Edgar Filing: INTUIT INC

Large accelerated filer R

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

FY13 Q2 10Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q



R		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended January 31, 2013



o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from ____________ to ____________ .

Commission File Number 0-21180

INTUIT INC.

(Exact name of registrant as specified in its charter)



Delaware (State of incorporation)		77-0034661 (IRS employer identification no.)
	2700 Coast Avenue, Mountain View, CA 94043 (Address of principal executive offices)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes R No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 296,388,841 shares of Common Stock, $0.01 par value, were outstanding at February 22, 2013.

INTUIT INC.

FORM 10-Q

INDEX



	Page Number
PART I FINANCIAL INFORMATION

ITEM 1: Financial Statements

Condensed Consolidated Statements of Operations for the three and six months ended January 31, 2013 and 2012	3

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended January 31, 2013 and 2012	4

Condensed Consolidated Balance Sheets at January 31, 2013 and July 31, 2012	5

Condensed Consolidated Statements of Stockholders’ Equity for the six months ended January 31, 2013 and 2012	6

Condensed Consolidated Statements of Cash Flows for the three and six months ended January 31, 2013 and 2012	7

Notes to Condensed Consolidated Financial Statements	8

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk	33

ITEM 4: Controls and Procedures	34

PART II OTHER INFORMATION

ITEM 1: Legal Proceedings	35

ITEM 1A: Risk Factors	35

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds	45

ITEM 6: Exhibits	46

Signatures	47


EX-10.01
EX-10.02
EX-10.03
EX-10.04
EX-10.05
EX-31.01
EX-31.02
EX-32.01
EX-32.02
EX-101.INS XBRL Instance Document
EX-101.SCH XBRL Taxonomy Extension Schema
EX-101.CAL XBRL Taxonomy Extension Calculation Linkbase
EX-101.LAB XBRL Taxonomy Extension Label Linkbase
EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase
EX-101.DEF XBRL Taxonomy Extension Definition Linkbase

Intuit, the Intuit logo, QuickBooks, TurboTax, Lacerte, ProSeries, Quicken and Mint, among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Other parties’ marks are the property of their respective owners.

Table of Contents

PART I

ITEM 1

FINANCIAL STATEMENTS

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended						Six Months Ended
(In millions, except per share amounts)	January 31, 2013			January 31, 2012			January 31, 2013			January 31, 2012
Net revenue:
Product	$	402		$	419		$	629		$	641
Service and other	566			580			986			933
Total net revenue	968			999			1,615			1,574
Costs and expenses:
Cost of revenue:
Cost of product revenue	40			52			72			84
Cost of service and other revenue	162			150			307			282
Amortization of acquired technology	6			3			11			6
Selling and marketing	372			330			623			546
Research and development	179			164			357			327
General and administrative	109			95			207			187
Amortization of other acquired intangible assets	7			10			14			31
Total costs and expenses	875			804			1,591			1,463
Operating income from continuing operations	93			195			24			111
Interest expense	(7		)	(15		)	(15		)	(30		)
Interest and other income, net	1			3			3			14
Income before income taxes	87			183			12			95
Income tax provision (benefit)	16			62			(8		)	32
Net income from continuing operations	71			121			20			63
Net income (loss) from discontinued operations	—			(3		)	32			(9		)
Net income	$	71		$	118		$	52		$	54

Basic net income per share from continuing operations	$	0.24		$	0.41		$	0.07		$	0.21
Basic net income (loss) per share from discontinued operations	—			(0.01		)	0.11			(0.03		)
Basic net income per share	$	0.24		$	0.40		$	0.18		$	0.18
Shares used in basic per share calculations	296			297			296			298

Diluted net income per share from continuing operations	$	0.23		$	0.40		$	0.07		$	0.21
Diluted net income (loss) per share from discontinued operations	—			(0.01		)	0.10			(0.03		)
Diluted net income per share	$	0.23		$	0.39		$	0.17		$	0.18
Shares used in diluted per share calculations	303			306			302			307

Dividends declared per common share	$	0.17		$	0.15		$	0.34		$	0.30

See accompanying notes.

Table of Contents

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended				Six Months Ended
(In millions)	January 31, 2013		January 31, 2012		January 31, 2013		January 31, 2012

Net income	$	71	$	118	$	52	$	54
Other comprehensive income (loss), net of income taxes:
Unrealized losses on available-for-sale debt securities	—		—		—		(1		)
Unrealized gains on available-for-sale equity securities	—		—		3		—
Foreign currency translation gains (losses)	—		—		1		(5		)
Total other comprehensive income (loss), net	—		—		4		(6		)
Comprehensive income	$	71	$	118	$	56	$	48

See accompanying notes.

Table of Contents

INTUIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



(In millions)	January 31, 2013			July 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	399		$	393
Investments	279			351
Accounts receivable, net	541			183
Income taxes receivable	157			53
Deferred income taxes	142			184
Prepaid expenses and other current assets	110			69
Current assets before funds held for customers	1,628			1,233
Funds held for customers	284			290
Total current assets	1,912			1,523
Long-term investments	88			75
Property and equipment, net	599			567
Goodwill	2,191			2,200
Acquired intangible assets, net	187			213
Other assets	112			106
Total assets	$	5,089		$	4,684
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	213		$	157
Accrued compensation and related liabilities	183			231
Deferred revenue	649			443
Other current liabilities	267			144
Current liabilities before customer fund deposits	1,312			975
Customer fund deposits	284			290
Total current liabilities	1,596			1,265
Long-term debt	499			499
Other long-term obligations	202			176
Total liabilities	2,297			1,940
Commitments and contingencies
Stockholders’ equity:
Preferred stock	—			—
Common stock and additional paid-in capital	3,186			3,018
Treasury stock, at cost	(4,986		)	(4,911		)
Accumulated other comprehensive income	29			25
Retained earnings	4,563			4,612
Total stockholders’ equity	2,792			2,744
Total liabilities and stockholders’ equity	$	5,089		$	4,684

See accompanying notes.

Table of Contents

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)



(In millions, except shares in thousands)	Shares of Common Stock		Common Stock and Additional Paid-In Capital		Treasury Stock			Accumulated Other Comprehensive Income		Retained Earnings			Total Stockholders' Equity
Balance at July 31, 2012	295,289		$	3,018	$	(4,911	)	$	25	$	4,612		$	2,744
Components of comprehensive income:
Net income	—		—		—			—		52			52
Other comprehensive income, net of income taxes	—		—		—			4		—			4
Comprehensive income													56
Issuance of treasury stock under employee stock plans	4,814		16		125			—		—			141
Tax benefit from share-based compensation plans	—		56		—			—		—			56
Stock repurchases under stock repurchase programs	(3,361	)	—		(200		)	—		—			(200		)
Cash dividends declared ($0.34 per share)	—		—		—			—		(101		)	(101		)
Share-based compensation expense	—		96		—			—		—			96
Balance at January 31, 2013	296,742		$	3,186	$	(4,986	)	$	29	$	4,563		$	2,792



(In millions, except shares in thousands)	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income			Retained Earnings			Total Stockholders' Equity
Balance at July 31, 2011	300,597		$	2,886		$	(4,316	)	$	15		$	4,031		$	2,616
Components of comprehensive income:
Net income	—		—			—			—			54			54
Other comprehensive loss, net of income taxes	—		—			—			(6		)	—			(6		)
Comprehensive income															48
Issuance of treasury stock under employee stock plans	5,590		(39		)	150			—			(5		)	106
Tax benefit from share-based compensation plans	—		45			—			—			—			45
Stock repurchases under stock repurchase programs	(11,411	)	—			(586		)	—			—			(586		)
Cash dividends declared ($0.30 per share)	—		—			—			—			(89		)	(89		)
Share-based compensation expense	—		83			—			—			—			83
Balance at January 31, 2012	294,776		$	2,975		$	(4,752	)	$	9		$	3,991		$	2,223

See accompanying notes.

Table of Contents

INTUIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended						Six Months Ended
(In millions)	January 31, 2013			January 31, 2012			January 31, 2013			January 31, 2012
Cash flows from operating activities:
Net income	$	71		$	118		$	52		$	54
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	42			44			82			88
Amortization of acquired intangible assets	16			17			30			45
Share-based compensation expense	47			43			96			83
Pre-tax gain on sale of discontinued operations	—			—			(53		)	—
Deferred income taxes	(5		)	(12		)	48			(17		)
Tax benefit from share-based compensation plans	12			15			56			45
Excess tax benefit from share-based compensation plans	(12		)	(14		)	(56		)	(43		)
Other	5			8			9			2
Total adjustments	105			101			212			203
Changes in operating assets and liabilities:
Accounts receivable	(357		)	(426		)	(358		)	(421		)
Prepaid expenses, income taxes receivable and other assets	(17		)	60			(145		)	(18		)
Accounts payable	46			45			58			84
Accrued compensation and related liabilities	48			27			(48		)	(47		)
Deferred revenue	233			207			217			182
Income taxes payable	1			—			1			1
Other liabilities	126			128			122			112
Total changes in operating assets and liabilities	80			41			(153		)	(107		)
Net cash provided by operating activities	256			260			111			150
Cash flows from investing activities:
Purchases of available-for-sale debt securities	(123		)	(146		)	(210		)	(343		)
Sales of available-for-sale debt securities	109			130			190			266
Maturities of available-for-sale debt securities	74			48			95			89
Net change in money market funds and other cash equivalents held to satisfy customer fund obligations	(75		)	(9		)	6			84
Net change in customer fund deposits	75			9			(6		)	(84		)
Purchases of property and equipment	(45		)	(48		)	(115		)	(92		)
Proceeds from divestiture of businesses	—			—			60			—
Other	(17		)	1			(22		)	15
Net cash used in investing activities	(2		)	(15		)	(2		)	(65		)
Cash flows from financing activities:
Net proceeds from issuance of treasury stock under employee stock plans	68			61			141			106
Purchases of treasury stock	(100		)	(331		)	(200		)	(586		)
Cash dividends paid to stockholders	(51		)	(44		)	(101		)	(89		)
Excess tax benefit from share-based compensation plans	12			14			56			43
Net cash used in financing activities	(71		)	(300		)	(104		)	(526		)
Effect of exchange rates on cash and cash equivalents	—			(1		)	1			(4		)
Net increase (decrease) in cash and cash equivalents	183			(56		)	6			(445		)
Cash and cash equivalents at beginning of period	216			333			393			722
Cash and cash equivalents at end of period	$	399		$	277		$	399		$	277

See accompanying notes.

Table of Contents

INTUIT INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


1.	Description of Business and Summary of Significant Accounting Policies

Description of Business

Intuit Inc. provides business and financial management solutions for small businesses, consumers, accounting professionals and financial institutions. With flagship products and services that include QuickBooks, TurboTax and Quicken, we help customers solve important financial management problems, such as running a small business, paying bills, filing income tax returns, and managing personal finances. ProSeries and Lacerte are Intuit’s tax preparation offerings for professional accountants. Our Financial Services business provides digital banking solutions to banks and credit unions. Incorporated in 1984 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.

Basis of Presentation

These condensed consolidated financial statements include the financial statements of Intuit and its wholly owned subsidiaries. We have eliminated all significant intercompany balances and transactions in consolidation. We have included all adjustments, consisting only of normal recurring items, which we considered necessary for a fair presentation of our financial results for the interim periods presented.

We acquired Demandforce, Inc. in May 2012 and we have included the results of operations for that business in our consolidated results of operations from the date of acquisition. As discussed in Note 4, we sold our Intuit Websites business in September 2012. We have reclassified our financial statements for all periods prior to the sale to reflect that business as discontinued operations. Unless noted otherwise, discussions in these notes pertain to our continuing operations.

These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2012. Results for the six months ended January 31, 2013 do not necessarily indicate the results we expect for the fiscal year ending July 31, 2013 or any other future period.

Seasonality

Significant Accounting Policies

We describe our significant accounting policies in Note 1 to the financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2012. There have been no changes to our significant accounting policies during the first six months of fiscal 2013.

Computation of Net Income (Loss) Per Share

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

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

Table of Contents

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

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



	Three Months Ended					Six Months Ended
(In millions, except per share amounts)	January 31, 2013		January 31, 2012			January 31, 2013		January 31, 2012
Numerator:
Net income from continuing operations	$	71	$	121		$	20	$	63
Net income (loss) from discontinued operations	—		(3		)	32		(9		)
Net income	$	71	$	118		$	52	$	54

Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding	296		297			296		298

Shares used in diluted per share amounts:
Weighted average common shares outstanding	296		297			296		298
Dilutive common equivalent shares from stock options
and restricted stock awards	7		9			6		9
Dilutive weighted average common shares outstanding	303		306			302		307

Basic and diluted net income per share:
Basic net income per share from continuing operations	$	0.24	$	0.41		$	0.07	$	0.21
Basic net income (loss) per share from discontinued operations	—		(0.01		)	0.11		(0.03		)
Basic net income per share	$	0.24	$	0.40		$	0.18	$	0.18

Diluted net income per share from continuing operations	$	0.23	$	0.40		$	0.07	$	0.21
Diluted net income (loss) per share from discontinued operations	—		(0.01		)	0.10		(0.03		)
Diluted net income per share	$	0.23	$	0.39		$	0.17	$	0.18

Shares excluded from computation of diluted net income per share:
Weighted average stock options and restricted stock units excluded from computation due to anti-dilutive effect	3		3			3		3

Concentration of Credit Risk and Significant Customers

No customer accounted for 10% or more of total net revenue in the three or six months ended January 31, 2013 or January 31, 2012. Due to the seasonality of our small business, consumer tax and personal finance offerings, one customer accounted for 13% of gross accounts receivable at January 31, 2013. No customer accounted for 10% or more of gross accounts receivable at July 31, 2012.

Recent Accounting Pronouncements

ASU 2013-02, "Comprehensive Income (Topic 220)"

In February 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update amends Accounting Standards Codification (ASC) Topic 220, “Comprehensive Income,” to require reporting entities to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, reporting entities will be required to present, either on the face of the statement of operations or in the footnotes to the financial statements, significant amounts reclassified from accumulated other comprehensive income by statement of operations line item. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012, which

Table of Contents

means that it will be effective for our fiscal quarter beginning February 1, 2013. We do not believe that adoption of ASU 2013-02 will have a significant impact on our consolidated financial statements.


2.	Fair Value Measurements

The authoritative guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, we consider the principal or most advantageous market for an asset or liability and assumptions that market participants would use when pricing the asset or liability. In addition, we consider and use all valuation methods that are appropriate in estimating the fair value of an asset or liability.

The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:


•	Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

•

Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.


•	Level 3 uses one or more significant inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets and financial liabilities that we measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above.



	January 31, 2013								July 31, 2012
(In millions)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Assets:
Cash equivalents, primarily money market funds	$	325	$	—	$	—	$	325	$	333	$	—	$	—	$	333
Available-for-sale debt securities:
Municipal bonds	—		206		—		206		—		260		—		260
Municipal auction rate securities	—		—		33		33		—		—		41		41
Corporate notes	—		143		—		143		—		142		—		142
U.S. agency securities	—		105		—		105		—		124		—		124
Available-for-sale corporate equity securities	37		—		—		37		33		—		—		33
Total available-for-sale securities	37		454		33		524		33		526		41		600
Total assets measured at fair value on a recurring basis	$	362	$	454	$	33	$	849	$	366	$	526	$	41	$	933
Liabilities:
Senior notes (1)	$	—	$	621	$	—	$	621	$	—	$	582	$	—	$	582

______________________________


(1)	Carrying value on our balance sheet at January 31, 2013 was $499 million and at July 31, 2012 was $499 million. See Note 6.

Table of Contents

The following table summarizes our cash equivalents and available-for-sale debt and equity securities by balance sheet classification and level in the fair value hierarchy at the dates indicated.



	January 31, 2013								July 31, 2012
(In millions)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
In cash and cash equivalents	$	216	$	—	$	—	$	216	$	219	$	—	$	—	$	219
In funds held for customers	109		—		—		109		114		—		—		114
Total cash equivalents	$	325	$	—	$	—	$	325	$	333	$	—	$	—	$	333
Available-for-sale securities:
In investments	$	—	$	279	$	—	$	279	$	—	$	351	$	—	$	351
In funds held for customers	—		175		—		175		—		175		—		175
In long-term investments	37		—		33		70		33		—		41		74
Total available-for-sale securities	$	37	$	454	$	33	$	524	$	33	$	526	$	41	$	600

We value our Level 1 assets, consisting primarily of money market funds, using quoted prices in active markets for identical instruments. Financial assets whose fair values we measure on a recurring basis using Level 2 inputs consist of municipal bonds, corporate notes and U.S. agency securities. We measure the fair values of these assets with the help of a pricing service that either provides quoted market prices in active markets for identical or similar securities or uses observable inputs for their pricing without applying significant adjustments. Our fair value processes include controls that are designed to ensure that we record appropriate fair values for our Level 2 investments. These controls include comparison to pricing provided by a secondary pricing service or investment manager, validation of pricing sources and models, review of key model inputs, analysis of period-over-period price fluctuations, and independent recalculation of prices where appropriate.

Financial liabilities whose fair values we measure using Level 2 inputs consist of debt. See Note 6, “Long-Term Obligations,” for more information. We measure the fair value of our senior notes based on their trading prices and the interest rates we could obtain for other borrowings with similar terms.

Financial assets whose fair values we measure using significant unobservable (Level 3) inputs consist of municipal auction rate securities that are no longer liquid. There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the six months ended January 31, 2013.

The following table presents a reconciliation of activity for our Level 3 assets for the six months ended January 31, 2013.



	Six Months
	Ended
(In millions)	January 31, 2013
Beginning balance	$	41
Settlements at par	(8		)
Ending balance	$	33

We estimated the fair values of these municipal auction rate securities at January 31, 2013 and July 31, 2012 using a discounted cash flow model whose key inputs included the projected future interest rates; the likely timing of principal repayments; publicly available pricing data for recently issued student loan backed securities that are not subject to auctions; and the impact of the reduced liquidity for auction rate securities. Any significant changes in the inputs to the model may have a significant impact on the estimated fair values of these securities.

Using our discounted cash flow model we determined that the fair values of the municipal auction rate securities we held at January 31, 2013 were approximately equal to their par values. As a result, we recorded no decrease in the fair values of those securities for the six months then ended. These securities are included in long-term investments on our balance sheets at

Table of Contents

January 31, 2013 and July 31, 2012 based on the maturities of the underlying securities at those dates. We do not intend to sell our municipal auction rate securities and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity. Based on our expected operating cash flows and our other sources of cash, we do not believe that the reduction in liquidity of our municipal auction rate securities will have a material impact on our overall ability to meet our liquidity needs.


3.	Cash and Cash Equivalents, Investments and Funds Held for Customers

We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of AAA-rated money market funds in all periods presented. Investments consist of available-for-sale investment-grade debt securities that we carry at fair value. Funds held for customers consist of cash and cash equivalents and investment grade available-for-sale debt securities. Long-term investments consist primarily of illiquid municipal auction rate securities and an available-for-sale corporate equity investment that we intend to hold for more than twelve months, both of which we carry at fair value. See Note 2, “Fair Value Measurements,” for more information. Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market funds, we diversify our investments in debt securities by limiting our holdings with any individual issuer.

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



	January 31, 2013				July 31, 2012
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Classification on balance sheets:
Cash and cash equivalents	$	399	$	399	$	393	$	393
Investments	279		279		350		351
Funds held for customers	284		284		289		290
Long-term investments	55		88		47		75
Total cash and cash equivalents, investments, and funds held for customers	$	1,017	$	1,050	$	1,079	$	1,109

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



	January 31, 2013				July 31, 2012
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Type of issue:
Total cash and cash equivalents	$	509	$	509	$	508	$	508
Available-for-sale debt securities:
Municipal bonds	206		206		259		260
Municipal auction rate securities	33		33		41		41
Corporate notes	142		143		141		142
U.S. agency securities	105		105		124		124
Total available-for-sale debt securities	486		487		565		567
Available-for-sale corporate equity securities	5		37		5		33
Other long-term investments	17		17		1		1
Total cash and cash equivalents, investments, and funds held for customers	$	1,017	$	1,050	$	1,079	$	1,109

Table of Contents

We use the specific identification method to compute gains and losses on investments. We include realized gains and losses on our available-for-sale debt securities in interest and other income, net in our statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the six months ended January 31, 2013 and January 31, 2012 were not significant.

We accumulate unrealized gains and losses on our available-for-sale debt and equity securities, net of income taxes, in accumulated other comprehensive income in the stockholders’ equity section of our balance sheets. Gross unrealized gains and losses on our available-for-sale debt securities at January 31, 2013 and July 31, 2012 were not significant. The cumulative gross unrealized gain on our available-for-sale corporate equity security was approximately $33 million at January 31, 2013.

We periodically review our investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. We believe that the investments we held at January 31, 2013 were not other-than-temporarily impaired. Unrealized losses at January 31, 2013 were not significant and were due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. We do not intend to sell these investments and it is not more likely than not that we will be required to sell them before recovery at par, which may be at maturity.

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



	January 31, 2013				July 31, 2012
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	191	$	191	$	218	$	218
Due within two years	132		133		134		135
Due within three years	92		92		131		132
Due after three years	71		71		82		82
Total available-for-sale debt securities	$	486	$	487	$	565	$	567

Available-for-sale debt securities due after three years in the table above include our municipal auction rate securities. See Note 2, “Fair Value Measurements,” for more information. All of the remaining securities in that category had effective maturities of three years or less due to interest reset dates or mandatory call dates.


4.	Discontinued Operations

On September 17, 2012 we sold our Intuit Websites business, which was a component of our Financial Management Solutions reporting segment, for approximately $60 million in cash and recorded a gain on disposal of approximately $32 million, net of income taxes.

We have segregated the operating results of Intuit Websites from continuing operations in our statements of operations for all periods prior to the sale. Net revenue from Intuit Websites was $9 million for the six months ended January 31, 2013. Net revenue from Intuit Websites was $19 million for the three months ended January 31, 2012 and $38 million for the six months ended January 31, 2012.

Net assets held for sale at July 31, 2012 consisted primarily of operating assets and liabilities that were not material, so we have not segregated them on our balance sheets. Because operating cash flows from the Intuit Websites business were also not material for any period presented, we have not segregated them from continuing operations on our statements of cash flows.


5.	Current Liabilities

Unsecured Revolving Credit Facility

On February 17, 2012 we entered into an agreement with certain institutional lenders for a $500 million unsecured revolving credit facility that will expire on February 17, 2017. Advances under the credit facility will accrue interest at rates that are equal to, at our election, either JP Morgan's alternate base rate plus a margin that ranges from 0.0% to 0.5% or LIBOR plus a margin that ranges from 0.9% to 1.5%. Actual margins under either election will be based on our senior debt credit ratings. The agreement includes customary affirmative and negative covenants, including financial covenants that require us to maintain a

Table of Contents

ratio of total debt to annual earnings before interest, taxes, depreciation and amortization (EBITDA) of not greater than 3.25 to 1.00 as of any date and a ratio of annual EBITDA to interest payable of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. We remained in compliance with these covenants at all times during the quarter ended January 31, 2013. We may use amounts borrowed under this credit facility for general corporate purposes, including future acquisitions. To date we have not borrowed under this credit facility.

Other Current Liabilities

Other current liabilities were as follows at the dates indicated:



(In millions)	January 31, 2013		July 31, 2012
Reserve for product returns	$	85	$	19
Reserve for rebates	58		17
Current portion of license fee payable	10		10
Current portion of deferred rent	8		8
Interest payable	10		10
Executive deferred compensation plan liabilities	60		56
Other	36		24
Total other current liabilities	$	267	$	144

The balances of several of our other current liabilities, particularly our reserves for product returns and rebates, are affected by the seasonality of our business. See Note 1, “Description of Business and Summary of Significant Accounting Policies - Seasonality,” for more information.


6.	Long-Term Obligations

Long-Term Debt

On March 12, 2007 we issued $500 million of 5.40% senior unsecured notes due on March 15, 2012 (the 2012 Notes) and $500 million of 5.75% senior unsecured notes due on March 15, 2017 (the 2017 Notes) (together, the Notes), for a total principal amount of $1 billion. In March 2012 we repaid the 2012 Notes when they became due using cash from operations. We carried the 2017 Notes at face value less the unamortized discount in long-term debt on our balance sheets at January 31, 2013 and July 31, 2012. The 2017 Notes are redeemable by Intuit at any time, subject to a make-whole premium, and include covenants that limit our ability to grant liens on our facilities and to enter into sale and leaseback transactions, subject to significant allowances. We paid $14 million in cash for interest on the Notes during the six months ended January 31, 2013 and $28 million during the six months ended January 31, 2012.

Other Long-Term Obligations

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



(In millions)	January 31, 2013			July 31, 2012
Total license fee payable	$	56		$	54
Total deferred rent	55			53
Long-term deferred revenue	45			42
Long-term income tax liabilities	43			41
Long-term deferred income tax liabilities	15			—
Other	7			5
Total long-term obligations	221			195
Less current portion (included in other current liabilities)	(19		)	(19		)
Long-term obligations due after one year	$	202		$	176

Table of Contents


7.	Income Taxes

Effective Tax Rate

We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period.

In January 2013 the American Taxpayer Relief Act of 2012 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2013 that was retroactive to January 1, 2012. We recorded a discrete tax benefit of approximately $12 million for the retroactive effect during the three months ended January 31, 2013.

Our effective tax rate for the three months ended January 31, 2013 was approximately 18% and we recorded an $8 million tax benefit on pretax income of $12 million for the six months ended January 31, 2013. Excluding discrete tax benefits primarily related to the reinstatement of the federal research and experimentation credit, our effective tax rate for the three and six months ended January 31, 2013 was approximately 33% and did not differ significantly from the federal statutory rate of 35%. The benefits we received from the domestic production activities deduction and the federal research and experimentation credit were substantially offset by state income taxes in both periods.

Our effective tax rates for the three and six months ended January 31, 2012 were approximately 34% and 33% and did not differ significantly from the federal statutory rate of 35%. The benefits we received from the domestic production activities deduction and the federal research and experimentation credit were substantially offset by state income taxes in both periods.

Unrecognized Tax Benefits and Other Considerations

The total amount of our unrecognized tax benefits at July 31, 2012 was $38 million. Net of related deferred tax assets, unrecognized tax benefits were $28 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $28 million. There were no material changes to these amounts during the six months ended January 31, 2013. We do not believe that it is reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months.


8.	Stockholders’ Equity

Stock Repurchase Programs

Intuit’s Board of Directors has authorized a series of common stock repurchase programs. Shares of common stock repurchased under these programs become treasury shares. We repurchased 3.4 million shares for $200 million under these programs during the six months ended January 31, 2013 and 11.4 million shares for $586 million under these programs during the six months ended January 31, 2012. At January 31, 2013, we had authorization from our Board of Directors to expend up to an additional $1.5 billion for stock repurchases through August 15, 2014. Future stock repurchases under the current program are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.

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

Dividends on Common Stock

During the six months ended January 31, 2013 we declared and paid quarterly cash dividends of $0.34 per share of outstanding common stock that totaled approximately $101 million. In February 2013 our Board of Directors declared a quarterly cash dividend of $0.17 per share of outstanding common stock payable on April 18, 2013 to stockholders of record at the close of business on April 10, 2013. Future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.

Table of Contents

Share-Based Compensation Expense

The following table summarizes the total share-based compensation expense that we recorded for the periods shown.



	Three Months Ended						Six Months Ended
(In millions, except per share amounts)	January 31, 2013			January 31, 2012			January 31, 2013			January 31, 2012
Cost of revenue	$	2		$	2		$	4		$	3
Selling and marketing	17			15			35			29
Research and development	14			14			28			26
General and administrative	14			12			29			25
Total share-based compensation expense	47			43			96			83
Income tax benefit	(16		)	(14		)	(32		)	(27		)
Decrease in net income	$	31		$	29		$	64		$	56
Decrease in net income per share:
Basic	$	0.10		$	0.10		$	0.22		$	0.19
Diluted	$	0.10		$	0.09		$	0.21		$	0.18

Share-Based Awards Available for Grant

A summary of share-based awards available for grant under our 2005 Equity Incentive Plan for the six months ended January 31, 2013 was as follows:



(Shares in thousands)	Shares Available for Grant
Balance at July 31, 2012	21,760
Options granted	(106	)
Restricted stock units granted (1)	(901	)
Share-based awards canceled/forfeited/expired (1)(2)	1,399
Balance at January 31, 2013	22,152

________________________________

(1)

Under the terms of our Amended and Restated 2005 Equity Incentive Plan, as amended through July 24, 2012 (2005 Equity Incentive Plan), RSUs granted from the pool of shares available for grant on or after November 1, 2010 reduce the pool by 2.3 shares for each share granted. RSUs forfeited and returned to the pool of shares available for grant increase the pool by 2.3 shares for each share forfeited.


(2)	Stock options and restricted stock units canceled, expired or forfeited under our 2005 Equity Incentive Plan, are returned to the pool of shares available for grant. Stock options and restricted stock units canceled, expired or forfeited under older expired plans are not returned to the pool of shares available for grant.

Table of Contents

Stock Option Activity and Related Share-Based Compensation Expense

A summary of stock option activity for the six months ended January 31, 2013 was as follows:



	Options Outstanding
(Shares in thousands)	Number of Shares		Weighted Average Exercise Price Per Share
Balance at July 31, 2012	18,061		$	37.49
Options granted	106		60.30
Options exercised	(3,880	)	32.37
Options canceled or expired	(336	)	40.67
Balance at January 31, 2013	13,951		$	39.02

Exercisable at January 31, 2013	8,620		$	32.68

At January 31, 2013, there was approximately $53 million of unrecognized compensation cost related to non-vested stock options that we expect to recognize as expense in the future. We will adjust unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average vesting period of 2.0 years.

Restricted Stock Unit Activity and Related Share-Based Compensation Expense

A summary of restricted stock unit activity for the six months ended January 31, 2013 was as follows:



	Restricted Stock Units
(Shares in thousands)	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at July 31, 2012	9,607		$	46.79
Granted	392		60.30
Vested	(875	)	34.80
Forfeited	(511	)	47.08
Nonvested at January 31, 2013	8,613		$	48.61

At January 31, 2013, there was approximately $216 million of unrecognized compensation cost related to non-vested RSUs and restricted stock that we expect to recognize as expense in the future. We will adjust unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average vesting period of 2.1 years.


9.	Litigation

On January 13, 2012, two putative class actions were filed against Intuit Inc. in connection with our TurboTax income tax preparation software: Smith v. Intuit Inc. (U.S. District Court, Northern District of California) and Quildon v. Intuit Inc. (California Superior Court, Santa Clara County). The plaintiffs in both cases had asserted that the fees charged for the refund processing service offered within TurboTax are “refund anticipation loans” and the disclosures about those fees do not comply with California and federal laws. The Smith case was brought in federal court on behalf of a proposed nationwide class and subclasses; the Quildon case was brought in state court on behalf of a proposed California class and subclasses. In January 2013, for the purposes of settlement and without any admission of wrongdoing or liability, Intuit reached an agreement in principle to resolve all claims raised in the Smith and Quildon matters for an amount that is not material to our consolidated financial statements. We accrued that amount in the second quarter of fiscal 2013. The terms of the proposed settlement are subject to the approval of the court, which could approve, reject, or suggest modifications to those terms. We currently believe that the likelihood of a material change to the proposed settlement amount is remote.

Intuit is subject to certain routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business, including assertions that we may be infringing patents or other intellectual property rights of others. We currently believe that, in addition to any amounts accrued, the amount of potential losses, if any, for any pending claims of any type (either alone or combined) will not have a material impact on our consolidated financial statements. The

Table of Contents

ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on Intuit because of defense costs, negative publicity, diversion of management resources and other factors. Our failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims could adversely affect our business.


10.	Segment Information

We have defined seven reportable segments based on factors such as how we manage our operations and how our chief operating decision maker views results. We define the chief operating decision maker as our Chief Executive Officer and our Chief Financial Officer. Our chief operating decision maker organizes and manages our business primarily on the basis of product and service offerings.

All of our business segments except Other Businesses operate primarily in the United States and sell primarily to customers in the United States. International total net revenue was less than 5% of consolidated total net revenue for all periods presented.

We include expenses such as corporate selling and marketing, product development, and general and administrative expenses and share-based compensation expenses that are not allocated to specific segments in unallocated corporate items. Unallocated corporate items also include amortization of acquired technology, amortization of other acquired intangible assets, and goodwill and intangible asset impairment charges.

The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the financial statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2012. Except for goodwill and purchased intangible assets, we do not generally track assets by reportable segment and, consequently, we do not disclose total assets by reportable segment.

Table of Contents

The following table shows our financial results by reportable segment for the periods indicated. Results for our Financial Management Solutions segment have been adjusted for all periods presented to exclude results for our Intuit Websites business, which we classified as discontinued operations in the fourth quarter of fiscal 2012. See Note 4, “Discontinued Operations,” for more information.

Beginning in the first quarter of fiscal 2013, we moved the segment revenue and operating results for our Mint business from Personal Finance in our Other Businesses segment to our Financial Services segment. Since segment revenue and operating results for Mint were not significant for any period presented, we did not reclassify previously reported segment results to reflect this change. As a result of the reorganization of the reporting structure of Personal Finance and synergies achieved during the time it was managed as one business, we allocated a portion of the total goodwill associated with that reporting unit to Personal Finance and a portion to Mint, which was transferred to the Financial Services reporting unit. We based the allocation of the total goodwill on the fair value of the remaining Personal Finance reporting unit compared with the fair value of the Mint component at the time of the transfer. The subsequent financial performance of the Personal Finance reporting unit relative to the projections used for the allocation of goodwill will determine the realizability of that goodwill.



	Three Months Ended						Six Months Ended
(In millions)	January 31, 2013			January 31, 2012			January 31, 2013			January 31, 2012
Net revenue:
Financial Management Solutions	$	208		$	179		$	388		$	328
Employee Management Solutions	144			128			279			249
Payment Solutions	117			99			231			193
Consumer Tax	216			295			252			336
Accounting Professionals	123			131			155			158
Financial Services	93			92			186			181
Other Businesses	67			75			124			129
Total net revenue	$	968		$	999		$	1,615		$	1,574

Operating income from continuing operations:
Financial Management Solutions	$	75		$	69		$	133		$	120
Employee Management Solutions	85			72			170			147
Payment Solutions	24			23			46			47
Consumer Tax	24			114			(3		)	86
Accounting Professionals	72			81			62			67
Financial Services	20			25			35			43
Other Businesses	10			12			16			9
Total segment operating income	310			396			459			519
Unallocated corporate items:
Share-based compensation expense	(47		)	(43		)	(96		)	(83		)
Other common expenses	(157		)	(145		)	(314		)	(288		)
Amortization of acquired technology	(6		)	(3		)	(11		)	(6		)
Amortization of other acquired intangible assets	(7		)	(10		)	(14		)	(31		)
Total unallocated corporate items	(217		)	(201		)	(435		)	(408		)
Total operating income from continuing operations	$	93		$	195		$	24		$	111

Table of Contents

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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


•	Executive Overview that discusses at a high level our operating results and some of the trends that affect our business.


•	Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.


•	Results of Operations that includes a more detailed discussion of our revenue and expenses.


•	Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our balance sheets, and our financial commitments.

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

You should read this MD&A in conjunction with the financial statements and related notes in Part I, Item 1 of this report and our Annual Report on Form 10-K for the fiscal year ended July 31, 2012. We acquired Demandforce, Inc. in May 2012 and we have included the results of operations for that business in our consolidated results of operations from the date of acquisition. We have also reclassified our financial statements for all periods presented to reflect our Intuit Websites business as discontinued operations. See “Results of Operations – Discontinued Operations” later in this Item 2 for more information. Unless otherwise noted, the following discussion pertains only to our continuing operations.

Executive Overview

This overview provides a high-level discussion of our business and growth strategy as well as the trends, opportunities, challenges, and risks that affect our performance and operating results. Understanding our growth strategy and the trends that affect our business provides context for the discussion of financial results and future opportunities which follows this overview. This summary is not intended to be exhaustive, nor is it a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report on Form 10-Q.

About Intuit

Intuit is a leading provider of business and financial management solutions for small businesses, consumers, accounting professionals and financial institutions. We organize our portfolio of businesses into four principal categories – Small Business Group, Tax, Financial Services and Other Businesses. These categories include seven financial reporting segments.

Small Business Group: This category includes three segments – Financial Management Solutions, Employee Management Solutions, and Payment Solutions – targeting the small business market and represented 39% of our revenue in fiscal 2012.


•	Our Financial Management Solutions segment includes QuickBooks financial and business management software and services; QuickBooks technical support; financial supplies; and Demandforce, which provides online marketing and customer communication solutions.


•	Our Employee Management Solutions segment provides payroll products and services.


•	Our Payment Solutions segment provides merchant services, including credit and debit card processing, electronic check conversion and automated clearing house services; Web-based transaction processing services for online merchants; and GoPayment mobile payment processing services.

Tax: This category includes two segments – Consumer Tax and Accounting Professionals – and represented 45% of our revenue in fiscal 2012.


•	Our Consumer Tax segment includes TurboTax income tax preparation products and services for consumers and small businesses.


•	Our Accounting Professionals segment includes Lacerte, ProSeries and Intuit Tax Online professional tax products and services. This segment also includes QuickBooks Premier Accountant Edition and the QuickBooks ProAdvisor Program for accounting professionals.

Table of Contents

Financial Services: This segment consists primarily of digital banking solutions - both online and mobile - for financial institutions and Mint online personal finance services. This segment represented 9% of our revenue in fiscal 2012.

Other Businesses: This segment represented 7% of our revenue in fiscal 2012 and includes our global businesses, primarily in Canada, the United Kingdom, and Singapore; Quicken personal finance products and services; and Intuit Health online patient-to-provider communication solutions.

Our Growth Strategy

We see significant opportunities to drive future growth, based on our assessment of key technology and demographic trends and our focus on building – and enabling others to build – innovative offerings to simplify the business of life for our customers. In the first quarter of fiscal 2013 we refined our three-point growth strategy:

•

Focus on the product – we call it “Delivering awesome product experiences.” Customers increasingly demand anytime, anywhere, any device access to their information. Therefore, we are increasingly focused on reimagining our products with a mobile-first, and in some cases mobile-only, design. Our TurboTax solutions, for example, let customers prepare and file their entire tax returns online, via tablet, mobile phone or the desktop. In addition, we believe that a key factor in growing our customer base is to deliver an amazing first-use experience, so our customers can get the value they expect as easily and quickly as possible.

•

Creating network effect platforms – we call it “Enabling the contributions of others.” We expect to solve problems faster and more efficiently for our growing base of customers by moving to more open platforms with application programming interfaces that enable the contributions of end users and third-party developers. One example of this is QuickBooks Online, which now allows small business customers all over the world to contribute to localizing the product.


•	Leveraging our data for our customers' benefit – we call it “Enabling data to create delight.” Our 60 million customers are generating valuable data that we seek to appropriately use to deliver better products and breakthrough benefits by eliminating the need to enter data, helping them make better decisions and improving transactions and interactions.

Industry Trends and Seasonality

The industry in which we operate is dynamic and highly competitive, and we expect it to remain so in the future. The markets for software and related services, especially highly-available connected services, are characterized by rapid technological change, shifting customer needs, and frequent new product introductions and enhancements. Competition and expertise in many of the markets we serve, particularly small business services, consumer tax, and online and mobile banking, have grown over the past few years and we expect this trend to continue. There are also large, cloud-based service companies who innovate quickly and serve small businesses and consumers. While today our competition with such companies may be limited, as we and those companies grow, our competition with them may increase. In recent years the widespread availability of the Internet, the emergence of mobile devices, and the explosion of social media have accelerated the pace of change and revolutionized the way that people throughout the world manage important financial tasks. The result is a global market that is shifting from traditional services that are paper-based, human-produced, and brick-and-mortar bound, to one where people understand, demand, and embrace the benefits of connected services. This trend toward connected services is the primary driver of the strategies in all of our businesses.

Our QuickBooks, Consumer Tax and Accounting Professionals businesses are highly seasonal. Revenue from our QuickBooks software products tends to be highest during our second and third fiscal quarters. Sales of income tax preparation products and services are heavily concentrated from November through April. In our Consumer Tax business, a greater proportion of our revenue has shifted to later in this seasonal period due in part to the growth in sales of TurboTax Online, for which we recognize revenue when tax returns are printed or electronically filed. The seasonality of our Consumer Tax and Accounting Professionals revenue is also affected by the timing of the availability of tax forms from taxing agencies and the ability of those agencies to receive electronic tax return submissions. Delays in the availability of tax forms or the ability of taxing agencies to receive submissions can cause revenue to shift between our fiscal quarters. These seasonal patterns mean that our total net revenue is usually highest during our second quarter ending January 31 and third quarter ending April 30. We typically report losses in our first quarter ending October 31 and fourth quarter ending July 31. During these quarters, revenue from our tax businesses is minimal while core operating expenses such as research and development continue at relatively consistent levels. We believe the seasonality of our revenue and profitability is likely to continue in the future. In our MD&A we often focus on year-to-date results for our seasonal businesses as they are generally more meaningful than quarterly results.

Table of Contents

Federal tax legislation occurred on January 2, 2013 and the Internal Revenue Service announced that it would accept no 2012 federal income tax returns before January 30, 2013, about two weeks later than the previous tax season and just two days before the end of our second fiscal quarter. As a result, we believe that some consumers delayed purchasing tax software and filing their federal tax returns, and we estimate this will shift approximately $140 million in revenue for our Consumer Tax offerings from the second quarter of fiscal 2013 to the third quarter of fiscal 2013. See “Results of Operations - Business Segment Results” later in this Item 2 for more information.

Key Challenges and Risks

Our growth strategy depends upon our ability to initiate and embrace disruptive technology trends, to enter new markets, and to drive broad adoption of the products and services we develop and market. Our future growth also increasingly depends on the strength of our third-party business relationships and our ability to continue to develop, maintain and strengthen new and existing relationships. To remain competitive and continue to grow, we are investing significant resources in our product development, marketing, and sales capabilities, and we expect to continue to do so in the future.

As we continue transitioning to offer more connected services, the ongoing operation and availability of our information technology and communication systems and those of our external service providers is becoming increasingly important. Because we help customers manage their financial lives, we face risks associated with the hosting, collection, use and retention of personal customer information and data. We are investing significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities, and we expect to continue to do so in the future.

For a complete discussion of the most significant risks and uncertainties affecting our business, please see “Forward-Looking Statements and Risk Factors” in Item 1A of this Report.

Overview of Financial Results

The most important financial indicators that we use to assess our business are revenue growth and operating income growth for the company as a whole and for each business segment; operating income margin; earnings per share; and cash flow from operations. We also track certain non-financial drivers of revenue growth and, when material, identify them in the applicable discussions of business segment results below. These non-financial indicators include, for example, customer growth and retention, and, in certain businesses, transaction volume. Customers for our connected services offerings have generally grown faster than those for our traditional software offerings, reflecting our strategic focus on connected services over the past few years. Connected services generated $2.7 billion or 64% of our total revenue in fiscal 2012, compared with 50% of our total revenue five years ago. We expect connected services revenue as a percentage of our total revenue to continue to grow in the future. We track transaction volume in businesses such as our Payments Solutions business, where total credit and debit card transaction volume, which correlates strongly with the macroeconomic environment, contributes to revenue growth.

Total net revenue for the first six months of fiscal 2013 was $1.6 billion, an increase of 3% compared with the same period of fiscal 2012. Our Small Business Group was the key driver of revenue growth in the first six months of fiscal 2013. Revenue in our Small Business Group grew 17% compared with the same period a year ago due to growth in connected services offerings and our May 2012 acquisition of Demandforce. Revenue in our Consumer Tax segment was down 25% in the first six months of fiscal 2013. As discussed in “Industry Trends and Seasonality” above, we believe that the delay in the Internal Revenue Service's acceptance of 2012 federal income tax returns will shift some Consumer Tax revenue from the second quarter of fiscal 2013 to the third quarter of fiscal 2013.

Operating income from continuing operations for the first six months of fiscal 2013 was $24 million, a decrease of 78% compared with the same period of fiscal 2012. Higher revenue was more than offset by higher costs and expenses, including higher spending for staffing and for advertising and other marketing programs. Net income from continuing operations decreased 68% in the first six months of fiscal 2013 compared with the same period of fiscal 2012 due to the lower operating income partially offset by a discrete tax benefit that we recorded in the fiscal 2013 period. Diluted net income per share from continuing operations for the first six months of fiscal 2013 decreased 67% to $0.07, in line with the decrease in net income.

We ended the first six months of fiscal 2013 with cash, cash equivalents and investments totaling $678 million. During the first six months of fiscal 2013 we generated cash from operations, from the issuance of common stock under employee stock plans, and from the sale of our Intuit Websites business. During the same period we used cash for the repurchase of shares of our common stock under our stock repurchase programs, for the payment of cash dividends, and for capital expenditures. At January 31, 2013, we had authorization from our Board of Directors to expend up to an additional $1.5 billion for stock repurchases through August 15, 2014.

Table of Contents

Critical Accounting Policies and Estimates

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss, and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2012 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. We believe that there were no significant changes in those critical accounting policies and estimates during the first six months of fiscal 2013. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit and Risk Committee of our Board of Directors.

Results of Operations

Financial Overview



(Dollars in millions, except per share amounts)	Q2 FY13		Q2 FY12		$ Change			% Change		YTD Q2 FY13		YTD Q2 FY12		$ Change			% Change
Total net revenue	$	968	$	999	$	(31	)	(3	)%	$	1,615	$	1,574	$	41		3	%
Operating income from continuing operations	93		195		(102		)	(52	)%	24		111		(87		)	(78	)%
Net income from continuing operations	71		121		(50		)	(41	)%	20		63		(43		)	(68	)%
Diluted net income per share from continuing operations	$	0.23	$	0.40	$	(0.17	)	(43	)%	$	0.07	$	0.21	$	(0.14	)	(67	)%

Current Fiscal Quarter

Total net revenue decreased $31 million or 3% in the second quarter of fiscal 2013 compared with the same quarter of fiscal 2012. Revenue was up 16% in our Small Business Group. Financial Management Solutions segment revenue increased 17%, or 6% excluding revenue from Demandforce, which we acquired in May 2012. Higher organic revenue in this segment was driven by continuing growth in QuickBooks Online revenue. Employee Management Solutions segment revenue increased 13% due to favorable offering mix, improved customer adoption of payroll direct deposit services, and price increases for desktop payroll customers. Payment Solutions segment revenue increased 18% due to fee structure changes and higher total card transaction volume. In our tax businesses, Consumer Tax segment revenue was down 27% and Accounting Professionals segment revenue declined 7%. We believe that some Consumer Tax revenue will shift from the second quarter of fiscal 2013 to the third quarter of fiscal 2013 as discussed in “Executive Overview - Industry Trends and Seasonality” above. See “Business Segment Results” later in this Item 2 for more information about the results for all of our business segments.

Operating income from continuing operations decreased 52% in the second quarter of fiscal 2013 compared with the same quarter of fiscal 2012 due to the decrease in revenue described above and higher costs and operating expenses. Total operating expenses increased $68 million in the fiscal 2013 quarter due to higher expenses for staffing and for advertising and other marketing programs in our Financial Management Solutions and Consumer Tax segments. See “Operating Expenses” later in this Item 2 for more information.

Net income from continuing operations decreased 41% in the second quarter of fiscal 2013 compared with the same quarter of fiscal 2012. Interest expense was lower in the second quarter of fiscal 2013 due to the repayment of debt in fiscal 2012. Our effective tax rate for the second quarter of fiscal 2013 was 18% and our effective tax rate for the second quarter of fiscal 2012 was 34%. See “Non-Operating Income and Expenses – Interest Expense,” “Interest and Other Income, Net,” and “Income Taxes” later in this Item 2 for more information. Diluted net income per share from continuing operations for the second quarter of fiscal 2013 decreased 43% to $0.23, in line with the decrease in net income for that quarter.

Table of Contents

Fiscal Year to Date

Total net revenue increased $41 million or 3% in the first six months of fiscal 2013 compared with the same period of fiscal 2012. Revenue was up