UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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




For the quarterly period ended ~~April 30,~~October 31, 2002 or


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




For the transition period from ~~______________~~__________ to ~~______________ .~~__________.

Commission File Number 0-21180

INTUIT INC.

(Exact name of registrant as specified in its charter)



Delaware		77-0034661

(State of incorporation)		(IRS employer identification no.)

2535 Garcia Avenue, Mountain View, CA 94043

(Address of principal executive offices)

(650) 944-6000

(Registrant’s telephone number, including area code)

Indicate by a 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 [X] No ~~[ ]~~

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Approximately ~~211,612,552~~205,237,583 shares of Common Stock, $0.01 par value, as of ~~April 30,~~November 29, 2002

TABLE OF CONTENTS


~~PART I FINANCIAL INFORMATION~~
	~~ITEM 1 FINANCIAL STATEMENTS~~
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4 CONTROLS AND PROCEDURES
PART II ~~OTHER INFORMATION~~
	ITEM 1 LEGAL PROCEEDINGS
	~~ITEM 5 OTHER MATTERS~~
	ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT ~~3.01~~
~~EXHIBIT~~ 10.01
EXHIBIT 10.02

INTUIT INC.
FORM 10-Q
~~INTUIT INC.~~
INDEX


		Page
		Number

PART I	FINANCIAL INFORMATION

ITEM 1:	Financial Statements

	Condensed Consolidated Balance Sheets as of July 31, ~~2001~~2002 and ~~April 30,~~October 31, 2002	3

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2001 and 2002	4

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~April 30,~~October 31, 2001 and 2002	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1924

ITEM 3:	Quantitative and Qualitative Disclosures about Market Risk	3546

ITEM 4:	Controls and Procedures	47

PART II	OTHER INFORMATION

ITEM 1:	Legal Proceedings	37

~~ITEM 5: Other Matters~~	3848

ITEM 6:	Exhibits and Reports on Form 8-K	3949

	Signatures	4151

Intuit, the Intuit logo, QuickBooks, Quicken, TurboTax, ProSeries, Lacerte, FundWare and QuickBase, 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. Intuit Master Builder, MRI and Intuit Eclipse, 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 and should be treated as such.

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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

July 31, April 30,
2001 2002

(In thousands; unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 450,104 $ 454,791
Short-term investments 1,119,305 1,297,133
Marketable securities 85,307 48,469
Customer deposits 230,410 283,748
Accounts receivable, net 27,990 69,216
Mortgage loans 123,241 279,506
Deferred income taxes 77,948 87,816
Prepaid expenses and other current assets 33,617 35,091

Total current assets 2,147,922 2,555,770

Property and equipment, net 185,969 181,442
Goodwill and intangibles, net 415,334 310,949
Long-term deferred income taxes 145,905 146,020
Investments 24,107 13,149
Other assets(1) 42,499 16,168

Total assets $ 2,961,736 $ 3,223,498

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 66,400 $ 77,310
Payroll service obligations 205,067 256,369
Escrow liabilities 23,373 27,335
Drafts payable 63,518 67,005
Deferred revenue 137,305 97,509
Income taxes payable 82,661 104,293
Short-term note payable 38,672 17,451
Other current liabilities 170,966 255,001

Total current liabilities 787,962 902,273

Long-term obligations 12,413 11,209
Minority interest 35 —
Commitments and contingencies
Stockholders’ equity:
Preferred stock — —
Common stock and additional paid in capital 1,725,490 1,753,768
Treasury stock, at cost (8,497 ) (46,488 )
Deferred compensation (21,720 ) (16,055 )
Accumulated other comprehensive income, net 28,180 8,996
Retained earnings 437,873 609,795

Total stockholders’ equity 2,161,326 2,310,016

Total liabilities and stockholders’ equity $ 2,961,736 $ 3,223,498

~~(1)~~

~~Includes $9.5 million and $8.0 million of loans due from affiliates as of July 31, 2001 and April 30, 2002, respectively.~~


					July 31,			October 31,
(In thousands; unaudited)					2002			2002

				ASSETS
Current assets:
	Cash and cash equivalents				$	435,087		$	308,176
	Short-term investments					815,342			522,980
	Marketable securities					16,791			27,462
	Customer deposits					300,409			308,149
	Accounts receivable, net					56,467			65,353
	Deferred income taxes					67,799			66,957
	Income taxes receivable					—			56,915
	Prepaid expenses and other current assets					50,729			36,771
	Amounts due from discontinued operations entities					252,869			184,538

		Total current assets				1,995,493			1,577,301
Property and equipment, net						181,758			189,550
Goodwill, net						428,948			581,406
Purchased intangibles, net						125,474			125,996
Long-term deferred income taxes						176,553			171,428
Loans to executive officers and other employees						21,270			20,585
Other assets						33,530			13,481

Total assets					$	2,963,026		$	2,679,747

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	76,669		$	80,847
	Accrued compensation and related liabilities					91,507			77,595
	Payroll service obligations					300,381			308,117
	Deferred revenue					159,758			166,075
	Income taxes payable					442			—
	Short-term note payable					17,926			18,026
	Other current liabilities					86,094			87,092

		Total current liabilities				732,777			737,752

Long-term obligations						14,610			14,384
Commitments and contingencies
Stockholders’ equity:
	Preferred stock					—			—
	Common stock and additional paid-in capital					1,846,707			1,864,172
	Treasury shares, at cost					(126,107	)		(351,781	)
	Deferred compensation					(12,628	)		(10,346	)
	Accumulated other comprehensive income (loss)					(3,675	)		1,376
	Retained earnings					511,342			424,190

		Total stockholders’ equity				2,215,639			1,927,611

Total liabilities and stockholders’ equity					$	2,963,026		$	2,679,747

See accompanying notes.

-3-

INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended
April 30, April 30,

2001 2002 2001 2002

(In thousands, except per share data; unaudited)
Net revenue:
Products $ 244,709 $ 332,497 $ 736,784 $ 869,907
Services 161,846 198,355 273,839 381,772
Other 18,655 14,374 59,669 49,558

Total net revenue 425,210 545,226 1,070,292 1,301,237

Costs and expenses:
Cost of revenue:
Cost of products 29,345 35,070 118,755 141,314
Cost of services 39,533 38,628 108,231 112,901
Cost of other revenue 8,635 6,815 21,240 19,714
Amortization of purchased software 4,375 1,565 11,220 10,442
Customer service and technical support 37,538 45,807 116,068 137,899
Selling and marketing 68,479 89,830 215,146 256,656
Research and development 52,697 52,908 155,174 156,111
General and administrative 23,917 29,339 77,614 90,055
Charge for purchased research and development 238 — 238 —
Charge for vacant facilities — 13,237 — 13,237
Acquisition-related charges 122,575 37,562 205,328 140,748
Loss on impairment of long-lived asset — — — 27,000

Total costs and expenses 387,332 350,761 1,029,014 1,106,077

Income from operations 37,878 194,465 41,278 195,160
Interest and other income and expense, net 15,070 8,308 47,736 28,631
Gains (losses) on marketable securities and other investments, net (11,504 ) 1,356 (87,307 ) (9,266 )
Gain on divestiture — 8,308 1,639 8,308

Income before income taxes, minority interest and cumulative effect of accounting change 41,444 212,437 3,346 222,833
Income tax provision 55,294 67,938 38,566 50,893
Minority interest 451 18 598 18

Income (loss) before cumulative effect of accounting change (14,301 ) 144,481 (35,818 ) 171,922
Cumulative effect of accounting change, net of income taxes of $9,543 — — 14,314 —

Net income (loss) $ (14,301 ) $ 144,481 $ (21,504 ) $ 171,922

Basic net income (loss) per share before cumulative effect of accounting change $ (0.07 ) $ 0.68 $ (0.17 ) $ 0.81
Cumulative effect of accounting change — — 0.07 —

Basic net income (loss) per share $ (0.07 ) $ 0.68 $ (0.10 ) $ 0.81

Shares used in per share amounts 208,715 211,614 207,345 211,724

Diluted net income (loss) per share before cumulative effect of accounting change $ (0.07 ) $ 0.67 $ (0.17 ) $ 0.79
Cumulative effect of accounting change — — 0.07 —

Diluted net income (loss) per share $ (0.07 ) $ 0.67 $ (0.10 ) $ 0.79

Shares used in per share amounts 208,715 217,173 207,345 217,667


			Three Months Ended
			October 31,

			2001			2002

(In thousands, except per share data; unaudited)
Net revenue:
	Products		$	114,583		$	146,992
	Services			36,755			60,941
	Other			17,389			15,349

		Total net revenue		168,727			223,282

Costs and expenses:
	Cost of revenue:
		Cost of products		31,926			29,847
		Cost of services		24,312			36,876
		Cost of other revenue		5,551			4,590
		Amortization of purchased software		1,706			2,977
	Customer service and technical support			37,759			41,752
	Selling and marketing			59,953			78,801
	Research and development			48,857			65,682
	General and administrative			26,557			40,161
	Charge for purchased research and development			—			7,789
	Acquisition-related charges			41,081			9,455
	Loss on impairment of long-lived asset			27,000			—

		Total costs and expenses		304,702			317,930

Loss from continuing operations				(135,975	)		(94,648	)
Interest and other income				9,810			8,336
Gains (losses) on marketable securities and other investments, net				(12,254	)		253

Loss from continuing operations before income taxes				(138,419	)		(86,059	)
Income tax benefit				(36,263	)		(25,818	)

Net loss from continuing operations				(102,156	)		(60,241	)
Discontinued operations, net of income taxes (Note 6):
	Net income from Quicken Loans discontinued operations			9,729			—
	Gain on disposal of Quicken Loans discontinued operations			—			5,556

Net income from discontinued operations				9,729			5,556

Net loss			$	(92,427	)	$	(54,685	)

Basic and diluted net loss per share from continuing operations			$	(0.48	)	$	(0.29	)
Basic and diluted net income per share from discontinued operations				0.04			0.03

Basic and diluted net loss per share			$	(0.44	)	$	(0.26	)

Shares used in basic and diluted per share amounts				211,039			207,965

See accompanying notes.

-4-

INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended
April 30,

2001 2002

(In thousands; unaudited)
Cash flows from operating activities:
Net income (loss) $ (21,504 ) $ 171,922
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of goodwill, purchased intangibles and deferred compensation 213,144 153,318
Depreciation 45,208 50,580
Net loss from marketable securities and other investments 87,307 9,266
Charge for purchased research and development 238 —
Charge for vacant facilities — 13,237
Loss on impairment of long-lived asset — 27,000
Loss on disposal of property and equipment — 1,915
Cumulative effect of accounting change (23,857 ) —
Minority interest 598 18
Deferred income tax expense 1,755 43
Gain on divestiture (1,639 ) (8,308 )
Tax benefit from employee stock options 48,038 30,639
Changes in operating assets and liabilities:
Customer deposits (40,266 ) (53,338 )
Accounts receivable (35,445 ) (40,928 )
Mortgage loans (85,634 ) (156,265 )
Prepaid expenses and other current assets (10,071 ) 4,598
Accounts payable (14,711 ) 10,581
Payroll service obligations 20,702 51,302
Escrow liabilities 18,879 3,962
Drafts payable 52,965 3,487
Deferred revenue (25,204 ) (41,024 )
Income taxes payable (44,369 ) 21,632
Other accrued liabilities 40,932 83,154

Net cash provided by operating activities 227,066 336,791

Cash flows from investing activities:
Change in other assets 7,738 (575 )
Purchases of property and equipment (58,011 ) (48,219 )
Proceeds from the sale of marketable securities 25,238 7,122
Purchases of short-term investments (2,581,316 ) (2,085,073 )
Liquidation and maturity of short-term investments 2,501,607 1,905,812
Acquisitions of businesses, net of cash acquired (164,059 ) (7,532 )
Purchases of long-term investments (3,694 ) —

Net cash used in investing activities (272,497 ) (228,465 )

Cash flows from financing activities:
Principal payments on long-term debt and notes payable (2,610 ) (27,484 )
Net proceeds under warehouse line of credit 1,125 —
Net proceeds from issuance of common stock 65,086 72,586
Purchase of treasury stock — (149,265 )

Net cash provided by (used in) financing activities 63,601 (104,163 )

Effect of foreign currency translation 2,481 524
Net increase in cash and cash equivalents 20,651 4,687
Cash and cash equivalents at beginning of period 416,953 450,104

Cash and cash equivalents at end of period $ 437,604 $ 454,791


					Three Months Ended
					October 31,

(In thousands; unaudited)					2001			2002

Cash flows from operating activities:
	Net loss from continuing operations				$	(102,156	)	$	(60,241	)
	Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
		Acquisition-related charges				41,081			9,455
		Amortization of purchased software				1,706			2,977
		Amortization of deferred compensation				633			634
		Charge for purchased research and development				—			7,789
		Depreciation				15,274			18,509
		Net (gains) losses from marketable securities and other investments				12,254			(253	)
		Loss on impairment of long-lived asset				27,000			—
		Loss on disposal of property and equipment				495			1,786
		Deferred income tax benefit				198			5,967
		Tax benefit from employee stock options				9,574			16,431

				Subtotal		6,059			3,054

		Changes in operating assets and liabilities:
			Customer deposits			5,542			(7,740	)
			Accounts receivable			(13,036	)		(4,430	)
			Income taxes receivable			—			(56,915	)
			Prepaid expenses and other current assets			(5,045	)		14,642
			Accounts payable			14,576			3,616
			Accrued compensation and related liabilities			(8,403	)		(13,912	)
			Payroll service obligations			(5,538	)		7,736
			Deferred revenue			2,205			(377	)
			Income taxes payable			(38,196	)		(442	)
			Other current liabilities			1,977			(471	)

			Total changes in operating assets and liabilities			(45,918	)		(58,293	)

			Net cash used in operating activities			(39,859	)		(55,239	)

Cash flows from investing activities:
	Change in other assets					1,453			(2,292	)
	Purchases of property and equipment					(14,276	)		(27,747	)
	Proceeds from the sale of marketable securities					1,157			—
	Purchases of short-term investments					(347,531	)		(279,300	)
	Liquidation and maturity of short-term investments					418,603			569,687
	Acquisitions of businesses, net of cash acquired					—			(171,742	)
	Purchases of long-term investments, net					(894	)		—

			Net cash provided by investing activities			58,512			88,606

Cash flows from financing activities:
	Change in notes payable					372			(126	)
	Net proceeds from issuance of common stock					22,019			43,328
	Purchase of treasury stock					(21,137	)		(300,349	)

			Net cash provided by (used in) financing activities			1,254			(257,147	)

Net cash provided by (used in) discontinued operations						(18,500	)		97,187
Effect of foreign currency translation						(660	)		(318	)

Net increase (decrease) in cash and cash equivalents						747			(126,911	)
Cash and cash equivalents at beginning of period						94,301			435,087

Cash and cash equivalents at end of period					$	95,048		$	308,176

See accompanying notes.

-5-

INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Summary of Significant Accounting Policies

Basis of Presentation

~~Intuit Inc. (“Intuit”) has prepared the accompanying unaudited condensed~~The consolidated ~~financial statements in accordance with generally accepted accounting principles for interim financial statements. The~~ financial statements include the financial statements of Intuit and its ~~wholly-owned~~wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain other previously reported amounts have been reclassified to conform to the current ~~presentation format.~~presentation. As discussed in Note 6 , the Quicken Loans mortgage business, which we sold on July 31, 2002, has been accounted for as discontinued operations in accordance with Accounting Principles Board (“APB”) Opinion No. 30. Accordingly, we have reclassified our financial statements for all periods presented to reflect Quicken Loans as a discontinued operation. Unless noted otherwise, discussions in these notes pertain to our continuing operations.

We have included all normal recurring adjustments ~~considered~~and the non-recurring adjustments described in Note 6 that we consider necessary to give a fair presentation of our operating results for the periods shown. Results for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2002 do not necessarily indicate the results ~~to be expected~~we expect for the fiscal year ending July 31, ~~2002~~2003 or any other future period. These statements and accompanying notes should be read together with the audited consolidated financial statements for the fiscal year ended July 31, ~~2001~~2002 included in Intuit’s Form 10-K, filed with the Securities and Exchange Commission on ~~October 5, 2001.~~September 25, 2002.

Use of Estimates

~~To comply with generally accepted accounting principles, we~~We make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes. ~~Estimates are used~~For example, we use estimates for reserves for product returns and ~~exchanges, reserves for~~ rebates, and to determine the collectibility of accounts receivable and the value of deferred ~~taxes and other amounts.~~tax assets. We also use estimates to determine the remaining economic lives and carrying ~~value~~values of ~~goodwill,~~ purchased intangibles, ~~fixed assets~~property and equipment and other long-lived assets. Despite our intention to establish accurate estimates and assumptions, actual results may differ from our estimates.

Net Revenue

~~For our shrink-wrapped~~We derive revenues from the sale of packaged software products and supplies, product support, professional services, outsourced payroll services and multiple element arrangements that may include any combination of these items. We recognize revenue for software products and related services in accordance with Statement of Position 97-2,“Software Revenue Recognition,” as modified by SOP 98-9. For other offerings, we follow Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial Statements.” We recognize revenue when ~~we ship products (which is when title passes) — either to retailers or directly to end user customers. We recognize revenue only if payment is probable and~~persuasive evidence of an arrangement exists, we have ~~no significant remaining obligations to~~delivered the ~~customer. We recognize revenue net of returns reserves based on historical returns experience.~~ product or performed the service, the fee is fixed or determinable and collectibility is probable.

In some situations, we receive advance payments from our customers. ~~Revenue~~We defer revenue associated with these advance payments ~~is deferred~~ until we ship the products or perform the services.

In accordance with the Financial Accounting Standards Board’s (“FASB’s”) Emerging Issues Task Force Issue No. 01-9,“Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Product,” we generally account for cash consideration (such as sales incentives) that we give to our customers or resellers as a reduction of revenue rather than as an operating expense.

-6-

Product Revenue

We recognize revenue for the sale of our packaged software products and supplies when we ship the product (which is when title passes) either to retailers and distributors or directly to end-user customers. We sell our QuickBooks and consumer tax products on consignment to a limited number of resellers. We recognize revenue for these consignment transactions when the end-user sale has occurred.

We reduce product revenue from distributors and retailers for estimated returns that are ~~shipped or services are provided.~~based on historical returns experience and other factors such as the volume and price mix of products in the retail channel, trends in retailer inventory and economic trends that might impact customer demand for our products. We ~~also~~ reduce product revenue byfrom end users for the estimated ~~cost~~usage of rebates ~~when products~~on current product sales. Rebate reserves are ~~shipped.~~based on the terms and conditions of the specific promotional rebate program, actual sales during the promotion, the amount of redemptions received, historical redemption trends by product and by type of promotional program and the economic value of the rebate.

Service Revenue

We recognize revenue from outsourced payroll processing and payroll tax filing services as the services are performed, provided we have no other remaining ~~obligations.~~obligations to these customers. We generally require customers to remit payroll and payroll tax liability funds to us in advance of the applicable payroll due date via electronic funds transfer. We include in total net revenue the interest earned on invested balances resulting from timing differences between the collection of these funds from customers and the remittance of ~~such~~the funds to outside parties because this interest income represents an integral part of the revenue generated from our services. We recognize this interest as it is earned.

We defer loan origination revenue and the associated commissions and processing costs on loans held for sale until the related loan is sold. We recognize gains and losses on loans at the time we sell them, based upon the difference between the selling price and the carrying value of the related loans sold. We recognize interest income on mortgage loans held for sale in loan revenue as it is earned, and we recognize interest expenses on related borrowings as cost of revenue as we incur them.

~~Interest income generated from our general cash and cash equivalents balance is included in other income because this interest income does not result from our operating activities.~~

We also offer several plans under which customers ~~are charged~~pay for technical support. We recognize support ~~assistance. For plans where we collect fees in advance, we recognize~~ revenue over the life of the plan, which is generally one year. ~~We include costs~~Costs incurred for ~~fee-for-support~~these support plans are included in cost of revenue.

~~-6-~~

Service revenue also includes revenue from training, consulting and implementation services. We recognize revenue as these services are performed, provided we have no other remaining obligations to these customers.

Other Revenue

Other revenue consists primarily of royalties from ~~other products and services when it is earned based on the nature of the particular product or service. For products and services that we provide over a period of time, we~~advertising agreements. We typically recognize revenue pro rata based on the contractual time period. ~~However, where we provide or deliver the product or service at a specific point in time,~~If collectibility is not considered probable, we recognize revenue when the royalty is collected.

Multiple Element Arrangements

We also enter into certain revenue arrangements for which we are obligated to deliver multiple products and/or services (multiple elements). For these arrangements, which generally include software products, we allocate and defer revenue for the undelivered elements based on their vendor-specific objective evidence (“VSOE”) of fair value. VSOE is generally the price charged when that element is sold separately.

In situations where VSOE exists for all elements (delivered and undelivered), we allocate the total revenue to be earned under the arrangement among the various elements, based on their relative fair value. For transactions where VSOE exists only for the undelivered elements, we allocate and defer revenue based on VSOE of fair value of the undelivered elements, and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. If VSOE does not exist for undelivered items that are services, then we recognize the entire arrangement fee over the remaining service period. If VSOE does not exist for undelivered elements that are specified products or features, we defer revenue until the earlier of the delivery of all elements or the point at which VSOE is determined for these undelivered elements.

We recognize revenue related to the delivered products or services only if: (1) the above revenue recognition criteria are met; (2) any undelivered products or services are not essential to the functionality of the delivered products and services; (3) payment for the delivered products or services is not contingent upon delivery of the ~~product~~remaining products or ~~completion~~services; (4) we have an enforceable claim to receive the amount due in event that we do not deliver the undelivered products or services; and (5) as discussed above, there is evidence of the ~~service.~~fair value for each of the undelivered products or services.

-7-

Shipping and Handling ~~Costs~~

~~Costs incurred with~~We record the amounts we charge our customers for the shipping and handling of our ~~shrink-wrapped~~ software products ~~are recorded~~as product revenue and we record the related costs as cost of products in our ~~results~~statement of operations.

Customer Deposits and Payroll Service ~~and Technical Support~~Obligations

Customer service and technical support costs include the costs associated with performing order processing, answering customer inquiries by telephone and through Web sites and other electronic means and providing free technical support assistance to customers. In connection with the sale of certain products, we provide a limited amount of free technical support assistance to customers. We do not defer the recognition of any revenue associated with sales of these products, since the cost of providing this free technical support and related customer service is insignificant. The technical support is provided within one year after the associated revenue is recognized and free product enhancements are minimal and infrequent. We accrue the estimated cost of providing this free support upon product shipment.

~~Cash and Cash Equivalents and Short-Term Investments~~

~~We consider highly liquid investments with maturities of three months or less at the date of purchase to be~~deposits represent cash equivalents. Short-term investments consist of available-for-sale debt securities that are carried at fair value. Available-for-sale debt securities are classified as current assets based upon our intent and ability to use any and all of these securities as necessary to satisfy the significant short-term liquidity requirements that may arise from the highly seasonal and cyclical natureheld on behalf of our ~~businesses. Because~~payroll customers. Payroll service obligations also relate to our payroll business and consist primarily of payroll taxes we owe on behalf of our significant business seasonality, cash flow requirements may fluctuate dramatically from quarter to quarter and require us to use a significant amount of the short-term investments held as available-for-sale securities. See Note 2 for more information about cash and cash equivalents and short-term investments.

~~Marketable Securities and Other Investments~~

Our available-for-sale marketable securities are carried at fair value and we include unrealized gains and losses, net of tax, in stockholders’ equity. We use the specific identification method to account for gains and losses on marketable equity securities. Our other long-term investments are stated at cost. See Note 3 for more information about our marketable securities and other investments.customers.

Goodwill, Purchased Intangible Assets and Other Long-lived Assets

We record goodwill when the purchase price of net tangible and intangible assets we acquire exceeds their fair value. ~~We amortize~~In previous fiscal years, including fiscal 2002, we generally amortized goodwill on a straight-line basis over periods ranging from 3 to 5 years. However, in accordance with SFAS 142,“Goodwill and Other Intangible Assets,” we did not amortize goodwill for acquisitions completed after June 30, 2001, and effective August 1, 2002 we no longer amortize goodwill for acquisitions completed before July 1, 2001. See“Recent Pronouncements”below for more information. We ~~generally~~ amortize the cost of identified ~~intangibles~~intangible assets on a straight-line basis over periods ranging from 1 to 1510 years.

We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. ~~The reviews~~We look for facts or circumstances, either internal or external, that indicate that we may not recover the carrying value of the ~~asset may not be recovered.~~

~~-7-~~

asset. We measure impairment loss related to long-lived assets based on the amount by which the carrying ~~amount~~amounts of such assets ~~exceeds~~exceed their fair values. Our measurement of fair value is generally based on an analysis of the present value of estimated future discounted cash ~~flows,~~flows. Our analysis is based on available information and reasonable and supportable assumptions and projections. The discounted cash flow analysis considers the likelihood of possible outcomes and is based on our best estimate of projected future cash flows. If necessary, we perform subsequent calculations to measure the amount of the impairment loss based on the excess of the carrying value over the fair value of the impaired assets. If market values for the assets were not available, we would calculate the fair value using the present value of estimated expected future discounted cash flows. The cash flow calculations, including the discount rate, would be based on management’s best estimates, using appropriate assumptions and projections at the time.

In June 2001, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Statement of Financial Accounting Standards No.~~SFAS 142, ~~(SFAS 142),~~ “Goodwill and Other Intangible ~~Assets~~Assets.”.” In October 2001, the FASB issued SFAS 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”We ~~intend to implement~~implemented both SFAS 142 and SFAS 144 ~~beginning in the first quarter of fiscal 2003.~~on August 1, 2002. See“Recent Pronouncements”below for more information.

Stock-Based Incentive Program

We provide equity incentives to our employees (including those we hire as a result of acquisitions) and to our independent Board members through a carefully managed stock incentive program. We maintain four stock option plans and an Employee Stock Purchase Plan for different groups of eligible participants, and we also have outstanding stock options that we assumed in connection with certain acquisitions. We apply the recognition and measurement principles of APB Opinion No. 25,“Accounting for Stock Issued to Employees,” in accounting for stock-based incentives. Accordingly, we are not required to record compensation expense when stock options are granted to eligible participants as long as the exercise price is not less than the fair market value of the stock when the option is granted. We are also not required to record compensation expense in connection with the Employee Stock Purchase Plan as long as the purchase price of the stock is not less than 85% of the lower of the fair market value at the beginning of each 12-month offering period or at the end of each applicable six-month purchase period. See Note 11 for an illustration of the effect on net income (loss) and net income (loss) per share if we had applied the fair value recognition provisions of SFAS No. 123,“Accounting for Stock-Based Compensation,” to stock-based incentives.

Concentration of Credit Risk and Significant Customers and Suppliers

We operate in markets that are highly competitive and rapidly changing. Significant technological changes, changes in customer requirements, the emergence of competitive products or services with new capabilities and other factors could negatively impact our operating results.

We are also subject to risks related to changes in the values of our ~~marketable securities and private equity investments. See Note 3 for a discussion~~significant balance of short-term investments as well as risks ~~associated with these assets.~~related to the collectibility of our trade accounts receivable. Our ~~remaining investment~~ portfolio ~~is diversified and~~ of short-term investments

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consists primarily of ~~short-term~~ investment-grade ~~securities.~~securities that we diversify by limiting our holdings with any individual issuer in a managed portfolio to a maximum of $5 million.

We sell a significant portion of our products through third-party ~~distributors~~retailers and ~~retailers.~~distributors. As a result, we face risks related to the collectibility of our trade accounts receivable. Due to changes in our distribution relationships during fiscal 2002, we are selling an increasing proportion of products directly to retailers, rather than through distributors. At April 30, 2002, our two largest distributors collectively accounted for about 9% of our accounts receivable balance. By comparison, at April 30, 2001, we had one distributor that accounted for approximately 25% of our accounts receivable balance. At April 30, 2002, two of our major retail customers collectively accounted for approximately 20% of our accounts receivable balance whereas our top two retailers at April 30, 2001 accounted for slightly less than 10% of our accounts receivable balance. To appropriately manage this risk, we perform ongoing evaluations of customer ~~credit. Generally,~~credit and limit the amount of credit extended as we deem appropriate but generally do not require collateral. We maintain reserves for estimated credit losses and these losses have historically been within our expectations. However, since we cannot necessarily predict future changes in the financial stability of our customers, we cannot guarantee that our reserves will continue to be adequate.

~~In the normal course~~Due to changes in our distributor relationships during fiscal 2002, we are selling an increasing proportion of our software products directly to a variety of retailers rather than through a few major distributors. No distributor or individual retailer accounted for 10% or more of total net revenue in the first quarter of fiscal 2002 or 2003, nor did any customer account for 10% or more of accounts receivable at July 31, 2002 or October 31, 2002.

In connection with the sale of our Quicken Loans mortgage business in July 2002, we ~~enter into loan commitments~~agreed to ~~extend~~continue providing to the purchasing company a line of credit ~~in order~~of up to ~~meet~~$375.0 million to fund mortgage loans for a transition period of up to six months. The line is secured by the financing needs of our customers. Loan commitments are agreements to lend to a customer as long as all conditions specified in the contract are met. Commitments generally have fixed expiration dates or other termination clauses and may require the customer to pay a fee. We evaluate each customer’s creditworthiness on a case-by-case basis.

~~Loan commitments subject us to market risks and credit risks. Market risk is the risk that interest rates may rise after a loan commitment is made. To offset this risk on conventional~~related mortgage loans and ~~government-insured loans that are in process, we utilize mandatory forward sale commitments. At April 30,~~had an outstanding balance of $245.6 million at July 31, 2002 ~~we had $200.9~~and $180.1 million ~~in mandatory forward sale commitments for future delivery~~at October 31, 2002. The line expires on January 31, 2003. As part of ~~mortgages to Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Loan commitments also involve credit risk relating to~~ the ~~customer. We use the same credit policies for making credit commitments as we do~~consideration for the ~~underlying loan product.~~sale of the business, we also held a five-year promissory note in the principal amount of $23.3 million from the purchasing company. The note was repaid in October 2002. See Note 56.

We rely on three third party vendors to perform substantially all outsourced aspects of manufacturing and distribution for ~~more information~~our primary retail desktop software products. We also have two key single-source vendors for our financial supplies business. One of these vendors prints and fulfills orders for all of our checks and most other products for our financial supplies business and the other vendor operates our supplies sales website. We have acquired the source code for that website and plan to begin operating it internally in January 2003. While we believe that relying heavily on ~~loan commitments.~~key vendors improves the efficiency and reliability of our business operations, relying on any one vendor for a significant aspect of our business can have a significant negative impact on our revenue and profitability if that vendor fails to perform at acceptable service levels.

Recent Pronouncements

On June 29, 2001, the FASB issued SFAS ~~141,~~ 142,“~~Business Combinations,~~~~” and SFAS 142, “~~Goodwill and Other Intangible ~~Assets~~Assets.”.”

~~SFAS 141 supersedes APB Opinion No. 16, “~~~~Business Combinations,~~” and eliminates the pooling-of-interests method of accounting for business combinations, thus requiring that all business combinations be accounted for using the purchase method. The requirements of SFAS 141 apply to all business combinations initiated after June 30, 2001.

~~-8-~~

SFAS 142 supercedes APB Opinion No. 17,“Intangible Assets,”” and provides that goodwill and other intangible assets that have an indefinite useful life will no longer be amortized. However, these assets must be reviewed for impairment at least annually or more frequently if an event occurs indicating the potential for impairment. ~~SFAS 142~~The shift from an amortization approach to an impairment approach applies to all ~~business combinations~~acquisitions completed after June 30, 2001. ~~For business combinations completed before July 1, 2001, we will adopt SFAS 142 effective August 1, 2002.~~ We ~~are currently evaluating~~adopted the ~~impact~~remaining elements of ~~SFAS 142 on our financial position and statement of operations. We expect the adoption of SFAS 142 to reduce our ongoing quarterly amortization of goodwill expense significantly, commencing with~~this new standard in the first quarter of fiscal ~~2003.~~2003 and therefore ceased amortizing goodwill for acquisitions made prior to July 1, 2001. However, it is possible that in the future we ~~would~~may incur ~~less frequent, but larger,~~ impairment charges related to the goodwill already recorded ~~as well as~~and to goodwill arising out of future ~~acquisitions as~~acquisitions. In addition, we will continue to ~~expand~~amortize our ~~business.~~purchased intangible assets and to assess those assets for impairment as appropriate.

As of the date of adoption of SFAS 142 on August 1, 2002, we had an unamortized acquired intangible assets balance of $123.6 million and an unamortized goodwill balance of $430.8 million. These balances reflect the transfer of $1.9 million in assembled workforce from intangible assets to goodwill in accordance with SFAS 142. In connection with the transitional goodwill impairment evaluation provisions under SFAS 142, we completed a goodwill impairment review as of August 1, 2002 and found no impairment.

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A reconciliation of previously reported net loss and net loss per share to amounts that would have been reported if the non-amortization provisions of SFAS 142 had been in effect from the beginning of fiscal 2002 is as follows:

Three Months Ended

October 31, October 31,
(In thousands, except per share amounts) 2001 2002

Net loss

Net loss, as reported $ (92,427 ) $ (54,685 )
Goodwill and assembled workforce amortization, net of income taxes 22,235 * —

Pro forma net loss $ (70,192 ) $ (54,685 )

Net loss per share

Basic and diluted — as reported $ (0.44 ) $ (0.26 )
Basic and diluted — pro forma (0.33 ) (0.26 )

* Includes goodwill amortization of $32,743 and assembled workforce amortization of $438, before income taxes at 33%. See Note 3.

In October 2001, the FASB issued SFAS 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,”which applies to financial statements issued for fiscal years beginning after December 15, 2001. SFAS 144 ~~supersedes~~supercedes FASB Statement 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,”and portions of APB Opinion No. 30,“Reporting the Results of Operations.”SFAS 144 provides a single accounting model for long-lived assets we expect to dispose of and significantly changes the criteria for classifying an asset as held-for-sale. This classification is important because held-for-sale assets are not depreciated and are stated at the lower of fair value or carrying amount. SFAS 144 also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are actually incurred, rather than when the amount of the loss is estimated, as ~~presently~~was previously required. We ~~will adopt~~adopted SFAS 144 effective August 1, 2002 and dothere was no impact on our financial position, results of operations or cash flows.

In July 2002, the FASB issued SFAS 146,“Accounting for Costs Associated with Exit and Disposal Activities.”This statement revises the accounting for activities relating to exiting or disposing of businesses or assets under EITF Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.”A formal commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most exit and disposal costs. Instead, companies will record exit or disposal costs when they are incurred and can be measured at fair value, and will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not ~~expect~~restate previously issued financial statements for the effect of the provisions of SFAS 146, and liabilities that a company previously recorded under EITF Issue No. 94-3 are not affected. We will assess the impact of adoption of SFAS ~~144 to have a material impact~~146 based on ~~our consolidated financial statements.~~the nature of any exit or disposal activities that are ongoing at that time.

~~In November 2001,~~2. Short-Term Investments

The following schedule summarizes the ~~Emerging Issues Task Force (“EITF”) released Issue No. 01-09,~~~~“Accounting for Consideration Given by a Vendor to a Customer or a Reseller~~estimated fair value of our short-term investments as of the ~~Vendor’s Product,”~~ which applies to annual or interim financial statement periods beginning after December 15, 2001. The release provides that cash consideration (including sales incentives) that we give to our customers or resellers should be accounted for as a reduction of revenue unless we receive a benefit that is identifiable and that can be reasonably estimated. We adopted this new release prospectively to transactions beginning in the quarter ended April 30, 2002. The adoption of EITF Issue No. 01-09 did not have a material impact on our total net revenue.dates indicated:

July 31, October 31,
2002 2002

(In thousands)
Corporate notes $ 24,405 $ 19,387
Municipal bonds 780,914 503,593
U.S. government securities 10,023 —

$ 815,342 $ 522,980

~~Foreign Currency~~

The functional currency of all our foreign subsidiaries is the local currency. Assets and liabilities of our foreign subsidiaries are translated at the exchange rate on the balance sheet date. Revenue, costs and expenses are translated at average rates of exchange in effect during the reporting period. We report translation gains and losses as a separate component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statement of operations and were immaterial in all periods presented.

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~~2. Cash and Cash Equivalents and Short-Term Investments~~

~~The following schedule~~The following table summarizes the estimated fair value of our ~~cash and cash equivalents and short-term investments:~~

July 31, April 30,
2001 2002

(In thousands)
Cash and cash equivalents:
Cash $ 33,427 $ 34,227
Certificate of deposits 5,600 5,446
Money market funds 406,077 415,118
Municipal bonds 5,000 —

$ 450,104 $ 454,791

Short-term investments:
Corporate notes $ 63,723 $ 61,563
Municipal bonds 1,030,442 1,215,312
U.S. government securities 25,140 20,258

$ 1,119,305 $ 1,297,133

~~The following table outlines the estimated fair value of Intuit’s~~ available-for-sale debt securities held in short-term investments classified by the stated maturity date of the security:

July 31, April 30,
2001 2002

(In thousands)
Due within one year $ 215,205 $ 249,669
Due within two years 221,620 216,691
Due within three years — 4,000
Due after three years 682,480 826,773

$ 1,119,305 $ 1,297,133

~~-10-~~

July 31, October 31,
2002 2002

(In thousands)
Due within one year $ 230,716 $ 188,670
Due within two years 141,942 91,994
Due within three years — 5,284
Due after three years 442,684 237,032

$ 815,342 $ 522,980

3. ~~Marketable Securities~~Goodwill and ~~Other Investments~~Intangible Assets

We held the following available-for-sale securities at July 31, 2001 and April 30, 2002. The cost basis reflects adjustments for other-than-temporary impairments in value as well as sales of securities:

Gross Unrealized
Cost
Estimated
Basis Gains Losses Fair Value

(In thousands)
July 31, 2001

Checkfree Corporation common stock $ 35,621 $ 37,215 $ — $ 72,836
S1 Corporation common stock 7,741 2,714 — 10,455

$ 43,362 $ 39,929 $ — $ 83,291

April 30, 2002

Checkfree Corporation common stock $ 31,934 $ 12,146 $ — $ 44,080
S1 Corporation common stock 4,924 — (535 ) 4,389

$ 36,858 $ 12,146 $ (535 ) $ 48,469

~~We also held investments in At Home Corporation (which did business as Excite@Home) and 724 Solutions as of July 31, 2001. We designated those investments as trading securities and fluctuations~~Changes in the ~~market~~carrying value of ~~these shares were reported in the consolidated statement of operations. We sold all of the shares of these securities~~goodwill by reportable segment during the first quarter of fiscal ~~2002.~~

Our remaining marketable securities, which are quoted on the Nasdaq Stock Market, are stocks of high technology companies whose market prices have been extremely volatile and have declined substantially during the past two years. These declines have resulted, and could continue to result, in a material reduction in the carrying value of these assets. This has a negative impact on our operating results. If these securities experience further declines in fair value that are considered other-than-temporary, we will reflect the additional loss in our consolidated statement of operations in the period when the subsequent impairment becomes apparent.

The fair values of our long-term investments (consisting primarily of equity investments in privately held companies) have also declined substantially since our initial investments due to the volatility and economic downturn in the high technology industry.

~~During the nine months ended April 30, 2002, we sold 280,000 shares of Security First Technologies, now known~~2003 were as S1 Corporation (“S1”), and 250,000 shares of Checkfree Corporation and recognized realized gains of $1.9 million and $1.4 million, respectively. These gains were offset by a realized loss of $1.9 million recorded in connection with the sale of our options to purchase additional shares of S1. In addition, we sold 37,906 shares of 724 Solutions and 1,533,504 shares of Excite@Home and recognized aggregate losses of $1.6 million during the nine months ended April 30, 2002. For our long-term investments, we recorded losses of $3.3 million for other-than-temporary declines in value on our investments recorded at cost and $5.7 million to reflect declines in the market price of our S1 options. This resulted in combined net losses on marketable securities and other investments of $9.3 million for the nine months ended April 30, 2002.

~~During fiscal 2001, we adopted SFAS 133, “~~~~Accounting for Derivative Instruments and Hedging Activities~~,” which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires us to recognize all derivatives as either assets or liabilities on the balance sheet and record those instruments at fair value. In May 1999, we completed a $50 million investment (970,813 shares) in S1. In connection with this agreement, we received options to purchase 4.8 million additional shares of S1 common stock, at a per-share purchase price of $51.50. These options contained a net-exercise feature. In August 2000, we recorded the cumulative effect of the change in accounting for derivatives for our 4.8 million S1 options held in long-term investments. This resulted in a one-time cumulative effect of $14.3 million, net of income taxes totaling $9.5 million, in the first quarter of fiscal 2001. SFAS 133 requires the derivatives to be carried at fair value, so subsequent fluctuations in the fair value of these options were included in our net income (loss) until we sold them. For the three and nine months ended April 30, 2001 these fluctuations resulted in losses of $3.4 million and $13.4 million net of income taxes, which increased the basic and diluted net loss per share for the periods by $0.02 and $0.06 per share. During the first quarter of fiscal 2002, we sold these options and recorded a realized loss of $1.9 million.follows:

Balance Transfer Balance
July 31, Assembled Goodwill October 31,
(In thousands) 2002 Workforce Acquired Other 2002

Employer Services $ 153,216 $ 1,289 $ — $ — $ 154,505
Other Small Business Products and Services 5,979 88 150,548 — 156,615
Consumer Tax 3,308 — — — 3,308
Professional Accounting Solutions 90,079 428 — — 90,507
Vertical Business Management Solutions 171,520 — — 610 172,130
Global Business 4,846 95 — (600 ) 4,341

$ 428,948 $ 1,900 $ 150,548 $ 10 $ 581,406

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~~4. Goodwill and Intangible Assets~~

~~Goodwill and purchased~~Purchased intangible assets consisted of the following at the dates indicated:

Net balance at
Life in
Years July 31, 2001 April 30, 2002

(In thousands)
Goodwill 3-5 $ 326,986 $ 240,221
Customer lists 3-5 53,423 39,508
Covenants not to compete 3-5 3,060 3,174
Purchased technology 1-5 24,078 21,468
Assembled workforce 2-5 3,598 2,233
Trade names and logos 1-15 4,189 4,345

$ 415,334 $ 310,949

July 31, October 31,
Life in Years 2002 2002

(In thousands)
Customer lists 3-7 $ 144,379 $ 144,541
Less accumulated amortization (75,317 ) (82,218 )

69,062 62,323

Purchased technology 1-7 121,763 134,984
Less accumulated amortization (79,894 ) (82,871 )

41,869 52,113

Trade names and logos 1-10 16,555 16,567
Less accumulated amortization (6,908 ) (7,664 )

9,647 8,903

Covenants not to compete 3-5 7,399 7,420
Less accumulated amortization (4,403 ) (4,763 )

2,996 2,657

Assembled workforce 2-5 4,458 —
Less accumulated amortization (2,558 ) —

1,900 —

Total intangible assets 294,554 303,512
Total accumulated amortization (169,080 ) (177,516 )

Total net intangible assets $ 125,474 $ 125,996

~~Balances presented above are net of total accumulated amortization of $598.1~~Purchased technology increased by approximately $13.2 million ~~at July 31, 2001 and $524.8 million at April 30, 2002. Accumulated amortization declined during~~in the ~~nine-month period due to the retirement of fully amortized goodwill and intangible assets.~~
As discussed in Note 1, we regularly perform reviews to determine if there are events or circumstances that indicate the carrying values of our goodwill and intangible assets may be impaired. During the secondfirst quarter of fiscal ~~2002, events and circumstances indicated impairment~~2003 due to our acquisition of ~~goodwill and intangible assets that we received in connection with our acquisitions of~~Blue Ocean Software, Inc. See Note 5.
We summarize the ~~Internet-based advertising business that we acquired from Venture Finance Software Corp. in August 2000 (part~~following expenses on the acquisition-related charges line of our ~~Personal Finance business) and the Site Solutions business that we acquired from Boston Light Corp. in August 1999 (part~~statement of ~~our Small Business operations).~~
Indicators of impairment for our Internet-based advertising business included a steep decline in demand for online advertising reflecting the industry-wide decline in Internet advertising spending, as well as management’s assessment that revenues and profitability would continue to decline in the future based on analyses and forecasts completed during the second quarter of fiscal 2002. The primary indicator of impairment for our Site Solutions business was management’s decision to transfer the customer base of Site Solutions and collaborate with a third party to provide the website building service. This collaboration, which began in the second quarter of fiscal 2002, eliminated our use of technology purchased from Boston Light.
In each case, we measured the impairment loss based on the amount by which the carrying amount of the assets exceeded their fair value based on lower projected profits and decreases in cash flow. Our measurement of fair value was based on an analysis of the future discounted cash flows as discussed in Note 1. Based on our analyses, in the second quarter of fiscal 2002 we recorded charges of $22.6 million ($17.4 million to acquisition-related charges and $5.2 million to amortization of purchased software) to reduce the carrying value of the assets associated with our Internet-based advertising business to zero, and a charge of $4.7 million ($4.6 million to acquisition-related charges and $0.1 million to amortization of purchased software) to reduce the carrying value of assets relating to our Site Solutions business to zero.operations:

Three Months Ended

October 31, October 31,
2001 2002

(In thousands)
Amortization of goodwill $ 32,743 $ —
Amortization of purchased intangible assets 6,795 7,893
Amortization of acquisition-related deferred compensation 1,543 1,562

Total acquisition-related charges $ 41,081 $ 9,455

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~~We classify~~At October 31, 2002, we expected annual amortization of our purchased intangible assets by fiscal year to be as shown in the following ~~expenses as acquisition-related charges in our consolidated statements of operations:~~table. Future acquisitions could cause these amounts to increase.

Three Months Ended Nine Months Ended

April 30, April 30, April 30, April 30,
2001 2002 2001 2002

(In thousands)
Amortization of goodwill $ 37,880 $ 29,170 $ 106,504 $ 93,460
Amortization of purchased intangibles 6,458 7,140 18,184 20,946
Amortization of acquisition-related deferred compensation 1,233 1,252 3,563 4,336
Impairment charges 77,000 — 77,000 22,006
Other 4 — 77 —

$ 122,575 $ 37,562 $ 205,328 $ 140,748

Expected
Amortization
(Dollars in thousands) Expense

Fiscal year ending July 31,
2003 $ 43,908
2004 28,159
2005 21,031
2006 17,524
2007 12,756
Thereafter 13,416

Total expected future amortization expense $ 136,794

~~5. Loan Commitments~~
~~The following table summarizes mortgage loan commitments to extend credit at July 31, 2001 and April 30, 2002:~~

July 31, 2001 April 30, 2002

Fixed-rate Variable-rate Fixed-rate Variable-rate

(In thousands)
Conventional prime loans $ 303,100 $ 72,500 $ 473,500 $ 143,600
Sub-prime loans 4,300 1,200 4,400 2,600

$ 307,400 $ 73,700 $ 477,900 $ 146,200

~~6. Per Share Data~~
We compute basic income or loss per share using the weighted average number of common shares outstanding during the period. We compute diluted income or loss per share using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the shares issuable upon the exercise of stock options under the treasury stock method. In loss periods, basic and dilutive loss per share is identical since the impact of common equivalent shares is anti-dilutive.
~~-13-~~
7.4. 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. ~~However, it has no impact on our net income or loss as presented in our financial statements.~~ SFAS 130 requires ~~foreign currency translation adjustments and~~the components of other comprehensive income (loss), such as changes in the fair value of available-for-sale securities and ~~short-term investments~~foreign translation adjustments, to be ~~included in~~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 statement of operations.
The components of accumulated other comprehensive income (loss), net of income taxes, ~~are~~were as follows:

Marketable Short-term Foreign Currency
Nine months ended April 30, 2001 Securities Investments Translation Total

(In thousands)
Beginning balance gain (loss), net of income taxes $ 58,561 $ — $ (2,975 ) $ 55,586
Unrealized loss, net of income tax benefit of $12,932 (19,398 ) — — (19,398 )
Reclassification adjustment for realized gain included in net loss, net of income tax benefit of $4,685 (7,027 ) — — (7,027 )
Translation adjustment gain — — 2,401 2,401

Ending balance, net of income tax benefit of $17,617 $ 32,136 $ — $ (574 ) $ 31,562

Nine months ended April 30, 2002

(In thousands)
Beginning balance gain (loss), net of income taxes $ 23,958 $ 4,686 $ (464 ) $ 28,180
Unrealized loss, net of income tax benefit of $10,759 and $1,823 (16,139 ) (2,734 ) — (18,873 )
Reclassification adjustment for realized gain included in net income, net of income tax benefit of $568 (853 ) — — (853 )
Translation adjustment gain — — 542 542

Ending balance, net of income tax benefit of $13,150 $ 6,966 $ 1,952 $ 78 $ 8,996

Marketable Short-term Foreign Currency
(In thousands) Securities Investments Translation Total

Three months ended October 31, 2001

Beginning balance, net of income taxes $ 23,958 $ 4,686 $ (464 ) $ 28,180
Unrealized loss, net of income tax benefits of $16,451 and $534 (24,677 ) (802 ) — (25,479 )
Reclassification adjustment for realized gain included in net loss, net of income tax benefit of $71 (106 ) — — (106 )
Translation adjustment — — (759 ) (759 )

Other comprehensive loss (24,783 ) (802 ) (759 ) (26,344 )

Ending balance, net of income taxes $ (825 ) $ 3,884 $ (1,223 ) $ 1,836

Three months ended October 31, 2002

Beginning balance, net of income taxes $ (4,845 ) $ 2,058 $ (888 ) $ (3,675 )
Unrealized gain, net of income tax provision of $4,262 6,393 — — 6,393
Unrealized loss, net of income tax benefit of $790 — (1,184 ) — (1,184 )
Translation adjustment — — (158 ) (158 )

Other comprehensive income (loss) 6,393 (1,184 ) (158 ) 5,051

Ending balance, net of income taxes $ 1,548 $ 874 $ (1,046 ) $ 1,376

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The following table summarizes comprehensive net income (loss) for the periods indicated:

Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
April 30, 2001 April 30, 2001 April 30, 2002 April 30, 2002

(in thousands)
Net income (loss) $ (14,301 ) $ (21,504 ) $ 144,481 $ 171,922
Other comprehensive income (loss):
Change in unrealized gain (loss) on marketable securities (27,129 ) (26,425 ) 5,656 (16,992 )
Change in unrealized gain (loss) on short-term investments — — (1,362 ) (2,734 )
Change in foreign currency translation adjustments 1,295 2,401 (775 ) 542

$ (40,135 ) $ (45,528 ) $ 148,000 $ 152,738

Three Months Ended

October 31, October 31,
2001 2002

(In thousands)
Net loss $ (92,427 ) $ (54,685 )
Other comprehensive income (loss), net of income taxes (26,344 ) 5,051

Comprehensive net loss, net of income taxes $ (118,771 ) $ (49,634 )

5. Acquisition
On September 13, 2002, we acquired all of the outstanding stock of Blue Ocean Software, Inc. for approximately $177.3 million in cash. We paid $16.5 million of the purchase price into a third party escrow account, to be held for a maximum of 18 months pending the finalization of certain financial calculations that may affect the purchase price.
Blue Ocean offers software solutions that help businesses manage their information technology resources and assets. We acquired this company as part of our Right for My Business strategy to offer business solutions that go beyond accounting software to address a wider range of management challenges that small businesses face. Blue Ocean became part of our Other Small Business Products and Services business segment.
With the assistance of a professional valuation services firm, we made a preliminary allocation of the purchase price during the first quarter of fiscal 2003. We do not expect that any adjustments to the purchase price or the purchase price allocation will be material. We allocated approximately $13.2 million of the purchase price to purchased technology and $150.5 million to goodwill. In addition, $7.8 million was allocated to in-process research and development and charged to expense in the first quarter of fiscal 2003. The purchased technology is being amortized over six years. None of the goodwill acquired in this transaction will be deductible for income tax purposes. Blue Ocean’s results of operations from September 14, 2002 forward were included in our results of operations and were not material.
The preliminary purchase price allocation for the Blue Ocean acquisition was as follows:

Purchase
Price
Allocation

(In thousands)
Tangible assets $ 19,738
Deferred revenue (6,694 )
Other tangible liabilities (7,013 )
In-process research and development 7,789
Purchased technology 13,220
Goodwill 150,548
Acquisition costs (271 )

Total purchase price $ 177,317

6. Discontinued Operations
On July 31, 2002, we sold our Quicken Loans mortgage business and accounted for the sale as discontinued operations. In accordance with APB Opinion No. 30, the operating results of Quicken Loans have been segregated from continuing operations in our statement of operations for all periods prior to the sale, including the first quarter of fiscal 2002. Quicken Loans revenue was $40.0 million in the first quarter of fiscal 2002 and income taxes offset against income from discontinued operations amounted to $5.5 million for that period.
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~~8. Acquisition~~
~~On November 2, 2001, we acquired substantially all~~As part of the ~~assets~~sale transaction, we received a five-year secured promissory note in the principal amount of ~~OMware, Inc. (“OMware”)~~$23.3 million from a newly-created company, Rock Acquisition Corporation. We also retained a 12.5% non-voting equity interest in that company. We accounted for ~~$35.5~~this investment on a cost basis since we did not have the ability to exercise significant influence over Rock. We also agreed to continue providing to Quicken Loans a secured line of credit of up to $375.0 million to fund mortgage loans for a transition period of up to six months. The line expires on January 31, 2003. Rock also licensed the right to use our Quicken Loans trademark for its residential home loan and home equity loan products and we entered into a distribution agreement with Rock through which it will provide mortgage services on Quicken.com.
In October 2002, we sold our residual minority equity interest in Rock to the majority shareholders of Rock. We also received payment in full of the $23.3 million promissory note and related accrued interest due from Rock. The $5.6 million gain on disposal of Quicken Loans discontinued operations recorded in the first quarter of fiscal 2003 included a gain of $6.4 million for the sale of our residual equity interest, a charge of $0.3 million that was the result of the final audit of the tangible shareholders’ equity balance of Quicken Loans, and $0.5 million in ~~Intuit stock, approximately $2.6 million~~legal and other expenses. We did not record a tax benefit related to the transaction because we cannot be assured that we will realize the tax benefit. The trademark license and distribution agreements that we entered into when we sold Quicken Loans remain in ~~acquisition costs and up to $8 million in Intuit stock to be issued contingent upon the achievement of certain future performance objectives by the business unit. Pursuant to separate~~effect. Fees under these agreements ~~Intuit will pay up to $2 million in cash over two years as part of a senior management performance program. These amounts~~ will be recorded as ~~compensation expense as amounts are earned. We accounted~~other income on a cash basis. There was no income recorded under these agreements in the first quarter of fiscal 2003.
7. Industry Segment and Geographic Information
SFAS 131,“Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the ~~acquisition~~way in which public companies disclose certain information about reportable segments in the company’s financial reports. Consistent with SFAS 131, we have defined ten reportable segments, described below, based on factors such as how we manage our operations and how our chief operating decision maker views results. In fiscal 2003 we created three new reportable segments from our fiscal 2002 Small Business segment: QuickBooks, Financial Supplies and Other Small Business Products and Services. We also began reporting our Vertical Business Management Solutions segment separately from our Other segment. These changes reflect our continuing focus on and evolution of ~~OMware~~our Right for My Business strategy for small businesses. All reportable segments except Global Business are based in the United States and sell primarily to customers located there. Certain previously reported amounts have been reclassified to conform to the fiscal 2003 presentation.
QuickBooks product revenue is derived primarily from QuickBooks desktop software products. QuickBooks services revenue is derived from QuickBooks Online Edition.
Employer Services product revenue is derived primarily from our QuickBooks Do-It-Yourself Payroll offering, which consists of current payroll tax tables that we provide on a subscription basis to small businesses that prepare their own payrolls. Services revenue for this segment is derived primarily from our outsourced payroll services. Our outsourced payroll services consist of QuickBooks Assisted Payroll Service, a payroll service that is integrated with QuickBooks and handles the back-end aspects of payroll processing, including tax payments and filings; and Intuit Payroll Services Complete Payroll, which provides traditional, full service payroll processing, tax payment and check delivery services. Intuit Payroll Services Complete Payroll encompasses the business of CBS Employer Services, Inc., which we acquired in the fourth quarter of fiscal 2002. Our outsourced payroll business also includes our Premier Payroll Service, which provides traditional full service payroll outsourcing, tax payment and check delivery services distributed through certain financial institutions.
Financial Supplies product revenue is derived primarily from financial supplies, such as paper checks, envelopes, invoices and stationery, for small businesses and individuals and from tax forms, tax return presentation folders and other supplies for professional tax preparers.
Other Small Business Products and Services product revenue for fiscal 2003 is derived primarily from Intuit Information Technology Solutions (formerly Blue Ocean Software, Inc.), a ~~purchase~~provider of software solutions that help businesses manage their information technology resources and assets. We acquired Blue Ocean in the first quarter of fiscal 2003. Services revenue for this segment is derived primarily from QuickBooks support plans. Other revenue consists of royalties from small business online transactions such as QuickBooks Merchant Account Service and QuickBooks Online Billing.
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Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer desktop tax preparation products. Consumer Tax services revenue is derived primarily from TurboTax for the Web online tax preparation services and consumer electronic filing services.
Professional Accounting Solutions product revenue is derived primarily from ProSeries and Lacerte professional tax preparation products. Professional Accounting Solutions services revenue is derived primarily from electronic filing and training services.
Personal Finance product revenue is derived primarily from Quicken desktop software products. Personal Finance services revenue is minimal. Other revenue consists of royalties from consumer online transactions and Quicken.com advertising revenue.
Vertical Business Management Solutions (“VBMS”) revenue is derived from four businesses that we acquired in fiscal 2002 that provide small business management solutions for vertical industries. Those businesses are Intuit Eclipse Distribution Management Solutions, Intuit MRI Real Estate Solutions, Intuit Construction Business Solutions and Intuit Public Sector Solutions. VBMS product revenue is derived from business management software that is specific to the industries these businesses serve. VBMS service revenue consists primarily of installation, consulting and training services.
Global Business product revenue is derived primarily from localized versions of QuickBooks and Quicken as well as QuickTax desktop software products in Canada; localized versions of QuickBooks and Quicken as well as TaxCalc desktop software products in the United Kingdom; and Yayoi small business desktop accounting ~~purposes~~products in Japan. Global Business services revenue primarily consists of revenue from software maintenance contracts sold with Yayoi software in Japan.
Other includes revenue and segment operating income (loss) from businesses that have been discontinued due to divestitures or are insignificant. Other also includes reconciling items such as acquisition-related costs (which include acquisition-related charges, amortization of purchased software and charges for purchased research and development) and other common costs not allocated ~~approximately $35.6 million~~ to ~~identified~~specific segments.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1. Except for goodwill and purchased intangible assets, Intuit does not generally track assets by reportable segments and, ~~goodwill.~~consequently, does not disclose assets by reportable segments. The ~~identified intangible assets~~following results for the first quarters of fiscal 2002 and 2003 are ~~being amortized over five years.~~broken out by our reportable segments.
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Small Business Products and Services

Other Small
Three months ended Business
October 31, 2001 Employer Financial Products & Consumer
(In thousands) QuickBooks Services Supplies Services Subtotal Tax

Product revenue $ 24,526 $ 18,392 $ 30,283 $ — $ 48,675 $ 2,537
Service revenue 27 15,728 — 10,609 26,337 1,471
Other revenue — — — 3,215 3,215 204

Total net revenue 24,553 34,120 30,283 13,824 78,227 4,212

Segment operating income (loss) 314 3,633 14,199 970 18,802 (17,252 )
Common expenses — — — — — —

Subtotal 314 3,633 14,199 970 18,802 (17,252 )
Acquisition-related costs — — — — — —
Loss on impairment of long-lived asset — — — — — —
Realized net losses on marketable securities — — — — — —
Interest and other income — — — — — —

Income (loss) from continuing operations before income taxes $ 314 $ 3,633 $ 14,199 $ 970 $ 18,802 $ (17,252 )

[Additional columns below]
~~9. Loss on Impairment~~[Continued from above table, first column(s) repeated]

Vertical
Three months ended Professional Business
October 31, 2001 Accounting Personal Mgmt Global
(In thousands) Solutions Finance Solutions Business Other Consolidated

Product revenue $ 5,606 $ 24,903 $ — $ 8,336 $ — $ 114,583
Service revenue 1,112 2,783 — 4,998 27 36,755
Other revenue — 11,032 — 2,938 — 17,389

Total net revenue 6,718 38,718 — 16,272 27 168,727

Segment operating income (loss) (17,874 ) 11,845 — (2,815 ) (3,656 ) (10,636 )
Common expenses — — — — (55,552 ) (55,552 )

Subtotal (17,874 ) 11,845 — (2,815 ) (59,208 ) (66,188 )
Acquisition-related costs — — — — (42,787 ) (42,787 )
Loss on impairment of long-lived asset — — — — (27,000 ) (27,000 )
Realized net losses on marketable securities — — — — (12,254 ) (12,254 )
Interest and other income — — — — 9,810 9,810

Income (loss) from continuing operations before income taxes $ (17,874 ) $ 11,845 $ — $ (2,815 ) $ (131,439 ) $ (138,419 )

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Small Business Products and Services

Other Small
Three months ended Business
October 31, 2002 Employer Financial Products & Consumer
(In thousands) QuickBooks Services Supplies Services Subtotal Tax

Product revenue $ 37,838 $ 23,739 $ 30,556 $ 4,093 $ 58,388 $ 3,855
Service revenue 215 23,443 — 14,651 38,094 2,005
Other revenue — 410 — 3,880 4,290 195

Total net revenue 38,053 47,592 30,556 22,624 100,772 6,055

Segment operating income (loss) 7,215 15,241 14,522 (2,070 ) 27,693 (15,070 )
Common expenses — — — — — —

Subtotal 7,215 15,241 14,522 (2,070 ) 27,693 (15,070 )
Acquisition-related costs — — — — — —
Realized net gain on marketable securities — — — — — —
Interest and other income — — — — — —

Income (loss) from continuing operations before income taxes $ 7,215 $ 15,241 $ 14,522 $ (2,070 ) $ 27,693 $ (15,070 )

[Additional columns below]
[Continued from above table, first column(s) repeated]

Vertical
Three months ended Professional Business
October 31, 2002 Accounting Personal Mgmt Global
(In thousands) Solutions Finance Solutions Business Other Consolidated

Product revenue $ 6,350 $ 25,569 $ 5,630 $ 9,362 $ — $ 146,992
Service revenue 914 771 13,168 5,644 130 60,941
Other revenue — 10,834 5 25 — 15,349

Total net revenue 7,264 37,174 18,803 15,031 130 223,282

Segment operating income (loss) (16,906 ) 15,336 (7,212 ) (5,347 ) (3,994 ) 1,715
Common expenses — — — — (76,142 ) (76,142 )

Subtotal (16,906 ) 15,336 (7,212 ) (5,347 ) (80,136 ) (74,427 )
Acquisition-related costs — — — — (20,221 ) (20,221 )
Realized net gain on marketable securities — — — — 253 253
Interest and other income — — — — 8,336 8,336

Income (loss) from continuing operations before income taxes $ (16,906 ) $ 15,336 $ (7,212 ) $ (5,347 ) $ (91,768 ) $ (86,059 )

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8. Commitments
Mortgage Line of ~~Long-lived Asset~~Credit
In connection with the sale of our Quicken ~~Bill Manager~~Loans mortgage business in ~~May 2001,~~July 2002, we ~~acquired a $27 million long-term asset related~~agreed to ~~future consideration from~~continue providing to the purchasing company ~~which was recorded as “other assets” on~~a line of credit of up to $375.0 million to fund mortgage loans for a transition period of up to six months. The line of credit is secured by the related mortgage loans and the principal balance ~~sheet. We were entitled to cash and/or shares~~outstanding of the purchaser’s common stock beginning in February 2002. As discussed in Note 1, we regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. The reviews look for facts or circumstances, either internal or external, that indicate that the carrying value of an asset cannot be recovered. During the three months ended$180.1 million at October 31, ~~2001, events and circumstances indicated impairment of this asset. These indicators~~2002 was included the deterioration of the purchasing company’s financial position (including cash flows and liquidity) and the decreased likelihood that it would receive future funding. We considered the implied fair value of our investment based on the purchasing company’s most recent round of planned funding, as well as the fair value of our investment if funding were received. Based on our ~~analysis we recorded a charge of $27 million in the first quarter of fiscal 2002 to reduce the carrying value of this asset to its fair value of zero.~~balance sheet under amounts due from discontinued operations entities. The line expires on January 31, 2003. See Note 6.
~~10. Charge~~Reserve for Vacant Facilities
During the third quarter ~~ended April 30,~~of fiscal 2002, we concluded that we would not occupy two vacant leased buildings in Mountain View, California and that we would be unable to recover a substantial portion of our lease obligations ~~from sublessors.~~by subleasing the vacant space. The resulting $13.2 million charge ~~for vacant facilities has been calculated using management’s best estimates and is based upon~~was equal to the remaining future lease commitments for these facilities, ~~at April 30, 2002,~~ net of estimated future sublease income. The estimated costs of abandoning these leased facilities ~~were~~reflected management’s best estimates based on market information and trend analyses compiled by our facilities management team with the help of a commercial real estate brokerage firm retained by Intuit. ~~Actual~~We continue to evaluate our assumptions quarterly for any potentially significant change to the reserve. No material change has been necessary to date.
During the first quarter of fiscal 2003, we made cash lease payments for these two buildings of $0.6 million and there was a remaining balance of $11.9 million in the reserve at October 31, 2002. The short-term portion of the reserve ($2.1 million) is in other current liabilities and the remaining long-term portion is in long-term obligations on our balance sheet. We expect to use the total reserve by the end of fiscal 2010. Our actual future cash payments may ~~differ~~exceed the total reserve balance by a maximum of $3.7 million ~~from the reserve balance at April 30, 2002~~ if we are unable to sublease either of the properties.
~~11. Gain on Divestiture~~
In March 2002, we paid $12.0 million to terminate a $20.3 million obligation for an interactive services agreement related to our Quicken Bill Manager business, which we sold in May 2001. We wrote off the $27 million asset acquired in connection with that sale in the first quarter of fiscal 2002 (see Note 9). In connection with the termination of the interactive services agreement, we recorded a pre-tax gain of $8.3 million and related tax expense of $2.7 million in the quarter ended April 30, 2002.
~~12. Borrowings~~
As of April 30, 2002, we had one mortgage line of credit with no amounts outstanding. Advances may be drawn for working capital and sub-prime and conventional prime mortgage loans, with the maximum amount based on a formula computation. Advances are due on demand and are collateralized by residential first and second mortgages. Interest is paid on a monthly basis. The maximum outstanding balance permitted under this line is $20 million.
~~Drafts payable represent funds we advance for mortgages we originate.~~
~~13. Industry Segment and Geographic Information~~
~~SFAS 131, “~~~~Disclosures about Segments of an Enterprise and Related Information,~~” establishes standards for companies to disclose certain information about operating segments in the company’s financial reports. Consistent with SFAS 131, we have determined our five operating segments, described below, based on factors such as how we manage our operations and how our chief operating decision maker views results.
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Intuit does not track assets by operating segments. Consequently, we do not disclose assets by operating segments. The following unaudited results for the nine months ended April 30, 2001 and 2002 are broken out by our operating segments. Prior period information has been reclassified to conform to the current period financial presentation for comparability.

Small Personal Quicken Global
Nine months ended Business Tax Finance Loans Business
April 30, 2001 Division Division Division Division Division Other (1) Consolidated
(In thousands)

Product revenue $ 268,389 $ 333,927 $ 74,894 $ — $ 59,574 $ — $ 736,784
Service revenue 65,986 106,395 10,134 72,206 19,118 — 273,839
Other revenue 16,719 3,066 38,031 — 1,853 — 59,669

Total net revenue 351,094 443,388 123,059 72,206 80,545 — 1,070,292

Segment operating income 114,908 260,915 23,613 13,728 11,388 — 424,552
Common expenses — — — — — (166,488 ) (166,488 )

Sub-total operating income (loss) 114,908 260,915 23,613 13,728 11,388 (166,488 ) 258,064
Realized net losses on marketable securities — — — — — (87,307 ) (87,307 )
Acquisition-related costs — — — — — (216,786 ) (216,786 )
Interest and other income and expense, net — — — — — 47,736 47,736
Gain on divestiture — — — — — 1,639 1,639

Net income (loss) before taxes, minority interest and cumulative accounting change $ 114,908 $ 260,915 $ 23,613 $ 13,728 $ 11,388 $ (421,206 ) $ 3,346

Small Personal Quicken Global
Nine months ended Business Tax Finance Loans Business
April 30, 2002 Division Division Division Division Division Other (1) Consolidated
(In thousands)

Product revenue $ 314,123 $ 421,900 $ 65,558 $ — $ 64,627 $ 3,699 $ 869,907
Service revenue 89,927 128,886 6,322 140,048 15,458 1,131 381,772
Other revenue 3,875 2,734 39,070 — 3,879 — 49,558

Total net revenue 407,925 553,520 110,950 140,048 83,964 4,830 1,301,237

Segment operating income (loss) 130,486 345,789 30,787 52,242 16,979 (3,148 ) 573,135
Common expenses — — — — — (186,548 ) (186,548 )

Sub-total operating income (loss) 130,486 345,789 30,787 52,242 16,979 (189,696 ) 386,587
Realized net losses on marketable securities — — — — — (9,266 ) (9,266 )
Gain on divestiture — — — — — 8,308 8,308
Acquisition-related costs — — — — — (151,190 ) (151,190 )
Charge for vacant facilities — — — — — (13,237 ) (13,237 )
Loss on impairment of long-lived asset — — — — — (27,000 ) (27,000 )
Interest and other income and expense, net — — — — — 28,631 28,631

Net income (loss) before taxes, minority interest and cumulative accounting change $ 130,486 $ 345,789 $ 30,787 $ 52,242 $ 16,979 $ (353,450 ) $ 222,833

~~(1)~~ Other includes revenue and segment operating income (loss) related to our Construction Business Solutions operations as well as reconciling items such as acquisition-related costs, including amortization of purchased software and charges for purchased research and development, and other common costs not allocated to specific segments.
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~~14. Notes Payable and Commitments~~
In March 2001, our Japanese subsidiary, Intuit KK, refinanced its one-year loan agreement with a Japanese bank for approximately $29.2 million. During the third quarter of fiscal 2002, we elected to pay half the outstanding balance and obtained a three-month extension on the remaining balance of approximately $14.6 million. The loan is denominated in Japanese yen. The interest rate is variable based on the Tokyo inter-bank offered rate or the short-term prime rate offered in Japan. At April 30, 2002, the rate was approximately 0.59%. The fair value of the loan approximates cost as the interest rate on the borrowings is adjusted periodically to reflect market rates, which are currently significantly lower in Japan than in the United States. We are obligated to pay interest only on the loan through July 2002.
~~15.~~9. Other Current Liabilities
Other current liabilities ~~consisted of the following~~were as follows at the dates indicated:

July 31, April 30,
2001 2002

(In thousands)
Accrued compensation and related liabilities $ 64,325 $ 94,053
Reserve for returns and exchanges 31,510 56,073
Future payments due for CRI acquisition 23,969 25,157
Other acquisition and disposition related items 18,001 15,669
Rebates 10,130 30,029
Other accruals 23,031 34,020

$ 170,966 $ 255,001

July 31, October 31,
2002 2002

(In thousands)
Reserve for product returns $ 35,603 $ 40,417
Reserve for rebates 8,201 8,844
Future cash payments due for CBS Payroll acquisition 25,359 24,522
Other acquisition and disposition related items 4,667 1,161
Other accruals 12,264 12,148

$ 86,094 $ 87,092

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~~16.~~10. Income Taxes
~~Intuit computes the~~We compute our provision ~~(benefit)~~ 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. We recorded income tax benefits on pre-tax losses in the first quarters of fiscal 2002 and 2003. Our effective tax rate for ~~the first nine months of fiscal 2002 differs~~those quarters differed from the federal statutory tax rate primarily ~~because~~due to the effect of ~~a tax benefit related to a divestiture that became available during~~ the ~~second quarter of fiscal 2002.~~items in the table below.

Three Months Ended

October 31, October 31,
2001 2002

Statutory federal income tax rate 35.0 % 35.0 %
State income tax, net of federal benefit 1.7 % 1.2 %
Federal research and experimental credits 1.4 % 2.9 %
Non-deductible merger-related charges (6.6 %) (9.1 %)
Tax exempt interest 1.7 % 1.4 %
Tax benefit related to divestiture (4.0 %) —
Other, net (3.0 %) (1.4 %)

Effective income tax rate 26.2 % 30.0 %

~~17.~~11. Stockholders’ Equity
Stock Repurchase Program
In May 2001, Intuit’s Board of Directors authorized the company to repurchase up to ~~$500~~$500.0 million of common stock from time to time ~~in the open market~~ over a three-year period. In July 2002, our Board of Directors increased the authorized purchase amount by $250.0 million to a total of $750.0 million. The stock repurchase program is intended to help offset some of the dilution resulting from the issuance of shares under Intuit’s ~~employee~~equity incentive stock plans. Shares of stock repurchased under the program become treasury shares. During the ~~nine months ended April 30, 2002,~~first quarter of fiscal 2003, we ~~had~~ repurchased ~~approximately 3,744,800~~6,629,844 shares of our common stock under this program ~~(which became treasury shares)~~ for an aggregate cost of approximately ~~$149.3~~$300.3 million. During ~~this period~~the first quarter of fiscal 2003, we also reissued ~~2,708,719~~1,805,291 shares of treasury stock in connection with ~~employee~~ stock ~~plans, which were valued at $111.2 million (using~~incentive plans. From inception of the program through October 31, 2002, we had repurchased a total of 14,230,183 shares of our common stock for an aggregate cost of approximately $627.3 million.
When we reissue treasury shares, if the proceeds from the sale are more than the average ~~purchase~~ price ~~per Intuit share).~~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.
Repurchases through ~~April 30,~~October 31, 2002 have had no significant impact ~~upon~~on our net income or loss per share. ~~Intuit intends~~We intend to continue using ~~its~~our cash and cash equivalents to fund these ~~repurchases.~~
~~18. Benefit Plan~~
Intuit adopted the Executive Deferred Compensation Plan effective March 15, 2002. The plan allows key employees who meet minimum compensation and job responsibility criteria to defer up to 50% of their salaries and up to 100% of their bonuses and commissions. We have agreed to credit the participants’ contributions with earnings that reflect the performance of certain independent investment funds. We may also make discretionary employer contributions to participant accounts. The timing,repurchases in amounts and ~~vesting schedules of employer contributions are~~ at our sole discretion. The benefits under this plan are unsecured and are general assets of Intuit. Participants are generally eligible to receive payment of their vested benefit at the end of their elected deferral period or upon termination ofsuch times as we deem appropriate.
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~~their employment with Intuit~~Distribution and Dilutive Effect of Options
We provide equity incentives to our employees (including those we hire as a result of acquisitions) and to our independent Board members through a carefully managed, broad-based stock incentive program. The following table shows option grants to Named Executives and to all employees for ~~any reason, including retirement, disability~~the periods indicated. Under Securities and Exchange Commission rules for proxy statements, Named Executives are defined as the company’s chief executive officer and each of the four other most highly compensated executive officers.

Three Months Twelve Months Ended
Ended
October 31, July 31, July 31,
2002 2002 2001

Net option grants during the period as a percentage of outstanding shares 0.7 % 3.2 % 4.7 %
Grants to Named Executives during the period as a percentage of total options granted 15.3 % 3.5 % 7.3 %
Grants to Named Executives during the period as a percentage of outstanding shares 0.2 % 0.2 % 0.4 %
Options held by Named Executives as a percentage of total options outstanding 11.5 % 10.5 % 9.0 %
We define net option grants as options granted less options canceled or ~~death. Discretionary company contributions~~expired and ~~the related earnings vest completely upon the participant’s disability, death or a change of control of Intuit. During the three months ended April 30, 2002, we made no employer contributions~~returned to the ~~plan.~~pool of options available for grant. Options granted to our Named Executives as a percentage of the total options granted to all employees will vary significantly from quarter to quarter, due in part to the timing of annual performance-based grants to Named Executives. For example, first quarter fiscal 2003 Named Executive grants as a percentage of total grants were higher than we expect for fiscal 2003 as a whole because of performance grants to Named Executives during the first quarter.
~~19.~~Stock-Based Incentive Program
We follow APB Opinion No. 25,“Accounting for Stock Issued to Employees,” in accounting for these stock-based incentives. See Note 1. In October 1995, the FASB issued SFAS 123,“Accounting for Stock Based Compensation.” Although SFAS 123 allows us to continue to follow the APB 25 guidelines, we are required to disclose annually our pro forma net income (loss) and net income (loss) per share as if we had adopted SFAS 123. Beginning in the first quarter of fiscal 2003, we are voluntarily disclosing pro forma SFAS 123 results on a quarterly basis. The pro forma impact of applying SFAS 123 in the first quarters of fiscal 2002 and 2003 does not necessarily represent the pro forma impact in future quarters or years.
To determine the pro forma impact, we have employed the widely used Black-Scholes model to estimate the fair value of options granted. This valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model also requires the input of highly subjective assumptions including the expected stock price volatility. Because our outstanding stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect this estimate, we believe the Black-Scholes model does not provide a reliable single measure of the fair value of our stock options. Inputs used for the valuation model are set forth in the table below.

Options Employee Stock Purchase Plan

Three Months Ended Three Months Ended

October 31, October 31, October 31, October 31,
2001 2002 2001 2002

Expected life (years) 1.89 - 4.89 1.91 - 4.91 0.50 1.00
Expected volatility factor 0.74 0.78 0.76 0.74
Risk-free interest rate (%) 1.23 - 5.47 1.12 - 4.42 3.47 - 5.84 1.80 - 2.70
Expected dividend yield (%) — — — —
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The following table illustrates the effect on our net income (loss) and net income (loss) per share if we had applied the fair value recognition provisions of SFAS 123 to stock-based incentives using the Black Scholes model. For purposes of this reconciliation, we add back to previously reported net income (loss) all stock-based incentive expense that relates to acquisitions then deduct the pro forma stock-based incentive expense determined under the fair value method for all awards. The pro forma stock-based incentive expense has no impact on our cash flow. In the future, we may elect, or be required, to use a different valuation model, which could result in a significantly different impact on our pro forma net income (loss).

Three Months Ended

October 31, October 31,
(In thousands, except per share amounts) 2001 2002

Net income (loss)

Net loss, as reported $ (92,427 ) $ (54,685 )
Add: Stock-based incentive expense included in reported net loss, net of income taxes 926 937
Deduct: Total stock-based incentive expense determined under fair value method for all awards, net of income taxes (23,407 ) (22,875 )

Pro forma net loss $ (114,908 ) $ (76,623 )

Net income (loss) per share

Basic and diluted — as reported $ (0.44 ) $ (0.26 )

Basic and diluted — pro forma $ (0.54 ) $ (0.37 )

12. Litigation
On March 3, 2000, a class action lawsuit, Bruce v. Intuit Inc., was filed in the United States District Court, Central District of California, Eastern Division. Two virtually identical lawsuits were later filed: Rubin v. Intuit Inc., was filed on March 8, 2000 in the United States District Court, Southern District of New York and Newby v. Intuit Inc. was filed on April 27, 2000, in the United States District Court, Central District of California, Eastern Division. The Bruce and Newby lawsuits were consolidated into one lawsuit, In re Intuit Privacy Litigation, filed on July 28, 2000 in the United States District Court, Central District of California, Eastern Division. Following Intuit’s successful motion to dismiss several of the claims, an amended complaint was filed on May 2, 2001. A similar lawsuit, Almanza v. Intuit Inc. was filed on March 22, 2000 in the Superior Court of the State of California, San Bernardino County, Rancho Cucamonga Division. An amended complaint in the Almanza suit was filed on October 26, 2000. These purported class actions alleged violations of various federal and California statutes and common law claims for invasion of privacy based upon the alleged intentional disclosure to third parties of personal and private customer information entered at Intuit’s Quicken.com Web site. The complaints sought injunctive relief, orders to disgorge profits related to the alleged acts, and statutory and other damages. In August 2001, Intuit and the plaintiffs’ counsel in all of the cases except Rubin reached an agreement in principle to resolve the cases, subject to court approval, based on terms that are not material to Intuit. The Rubin case was dismissed on November 19, 2001.
Intuit is subject to other routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business. 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 liquidity. However, the ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact. Regardless of outcome, litigation can have an adverse impact on Intuit because of defense costs, diversion of management resources and other factors.
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~~20. Subsequent Events~~13. Related Parties
~~On May 7, 2002, we entered into a definitive agreement with CBS Employer Services, Inc. (“CBS”) pursuant~~Loans to ~~which Intuit will acquire all~~executive officers and other employees consisted of the following at the dates indicated. Loans to executive officers have generally been made in connection with their relocation and purchase of a new residence near their new place of work.

July 31, October 31,
2002 2002

(In thousands)
Loans to executive officers $ 14,865 $ 14,891
Loans to other employees 6,405 5,694

$ 21,270 $ 20,585

One employee with previously outstanding ~~stock of CBS. CBS is a leading provider of full-service outsourced payroll functions for small businesses. Intuit plans to combine its outsourced payroll business with that of CBS under~~loans totaling approximately $1.2 million became an executive officer during the leadership of CBS’s chief executive officer. Intuit’s payroll processing center in Reno, Nevada and CBS’s payroll processing center in San Bernardino, California will be the largest centers for the combined businesses. Under the terms of the agreement, Intuit will acquire all of the outstanding stock of CBS for approximately $74.5 million in cash and $3.5 million in Intuit stock. The transaction has been approved by the boards of both Intuit and CBS and is expected to close in the fourthfirst quarter of fiscal ~~2002, subject~~2003. Loans to ~~various conditions, including approval of CBS’s shareholders and customary regulatory and other approvals.~~
~~On May 8, 2002, we entered into a definitive agreement with The Flagship Group,~~executive officers totaling approximately $1.1 were also repaid during the parent company of American Fundware, Inc. (“American Fundware”) pursuant to which Intuit will acquire all of the outstanding stock of The Flagship Group. American Fundware offers financial accounting solutions for nonprofit organizations. American Fundware will be operated as a separate business unit of Intuit led by American Fundware’s chief executive officer and headquartered in Denver, Colorado. Under the terms of the agreement, Intuit will acquire all of the outstanding stock of The Flagship Group for approximately $22 million in Intuit stock and $4 million in cash. The transaction has been approved by the boards of both Intuit and The Flagship Group and is expected to close in the fourthfirst quarter of fiscal 2003. We did not make or modify any loans to executive officers after July 30, 2002, ~~subject~~and we do not intend to ~~various conditions, including approval of The Flagship Group’s shareholders and customary other approvals.~~make or modify any loans to executive officers in the future.
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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
~~Cautions~~Caution about ~~Forward Looking~~Forward-Looking Statements
Throughout this ~~Form 10-Q, you will find “forward-looking”~~Report, we make forward-looking statements ~~or statements~~that are based on our current expectations, estimates and projections about ~~events or circumstances~~our business and our industry, and that ~~have not yet occurred.~~reflect our beliefs and assumptions based on information available to us at the date of this Report. In some cases, you can identify these statements by ~~forward-looking~~ words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” and other similar terms. These forward-looking statements include, ~~statements about the seasonality~~among other things, projections of our ~~businesses, the~~future financial performance, our anticipated growth, our strategies and trends we ~~see~~anticipate in ~~the revenue from~~ our ~~various~~ businesses and in the markets in which we ~~compete,~~operate and the competitive nature and anticipated growth of those markets.
We caution investors that forward-looking statements are only predictions, based on our projected costs and expenses, the effect of changes in our business model and operational processes and our capital needs. The section “Risks That Could Affect Future Results” also contains forward-looking statements.current expectations about future events. These forward-looking statements ~~involve~~are not guarantees of future performance and are subject to risks, ~~and~~ uncertainties and ~~our~~assumptions that are difficult to predict. Our actual results, performance or achievements could differ ~~materially. We cannot guarantee future results~~materially from those expressed or ~~that current expectations will be accurate, and we will not update information in this Form 10-Q if any~~implied by the forward-looking ~~statement later turns out to be inaccurate. The~~statements. Some of the important factors that could cause our results to differ are discussed in this Item 2 under the ~~section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks~~caption “Risks That Could Affect Future ~~Results,~~Results.” ~~at the end of Item 2. You should read Item 2 in conjunction with the Consolidated Financial Statements and related Notes in Part I, Item 1 of this Form 10-Q and our fiscal 2001 Form 10-K.~~ We encourage you to read that section carefully. You should carefully consider those risks, in addition to the other information in this Report, in our Form 10-K for fiscal 2002 (filed with the SEC on September 25, 2002) and in our other filings with the SEC, before deciding to invest in our stock or to maintain or change your investment. We caution investors not to rely on these ~~sections carefully.~~forward-looking statements, which reflect management’s analysis only as of the date of this Report. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law.
Overview
Intuit’s Mission. Intuit’s mission is to revolutionize how people manage their financial lives, and how small businesses and accounting professionals manage their businesses. ~~We are the~~Our goal is to create changes so profound customers wouldn’t dream of going back to their old ways of keeping their books, doing their taxes or managing their personal finances. Intuit is a leading provider of small business, ~~accounting,~~ tax preparation and personal finance software products and ~~Web-based~~ services that simplify complex financial tasks for ~~consumers,~~ small businesses, consumers and accounting professionals. Our principal products and services ~~include Quicken®, QuickBooks®, Quicken TurboTax®, ProSeries®, Lacerte®~~include: small business accounting and business management solutions, including our QuickBooks line of products and services as well as our Intuit line of industry-specific vertical business management solutions; TurboTax consumer tax products and services; ProSeries and Lacerte professional tax products and services; and Quicken ~~Loans®.~~personal finance products and services.
Seasonality. Our tax businesses are highly ~~seasonal — particularly our tax business, but also small business and personal finance to a lesser extent.~~seasonal. Sales of tax preparation products and services are heavily concentrated in the period from November through April. Sales of personal finance and small business products are typically strongest during the calendar year-end holiday buying season and the beginning of the calendar year, and therefore major product launches for these products usually occur in the fall or early winter to take advantage of these customer buying patterns. These seasonal patterns mean that our total net revenue is usually highest during our second and third ~~fiscal quarters.~~quarters ending January 31 and April 30. We typically report ~~a loss~~losses in our first and fourth quarters ending October 31 and July 31 when revenue from our ~~seasonal~~tax businesses ~~is relatively lower than our second and third quarters,~~are minimal, but operating expenses to develop new products and services continue at relatively consistent levels. ~~Operating results can also fluctuate~~
Business Models. The business models for ~~other reasons such as changes in product release dates, occasional events such as acquisitions, dispositions, gains~~many of our products and ~~losses from marketable securities, and product price cuts in quarters~~services provide us with significant profit leverage, for three primary reasons. First, these businesses have relatively high fixed costs and low variable costs, so as we increase units sold, we generate more profit per incremental unit sold. Second, as customers move to some of our higher-end products and services, the better product and service mix is resulting in more revenue and profit per customer. Third, as we offer products and services with greater functionality, we can increase prices to reflect the greater value that we deliver to customers.
Expanding Customer Segments and Product and Service Offerings. During the last year, we have expanded both the customer segments that we serve, as well as the products and services that we offer our target customers. Historically, we targeted individuals and small businesses with less than 20 employees. We continue to serve those segments with products and services such as QuickBooks, TurboTax and Quicken. In addition, we are now targeting small businesses with up to 250 employees. We are addressing this new customer segment with a number of new products and services under our Right for My Business strategy. We are introducing industry-specific solutions to
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meet the specialized requirements of small businesses in selected vertical industries by developing industry-specific versions of QuickBooks, and acquiring companies that offer business management solutions to small businesses in selected vertical businesses. In addition, we introduced new versions of QuickBooks for companies that, due to their larger size or complexity, have more demanding accounting needs. We have also introduced business solutions that go beyond accounting software to address a wider range of business management challenges that small businesses face. We expect to continue to expand in these directions over the next several years.
Evolving Distribution Channels. We have been expanding our distribution channels to accommodate the expansion of the customer segments we serve and the range of products and services we offer. In the retail channel, we are selling an increasing proportion of our software products directly to a variety of retailers rather than through a few major distributors. As we offer more complex, higher priced software products than our traditional retail software products, we expect that direct sales will become an increasingly important source of revenue and new customers. In addition, as we add products and services that are complimentary to our core products, we are focusing on strengthening our cross-selling capabilities. This allows us to generate additional revenue from our existing customers, particularly our small business customers.
Impact of Acquisitions. Our recent acquisitions of businesses and assets have had a significant impact on the comparability of our results. We have completed six acquisitions since the beginning of fiscal 2002 — four “vertical,” or industry-specific business management solutions, and two “horizontal” solutions that go beyond accounting software to address small business management needs. These acquired businesses generated no revenue for Intuit in the first quarter of fiscal 2002 and a total of $31.5 million in total net revenue in the first quarter of fiscal 2003. To the extent that aggregate revenue from companies we acquire exceeds their aggregate revenue for the equivalent year-ago period before we acquired them, we consider the revenue to be organic growth rather than growth from acquisitions. On that basis, approximately one-third of our revenue growth during the first quarter of fiscal 2003 was organic growth and two-thirds came from acquisitions. For the full fiscal year, we expect about two-thirds of our revenue growth to be organic.
The impairment and/or amortization of goodwill and other intangible assets we have acquired in connection with acquisitions has also had a significant impact on our operating results, and on the comparability of results from period to period and year over year. During the first quarter of fiscal 2002, we recorded amortization of goodwill and other intangibles and other acquisition-related charges of $41.1 million. Starting with the first quarter of fiscal 2003, we are not amortizing goodwill recorded in connection with acquisitions, in accordance with Statement of Financial Standards No. 142. As a result, our acquisition-related charges significantly decreased during the first quarter of fiscal 2003, to $9.5 million. However, in the future we may incur impairment charges related to existing goodwill, as well as to goodwill arising out of future acquisitions. Also, future acquisitions may result in significant expenses, including amortization of purchased software, charges for in-process research and development and deferred compensation expenses.
Impact of Dispositions. Dispositions of businesses and assets have also had a significant impact on the comparability of our results. In fiscal 2002, we sold our Quicken Loans mortgage business. We accounted for the sale as discontinued operations, which resulted in net income from discontinued operations of $9.7 million in the first quarter of fiscal 2002, and a gain on disposal of discontinued operations of $5.6 million in the first quarter of fiscal 2003. In addition, during the first quarter of fiscal 2002, we recorded a loss of $27.0 million on impairment of long-lived asset relating to the impairment of the asset we received from the purchaser of our Quicken Bill Manager business in May 2001.
Critical Accounting Policies
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income and net income, 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 below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. See Note 1 of the financial statements for more information about these critical accounting policies, as well as descriptions of other significant accounting policies.
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• Net Revenue — Revenue Recognition. Intuit derives revenues from the sale of packaged software products, product support, professional services, outsourced payroll services and multiple element arrangements that may include any combination of these items. We follow the appropriate revenue recognition rules for each type of revenue. See Note 1 of the financial statements,“Net Revenue.”In general, we recognize revenue when
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persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectibility is probable. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. For example, for multiple element arrangements we must make assumptions and judgments in order to allocate the total price among the various elements we must deliver, to determine whether vendor-specific evidence of fair value exists for each element and to determine whether and when each element has been delivered. If we were to change any of these assumptions or judgments, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. Revenue that we cannot recognize in a particular period is reflected on our balance sheet as deferred revenue and recognized over time as the applicable revenue recognition criteria are satisfied.
•      Net Revenue — Return and Rebate Reserves. As part of our revenue recognition policy, we estimate future product returns and rebate ~~payments. These estimates determine our~~payments and establish reserves against revenue ~~reserves. We make~~based on these ~~estimates based primarily on our past~~estimates. Product returns by distributors and retailers principally relate to the return of obsolete products. Our return policy allows distributors and ~~rebate experience. We also~~retailers, subject to certain contractual limitations, to return purchased products. For product returns reserves, we consider the volume and price mix of products in the retail channel, trends in retailer inventory, economic trends that might impact customer demand for our products (including the competitive ~~environment),~~environment and the timing of new releases of our products) and other factors. We fully reserve for obsolete products in the distribution channels.
Our rebate reserves include distributor and retailer sales incentive rebates and end-user rebates. Our estimated reserves for distributor and retailer incentive rebates are based on distributors’ and retailers’ actual performance against the terms and conditions of rebate programs, which are typically entered into annually. Our reserves for end-user rebates are estimated based on the terms and conditions of the specific promotional rebate program, actual sales during the promotion, the amount of redemptions received, historical redemption trends by product and by type of promotional program and the economic value of the ~~rebates being offered and other factors.~~ rebate.
In the past, actual returns and rebates have not generally exceeded our reserves. However, actual returns and rebates in any future period are inherently uncertain. If we ~~changed~~were to change our assumptions and estimates, our revenue reserves would change, which would impact the net revenue we report. ~~In addition, if~~If actual returns and rebates are significantly greater than the reserves we have established, the actual results would decrease our future reported revenue. Conversely, if actual returns and rebates are significantly less than our reserves, this would increase our future reported revenue.
• ~~Goodwill, Purchased Intangibles~~ For example, a change of 1% in our return rate assumptions for QuickBooks, TurboTax and ~~Other Long-Lived Assets — Impairment Assessments. Under current accounting standards, which will~~Quicken desktop software products would have increased or reduced fiscal 2002 net revenue by approximately $1.6 million, $1.2 million and $0.7 million, respectively. If the historical data we use to calculate these estimates do not properly reflect actual returns or rebates, then we would make a change at the start of our next fiscal year, we make judgments about the remaining useful lives of goodwill, purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate an other-than-temporary impairment in the ~~remaining value of the assets recorded on our balance sheet. In order to judge the remaining useful life of an asset, we make various assumptions about the value of the asset~~reserves in the ~~future. This may include assumptions about future prospects for~~period in which the business that the asset relates to and typically involves computations of the estimated future cash flows to be generated by these businesses. Based on these judgments and assumptions, we determine whether we need to take an impairment charge to reduce the value of the asset stated on our balance sheet to reflect its actual fair value. Judgments and assumptions about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the judgments and assumptions we have made in the past have been reasonable and appropriate, different judgments and assumptions could materially impact our reported financial results. More conservative assumptions of the anticipated future benefits from these businesses would result in greater impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions would result in smaller impairment charges, higher net income and higher asset values.determination is made. See ~~Notes~~Note 1 “~~Goodwill, Purchased Intangible Assets and Other Long-lived Assets,”~~~~4 and 9~~ of the financial statements, ~~for more details about how we make these judgments.~~“Net Revenue.”

•      ~~Concentration of Credit Risk —~~ Reserves for Uncollectible Accounts Receivable. We make ongoing assumptions relating to the collectibility of our accounts receivable. The accounts receivable amount on our balance sheet includes a reserve for accounts that might not be paid. In determining the amount of the reserve, we consider our historical level of credit losses. We also make judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and we assess current economic trends that might impact the level of credit losses in the future. Our ~~credit losses~~reserves have generally been ~~less than~~adequate to cover our ~~reserve.~~actual credit losses. However, since we cannot predict future changes in the financial stability of our customers, we cannot guarantee that our reserves will continue to be adequate. If actual credit losses are significantly greater than the reserve we have established, that would increase our general and administrative expenses and reduce our reported net income. Conversely, if actual credit losses are significantly less than our reserve, this would eventually decrease our general and administrative expenses and increase our reported net income. See Note 1 of the financial statements,“Concentration of Credit Risk and Significant Customers and Suppliers,”” for more ~~details~~information about our accounts receivable.
• Goodwill, Purchased Intangibles and Other Long-Lived Assets — Impairment Assessments. We make judgments about the recoverability of goodwill, purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate that an other-than-temporary impairment in the remaining value of the assets recorded on our balance sheet may exist. We test the impairment of goodwill annually or more frequently if indicators of impairment arise. In order to estimate the fair value of long-lived assets, we make various assumptions about the future prospects for the business that the asset relates to and typically estimate future cash flows to be generated by these businesses. Based on these assumptions and estimates, we determine whether we
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need to take an impairment charge to reduce the value of the asset stated on our balance sheet to reflect its estimated fair value. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. More conservative assumptions of the anticipated future benefits from these businesses would result in greater impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions would result in smaller impairment charges, higher net income and higher asset values. At October 31, 2002, we had $581.4 million in goodwill and $126.0 million in intangible assets on our balance sheet. See Note 1,“Goodwill, Purchased Intangible Assets and Other Long-lived Assets”and“Recent Pronouncements,”and Note 3 of the financial statements for more information about how we make these judgments.

•      Income Taxes — Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance. When we prepare our consolidated financial statements, we ~~must~~ estimate our income taxes ~~in each jurisdiction~~based on the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items ~~(such as deferred revenue)~~ for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which ~~are shown~~we show on our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be ~~recovered from future taxable income.~~realized. To the extent we believe that ~~recovery~~realization is not likely, we ~~must~~ establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we must record a tax expense in our statement of operations. See Note 10 of the financial statements.
Management must make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. Our net deferred tax asset as of October 31, 2002 was $238.4 million, net of the valuation allowance of $9.3 million. We recorded the valuation allowance to reflect uncertainties about whether we will be able to utilize some of our deferred tax assets (consisting primarily of certain net operating losses carried forward by our international subsidiaries and certain state capital loss carryforwards) before they expire. The valuation allowance is based on our estimates of taxable income for the jurisdictions in which we operate and the period over which our deferred tax assets will be realizable. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, we cannot assure that we will not be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we make the increase.
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Significant management judgment is required to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Our net deferred tax asset as of April 30, 2002 was $233.9 million, net of the valuation allowance of $11.4 million. We recorded the valuation allowance to reflect uncertainties about whether we will be able to utilize some of our deferred tax assets (primarily consisting of certain net operating losses carried forward by our non-U.S. subsidiaries) before they expire. The valuation allowance is based on our estimates of taxable income by the jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. If actual results differ from these estimates or if we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially reduce our net income.
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Results of Operations
GAAP and Company Pro Forma Results
The following table shows our results of operations for the periods indicated prepared in accordance with GAAP. The table also shows results on a company pro forma basis, and a reconciliation of GAAP to pro forma results. We ~~have categorized~~provide pro forma results to give investors an alternative method of assessing our ongoing core business results. Pro forma results are not prepared in accordance with GAAP and are not a substitute for GAAP results. Although company pro forma information is prepared using the ~~following total~~same consistent method from quarter to quarter and year to year, it may differ from the pro forma measures used by other companies.
Company pro forma net ~~revenue discussion by our business divisions.~~ loss excludes acquisition-related charges, such as amortization of goodwill and intangible assets and impairment charges, and amortization of purchased software and charges for purchased research and development. It also excludes loss on impairment of long-lived asset, gains and losses from marketable securities and other investments, net gains and losses on divestitures, discontinued operations and the tax effects of these transactions.
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Three Months Ended Three Months Ended
October 31, 2001 October 31, 2002

Pro Forma Pro Forma
(In thousands, except per share amounts) GAAP Adjmts Pro Forma GAAP Adjmts Pro Forma

Net revenue:
Products $ 114,583 $ — $ 114,583 $ 146,992 $ — $ 146,992
Services 36,755 — 36,755 60,941 — 60,941
Other 17,389 — 17,389 15,349 — 15,349

Total net revenue 168,727 — 168,727 223,282 — 223,282
Costs and expenses:
Cost of revenue:
Products, services and other 61,789 — 61,789 71,313 — 71,313
Amortization of purchased software 1,706 (1,706 ) — 2,977 (2,977 ) —
Customer service and technical support 37,759 — 37,759 41,752 — 41,752
Selling and marketing 59,953 — 59,953 78,801 — 78,801
Research and development 48,857 — 48,857 65,682 — 65,682
General and administrative 26,557 — 26,557 40,161 — 40,161
Charge for purchased research and development — — — 7,789 (7,789 ) —
Acquisition-related charges 41,081 (41,081 ) — 9,455 (9,455 ) —
Loss on impairment of long-lived asset 27,000 (27,000 ) — — — —

Total costs and expenses 304,702 (69,787 ) 234,915 317,930 (20,221 ) 297,709

Net income (loss) from continuing operations (135,975 ) 69,787 (66,188 ) (94,648 ) 20,221 (74,427 )
Interest and other income 9,810 — 9,810 8,336 — 8,336
Gains (losses) on marketable securities and other investments, net (12,254 ) 12,254 — 253 (253 ) —

Income (loss) from continuing operations before income taxes (138,419 ) 82,041 (56,378 ) (86,059 ) 19,968 (66,091 )
Income tax (benefit) provision (36,263 ) 17,658 (18,605 ) (25,818 ) 4,008 (21,810 )

Income (loss) from continuing operations (102,156 ) 64,383 (37,773 ) (60,241 ) 15,960 (44,281 )
Discontinued operations, net of income taxes:
Net income (loss) from Quicken Loans discontinued operations 9,729 (9,729 ) — — — —
Gain (loss) on disposal of Quicken Loans discontinued operations — — — 5,556 (5,556 ) —

Net income (loss) from discontinued operations 9,729 (9,729 ) — 5,556 (5,556 ) —

Net income (loss) $ (92,427 ) $ 54,654 $ (37,773 ) $ (54,685 ) $ 10,404 $ (44,281 )

Basic and diluted net loss per share from continuing operations $ (0.48 ) $ (0.18 ) $ (0.29 ) $ (0.21 )
Basic and diluted net income per share from discontinued operations 0.04 — 0.03 —

Basic and diluted net loss per share $ (0.44 ) $ (0.18 ) $ (0.26 ) $ (0.21 )

Shares used in basic and diluted per share amounts 211,039 211,039 207,965 207,965

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Total Net Revenue
The table below shows ~~each business division’s~~total net revenue and percentage of ~~our~~ total net revenue for each of our reportable segments for the ~~three-~~first quarters of fiscal 2002 and ~~nine-month periods ended April 30, 2001 and 2002. Information for~~2003. We have reclassified some fiscal ~~2001 has been reclassified~~2002 information to conform to the fiscal ~~2002 financial presentation for comparability.~~2003 presentation. See Note 137 of the financial statements for additional information about our ~~business segments, which correspond to the business divisions described below.~~reportable segments.

Total Net Revenue Q3 % Total Net Q3 % Total Net Q3 % YTD % Total Net YTD % Total Net YTD %
FY01 Revenue FY02 Revenue Change FY01 Revenue FY02 Revenue Change

(Dollars in millions)
Small Business
Product $ 71.8 $ 99.9 $ 268.4 $ 314.1
Service 23.5 29.2 66.0 89.9
Other 7.0 0.7 16.7 3.9

Subtotal 102.3 24 % 129.8 24 % 27 % 351.1 33 % 407.9 31 % 16 %

Tax
Product 139.9 198.2 333.9 422.0
Service 93.4 117.8 106.4 128.9
Other 0.4 1.3 3.1 2.7

Subtotal 233.7 55 % 317.3 58 % 36 % 443.4 41 % 553.6 43 % 25 %

Personal Finance
Product 15.1 10.2 74.9 65.5
Service 4.1 1.6 10.1 6.3
Other 10.8 12.1 38.0 39.1

Subtotal 30.0 7 % 23.9 4 % (20 )% 123.0 11 % 110.9 9 % (10 )%

Quicken Loans
Product — — — —
Service 35.2 43.5 72.2 140.0
Other — — — —

Subtotal 35.2 8 % 43.5 8 % 24 % 72.2 7 % 140.0 11 % 94 %

Global Business
Product 17.9 20.5 59.6 64.6
Service 5.6 5.1 19.1 15.5
Other 0.5 0.3 1.9 3.9

Subtotal 24.0 6 % 25.9 5 % 8 % 80.6 8 % 84.0 6 % 4 %

Other
Product — 3.7 — 3.7
Service — 1.1 — 1.1
Other — — — —

Subtotal — 0 % 4.8 1 % n/a — 0 % 4.8 0 % n/a

Total net revenue
$ 425.2 100 % $ 545.2 100 % 28 % $ 1,070.3 100 % $ 1,301.2 100 % 22 %

Total Net Revenue Q1 % Total Net Q1 % Total Net Q1 %
FY02 Revenue FY03 Revenue Change

(Dollars in millions)
QuickBooks

Product $ 24.5 $ 37.8
Service — 0.2
Other — —

Subtotal 24.5 15 % 38.0 17 % 55 %

Small Business Products and Services

Employer Services
Product 18.4 23.7
Service 15.7 23.5
Other — 0.4

Subtotal 34.1 20 % 47.6 21 % 39 %

Financial Supplies
Product 30.3 30.6
Service — —
Other — —

Subtotal 30.3 18 % 30.6 14 % 1 %

Other Small Business Products and Services
Product — 4.1
Service 10.6 14.7
Other 3.2 3.8

Subtotal 13.8 8 % 22.6 10 % 64 %

Total Small Business Products and Services
Product 48.7 58.4
Service 26.3 38.2
Other 3.2 4.2

Subtotal 78.2 46 % 100.8 45 % 29 %

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Q1 % Total Net Q1 % Total Net Q1 %
FY02 Revenue FY03 Revenue Change

(Dollars in millions)
Consumer Tax

Product 2.5 3.9
Service 1.5 2.0
Other 0.2 0.2

Subtotal 4.2 2 % 6.1 3 % 45 %

Professional
Accounting
Solutions
Product 5.6 6.4
Service 1.1 0.9
Other — —

Subtotal 6.7 4 % 7.3 3 % 9 %

Personal Finance

Product 24.9 25.5
Service 2.8 0.8
Other 11.1 10.9

Subtotal 38.8 23 % 37.2 17 % (4 %)

Vertical Business
Management
Solutions
Product — 5.6
Service — 13.2
Other — —

Subtotal — 0 % 18.8 8 % n/a

Global Business

Product 8.4 9.4
Service 5.0 5.6
Other 2.9 —

Subtotal 16.3 10 % 15.0 7 % (8 %)

Other

Product — —
Service — 0.1
Other — —

Subtotal — 0 % 0.1 0 % n/a

Total net revenue
$ 168.7 100 % $ 223.3 100 % 32 %

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~~Small Business Division~~QuickBooks
~~Small Business Division~~QuickBooks product revenue is derived primarily from QuickBooks desktop software products. QuickBooks services revenue is derived from QuickBooks Online Edition.
QuickBooks revenue increased 55% in the first quarter of fiscal 2003 compared to the first quarter of fiscal 2002. The increase reflected 32% higher unit sales, including unit sales of three new products ~~financial supplies~~with enhanced functionality that we did not offer during the first quarter of fiscal 2002 — QuickBooks Premier, QuickBooks Point of Sale and QuickBooks Enterprise Solutions. These new products have significantly higher average selling prices than our traditional line of QuickBooks products. Higher-end QuickBooks products launched during fiscal 2002 as part of our Right for My Business strategy accounted for almost half of the QuickBooks revenue growth during the first quarter of fiscal 2003. Unit sales of our QuickBooks Basic ~~payroll offering. Small Business Division services~~and Pro products also increased more than 25% due to strong upgrade sales. We believe that upgrade sales for these products were strong in part due to the expansion of applications available through the Intuit Developer Network. For the full fiscal year, we expect QuickBooks revenue to grow 20 to 30%.
Employer Services
Employer Services product revenue is derived primarily from our ~~Deluxe and Premier~~QuickBooks Do-It-Yourself Payroll offering, which consists of current payroll tax tables that we provide on a subscription basis to small businesses that prepare their own payrolls. Services revenue for this segment is derived primarily from our outsourced payroll services. Our outsourced payroll services consist of QuickBooks Assisted Payroll Service, a payroll service that is integrated with QuickBooks and ~~from QuickBooks support plans.~~
~~Small Business Division total net revenue increased 27%~~handles the back-end aspects of payroll processing, including tax payments and filings; and Intuit Payroll Services Complete Payroll, which provides traditional, full service payroll processing, tax payment and check delivery services. Intuit Payroll Services Complete Payroll encompasses the business of CBS Employer Services, Inc., which we acquired in the ~~third~~fourth quarter of fiscal ~~2002 compared to~~2002. Our outsourced payroll business also includes our Premier Payroll Service, which provides traditional full service payroll outsourcing, tax payment and check delivery services distributed through certain financial institutions.
Employer Services revenue increased approximately 39% in the ~~third~~first quarter of fiscal ~~2001. Total QuickBooks-related revenue (which includes QuickBooks desktop, QuickBooks Internet Gateway, QuickBooks support plans and QuickBooks for the Web) for the quarter increased 36%~~2003 compared to the same period ~~last~~of the prior year. QuickBooks ~~desktop product~~Do-It-Yourself Payroll revenue ~~alone grew much faster, experiencing 65% growth that reflected~~increased 28% due to 16% higher unit sales and 12% higher average selling prices ~~that were~~ driven by price increases. QuickBooks Assisted Payroll Service revenue increased 27% due to price increases in the ~~November 2001 launch~~first quarter of ~~our higher-priced QuickBooks Premier products, as well as~~fiscal 2003 and 13% higher unit sales. ~~The volume increase was driven by strong upgrade sales, which we believe were~~Intuit Payroll Services Complete Payroll revenue increased 79%, due ~~in part~~almost entirely to our ~~decision to discontinue technical support and tax table services during calendar 2002 for customers using certain older versions~~acquisition of ~~QuickBooks.~~CBS Employer Services, Inc., which contributed $6.7 million in revenue in its first full quarter of operations as part of Intuit. Premier payroll revenue was flat. We ~~believe that~~expect the ~~availability of a range~~CBS component of Intuit ~~Developer Network offerings~~Payroll Services Complete Payroll to ~~QuickBooks 2002 customers may also have contributed to~~be the ~~stronger upgrade sales. Third~~main source of growth for our Employer Services segment during the remainder of fiscal 2003.
Financial Supplies
Financial Supplies product revenue is derived primarily from financial supplies, such as paper checks, envelopes, invoices and stationery, for small businesses and individuals and from tax forms, tax return presentation folders and other supplies for professional tax preparers.
Financial Supplies revenue was essentially flat in the first quarter QuickBooks-related revenue growth also reflected strong results from QuickBooks support plans. In August 2001, we began offering several higher-end support plans, which resulted in significantly higher average selling prices that more than offset declines in volumeof fiscal 2003 compared to the ~~third~~first quarter last year. Revenue growth in QuickBooks-related products and services was partially offset by a decline in QuickBooks Internet Gateway revenue. Revenue for this business decreased due to a sharp decline in upfront fees received from Internet Gateway participants, as well as a decrease in transaction-based fees that reflects lower customer demand for Internet Gateway services. Financial supplies revenue increased modestly during the quarter.
Payroll revenue increased 25% from quarter to quarter, reflecting 38% combined growth for the QuickBooks-branded Basic and Deluxe offerings, with revenue for the Premier service roughly flat. Price increases accounted for a significant portion of ~~the Basic and Deluxe revenue growth, although the number of customers for the combined offerings also increased by approximately 17%. We expect payroll revenue growth to be slower during~~fiscal 2002. In the fourth quarter of fiscal 2002, ~~compared to the first half of fiscal 2002. See “Risks~~we initiated price increases that ~~Could Affect Future Results” at the end of this Item 2.~~
Small Business Division total net revenue for the first nine months of fiscal 2002 increased 16% compared to the first nine months of fiscal 2001. QuickBooks-related product revenue increased 11%, reflectingresulted in 6% higher average selling ~~prices. QuickBooks support revenue increased 47% during the period~~prices and higher charges for shipping and handling. These increases were offset by 6% lower unit sales due to ~~higher average selling prices. Payroll had strong revenue~~a decline in the rate at which new QuickBooks customers are buying financial supplies. Modest but stable growth ~~primarily reflecting price increases~~has been typical for this business, and we expect that historical pattern to continue for fiscal 2003 as ~~well as some unit growth for the Basic and Deluxe offerings, and financial supplies revenue increased modestly.~~a whole.
~~Tax Division~~Other Small Business Products and Services
~~Tax Division~~Other Small Business Products and Services (“OSBPS”) product revenue is derived primarily from ~~Quicken~~Intuit Information Technology Solutions (formerly Blue Ocean Software, Inc.), a provider of software solutions that help businesses manage their information technology resources and assets. We acquired Blue Ocean in the first quarter of fiscal 2003. Services revenue for this segment is derived primarily from QuickBooks support plans. Other revenue consists of royalties from small business online transactions such as QuickBooks Merchant Account Service and QuickBooks Online Billing.
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Other Small Business Products and Services revenue increased 64% in the first quarter of fiscal 2003 compared to the first quarter of fiscal 2002. Blue Ocean contributed $6.0 million or 68% of OSBPS revenue growth during the first quarter of fiscal 2003. QuickBooks support revenue grew 36%. Although the number of support plans did not increase, revenue increased due to continued strength in the higher-priced support plans for higher-end QuickBooks products such as QuickBooks Premier, QuickBooks Point of Sale and QuickBooks Enterprise Solutions, that we introduced during fiscal 2002.
Consumer Tax
Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer desktop tax preparation ~~products and ProSeries and Lacerte professional tax preparation~~ products. Consumer Tax ~~Division~~ services revenue is derived primarily from ~~Quicken~~ TurboTax for the Web online tax preparation services and consumer electronic filing services.
~~Tax Division total net revenue increased 36% in the third quarter of fiscal 2002 compared~~Due to the ~~third quarter~~seasonal nature of ~~fiscal 2001. Revenue from~~ our consumer tax business, the first fiscal quarter typically generates only nominal revenue from consumer tax products and services compared to the second and third quarters of the fiscal year. Consumer Tax revenue increased ~~43%~~$1.9 million or 45% in the ~~third~~first quarter of fiscal ~~2002 compared to~~2003. We do not believe that results for the ~~third~~first quarter of fiscal ~~2001. Revenue from TurboTax desktop products increased 26%, due in part to higher average selling prices resulting from the introduction~~2003 are indicative of ~~a higher-priced premium product as well as a price increase for our Deluxe product. Total units also increased approximately 19% from the third quarter of the prior year. Revenue from TurboTax~~revenue trends for the ~~Web more than doubled, reflecting a significant price increase as well as 84% unit growth. Electronic filing units~~full year, and ~~revenue were also up significantly. From~~we will not have complete results for the entire 2002 tax season until late in the fiscal year. Since fiscal 2000, ~~to 2001,~~ we ~~saw~~have seen an increasing portion of our annual revenue growth ~~shift from~~during the third quarter compared to the second quarter, ~~to the third quarter,~~ and we expect that trend ~~continued this~~to continue during fiscal ~~year.~~2003. This trend results in part from more customers using our Web-based tax offerings, for which ~~have~~ revenue peaks later in the tax season. ~~In recent years~~However, retail sales have also shifted to later in the tax season.
~~Revenue~~The development and launch of our consumer tax products for the 2002 tax year were completed on schedule and products reached retail shelves in November 2002. This year we are offering versions of TurboTax that are specifically designed for investors, taxpayers preparing for retirement and Spanish-speaking taxpayers as part of our Right for Me product strategy. In addition, federal tax versions of TurboTax desktop products for Windows now include product activation technology that prevents a customer from using a single copy of TurboTax to print or electronically file a tax return from more than one personal computer. We believe these initiatives will contribute to revenue growth for the full tax season. However, there are still ongoing risks associated with our consumer tax business, including intense competition that could result in lower average selling prices and/or a decline in our share of desktop software sales in the retail channel.
Professional Accounting Solutions
Professional Accounting Solutions product revenue is derived primarily from ProSeries and Lacerte professional tax preparation ~~products and~~products. Professional Accounting Solutions services ~~increased 19%, with more than half of the growth resulting~~revenue is derived primarily from ~~our acquisition of Tax and Accounting Software Corporation (“TAASC”) in April 2001 and from higher sales of~~ electronic filing ~~services. Our recent efforts to reduce the unauthorized sharing of professional~~
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~~tax products (by hard-coding the purchasing tax preparer’s name in the software)~~ and ~~higher average selling prices for our ProSeries and Lacerte unlimited-use products also contributed to the revenue growth.~~training services.
Due to the ~~seasonality~~seasonal nature of our Professional Accounting Solutions business, the first fiscal quarter typically generates only nominal revenue from professional tax products and services compared to the second and third quarters of the ~~tax business, results for the full season are more meaningful than results for any particular quarter, and results for the first nine months of a~~ fiscal ~~year are generally indicative of results for the full season. Tax Division total net~~year. Professional Accounting Solutions revenue increased ~~25%~~$0.6 million or 9% in the first ~~nine months~~quarter of fiscal ~~2002~~2003 compared to the first nine months of fiscal 2001. Revenue from our consumer tax business increased 28% on strength from TurboTax desktop products as well as TurboTax for the Web, which experienced combined paid federal unit growth of 20%. Electronic filing revenue also contributed to the year-over-year growth. Revenue from our professional tax preparation products increased 25%, with significant growth resulting from our acquisition of TAASC, electronic filing services, efforts to reduce unauthorized product sharing and higher average selling prices for our unlimited-use professional tax products.
Although we are encouraged by the year-to-date results for our tax business, revenues for the full tax season are still subject to consumer product returns from our retail distribution channels. While we expect our reserves for returned products will be adequate to cover retailers’ returns of unsold products during the fourth quarter of fiscal 2002, ~~higher than expected returns could have a negative impact on~~but we do not believe that this is indicative of revenue trends for the full ~~season. See “Critical Accounting Policies — Net Revenue — Return and Rebate Reserves” at~~year. We will not have complete results for the ~~beginning of this Item 2.~~entire 2002 tax season until late in the fiscal year.
Personal Finance ~~Division~~
Personal Finance ~~Division~~ product revenue is derived primarily from Quicken desktop software products. Personal Finance ~~Division~~ services revenue is ~~minimal.~~nominal. Other revenue consists of royalties from consumer online transactions and Quicken.com advertising ~~revenue and online transactions~~ revenue.
Personal Finance ~~Division~~ total net revenue decreased ~~20%~~4% in the ~~third~~first quarter of fiscal ~~2002~~2003 compared to the ~~third quarter~~same period of ~~fiscal 2001. The decrease reflected continued revenue growth in our online transactions business that was more than offset by a 37% decline in~~the prior year. Quicken revenue ~~and a 35% decline in Quicken.com revenue from the third quarter of fiscal 2001 to the third quarter of fiscal 2002. The decrease in Quicken revenue reflected~~was essentially flat, reflecting the continuing ~~decline~~overall lack of growth in the personal finance desktop software ~~category as more personal finance functionality becomes available~~category. An aggregate 8% higher average selling price in the retail channel due primarily to ~~consumers at no cost on~~ the ~~Internet. The decrease~~second quarter fiscal 2002 introduction of Quicken Premier offset a 6% decline in ~~Quicken.com advertising~~unit sales. Total online services revenue ~~reflected~~decreased 14% due to the continuing industry-wide decline in spending by purchasers of Internet ~~advertising.~~advertising and our exit from certain online businesses in fiscal 2002. We expect the market for Personal Finance products and services to continue to be flat or decline in the remainder of fiscal 2003.
~~Revenue patterns~~-32-
Vertical Business Management Solutions
Vertical Business Management Solutions (“VBMS”) revenue is derived from four businesses that we acquired in fiscal 2002 that provide small business management solutions for vertical industries. Those businesses are Intuit Eclipse Distribution Management Solutions, Intuit MRI Real Estate Solutions, Intuit Construction Business Solutions, and Intuit Public Sector Solutions. VBMS product revenue is derived from business management software that is specific to the industries these businesses serve. VBMS service revenue consists primarily of installation, consulting and training services.
These vertical businesses contributed $18.8 million to first quarter 2003 total net revenue. We expect 10 to 30% revenue growth for these businesses in the aggregate during fiscal 2003, over their aggregate revenue for the ~~Personal Finance Division for~~comparable period before we acquired them. This is somewhat slower growth than we originally anticipated, due in part to some pressure on the ~~first nine months of fiscal 2001 and 2002 were similar to~~higher-priced vertical solutions resulting from the ~~third quarter trends described above. Revenue decreased 10%, reflecting declines in Quicken and advertising revenue that were partially offset by an increase in online transactions revenue.~~current economic environment.
~~Quicken Loans Division~~Global Business
~~Quicken Loans Division~~Global Business product revenue is derived primarily from ~~gains on the sale~~localized versions of ~~loans~~QuickBooks and ~~post-closing servicing arrangements~~Quicken as well as QuickTax desktop software products in ~~bulk to participating financial institutions,~~Canada; localized versions of QuickBooks and ~~from loan fees we receive for originating loans. All revenue generated by the division is services revenue.~~
Quicken ~~Loans Division total net revenue increased 24%~~as well as TaxCalc desktop software products in the third quarter of fiscal 2002 compared to the third quarter of fiscal 2001. The volume of loans sold grew 29%, reflecting increased consumer demand to refinance mortgage loans in light of relatively low interest rates. The volume increase came from conventional loans, as the volume for government-funded loansUnited Kingdom; and alternative sub-prime loans declined. This was partially offset by a 5% decline in the average revenue per loan, reflecting a decrease in both average gains on sales of loans and average loan fees. While revenue per loan from conventional loans increased, this was more than offset by decreases for government funded loans and alternative sub-prime loans which have higher margins than conventional loans. We expect the revenue growth rates for Quicken Loans to be lower in the fourth quarter of fiscal 2002 compared to the first half of fiscal 2002 and on a year-over-year basis. Mortgage rate increases, the impact of the economic climate on the housing market and other factors could negatively impact the volume of applications and closed loans, particularly our most mortgage-rate sensitive products such as conventional refinancing loans. See “Risks that Could Affect Future Results,” at the end of this Item 2 and “Interest Rate Risk” in Item 3 below.
Quicken Loans Division total net revenue increased 94% in the first nine months of fiscal 2002 compared to the first nine months of fiscal 2001, reflecting a 100% increase in sold loan volume. A large increase in conventional loan
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~~volume more than offset declines in government and alternative sub-prime loan volume. This volume growth was partially offset by a slight decline in the average revenue per loan.~~
~~Global Business Division~~
~~Global Business Division product revenue is derived primarily from~~ Yayoi small business desktop accounting products in ~~Japan, and QuickBooks, Quicken and QuickTax desktop software products in Canada.~~Japan. Global Business ~~Division~~ services revenue primarily consists of revenue from software maintenance contracts sold with Yayoi software in Japan.
Global Business ~~Division~~ total net revenue ~~increased~~decreased $1.3 million or 8% in the ~~third~~first quarter of fiscal 2003 compared to the first quarter of fiscal 2002. This decline is due primarily to a decrease of $1.8 million in total revenue from Canada, which represents a 46% reduction from the prior year. This reduction is due primarily to acceleration to the fourth quarter of fiscal 2002 ~~compared~~of shipment of our fall inventory of QuickBooks to retailers in anticipation of a price promotion in the ~~third~~first quarter of fiscal ~~2001. Revenue from Canada increased 57% period to period. This reflected strong tax~~2003. Last season, ~~results for QuickTax, due in part to the preliminary success of~~we shipped our ~~efforts to reduce unauthorized sharing of desktop software. Tax revenue growth was partially offset by modest revenue declines for~~fall QuickBooks and Quicken. Revenue in Japan declined 17% during the quarter compared to the third quarter of fiscal 2001, with increased revenue from Yayoi maintenance contracts more than offset by decreased revenue from Yayoi products and by the effect of discontinuing the QuickBooks product line in Japaninventory in the ~~second~~first quarter of fiscal 2002.
~~Global Business Division total net~~ Total revenue ~~increased 4%~~from the United Kingdom nearly doubled to $2.1 million due primarily to sales under a new QuickBooks distribution agreement with a financial institution in ~~the first nine months of fiscal 2002~~that country. In Japan, Yayoi product and software maintenance revenues totaling $10.4 million were flat compared to the ~~first nine months~~prior year quarter, reflecting the continuing difficult economic environment there.
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Cost of ~~fiscal 2001. This increase included 15% growth in Canada, reflecting increased revenue for tax products that was partially offset by lower QuickBooks and Quicken revenue.~~ Revenue ~~in Japan decreased 12%, with a decline in QuickBooks revenue that was partially offset by increases for other small business products and services.~~

Cost of Revenue Q3 % of Related Q3 % of Related Q3 % YTD % of Related YTD % of Related YTD %
FY01 Revenue FY02 Revenue Change FY01 Revenue FY02 Revenue Change

(Dollars in millions)
Cost of revenue:
Cost of products $ 29.3 12 % $ 35.1 11 % 20 % $ 118.8 16 % $ 141.3 16 % 19 %
Cost of services 39.5 24 % 38.6 19 % -2 % 108.2 40 % 112.9 30 % 4 %
Cost of other revenue 8.6 46 % 6.8 47 % (21 )% 21.2 36 % 19.7 40 % (7 )%
Amortization of purchased software 4.4 — 1.6 — (64 )% 11.2 — 10.4 — (7 )%

Total cost of revenue
$ 81.8 19 % $ 82.1 15 % 0 % $ 259.4 24 % $ 284.3 22 % 10 %

Q1 % of Related Q1 % of Related Q1 %
FY02 Revenue FY03 Revenue Change

(Dollars in millions)
Cost of revenue:
Cost of products $ 31.9 28 % $ 29.8 20 % (7 %)
Cost of services 24.3 66 % 36.9 61 % 52 %
Cost of other revenue 5.6 32 % 4.6 30 % (18 %)
Amortization of purchased software 1.7 n/a 3.0 n/a 76 %

Total cost of revenue
$ 63.5 38 % $ 74.3 33 % 17 %

There are four components of our cost of revenue: (1) cost of products, which includes the direct cost of manufacturing and shipping ~~desktop~~our software products; (2) cost of services, which reflects direct costs associated with providing services, including data center costs relating to delivering Internet-based services; (3) cost of other revenue, which includes costs associated with ~~providing~~generating advertising and marketing and online ~~transactions;~~transactions revenue; and (4) amortization of purchased software, which represents the cost of depreciating products ~~or services~~ we obtained through acquisitions over their useful lives.
Cost of products as a percentage of product revenue ~~was roughly flat at 11% and 16% for the third quarter and~~decreased to 20% in the first ~~nine months~~quarter of fiscal ~~2002, compared to 12% and 16% for~~2003 from 28% in the same ~~periods in~~period of the prior year. This was primarily due to strong sales of our new higher-priced QuickBooks products, QuickBooks Premier, QuickBooks Point of Sale and QuickBooks Enterprise. These products have higher prices but essentially the same manufacturing costs as our lower-priced QuickBooks products, resulting in lower cost of revenue per unit. We ~~lowered~~also continued to improve the packaging design for certain products and streamline some of our manufacturing processes during the first quarter of fiscal 2003. This enabled us to reduce the per-unit materials, manufacturing and shipping costs for our shrink-wrap software products, resulting in ~~significant~~ cost savings. ~~These savings were offset by increased costs associated with improvements~~We expect both of these factors to ~~our product distribution function. During~~continue during the ~~second quarter~~remainder of fiscal ~~2002, we established~~2003, resulting in about 2% lower cost of products as a ~~new third-party retail distribution relationship for our shrink-wrap software products. This distribution relationship enables us to ship a larger~~ percentage of ~~our products directly~~product revenue for the full fiscal year compared to ~~our retailers and allows us to provide inventory to our retail customers on a more timely basis. By providing better service to our retailers, we are reducing product returns and related costs.~~fiscal 2002.
Cost of services as a percentage of services revenue decreased to ~~19% and 30% for the third quarter and~~61% in the first ~~nine months~~quarter of fiscal ~~2002, compared to 24% and 40% for the same periods~~2003 from 66% in the ~~prior year. These decreases were~~first quarter of fiscal 2002. This decrease was primarily attributable ~~primarily~~ to the growth in our ~~Quicken Loans Division,~~Intuit Payroll Services Complete Payroll outsourced payroll business during the quarter. This service has lower unit costs than our Assisted Payroll offering, which ~~experienced a significantly lower average cost per loan. The decline in average cost per loan reflected greater operational efficiencies, as well as an increase in total loan~~
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~~revenue being spread over a fixed cost base that increased~~grew only ~~slightly. Our payroll and Web-based tax businesses, which experienced revenue growth over a relatively fixed cost base, also contributed to these decreases.~~modestly.
Cost of other revenue as a percentage of other revenue ~~increased~~decreased to ~~47% and 40% for the third quarter and~~30% in the first ~~nine months~~quarter of fiscal 2003 from 32% in the first quarter of fiscal 2002. In the first quarter of fiscal 2002, ~~compared~~we moved a large number of servers that supported Quicken.com from an external hosting company to ~~46% and 36% for the same periods in the prior year. These increases were primarily due to increased~~our own data center ~~costs related~~and streamlined the infrastructure. This led to ~~our Personal Finance Division’s online transaction businesses.~~decreased cost of other revenue as a percentage of other revenue for this business.
Amortization of purchased software ~~decreased~~increased in the ~~third~~first quarter of fiscal 2003 compared to the first quarter of fiscal 2002 ~~compared~~as a result of additional amortization for purchased intangible assets relating to the ~~third~~acquisitions we completed in the fourth quarter of fiscal ~~2001 because of the impairments of purchased software assets related to our Internet-based advertising business and Site Solutions business that were recorded in the second quarter of fiscal~~ 2002. This resulted in a lower base of assets to be amortized in the third quarter of fiscal 2002. Amortization of purchased software decreased slightly in the first nine months of fiscal 2002 compared to the same period of fiscal 2001. This reflects an increase due to the impairment charges that were recorded in the second quarter of fiscal 2002 which was more than offset by the lower third quarter fiscal 2002 amortization. See Note 4 of the financial statements.
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Operating Expenses

Operating Expenses Q3 % Total Net Q3 % Total Net Q3 % YTD % Total Net YTD % Total Net YTD %
FY01 Revenue FY02 Revenue Change FY01 Revenue FY02 Revenue Change

(Dollars in millions)
Customer service and technical support $ 37.5 9 % $ 45.8 8 % 22 % $ 116.1 11 % $ 137.9 10 % 19 %
Selling and marketing 68.5 16 % 89.8 17 % 31 % 215.1 20 % 256.7 20 % 19 %
Research and development 52.7 12 % 52.9 10 % 0 % 155.2 15 % 156.1 12 % 1 %
General and administrative 23.9 6 % 29.3 5 % 23 % 77.6 7 % 90.1 7 % 16 %
Charge for purchased research and development 0.2 0 % — 0 % (100 )% 0.2 0 % — 0 % (100 )%
Charge for vacant facilities — 0 % 13.2 2 % — — 0 % 13.2 1 % —
Acquisition-related charges 122.6 29 % 37.6 7 % (69 )% 205.3 19 % 140.7 11 % (31 )%
Loss on impairment of long-lived asset — 0 % — 0 % — — 0 % 27.0 2 % —

Totals
$ 305.4 72 % $ 268.6 49 % (12 )% $ 769.5 72 % $ 821.7 63 % 7 %

Q1 % Total Net Q1 % Total Net Q1 %
FY02 Revenue FY03 Revenue Change

(Dollars in millions)
Customer service and technical support $ 37.8 22 % $ 41.8 19 % 11 %
Selling and marketing 60.0 36 % 78.8 35 % 31 %
Research and development 48.9 29 % 65.7 29 % 34 %
General and administrative 26.6 16 % 40.2 18 % 51 %

Subtotal 173.3 103 % 226.5 101 % 31 %
Charge for purchased research and development — n/a 7.8 4 % n/a
Acquisition-related charges 41.1 24 % 9.5 4 % (77 %)
Loss on impairment of long-lived asset 27.00 16 % — n/a n/a

Total operating expenses
$ 241.4 143 % $ 243.8 109 % 1 %

Customer Service and Technical Support
Customer service and technical support expenses were ~~8% and 10%~~19% of total net revenue ~~for the third quarter and~~in the first ~~nine months~~quarter of fiscal ~~2002,~~2003, compared to ~~9% and 11%~~22% in the first quarter of ~~total net revenue for the same periods of the prior year. During both~~ fiscal ~~2002 comparison periods, we benefited from~~2002. We continued to improve our efficiency in ~~providing~~fiscal 2003 by increasing the proportion of customer service and technical support we provide through less ~~expensively through~~expensive methods such as Web sites, online chat, email and other electronic means. ~~However, this benefit was partially offset by higher direct sales and~~We benefited from the fiscal 2002 implementation of a number of successful process excellence initiatives that reduced costs while maintaining or increasing service levels. Since support costs ~~in the third quarter and the first nine months of fiscal 2002 associated with converting the customers of Tax and Accounting Software Corporation (“TAASC”), a company that~~are to some extent driven by unit sales, we ~~acquired in April 2001,~~also began to ~~our ProSeries and Lacerte professional tax products. We expect customer service and technical~~experience somewhat lower support ~~expenses to decrease~~costs as a percentage of total net revenue ~~during~~due to the ~~remainder~~addition to the product mix of ~~fiscal 2002 and in fiscal 2003 as TAASC conversion costs gradually decline and we~~our newer versions of QuickBooks that have higher average selling prices. However, these benefits were partially offset by increased demand for customer service due to the increasing complexity of our products. We expect to continue to benefit from lower cost, more scalable electronic customer service and technical support delivery ~~mechanisms.~~mechanisms and from product mix in the remainder of fiscal 2003.
Selling and Marketing
Selling and marketing expenses were roughly flat as a percentage of revenue between the comparison periods, ~~reflecting 17%~~representing 35% and ~~16%~~36% of total net revenue ~~for~~in the ~~third~~first quarters of fiscal ~~2002~~2003 and ~~2001, and 20% of total net revenue for the first nine months of~~2002. In fiscal 2002 and 2001. The increase in absolute dollars between the third quarter comparison periods was attributable to several factors, including the expansion of our small business marketing programs related to our new QuickBooks products; incremental marketing expenses for our Construction Business Solutions products (which we acquired in November 2001); expansion of our consumer tax and Quicken Loans distribution channels; and our donation of $3.0 million to The Intuit Foundation, which will be used to benefit the community through contributions to selected non-profit organizations. Between the nine-month comparison periods,
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2003, selling and marketing expenses ~~decreased~~increased as ~~a percentage of total net revenue for our Quicken Loans and Payroll businesses due~~we continued to ~~significant revenue growth. However, these declines were substantially offset by the expansion of~~expand our small business marketing programs to support the Right for My Business strategy announced in September ~~2001,~~2001. Marketing expenses for our new QuickBooks products with advanced functionality increased 56% compared to the first quarter of fiscal 2002. Our new vertical business management businesses added approximately $6.0 million or 8% to total selling and marketing expenses in the first quarter of fiscal 2003. These increases were offset by a decrease in selling and marketing expenses as ~~well as the other factors noted above.~~a percentage of total net revenue for our payroll business due to significant revenue growth in that segment. We expect selling and marketing expenses to increase as a percentage of total net revenue in the remainder of fiscal 2003 as we ~~market~~continue to expand marketing programs for our new QuickBooks products as well as for the other Right for My Business products and services we recently introduced and those we expect to introduce ~~during~~in the remainder of fiscal ~~2002. We also expect selling and marketing expenses for our Quicken Loans business to increase in order to maintain demand as mortgage interest rates increase.~~2003.
Research and Development
Research and development expenses were ~~10% and 12%~~29% of total net revenue ~~for~~in the ~~third quarter and the~~ first ~~nine months of fiscal 2002, compared to 12% and 15% of total net revenue for the same periods of the prior year. During the third~~ quarter of fiscal 2003 and fiscal 2002 and increased 34% in absolute dollars in the first quarter of fiscal 2003 compared to fiscal 2002. During fiscal 2003, we ~~increased~~continued to increase research and development spending in some of our highest-growth businesses — small business, consumer tax and professional ~~tax — by approximately 10% compared to the third quarter of fiscal 2001.~~accounting solutions. In particular, we continued to invest in new products that support our Right for My Business ~~strategy, including new QuickBooks Premier products launched in the second quarter of fiscal 2002, the Intuit Developer Network,~~ and ~~other new products that we expect to introduce later in the fiscal year. At the same time, we significantly decreased or stopped spending in less strategic areas and discontinued businesses.~~consumer tax Right for Me strategies. We also ~~benefited from improvements in our development process that resulted in higher quality and shorter development times for our new QuickBooks products. The net result was that~~added research and development expenses ~~in the third quarter and first nine months of fiscal 2002 were flat in absolute dollars and declined as a percentage of total net revenue compared to the same periods of the prior fiscal year.~~for our newly acquired vertical business management solutions. During the remainder of
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fiscal ~~2002,~~2003, we expect to continue to make significant investments in research and development, particularly ~~in the~~for new small business ~~area.~~and vertical business management solutions products and services.
General and Administrative
General and administrative expenses were ~~5% and 7%~~18% of total net revenue ~~for the third quarter and~~in the first ~~nine months~~quarter of fiscal ~~2002,~~2003, compared to 6%16% in the first quarter of fiscal 2002. General and 7%administrative expenses increased in absolute dollars and as a percentage of total net revenue in first quarter of fiscal 2003 primarily due to acquisition integration costs and the addition of general and administrative expenses for the ~~same periods~~companies we acquired in the fourth quarter of fiscal 2002. Bad debt expense was also moderately higher in the first quarter of fiscal 2003 because we experienced unusually low levels of bad debt expense in fiscal 2002. We expect general and administrative expenses as a percentage of total net revenue to continue to exceed fiscal 2002 levels because of the prior year. We experienced decreases in bad debt charges for both fiscal 2002 comparison periods compared to the same periods a year ago, as we had greater accounts receivable write offs in fiscal 2001 due to the deteriorating financial condition of many Internet companies with whom we did business. These decreases were offset by increased insurance costs and costs associated with our acquisitions of OMware, Inc. in November 2001 and EmployeeMatters, Inc. in December 2000.
~~Charge for Vacant Facilities~~
During the quarter ended April 30, 2002, we concluded that we would not occupy two vacant leased buildings in Mountain View, California and that we would be unable to recover a substantial portion of our lease obligations from sublessors. As a result, we recorded a charge of $13.2 million. See Note 10 of the financial statements.foregoing factors.
Acquisition-Related Charges
~~Acquisition-related~~In the first quarter of fiscal 2003, acquisition-related charges ~~include~~were $9.5 million, compared to $41.1 million in the first quarter of fiscal 2002. The decrease is primarily attributable to discontinuing goodwill amortization for acquisitions we made prior to July 1, 2001 in accordance with the adoption of SFAS 142. For the first quarter of fiscal 2002, acquisition-related charges included the amortization of goodwill, purchased intangible assets and deferred compensation expenses arising from ~~acquisitions, and impairment charges relating to certain acquired assets. These costs decreased to $37.6 million and $140.7 million for~~acquisitions. Beginning with the ~~third quarter and the~~ first nine months of fiscal 2002, compared to $122.6 and $205.3 million for the same periods of the prior year. Acquisition-related charges for the first nine months of fiscal 2002 included impairment charges related to our Internet-based advertising business and our Site Solutions business that were recorded in the second quarter of fiscal ~~2002.~~2003, acquisition-related charges no longer included amortization of goodwill due to our implementation of this new FASB standard for accounting for goodwill acquired in a business combination. See Notes 1 and 43 of the financial statements. Acquisition-related charges in the first nine months of fiscal 2002 also reflected amortization of intangibles associated with the acquisitions of EmployeeMatters, Inc. in December 2000, TAASC in April 2001 and OMware, Inc. in November 2001. Acquisition-related charges for the third quarter and first nine months of fiscal 2001 included impairment charges related to the disposition of our Quicken Bill Manager Business that totaled $77 million.
Amortization expense related to completed acquisitions will continue to have a negative impact on our operating results in future periods. If we complete additional acquisitions or if we are required to accelerate amortization or take impairment charges in the future, there would be an incremental negative impact on operating results. See Note 1 of the financial statements, “Recent Pronouncements,” and “Risks That Could Affect Future Results” in this Item 2.
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Loss on Impairment of Long-lived Asset
The fiscal 2002 loss on impairment of long-lived asset ~~in the first nine months of fiscal 2002~~ related to the impairment of ~~assets~~the asset we received ~~in connection with~~from the ~~sale~~purchaser of our Quicken Bill Manager business in May 2001. ~~See Note 9 of the financial statements.~~ We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. During the first quarter of fiscal 2002, events and circumstances indicated impairment of this asset. Based on our resulting analysis of the asset’s fair value, we recorded a charge of ~~$27~~$27.0 million to reduce the carrying value of this asset to ~~zero.~~its estimated fair value of zero, reflecting the deteriorating financial condition of the purchasing company.
Non-Operating Income and Expenses
Interest and Other Income ~~and Expense, Net~~
~~For the third quarter and~~In the first ~~nine months~~quarter of fiscal ~~2002,~~2003, interest and other income ~~and expense, net, decreased to~~was $8.3 ~~million and $28.6~~ million, compared to ~~$15.1~~$9.8 million ~~and $47.7 million for~~in the ~~same periods a year ago. These decreases were~~first quarter of fiscal 2002. The decrease was partially due to a ~~sharp~~continuing decline in the interest we earned on our cash and short-term investment balances, reflecting significant decreases in market interest rates compared to the same quarter of the prior year. The decrease during ~~those periods.~~fiscal 2003 was also a result of lower average cash and short-term investment balances due to the use of cash to fund our acquisitions and our stock repurchase program. See Notes 5 and 11 of the financial statements. Interest earned on customer payroll deposits is reported as revenue for our payroll business, and is not included in interest and other income.
Gains (Losses) on Marketable Securities and Other Investments, Net of Taxes
~~For~~We recorded a pre-tax net gain relating to marketable securities and other investments of $0.3 million in the ~~third~~first quarter of fiscal 2003 and a pre-tax net loss of $12.3 million in the first quarter of fiscal 2002. The fiscal 2002 net loss included charges of $7.2 million for declines during the quarter in the market prices of our trading securities and S-1 options and $3.3 million to write down certain long-term investments for which the decline in fair value below carrying value was other-than-temporary. We sold all of our trading securities in the first quarter of fiscal 2002.
Income Tax Benefit
In the first quarter of fiscal 2003, we recorded an income tax benefit of $25.8 million on a pre-tax loss from continuing operations of $86.1 million, resulting in an effective tax rate of approximately 30%. In the first quarter of fiscal 2002, we recorded ~~a gain from marketable securities and other investments, net~~an income tax benefit of taxes, of $1.4 million, compared to a loss of $11.5 million in the same period in the prior year. In the first nine months of fiscal 2002, we recorded a loss of $9.3 million, compared to a loss of $87.3 million for the same period a year ago. See Note 3 of the financial statements. The $9.3 million loss in the first nine months of fiscal 2002 included, among other things, a $7.2 million loss attributable to declines during the period in the market prices of Excite@Home, 724 Solutions and our S1 options, and a loss of $3.3 million for other-than-temporary declines in value relating to certain long-term investments recorded at cost. We considered our shares of Excite@Home and 724 Solutions common stock as trading securities. As a result, market fluctuations were reflected in our consolidated statement of operations for the period. However, we sold all of our remaining shares of these securities, as well as our S1 options, during the first quarter of fiscal 2002. As of April 30, 2002, we continued to hold marketable securities and long-term investments in privately held companies carried at approximately $62$36.3 million on our balance sheet, down from approximately $109 million as of July 31, 2001 due to sales and write-downs. We review the values of our investments each quarter and make adjustments as appropriate. If the value of these remaining securities continues to decline significantly in the future, it would have a negative impact on our financial results.
~~Gain on Divestiture~~
In March 2002, we paid $12.0 million to terminate a $20.3 million obligation for an interactive services agreement related to our Quicken Bill Manager business, which we sold in May 2001. We wrote off the $27 million asset acquired in connection with that sale in the first quarter of fiscal 2002 (see Note 9 of the financial statements). In connection with the termination of the interactive services agreement, we recorded a pre-tax ~~gain~~loss from continuing operations of $8.3 million. See Note 11 of the financial statements. In the second quarter of fiscal 2001, we recorded a pre-tax gain on divestiture of $1.6 million that related to the sale of our Quicken Insurance business.
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~~Income Taxes~~
~~For the third quarter and the first nine months of fiscal 2002, we recorded income tax provisions of $67.9 million and $50.9 million on pretax income of $212.4 million and $222.8~~$138.4 million, resulting in an effective tax ~~rates~~rate of ~~32% and 23%~~approximately 26.2%. ~~This compares to income tax provisions of $55.3 million and $38.6 million on pretax income of $41.4 million and $3.3 million for the same periods of the prior year.~~ Our effective tax rate for the first ~~nine months~~quarters of fiscal 2002 ~~differs~~and 2003 differed from the federal statutory tax rate primarily due to the ~~tax benefit related to a divestiture that became available during~~effect of the ~~second quarter~~items in the table below.

Three Months Ended

October 31, October 31,
2001 2002

Statutory federal income tax rate 35.0 % 35.0 %
State income tax, net of federal benefit 1.7 % 1.2 %
Federal research and experimental credits 1.4 % 2.9 %
Non-deductible merger-related charges (6.6 %) (9.1 %)
Tax exempt interest 1.7 % 1.4 %
Tax benefit related to divestiture (4.0 %) —
Other, net (3.0 %) (1.4 %)

Effective income tax rate 26.2 % 30.0 %

As of fiscal 2002. Our effective tax rates for the third quarter and first nine months of fiscal 2001 differ from the federal statutory rate primarily due to impairment losses which did not create a tax benefit. At April 30,October 31, 2002, ~~and July 31, 2001,~~ we had net deferred tax assets of $238.4 million, which included a valuation allowance of ~~$11.4~~$9.3 million for ~~tax assets of~~net operating loss carryforwards relating to our ~~global~~international subsidiaries ~~based on~~and certain state capital loss carryforwards. The allowance reflects management’s assessment that we may not receive the benefit of certain loss ~~carryforwards.~~carryforwards of our international subsidiaries and capital loss carryforwards in certain state jurisdictions. While we believe our current valuation allowance is sufficient, it may be necessary to increase this amount if it becomes more likely that we will not realize a greater portion of the net deferred tax assets. We assess the need for an adjustment to the valuation allowance on a quarterly basis.
~~Cumulative Effect of Change in Accounting For Derivatives, Net~~Discontinued Operations
~~For~~On July 31, 2002, we sold our Quicken Loans mortgage business segment and accounted for the sale as discontinued operations. In accordance with APB Opinion No. 30, the operating results of Quicken Loans have been segregated from continuing operations in our statement of operations for all periods prior to the sale, including the first quarter ~~ended~~of fiscal 2002. In October ~~31, 2000,~~2002, we ~~recorded~~sold our residual equity interest in the purchasing company and recognized a ~~cumulative~~ gain of ~~$14.3~~$5.6 million, net of income taxes, ~~as a result of a change in accounting principles that recognized~~on the ~~cumulative effect of the fair value of our S1 options as of August 1, 2000.~~transaction. See Note 36 of the financial statements. ~~Subsequent fluctuations in the fair value of these options were included in our net income or net loss.~~
Liquidity and Capital Resources
At ~~April 30,~~October 31, 2002, our cash and cash equivalents and short-term investments totaled ~~$1,751.9~~$831.2 million, a ~~$182.5~~$419.2 million ~~increase~~decrease from July 31, ~~2001.~~2002. The decrease was primarily due to our use of cash for our stock repurchase program and for an acquisition.
We ~~generated $336.8~~used $55.2 million in cash ~~from~~in our operations during the ~~nine months~~quarter ended ~~April 30,~~October 31, 2002. The primary components of cash ~~provided by~~used in operations were a net ~~income~~loss from continuing operations of ~~$171.9~~$60.2 million ~~and~~that was partially offset by adjustments made for non-cash expenses, including depreciation charges of $18.5 million and acquisition-related charges and ~~deferred compensation~~amortization of ~~$153.3 million, depreciation charges~~purchased software of ~~$50.6 million and an impairment loss on a long-lived asset of $27.0~~$12.4 million. Other accrued liabilities also increased $83.2 million due to the seasonality of our business. These were partially offset by an increase of $156.3 million in mortgage loans as a result of increased loan volumes for the Quicken Loans division and an increase of $94.3 million in customer deposits and accounts receivable, also due to the seasonality of our business.
~~Investing activities used $228.5~~We generated $88.6 million in cash from investing activities during the first quarter of fiscal 2003. Our primary use of cash for investing activities was for the ~~nine months ended April 30, 2002.~~acquisition of Blue Ocean Software, Inc., which totaled $171.7 million net of cash we acquired. We ~~received~~generated cash from short-term investments of $290.4 million during the quarter, with proceeds of ~~$1,905.8~~$569.7 million from the sale upon maturity ~~and sale~~ of certain short-term investments ~~which were more than~~partially offset by ~~purchases~~reinvestments of ~~short-term investments of $2,085.1~~$279.3 million. As a result of our continued investment in information systems and infrastructure, we also purchased property and equipment of ~~$48.2 million during the period.~~$27.7 million.
We used ~~$104.2~~$257.1 million in cash for our financing activities ~~for~~in the ~~nine months ended April 30, 2002.~~first quarter of fiscal 2003. The primary component of cash used in financing activities was ~~$149.3~~$300.3 million for the repurchase of treasury stock through our stock repurchase program. See Note 1711 of the financial statements. This was partially offset by proceeds of ~~$72.6~~$43.3 million we received from the issuance of common stock under employee stock plans.
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In the normal course of business, we enter into leases for new or expanded facilities in both domestic and global locations. We also evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing strategic relationships with and investing in other companies. We may decide to use cash and cash equivalents to fund such activities in the future.
In May 2001, ~~our~~Intuit’s Board of Directors authorized ~~a stock~~the company to repurchase ~~program covering~~ up to ~~$500~~$500.0 million of common stock over a three-year period. AsIn July 2002, our Board of ~~April 30,~~Directors increased the authorized purchase amount by $250.0 million to a total of $750.0 million. The stock repurchase program is intended to help offset some of the dilution resulting from the issuance of shares under Intuit’s employee stock plans. From inception of the program through October 31, 2002, we had repurchased a total of ~~$157.6~~$627.3 million of common ~~stock since~~stock.
In connection with the ~~inception~~sale of our Quicken Loans mortgage business in July 2002, we agreed to continue providing to the purchasing company an interest-bearing line of credit of up to $375.0 million to fund mortgage loans for a transition period of up to six months. The line is secured by the related mortgage loans and had an outstanding balance of $180.1 million at October 31, 2002. The line expires on January 31, 2003. See Note 6 of the ~~program.~~financial statements.
Loans to executive officers and other employees totaled $21.3 million at July 31, 2002 and $20.6 million at October 31, 2002. Loans to executive officers are primarily relocation loans and none of these were made or modified since July 30, 2002. We do not intend to make or modify executive loans in the future. Loans are generally interest-bearing, secured by real property and have maturity dates of up to 10 years. See Note 13 of the financial statements.
We believe that our cash, ~~and~~ cash equivalents and short-term investments will be sufficient to meet anticipated seasonal working capital and capital expenditure requirements for at least the next twelve months.
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The following table summarizes our contractual obligations to make future payments at ~~April 30,~~October 31, 2002:

Payments Due by Period

Less than 1 1-3 4-5 After 5
year years years years Total
(In millions)

Contractual Obligations

Short-term notes payable $ 17.5 $ — $ — $ — $ 17.5
Long-term debt — 4.3 2.8 4.1 11.2
Operating leases 30.5 52.7 45.0 40.7 168.9
Other obligations 25.2 — — — 25.2

Total contractual cash obligations $ 73.2 $ 57.0 $ 47.8 $ 44.8 $ 222.8

Payments Due by Period

(In millions) Less than 1 1-3 4-5 After 5
Contractual Obligations year years years years Total

Restricted cash $ 13.1 $ — $ — $ — $ 13.1
Short-term notes payable 18.0 — — — 18.0
Long-term debt — 8.6 2.4 3.4 14.4
Operating leases 32.0 43.2 31.7 20.9 127.8
Other obligations 24.5 — — — 24.5

Total contractual cash obligations $ 87.6 $ 51.8 $ 34.1 $ 24.3 $ 197.8

Restricted cash at October 31, 2002 included $5.8 million that we held in escrow in connection with our fiscal 2002 acquisition of CBS Employer Services, Inc. The ~~following table summarizes~~escrow period expires in June 2003. Restricted cash at October 31, 2002 also included $7.3 million for product rebates due our ~~commercial commitments~~customers.
Other obligations at ~~April 30, 2002:~~

Amount of Commitment Expiration Per Period

Less than 1 1-3 4-5 After 5
year years years years Total
(In millions)

Other Commercial Commitments

Line of credit $ — $ — $ — $ — $ —
Loan commitments 624.1 — — — 624.1
Future sale commitments 200.9 — — — 200.9

Total commercial commitments $ 825.0 $ — $ — $ — $ 825.0

October 31, 2002 consisted of amounts we owe to former stockholders of CBS Employer Services, Inc. in connection with our acquisition of that company in the fourth quarter of fiscal 2002. This contractual obligation is included in other current liabilities on our balance sheet. See Note 9.
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Reserves for Returns and Rebates
Activity in our reserves for product returns ~~and exchanges~~ and for rebates during the ~~nine months ended April 30, 2002~~first quarter of fiscal 2003 and comparative balances at ~~April 30,~~October 31, 2001 were as follows:

Balance Additions Balance Balance
July 31, Charged to Returns/ April 30, April 30,
2001 Expense Redemptions 2002 2001
(In thousands)

Reserve for returns and exchanges $ 31,510 $ 88,451 $ (63,888 ) $ 56,073 $ 68,654
Rebates 10,130 92,155 (72,256 ) 30,029 30,340

Balance Additions Balance Balance
July 31, Charged to Returns/ October 31, October 31,
2002 Expense Redemptions 2002 2001

(In thousands)
Reserve for product returns $ 35,603 $ 19,236 $ (14,422 ) $ 40,417 $ 31,806
Reserve for rebates 8,201 15,512 (14,869 ) 8,844 9,373
Reserves for product returns ~~and exchanges~~ were ~~lower as of April 30,~~higher at October 31, 2002 compared to ~~April 30,~~October 31, 2001 ~~despite fiscal 2002~~because of revenue growth ~~due to improved distributor~~ and ~~retail channel inventory management~~the increased complexity of new QuickBooks products such as QuickBooks Enterprise Solutions, which we reserve at a higher rate than our QuickBooks Basic and ~~to channel mix shifts in QuickBooks sales from retail to direct. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cost of Revenue.”~~Pro products.
Recent Pronouncements
On June 29, 2001, the FASB issued SFAS ~~141,~~ 142,“~~Business Combinations,~~~~” and SFAS 142, “~~Goodwill and Other Intangible ~~Assets~~Assets.”.”
~~SFAS 141 supersedes APB Opinion No. 16, “~~~~Business Combinations,~~” and eliminates the pooling-of-interests method of accounting for business combinations, thus requiring that all business combinations be accounted for using the purchase method. The requirements of SFAS 141 apply to all business combinations initiated after June 30, 2001.
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SFAS 142 supercedes APB Opinion No. 17,“Intangible Assets,”” and provides that goodwill and other intangible assets that have an indefinite useful life will no longer be amortized. However, these assets must be reviewed for impairment at least annually or more frequently if an event occurs indicating the potential for impairment. ~~SFAS 142~~The shift from an amortization approach to an impairment approach applies to all ~~business combinations~~acquisitions completed after June 30, 2001. ~~For business combinations completed before July 1, 2001, we will adopt SFAS 142 effective August 1, 2002.~~ We ~~are currently evaluating~~adopted the ~~impact~~remaining elements of ~~SFAS 142 on our financial position and statement of operations. We expect the adoption of SFAS 142 to reduce our ongoing quarterly amortization of goodwill expense significantly, commencing with~~this new standard in the first quarter of fiscal ~~2003.~~2003 and therefore ceased amortizing goodwill for acquisitions made prior to July 1, 2001. However, it is possible that in the future we ~~would~~may incur ~~less frequent, but larger,~~ impairment charges related to the goodwill already recorded ~~as well as~~and to goodwill arising out of future ~~acquisitions as~~acquisitions. In addition, we will continue to ~~expand~~amortize our ~~business.~~purchased intangible assets and to assess those assets for impairment as appropriate.
As of the date of adoption of SFAS 142 on August 1, 2002, we had an unamortized acquired intangible assets balance of $123.6 million and an unamortized goodwill balance of $430.8 million. These balances reflect the transfer of $1.9 million in assembled workforce from intangible assets to goodwill in accordance with SFAS 142. In connection with the transitional goodwill impairment evaluation provisions under SFAS 142, we performed a goodwill impairment review as of August 1, 2002 and found no impairment.
In October 2001, the FASB issued SFAS 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,”which applies to financial statements issued for fiscal years beginning after December 15, 2001. SFAS 144 ~~supersedes~~supercedes FASB Statement 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,”and portions of APB Opinion No. 30,“Reporting the Results of Operations.”SFAS 144 provides a single accounting model for long-lived assets we expect to dispose of and significantly changes the criteria for classifying an asset as held-for-sale. This classification is important because held-for-sale assets are not depreciated and are stated at the lower of fair value or carrying amount. SFAS 144 also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are actually incurred, rather than when the amount of the loss is estimated, as ~~presently~~was previously required. We ~~will adopt~~adopted SFAS 144 effective August 1, 2002 and dothere was no impact on our financial position, results of operations or cash flows.
In July 2002, the FASB issued SFAS 146,“Accounting for Costs Associated with Exit and Disposal Activities.”This statement revises the accounting for activities relating to exiting or disposing of businesses or assets under EITF Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.”A formal commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most exit and disposal costs. Instead, companies will record exit or disposal costs when they are incurred and can be measured at fair value, and will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not ~~expect~~restate previously issued financial statements for the effect of the provisions of SFAS 146, and liabilities that a company previously recorded under EITF Issue No. 94-3 are not affected. We will assess the impact of adoption of SFAS ~~144 to have a material impact~~146 based on ~~our consolidated financial statements.~~the nature of any exit or disposal activities that are ongoing at that time.
~~In November 2001, the Emerging Issues Task Force (“EITF”) released Issue No. 01-09, “~~~~Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Product~~,” which applies to annual or interim financial statement periods beginning after December 15, 2001. The release provides that cash consideration (including sales incentives) that we give to our customers or resellers should be accounted for as a reduction of revenue unless we receive a benefit that is identifiable and that can be reasonably estimated. We adopted this new release prospectively to transactions beginning in the third quarter of fiscal 2002. The adoption of EITF Issue No. 01-09 did not have a material impact on our total net revenue.-39-
Risks That Could Affect Future Results
The factors discussed below are cautionary statements that identify important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements in this ~~Form 10-Q.~~Report. Our fiscal ~~2001~~2002 Form 10-K and other SEC filings contain additional details about these risks, as well as other risks that could affect future results.
Company-Wide Risk Factors
Our revenue and earnings are highly ~~seasonal, which causes~~seasonal. Seasonality and other factors cause significant quarterly and annual fluctuations in our revenue and net income.Several of our businesses are highly seasonal — particularly our tax ~~business,~~businesses, but also small business and personal finance to a lesser extent. This causes significant quarterly fluctuations in our financial results. Revenue and operating results are usually strongest during the second and third fiscal quarters ending January 31 and April 30. We ~~typically~~ experience lower revenues, and often significant operating losses, in the first and fourth quarters ending October 31 and July 31. Our financial results can also fluctuate from quarter to quarter and year to year due to a variety of factors, including changes in product release dates, and the timing of acquisitions, dispositions, goodwill and intangible assets impairment charges and gains and losses related to marketable securities.
Fluctuations in interest rates can cause significant quarterly and annual fluctuations in our net income and asset values.Recent declines in interest rates have resulted in a significant decline in the interest income we earned on our investment portfolio during recent reporting periods, which has had a negative impact on our net income (loss) and net income (loss) per share. Declining interest rates can also reduce the value of our interest rate sensitive assets, such as certain assets that relate to our payroll business.
Our recent acquisitions have presented business integration challenges and we may not fully realize the intended benefits of these acquisitions.During the past few years, we have completed numerous acquisitions. These acquisitions have expanded our product and service offerings, personnel and geographic locations. Integrating and organizing acquired businesses creates challenges for our operational, financial and management information systems, as well as for our product development processes. This can put a strain on our resources and be expensive and time consuming. If we do not adequately address issues presented by growth through acquisitions, we may not fully realize the intended benefits (including financial benefits) of these acquisitions.
Our acquisition strategy entails a number of challenges that could limit our successful implementation of the strategy.A key component of our Right for My Business strategy is to continue to expand our product and service offerings, and we expect that a significant portion of this expansion will result from acquisitions. We could face the following risks relating to our strategy and future acquisitions, in addition to the integration challenges noted above:
• Increased competition for acquisition opportunities could inhibit our ability to complete suitable acquisitions, and could also increase the price we would have to pay to complete acquisitions.
• If we are unable to complete acquisitions successfully, we may not be able to develop and market products for new industries or applications with which we may not be familiar.
• Future acquisitions may require us to issue shares of our stock and stock options to owners of the acquired businesses, which would result in dilution to the equity interests of our stockholders.
• Despite our due diligence reviews, acquired businesses may bring with them unanticipated liabilities, business or legal risks or operating costs that could harm our results of operations or business, reduce or eliminate any benefits of the acquisition or require unanticipated expenses.
• If we fail to retain the services of key employees of acquired companies for significant time periods after the acquisition of their companies, we may experience difficulty in managing the acquired company’s business and not realize the anticipated benefits of the acquisition.
Acquisition-related costs can cause significant fluctuation in our net income.Our recent acquisitions have resulted in significant expenses, including amortization of purchased software (which is reflected in cost of revenue), as well as charges for in-process research and development, and amortization and impairment of goodwill, purchased
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intangibles and deferred compensation (which are reflected in operating expenses). Total acquisition-related costs in the categories identified above were ~~$100.7 million in fiscal 1999, $168.1 million in fiscal 2000,~~ $263.4 million in fiscal 2001, ~~(including charges of $78.7~~$196.2 million ~~to write down the long-lived intangible assets related to three acquisitions), $37.6 million~~ in ~~the third quarter of~~ fiscal 2002 and ~~$140.7~~$20.2 million in the first ~~nine months~~quarter of fiscal ~~2002.~~2003. We expect total acquisition-related costs for fiscal 2003 to be $63.7 million, assuming no additional acquisitions or impairment charges. Additional acquisitions, and any additional impairment of the value of purchased assets, could have a significant negative impact on our future operating results.
~~Gains and losses related to marketable securities and other investments can cause significant fluctuations in our net income.~~Our investment activities have had a significant impact on our net income. We recorded pre-tax net gains from marketable securities and other investments of $579.2 million in fiscal 1999 and $481.1 million in fiscal 2000 and pre-tax net losses of $98.1 million in fiscal 2001. We recorded a pre-tax gain of $1.4 million in the third quarter of fiscal 2002 and a pre-tax loss of $9.3 million in the first nine months of fiscal 2002. Any additional significant long-term declines in value of these securities could reduce our net income in future periods.
~~-31-~~
Recent changes to Financial Accounting Standards Board guidelines relating to accounting for goodwill could make our acquisition-related charges less predictable in any given reporting period.~~The~~Under the new FASB ~~recently adopted a new~~ standard for accounting for goodwill, ~~acquired in a business combination. It continues~~we must continue to ~~require recognition of~~recognize goodwill as an asset but ~~does~~will not ~~permit amortization of~~amortize goodwill as previously required. ~~Under the new statement,~~Instead, we must separately test goodwill ~~is separately tested~~ for impairment using a fair-value-based approach at least annually and also when an event occurs indicating the potential for impairment. ~~The~~As a result of this shift, ~~from an amortization approach to an impairment approach applies to all acquisitions completed after June 30, 2001. When~~ we ~~adopt the new standard, which~~are no longer recording charges for goodwill amortization. However, we expect will be in the first quarter of fiscal 2003, it will also apply to previously recorded goodwill and our goodwill amortization charges will cease as a result. However, it is possible that in the future, we wouldmay incur less frequent, but larger, impairment charges related to the goodwill already recorded and to goodwill arising out of future acquisitions as we continue to expand our business. As of October 31, 2002, we had an unamortized goodwill balance of approximately $581.4 million, which could be subject to impairment charges in the future.
~~Our acquisitions can result in business integration challenges.~~Our recent acquisitions have expanded our product and service offerings, personnel and geographic locations. A key component of our “Right for My Business” strategy is to continue to expand our product and service offerings in the small business accounting and management segment, and we expect that a significant portion of this expansion will result from acquisitions. Integrating and organizing acquired businesses creates challenges for our operational, financial and management information systems, as well as for our product development processes. If we doare required to account for options under our employee stock plans as a compensation expense, it would significantly reduce our net income and earnings per share.There has been increasing public debate about the proper accounting treatment for employee stock options. Although we are not ~~adequately address issues presented by growth through acquisitions, we may not fully realize~~currently required to record any compensation expense in connection with option grants that have an exercise price at or above fair market value, it is possible that future laws or regulations will require us to treat all stock options as a compensation expense. Note 11 of the ~~intended benefits (including~~ financial ~~benefits) of these acquisitions.~~statements shows the impact that such a change in accounting treatment would have had on our net loss and net loss per share if it had been in effect during the reporting periods shown and if the compensation expense were calculated as described in Note 11.
A general decline in economic conditions could lead to reduced demand for our products and services.The ~~recent~~continuing downturn in general economic conditions has led to reduced demand for a variety of goods and services, including ~~many~~software and other technology products, and we believe the economic decline was partially responsible for slower than expected growth in our Small Business Division during fiscal 2001 and the first half of fiscal 2002. Although we experienced solid revenue growth in most of our businesses during the third quarter of fiscal 2002, the future economic environment remains uncertain.products. If conditions decline, or fail to improve, in geographic areas that are significant to us, such as the United States ~~Canada~~ and ~~Japan,~~Canada, we could see a significant decrease in the overall demand for our products and services that could harm our operating results.
~~We face competitive pressures in all of our businesses, particularly our consumer tax preparation software business, which can have a negative impact on our revenue, profitability and market position.~~There are formidable current and potential competitors in the private sector. For example, our primary competitor in the consumer tax preparation market offered its products during part of this tax year at a price of $0 after a rebate. We also face potential competition from publicly funded government entities seeking to competitively enter private markets in the United States for consumer electronic financial services. If federal and/or state governmental agencies are ultimately successful in their efforts to provide tax preparation and filing services to consumers, it could have a significant negative impact on our financial results in future years. We expect competition to remain intense during the remainder of fiscal 2002 and beyond.
If we ~~fail to maintain reliable and responsive service levels for our electronic tax offerings, we could lose revenue and customers.~~Our online tax preparation and electronic tax filing services face significant challenges in maintaining high service levels, particularly during peak volume service times. For example, we experienced relatively brief unscheduled interruptions in our electronic filing/and or tax preparation services during fiscal 2000 and 2001, and we reached maximum capacity for a short period on April 15, 2002. We do not ~~believe any prior service outages had a material financial impact, prevented a significant number of customers from completing~~continue to successfully develop new products and ~~filing their returns~~services in a timely manner, ~~or posed~~our future financial results will suffer.We believe that it is necessary to continually develop new products and services and to improve existing products and services to remain competitive in the markets we serve. Failure to do so may give competitors opportunities to improve their competitive position at our expense and result in declines in our revenue and earnings. However, developing and improving our products and services is a complex process involving several risks, including challenges in hiring and retaining highly qualified employees, the risk of delays in product and service launches and the risk of defects that ~~customer data~~hinder performance.
The expansion of our product and service offerings through internal growth and through recent and anticipated acquisitions creates risks due to the increasing complexity and decreasing predictability of our revenue streams.Our expanding range of products and services generates more varied revenue streams than our traditional desktop software businesses. The accounting policies that apply to these revenue streams are more complex than those that apply to our existing products and services. We expect this trend to continue with future acquisitions. For example, as we begin to offer additional features and options as part of multiple-element sales arrangements, we could be required to defer a higher percentage of our product revenue at the time of sale than we do for current products, which would decrease revenue at the time products are shipped, but result in more revenue in fiscal periods after shipment. In addition, some of our acquired businesses offer higher priced business management software products and services. Revenue attributable to these higher priced products and services tends to be ~~lost or corrupted. However, we did experience negative publicity~~less predictable than revenue from our traditional desktop products, due to longer sales and implementation cycles. These businesses also tend to rely on a relatively small number of large orders for a substantial portion of their revenue in ~~some instances.~~ a particular quarter, which could cause our quarterly revenue from these businesses to fluctuate.
The ~~exact level~~expansion of ~~demand for Quicken TurboTax for~~our product and service offerings creates risks due to the ~~Web~~operational infrastructure required to support our expanded portfolio of products and ~~electronic filing is impossible to predict,~~services.Many of our newer businesses depend on a different operational infrastructure than our desktop software businesses, and we ~~could experience adverse financial~~must continually develop, expand and ~~public relations consequences if these services are unavailable in the future for an extended period of time, or late in the tax season, due to technical difficulties or other reasons.~~
~~It is unlikely that the revenue~~modify our internal systems and ~~profit growth rates experienced by our Quicken Loans Division during the past two years will be sustainable long-term, either on a year-over-year basis or on a sequential quarter basis.Mortgage interest rate increases, the impact of the economic climate on the housing market~~procedures - including call center, customer management, order management, billing and other factors could result in significantly lower revenue and profit growth for our mortgage business. Increases in mortgage interest rates and other interest rates adversely affected our mortgage business during fiscal 2000, contributingsystems — to ~~a significant revenue decline from fiscal 1999 to fiscal 2000. Conversely, declines in mortgage interest rates during~~support these businesses.
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fiscal 2001 and the first nine months of fiscal 2002 had a positive impact on revenue. If mortgage rates rise again, this could negatively impact the volume of applications and closed loans, particularly our most mortgage-rate sensitive products such as conventional refinancing loans. Fluctuations in non-mortgage rates also create risks with respect to the loans on our balance sheet and impact our cost of funds to provide loans. In addition, our ability to successfully streamline the online application, approval, and closing process will have a significant impact on our ability to attract customers to our mortgage service, and on our ability to continue increasing the percentage of our mortgage revenue generated through the online channel compared to branch offices. We must also maintain relationships with certain banks and other third parties who we rely on to provide access to capital, and later, purchase and service the loans. If we are unable to maintain key relationships, or if the terms of key relationships change to be less favorable to Intuit, it could have a negative impact on our mortgage business and on Intuit’s financial results.
It is unlikely that the revenue and profit growth rates experienced by our Payroll businesses during the past two years will be sustainable long-term, either on a year-over-year basis or on a sequential- quarter basis.We had strong revenue and profit growth during fiscal 2001, especially during the second half of the year, due to significant price increases, a shift toward a mix of higher-priced products and a large number of new payroll customers as a result of tax law changes for 2000. In the first quarter of fiscal 2002, we again increased prices. We do not expect that future price increases will contribute as significantly to revenue growth as they have in the recent past.
It is too early to provide any assurance that our “Right for My Business” strategy will generate substantial and sustained revenue growth in the small business accounting and business management segments.Sales to both existing customers and new customers of our QuickBooks desktop products during fiscal 2001 and early in fiscal 2002 were lower than expected. We cannot rely solely on this source of revenue to provide sustainable future growth for our Small Business Division. In September 2001, we announced our “Right for My Business” strategy to better address the broader small business management opportunities beyond accounting for companies with fewer than 25 employees. However, it is too early to provide any assurance that this strategy will generate substantial and sustained revenue growth in the small business accounting and management segments. To the extent that growth will result from acquisitions, we will face business integration challenges. See “Risks That Could Affect Future Results — Our acquisitions can result in business integration challenges” above.
Despite our efforts to adequately staff and equip our customer service and technical support operations, we cannot always respond promptly to customer requests for assistance.We occasionally experience customer service and support problems, including longer than expected “hold” times when our staffing is inadequate to handle higher than anticipated call ~~volume, and a large number of inquiries from customers checking on the status of product orders when the timing of shipments fails to meet customer expectations. This~~volume. These situations can adversely affect customer relationships and our financial performance. In order to improve our customer service and technical support, we must continue to focus on eliminating underlying causes of service and support calls through product improvements, ~~and~~ better order fulfillment processes and on more robust self-help tools. We must also improve our ability to accurately ~~anticipating~~anticipate demand for customer service and technical support.
We face risks relating to customer privacy and security and increasing regulation, which could hinder the growth of our businesses.Despite our efforts to address customer concerns about privacy and security, these issues still pose a significant risk, and we have experienced lawsuits and negative publicity relating to privacy issues. A major breach of customer privacy or security by Intuit, or even by another company, could have serious consequences for our businesses, including reduced customer interest and/or additional regulation by federal or state agencies. In addition, we have incurred significant expenses to comply with mandatory privacy and security standards and protocols. Additional similar federal and state laws, and/or laws that govern telemarketing activity, may be passed in the future, and the cost of complying with additional legislation could have a negative impact on our operating results.
We face several risks relating to our retail distribution channel.We face ongoing challenges in negotiating favorable terms (including financial terms) with retailers, due in part to the recent trend of declining importance of software as a retail category. In addition, any termination or significant disruption of our relationship with any of our major resellers could result in a decline in our net revenue. Also, any financial difficulties of our retailers could have an adverse effect on our operating expenses if uncollectible amounts from them exceed the bad debt reserves we have established.
If we are unable to significantly increase accountant-facilitated sales, it could have a negative impact on revenue growth. We are currently focused on working with accounting professionals in order to expand our opportunities to sell small business products and services to their clients. This strategy is important for our Professional Accounting Solutions, QuickBooks and Other Small Business Products and Services businesses. We face intense competition in this effort, as there are an increasing number of alliances between accountants and other professional tax preparers and providers of small business software and services that aim to capitalize on accountant-facilitated sales of small business products and services to their clients.
We rely on ~~two~~ third-party vendors to handle substantially all outsourced aspects of manufacturing and distribution for our primary retail desktop software ~~product launches and to replenish product in the retail channel after the primary launch.~~products.To manufacture and distribute our primary retail products at the time of product launches and to replenish products in the retail channel after the primary launch, we have ~~an exclusive~~ manufacturing ~~relationship~~relationships with Modus Media and ~~an exclusive~~Sony, and a distribution arrangement with Ingram Micro Logistics. While we believe that relying on only ~~two~~three outsourcers for product launches and replenishment improves the efficiency and reliability of these activities, relying on any vendor for a significant aspect of our business can have severe negative consequences if the vendor fails to perform at acceptable service levels for any ~~reason.~~
~~We rely on one third-party vendor~~reason, including but not limited to ~~handle all outsourced aspects~~financial difficulties of ~~our financial supplies business.~~We have an exclusive contract with John H. Harland Company to print and fulfill supplies orders for all of our checks and most other products for our financial supplies business. Harland fulfilled orders for about 75% to 80% of our supplies revenue in fiscal 2000 and 2001, and more than 80% of our supplies revenue for both the third quarter and the first nine months of fiscal 2002. We believe that relying on one supplies vendor improves customer service and maximizes operational efficiencies for our supplies business. However, if there are significant problems with Harland’s performance, it could have a material negative impact on sales of supplies and on Intuit’s business as a whole.vendor.
~~We face risks relating to customer privacy and security and increasing regulation, which could hinder the growth of our businesses.~~~~Despite our efforts to address customer concerns about privacy and security, these issues still pose a~~
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significant risk, and we have experienced lawsuits and negative publicity relating to privacy issues. For example, during fiscal 2000 and fiscal 2001, there were press articles criticizing our privacy and security practices as they relate to the connectivity of our desktop software to our Web sites. We have faced lawsuits and negative press alleging that we improperly shared information about customers with third-party “ad servers” for our Web sites. A major breach of customer privacy or security by Intuit, or even by another company, could have serious consequences for our businesses, including reduced customer interest and/or additional regulation by federal or state agencies. In addition, the federal government has developed mandatory privacy and security standards and protocols, and we have incurred significant expenses to comply with these requirements. Additional similar federal and state laws may be passed in the future, and the cost of complying with additional legislation could have a negative impact on our operating results. If Internet use does not grow as a result of privacy or security concerns, increasing regulation or for other reasons, the growth of our Internet-based businesses would be hindered.
Actual product returns may exceed returns reserves, particularly for our consumer tax preparation software.We ship more desktop software products to our distributors and retailers than we expect them to sell, in order to reduce the risk that distributors or retailers will run out of products. This is particularly true for our consumer tax products, which have a short selling season. Like most software companies, we have a liberal product return policy and we have historically accepted significant product returns. We establish reserves for product returns in our financial statements, based on estimated future returns of products. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Net Revenue — Return and Rebate Reserves.” We closely monitor levels of product sales and inventory in the retail channel in an effort to maintain reserves that are adequate to cover expected returns. In the past, returns have not generally exceeded these reserves. However, if we do experience actual returns that significantly exceed reserves, it would result in lower net revenue. ~~See “Critical Accounting Policies — Net Revenue — Return~~
Legal protection for our intellectual property is not always effective to prevent unauthorized use or copying.Current U.S. laws that prohibit copying give us only limited practical protection from software “pirates,” and ~~Rebate Reserves” at~~ the ~~beginning~~laws of ~~this Item 2.~~many other countries provide very little protection. Policing unauthorized use of our products is difficult, expensive and time-consuming. Although we have begun to incorporate product activation technology in some of our tax preparation products in order to reduce unauthorized sharing of the products, we expect that software piracy will continue to be a persistent problem for our desktop software products. In addition, the Internet may tend to
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increase, and provide new methods for, illegal copying of the technology used in our desktop and Internet-based products and services. We also face risks relating to our licensing of our intellectual property to third parties. In connection with our sale of our Quicken Loans mortgage business, we licensed the use of the Quicken Loans and Quicken Mortgage trademarks to the purchaser. If the purchaser violates the terms of the trademark license, it could result in serious and irreparable harm to Intuit’s reputation and the value of our Quicken-related brands.
Our ability to conduct business could be impacted by a variety of factors, such as electrical power interruptions, earthquakes, fires, terrorist activities and other similar ~~events~~events.. Our business operations depend on the efficient and uninterrupted operation of a large number of computer and communications hardware and software systems. These systems are vulnerable to damage or interruption from electrical power interruptions, telecommunication failures, earthquakes, fires, floods, terrorist activities and their aftermath, and other similar events. Other unpredictable events could also impact our ability to continue our business operations. For our Internet-based services, system failures of our internal server operations or those of various third-party service providers could result in interruption in our services to our customers. Any significant interruptions in our ability to conduct our business operations could reduce our revenue and operating income. Our business interruption insurance may not adequately compensate us for the impact of interruptions to our business operations.
~~-34-~~Specific Factors Affecting Our QuickBooks, Small Business Products and Services and Vertical Business Management Solutions Segments
It is too early to provide assurance that our Right for My Business strategy will generate substantial and sustained revenue growth in the small business accounting and business management segments.A key component of our Right for My Business strategy is to continue to expand our small business accounting and management products and services, through internal growth and from acquisitions. To meet our growth goals, we must generate revenue from a wider range of market and customer segments as well as from new products and services. There are a number of risks associated with the strategy, including the following:
• Our strategy depends on our successfully completing acquisitions and integrating acquired companies, which presents a number of challenges as described above under “Company-Wide Risk Factors.”
• Our strategy is resulting in a dramatic increase in the number and complexity of the products and services that we offer. This is placing greater demands on our research and development, marketing and sales resources, as we must develop, market and sell both the new products and services as well as periodic enhancements to an expanding portfolio of products and services. This will also require us to continually develop, expand and modify our internal business operations systems and procedures to support new businesses, including our customer service and technical support call centers, and our customer management, order management, billing and other systems.
• Many of the new products and services we are and will be offering are much more complex than our traditional core desktop software products and are being priced accordingly. They will therefore require a more consultative sales process, and a higher level of post-sales support. If we are not able to effectively adapt our marketing, sales, distribution and customer support functions to accommodate these changes, we will not succeed in generating significant or sustained revenue from these new businesses.
We face a wide range of competitive risks that could impact our financial results.In the small business arena, we face current competition from competitors’ desktop software, as well as from other Web-based small business services products. Many competitors and potential competitors have begun providing, or have expressed significant interest in providing, accounting and business management products and services to small businesses. As we implement our Right for My Business strategy we face increased competitive threats from larger companies in bigger markets than we have historically faced.
Revenue growth for our vertical business management solutions may be hindered by a variety of factors, which could have a negative impact on overall company growth.Revenue growth for our vertical business management solutions is subject to numerous risks, including the negative impact of the current economic environment on customer purchases of the relatively high-priced software solutions offered by our vertical businesses, and the potential disruption to the businesses during the acquisition integration process. In addition, revenue growth in any particular period may be difficult to predict because of the complex revenue streams generated by these businesses, and the corresponding complexity in the accounting policies that apply to them.
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Our employer services business faces a number of risks that could have a negative impact on revenue and profitability.For our employer services, we must be able to process customer data accurately, reliably and in a timely manner in order to attract and retain customers and avoid the costs associated with errors. Our payroll businesses other than our Do-It-Yourself product include interest on customer deposits as part of their revenue. If interest rates decline, it would result in less interest revenue for those businesses. In order to generate sustained growth for our Intuit Payroll Services Complete Payroll, we will be required to successfully develop and manage a more extensive and proactive direct field sales operation, which is a different distribution method than those we have historically relied on.
Specific Factors Affecting Our Consumer Tax Segment
We face intense competitive pressures from the private sector in our consumer tax preparation software business.There are formidable current and potential competitors in the private sector, and we expect competition to remain intense during fiscal 2003 and beyond. These competitive pressures can have a negative impact on our revenue, profitability and market position.
Our consumer tax preparation business also faces competition from publicly funded government entities.We face current and potential competition from a number of publicly-funded state government entities that are encroaching into the private sector tax preparation business by offering individual taxpayers electronic tax preparation and/or filing services, at no cost to individual taxpayers. This encroachment threat to the private sector tax preparation industry has been increasing in recent months. For example, in November 2002 the California Franchise Tax Board announced plans to significantly expand the state’s electronic tax filing program to enable many taxpayers to prepare their returns online, as well as file returns electronically. If state governmental agencies are ultimately successful in their efforts to develop consumer tax preparation and filing services and to gain consumer acceptance of those services, it could have a significant negative impact on our financial results in future years. The federal government announced a proposal in August 2002 that would mitigate the risk of government encroachment in federal tax preparation and filing services. Under an agreement signed in October 2002, for at least the next three years, a number of private sector companies, rather than the federal government, will provide Web-based federal tax preparation and filing services at no cost to lower income taxpayers and other underserved taxpayers through voluntary public service initiatives such as our Intuit Tax Freedom Project. Despite this positive development, future administrative, regulatory or legislative activity in this area could adversely impact Intuit and other companies that provide tax preparation software and services. Intuit is actively working with others in the private sector, as well as with state government policy makers, to help clarify the appropriate roles for government agencies and the private sector in the electronic commerce marketplace.
If we fail to maintain reliable and responsive service levels for our electronic tax offerings, we could lose revenue and customers.Our Web-based tax preparation and electronic filing services must effectively handle extremely heavy customer demand during the peak tax season. We face significant challenges in maintaining high service levels, particularly during peak volume service times. The exact level of demand for TurboTax for the Web and electronic filing is impossible to predict. If we are unable to meet customer expectations in a cost-effective manner, we could lose customers, receive negative publicity and incur increased operating costs, any of which could have a significant negative impact on the financial and market success of these businesses.
Specific Factors Affecting Our Personal Finance Segment
The long-term viability of our personal finance business will depend on our ability to provide new products and services that attract customers and that can generate revenue sources other than just advertising revenue.The demand for personal finance software such as Quicken has been weakening over recent years, and the demand for Internet advertising on Web sites like Quicken.com has declined precipitously. We must identify and capitalize on additional sources of revenue to provide sustainable future growth for our personal finance business. In an effort to stimulate customer demand and generate revenue growth, we recently launched Quicken Brokerage powered by Siebert, an online and telephone-based securities brokerage service for Quicken and Quicken.com customers made available through an exclusive strategic alliance with Siebert Financial Corp., the holding company for Muriel Siebert & Co. Inc. However, it is too early to tell whether this service will generate sustainable revenue growth. Furthermore, it is unlikely that the brokerage service, even if successful, will by itself be sufficient to sustain our personal finance business, so we must identify additional sources for growth.
Our personal finance products face aggressive competition that could have a negative impact on revenue, profitability and market position.Our Quicken products compete directly with Microsoft Money, which is
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aggressively promoted and priced. We expect competitive pressures for Quicken to continue, both from Microsoft Money and from Web-based personal finance tracking and management tools that are becoming increasingly available at no cost to consumers. Competitive pressures can result in reduced revenue and lower profitability for our Quicken product line. There are many competitors for our Internet-based personal finance products and services. However, the general downturn in Internet and technology stocks since March 2000 has resulted in significant consolidation, with fewer, but more financially sound, competitors surviving. This could make it more difficult for us to compete effectively.
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ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Short-Term Investment Portfolio
We do not hold derivative financial instruments in our short-term investment portfolio. Our short-term investments consist of instruments that meet quality standards consistent with our investment policy. This policy dictates that, for short-term investments, we diversify our holdings and limit our short-term investments with any individual issuer in a managed portfolio to a maximum of $5 million.
~~Marketable Securities~~
We carried balances in marketable equity securities as of April 30, 2002 that are subject to considerable market risk due to their volatility. If our available-for-sale securities experience further declines in fair value that are considered other-than-temporary, we will reflect the additional loss in our net income in the period when the subsequent impairment becomes apparent. See Note 3 of the financial statements for more information regarding risks related to our investments in marketable securities.
Interest Rate Risk
Interest rate risk represents a component of market risk to us ~~and represents the possibility that changes~~because significant declines in interest rates will cause unfavorable changes in our net income (loss) and net income (loss) per share and in the value of our interest rate sensitive assets, liabilities and commitments, particularly those that relate to our ~~mortgage and~~ payroll ~~businesses. In a higher interest rate environment, borrower demand for mortgage loans generally declines, adversely affecting our mortgage loan~~ business. Interest rate movements ~~also~~ affect the interest income earned on loans we hold for sale in the secondary market, interest expense on our lines of credit, the value of our mortgage loans and ultimately the gain or loss on the sale of those mortgage loans. In addition, interest rate movements affect the interest income we earn on payroll customer funds we hold and investments we hold in our short-term investment portfolio ~~as well as~~and the value of ~~our short-term~~those investments.
~~As part of~~Over the past few years, we have experienced significant reductions in our ~~risk management programs, we enter into financial agreements and purchase financial instruments in the normal course of business~~interest income due to manage our exposure to interest rate risk with respect to our conventional mortgage loans and our government-insured loans (together, “Prime Loans”), but not with respect to our sub-prime loans or home equity lines of credit. We use these financial agreements and financial instruments for the explicit purpose of managing interest rate risks to protect the value of our mortgage loan portfolio and not for trading purposes.
We actively monitor and manage our exposure to interest rate risk on Prime Loans, which is incurred in the normal course of business. The portfolio of prime loans, including those in the pipeline, and the related forward commitments are valued on a daily basis. We refer to the loans, pipeline, and forward commitments together as the “Hedge Position.” We evaluate the Hedge Position against a spectrum of interest rate scenarios to determine expected net changes in the fair values of the Hedge Position in relation to the changesdeclines in interest rates. ~~Based on our analysis of our hedge position at April 30, 2002, we do not believe that short-term changes~~A significant decrease in future interest rates will have a material effect on the interest income we earn on loans held for sale in the secondary market or the value of mortgage loans. See Notes 1, 5 and 12 of the financial statements for more information regarding risks related to our mortgage loans and lines of credit.
~~A change in interest rates may also potentially~~ have a material impact on the interest income earned on our cash equivalents and short-term investments held at ~~April 30,~~October 31, 2002.
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Impact of Foreign Currency Rate Changes
We translate foreign currencies (primarily Canadian dollars, Japanese yen, and British pounds) into U.S dollars for financial reporting ~~purposes;~~purposes. Accordingly, currency fluctuations can have an impact ~~though generally immaterial,~~ on our ~~results.~~financial results, though the historical impact has generally been immaterial. We believe that our exposure to currency exchange fluctuation risk is insignificant primarily because our global subsidiaries invoice customers and satisfy their financial obligations almost exclusively in their local currencies. ~~For the three quarters presented there was an immaterial currency exchange impact from our intercompany transactions.~~ Currency exchange risk is also minimized since foreign debt is due exclusively in local foreign currencies. For each of the three years ended July 31, 2000, 2001 and 2002, there was an immaterial currency exchange impact from our intercompany transactions. Although the impact of currency fluctuations on our financial results has generally been immaterial in the past and we believe that for the reasons cited above currency fluctuations will not be significant in the future, there can be no guarantee that the impact of currency fluctuations will not be material in the future. As of ~~April 30,~~October 31, 2002, we did not engage in foreign currency hedging activities.
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ITEM 4
CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our chief executive officer and our chief financial officer, based on their evaluation of our disclosure controls and procedures within 90 days before the filing date of this report (the “Evaluation Date”), concluded that our disclosure controls and procedures were effective for this purpose.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect these controls subsequent to the Evaluation Date.
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PART II
ITEM 1
LEGAL PROCEEDINGS
On March 3, 2000, a class action lawsuit, Bruce v. Intuit Inc., was filed in the United States District Court, Central District of California, Eastern Division. Two virtually identical lawsuits were later filed: Rubin v. Intuit Inc., was filed on March 8, 2000 in the United States District Court, Southern District of New York and Newby v. Intuit Inc. was filed on April 27, 2000, in the United States District Court, Central District of California, Eastern Division. The Bruce and Newby lawsuits were consolidated into one lawsuit, In re Intuit Privacy Litigation, filed on July 28, 2000 in the United States District Court, Central District of California, Eastern Division. Following Intuit’s successful motion to dismiss several of the claims, an amended complaint was filed on May 2, 2001. A similar lawsuit, Almanza v. Intuit Inc. was filed on March 22, 2000 in the Superior Court of the State of California, San Bernardino County, Rancho Cucamonga Division. An amended complaint in the Almanza suit was filed on October 26, 2000. These purported class actions alleged violations of various federal and California statutes and common law claims for invasion of privacy based upon the alleged intentional disclosure to third parties of personal and private customer information entered at Intuit’s Quicken.com Web site. The complaints sought injunctive relief, orders to disgorge profits related to the alleged acts, and statutory and other damages. In August 2001, Intuit and the plaintiffs’ counsel in all of the cases except Rubin reached an agreement in principle to resolve the cases, subject to court approval, based on terms that are not material to Intuit. The Rubin case was dismissed on November 19, 2001.
Intuit is subject to other routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business. 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 liquidity. However, the ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact. Regardless of outcome, litigation can have an adverse impact on Intuit because of defense costs, diversion of management resources and other factors.
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~~ITEM 5~~
~~OTHER MATTERS~~
~~CHANGES IN EXECUTIVE OFFICERS~~
On April 17, 2002, we promoted Daniel L. Manack to the position of Senior Vice President, Accountant Business. Mr. Manack joined Intuit as Vice President, Professional Products Group in January 2002. Prior to joining Intuit, he was Senior Vice President of E-Markets Group Operations at Peregrine Systems, Inc. from May 2001 to January 2002 and Senior Vice President at Peregrine Solutions from June 2000 to May 2001. Prior to the acquisition of Harbinger Corporation by Peregine Systems, Inc. in June 2000, Mr. Manack was Executive Vice President of Operations at Harbinger Corporation from January 2000 to June 2000, Senior Vice President — Market Executive of New Clients from February 1999 to January 2000, Senior Vice President of World Professional Services from February 1998 to February 1999 and Vice President & General Manager of Professional Services and Outsourcing Practice from January 1997 to February 1998. Mr. Manack holds a Bachelor of Science in Industrial Engineering degree from West Virginia University and a Masters Business Administration degree from the University of Dallas.
~~Effective May 31, 2002, Catherine L. Valentine resigned as Vice President, General Counsel and Corporate Secretary of Intuit.~~
~~ANNUAL MEETING DATE~~
~~The date for Intuit’s next Annual Meeting of Stockholders is currently scheduled for December 12, 2002.~~
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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
We have filed the following exhibits as part of this report:

Incorporated By Reference
~~Exhibit~~
Filed with this
Exhibit No. Exhibit Description Form 10-Q Form File No. Date Filed

~~3.01~~10.01# ~~Bylaws of Intuit, as amended~~Addendum for Fulfillment Products and ~~restated effective May 1,~~Services for FSG and P-Tap Non-Imprintable Products, dated October 11, 2002 X
10.02+ Amended and Restated Secured Balloon Payment Promissory Note for the principal amount of $1,030,500 between Intuit and Dennis Adsit, dated November 26, 2001 X
Management compensatory plan or arrangement.
# We have requested confidential treatment for certain portions of this exhibit. We have omitted such portions from this filing and filed them separately with the Securities and Exchange Commission.
~~10.01†~~+ ~~Intuit Inc. Executive Deferred Compensation Plan, effective March 15, 2002~~ X
~~10.02†~~ ~~Amended Secured Balloon Payment Bridge Loan Promissory Note (for the principal amount of $1,044,000) between Intuit and Tom Allanson, dated April 18, 2002~~ X
† ~~Management compensatory plan or arrangement.~~
~~-39-~~
Reports on Form 8-K during the ~~third~~first quarter of fiscal ~~2002 and through the filing date of this Form 10-Q:~~2003:
        1.    On ~~February 14,~~August 1, 2002, Intuit filed a report on Form 8-K to report under Item 5 ~~its~~that it had completed the acquisition of substantially all of the assets of Eclipse, Inc. No financial ~~results for~~statements were filed with the ~~quarter ended January 31, 2002. We included in the 8-K Intuit’s balance sheets and statements of operations as of and for the second quarter ended January 31, 2002.~~report.

        2.    On ~~May 13,~~August 14, 2002, Intuit ~~filed~~submitted a report on Form 8-K to report under Item 9 that Stephen M. Bennett and Greg J. Santora each submitted to the Securities and Exchange Commission a Statement under Oath Regarding Facts and Circumstances Relating to Exchange Act Filings. These statements cover Intuit’s Annual Report on Form 10-K for the fiscal year ended July 31, 2001 and all quarterly reports on Form 10-Q, current reports on Form 8-K and all definitive proxy materials filed by Intuit since Intuit filed its fiscal year 2001 Form 10-K on October 5, that on May 8, 2002 Intuit announced that it had signed a definitive agreement to acquire CBS Employer Services, Inc. and to report under Item 5 that on May 9, 2002 Intuit announced that it had signed a definitive agreement to acquire The Flagship Group (the holding company of American Fundware, Inc.). We did not file2001. No financial statements were submitted with ~~this~~the report.

        3.    On ~~May 17,~~August 15, 2002, Intuit filed a report on Form 8-K to report under Item 2 that it had completed the sale of its Quicken Loans mortgage business to BRFC LLC. Intuit’s Unaudited Pro Forma Condensed Balance Sheet as of April 30, 2002, Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended April 30, 2002 and Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended July 31, 2001 were filed with the report.
4. On August 22, 2002, Intuit filed a report on Form 8-K to report under Item 5 that it had signed an agreement to acquire Blue Ocean Software, Inc. as well as to report its financial results for the fourth quarter ~~ended April 30,~~and fiscal year ending July 31, 2002. ~~We included in the report~~ Intuit’s ~~consolidated balance sheets and statements~~statement of operations ~~as of and~~ for the ~~third~~fourth quarter and the year ended ~~April 30, 2002.~~July 31, 2002 and the balance sheet for the fiscal year ending July 31, 2002 were filed with the report. The report also disclosed that Greg Santora, Senior Vice President and Chief Financial Officer of Intuit, has decided to retire from Intuit at the end of the calendar year and will remain in his current role until then.
~~-40-~~-49-
5. On September 24, 2002, Intuit filed a report on Form 8-K to report under Item 5 that it had completed the acquisition of Blue Ocean Software, Inc. No financial statements were filed with the report.
6. On September 26, 2002, Intuit submitted a Report on Form 8-K to report under Item 9 that Stephen M. Bennett and Greg J. Santora each submitted to the Securities and Exchange Commission a Statement under Oath Regarding Facts and Circumstances Relating to Exchange Act Filings. These statements cover Intuit’s Annual Report on Form 10-K for the fiscal year ended July 31, 2002. No financial statements were submitted with the report.
-50-
SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTUIT INC.
(Registrant)

Date:  ~~May 31,~~December 5, 2002 By: /s/ Greg J. Santora

Greg J. Santora
Senior Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
-51-
CERTIFICATION
I, Stephen M. Bennett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intuit Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:  December 2, 2002
By: /s/ Stephen M. Bennett
Stephen M. Bennett
President and Chief Executive Officer
-52-
CERTIFICATION
I, Greg J. Santora, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intuit Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:  December 2, 2002
By: /s/ Greg J. Santora
Greg J. Santora
Senior Vice President and Chief Financial Officer
~~(Authorized Officer and Principal Financial Officer)~~
~~-41-~~-53-
EXHIBIT INDEX

Exhibit
Number Exhibit Description

~~3.01~~10.01# ~~Bylaws of Intuit, as amended~~Addendum for Fulfillment Products and ~~restated effective May 1,~~Services for FSG and P-Tap Non-Imprintable Products, dated October 11, 2002
~~10.01†~~10.02+ Amended and Restated Secured Balloon Payment Promissory Note for the principal amount of $1,030,500 between Intuit ~~Inc. Executive Deferred Compensation Plan, effective March 15, 2002~~and Dennis Adsit, dated November 26, 2001
Management compensatory plan or arrangement.
# We have requested confidential treatment for certain portions of this exhibit. We have omitted such portions from this filing and filed them separately with the Securities and Exchange Commission.
~~10.02†~~+ ~~Amended Secured Balloon Payment Bridge Loan Promissory Note (for the principal amount of $1,044,000) between Intuit and Tom Allanson, dated April 18, 2002~~
† ~~Management compensatory plan or arrangement.~~
-54-
~~-42-~~


			July 31,			April 30,
			2001			2002

(In thousands; unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	450,104		$	454,791
	Short-term investments			1,119,305			1,297,133
	Marketable securities			85,307			48,469
	Customer deposits			230,410			283,748
	Accounts receivable, net			27,990			69,216
	Mortgage loans			123,241			279,506
	Deferred income taxes			77,948			87,816
	Prepaid expenses and other current assets			33,617			35,091

		Total current assets		2,147,922			2,555,770

Property and equipment, net				185,969			181,442
Goodwill and intangibles, net				415,334			310,949
Long-term deferred income taxes				145,905			146,020
Investments				24,107			13,149
Other assets(1)				42,499			16,168

Total assets			$	2,961,736		$	3,223,498

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	66,400		$	77,310
	Payroll service obligations			205,067			256,369
	Escrow liabilities			23,373			27,335
	Drafts payable			63,518			67,005
	Deferred revenue			137,305			97,509
	Income taxes payable			82,661			104,293
	Short-term note payable			38,672			17,451
	Other current liabilities			170,966			255,001

		Total current liabilities		787,962			902,273

Long-term obligations				12,413			11,209
Minority interest				35			—
Commitments and contingencies
Stockholders’ equity:
	Preferred stock			—			—
	Common stock and additional paid in capital			1,725,490			1,753,768
	Treasury stock, at cost			(8,497	)		(46,488	)
	Deferred compensation			(21,720	)		(16,055	)
	Accumulated other comprehensive income, net			28,180			8,996
	Retained earnings			437,873			609,795

		Total stockholders’ equity		2,161,326			2,310,016

Total liabilities and stockholders’ equity			$	2,961,736		$	3,223,498


			Three Months Ended					Nine Months Ended
			April 30,					April 30,

			2001			2002		2001			2002

(In thousands, except per share data; unaudited)
Net revenue:
	Products		$	244,709		$	332,497	$	736,784		$	869,907
	Services			161,846			198,355		273,839			381,772
	Other			18,655			14,374		59,669			49,558

		Total net revenue		425,210			545,226		1,070,292			1,301,237

Costs and expenses:
	Cost of revenue:
		Cost of products		29,345			35,070		118,755			141,314
		Cost of services		39,533			38,628		108,231			112,901
		Cost of other revenue		8,635			6,815		21,240			19,714
		Amortization of purchased software		4,375			1,565		11,220			10,442
	Customer service and technical support			37,538			45,807		116,068			137,899
	Selling and marketing			68,479			89,830		215,146			256,656
	Research and development			52,697			52,908		155,174			156,111
	General and administrative			23,917			29,339		77,614			90,055
	Charge for purchased research and development			238			—		238			—
	Charge for vacant facilities			—			13,237		—			13,237
	Acquisition-related charges			122,575			37,562		205,328			140,748
	Loss on impairment of long-lived asset			—			—		—			27,000

		Total costs and expenses		387,332			350,761		1,029,014			1,106,077

Income from operations				37,878			194,465		41,278			195,160
Interest and other income and expense, net				15,070			8,308		47,736			28,631
Gains (losses) on marketable securities and other investments, net				(11,504	)		1,356		(87,307	)		(9,266	)
Gain on divestiture				—			8,308		1,639			8,308

Income before income taxes, minority interest and cumulative effect of accounting change				41,444			212,437		3,346			222,833
Income tax provision				55,294			67,938		38,566			50,893
Minority interest				451			18		598			18

Income (loss) before cumulative effect of accounting change				(14,301	)		144,481		(35,818	)		171,922
Cumulative effect of accounting change, net of income taxes of $9,543				—			—		14,314			—

Net income (loss)			$	(14,301	)	$	144,481	$	(21,504	)	$	171,922

Basic net income (loss) per share before cumulative effect of accounting change			$	(0.07	)	$	0.68	$	(0.17	)	$	0.81
Cumulative effect of accounting change				—			—		0.07			—

Basic net income (loss) per share			$	(0.07	)	$	0.68	$	(0.10	)	$	0.81

Shares used in per share amounts				208,715			211,614		207,345			211,724

Diluted net income (loss) per share before cumulative effect of accounting change			$	(0.07	)	$	0.67	$	(0.17	)	$	0.79
Cumulative effect of accounting change				—			—		0.07			—

Diluted net income (loss) per share			$	(0.07	)	$	0.67	$	(0.10	)	$	0.79

Shares used in per share amounts				208,715			217,173		207,345			217,667


			Gross Unrealized
	Cost							Estimated
	Basis		Gains		Losses			Fair Value

(In thousands)
July 31, 2001
Checkfree Corporation common stock	$	35,621	$	37,215	$	—		$	72,836
S1 Corporation common stock		7,741		2,714		—			10,455

	$	43,362	$	39,929	$	—		$	83,291

April 30, 2002
Checkfree Corporation common stock	$	31,934	$	12,146	$	—		$	44,080
S1 Corporation common stock		4,924		—		(535	)		4,389

	$	36,858	$	12,146	$	(535	)	$	48,469


	Balance		Transfer							Balance
	July 31,		Assembled		Goodwill					October 31,
(In thousands)	2002		Workforce		Acquired		Other			2002

Employer Services	$	153,216	$	1,289	$	—	$	—		$	154,505
Other Small Business Products and Services		5,979		88		150,548		—			156,615
Consumer Tax		3,308		—		—		—			3,308
Professional Accounting Solutions		90,079		428		—		—			90,507
Vertical Business Management Solutions		171,520		—		—		610			172,130
Global Business		4,846		95		—		(600	)		4,341

	$	428,948	$	1,900	$	150,548	$	10		$	581,406


			Net balance at
	Life in
	Years		July 31, 2001		April 30, 2002

(In thousands)
Goodwill		3-5	$	326,986	$	240,221
Customer lists		3-5		53,423		39,508
Covenants not to compete		3-5		3,060		3,174
Purchased technology		1-5		24,078		21,468
Assembled workforce		2-5		3,598		2,233
Trade names and logos		1-15		4,189		4,345

			$	415,334	$	310,949


			July 31,			October 31,
	Life in Years		2002			2002

(In thousands)
Customer lists		3-7	$	144,379		$	144,541
Less accumulated amortization				(75,317	)		(82,218	)

				69,062			62,323

Purchased technology		1-7		121,763			134,984
Less accumulated amortization				(79,894	)		(82,871	)

				41,869			52,113

Trade names and logos		1-10		16,555			16,567
Less accumulated amortization				(6,908	)		(7,664	)

				9,647			8,903

Covenants not to compete		3-5		7,399			7,420
Less accumulated amortization				(4,403	)		(4,763	)

				2,996			2,657

Assembled workforce		2-5		4,458			—
Less accumulated amortization				(2,558	)		—

				1,900			—

Total intangible assets				294,554			303,512
Total accumulated amortization				(169,080	)		(177,516	)

Total net intangible assets			$	125,474		$	125,996


		Expected
		Amortization
(Dollars in thousands)		Expense

Fiscal year ending July 31,
2003		$	43,908
2004			28,159
2005			21,031
2006			17,524
2007			12,756
Thereafter			13,416

	Total expected future amortization expense	$	136,794


	July 31, 2001				April 30, 2002

	Fixed-rate		Variable-rate		Fixed-rate		Variable-rate

(In thousands)
Conventional prime loans	$	303,100	$	72,500	$	473,500	$	143,600
Sub-prime loans		4,300		1,200		4,400		2,600

	$	307,400	$	73,700	$	477,900	$	146,200


	Marketable			Short-term			Foreign Currency
Nine months ended April 30, 2001	Securities			Investments			Translation			Total

(In thousands)
Beginning balance gain (loss), net of income taxes	$	58,561		$	—		$	(2,975	)	$	55,586
Unrealized loss, net of income tax benefit of $12,932		(19,398	)		—			—			(19,398	)
Reclassification adjustment for realized gain included in net loss, net of income tax benefit of $4,685		(7,027	)		—			—			(7,027	)
Translation adjustment gain		—			—			2,401			2,401

Ending balance, net of income tax benefit of $17,617	$	32,136		$	—		$	(574	)	$	31,562

Nine months ended April 30, 2002

(In thousands)
Beginning balance gain (loss), net of income taxes	$	23,958		$	4,686		$	(464	)	$	28,180
Unrealized loss, net of income tax benefit of $10,759 and $1,823		(16,139	)		(2,734	)		—			(18,873	)
Reclassification adjustment for realized gain included in net income, net of income tax benefit of $568		(853	)		—			—			(853	)
Translation adjustment gain		—			—			542			542

Ending balance, net of income tax benefit of $13,150	$	6,966		$	1,952		$	78		$	8,996


		Three Months			Nine Months			Three Months			Nine Months
		Ended			Ended			Ended			Ended
		April 30, 2001			April 30, 2001			April 30, 2002			April 30, 2002

(in thousands)
Net income (loss)		$	(14,301	)	$	(21,504	)	$	144,481		$	171,922
Other comprehensive income (loss):
	Change in unrealized gain (loss) on marketable securities		(27,129	)		(26,425	)		5,656			(16,992	)
	Change in unrealized gain (loss) on short-term investments		—			—			(1,362	)		(2,734	)
	Change in foreign currency translation adjustments		1,295			2,401			(775	)		542

		$	(40,135	)	$	(45,528	)	$	148,000		$	152,738


		Purchase
		Price
		Allocation

(In thousands)
Tangible assets		$	19,738
Deferred revenue			(6,694	)
Other tangible liabilities			(7,013	)
In-process research and development			7,789
Purchased technology			13,220
Goodwill			150,548
Acquisition costs			(271	)

	Total purchase price	$	177,317


				Small Business Products and Services

								Other Small
Three months ended								Business
October 31, 2001				Employer		Financial		Products &				Consumer
(In thousands)		QuickBooks		Services		Supplies		Services		Subtotal		Tax

Product revenue		$	24,526	$	18,392	$	30,283	$	—	$	48,675	$	2,537
Service revenue			27		15,728		—		10,609		26,337		1,471
Other revenue			—		—		—		3,215		3,215		204

	Total net revenue		24,553		34,120		30,283		13,824		78,227		4,212

Segment operating income (loss)			314		3,633		14,199		970		18,802		(17,252	)
Common expenses			—		—		—		—		—		—

	Subtotal		314		3,633		14,199		970		18,802		(17,252	)
Acquisition-related costs			—		—		—		—		—		—
Loss on impairment of long-lived asset			—		—		—		—		—		—
Realized net losses on marketable securities			—		—		—		—		—		—
Interest and other income			—		—		—		—		—		—

Income (loss) from continuing operations before income taxes		$	314	$	3,633	$	14,199	$	970	$	18,802	$	(17,252	)


							Vertical
Three months ended		Professional					Business
October 31, 2001		Accounting			Personal		Mgmt		Global
(In thousands)		Solutions			Finance		Solutions		Business			Other			Consolidated

Product revenue		$	5,606		$	24,903	$	—	$	8,336		$	—		$	114,583
Service revenue			1,112			2,783		—		4,998			27			36,755
Other revenue			—			11,032		—		2,938			—			17,389

	Total net revenue		6,718			38,718		—		16,272			27			168,727

Segment operating income (loss)			(17,874	)		11,845		—		(2,815	)		(3,656	)		(10,636	)
Common expenses			—			—		—		—			(55,552	)		(55,552	)

	Subtotal		(17,874	)		11,845		—		(2,815	)		(59,208	)		(66,188	)
Acquisition-related costs			—			—		—		—			(42,787	)		(42,787	)
Loss on impairment of long-lived asset			—			—		—		—			(27,000	)		(27,000	)
Realized net losses on marketable securities			—			—		—		—			(12,254	)		(12,254	)
Interest and other income			—			—		—		—			9,810			9,810

Income (loss) from continuing operations before income taxes		$	(17,874	)	$	11,845	$	—	$	(2,815	)	$	(131,439	)	$	(138,419	)


			Small				Personal		Quicken		Global
Nine months ended			Business		Tax		Finance		Loans		Business
April 30, 2001			Division		Division		Division		Division		Division		Other (1)			Consolidated
(In thousands)




	Product revenue		$	268,389	$	333,927	$	74,894	$	—	$	59,574	$	—		$	736,784
	Service revenue			65,986		106,395		10,134		72,206		19,118		—			273,839
	Other revenue			16,719		3,066		38,031		—		1,853		—			59,669

		Total net revenue		351,094		443,388		123,059		72,206		80,545		—			1,070,292

	Segment operating income			114,908		260,915		23,613		13,728		11,388		—			424,552
	Common expenses			—		—		—		—		—		(166,488	)		(166,488	)

	Sub-total operating income (loss)			114,908		260,915		23,613		13,728		11,388		(166,488	)		258,064
	Realized net losses on marketable securities			—		—		—		—		—		(87,307	)		(87,307	)
	Acquisition-related costs			—		—		—		—		—		(216,786	)		(216,786	)
	Interest and other income and expense, net			—		—		—		—		—		47,736			47,736
	Gain on divestiture			—		—		—		—		—		1,639			1,639

	Net income (loss) before taxes, minority interest and cumulative accounting change		$	114,908	$	260,915	$	23,613	$	13,728	$	11,388	$	(421,206	)	$	3,346


	Three Months			Twelve Months Ended
	Ended
	October 31,			July 31,			July 31,
	2002			2002			2001

Net option grants during the period as a percentage of outstanding shares		0.7	%		3.2	%		4.7	%
Grants to Named Executives during the period as a percentage of total options granted		15.3	%		3.5	%		7.3	%
Grants to Named Executives during the period as a percentage of outstanding shares		0.2	%		0.2	%		0.4	%
Options held by Named Executives as a percentage of total options outstanding		11.5	%		10.5	%		9.0	%


	Options				Employee Stock Purchase Plan

	Three Months Ended				Three Months Ended

	October 31,		October 31,		October 31,		October 31,
	2001		2002		2001		2002

Expected life (years)		1.89 - 4.89		1.91 - 4.91		0.50		1.00
Expected volatility factor		0.74		0.78		0.76		0.74
Risk-free interest rate (%)		1.23 - 5.47		1.12 - 4.42		3.47 - 5.84		1.80 - 2.70
Expected dividend yield (%)		—		—		—		—

		persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectibility is probable. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. For example, for multiple element arrangements we must make assumptions and judgments in order to allocate the total price among the various elements we must deliver, to determine whether vendor-specific evidence of fair value exists for each element and to determine whether and when each element has been delivered. If we were to change any of these assumptions or judgments, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. Revenue that we cannot recognize in a particular period is reflected on our balance sheet as deferred revenue and recognized over time as the applicable revenue recognition criteria are satisfied.

•		Net Revenue — Return and Rebate Reserves. As part of our revenue recognition policy, we estimate future product returns and rebate ~~payments. These estimates determine our~~payments and establish reserves against revenue ~~reserves. We make~~based on these ~~estimates based primarily on our past~~estimates. Product returns by distributors and retailers principally relate to the return of obsolete products. Our return policy allows distributors and ~~rebate experience. We also~~retailers, subject to certain contractual limitations, to return purchased products. For product returns reserves, we consider the volume and price mix of products in the retail channel, trends in retailer inventory, economic trends that might impact customer demand for our products (including the competitive ~~environment),~~environment and the timing of new releases of our products) and other factors. We fully reserve for obsolete products in the distribution channels.

		Our rebate reserves include distributor and retailer sales incentive rebates and end-user rebates. Our estimated reserves for distributor and retailer incentive rebates are based on distributors’ and retailers’ actual performance against the terms and conditions of rebate programs, which are typically entered into annually. Our reserves for end-user rebates are estimated based on the terms and conditions of the specific promotional rebate program, actual sales during the promotion, the amount of redemptions received, historical redemption trends by product and by type of promotional program and the economic value of the ~~rebates being offered and other factors.~~ rebate.

		In the past, actual returns and rebates have not generally exceeded our reserves. However, actual returns and rebates in any future period are inherently uncertain. If we ~~changed~~were to change our assumptions and estimates, our revenue reserves would change, which would impact the net revenue we report. ~~In addition, if~~If actual returns and rebates are significantly greater than the reserves we have established, the actual results would decrease our future reported revenue. Conversely, if actual returns and rebates are significantly less than our reserves, this would increase our future reported revenue.

•		~~Goodwill, Purchased Intangibles~~ For example, a change of 1% in our return rate assumptions for QuickBooks, TurboTax and ~~Other Long-Lived Assets — Impairment Assessments. Under current accounting standards, which will~~Quicken desktop software products would have increased or reduced fiscal 2002 net revenue by approximately $1.6 million, $1.2 million and $0.7 million, respectively. If the historical data we use to calculate these estimates do not properly reflect actual returns or rebates, then we would make a change at the start of our next fiscal year, we make judgments about the remaining useful lives of goodwill, purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate an other-than-temporary impairment in the ~~remaining value of the assets recorded on our balance sheet. In order to judge the remaining useful life of an asset, we make various assumptions about the value of the asset~~reserves in the ~~future. This may include assumptions about future prospects for~~period in which the business that the asset relates to and typically involves computations of the estimated future cash flows to be generated by these businesses. Based on these judgments and assumptions, we determine whether we need to take an impairment charge to reduce the value of the asset stated on our balance sheet to reflect its actual fair value. Judgments and assumptions about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the judgments and assumptions we have made in the past have been reasonable and appropriate, different judgments and assumptions could materially impact our reported financial results. More conservative assumptions of the anticipated future benefits from these businesses would result in greater impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions would result in smaller impairment charges, higher net income and higher asset values.determination is made. See ~~Notes~~Note 1 “~~Goodwill, Purchased Intangible Assets and Other Long-lived Assets,”~~~~4 and 9~~ of the financial statements, ~~for more details about how we make these judgments.~~“Net Revenue.”

•		~~Concentration of Credit Risk —~~ Reserves for Uncollectible Accounts Receivable. We make ongoing assumptions relating to the collectibility of our accounts receivable. The accounts receivable amount on our balance sheet includes a reserve for accounts that might not be paid. In determining the amount of the reserve, we consider our historical level of credit losses. We also make judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and we assess current economic trends that might impact the level of credit losses in the future. Our ~~credit losses~~reserves have generally been ~~less than~~adequate to cover our ~~reserve.~~actual credit losses. However, since we cannot predict future changes in the financial stability of our customers, we cannot guarantee that our reserves will continue to be adequate. If actual credit losses are significantly greater than the reserve we have established, that would increase our general and administrative expenses and reduce our reported net income. Conversely, if actual credit losses are significantly less than our reserve, this would eventually decrease our general and administrative expenses and increase our reported net income. See Note 1 of the financial statements,“Concentration of Credit Risk and Significant Customers and Suppliers,”” for more ~~details~~information about our accounts receivable.

•		Goodwill, Purchased Intangibles and Other Long-Lived Assets — Impairment Assessments. We make judgments about the recoverability of goodwill, purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate that an other-than-temporary impairment in the remaining value of the assets recorded on our balance sheet may exist. We test the impairment of goodwill annually or more frequently if indicators of impairment arise. In order to estimate the fair value of long-lived assets, we make various assumptions about the future prospects for the business that the asset relates to and typically estimate future cash flows to be generated by these businesses. Based on these assumptions and estimates, we determine whether we

		need to take an impairment charge to reduce the value of the asset stated on our balance sheet to reflect its estimated fair value. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. More conservative assumptions of the anticipated future benefits from these businesses would result in greater impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions would result in smaller impairment charges, higher net income and higher asset values. At October 31, 2002, we had $581.4 million in goodwill and $126.0 million in intangible assets on our balance sheet. See Note 1,“Goodwill, Purchased Intangible Assets and Other Long-lived Assets”and“Recent Pronouncements,”and Note 3 of the financial statements for more information about how we make these judgments.

•		Income Taxes — Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance. When we prepare our consolidated financial statements, we ~~must~~ estimate our income taxes ~~in each jurisdiction~~based on the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items ~~(such as deferred revenue)~~ for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which ~~are shown~~we show on our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be ~~recovered from future taxable income.~~realized. To the extent we believe that ~~recovery~~realization is not likely, we ~~must~~ establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we must record a tax expense in our statement of operations. See Note 10 of the financial statements.

		Management must make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. Our net deferred tax asset as of October 31, 2002 was $238.4 million, net of the valuation allowance of $9.3 million. We recorded the valuation allowance to reflect uncertainties about whether we will be able to utilize some of our deferred tax assets (consisting primarily of certain net operating losses carried forward by our international subsidiaries and certain state capital loss carryforwards) before they expire. The valuation allowance is based on our estimates of taxable income for the jurisdictions in which we operate and the period over which our deferred tax assets will be realizable. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, we cannot assure that we will not be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we make the increase.


*Total Net Revenue*				Q3		% Total Net			Q3		% Total Net			Q3 %			YTD		% Total Net			YTD		% Total Net			YTD %
				FY01		Revenue			FY02		Revenue			Change			FY01		Revenue			FY02		Revenue			Change

(Dollars in millions)





Small Business
	Product			$	71.8				$	99.9							$	268.4				$	314.1
	Service				23.5					29.2								66.0					89.9
	Other				7.0					0.7								16.7					3.9

		Subtotal			102.3		24	%		129.8		24	%		27	%		351.1		33	%		407.9		31	%		16	%

Tax
	Product				139.9					198.2								333.9					422.0
	Service				93.4					117.8								106.4					128.9
	Other				0.4					1.3								3.1					2.7

		Subtotal			233.7		55	%		317.3		58	%		36	%		443.4		41	%		553.6		43	%		25	%

Personal Finance
	Product				15.1					10.2								74.9					65.5
	Service				4.1					1.6								10.1					6.3
	Other				10.8					12.1								38.0					39.1

		Subtotal			30.0		7	%		23.9		4	%		(20	)%		123.0		11	%		110.9		9	%		(10	)%

Quicken Loans
	Product				—					—								—					—
	Service				35.2					43.5								72.2					140.0
	Other				—					—								—					—

		Subtotal			35.2		8	%		43.5		8	%		24	%		72.2		7	%		140.0		11	%		94	%

Global Business
	Product				17.9					20.5								59.6					64.6
	Service				5.6					5.1								19.1					15.5
	Other				0.5					0.3								1.9					3.9

		Subtotal			24.0		6	%		25.9		5	%		8	%		80.6		8	%		84.0		6	%		4	%

Other
	Product				—					3.7								—					3.7
	Service				—					1.1								—					1.1
	Other				—					—								—					—

		Subtotal			—		0	%		4.8		1	%		n/a			—		0	%		4.8		0	%		n/a

			Total net revenue	$	425.2		100	%	$	545.2		100	%		28	%	$	1,070.3		100	%	$	1,301.2		100	%		22	%


				Q1		% Total Net			Q1		% Total Net			Q1 %
				FY02		Revenue			FY03		Revenue			Change

(Dollars in millions)
Consumer Tax
	Product				2.5					3.9
	Service				1.5					2.0
	Other				0.2					0.2

		Subtotal			4.2		2	%		6.1		3	%		45	%

Professional Accounting Solutions
	Product				5.6					6.4
	Service				1.1					0.9
	Other				—					—

		Subtotal			6.7		4	%		7.3		3	%		9	%

Personal Finance
	Product				24.9					25.5
	Service				2.8					0.8
	Other				11.1					10.9

		Subtotal			38.8		23	%		37.2		17	%		(4	%)

Vertical Business Management Solutions
	Product				—					5.6
	Service				—					13.2
	Other				—					—

		Subtotal			—		0	%		18.8		8	%		n/a

Global Business
	Product				8.4					9.4
	Service				5.0					5.6
	Other				2.9					—

		Subtotal			16.3		10	%		15.0		7	%		(8	%)

Other
	Product				—					—
	Service				—					0.1
	Other				—					—

		Subtotal			—		0	%		0.1		0	%		n/a

			Total net revenue	$	168.7		100	%	$	223.3		100	%		32	%


*Cost of Revenue*			Q3		% of Related			Q3		% of Related			Q3 %			YTD		% of Related			YTD		% of Related			YTD %
			FY01		Revenue			FY02		Revenue			Change			FY01		Revenue			FY02		Revenue			Change

(Dollars in millions)





Cost of revenue:
	Cost of products		$	29.3		12	%	$	35.1		11	%		20	%	$	118.8		16	%	$	141.3		16	%		19	%
	Cost of services			39.5		24	%		38.6		19	%		-2	%		108.2		40	%		112.9		30	%		4	%
	Cost of other revenue			8.6		46	%		6.8		47	%		(21	)%		21.2		36	%		19.7		40	%		(7	)%
	Amortization of purchased software			4.4		—			1.6		—			(64	)%		11.2		—			10.4		—			(7	)%

		Total cost of revenue	$	81.8		19	%	$	82.1		15	%		0	%	$	259.4		24	%	$	284.3		22	%		10	%


*Operating Expenses*		Q3		% Total Net			Q3		% Total Net			Q3 %			YTD		% Total Net			YTD		% Total Net			YTD %
		FY01		Revenue			FY02		Revenue			Change			FY01		Revenue			FY02		Revenue			Change

(Dollars in millions)





Customer service and technical support		$	37.5		9	%	$	45.8		8	%		22	%	$	116.1		11	%	$	137.9		10	%		19	%
Selling and marketing			68.5		16	%		89.8		17	%		31	%		215.1		20	%		256.7		20	%		19	%
Research and development			52.7		12	%		52.9		10	%		0	%		155.2		15	%		156.1		12	%		1	%
General and administrative			23.9		6	%		29.3		5	%		23	%		77.6		7	%		90.1		7	%		16	%
Charge for purchased research and development			0.2		0	%		—		0	%		(100	)%		0.2		0	%		—		0	%		(100	)%
Charge for vacant facilities			—		0	%		13.2		2	%		—			—		0	%		13.2		1	%		—
Acquisition-related charges			122.6		29	%		37.6		7	%		(69	)%		205.3		19	%		140.7		11	%		(31	)%
Loss on impairment of long-lived asset			—		0	%		—		0	%		—			—		0	%		27.0		2	%		—

	Totals	$	305.4		72	%	$	268.6		49	%		(12	)%	$	769.5		72	%	$	821.7		63	%		7	%


		Payments Due by Period

		Less than 1		1-3		4-5		After 5
		year		years		years		years		Total
(In millions)
Contractual Obligations
Short-term notes payable		$	17.5	$	—	$	—	$	—	$	17.5
Long-term debt			—		4.3		2.8		4.1		11.2
Operating leases			30.5		52.7		45.0		40.7		168.9
Other obligations			25.2		—		—		—		25.2

	Total contractual cash obligations	$	73.2	$	57.0	$	47.8	$	44.8	$	222.8


		Amount of Commitment Expiration Per Period

		Less than 1		1-3		4-5		After 5
		year		years		years		years		Total
(In millions)
Other Commercial Commitments
Line of credit		$	—	$	—	$	—	$	—	$	—
Loan commitments			624.1		—		—		—		624.1
Future sale commitments			200.9		—		—		—		200.9

	Total commercial commitments	$	825.0	$	—	$	—	$	—	$	825.0


	Balance		Additions					Balance		Balance
	July 31,		Charged to		Returns/			April 30,		April 30,
	2001		Expense		Redemptions			2002		2001
(In thousands)
Reserve for returns and exchanges	$	31,510	$	88,451	$	(63,888	)	$	56,073	$	68,654
Rebates		10,130		92,155		(72,256	)		30,029		30,340

	•		Increased competition for acquisition opportunities could inhibit our ability to complete suitable acquisitions, and could also increase the price we would have to pay to complete acquisitions.

	•		If we are unable to complete acquisitions successfully, we may not be able to develop and market products for new industries or applications with which we may not be familiar.

	•		Future acquisitions may require us to issue shares of our stock and stock options to owners of the acquired businesses, which would result in dilution to the equity interests of our stockholders.

	•		Despite our due diligence reviews, acquired businesses may bring with them unanticipated liabilities, business or legal risks or operating costs that could harm our results of operations or business, reduce or eliminate any benefits of the acquisition or require unanticipated expenses.

	•		If we fail to retain the services of key employees of acquired companies for significant time periods after the acquisition of their companies, we may experience difficulty in managing the acquired company’s business and not realize the anticipated benefits of the acquisition.

	•		Our strategy depends on our successfully completing acquisitions and integrating acquired companies, which presents a number of challenges as described above under “Company-Wide Risk Factors.”

	•		Our strategy is resulting in a dramatic increase in the number and complexity of the products and services that we offer. This is placing greater demands on our research and development, marketing and sales resources, as we must develop, market and sell both the new products and services as well as periodic enhancements to an expanding portfolio of products and services. This will also require us to continually develop, expand and modify our internal business operations systems and procedures to support new businesses, including our customer service and technical support call centers, and our customer management, order management, billing and other systems.

	•		Many of the new products and services we are and will be offering are much more complex than our traditional core desktop software products and are being priced accordingly. They will therefore require a more consultative sales process, and a higher level of post-sales support. If we are not able to effectively adapt our marketing, sales, distribution and customer support functions to accommodate these changes, we will not succeed in generating significant or sustained revenue from these new businesses.

(a)		Disclosure Controls and Procedures

		The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our chief executive officer and our chief financial officer, based on their evaluation of our disclosure controls and procedures within 90 days before the filing date of this report (the “Evaluation Date”), concluded that our disclosure controls and procedures were effective for this purpose.

(b)		Changes in Internal Controls

		There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect these controls subsequent to the Evaluation Date.

#	We have requested confidential treatment for certain portions of this exhibit. We have omitted such portions from this filing and filed them separately with the Securities and Exchange Commission.




~~10.01†~~+	~~Intuit Inc. Executive Deferred Compensation Plan, effective March 15, 2002~~	X




~~10.02†~~	~~Amended Secured Balloon Payment Bridge Loan Promissory Note (for the principal amount of $1,044,000) between Intuit and Tom Allanson, dated April 18, 2002~~	X

	1.		On ~~February 14,~~August 1, 2002, Intuit filed a report on Form 8-K to report under Item 5 ~~its~~that it had completed the acquisition of substantially all of the assets of Eclipse, Inc. No financial ~~results for~~statements were filed with the ~~quarter ended January 31, 2002. We included in the 8-K Intuit’s balance sheets and statements of operations as of and for the second quarter ended January 31, 2002.~~report.

	2.		On ~~May 13,~~August 14, 2002, Intuit ~~filed~~submitted a report on Form 8-K to report under Item 9 that Stephen M. Bennett and Greg J. Santora each submitted to the Securities and Exchange Commission a Statement under Oath Regarding Facts and Circumstances Relating to Exchange Act Filings. These statements cover Intuit’s Annual Report on Form 10-K for the fiscal year ended July 31, 2001 and all quarterly reports on Form 10-Q, current reports on Form 8-K and all definitive proxy materials filed by Intuit since Intuit filed its fiscal year 2001 Form 10-K on October 5, that on May 8, 2002 Intuit announced that it had signed a definitive agreement to acquire CBS Employer Services, Inc. and to report under Item 5 that on May 9, 2002 Intuit announced that it had signed a definitive agreement to acquire The Flagship Group (the holding company of American Fundware, Inc.). We did not file2001. No financial statements were submitted with ~~this~~the report.

	3.		On ~~May 17,~~August 15, 2002, Intuit filed a report on Form 8-K to report under Item 2 that it had completed the sale of its Quicken Loans mortgage business to BRFC LLC. Intuit’s Unaudited Pro Forma Condensed Balance Sheet as of April 30, 2002, Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended April 30, 2002 and Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended July 31, 2001 were filed with the report.

	4.		On August 22, 2002, Intuit filed a report on Form 8-K to report under Item 5 that it had signed an agreement to acquire Blue Ocean Software, Inc. as well as to report its financial results for the fourth quarter ~~ended April 30,~~and fiscal year ending July 31, 2002. ~~We included in the report~~ Intuit’s ~~consolidated balance sheets and statements~~statement of operations ~~as of and~~ for the ~~third~~fourth quarter and the year ended ~~April 30, 2002.~~July 31, 2002 and the balance sheet for the fiscal year ending July 31, 2002 were filed with the report. The report also disclosed that Greg Santora, Senior Vice President and Chief Financial Officer of Intuit, has decided to retire from Intuit at the end of the calendar year and will remain in his current role until then.