
						and				Consumer				Professional				Other
(In thousands)		QuickBooks				Payments				Tax				Tax				Businesses				Corporate				Consolidated
Three Months Ended October 31, 2006
Product revenue		$	114,372			$	50,943			$	3,345			$	8,425			$	35,335			$	—			$	212,420
Service and other revenue			19,292				74,575				9,479				1,257				45,048				—				149,651
Total net revenue			133,664				125,518				12,824				9,682				80,383				—				362,071
Segment operating income (loss)			29,403				47,697				(34,944	)			(21,949	)			11,782				—				31,989
Common expenses			—				—				—				—				—				(128,333	)			(128,333	)
Subtotal			29,403				47,697				(34,944	)			(21,949	)			11,782				(128,333	)			(96,344	)
Amortization of purchased intangible assets			—				—				—				—				—				(2,308	)			(2,308	)
Acquisition-related charges			—				—				—				—				—				(2,842	)			(2,842	)
Interest and other income			—				—				—				—				—				10,290				10,290
Realized net gain on marketable equity securities			—				—				—				—				—				1,221				1,221
Income (loss) from continuing operations before income taxes		$	29,403			$	47,697			$	(34,944	)		$	(21,949	)		$	11,782			$	(121,972	)		$	(89,983	)

						Payroll
						and				Consumer				Professional				Other
(In thousands)		QuickBooks				Payments				Tax				Tax				Businesses				Corporate				Consolidated
Three Months Ended October 31, 2005
Product revenue		$	87,718			$	45,849			$	2,790			$	8,111			$	37,986			$	—			$	182,454
Service and other revenue			17,003				57,753				5,097				786				40,978				—				121,617
Total net revenue			104,721				103,602				7,887				8,897				78,964				—				304,071
Segment operating income (loss)			17,395				36,443				(24,270	)			(21,960	)			13,236				—				20,844
Common expenses			—				—				—				—				—				(116,757	)			(116,757	)
Subtotal			17,395				36,443				(24,270	)			(21,960	)			13,236				(116,757	)			(95,913	)
Amortization of purchased intangible assets			—				—				—				—				—				(2,949	)			(2,949	)
Acquisition-related charges			—				—				—				—				—				(3,759	)			(3,759	)
Interest and other income			—				—				—				—				—				6,304				6,304
Realized net gain on marketable equity securities			—				—				—				—				—				4,267				4,267
Income (loss) from continuing operations before income taxes		$	17,395			$	36,443			$	(24,270	)		$	(21,960	)		$	13,236			$	(112,894	)		$	(92,050	)

7. Current Liabilities and Commitments

Deferred Revenue

In some situations, we receive advance payments from our customers. We also offer multiple element arrangements to our customers. We defer revenue associated with these advance payments and the relative fair value of undelivered elements under multiple element arrangements until we ship the products or perform the services. Deferred revenue consisted of the following at the dates indicated:

		October 31,				July 31,
(In thousands)		2006				2006
Product and product-related services		$	252,722			$	269,867
Customer support			23,925				23,246
Total deferred revenue		$	276,647			$	293,113

Other Current Liabilities

Other current liabilities were as follows at the dates indicated:

		October 31,				July 31,
(In thousands)		2006				2006
Reserve for product returns		$	29,358			$	29,385
Reserve for rebates			12,609				8,996
Executive deferred compensation plan			36,785				27,798
Other			22,724				23,112
Total other current liabilities		$	101,476			$	89,291

Operating Leases

We lease office facilities and equipment under various operating lease agreements. In November 2006 we entered into an agreement under which we will lease approximately 167,000 square feet of office space in a new building to be constructed by the landlord in Woodland Hills, California for our Innovative Merchant Solutions business. The lease term is 10 years beginning on October 1, 2008. We estimate that our total minimum commitment for this lease is approximately $70 million.

8. Income Taxes

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. Due to the seasonal nature of our business, we recorded income tax benefits on pre-tax losses in the three months ended October 31, 2006 and 2005. Our effective tax rate for the three months ended October 31, 2006 was 35% and did not differ significantly from the federal statutory rate. Our effective tax rate for the three months ended October 31, 2005 was approximately 37% and differed from the federal statutory rate of 35% due to state income taxes, which were partially offset by the benefit we received from tax exempt interest income.

In accordance with SFAS 123(R), which we adopted on August 1, 2005, tax savings from expected future deductions based on the expense attributable to our stock option plans are reflected in the federal and state tax provisions for the three months ended October 31, 2006 and 2005. The reduction of income taxes payable resulting from the exercise of employee stock options and other employee stock programs that were credited to stockholders’ equity was approximately $16.8 million for the three months ended October 31, 2006 and $2.5 million for the three months ended October 31, 2005.

Under current legislation, the federal research and experimental credit does not apply to expenses incurred after December 31, 2005. Although the credit may be extended, in accordance with SFAS 109 we did not assume tax benefits for any federal research and experimental credit after this expiration date.

9. Stockholders’ Equity

Stock Split

Our Board of Directors authorized a two-for-one stock split which was effected in the form of a 100% stock dividend on July 6, 2006 to stockholders of record on June 21, 2006. All share and per share figures in the statements of operations and notes to the financial statements retroactively reflect this stock split. This stock split was an equity restructuring that is considered a modification under SFAS 123(R), but it did not result in a change in fair value of any equity awards.

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 no shares under these programs during the three months ended October 31, 2006. We repurchased 8.6 million shares of our common stock for $194.8 million under these programs during the three months ended October 31, 2005. Authorized funds of $506.6 million remained under our stock repurchase programs at October 31, 2006.

Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.

Share-Based Compensation Plans

Description of Share-Based Compensation Plans

Under our 2005 Equity Incentive Plan, we are permitted to grant incentive and non-qualified stock options, restricted stock awards, restricted stock units and stock bonus awards to our employees, non-employee directors and consultants. There are a total of 26,000,000 shares authorized under the 2005 Plan. Up to 50% of equity awards granted each year can be at less than full fair market value. All options granted under the 2005 Plan have exercise prices equal to the fair market value of our stock on the date of grant. Options granted under the 2005 Plan typically vest over three years based on continued service and have a seven-year term. Prior to the fourth quarter of fiscal 2006, we granted restricted stock units under the 2005 Plan primarily to certain executive officers. In the fourth quarter of fiscal 2006, the Compensation Committee of our Board of Directors approved the use of restricted stock units for employees at all job levels in order to provide a competitive form of equity incentive that would have value regardless of fluctuations in Intuit’s stock price. Restricted stock units granted under the 2005 Plan typically vest over three years based on continued service and are payable in shares of our common stock upon vesting. Restricted stock units granted to certain executive officers are subject to the achievement of performance goals established by the Compensation Committee, including targets based upon both Intuit’s net revenue and operating income. Outstanding awards that were originally granted under several predecessor plans also remain in effect in accordance with their terms. In addition, we maintain an Employee Stock Purchase Plan. The 2005 Plan, its predecessor plans and our Employee Stock Purchase Plan are described more fully in our Annual Report on Form 10-K for the fiscal year ended July 31, 2006.

Share-Based Compensation Expense

The following table summarizes the total share-based compensation expense for stock options, restricted stock awards, restricted stock units and our Employee Stock Purchase Plan that we recorded for continuing operations for the periods shown. The share-based compensation expense that we recorded for discontinued operations for the three months ended October 31, 2005 was nominal.

		Three Months Ended
		October 31,				October 31,
(In thousands, except per share amounts)		2006				2005
Cost of product revenue		$	218			$	288
Cost of service revenue			617				637
Selling and marketing			5,738				6,307
Research and development			5,302				5,610
General and administrative			6,984				7,582
Increase of operating loss from continuing operations and loss from continuing operations before income taxes			18,859				20,424
Income tax benefit			(6,800	)			(7,534	)
Increase of net loss from continuing operations		$	12,059			$	12,890
Increase of net loss per share from continuing operations:
Basic and diluted		$	0.03			$	0.04

At October 31, 2006, there was $149.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans which we expect to amortize to expense in the future. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average vesting period of 2.1 years.

Determining Fair Value

Valuation and Amortization Method. Effective August 1, 2006, we began using a lattice binomial model to estimate the fair value of stock options granted. Prior to that date we used the Black Scholes valuation model. This change did not have a material impact on our financial position, results of operations or cash flows. Our stock options have various restrictions, including vesting provisions and restrictions on transfer, and are often exercised prior to their contractual maturity. We therefore believe that lattice binomial models are more capable of incorporating the features of our stock options than closed-form models such as the Black Scholes model. The use of a lattice binomial model requires the use of extensive actual employee exercise behavior data and a number of complex assumptions including the expected volatility of our stock price over the term of the options, risk-free interest rates and expected dividends. For options granted before August 1, 2005, the date we adopted SFAS 123(R), we amortize the fair value on an accelerated basis. This is the same basis on which we amortized options granted before August 1, 2005 for our pro forma disclosures under SFAS 123. For options granted on or after August 1, 2005, we amortize the fair value on a straight-line basis. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods. We record compensation expense for the market value of restricted stock units using the intrinsic value method. We amortize the value of restricted stock units on a straight-line basis over the restriction period.

Expected Term. The expected term of stock options represents the weighted average period of time that they are expected to be outstanding and is a derived output of the lattice binomial model. The expected term of stock options is impacted by all of the underlying assumptions and calibration of our model. The lattice binomial model assumes that option exercise behavior is a function of the option’s remaining vested life and the extent to which the market price of our common stock exceeds the option exercise price. The lattice binomial model estimates the probability of exercise as a function of these two variables based on the history of exercises and cancellations on all past option grants made by us. In fiscal 2006 we estimated the expected term of options granted based on historical exercise patterns for the first three quarters and based on implied exercise patterns using a binomial model for the fourth quarter.

Expected Volatility. We estimate the volatility of our common stock at the date of grant based on the implied volatility of one-year and two-year publicly traded options on our common stock, consistent with SFAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. Our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility.

Risk-Free Interest Rate. We base the risk-free interest rates that we use in the lattice binomial option valuation model on the implied yield in effect at the time of option grant on constant maturity U.S. Treasury issues with equivalent remaining terms.

Expected Dividends. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the lattice binomial option valuation model.

Forfeitures. SFAS 123(R) requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest.

We used the following assumptions to estimate the fair value of options granted and shares purchased under our Employee Stock Purchase Plan for the periods indicated:

		Stock Options								Employee Stock Purchase Plan
		Three Months Ended								Three Months Ended
		October 31,				October 31,				October 31,				October 31,
		2006				2005				2006				2005
Average expected term (years)			n/a				2.44				n/a				0.31
Expected volatility (range)			25% - 27	%			23% - 24	%			28	%			22% - 23	%
Weighted average expected volatility			27	%			23	%			28	%			22	%
Risk-free interest rate (range)			4.73% - 4.91	%			3.70% - 4.21	%			4.88	%			3.14% - 3.69	%
Expected dividend yield			0	%			0	%			0	%			0	%

Distribution and Dilutive Effect of Options

The following table shows certain information about net grants of options and restricted stock units as well as grants to Named Executives for the periods indicated. We define net grants as options granted less options canceled or expired and restricted stock units granted less restricted stock units canceled or expired. Named Executives are defined as our chief executive officer and each of the four other most highly compensated executive officers during the fiscal periods presented. Options and restricted stock units granted to our Named Executives as a percentage of total options granted may vary significantly from quarter to quarter, due in part to the timing of annual performance-based grants to Named Executives.

		Three
		Months
		Ended				Twelve Months Ended
		October 31,				July 31,				July 31,
		2006				2006				2005
Net grants of options and RSUs during the period as a percentage of outstanding shares			0.6	%			2.3	%			1.8	%
Grants to Named Executives during the period as a percentage of total grants			7.1	%			3.1	%			6.2	%
Grants to Named Executives during the period as a percentage of outstanding shares			0.1	%			0.1	%			0.2	%
Options and RSUs held by Named Executives as a percentage of total options and RSUs outstanding			16.0	%			14.1	%			13.0	%

10. Litigation

Stock Option-Related Matters

In light of media reports alleging improper stock option granting practices by public companies, including a report from the Center for Financial Research and Analysis, in May 2006 we began a voluntary review of our historical stock option grant activities and related accounting treatment. Our Board of Directors formed a special committee of independent directors to conduct this review with the assistance of independent legal counsel and independent forensic accounting support. The primary scope of this review covered the period from August 1997 to August 2006. Subsequent to our initiation of this review, we received an informal inquiry from the Securities and Exchange Commission (SEC) and a subpoena from the United States Attorney for the Northern District of California requesting documents relating to our historical stock option granting practices. On August 16, 2006 we announced the completion of our independent review, which uncovered no evidence of fraud or intentional wrongdoing in our historical stock option granting practices. We reported this conclusion to the SEC and the United States Attorney, and on October 30, 2006 we announced that the SEC’s investigation had terminated and that the SEC was not recommending any enforcement action. The United States Attorney has received the same information submitted to the SEC and has not made any additional requests for information.

Muriel Siebert & Co., Inc. v. Intuit Inc., Index No. 03-602942, Court of Appeals, State of New York

On September 17, 2003 Muriel Siebert & Co., Inc. filed a complaint against Intuit alleging various claims for breach of contract, breach of express and implied covenants of good faith and fair dealing, breach of fiduciary duty, misrepresentation and/or fraud, and promissory estoppel. The allegations relate to Quicken Brokerage powered by Siebert, a strategic alliance between the two companies. The complaint seeks compensatory damages of up to $11.1 million, punitive damages of up to $33.0 million, and other damages. Intuit unsuccessfully sought to compel the matter to arbitration. On February 7, 2005 Intuit filed a motion to dismiss all but one of the plaintiff’s claims in New York state court. On September 6, 2005 the court dismissed Siebert’s fraud and punitive damages claims. The case is now stayed pending appellate review by the Court of Appeals of the State of New York of certain procedural issues in the case. Intuit believes this lawsuit is without merit and will vigorously defend the litigation.

Other Litigation Matters

Intuit is subject to certain routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business, including assertions that we may be infringing patents or other intellectual property rights of others. We currently believe that the ultimate amount of liability, if any, for any pending claims of any type (either alone or combined) will not materially affect our financial position, results of operations or cash flows. We also believe that we would be able to obtain any necessary licenses or other rights to disputed intellectual property rights on commercially reasonable terms. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on Intuit because of defense costs, negative publicity, diversion of management resources and other factors. Our failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect our business.

11. Subsequent Event

On November 29, 2006, we entered into a definitive merger agreement (the Merger Agreement) to acquire Digital Insight Corporation (Digital Insight) in a merger transaction pursuant to which Digital Insight will become a wholly owned subsidiary of Intuit Inc. (the Merger). Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, we will acquire all of the outstanding shares of Digital Insight common stock for a cash amount of $39.00 per share, for a total purchase price of approximately $1.35 billion on a fully diluted basis. In addition, we will assume Digital Insight’s stock options which are outstanding immediately prior to the effective time of the Merger (other than options held by non-employee directors of Digital Insight). The transaction is subject to regulatory review, Digital Insight shareholder approval and other customary closing conditions. We plan to finance the transaction with a combination of existing cash balances and up to $1 billion of debt financing.

ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes the following sections:

	•		Executive Overview that discusses at a high level our operating results and some of the trends that affect our business.
	•		Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.
	•		Results of Operations that begins with an overview followed by a more detailed discussion of our revenue and expenses.
	•		Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our balance sheets and our financial commitments.

You should note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Please see Item 1A in Part II of this Quarterly Report on Form 10-Q for important information to consider when evaluating such statements.

You should read this MD&A in conjunction with the financial statements and related notes in Item 1 and our Annual Report on Form 10-K for the fiscal year ended July 31, 2006. As discussed below, we sold our Intuit Information Technology Solutions (ITS) business in December 2005. We accounted for this business as a discontinued operation and have accordingly reclassified our financial statements for all periods prior to the sale to reflect ITS as discontinued operations. Unless noted otherwise, the following discussion pertains only to our continuing operations.

Our Board of Directors authorized a two-for-one stock split which was effected in the form of a 100% stock dividend on July 6, 2006 to stockholders of record on June 21, 2006. All share and per share figures in this MD&A and the statements of operations and the notes to the financial statements retroactively reflect this stock split.

Executive Overview

This overview provides a high level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important in order to understand our financial results for the first quarter of fiscal 2007 as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report on Form 10-Q.

About Intuit

Intuit is a leading provider of business, financial management and tax solutions for small businesses, consumers and accountants. We organize our business into the following five segments:

	•		Our QuickBooks segment includes QuickBooks accounting and business management software and technical support as well as financial supplies for small businesses.
	•		Our Payroll and Payments segment includes payroll products and services and merchant services such as credit and debit card processing for small businesses.
	•		Consumer Tax includes our TurboTax consumer and small business tax return preparation products and services.
	•		Professional Tax includes our Lacerte and ProSeries professional tax products and services.
	•		Other Businesses includes our Quicken personal finance products and services, Intuit Real Estate Solutions, Intuit Distribution Management Solutions, and our business in Canada.

Seasonality

Our QuickBooks, Consumer Tax and Professional Tax businesses are highly seasonal. Some of our other offerings are also seasonal, but to a lesser extent. Revenue from many of our small business software products, including QuickBooks, tends to be at its peak around calendar year end, although the timing of new product releases or

changes in our offerings can materially shift revenue between quarters. Sales of income tax preparation products and services are heavily concentrated in the period from November through April. As a result, 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.

Overview of Financial Results

Total net revenue for the first quarter of fiscal 2007 was $362.1 million, up 19% compared with the first quarter of fiscal 2006. Substantially all of the fiscal 2007 revenue increase was due to growth in our QuickBooks and Payroll and Payments segments. We estimate that approximately $20 million of first quarter fiscal 2007 QuickBooks segment revenue was attributable to the September launch of QuickBooks 2007, which was about 30 days earlier than last year’s launch of QuickBooks 2006. Without this earlier launch, total company revenue growth would have been approximately 12%. Due to the seasonal nature of our Consumer Tax and Professional Tax businesses, we typically generate nominal revenue in these segments during our first fiscal quarter.

We expect revenue growth in the second quarter of fiscal 2007 to be affected by several timing-related factors, including the launch of QuickBooks 2007 in the first quarter, the introduction of new bundled offerings in our Professional Tax segment which is expected to cause some revenue to be deferred until the third quarter, and expected continuing rapid growth in TurboTax Online, which generates revenue primarily in our third quarter. We also believe that the continuing trend among individual taxpayers toward the use of both online and desktop software, rather than manual methods, to prepare their own income tax returns will continue to be important to the growth of our Consumer Tax business.

We recorded an operating loss from continuing operations of $101.5 million in the first quarter of fiscal 2007 compared with an operating loss from continuing operations of $102.6 million in the first quarter of fiscal 2006. Revenue growth in the first quarter of fiscal 2007 was offset by higher spending for new product development and to a lesser extent by increases in cost of revenue associated with our revenue growth and general and administrative expenses.

Our net loss from continuing operations of $58.9 million for the first quarter of fiscal 2007 increased 2% compared with our net loss from continuing operations of $57.6 million for the first quarter of fiscal 2006. Diluted net loss per share from continuing operations of $0.17 for the first quarter of fiscal 2007 increased 6% compared with $0.16 for the same period of fiscal 2006. Our effective tax rates for the first quarters of fiscal 2007 and 2006 were approximately 35% and 37%.

In August 2006 we acquired StepUp Commerce, Inc. for an aggregate purchase price of approximately $60 million in cash. StepUp provides services that allow small businesses to present their product information and images to online shoppers. StepUp became part of our QuickBooks segment.

We ended the first quarter of fiscal 2007 with cash and investments totaling $1.1 billion. In the first quarter of fiscal 2007 we used cash for seasonal operating needs, including the payment of fiscal 2006 accrued bonuses, and for the purchase of StepUp Commerce, Inc. We generated cash by selling investments and from the issuance of common stock under employee stock plans. We repurchased no shares of our common stock under our stock repurchase programs during the first quarter of fiscal 2007. At October 31, 2006, authorized funds of $506.6 million remained available for stock repurchases.

Critical Accounting Policies and Estimates

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended July 31, 2006 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. Except as discussed in “Accounting for Share-Based Compensation” below, we believe that during the first quarter of fiscal 2007 there were no significant changes in those critical accounting policies and estimates. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit Committee of our Board of Directors.

Accounting for Share-Based Compensation

Effective August 1, 2006, we began using a lattice binomial model to estimate the fair value of stock options granted. Prior to that date we used the Black Scholes valuation model. This change did not have a material impact on our financial position, results of operations or cash flows. Our stock options have various restrictions, including vesting provisions and restrictions on transfer, and are often exercised prior to their contractual maturity. We therefore believe that lattice binomial models are more capable of incorporating the features of our stock options than closed-form models such as the Black Scholes model. The use of a lattice binomial model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including the expected volatility of our stock price over the term of the options, risk-free interest rates and expected dividends. These assumptions are described in Note 9 to the financial statements. We may elect to use different assumptions in our lattice binomial option valuation model in the future, which could materially affect our net income or loss and net income or loss per share.

Results of Operations

Financial Overview

(Dollars in millions, except per		Q1				Q1				$				%
share amounts)		FY07				FY06				Change				Change
Total net revenue		$	362.1			$	304.1			$	58.0				19	%
Operating loss from continuing operations			(101.5	)			(102.6	)			1.1				(1	%)
Net loss from continuing operations			(58.9	)			(57.6	)			(1.3	)			2	%
Diluted net loss per share from continuing operations		$	(0.17	)		$	(0.16	)		$	(0.01	)			6	%
Net cash used in operating activities of continuing operations		$	(136.7	)		$	(94.8	)		$	(41.9	)			44	%

Total net revenue increased $58.0 million or 19% in the first quarter of fiscal 2007 compared with the same quarter of fiscal 2006 due to growth in our QuickBooks and Payroll and Payments segments. QuickBooks segment revenue increased $29.0 million or 28% in the first quarter of fiscal 2007. We estimate that approximately $20 million of first quarter fiscal 2007 QuickBooks segment revenue was attributable to the September launch of QuickBooks 2007, which was about 30 days earlier than last year’s launch of QuickBooks 2006. Without this earlier launch, total company revenue growth would have been approximately 12% and QuickBooks segment revenue growth would have been approximately 9%. Payroll and Payments revenue increased $21.9 million or 21% in the same period due to growth in the customer base, favorable Payroll product mix and higher transaction volume per customer in our Payments business. Due to the seasonal nature of our Consumer Tax and Professional Tax businesses, we typically generate nominal revenue in these segments during our first fiscal quarter. See “Total Net Revenue” below for more information.

Higher revenue in the first quarter of fiscal 2007 was offset by higher expenses, including approximately $23 million for new product development, approximately $14 million for increases in cost of revenue associated with our revenue growth and approximately $14 million for increases in general and administrative expenses. Our effective tax rates for the first quarters of fiscal 2007 and 2006 were approximately 35% and 37%.

At October 31, 2006, our cash, cash equivalents and investments totaled $1.1 billion, a decrease of $138.0 million from July 31, 2006. In the first quarter of fiscal 2007, we used $136.7 million in cash for seasonal operating needs, including the payment of accrued fiscal 2006 bonuses. We also used approximately $60 million for the purchase of StepUp Commerce, Inc. and $29.2 million for purchases of property and equipment. During the same period we sold $124.2 million in investments and we received $82.9 million in cash from the issuance of common stock under employee stock plans.

Total Net Revenue by Business Segment

The table below and the discussion of net revenue by business segment that follows it are organized in accordance with our five reportable business segments. We have combined other revenue with service revenue. Other revenue was approximately 5% of total net revenue for the first quarter of fiscal 2007 and 2006. See Note 6 to the financial statements for descriptions of product revenue and service and other revenue for each segment.

						% Total								% Total
		Q1				Net				Q1				Net
(Dollars in millions)		FY07				Revenue				FY06				Revenue				% Change
QuickBooks
Product		$	114.4							$	87.7
Service and other			19.3								17.0
Subtotal			133.7				37	%			104.7				34	%			28	%
Payroll and Payments
Product			50.9								45.9
Service and other			74.6								57.7
Subtotal			125.5				35	%			103.6				34	%			21	%
Consumer Tax
Product			3.4								2.8
Service and other			9.4								5.1
Subtotal			12.8				3	%			7.9				3	%			63	%
Professional Tax
Product			8.4								8.1
Service and other			1.3								0.8
Subtotal			9.7				3	%			8.9				3	%			9	%
Other Businesses
Product			35.3								38.0
Service and other			45.1								41.0
Subtotal			80.4				22	%			79.0				26	%			2	%
Total Company
Product			212.4								182.5
Service and other			149.7								121.6
Total net revenue		$	362.1				100	%		$	304.1				100	%			19	%