PART I
ITEM 1
BUSINESS

CORPORATE BACKGROUND

Intuit began operations in March 1983 and was incorporated in California in March 1984. In March 1993, we reincorporated in Delaware and completed our initial public offering. Our principal executive offices are located at 2535 Garcia Avenue, Mountain View, California, 94043, and our telephone number is (650) 944-6000. We maintain our corporate Web site at http://www.intuit.com. When we refer to “we,” “our” or “Intuit” in this Form 10-K, we mean the current Delaware corporation (Intuit Inc.) and its California predecessor, as well as all of our consolidated subsidiaries.

We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all other reports, and amendments to these reports, required of public companies with the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Through a link to the SEC Web site, we make available free of charge on our corporate Web site all of the reports we file with the SEC as soon as reasonably practicable after the reports are filed.

Additional copies of Intuit’s fiscal 2003 Form 10-K may be obtained without charge by contacting Investor Relations, Intuit Inc., P.O. Box 7850, Mountain View, California 94039-7850 or by calling (650) 944-6000.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Throughout this Report, we make forward-looking statements that are based on our current expectations, estimates and projections about our business and our industry, and that reflect our beliefs and assumptions based on information available to us at the date of this Report. Many of these statements are located in the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify these statements by 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, among other things, projections of our future financial performance, our anticipated growth, the strategies and trends we anticipate in our businesses and the customer segments in which we operate and the competitive nature and anticipated growth of those segments.

We caution investors that forward-looking statements are only predictions, based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements. Some of the important factors that could impact our future operating results and could cause our results to differ are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.” We encourage you to read that section carefully. You should carefully consider those risks, in addition to the other information in this Report 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 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.

BUSINESS OVERVIEW

Intuit’s Mission: Transforming Business and Financial Management

Our mission is to transform the way people run their businesses and manage their financial lives. Our goal is to create changes so profound and simple that customers wouldn’t dream of going back to their old ways of keeping their books, managing their businesses, preparing their taxes or organizing their personal finances. Our products and

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services fall into the following principal categories: QuickBooks® small business accounting and business management solutions; small business products and services that include payroll, financial supplies, technical support and information technology management solutions; TurboTax® consumer tax products and services; ProSeries® and Lacerte® professional tax products and services; Intuit-branded business management solutions designed to meet the specialized requirements of businesses in selected industries (which we call “Verticals”); and our other businesses, which consist primarily of Quicken® personal finance products and services and our Canadian business. Details about our offerings are provided in “Products and Services” below.

Company Growth Strategy

Intuit has a tradition of successful customer-driven innovation, using technology to address complex customer problems and develop solutions that make things easier. By applying strategic and operational rigor to this foundation, we believe we can accelerate our customer-driven innovation and deliver stronger revenue and profit growth.

There are four key fundamentals that support our growth strategy:

	•		We deliberately choose to be in businesses with large, underserved market opportunities where we believe we have the strategic and durable advantage to produce long-term profitable growth.
	•		We use operational rigor and process excellence methodology, tools and resources to execute more effectively on a daily basis. Our goal is higher service levels at lower cost.
	•		We expand our tradition of customer-driven innovation by looking for new, large customer problems and challenging conventional wisdom to create solutions for customers and profitable growth for Intuit.
	•		We apply strategic rigor to identify new adjacent markets and acquire companies that help us expand our leadership positions in our small business and tax businesses. Our goal is to create new growth platforms that drive faster profitable growth.

By being both disciplined and innovative, we can improve execution and deliver more — for example, by tightening development cycles, we can introduce more new products more quickly. The new products drive stronger growth and give customers a broader range of offerings to best meet their needs.

Customer-Focused Product Strategy

We strive to deliver a range of products and services that can provide a compelling customer proposition for a wide variety of customers with differing needs. In fiscal 2003, we continued to execute on that broad strategy and added key people, processes and infrastructure to our organization.

In September 2001 we announced our “Right for My Business” strategy. The primary purpose of this strategy is to address the market opportunity for businesses with up to 250 employees. Our goal is to offer the right solution for each small business in our targeted markets. Our Right for My Business strategy has two separate components. The first is focused on our QuickBooks products and related small business products and services. The second is focused on our Vertical Business Management Solutions products and services.

Here are the key elements of the QuickBooks and small business component of our Right for My Business strategy:

•

We have been expanding our QuickBooks product line to offer easy-to-use, industry-specific versions of QuickBooks, which we call “flavors.” These products include QuickBooks Premier: Accountant Edition for accounting professionals and Premier and Enterprise versions of QuickBooks for contractors and healthcare providers.

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	•		We are also offering versions of QuickBooks designed for bigger, more complex businesses — including QuickBooks Premier for small businesses needing more advanced accounting functionality and QuickBooks Enterprise Solutions Business Management Software for businesses with up to 250 employees.
	•		We offer business solutions that go beyond accounting software to address a wider range of business management challenges that small businesses face. For example, we offer QuickBooks Point of Sale, an add-on product for retail businesses. We also offer a broad range of payroll services and financial supplies, as well as software solutions that help businesses manage their information technology resources and assets. In the first quarter of fiscal 2004, we announced QuickBooks Customer Manager, a stand-alone desktop software package that works with or independently of QuickBooks. This new product is designed to provide small businesses with integrated tools to manage their customer relationships.
	•		We continue to expand the Intuit Developer Network. This initiative encourages third-party software developers to develop applications that exchange data with QuickBooks and other Intuit products by giving them limited access to application programming interfaces for certain of our software products. At the end of fiscal 2003, there were approximately 300 third-party applications available for QuickBooks and other Intuit products. These applications allow our customers to derive even more value from their Intuit software.

Under the Vertical Business Management Solutions component of our Right for My Business strategy, we provide Intuit-branded business management solutions designed to meet the specialized requirements of businesses in selected industries (which we call “Verticals”) that want more complete and customizable functionality. These currently include business solutions for the construction industry; nonprofit organizations, universities and government agencies; commercial and residential property managers; and wholesale durable goods distributors.

Multi-year customer-focused strategies are also reshaping our other businesses:

	•		In connection with our Consumer Tax “Right for Me” strategy, we have introduced new functionality in our TurboTax Premier desktop products to address the unique needs of investors, those planning for retirement and rental property owners.
	•		Under our Professional Accounting Solutions’ “Right for My Firm, Right for My Clients” strategy, in the first quarter of fiscal 2004 we announced QuickBooks Client Manager, a client management tool for professional accountants that works with or independent of QuickBooks and our Lacerte and ProSeries professional tax preparation software.
	•		In fiscal 2003, we introduced Quicken Premier, which offers more robust investment and tax planning tools. In the first quarter of fiscal 2004, we began offering Quicken products with improved ease of use and reduced setup and maintenance time so that customers can more readily enjoy the benefits of complete and up-to-date financial records in one place.

PRODUCTS AND SERVICES

Intuit offers products and services in six business segments: QuickBooks, Small Business Products and Services, Consumer Tax, Professional Accounting Solutions, Vertical Business Management Solutions and Other Businesses. Our primary products and services are sold mainly in the United States and are described below. For financial information about these businesses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 11 of the financial statements. For a description of the principal risks associated with these businesses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks that Could Affect Future Results.”

Net revenue from our QuickBooks desktop software products represented about 15% of our total net revenue in fiscal 2001, 2002 and 2003. Net revenue from our Consumer Tax products and services accounted for 25% to 27%

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of our total net revenue in those periods. Net revenue from our Professional Accounting Solutions products and services represented between 15% and 17% of total net revenue in fiscal 2001, 2002 and 2003. No other class of similar products or services accounted for 10% or more of total net revenue in these periods.

QuickBooks

Our QuickBooks product line brings extensive bookkeeping capabilities, as well as business management tools, to small business users in an easy-to-use design that does not require customers to be familiar with debit/credit accounting. We offer a range of products to suit the needs of different types of small businesses, including QuickBooks Basic, which provides accounting functionality suitable for smaller, less complex businesses; QuickBooks Pro, which supports up to five multiple simultaneous users; QuickBooks Premier, for small businesses needing more advanced accounting functionality; QuickBooks Enterprise Solutions Business Management Software, designed for businesses with up to 250 employees; QuickBooks Premier: Accountant Edition, for accounting professionals with multiple QuickBooks clients; QuickBooks Point of Sale, an add-on product for retail businesses; and Premier and Enterprise versions of QuickBooks that are customized for contractors, nonprofit agencies and healthcare providers. As part of our Right for My Business strategy, we expect to introduce additional versions of QuickBooks during fiscal 2004 and beyond.

Small Business Products and Services

Small Business Service Solutions. We offer a variety of technical support options to our QuickBooks customers through our Small Business Service Solutions group. These include a free self-help information section on our QuickBooks.com Web site as well as a variety of support plans that are priced based on the level of personal assistance and response time the customer requires.

Payroll. Our payroll business provides solutions to help small business owners better manage key tasks relating to their employees. Our current payroll offerings consist primarily of two solutions:

	•		Our QuickBooks Do-It-Yourself Payroll offers payroll tax tables, forms and electronic tax payment and filing services on a subscription basis to small businesses that prepare their own payrolls.
	•		Our outsourced payroll services consist of our QuickBooks Assisted Payroll Service and our Intuit Payroll Services Complete Payroll. QuickBooks Assisted Payroll Service is an online payroll service that handles the back-end aspects of payroll processing, including tax payments and filings. It is integrated with QuickBooks, which minimizes customer data entry. Our Intuit Payroll Services Complete Payroll provides traditional, full service payroll processing, tax payment and check delivery services. We offer these services with QuickBooks integration or on a standalone basis. Complete Payroll includes the business of CBS Employer Services, Inc., which we acquired in the fourth quarter of fiscal 2002. It also encompasses our former Premier Payroll Service, which we had marketed and sold jointly with Wells Fargo Bank. In February 2003, we acquired the rights to brand and market the offering directly to Premier Payroll Service customers who currently use Intuit’s service.

Financial Supplies. We offer a range of financial supplies, such as paper checks, envelopes, invoices, deposit slips, stationery and business cards, designed for small businesses and individuals. We also offer tax forms, tax return presentation folders and other similar items for professional tax preparers. Our customers can personalize many products to incorporate their logos and use a variety of color, font and design options.

Small Business Online Services. Our more recent QuickBooks products offer a variety of optional business management services for an additional fee, including QuickBooks Online Billing, which allows small businesses to bill and receive customer payments electronically; QuickBooks Merchant Account Service, which enables small businesses to accept credit card payments from their customers; QuickBooks Shipping Manager, which gives small businesses access to Federal Express® shipping and tracking information that is integrated with QuickBooks; and the QuickBooks Business Mastercard®, which allows small businesses to download their credit card transactions directly into QuickBooks.

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Information Technology Solutions. Our Intuit Track-It! line of products and services offer businesses robust tools to track and support their information technology assets and resources. As part of our “Right for My Business” strategy, Intuit Track-It! products provide comprehensive asset management, help desk and knowledge management solutions to businesses.

Consumer Tax

Consumer Tax Preparation Offerings. Our TurboTax products and services are designed to enable individuals and small business owners to prepare their own federal and state personal and business income tax returns easily, quickly and accurately. They are designed to be easy to use, yet sophisticated enough for complex tax returns. We offer a range of customized desktop software products as well as TurboTax for the Web, an interactive tax preparation service that enables individual taxpayers to prepare their federal and state income tax returns entirely online. One of our premium offerings, TurboTax Premier, addresses the unique income tax needs of investors, those planning for retirement and rental property owners. In addition, our innovative Instant Data Entry feature enables taxpayers to import data directly into their tax returns from Form W-2s (wages), Form 1098s (mortgage interest) and Form 1099s (interest, dividends and stock transactions) from approximately 70 participating financial institutions and payroll service companies. This feature saves TurboTax users significant time and increases accuracy.

Electronic Filing Services. Through our electronic filing center, customers of our desktop and Web-based tax preparation offerings can electronically file their federal tax returns, as well as state returns in all states that support electronic filing. For the 2001 and 2002 tax years, we were the exclusive provider of online tax preparation services on the Yahoo!® Finance Tax Center, and for the 2002 tax year our online tax services were also offered through the websites of approximately 1,500 financial institutions, electronic retailers and other merchants.

Intuit Tax Freedom Project. Under the Intuit Tax Freedom Project, a philanthropic public service initiative of the Intuit Financial Freedom Foundation, we provide online federal income tax return preparation and electronic filing services at no charge to lower income and other underserved federal taxpayers. We are a member of the Free File Alliance, a consortium of private sector companies that signed a three-year agreement with the federal government in October 2002 under which a number of private sector companies, rather than the federal government, are providing Web-based federal tax preparation and filing services at no cost through voluntary public service initiatives. We donated approximately 1.3 million federal units under this program in fiscal 2003.

Professional Accounting Solutions

Professional Accounting Solutions provides software and services for accountants in public practice who serve multiple clients. In addition to solutions sold directly to accountants, Professional Accounting Solutions also takes the leading role in generating revenue from Intuit products sold or referred by accountants to their small-business clients.

ProTax. ProSeries® and Lacerte® tax preparation software products are designed for tax professionals who prepare tax returns for their individual and business clients. Customers can elect to license professional tax products for a flat fee for unlimited annual use, or use them on a “pay-per-return” basis. ProSeries and Lacerte customers can file their clients’ tax returns through Intuit’s electronic filing services. In addition, Lacerte Tax Planner helps tax professionals provide tax planning services to their clients, and ProSeries Fixed Asset Manager is a time and effort-saving system for managing asset information.

Accountant Relations. Accountant Relations is responsible for advising accountants on how Intuit solutions can help them better serve their clients, manage their practices and grow their businesses. To help familiarize accountants with Intuit products and services, Accountant Relations administers the Intuit Accountant Training Network, which provides training and information to accountants in more than 50 cities nationwide. Accountant Relations also provides a collection of subscription-based membership and communication programs, product certifications, an informational Web site and Web-based tools for accounting professionals. Additionally, Accountant Relations drives Intuit’s strategy for developing a network of accountants who recommend and promote Intuit business and financial management solutions to their small-business clients and other accountants.

Accounting Solutions. Accounting Solutions develops offerings that help accountants better serve their clients, manage their practices and grow their businesses. QuickBooks Client Manager: Accountant Edition is a new client

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information and task management tool designed specifically for the needs of professional accountants. It employs a single, easy-to-use interface that enables accountants to organize and use client information stored in other software programs such as Lacerte and ProSeries professional tax software and Microsoft Outlook, Microsoft Word and Microsoft Excel. QuickBooks Client Manager is a stand-alone desktop software package that works with or independently of QuickBooks. Intuit® EasyACCT® Professional Accounting Series allows accountants to create financial statements and prepare tax forms (such as W-2s and 940s) for their clients. Accounting Solutions also supports software products from other Intuit business units that are developed or adapted for use by accountants. For example, QuickBooks Financial Statement Reporter enables accountants who use QuickBooks Premier: Accountant Edition 2003 or QuickBooks Enterprise Solutions Version 3.0 to easily create a complete, professional set of financial statements.

Vertical Business Management Solutions

In fiscal 2002, we acquired four companies that enable us to provide Intuit-branded accounting and business management solutions to customers in selected industries, which we call “Verticals.” These vertical businesses sell their products primarily in the United States and on a limited basis in Canada. Reported as a single business segment, these vertical businesses include:

Other Businesses

Personal Finance

Quicken Software. Our Quicken line of desktop software products helps users organize, understand and manage their personal finances. Quicken allows customers to reconcile bank accounts, record credit card and other transactions, write checks, and track investments, mortgages and other assets and liabilities. Quicken also allows customers to flag their tax-related financial transactions and download that information into our TurboTax consumer tax software. We offer basic and deluxe versions of the product as well as Quicken Premier, which offers more robust investment and tax planning tools; Quicken Premier Home and Business, which allows customers to manage both personal and small business finances in one application; and Quicken for Mac.

Quicken.com and Other Online Services. We provide a range of online services that help consumers manage their financial lives. Quicken.com™ is our primary personal finance Web site. It enables customers to automate financial management tasks and make informed financial decisions by giving them software tools, resources and objective information about a variety of personal finance topics, including investing, mortgages, insurance, taxes, banking and retirement, in a single online destination. Customers can also purchase many Intuit products and services from the site’s electronic store. Other online services that we offer include bill payment and online banking services through the Quicken desktop product and a Quicken credit card. Quicken and/or Quicken.com customers can also link directly to third-party providers of other services, such as insurance and mortgages. In fiscal 2003, we also offered brokerage services provided by a third party under a joint brokerage services agreement. We expect that we will cease to offer this service during the first or second quarter of fiscal 2004. We do not currently charge customers a fee to access most features on Quicken.com, but we receive revenue from financial institutions and other companies that advertise and/or sell their products or services through links from Quicken.com.

Global Business

We have business operations in Canada and we also serve markets across Europe, Southeast Asia and other selected locations. We have established third-party relationships with local companies in certain countries to help us better

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address specific markets. In all international markets except Canada and Europe, we focus primarily on small business products.

Canada and the United Kingdom. In Canada, we offer versions of QuickBooks that we have “localized,” that is, customized to meet the unique needs of customers in that specific international location. These include Right for My Business versions of QuickBooks targeted at contractors, retail establishments, professional accountants, property managers and nonprofit organizations which we introduced during fiscal 2003; QuickTax™ consumer tax return preparation software, including Right for Me QuickTax products for investors, those who maintain home offices and taxpayers preparing for retirement, which we introduced during fiscal 2003; TaxWiz consumer tax return preparation software, which we acquired during fiscal 2003; ProFile™ Financial Application Suite professional tax preparation products; and localized versions of Quicken. In the United Kingdom, we also offer localized versions of QuickBooks and Quicken, as well as the TaxCalc™ consumer tax return product.

Other Locations. We offer localized versions of QuickBooks and Quicken products in selected European markets through local distributors and agents. We also offer localized versions of QuickBooks and Quicken products in Australia, New Zealand and Singapore through a development, marketing and distribution arrangement with Australia-based Reckon Limited.

PRODUCT DEVELOPMENT

Historically, our desktop software products have tended to have a fairly predictable, structured development cycle of about a year, with annual product releases. This trend has been changing. For our small business desktop products, we now supplement annual releases of our core QuickBooks products with periodic releases of QuickBooks products for larger or more complex businesses and for our industry-specific QuickBooks products. The development timing for our service offerings, such as outsourced payroll, is determined by business needs and regulatory requirements and the length of the development cycle depends on the scope and complexity of each particular project. Developing tax preparation software presents unique challenges because of the demanding development cycle required to accurately incorporate annual tax law and tax form changes within a rigid timetable. The product development cycles for our Vertical Business Management Solutions businesses are sometimes longer than one year for major product releases. For a description of other risks and challenges we face relating to our product development, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

During the past few years, we have devoted significant resources to developing new products and services, including QuickBooks Premier, QuickBooks Premier: Accountant Edition, QuickBooks Enterprise Solutions Business Management Software, industry-specific versions of QuickBooks, the Intuit Developer Network, TurboTax Premier, the Instant Data Entry feature of our TurboTax products and services and Quicken Premier. We supplement our internal development efforts by acquiring strategically important products and technology from third parties, or establishing other relationships that enable us to expand our offerings more rapidly. For example, during fiscal 2002 we acquired four companies that provide business management products in selected vertical industries, and we worked closely with a third-party technology provider to develop our QuickBooks Point of Sale software. In fiscal 2003 we acquired the technology assets underlying this software from the same provider. In fiscal 2003 we also acquired Blue Ocean Software, a company with a product that helps businesses manage their information technology resources and assets, and we formed a strategic alliance with a third-party database company that allows us to use their data management and synchronization package in our future research and development.

We also devote resources to improving our existing products and services. For our desktop software products, our recent development efforts have focused on creating an easier, more seamless end-to-end customer experience, as well as adding new features. For example, in fiscal 2003 our TurboTax product development team invested significant resources in improving areas of the product that customers told us weren’t easy to use or resulted in customer support contacts. We also continue to incorporate technology in our products and services to address customer concerns about privacy and security while minimizing the impact on performance and ease of use. In addition, in recent years we have developed technology that helps reduce unlicensed use of some of our desktop software products. Our QuickBooks products require registration after an initial trial period, and our professional tax return preparation products and our Canadian consumer tax products contain technology that restricts sharing of

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those products. We have also developed technology to unlock marketing and trial versions of many of our U.S. products, such as TurboTax MyCD.

During the past few years, we have made a number of improvements to our product development process. We team technical support and product development personnel so that we can anticipate feature usability and support issues early in the development process. In fiscal 2003, the QuickBooks product development team deployed a rigorous process to build customer requirements into the development and beta processes. QuickBooks 2003 continued to evolve during the year through a regular update and release cycle that further integrated customer suggestions. This iterative process improved product quality and reduced customer service and technical support call volume for our QuickBooks 2003 products. Other significant product development process improvements include the adoption of formal software inspections in several of our large development groups, the introduction of an enhanced software change management process to the tax software product development organizations and the institutionalization of software architecture as a discipline in all major software development groups. These changes and others, such as automating our quality assurance testing and providing electronic updates to our beta test customers, have allowed us to shorten our development cycles and launch more new products more quickly.

Our research and development expenses were $196.1 million in fiscal 2001, $198.5 million in fiscal 2002 and $255.8 million in fiscal 2003. Over the next few years, we expect that we will be faced with somewhat different product development challenges than we have in the past. We will be developing more versions of more complex products than ever before. In addition, these products will offer increased ease of use, be customized for specific customer needs and feature improved integration with other Intuit products and services and with our internal information support systems. Our research and development efforts will be focused on developing new products and services to address customer needs in our more broadly defined market segments as well as adding complementary products and services to drive additional, recurring revenue from our core products. We strive to maintain a balance between relatively low-risk investments that address existing customer needs and investments in more innovative but higher-risk projects with potentially greater returns.

MARKETING, SALES AND DISTRIBUTION

Markets

During the past two years, we have expanded both the markets that we serve and the products and services that we offer in our target markets. Historically, our target markets were individuals and small businesses with less than 20 employees. We continue to serve those markets with products and services such as QuickBooks, TurboTax and Quicken. In addition to these markets, 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 the umbrella of our Right for My Business strategy. We are introducing accounting solutions to meet the specialized requirements of certain small businesses by developing industry-specific versions of QuickBooks, which we call “flavors.” We have introduced new Premier and Enterprise 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.

In addition, we have acquired companies that offer robust business management solutions to a wide range of businesses in selected industries, which we call “Verticals.” We expect to continue expanding in these directions over the next several years. See “Business Overview — Customer-Focused Product Strategy” and “Products and Services,” above, for more details about our product and service offerings.

Many of the markets in which we compete are characterized by rapidly changing customer demands, continuous technological changes and improvements, shifting industry standards and frequent new product introductions by competitors. Market and industry changes can quickly render existing products and services obsolete, so our success depends on our ability to respond rapidly to these changes with new business models, updated competitive strategies, new or enhanced products and services, alternative distribution methods and other changes to the way we do business. For a description of other risks and challenges we face relating to marketing, sales and distribution, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

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Distribution Channels

Over the past two years we have been broadening our distribution channels to accommodate the recent expansion of the markets we serve and the range of products and services we offer. Our goal is to make our products and services available in a variety of ways so that each customer may choose the channel that best meets that customer’s needs.

Direct Marketing Programs. For our core desktop software products (QuickBooks, TurboTax and Quicken), we use various types of direct marketing campaigns — including mail, email and telephone solicitations, direct-response newspaper and magazine advertising, and television and radio advertising — to generate software orders, stimulate demand and generally maintain and increase consumer awareness of our products. We also use workflow-integrated in-product messaging in several of our software products to market our other related products and services. In addition, we have recently initiated new direct marketing programs in which we ship certain software products directly to customers without charge. Customers electronically unlock and pay for the products when they are ready to use them. Direct marketing campaigns are one of the most effective ways to encourage existing customers to purchase additional products and services, including software upgrades.

Direct Sales Channel. Our direct sales efforts have historically focused on generating sales of relatively inexpensive, off-the-shelf products to existing customers through call centers. Our service offerings, such as Intuit Payroll Services Complete Payroll, as well as our more sophisticated, higher-priced software products, require a different approach to direct sales than our traditional desktop software. As we have expanded our service offerings and introduced more high-end software products and business management solutions over the past two years, we have been enhancing our direct sales capabilities to support revenue growth in these new areas, as well as in our core desktop software. We are investing in technology to consolidate and improve our management of customer contact data and order management tools across business divisions and we are training our customer service personnel in consultative selling techniques. We have expanded our direct sales staff and broadened its role to include more extensive and personalized contact with existing and potential customers. In addition, the products and services we offer through our Vertical Business Management Solutions segment are sold primarily through direct sales organizations. As a result of all of these factors, we expect that direct sales will become an increasingly important source of revenue and will increase our selling and marketing expenses over the next few years.

Many of our direct customers choose to order and/or take delivery of products electronically through our Web sites. Electronic ordering and delivery are generally more convenient for customers and more cost-efficient for Intuit. Electronic delivery is available for most of our tax preparation products and for all product updates for our tax preparation products.

Retail Distribution Channel. We market our QuickBooks, TurboTax and Quicken desktop software at retail in North America primarily through traditional retail software outlets, computer superstores, office supply superstores, food and drug retailers, warehouse clubs and general mass merchandisers. In international markets, we also rely on distributors, value-added resellers and other third parties, who sell products into the retail channel. We will continue to evaluate new retail distribution channels as appropriate for reaching our customers in the future.

We continue to benefit from strong relationships with a number of major North American retailers, which allows us to minimize our dependence on any specific retailer. We now ship most of our products directly to the individual store locations of these major retailers and use distributors only to reach smaller retailers. See “Manufacturing and Distribution.” We continue to aggressively manage our inventory to optimize in-stock presence and ensure good product placement within retail stores. In response to current retail trends, we are also placing a greater proportion of inventory with retailers on a consignment basis. See “Competition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

As we execute on our Right for My Business strategy, we are starting to offer software products that are more complex and have higher prices than our traditional retail software products. Our recent tailoring of some of these software products to specific customer needs, including industry-specific versions of QuickBooks, is also resulting in a greater number of Intuit products. We produce and place in-store displays and other retail merchandising aids

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that educate customers about product functionality and benefits. However, we continue to evaluate whether the retail channel will be an effective distribution model for some of these higher-end offerings. See “Competition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

OEM Channel. We have existing relationships with a number of personal computer “original equipment manufacturers,” or OEMs, including Apple Computer Inc., Dell Computer Corporation, Gateway Inc. and Hewlett-Packard, which enable us to generate sales of our core desktop software products in two ways. First, certain OEMs “pre-bundle” new-user versions of certain desktop software products on the computer systems that the OEMs sell to their customers. These pre-bundled OEM sales are a good source of new customers and future revenues. The second source of revenue from the OEM channel is “after-market” programs, in which customers who are purchasing computers can select and purchase software products at the same time.

Third-Party “Value-Added” Distribution Arrangements. As we execute on our Right for My Business strategy, we are supplementing our direct sales capabilities and our retail and OEM distribution relationships with selected third-party distribution arrangements. We believe these relationships will enhance the growth opportunities for our higher-end product and service offerings by allowing us to benefit from the value-added marketing and sales expertise of these third parties. We currently have arrangements with third parties who have specialized expertise in marketing, selling and providing post-sale implementation services for some of our Vertical Business Management Solutions businesses. During fiscal 2004 and beyond, we expect to continue to optimize and support our network of third-party relationships to help increase revenue for some of our existing higher-end products and services, as well as for additional products and services we anticipate offering as we execute our Right for My Business strategy.

COMPETITION

Overview

We face intense competition in almost all of our businesses, both domestically and globally. Competitive interest and expertise in many of the markets we serve, particularly small business and consumer tax, has grown markedly over the past few years and we expect this trend to continue. Some of our existing competitors have significantly greater financial, technical and marketing resources than we do. As we implement our customer-focused strategies, we face increased competitive threats from larger companies in more diverse markets than we have historically faced. In addition, the competitive landscape can shift rapidly as new companies enter markets in which we compete. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

For our QuickBooks, TurboTax and Quicken desktop software, we believe the most important competitive factors are product features, ease of use, size of the installed customer base, brand name recognition, price, product and support quality and access to distribution channels. We believe we compete effectively on these factors as our three principal desktop software products are the leading products in the retail sales channel for their respective categories. For most of our products and services other than desktop software, we believe the most important competitive factors are features and ease of use, brand name recognition, speed in getting new products and services to market, the ability to distribute them effectively (through online methods or through retailers, third party resellers and direct distribution) and quality of implementation and support. For our service offerings such as outsourced payroll, service reliability and scalability of operations are also important factors. We believe we compete effectively on these factors.

Our most obvious competition comes from other companies that offer technology solutions similar to ours. These competitors are described below. However, for many of our products and services, other important competitive alternatives for customers are manual tools and processes, or general-purpose software. Many of our new customers have used pencil and paper or software such as word processors and spreadsheets, rather than competitors’ software and services, to perform financial tasks. For example, many taxpayers prepared their tax returns manually before using TurboTax; a large number of small businesses used spreadsheets to keep their books and they processed their payroll using spreadsheets and manually-written checks before purchasing QuickBooks; and most of our personal finance customers tracked their finances with spreadsheets, manually or not at all before using Quicken.

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QuickBooks and Small Business Products and Services

Competitors for our small business accounting and business management offerings include companies such as Best/Peachtree Software (which is owned by The Sage Group PLC), Microsoft Corporation, and MYOB Group. Microsoft has several small business offerings that compete with our small business offerings, including Microsoft Business Solutions Small Business Manager, Microsoft Busines Solutions CRM and Business Contact Manager for Microsoft Office Outlook® 2003. We expect that Microsoft small business offerings will continue to compete with our small business offerings, perhaps even more directly in the future. As we expand the depth and breadth of our small business offerings, we face competition from companies that are already offering industry-specific small business solutions and business management tools and services for larger small businesses. In addition to established competitors, other potential competitors have expressed significant interest in providing accounting and other products and services to small businesses.

Our payroll services compete directly with traditional payroll service providers as well as Web-based service providers. Significant competitive factors include distribution channels and a highly fragmented market, including financial institutions that are developing or promoting their own payroll services. We face direct competition in our Intuit Payroll Services Complete Payroll business from traditional payroll services offered by a number of companies, including ADP and Paychex, as well as hundreds of regional and local companies. Our QuickBooks Assisted Payroll service competes directly with companies offering Web-based payroll services, and indirectly with companies offering other payroll solutions. Various companies also offer tax table subscription and electronic filing services similar to our QuickBooks Do-it-Yourself Payroll offering.

Our financial supplies business competes with a number of business forms companies, including New England Business Service and Deluxe Business Systems, as well as with printing services offered by franchises such as Kinko’s and large office supply retailers such as Office Depot and Staples. Other competitors include direct mail check printers, banks and a number of smaller-scale Internet-based printing companies. In addition, our QuickBooks products include some features (such as customizable invoicing and 1099 tax form printing) that compete with our supplies products. Online bill payment services and online payroll services with direct deposit capabilities also offer competitive alternatives to printed checks. Significant competitive factors for the supplies business include ordering convenience, methods of reaching customers, product quality, speed of delivery and price. We believe that our convenient access to our large QuickBooks and Quicken customer bases is a significant competitive advantage for our financial supplies business.

Consumer Tax

Competition in the consumer tax preparation market is intense. Our major domestic competitor for both desktop and Web-based consumer tax software continues to be H&R Block, the makers of TaxCut software. In addition, a number of smaller competitors have entered the online consumer tax preparation market segment, and other larger competitors may enter both the desktop and Web-based consumer tax market segments in the future. Our consumer tax products and services also compete for customers with professional tax preparers, particularly those with franchise operations and including those who use our professional tax return preparation software.

We also face potential competitive challenges from publicly funded government entities that offer electronic tax preparation and filing services at no cost to individual taxpayers. The federal government signed a three-year agreement with the Free File Alliance in October 2002 under which a number of private sector companies, rather than the federal government, are providing Web-based federal tax preparation and filing services at no cost through voluntary public service initiatives such as our Intuit Tax Freedom Project. As a member of the Free File Alliance, we continue to actively work with others in the public sector to advance the goals of the Free File Alliance program and to support a successful public-private partnership. However, future administrative, regulatory or legislative activity in this area could adversely affect us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

Professional Accounting Solutions

The professional accounting solutions and tax preparation software market segment has many competitors. Our largest competitors in the United States are CCH Incorporated, with its ProSystem fx product line; Kleinrock

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Publishing, with its ATX product line; and the Thomson Corporation, with its Creative Solutions and GoSystem offerings. We also have many smaller competitors in this market segment. The professional tax market has been highly fragmented in the past, but it has experienced some consolidation in recent years.

Vertical Business Management Solutions

All of our Vertical Business Management Solutions businesses operate in highly competitive and fragmented environments where no competitor has a significant share of the market segment. We may experience pricing pressure in these market segments because we compete with many small companies, who have fewer resources than larger companies and are therefore more likely to focus on near-term sales. In each of these market segments, the possibility exists that through either consolidation within the market segment or the entry into the market segment of new companies a significant competitor will emerge.

Other Businesses

In desktop personal finance software, the Microsoft Money product is our primary domestic competition. We also face competition from Web-based personal finance tracking and management tools that are available at no cost to consumers through financial institutions and others. There are many competitors for our other personal finance products and services. Some portal Web sites and financial institutions also provide offerings such as Web-based bill presentment and payment services that compete with services we offer.

In Canada, we face competition from a number of companies in the small business arena, including Computer Associates International, Inc. and Microsoft Corporation. Competitors for our Canadian consumer tax business include online consumer tax products from a number of companies including Ufile as well as tax preparation services from companies such as H&R Block and Liberty Tax. The primary competitor for our professional tax business in Canada is CCH Canadian Limited. In Europe, we face competition from Bhuldata (Wiso), Microsoft and The Sage Group PLC (based in the United Kingdom) in the small business market, as well as competition from various Web-based accounting products. Our primary global competitor in the personal finance arena is Microsoft.

CUSTOMER SERVICE AND TECHNICAL SUPPORT

We provide customer service and technical support by telephone, online chat, fax, e-mail and our customer service and technical support Web sites. We have full-time and outsourced customer service and technical support staffs, which we supplement with seasonal employees and additional outsourcing during periods of peak call volumes, such as during the tax return filing season or following a major product launch.

During the past few years, we have focused on developing support capabilities that can supplement, or in some situations replace, telephone service and support. For example, customers can use our Web sites to find answers to commonly asked questions, check on the status of product orders and receive product updates electronically. Alternative service and support methods are less expensive for us and are often more efficient and effective for our customers. We have completed a number of process excellence projects in our customer service and technical support operations to improve our call capacity forecasting, develop more flexible approaches to staffing and reduce support call volumes and handling times. We have also outsourced a portion of the growth in our customer service and technical support operations to several firms located in the United States as well as to firms located outside the United States, including India and Northern Ireland. We expect to continue to outsource a portion of those operations in the future. We believe that both these process improvement and outsourcing projects are critical to our ongoing efforts to provide better service to customers at the same or lower cost.

We generally charge customers for technical support, but we do not charge for installation problems or product defect issues. We offer free self-help information through our technical support Web sites for our main product lines. Support alternatives and fees vary widely by product, from self-help to online chat to telephone support. Our customers can generally choose from a range of support options that are priced based on the level of personal assistance and response time they require. Our Vertical Business Management Solutions businesses also offer product consulting and training services.

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Despite our efforts to maintain continuous and reliable customer service and technical support operations, we risk losing service at any one of our customer contact centers and our redundancy systems could prove inadequate to provide backup support. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results” for additional information about our customer service and technical support operations.

MANUFACTURING AND DISTRIBUTION

Desktop Software

The major steps involved in manufacturing desktop software are duplicating CDs, printing boxes and related materials, and assembling and shipping the final products. We have a manufacturing agreement with Modus Media International, Inc. under which Modus provides substantially all outsourced manufacturing related to our retail launches of QuickBooks, TurboTax and Quicken, as well as for day-to-day retail order fulfillment after product launches. Although Modus has operations in multiple locations that can provide redundancy if necessary, we are in the process of centralizing the manufacturing for our retail products in one of their facilities which is co-located with our primary retail fulfillment vendor, Ingram Micro Logistics. We expect this arrangement to result in lower manufacturing costs and shorter manufacturing cycle times.

During fiscal 2003, we also had an in-house facility that handled the manufacturing and shipping for most direct sales orders. In the fourth quarter of fiscal 2003, we signed an agreement with Arvato Services, Inc., a subsidiary of Bertelsmann, to outsource our direct product manufacturing and distribution. We expect this arrangement to result in expanded capabilities, service improvements and lower manufacturing and distribution costs. We anticipate that the transition to Arvato will be complete by the end of October 2003.

We have multiple sources for all of our raw materials and availability has historically not been a problem for us. Over the past few years, we have taken steps to streamline our packaging and reduce our inventory and scrap costs in order to generate greater profitability in our core desktop software businesses.

Our retail product launches have become operationally more complex over the past few years. We have evolved from shipping to a few hundred distribution centers (with distributors delivering products to individual retail locations) to a “direct to storefront” model in which we ship products directly to approximately 10,000 individual retail locations. This allows us to be more responsive to the needs of our retail accounts. We have an agreement with Ingram Micro Logistics under which Ingram handles all logistics, fulfillment and similar functions for our retail sales in support of this direct to storefront initiative. During the past two years we have improved operational rigor at various points in our supply chain. As a result, we have significantly increased our on-time shipments and significantly reduced our aggregate channel inventory levels. We have also reduced our dependence on distributors or on any individual retail account. No distributor or retailer accounted for 10% or more of our total net revenue during fiscal 2001, 2002 or 2003.

Prior to major product releases, we tend to have significant levels of backlog, but at other times backlog is minimal and we normally ship products within a few days of receiving an order. Because of this fluctuation in backlog, we believe that backlog is not a reliable predictor of our future desktop software sales.

Internet-based Products and Services

Intuit’s data centers house most of the systems, networks and databases required to operate and deliver our Internet-based products and services, including QuickBooks Online Edition, QuickBooks Assisted Payroll Service, TurboTax for the Web, electronic tax filing and Quicken.com. Through our data centers, we connect customers to products and services, and we store the vast amount of data that represents the content on our Web sites. Our data centers consist of approximately 3,000 servers and 500 databases located in several sites across the United States. In an effort to reduce unavailability, or “down time,” for our Internet-based products and services, we generally follow industry-standard practices for creating a fault-tolerant environment, but we do not have complete redundancy. We also have a major initiative underway to provide back-up processing capabilities that are designed to protect us

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against site-related disasters. Despite our efforts to maintain continuous and reliable server operations, we occasionally experience unplanned outages or technical difficulties. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

PRIVACY AND SECURITY OF CUSTOMER INFORMATION

Customers are concerned about the privacy and security of the personal information they provide to companies. This concern applies to information they provide in connection with Internet-based products and services, as well as information they provide through more traditional methods, such as product registration cards. In addition to customer concerns, we are subject to various federal and state laws and regulations relating to privacy and security. We are also subject to laws and regulations that apply to telemarketing activities. Additional laws in both areas are likely to be passed in the future, which could result in significant limitations on the ways in which we can communicate with our customers and significantly increase our compliance costs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

We have established guidelines and practices to help ensure that customers are aware of, and can control, how we use information about them. All publicly-accessible, Intuit-owned and operated consumer Web sites at which customer data is collected (including QuickBooks.com, TurboTax.com and Quicken.com) have been certified by TRUSTe, an independent, non-profit privacy organization that operates a Web site certification program to alleviate users’ concerns about online privacy. Each of our Web sites, as well as our software products, has a privacy statement providing notice to customers of our privacy practices, as well as providing them the opportunity to furnish instructions with respect to use of their data.

To address security concerns, we use industry-standard security safeguards to help protect the information customers give to us from loss, misuse and unauthorized alteration. Whenever customers transmit sensitive information, such as a credit card number or tax return data, to us through our Web site, we provide them access to our servers that allow encryption of the information as it is transmitted to us. We work to protect personally identifiable information stored on the Web site’s servers from unauthorized access using commercially available computer security products, such as firewalls, as well as internally developed security procedures and practices.

We believe privacy and security issues pose a significant risk to Intuit and other companies, especially companies doing business over the Internet. Although we have made significant efforts to address customer concerns through our business practices, during the past few years we have faced lawsuits and negative publicity relating to privacy issues. Our response to these allegations has been that we do not share any personally identifiable information except as disclosed in our privacy policies. A major breach of customer privacy or security, even by another company, could have serious consequences for our businesses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results” and “Legal Proceedings.”

GOVERNMENT REGULATION

We offer certain products and services, such as our payroll offerings, which are subject to special regulatory requirements. As we expand our small business offerings, we may become subject to additional government regulation, particularly in the areas of retirement planning and other employer services. We continually analyze new business opportunities, and new businesses that we pursue may require additional costs for regulatory compliance.

Current government regulation poses a number of risks to us, including potential liability to customers and/or penalties and sanctions by government regulators. Future regulation could hamper the growth of our businesses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

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INTELLECTUAL PROPERTY

We rely on a combination of copyright, patent, trademark and trade secret laws, and employee and third-party nondisclosure and license agreements to protect our software products and other proprietary technology. We do not own all of the software and other technologies used in our products and services, but we have the licenses from third parties that we believe are necessary and appropriate for using that technology in our current products.

We consider our principal trademarks (including Intuit, QuickBooks, TurboTax and Quicken) to be important assets and have registered these and other trademarks and service marks in the United States and many foreign countries. The initial duration of trademark registrations varies from country to country and is 10 years in the United States. Most registrations can be renewed perpetually at 10-year intervals.

We face a number of risks relating to our intellectual property, including persistent piracy of our desktop software products through unauthorized use and copying. Although we continue to evaluate technology solutions to piracy, as well as increase our civil and criminal enforcements efforts, we expect piracy to be a persistent problem. We also face the risk of third parties claiming that our products or services infringe their intellectual property rights, and we face risks to the value of our brands when we grant trademark licenses to third parties. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks That Could Affect Future Results.”

EMPLOYEES

As of August 31, 2003, we had approximately 6,700 employees located primarily in the United States, Canada and the United Kingdom. We believe our future success and growth will depend on our ability to attract and retain qualified employees in all areas of our business. We do not currently have any collective bargaining agreements with our employees, and we believe employee relations are generally good. Although we have employment-related agreements with a number of key employees, these agreements do not guarantee continued service. We believe we offer competitive compensation and a good working environment. We were selected as one of Fortune magazine’s “100 Best Companies to Work For” in April 2002 and 2003. However, we face intense competition for qualified employees, and we expect to face continuing challenges in recruiting and retention.