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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number 0-21180

INTUIT INC.

2535 Garcia Avenue, Mountain View, CA  94043

(650) 944-6000

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

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

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

Approximately 205,237,583 shares of Common Stock, $0.01 par value, as of November 29, 2002

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Intuit, the Intuit logo, QuickBooks, Quicken, TurboTax, ProSeries, Lacerte, FundWare and QuickBase, among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Intuit Master Builder, MRI and Intuit Eclipse, among others, are trademarks and/or service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Other parties’ marks are the property of their respective owners and should be treated as such.

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INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

						July 31,				October 31,
(In thousands; unaudited)						2002				2002
				ASSETS
Current assets:
	Cash and cash equivalents					$	435,087			$	308,176
	Short-term investments						815,342				522,980
	Marketable securities						16,791				27,462
	Customer deposits						300,409				308,149
	Accounts receivable, net						56,467				65,353
	Deferred income taxes						67,799				66,957
	Income taxes receivable						—				56,915
	Prepaid expenses and other current assets						50,729				36,771
	Amounts due from discontinued operations entities						252,869				184,538
		Total current assets					1,995,493				1,577,301
Property and equipment, net							181,758				189,550
Goodwill, net							428,948				581,406
Purchased intangibles, net							125,474				125,996
Long-term deferred income taxes							176,553				171,428
Loans to executive officers and other employees							21,270				20,585
Other assets							33,530				13,481
Total assets						$	2,963,026			$	2,679,747
			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable					$	76,669			$	80,847
	Accrued compensation and related liabilities						91,507				77,595
	Payroll service obligations						300,381				308,117
	Deferred revenue						159,758				166,075
	Income taxes payable						442				—
	Short-term note payable						17,926				18,026
	Other current liabilities						86,094				87,092
		Total current liabilities					732,777				737,752
Long-term obligations							14,610				14,384
Commitments and contingencies
Stockholders’ equity:
	Preferred stock						—				—
	Common stock and additional paid-in capital						1,846,707				1,864,172
	Treasury shares, at cost						(126,107	)			(351,781	)
	Deferred compensation						(12,628	)			(10,346	)
	Accumulated other comprehensive income (loss)						(3,675	)			1,376
	Retained earnings						511,342				424,190
		Total stockholders’ equity					2,215,639				1,927,611
Total liabilities and stockholders’ equity						$	2,963,026			$	2,679,747

See accompanying notes.

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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

					Three Months Ended
					October 31,
					2001				2002
(In thousands, except per share data; unaudited)
Net revenue:
	Products				$	114,583			$	146,992
	Services					36,755				60,941
	Other					17,389				15,349
			Total net revenue			168,727				223,282
Costs and expenses:
	Cost of revenue:
			Cost of products			31,926				29,847
			Cost of services			24,312				36,876
			Cost of other revenue			5,551				4,590
			Amortization of purchased software			1,706				2,977
	Customer service and technical support					37,759				41,752
	Selling and marketing					59,953				78,801
	Research and development					48,857				65,682
	General and administrative					26,557				40,161
	Charge for purchased research and development					—				7,789
	Acquisition-related charges					41,081				9,455
	Loss on impairment of long-lived asset					27,000				—
			Total costs and expenses			304,702				317,930
Loss from continuing operations						(135,975	)			(94,648	)
Interest and other income						9,810				8,336
Gains (losses) on marketable securities and other investments, net						(12,254	)			253
Loss from continuing operations before income taxes						(138,419	)			(86,059	)
Income tax benefit						(36,263	)			(25,818	)
Net loss from continuing operations						(102,156	)			(60,241	)
Discontinued operations, net of income taxes (Note 6):
	Net income from Quicken Loans discontinued operations					9,729				—
	Gain on disposal of Quicken Loans discontinued operations					—				5,556
Net income from discontinued operations						9,729				5,556
Net loss					$	(92,427	)		$	(54,685	)
Basic and diluted net loss per share from continuing operations					$	(0.48	)		$	(0.29	)
Basic and diluted net income per share from discontinued operations						0.04				0.03
Basic and diluted net loss per share					$	(0.44	)		$	(0.26	)
Shares used in basic and diluted per share amounts						211,039				207,965

See accompanying notes.

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INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

						Three Months Ended
						October 31,
(In thousands; unaudited)						2001				2002
Cash flows from operating activities:
	Net loss from continuing operations					$	(102,156	)		$	(60,241	)
	Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
		Acquisition-related charges					41,081				9,455
		Amortization of purchased software					1,706				2,977
		Amortization of deferred compensation					633				634
		Charge for purchased research and development					—				7,789
		Depreciation					15,274				18,509
		Net (gains) losses from marketable securities and other investments					12,254				(253	)
		Loss on impairment of long-lived asset					27,000				—
		Loss on disposal of property and equipment					495				1,786
		Deferred income tax benefit					198				5,967
		Tax benefit from employee stock options					9,574				16,431
				Subtotal			6,059				3,054
		Changes in operating assets and liabilities:
			Customer deposits				5,542				(7,740	)
			Accounts receivable				(13,036	)			(4,430	)
			Income taxes receivable				—				(56,915	)
			Prepaid expenses and other current assets				(5,045	)			14,642
			Accounts payable				14,576				3,616
			Accrued compensation and related liabilities				(8,403	)			(13,912	)
			Payroll service obligations				(5,538	)			7,736
			Deferred revenue				2,205				(377	)
			Income taxes payable				(38,196	)			(442	)
			Other current liabilities				1,977				(471	)
			Total changes in operating assets and liabilities				(45,918	)			(58,293	)
			Net cash used in operating activities				(39,859	)			(55,239	)
Cash flows from investing activities:
	Change in other assets						1,453				(2,292	)
	Purchases of property and equipment						(14,276	)			(27,747	)
	Proceeds from the sale of marketable securities						1,157				—
	Purchases of short-term investments						(347,531	)			(279,300	)
	Liquidation and maturity of short-term investments						418,603				569,687
	Acquisitions of businesses, net of cash acquired						—				(171,742	)
	Purchases of long-term investments, net						(894	)			—
			Net cash provided by investing activities				58,512				88,606
Cash flows from financing activities:
	Change in notes payable						372				(126	)
	Net proceeds from issuance of common stock						22,019				43,328
	Purchase of treasury stock						(21,137	)			(300,349	)
			Net cash provided by (used in) financing activities				1,254				(257,147	)
Net cash provided by (used in) discontinued operations							(18,500	)			97,187
Effect of foreign currency translation							(660	)			(318	)
Net increase (decrease) in cash and cash equivalents							747				(126,911	)
Cash and cash equivalents at beginning of period							94,301				435,087
Cash and cash equivalents at end of period						$	95,048			$	308,176

See accompanying notes.

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

1. Summary of Significant Accounting Policies

Basis of Presentation

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

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

Use of Estimates

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

Net Revenue

We derive revenues from the sale of packaged software products and supplies, product support, professional services, outsourced payroll services and multiple element arrangements that may include any combination of these items. We recognize revenue for software products and related services in accordance with Statement of Position 97-2, “Software Revenue Recognition,” as modified by SOP 98-9. For other offerings, we follow Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectibility is probable.

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

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

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Product Revenue

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

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

Service Revenue

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

We also offer several plans under which customers pay for technical support. We recognize support revenue over the life of the plan, which is generally one year. Costs incurred for these support plans are included in cost of revenue.

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

Other Revenue

Other revenue consists primarily of royalties from advertising agreements. We typically recognize revenue pro rata based on the contractual time period. If collectibility is not considered probable, we recognize revenue when the royalty is collected.

Multiple Element Arrangements

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

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

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

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Shipping and Handling

We record the amounts we charge our customers for the shipping and handling of our software products as product revenue and we record the related costs as cost of products in our statement of operations.

Customer Deposits and Payroll Service Obligations

Customer deposits represent cash held on behalf of our payroll customers. Payroll service obligations also relate to our payroll business and consist primarily of payroll taxes we owe on behalf of our customers.

Goodwill, Purchased Intangible Assets and Other Long-lived Assets

We record goodwill when the purchase price of net tangible and intangible assets we acquire exceeds their fair value. In previous fiscal years, including fiscal 2002, we generally amortized goodwill on a straight-line basis over periods ranging from 3 to 5 years. However, in accordance with SFAS 142, “Goodwill and Other Intangible Assets,” we did not amortize goodwill for acquisitions completed after June 30, 2001, and effective August 1, 2002 we no longer amortize goodwill for acquisitions completed before July 1, 2001. See “Recent Pronouncements” below for more information. We amortize the cost of identified intangible assets on a straight-line basis over periods ranging from 1 to 10 years.

We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. We look for facts or circumstances, either internal or external, that indicate that we may not recover the carrying value of the asset. We measure impairment loss related to long-lived assets based on the amount by which the carrying amounts of such assets exceed their fair values. Our measurement of fair value is generally based on an analysis of the present value of estimated future discounted cash flows. Our analysis is based on available information and reasonable and supportable assumptions and projections. The discounted cash flow analysis considers the likelihood of possible outcomes and is based on our best estimate of projected future cash flows. If necessary, we perform subsequent calculations to measure the amount of the impairment loss based on the excess of the carrying value over the fair value of the impaired assets.

In June 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets.” In October 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We implemented both SFAS 142 and SFAS 144 on August 1, 2002. See “Recent Pronouncements” below for more information.

Stock-Based Incentive Program

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

Concentration of Credit Risk and Significant Customers and Suppliers

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

We are also subject to risks related to changes in the values of our significant balance of short-term investments as well as risks related to the collectibility of our trade accounts receivable. Our portfolio of short-term investments

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

We sell a significant portion of our products through third-party retailers and distributors. As a result, we face risks related to the collectibility of our trade accounts receivable. To appropriately manage this risk, we perform ongoing evaluations of customer credit and limit the amount of credit extended as we deem appropriate but generally do not require collateral. We maintain reserves for estimated credit losses and these losses have historically been within our expectations. However, since we cannot necessarily predict future changes in the financial stability of our customers, we cannot guarantee that our reserves will continue to be adequate.

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

In connection with the sale of our Quicken Loans mortgage business in July 2002, we agreed to continue providing to the purchasing company a line of credit of up to $375.0 million to fund mortgage loans for a transition period of up to six months. The line is secured by the related mortgage loans and had an outstanding balance of $245.6 million at July 31, 2002 and $180.1 million at October 31, 2002. The line expires on January 31, 2003. As part of the consideration for the sale of the business, we also held a five-year promissory note in the principal amount of $23.3 million from the purchasing company. The note was repaid in October 2002. See Note 6.

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

Recent Pronouncements

On June 29, 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 supercedes APB Opinion No. 17, “Intangible Assets,” and provides that goodwill and other intangible assets that have an indefinite useful life will no longer be amortized. However, these assets must be reviewed for impairment at least annually or more frequently if an event occurs indicating the potential for impairment. The shift from an amortization approach to an impairment approach applies to all acquisitions completed after June 30, 2001. We adopted the remaining elements of this new standard in the first quarter of fiscal 2003 and therefore ceased amortizing goodwill for acquisitions made prior to July 1, 2001. However, it is possible that in the future we may incur impairment charges related to the goodwill already recorded and to goodwill arising out of future acquisitions. In addition, we will continue to amortize our purchased intangible assets and to assess those assets for impairment as appropriate.

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

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

			Three Months Ended
			October 31,				October 31,
(In thousands, except per share amounts)			2001				2002
Net loss
	Net loss, as reported		$	(92,427	)		$	(54,685	)
	Goodwill and assembled workforce amortization, net of income taxes			22,235	*			—
	Pro forma net loss		$	(70,192	)		$	(54,685	)
Net loss per share
	Basic and diluted — as reported		$	(0.44	)		$	(0.26	)
	Basic and diluted — pro forma			(0.33	)			(0.26	)

*

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

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

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

2. Short-Term Investments

The following schedule summarizes the estimated fair value of our short-term investments as of the dates indicated:

		July 31,				October 31,
		2002				2002
(In thousands)
Corporate notes		$	24,405			$	19,387
Municipal bonds			780,914				503,593
U.S. government securities			10,023				—
		$	815,342			$	522,980

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The following table summarizes the estimated fair value of our available-for-sale debt securities held in short-term investments classified by the stated maturity date of the security:

		July 31,				October 31,
		2002				2002
(In thousands)
Due within one year		$	230,716			$	188,670
Due within two years			141,942				91,994
Due within three years			—				5,284
Due after three years			442,684				237,032
		$	815,342			$	522,980

3. Goodwill and Intangible Assets

Changes in the carrying value of goodwill by reportable segment during the first quarter of fiscal 2003 were as follows:

		Balance				Transfer												Balance
		July 31,				Assembled				Goodwill								October 31,
(In thousands)		2002				Workforce				Acquired				Other				2002
Employer Services		$	153,216			$	1,289			$	—			$	—			$	154,505
Other Small Business Products and Services			5,979				88				150,548				—				156,615
Consumer Tax			3,308				—				—				—				3,308
Professional Accounting Solutions			90,079				428				—				—				90,507
Vertical Business Management Solutions			171,520				—				—				610				172,130
Global Business			4,846				95				—				(600	)			4,341
		$	428,948			$	1,900			$	150,548			$	10			$	581,406

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Purchased intangible assets consisted of the following at the dates indicated:

						July 31,				October 31,
		Life in Years				2002				2002
(In thousands)
Customer lists			3-7			$	144,379			$	144,541
Less accumulated amortization							(75,317	)			(82,218	)
							69,062				62,323
Purchased technology			1-7				121,763				134,984
Less accumulated amortization							(79,894	)			(82,871	)
							41,869				52,113
Trade names and logos			1-10				16,555				16,567
Less accumulated amortization							(6,908	)			(7,664	)
							9,647				8,903
Covenants not to compete			3-5				7,399				7,420
Less accumulated amortization							(4,403	)			(4,763	)
							2,996				2,657
Assembled workforce			2-5				4,458				—
Less accumulated amortization							(2,558	)			—
							1,900				—
Total intangible assets							294,554				303,512
Total accumulated amortization							(169,080	)			(177,516	)
Total net intangible assets						$	125,474			$	125,996

Purchased technology increased by approximately $13.2 million in the first quarter of fiscal 2003 due to our acquisition of Blue Ocean Software, Inc. See Note 5.

We summarize the following expenses on the acquisition-related charges line of our statement of operations:

			Three Months Ended
			October 31,				October 31,
			2001				2002
(In thousands)
Amortization of goodwill			$	32,743			$	—
Amortization of purchased intangible assets				6,795				7,893
Amortization of acquisition-related deferred compensation				1,543				1,562
	Total acquisition-related charges		$	41,081			$	9,455

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At October 31, 2002, we expected annual amortization of our purchased intangible assets by fiscal year to be as shown in the following table. Future acquisitions could cause these amounts to increase.

			Expected
			Amortization
(Dollars in thousands)			Expense
Fiscal year ending July 31,
2003			$	43,908
2004				28,159
2005				21,031
2006				17,524
2007				12,756
Thereafter				13,416
	Total expected future amortization expense		$	136,794

4. Comprehensive Net Income (Loss)

SFAS 130, “Reporting Comprehensive Income,” establishes standards for reporting and displaying comprehensive net income (loss) and its components in stockholders’ equity. SFAS 130 requires the components of other comprehensive income (loss), such as changes in the fair value of available-for-sale securities and foreign translation adjustments, to be added to our net income (loss) to arrive at comprehensive net income (loss). Other comprehensive income (loss) items have no impact on our net income (loss) as presented in our statement of operations.

The components of accumulated other comprehensive income (loss), net of income taxes, were as follows:

			Marketable				Short-term				Foreign Currency
(In thousands)			Securities				Investments				Translation				Total
Three months ended October 31, 2001
Beginning balance, net of income taxes			$	23,958			$	4,686			$	(464	)		$	28,180
Unrealized loss, net of income tax benefits of $16,451 and $534				(24,677	)			(802	)			—				(25,479	)
Reclassification adjustment for realized gain included in net loss, net of income tax benefit of $71				(106	)			—				—				(106	)
Translation adjustment				—				—				(759	)			(759	)
	Other comprehensive loss			(24,783	)			(802	)			(759	)			(26,344	)
Ending balance, net of income taxes			$	(825	)		$	3,884			$	(1,223	)		$	1,836
Three months ended October 31, 2002
Beginning balance, net of income taxes			$	(4,845	)		$	2,058			$	(888	)		$	(3,675	)
Unrealized gain, net of income tax provision of $4,262				6,393				—				—				6,393
Unrealized loss, net of income tax benefit of $790				—				(1,184	)			—				(1,184	)
Translation adjustment				—				—				(158	)			(158	)
	Other comprehensive income (loss)			6,393				(1,184	)			(158	)			5,051
Ending balance, net of income taxes			$	1,548			$	874			$	(1,046	)		$	1,376

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

		Three Months Ended
		October 31,				October 31,
		2001				2002
(In thousands)
Net loss		$	(92,427	)		$	(54,685	)
Other comprehensive income (loss), net of income taxes			(26,344	)			5,051
Comprehensive net loss, net of income taxes		$	(118,771	)		$	(49,634	)

5. Acquisition

On September 13, 2002, we acquired all of the outstanding stock of Blue Ocean Software, Inc. for approximately $177.3 million in cash. We paid $16.5 million of the purchase price into a third party escrow account, to be held for a maximum of 18 months pending the finalization of certain financial calculations that may affect the purchase price.

Blue Ocean offers software solutions that help businesses manage their information technology resources and assets. We acquired this company as part of our Right for My Business strategy to offer business solutions that go beyond accounting software to address a wider range of management challenges that small businesses face. Blue Ocean became part of our Other Small Business Products and Services business segment.

With the assistance of a professional valuation services firm, we made a preliminary allocation of the purchase price during the first quarter of fiscal 2003. We do not expect that any adjustments to the purchase price or the purchase price allocation will be material. We allocated approximately $13.2 million of the purchase price to purchased technology and $150.5 million to goodwill. In addition, $7.8 million was allocated to in-process research and development and charged to expense in the first quarter of fiscal 2003. The purchased technology is being amortized over six years. None of the goodwill acquired in this transaction will be deductible for income tax purposes. Blue Ocean’s results of operations from September 14, 2002 forward were included in our results of operations and were not material.

The preliminary purchase price allocation for the Blue Ocean acquisition was as follows:

			Purchase
			Price
			Allocation
(In thousands)
Tangible assets			$	19,738
Deferred revenue				(6,694	)
Other tangible liabilities				(7,013	)
In-process research and development				7,789
Purchased technology				13,220
Goodwill				150,548
Acquisition costs				(271	)
	Total purchase price		$	177,317